1994 (10) TMI 104 - AT - Income Tax

Tribunal overturns disallowance of depreciation on soft drink bottles & remits investment allowance claim for re-examination

The Tribunal allowed both appeals, directing a re-examination of the genuineness of transactions and consequent claims of depreciation and investment ... Accounting Year, Assessment Year, Right To Receive Issues Involved:1. Disallowance of depreciation on bottles.2. Disallowance of depreciation on computers.3. Claim of investment allowance.Summary:1. Disallowance of Depreciation on Bottles:The first issue pertains to the disallowance of depreciation on soft drink bottles leased by the assessee-company. The revenue authorities disallowed the claim on the grounds that the bottles were not put to use as required u/s 32 of the Act. The CIT (Appeals) noted that only a fraction of the bottles were delivered before the end of the accounting year and were not ready for use. Additionally, the approval for printing the logo on the bottles was obtained after the accounting year. The CIT (Appeals) also suggested that the transaction was merely on paper to claim depreciation. However, the Tribunal found that the lease commenced when the payment was made and the lessee became liable to pay rent. The Tribunal held that the assets are deemed to be used when the lessor becomes entitled to rent, and it is not necessary for the lessee to put the assets to actual use. The Tribunal directed that depreciation be allowed.2. Disallowance of Depreciation on Computers:The second issue involves the disallowance of depreciation on computers purchased and leased out by the assessee. The Assessing Officer denied the claim on several grounds, including the lack of actual delivery of computers, the non-permissibility of sub-lease, and the absence of distinctive numbers on the computers. The CIT (Appeals) upheld the disallowance, terming the transaction as a sham. The Tribunal, however, noted that in sale-cum-lease transactions, physical movement of equipment is not necessary, and title passes when the lease agreement is complete. The Tribunal decided to admit additional evidence and remitted the matter back to the Assessing Officer to re-examine the genuineness of the transaction and decide the claim of depreciation accordingly.3. Claim of Investment Allowance:The last issue concerns the claim of investment allowance, which was disallowed by the Assessing Officer on the grounds that the transaction was not genuine and the assets were leased out. The CIT (Appeals) allowed some relief, but the revenue appealed. The Tribunal held that the assessee is entitled to investment allowance on leased assets, supported by the decision of the Hon'ble Calcutta High Court. However, the Tribunal noted that this question is linked to the genuineness of the transaction relating to the purchase and lease of computers. Consequently, the Tribunal set aside the orders on this issue and restored the matter to the Assessing Officer for re-examination.Conclusion:Both appeals are allowed for statistical purposes, with directions for re-examination of the genuineness of transactions and the consequent claims of depreciation and investment allowance.