2012 (12) TMI 454 - HC - Income Tax

Court denies depreciation claim on leased assets, assessee lacks ownership evidence. Revenue wins appeal.

The High Court ruled in favor of the revenue, holding that the assessee was not entitled to claim depreciation on leased LPG cylinders and Air Jet Spindle ... Depreciation on leased out Air Jet Spindle Assembly and Positar Disc / leased out LPG cyclinders - held that:- it is only a case of the assessee financing the purchase of the cylinders; the lease rent constituting the compensation for the financing by the assessee of the transaction of purchase of the cylinders by Janta from Aravalli. The Tribunal, with respect, seems to have proceeded merely on the basis of the documentary evidence without putting it to rigorous examination in the light of the above aspects highlighted by the AO. In the case of LPG cylinders, the transaction was only a financing transaction and was not a lease as there is no material to show that the assessee became the owner of the cylinders and leased them to Janta; in the case of airjet spindles and positar disc, the very existence of the assets and the genuineness of the purchase of the assets by the assessee was not proved. In both the cases, therefore, the assessee was not entitled to depreciation. Decided in favor of revenue. Issues Involved:1. Depreciation on leased LPG cylinders2. Depreciation on leased Air Jet Spindle Assembly and Positar DiscIssue-wise Detailed Analysis:1. Depreciation on Leased LPG Cylinders:The primary issue was whether the assessee was entitled to claim depreciation on LPG cylinders leased out to Janta Gases Pvt. Ltd. The assessee claimed ownership and use of the cylinders in its business, fulfilling the conditions under Section 32 of the Income Tax Act, 1961. The AO rejected the claim, suspecting that the assessee merely financed the purchase by Janta, rather than owning the cylinders. The AO viewed the transaction as a colorable device to reduce taxable income.The CIT (A) reversed the AO's decision, accepting the assessee's documentary evidence and noting that adverse statements were not put to the assessee for cross-examination. The Tribunal upheld the CIT (A)'s decision, emphasizing the documentary evidence and the lack of opportunity for the assessee to cross-examine witnesses.However, the High Court found the concurrent findings of the CIT (A) and the Tribunal unreasonable. The Court noted that the order for the cylinders was placed by Janta, not the assessee, and Aravalli Cylinders Pvt. Ltd. denied receiving any authorization to sell to the assessee. The Court highlighted discrepancies, such as the incomplete address on the authorization letter and the lack of proof of receipt by Aravalli. The Court concluded that the assessee merely financed the purchase and did not own the cylinders, thus not qualifying for depreciation.2. Depreciation on Leased Air Jet Spindle Assembly and Positar Disc:The second issue concerned the depreciation claim on Air Jet Spindle Assembly and Positar Disc leased to Maruti Syntex (India) Ltd. The AO disallowed the claim, citing insufficient evidence of purchase and existence of the assets. The director of Rajaji Electronics Pvt. Ltd., from whom the assessee claimed to have purchased the assets, did not appear despite repeated summons. Maruti could not produce goods inward registers or details of transportation, further raising doubts.The CIT (A) allowed the claim, but the High Court found the decision lacking in independent reasoning. The Tribunal upheld the CIT (A)'s decision, relying on documentary evidence such as lease agreements and insurance policies. However, the High Court criticized the Tribunal for not rigorously examining the evidence in light of the AO's findings and the conduct of the parties.The Court emphasized that the burden of proof was on the assessee to establish ownership and use of the assets. The lack of cooperation from Rajaji and Maruti's inability to produce relevant records led the Court to conclude that the assessee failed to prove the existence and ownership of the assets, disqualifying it from claiming depreciation.Conclusion:The High Court answered both substantial questions of law in favor of the revenue, holding that the assessee was not entitled to claim depreciation on the leased LPG cylinders and Air Jet Spindle Assembly and Positar Disc. The appeal of the revenue was allowed with costs of Rs. 25,000.