TMI Blog2016 (1) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... hearing. Page 53 thereof reveals that the very air pollution control equipment was found during the course of search. We observe on the basis of these facts and evidence that the assessee has been able to prove genuineness of its depreciation claim qua the air pollution control equipment in question leased out to M/s Rajendra Steels Ltd, Kanpur. The Revenue’s argument accordingly are declined. We affirm the CIT(A)’s findings extracted hereinabove granting depreciation relief to assessee. The Revenue’s second substantive ground fails. This failure of Revenue’s second substantive ground renders entire reassessment unsustainable in law. All other disallowances/additions of loss on shares and investments and that of depreciation are deleted as a necessary corollary. Section 271(1)(c) penalty relating to depreciation claim hereinabove is allowed since the main disallowance/addition does not survive. - Decided in favour of assessee. - ITA No. 3465/Ahd/2004, ITA No.3386/Ahd/2004, ITA No.2342/Ahd/2006, ITA No.3416/Ahd/2008 - - - Dated:- 30-11-2015 - Pramod Kumar, AM And S. S. Godara, JM For the Appellant : Shri R K Gupta, Sr. DR For the Respondent : Shri S N Soparkar, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that assesse during the F.Y. 1995-96 corresponding to A.Y. 1996-97 purchased and leased the machinery (Air Pollution Control Equipment Fume Extraction Gum Scrubbing System) cost of ₹ 76,56,687.50 to Rajendra Group of Companies and claimed depreciation as deduction against its income in respect of machinery that either did not exist or the real worth of these machinery was only 10% to 20% of the value recorded in the books. In this way, the assessee has claimed bogus depreciation on non-existent machinery. Since the above amount of income has appears to be escaped from taxable income for A.Y. 1996-97, it is mandatory to issue notice u/s. 148 of the I.T. Act to cover the above income and tax the same. Accordingly, a notice u/s. 148 is therefore issued to the assessee for this purpose. 5. The Assessing Officer took up re-assessment. He noticed in courses thereof a business loss claimed on sale of investments of ₹ 74,78,000/-. He would disallow the same in impugned reassessment framed on 28-03-2002. The other head of disallowance was of depreciation on sold and leased back assets of ₹ 2,10,20,315/- comprising of depreciation claim on purchase and leased back ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in ITA No.222/ASR/2014 decided on 11-06-2015 is quoted in support. The Revenue s arguments strongly back the lower appellate findings under challenge qua this issue. 8. We have heard rival contentions. There is no dispute that the Assessing Officer reopened a regular assessment framed in this case only on the issue of depreciation claim of ₹ 38,44,244/- @ 50% of the cost of Air pollution control equipment fume extraction gum scrubbing system costing ₹ 76,56,687.50/- purchased and leased back to M/s. Rajendra Steels Ltd. Kanpur. His reassessment framed on 28-03-2002 resulted in two other disallowances of sale on shares of ₹ 74,78,000/- and the one pertaining to depreciation of ₹ 1,71,92,701/- (supra). The CIT(A) has revered Assessing Officer s action on the issues of depreciation claim of ₹ 38,44,244/- and loss hereinabove. The question that arises for our consideration in these circumstances is as to whether the entire reopening has to be quashed on assessee s legal plea in case we affirm CIT(A) s findings on the sole reason of reopening on merits or not. We seek guidance from the above stated case law in deciding this question. The hon ble juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower appellate order deleting depreciation disallowance forming sole reason of reopening. 9. This leaves us with decision of the Amritsar bench of the tribunal (supra). The Assessing Officer in said case reopened assessment alleging assessee s loan repayment in favour of outgoing partners of a dissolved firm to be more than his income. He framed reassessment making additions under various other heads as well. The assessee preferred appeal challenging legality of reopening as well correctness of all additions. The CIT(A) inter alia rejected legal ground, deleted addition forming subject matter of reopening reasons as confirmed some of the additions over and above the reopening reason. The assessee preferred appeal against the said decision raising sole substantive ground that once the addition made on sole reason of reopening stood deleted, the entire reassessment itself was unsustainable. The Revenue did not come in appeal against lower appellate order indicated hereinabove. The ld. co-ordinate bench quotes case law of GKN Driveshafts vs. ITO (2003) 259 ITR 101 (SC) for observing that it is open for an assessee to object to reopening reason at the very first stage or during reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judication by the Assessing Officer is subject matter of legal scrutiny by the appellate, authorities in the course of the same appellate proceedings as against the reassessment order. The scheme of law, as laid down by the Hon'ble Supreme Court in GKN Driveshaft's case, thus provides for dual adjudication by the Assessing Officer on the correctness of the reasons recorded for reopening the assessment- one at the stage of dealing with the objections of the assessee prior to proceeding with the reassessment proceedings, and the other at the point of time when, during the reassessment proceedings, the Assessing Officer has to take a call on additions to be made in respect of these reasons. That is where there is a paradigm shift in the scheme of things post GKN Drivershaft decision. In a situation in which, during the reassessment proceedings, the Assessing Officer finds these reasons to be so incorrect that he concludes that no income has escaped the assessment and the additions on that count are unwarranted, the same should have been the position at the stage of adjudicating on the correctness of the reasons recorded in the pre-reassessment proceedings. In the latter procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification for taking these findings to its logical conclusions and, based on these uncontroverted findings, quash the reassessment itself. What held good for deleting the additions on the basis of the reasons recorded the assessment, on the fact of this case and in our humble understanding, was good enough to hold the reasons for reopening the assessment to be incorrect as well. We are unable to see any legally sustainable reasons to come to different conclusions. In our considered view, therefore, the CIT(A) ought to have quashed the reassessment as well. 20. In view of these discussions, and bearing in mind entirety of the case, we hold that the CIT(A) ought to have, on the peculiar facts and circumstances of the case, quashed the reassessment proceedings as well. We, therefore, quash the reassessment proceedings. As reassessment itself is quashed as above, nothing else survives for adjudication. It is accordingly been held that entire reopening as well as other additions not forming reopening reasons are not sustainable in the eyes of law in view of the fact that the one based on which reopening itself was initiated stands deleted. We revert back to facts of the insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there were no assets available at the premises of Rajender Steel Limited. In view of the following reasons the lease transactions as referred above are not considered as operating lease and therefore depreciation on such lease is not allowable. 3.1 The appellant's representative, before me, Shri N B Shah has strongly reiterated, the contents of the letter dated 4.2.2002 and 19.3.2002 and also the evidences produced before the AO during reassessment proceedings. The same have been reiterated in the course of hearing. It is pleaded that the said concern M/s. Rajendra Steels Limited has since gone into liquidation and the appellant company alongwith 18 other companies have taken up the matter before the High Court of Allahabad for winding up of the company. It has also been prayed as per the said petition No. Company Application No. 2000 u/s. 446(2) of the Companies Act, 1956 before the Hon'ble High Court of Allahabad taken up in January, 2001 that a direction be given to the Official Liquidator, to give back the possession of the leased assets to the respective lessors. It is further submitted by Shri Shah in his submissions that all supporting evidences including t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication report is at page 203. We confronted ld. department representative with all these overwhelming evidence. He sought time to produce the search inventory. The same stands submitted in the courses of hearing. Page 53 thereof reveals that the very air pollution control equipment was found during the course of search. We observe on the basis of these facts and evidence that the assessee has been able to prove genuineness of its depreciation claim qua the air pollution control equipment in question leased out to M/s Rajendra Steels Ltd, Kanpur. The Revenue s argument accordingly are declined. We affirm the CIT(A) s findings extracted hereinabove granting depreciation relief to assessee amounting to ₹ 38,28,244/-. The Revenue s second substantive ground fails. We refer to our detailed findings hereinabove in preceding paragraphs and hold that this failure of Revenue s second substantive ground renders entire reassessment unsustainable in law. All other disallowances/additions of loss on shares and investments of ₹ 74,78,000/- and that of depreciation amounting to ₹ 1,71,92,701/- (supra) are deleted as a necessary corollary. The Revenue s appeal 3465/Ahd/2004 for ..... 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