TMI Blog2012 (9) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... l. - Tax Case (Appeal) No.1145 of 2006 and TCMP.No. 1599 of 2006 - - - Dated:- 13-9-2012 - Mrs. CHITRA VENKATARAMAN Mr. K.RAVICHANDRABAABU JJ. For Appellant: Mr. V.S. Jayakumar For Respondent: Mr. T. Ravikumar JUDGMENT CHITRA VENKATARAMAN, J. The assessee is on appeal as against the order of the Tribunal. The assessment year under consideration is 1996 97. Following are the questions of law raised for consideration in the above Tax Case (Appeal):- 1. Whether the Tribunal was right in disallowing depreciation on sale and lease back contracts and lease contracts with regard to five companies when the requirements of Section 32 (1) had been satisfied ? 2. Whether the Tribunal was justified in disallowing depreciation with regard to these contracts on grounds that the supplier of the material was not traceable or for other technical reasons ignoring the facts that clearly indicate that requirements of Section 32 had been satisfied? and 3. Whether the Tribunal was right in holding that the valuation of assets is leased in the case of M/s. Sanghi Textiles Ltd. M/s. Enterprising Enterprises and M/s. Patheja Forgings Auto Parts Mfg. Ltd. are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17000000 7. NEPC Micon Ltd 100000000 24035144 100 25.5.95 19250000 100000000 8. Patheja Forgings 50000000 32114006 25 12.5.95 9625000 12500000 9. Sanghi Textiles 50000000 25000010 100 12.5.95 9625000 50000000 Total 304228558 95140757 55083813 254963662 ANNEXURE - B - LEASE TRANSACTIONS SL.No. Lessee Supplier Interest componet Amount Date recitation(%) Dep Lease rentals Depn. Disallowed 1. IPCA Laboratory Rupa Construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale and lease back transactions as not a genuine sale and lease back transactions and thereby disallowed the depreciation claim. So too, in the case of lease transactions the Officer held that they were not genuine transactions and considered them as mere finance transactions. Thus, the claim of depreciation was also rejected. On appeal, the Commissioner of Income Tax (Appeals) allowed the depreciation on certain assets in Schedule 'A' as lease transaction and disallowed the depreciation in Schedule 'B' transactions. As far as the present Tax Case (Appeal) is concerned, the Commissioner of Income Tax (Appeals) disallowed the claim of the assessee in respect of the all the following transactions:- SALE AND LEASE BACK TRANSACTION (1) Sanghi Textiles Liited DIRECT LEASE TRANSACTION (1) MID -EAST INTEGRATED STEEL LIMITED (2) VICTORY GLASS AND INDUSTRIES LIMITED (3) H.K. DATAREX LIMITED (4) SITAPUR PLYWOOD LIMITED (5) GSL INDIA LIMITED 5. The Tribunal confirmed the order of the Commissioner of Income Tax (Appeals) hence, the present appeal by the assessee. The transactions mentioned above are under consideration before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conclusion that in the name of lease and sale and lease back transactions, the assessee had merely provided working capital requirements and not for acquiring any new assets. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals). The first Appellate Authority pointed out that the assessee had filed copy of the lease agreement, sale agreement and copies of invoices. According to a report received from the Officer having jurisdiction over the seller / lessee, the assets leased for a financial consideration of ₹ 5 crores were valued at ₹ 1,54,00,000/- by the Departmental valuer as on 31.12.1992. The valuation report obtained by the assessee on 27th March 1996 showed the value of the assets at ₹ 5,19,40,000/-. The first Appellate Authority viewed that there was no proper description, hence the same had to be rejected as self serving document. Pointing out to the vast difference between the purchase value and the lease back value, the Commissioner of Income Tax (Appeals) held that the transactions was purely one of a financial one. Thus, he rejected the case of the assessee. Aggrieved by this, the assessee went on appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lessee and the value at which it had been sold in lease back transaction. On the admitted fact the machines were purchased and erected 15 years back by the lessee company, it is difficult for this Court to accept the case of the assessee that the document produced by the assessee would substantiate the claim as regards the genuineness of the transactions. In the circumstances, we confirm the order of the Tribunal. 10. The second transaction is relating to Mid East Integrated Steels Limited. It is a case of sale and lease back transaction. A reading of the order of the Assessing Officer in this regard shows that the assessee claimed depreciation of ₹ 4,04,00,000 on assets, turbines for turbo generators, stated to have been acquired from M/s.Kirloskar Oil Engines Limited and leased out by the assessee to Mid East Integrated Steels Limited. The assessee filed copies of the invoices said to have been issued by Kirloskar Oil Engines Limited and valuation report from a Chartered Engineer. It is stated that there was a search in the premises of the lessee on 26.2.1997. The seized documents revealed that the lessee had obtained a loan of ₹ 4,04,00,000 from First Leasing C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having purchased machinery from Kirloskar Oil Engines Limited. The assets were not identified and rightly the authorities below rejected the claim of the assessee for depreciation. 12. As far as this particular claim is concerned, learned counsel for the assessee pointed out to the invoice raised by Kirloskar Oil Engines Limited in the name of the assessee company, wherein the name of the lessee company was mentioned as a consignee and a suit filed before this Court in C.S.No. 876 of 1999 for mandatory injunction directing the defendant, lessee herein to forthwith procure an invoice from Kirloskar Oil Engines Limited for the sale of two wind turbines in favour of the assessee, wherein this Court by judgment dated 26.8.2002 decreed the suit in favour of the assessee, only to substantiate its contention that the assessee had infact leased out the machineries to the lessee. 13. As far as the judgment passed in C.S.No. 876 of 1999 is concerned, a reading of the same shows that in the said suit for mandatory injunction directing the defendant, lessee herein to forthwith procure an invoice from Kirloskar Oil Engines Limited for the sale of two wind turbines described in the schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee/ lessor, exact present location of the equipment/ machinery, evidence for transportation of the plant and machinery to the site, proof including installation report if any for installation of machinery at the lesee's premises, date of installation of the machinery, copy of the accounts of assessee company in the book of accounts for the period 1.4.95 to 31.3.96 and PAN and jurisdiction / Designation of Assessing Officer under the Income Tax Act. The Assessing Officer pointed out that there was no confirmation letter or correspondence on the installation certificate, evidence for transportation of the machinery from the supplier to the lessee filed in support of the contention. When the assessee merely filed copies of invoices and lease agreements, the same would not be sufficient to allow the claim of depreciation. In the circumstances, the Assessing Officer rejected the assessee's case. On appeal, the Commissioner of Income Tax (Appeals) pointed out that enquiries made by the Assessing Officer revealed that both the name of the supplier and address were unidentifiable. The letter addressed to the supplier to verify the transaction were returned unserved and it was indic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se said to have been given in favour of H.K.Datarax Limited is concerned, the Assessing Authority pointed out that a letter of inquiry was sent to the supplier to furnish the details of copies of invoices, delivery challan issued to the lessee/ lessor, exact present location of the equipment/ machinery, evidence for transportation of the plant and machinery to the site, proof including installation report if any for installation of machinery at the lesee's premises, date of installation of the machinery, copy of the accounts of assessee company in the book of accounts for the period 1.4.95 to 31.3.96 and PAN and jurisdiction / Designation of Assessing Officer under the Income Tax Act. The letter addressed to the supplier Silicon Specialities was returned unserved by postal authorities. Departmental enquiries revealed that no such company ever existed in the vicinity in the recent past. In the circumstances, the claim of the assessee was rejected. The reasoning given by the Officer was similar to that of what had been given in respect of previous case Victory Glass and Industries Limited. On appeal, the first Appellate Authority pointed out that the assessee could not file any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to furnish copies of invoices, delivery challan issued to the lessee/ lessor, exact present location of the equipment/ machinery, evidence for transportation of the plant and machinery to the site, proof including installation report if any for installation of machinery at the lesee's premises, date of installation of the machinery, copy of the accounts of assessee company in the book of accounts for the period 1.4.95 to 31.3.96 and PAN and jurisdiction / Designation of Assessing Officer under the Income Tax Act. The letter addressed to the Assam Solvex was returned unserved by postal authorities. Though the invoice was dated 19.11.1994, the assets are insured on 14.4.95. The factory was no longer in existence at the end of 1996. The Officer pointed out that the supplier was engaged in the business of extracting vegetable oils and manufacture of plywood products like packaging materials and never engaged in the business of manufacture of items mentioned in the invoice and that there was no document available to verify the genuineness of the transaction. In the circumstances, the Assessing Officer rejected the claim of the appeal. On appeal before the Commissioner of Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Officer to find out whether there had been any reality consideration passing from the assessee to the said suppliers. In the absence of proof of suppliers and there being no attempt on the part of the assessee to establish the said fact that there was in fact a sale in its favour, rightly, the authorities rejected the case of the assessee. Mere production of lease agreement and copies of invoices indicating alleged sale in favour of the assessee would not be a sufficient ground to grant the relief. A perusal of the documents relied on by the assessee clearly show that the assessee could not in any manner substantiate its case that there had been purchase of machineries for the purpose of effecting lease in favour of the lessees. As rightly pointed out by the authorities below, the transactions were purely financial transactions and they were given the name of the lease transactions through the lease agreements. There being no error in the reasoning given by the Tribunal, we have no hesitation in rejecting the case of the assessee, thereby confirming the order of the Tribunal. 23. In the result, the above Tax Case (Appeal) is dismissed. No costs. Consequently, connected ..... X X X X Extracts X X X X X X X X Extracts X X X X
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