TMI Blog2007 (2) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... al High Court in the case of Sedco Forex International Drilling Co. Ltd.[ 2003 (10) TMI 40 - UTTARANCHAL HIGH COURT] . We order accordingly. Disallowance of depreciation on sale and lease back of assets - HELD THAT:- We have also taken into consideration the decision of the CIT(A) and found that the ld. CIT(A) has gone on the basis of general presumption that the assets were leased out to the bank just to secure the amount given on loan otherwise there was no occasion to sale and lease back transaction with the bank. The CIT(A) has considered various aspects and confirmed the findings of the Assessing Officer that the transactions were non-genuine as they were colourable just to reduce the tax burden by claiming higher depreciation. The CIT(A) has not taken into consideration the aspect that the assessee is in regular leasing business and about 7000 transactions had been entered into by the assessee with various parties for sale and lease back. The assessee who is a banking corporation was maintaining all the records in regard to each and every item, proper Profit Loss A/c is maintained. All the details were furnished and not a single was detected by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly at the time of filing of appeal, therefore, the summarized grounds may be taken into consideration. 5. Ground 1A is against disallowance under Rule 6D at Rs. 1,47,165. 6. It has been stated in the chart that this issue has to be decided against the assessee in view of the decision of the Bombay High Court in the case of CIT v. Aorow India Ltd. [1998] 229 ITR 325. Therefore, the same is decided against the assessee. 7. Ground 2B is against disallowance under section 37(2A) at Rs. 3,84,986. 8. This issue has to be decided against the assessee, as the same was not pressed during the course of hearing. Accordingly, this ground is dismissed. 9. Ground 3C is against disallowance of earlier year's expenditure at Rs. 18,94,929. 10. Similar addition was made and upheld by the CIT(A) in earlier years. The Tribunal while deciding the appeal for assessment years 1992-93 to 1994-95, 1996-97 and 1997-98 has allowed similar ground. Therefore, we direct the Assessing Officer to modify his order in this regard in view of the decision of the Tribunal for earlier years as well as subsequent year. 11. Ground 4D is against disallowance of capital expenditure at Rs. 3,08,357. 12. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay High Court in the case of CIT v. General Insurance Corpn. of India (No. 1)[2002] 254 ITR 203 and in the case of State Bank of Indore v. CIT [2005] 275 ITR 23 (MP). On the other hand, the ld. DR placed reliance on the orders of the authorities below. 21. After considering the submissions and perusing the material on record we find that this issue is covered by the decision of the Bombay High Court in the ease of Emerald Co. Ltd. wherein it has been held: "that the interest on the overdraft and the expenses were related to the business of trading in shares and ought to be allowed as computed income under the head "business". The said expenses could not once again be deducted from the dividend income for the limited purpose of computing the deduction under section 80M of the Act. There was no statutory provision requiring the Assessing Officer to deduct the same expenses under the different heads of income. Since the income by way of dividend included in the gross total income was Rs. 1,34,984 the deduction under section 80M had to be granted with reference to the said amount of Rs. 1,34,984." 22. In view of the decision of the Bombay High Court, we are of the view that no di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that on similar circumstances the High Court has held that interest under section 234B cannot be charged. Since no decision has been given by the CIT(A) on merit, therefore, we set aside this issue to the file of the ld. CIT(A) to decide the same afresh on merit after affording opportunity of being heard to the assessee and after taking into consideration the provisions of law as well as the decision of the Hon'ble Uttaranchal High Court in the case of Sedco Forex International Drilling Co. Ltd. We order accordingly. 27. The remaining grounds i.e. ground Nos. 13M and 14N, which relates to disallowance of depreciation on sale and lease back of assets (SLB) to Gujarat Electricity Board (GEB) and Rajasthan State Electricity Board (RSEB) and on other assets leased during the year under consideration respectively. 28. Since both these grounds are inter-linked, therefore, for the sake of convenience, they are disposed of together. 29. Briefly stated facts of the case are that during the course of assessment proceeding, the Assessing Officer noticed that the assessee has claimed depreciation of Rs. 2,78,46,90,877 by filing return of income. In the revised statement, depreciation cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the year under consideration. After considering the details and submissions, the CIT(A) found that the assessee is not entitled to any depreciation under section 32 as the assets are not owned by it but was for the purpose of security against loan given to parties in the course of financing transactions. Accordingly, the Assessing Officer was directed to disallow the claim of depreciation on other items claimed during the year under consideration. 30. Firstly, the ld. AR who appeared before the Tribunal reiterated the contentions raised before the lower authorities. Thereafter, the ld. counsel Shri S.E. Dastur, Sr. Advocate stated that though there is a decision of the Special Bench of the Tribunal in the case of Mid East Portfolio Management Ltd. v. Dy. CIT [2003] 87 ITD 537 (Mum.), where the assessee was also one of the parties and the Special Bench, has decided the issue against the assessee but the Hon'ble Rajasthan High Court in the case of CIT v. Rajasthan State Electricity Board [2006] 160 Taxman 19 has held that transactions entered into between RSEB with ICICI Bank (the assessee) are genuine and the lease rental paid by RSEB has to be allowed as deduction. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SLP against the decision of the Bombay High Court has been dismissed by the Supreme Court. Attention of the Bench was also drawn on the copy of the order placed in the paper book. 30.1 It was further submitted that over 50 per cent of the total capital is held by the financial institution and UTI. The assessee-company is not a private company of few persons. This is a Banking company, where public are substantially interested. Therefore, it is not so simple to say that the assessee-company was indulging collusive transaction with various parties including Government institutions i.e. GEB and RSEB. The assessee is the owner of the assets, which were leased out, and there should not be no dispute in respect of genuineness of transaction with GEB and RSEB as they have confirmed this fact. Both the Boards were paying lease rent regularly and the same has been offered for taxation. It was further submitted that from the day one the assessee's stand is that these are lease agreements, however, the department is saying that these are loan agreements. Neither there is any evidence nor there is any other information with the department to treat these transactions as loan. It was further s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lac Paints Ltd. [1991] 188 ITR 1 (Bom.). 30.3 In reply, the ld. counsel of the assessee again explained the facts once again and stated that there was a constructive delivery in the present case and after the decision of the Mid-East Portfolio Management Ltd.'s case and the decision in Avasarala Automation Ltd.'s case there are further developments as now the Hon'ble Rajasthan High Court who after taking into consideration the decision of Special Bench in the case of Mid-East Portfolio Management Ltd. held that these transactions are genuine. The various Benches of the Tribunal have taken a contrary view to the view taken in the case of Mid-East Portfolio Management Ltd. Therefore, rule of consistency is in favour of the assessee because in subsequent developments similar issue has been decided in favour of the assessee. 31. We have heard rival submissions and considering them carefully. We have also perused all the relevant material on which our attention were drawn by the respective parties along with various case laws relied upon. 32. The ld. Departmental representative has strongly stated that the issue has already been decided by the Special Bench in which the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hati High Court that actual delivery does not mean physical possession of the assets. The symbolic delivery has taken place as per the agreement. It is a valid delivery/sale as per that the definition of the delivery of goods in section 33 of Sale of Goods Act, 1930. After observing these observations, the Hon'ble High Court has held that the assessee's Board and lessor with various companies had entered into a genuine agreement. Accordingly, the claim of the assessee was allowed by the Hon'ble High Court. 32.3 The ld. counsel has rightly placed reliance on Explanation 4A(2) section 43(1) of the Act, Board circular No. 762 dated 18-2-1998 reported in 230 ITR 12, 31 ST that this Explanation was introduced in order to curb the higher claim of depreciation by the lessor. In order to curb such transaction, an amendment had been made to deal with a case where the assets had been sold and acquired by any assessee by way of hire, lease or otherwise. In such a case the actual cost for the purpose of deduction of depreciation allowance shall be taken to the written down value at the time of transaction of the assets in the hands of the seller but subsequently acquired the assets by the wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision in case of McDowell Co. Ltd. have considered. Thereafter in case of Azadi Bachao Andolan the Hon'ble Supreme Court has approved the decision of the Madras High Court. Therefore, with utmost respect regarding the decision of the McDowell Co. Ltd.'s case, we are of the considered view that in each and every case it cannot be said that the transactions are malafidely and are not genuine, therefore, the depreciation should not be allowed to the assessee. In the present case the transactions were entered into with Electricity Boards and these Boards are Government bodies, therefore, there cannot be any scope for collusion. 32.6 The Hon'ble Calcutta High Court in case of Competent Authority v. Smt. Bani Roy Chowdhury [1981] 131 ITR 578 has held that: "where the transferor or transferee is the Government or a statutory body, there cannot be any scope for such collusion between the parties. The untrue statement about the agreed consideration is made only for the purpose of the evasion of tax. When the Government or statutory body is a party to the transfer, the question of evasion of tax does not arise. If the presumption under clause (b) of section 269C(2) is applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a general opinion at the end of Assessing Officer and again at the end of the ld. CIT(A) that the transactions are not genuine either on the facts of the present case or in the eyes of the law, in our considered view that the formation of general opinion cannot be approved. 32.10 The ld. counsel of the assessee has invited our attention on some of the clauses of the agreements, which were similar to the clause of the agreement before the Hon'ble Bombay High Court in case of Developmental Credit Bank Ltd.. We have seen these clauses and found that these are similar clauses in case of Developmental Credit Bank Ltd. Therefore, we are of the considered view that both the lower authorities were not justified in rejecting these agreements and holding that there was colourable device to claim higher depreciation. 33. We have also taken into consideration various decisions of the Tribunal i.e. in case of West Coast Paper Mill Ltd v. Jt. CIT [IT Appeal No. 2154 (B) of 1999 (Mum.)], in case of Invest Well Publishers (P.) Ltd., and in case of Investment Trust of India Ltd. and found that the ratio of these decisions are squarely applicable on the present case. In these cases also the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in case of H.D.F.C. has been considered. 35. In a recent decision in case of Dy. CIT v. Global Tele System Ltd. [IT Appeal No. 1 085 (Mum.) of 1998 vide order dated 30-11-2006] has allowed the claim of the assessee by dismissing the appeal of the Department. In that case also the assessee claimed depreciation of Rs. 3.42 crores on Surface Banking Oven. These assets were sold by Tata Engineering and Locomotives Company to M/s. Classic Finance Services Enterprises for a consideration of Rs. 3.42 crore. M/s. Classic Finance Services made full payment of Rs. 3.42 crores to M/s. Telco and sold the same assets to M/s. Global Tele System under Hire Purchase agreement dated 20-6-1993. M/s. Global Tele System gave assets on lease to Telco under an agreement dated 27-9-1993. The assessee claimed depreciation at the rate of 100 per cent, however, Assessing Officer denied the claim of depreciation by holding that all these transactions are colour able to reduce the tax burden. The CIT(A) allowed the claim of the assessee. On further appeal, the Tribunal discussing the issue at great length and after considering the decision of the Mid-East Portfolio Management Ltd.'s case and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hown in the block of assets. Whenever these assets were taken back they were shown as taken back and whenever these assets were sold they were shown as sold. Insurance cover in respect of the items involved in these transactions is in the name of assessee. Any liability on account of insurance premium or on account of theft, damage etc. is on account of assessee. Therefore, merely on suspicion or conjectures, doubting that the transactions are entered into for claiming higher depreciation, in our considered view were not justified either at the end of the Assessing Officer or at the end of ld. CIT(A), who enhanced the disallowance on the entire transactions entered into in the year under consideration. In view of the above facts and the circumstances, we set aside the orders of the authorities below and direct the Assessing Officer to allow the claim of depreciation on all items claimed by the assessee. We order accordingly. 37. Now we will take up the appeal of the department in ITA No. 3535/Mum./99. 38. In ground No. 1, the department is objecting in deleting the addition of Rs. 1,47,165 made under section 6D relying on the order for assessment years 1988-89 to 1990-91. 39. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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