100% depreciation and colourable device claims require evidence; valid sale and lease back cannot be ignored for tax benefit alone.

A revisional finding under section 263 could not stand where plant and machinery used in sub-stations was reasonably covered by the 100 per cent depreciation entry for energy-saving or monitoring systems. The Court accepted that equipment such as circuit breakers, transformers, isolators, arrestors, control panels and capacitor banks formed part of an automatic electrical load monitoring system, so the assessee's depreciation claim was not erroneous. It also held that a sale and lease back arrangement could not be treated as a colourable device merely because it produced tax benefits; such a conclusion required supporting evidence, which was lacking. The matter was remanded only for factual determination of written down value and the exact depreciation admissible.

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Issues: (i) whether the depreciation claim on the plant and machinery purchased and leased back to the electricity board was covered by the category of energy saving devices eligible for 100 per cent depreciation, and whether the revisional order under section 263 of the Income-tax Act, 1961 was justified on that basis; (ii) whether the sale and lease back arrangement was a colourable device or sham transaction unsupported by legal evidence or material; (iii) whether the matter had to be remanded for determination of the written down value of the machinery for computing the exact depreciation admissible.

Issue (i): Whether the depreciation claim on the plant and machinery purchased and leased back to the electricity board was covered by the category of energy saving devices eligible for 100 per cent depreciation, and whether the revisional order under section 263 of the Income-tax Act, 1961 was justified on that basis.

Analysis: The relevant depreciation entry in the Rules covered instrumentation and monitoring systems for monitoring energy flows, including automatic electrical load monitoring systems. On the material placed before the Court, the plant and machinery in the sub-stations comprised equipment such as circuit breakers, transformers, isolators, arrestors, control panels and capacitor banks used for controlling, flow and monitoring of energy. The Court accepted that such machinery formed part of an automatic electrical load monitoring system and that the Commissioner's contrary view that the assessment was erroneous was not sustainable.

Conclusion: The claim was within the 100 per cent depreciation entry and the revision under section 263 on this ground was unjustified, in favour of the assessee.

Issue (ii): Whether the sale and lease back arrangement was a colourable device or sham transaction unsupported by legal evidence or material.

Analysis: A transaction valid in law cannot be disregarded merely because it may have tax-saving consequences. The Court held that a finding that the arrangement was a colourable device required supporting material or evidence showing that the real intention of the parties differed from the legal form adopted. The Commissioner and the Tribunal relied only on conjectures, suspicion and surmises, without legal evidence demonstrating that the transfer and lease back were not intended as they were documented.

Conclusion: The finding that the arrangement was a colourable device was unsustainable, in favour of the assessee.

Issue (iii): Whether the matter had to be remanded for determination of the written down value of the machinery for computing the exact depreciation admissible.

Analysis: Although the machinery was held to fall within the eligible energy-saving category, the exact quantum of depreciation depended on the written down value of the assets, which was a question of fact not finally determined by the Tribunal. The Court therefore invoked its appellate power to remit the factual issue for fresh determination.

Conclusion: The issue was remanded to the Tribunal for determination of the written down value and the exact admissible depreciation, in favour of the assessee to the extent of reopening the computation.

Final Conclusion: The revisional and appellate findings against the assessee on the main legal issues were set aside, but the matter was sent back only for factual determination of the written down value and the resultant depreciation quantum.

Ratio Decidendi: A revisional finding under section 263 cannot stand where the disputed depreciation entry is reasonably covered by the statutory rule and the conclusion of colourable device is unsupported by evidence; tax-saving motive alone does not justify treating an otherwise valid transaction as non est.

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