Appeal Partly Allowed: Reassessment Ordered on Depreciation Disallowances; Depreciation Claim on Transactions Approved.

The ITAT Mumbai partly allowed the appeal, setting aside the CIT(A)'s findings on multiple disallowances of depreciation and directing the Assessing Officer to reassess the issues with fresh consideration of the evidence provided by the assessee. The ITAT allowed the depreciation claim on sale and leaseback transactions, aligning with established legal precedents. The levy of interest under section 234B was deemed consequential, pending reassessment outcomes.

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Issues Involved:
1. Disallowance of depreciation on assets leased to GEB and Prakash Industries.
2. Disallowance of depreciation on various leased assets due to supplier non-existence, supplier denial, and asset non-existence.
3. Disallowance of depreciation on transactions with GEB.
4. Disallowance of depreciation in sale and lease back transactions.
5. Levy of interest under section 234B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

Issue 1 & 2: Disallowance of Depreciation on Assets Leased to GEB and Prakash Industries
The assessee challenged the disallowance of depreciation amounting to Rs. 1,02,47,527 on assets leased to Gujarat Electricity Board (GEB) and Prakash Industries. The CIT(A) disallowed the depreciation following the decision for the assessment year 1993-94. The ITAT Ahmedabad Bench previously ruled that the CIT(A) was not justified in rejecting the claim of depreciation, directing the Assessing Officer to reassess the nature of transactions with GEB and Prakash Industries. Following this precedent, the ITAT Mumbai set aside the CIT(A)'s findings and remanded the issue back to the Assessing Officer for fresh consideration in line with the ITAT Ahmedabad's observations.

Issue 3 to 5: Disallowance of Depreciation on Various Leased Assets
The assessee contested the disallowance of depreciation on leased assets totaling Rs. 86,67,685 due to claims that suppliers were non-existent, suppliers denied supplying assets, or assets were non-existent. The assessee provided extensive documentation to prove the existence and lease of assets with Usha India Ltd., Sayaji Hotels, Shaan Packaging, Kedia Castle Dellon Ind., Khatau Junker, GEB, and Western Paques. The ITAT Mumbai found that the Assessing Officer and CIT(A) failed to adequately examine and discuss the evidence provided by the assessee. Consequently, the ITAT set aside the CIT(A)'s findings and directed the Assessing Officer to re-examine the issue afresh, considering the evidence submitted by the assessee.

Issue 6 & 7: Disallowance of Depreciation on Transactions with GEB
The assessee disputed the disallowance of depreciation on transactions with GEB amounting to Rs. 3,91,63,200. The disallowance was based on claims that the supplier sold goods directly to GEB, ownership was not transferred to the assessee, and only parts were supplied. The assessee presented various invoices and confirmations to support their claim. The ITAT Mumbai noted that the evidence provided by the assessee was not properly examined by the Assessing Officer or CIT(A). Therefore, the ITAT set aside the CIT(A)'s findings and instructed the Assessing Officer to reassess the issue, taking into account the evidence provided by the assessee.

Issue 8 to 10: Disallowance of Depreciation in Sale and Lease Back Transactions
The assessee challenged the disallowance of depreciation amounting to Rs. 25,01,250 in sale and lease back transactions. The disallowance was based on the fact that the assets had already been fully depreciated by the seller, Jai Prakash Ind., and thus had no written down value (WDV). The ITAT Mumbai referred to the legal position established in Berlia Chemicals & Traders (P) Ltd. and Om Sindhoori Capital Investments Ltd., which held that Explanation 4A to section 43(1) of the Act, effective from 01.10.1996, was not retrospective. Therefore, the ITAT concluded that the disallowance for the assessment year 1994-95 was incorrect and allowed the depreciation claim.

Issue 11: Levy of Interest under Section 234B
The issue regarding the levy of interest under section 234B of the Income Tax Act was deemed consequential and dependent on the outcome of the reassessment of the primary issues. Therefore, it was not adjudicated separately.

Conclusion:
The appeal was partly allowed, with the ITAT setting aside the CIT(A)'s findings on several issues and directing the Assessing Officer to reassess the matters afresh, considering the evidence provided by the assessee. The ITAT also allowed the depreciation claim on sale and lease back transactions, following established legal precedents. The order was pronounced in open court on 25th January 2017.

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