2008 (9) TMI 126 - HC - Income Tax

High Court affirms sale & lease back transaction genuineness for electrical equipment lease.

The Gujarat High Court upheld the Tribunal's decision affirming the genuineness of a sale and lease back transaction involving electrical equipment leased ... Depreciation - assessee has got the electrical equipment and leased out the same on rent to Rajasthan State Electricity Board under his lease agreement – assessee received lease rent - tribunal after appreciation of evidence found that transaction of leasing out the equipment was genuine and allowed the depreciation – tribunal’s finding is a finding of fact – therefore, no question of law arise – revenue’s appeal dismissed Issues:1. Whether the transaction of sale and lease back was genuine, and the assessee was entitled to depreciation for the Assessment Year 1995-96.Analysis:The judgment delivered by the Gujarat High Court addressed the issue of the genuineness of a transaction involving the lease of electrical equipment to the Rajasthan State Electricity Board. The Appellant-Revenue contended that the transaction was not genuine, and therefore, the assessee was not entitled to depreciation. The Tribunal had previously ruled in favor of the assessee, considering the transaction genuine based on the lease agreement and invoices. The Appellant Revenue argued that the Tribunal erred in its decision, as the Commissioner (Appeals) and the Assessing Officer had deemed the transaction as not genuine. The respondent assessee, on the other hand, provided evidence supporting the authenticity of the transaction, including the treatment of lease rent as business income. The Tribunal, in line with a previous decision of the Rajasthan High Court, upheld the transaction's genuineness, emphasizing that the invoices were in the name of the assessee, similar to the case decided by the Rajasthan High Court.The judgment highlighted that the Rajasthan High Court had previously ruled in a similar case involving the Rajasthan State Electricity Board, affirming the genuineness of the transaction. The High Court found that the lease rental paid by the Electricity Board was an allowable deduction, supporting the Tribunal's decision in the present case. Despite the Assessing Officer initiating action to treat the transaction as non-genuine under section 147 of the Act, the business income treatment of lease rental remained unchanged. The Tribunal's decision was based on a thorough examination of the evidence, including invoices, and found no legal infirmity to warrant a question of law or substantial question of law. Consequently, the Appeal was dismissed, upholding the Tribunal's ruling on the genuineness of the transaction and the entitlement to depreciation for the assessee regarding the lease of electrical equipment to the Rajasthan State Electricity Board.