TaxTMI 
TaxTMI 
2001 (8) TMI 279
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.... appellant without bringing on record and confronting the appellant with all such material and without affording the appellant adequate opportunity to lead evidence to rebut the same. D. That the CIT(A) erred on facts and in law in not appreciating that the AO relied on ex parte statements recorded at the back of the assessee without affording the appellant an opportunity to cross-examine the deponents. II. That the CIT(A) erred on facts and in law in confirming the action of the AO in making disallowance of depreciation on assets given on lease amounting to Rs. 14,65,94,400 holding the lease of the assets to be sham transaction and colourable device to evade tax. A. That the CIT(A) erred on facts and in law in holding that transaction of lease of assets entered into by the appellant were short of actual genuine transactions. B. That, on the facts and circumstances of the case, the CIT(A) erred in completely ignoring the contractual rights and liabilities of the parties to the lease transactions statutorily recognised by law wherein the ownership of the assets remained with the appellant. C. That, on the facts and circumstances of the case, the CIT(A) erred in not de....
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....ious notices under s. 142(1)/143(3) and questionnaire and after calling for details from the assessee, assessment was framed by the AO under s. 143(3) at an income of Rs. 15,03,23,667, after making several additions/disallowances to the returned income. The assessee challenged those additions and disallowances by taking various grounds before learned CIT(A) who, however, upheld the action of the AO and dismissed the appeal vide his order dt. 28th Feb., 2001. 3. A perusal of the grounds indicates that the main dispute as projected in grounds I and II and its various sub-grounds is that the AO as well as learned CIT(A) were not justified in disallowing the claim of the assessee relating to depreciation on assets given on lease to Punjab State Electricity Board (for short PSEB) and Nagpur Alloys Castings Ltd. (NACAST) and various other concerns totalling to Rs. 14,65,94,400 holding that the lease of assets by the assessee to these concerns were sham and colourable devices to evade tax. The facts relating to this major dispute are that the assessee, a banking company, has during the relevant previous year provided assets on lease to PSEB, NACAST and various other concerns. In the ca....
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....al before learned CIT(A), it furnished voluminous evidence to support the claim of depreciation in respect of leased assets which were filed before learned CIT(A) in the form of additional evidence. Learned CIT(A) furnished copies of the evidence furnished by the assessee to the AO during the course of appellate proceedings and called for his comments relating to leases entered into between the assessee and PSEB and NACAST. With regard to other leases entered into between the assessee and other lessees, the assessee pleaded before learned CIT(A) that the enquiry conducted by the AO was at the back of the assessee and the assessee was not allowed any opportunity to cross-examine the persons on whose statements the AO was relying upon to hold that the suppliers of equipment to those lessees, either were non-existent or they have denied having supplied any equipment to the lessees in relation to which the assessee has claimed depreciation. Learned CIT(A), however, recorded the submissions made by the assessee before him during the course of assessment proceedings but without contradicting the reasoning and submissions made on behalf of the assessee, he agreed with the reasoning and fi....
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....transaction on the following grounds: (i) The entire transaction was a paper transaction and the assessee had falsely claimed depreciation on assets leased out to PSEB which was actually not a lease finance but purely a financial transaction; (ii) The assessee had at no point of time enjoyed any right of ownership over these assets and as such it was not entitled to claim depreciation; (iii) The agreement with PSEB have been intentional drafted in such a way to avoid creation of any charge over the assets and the assessee had no right to take possession of the assets; (iv) The sub-systems identified by PSEB for the purposes of sale and lease back were part and parcel of the main equipment, i.e., boiler itself, which had been purchased as a composite equipment; (v) The prices at which the equipments have allegedly been sold has no nexus with cost or W.D.V. and sale price was ostensibly decided on the basis of finance required by PSEB or/and funds which the assessee agreed to invest or/and the amount by which the assessee wanted to reduce its taxable profit by claiming depreciation on assets; and (vi) The cost as well as W.D.V. of the equipment sold and leased back ....
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....nership thereof. In support, the learned Authorised Representative referred to various clauses of the lease agreement. Learned Authorised Representative accordingly pleaded that since assets have been used by the assessee in its business of leasing and the assessee has earned lease rental from PSEB in respect of assets given on lease which amount has been offered for tax and has been so taxed and as such the assessee cannot be denied the claim of depreciation in respect of those assets. Reliance was placed on the decision in the cases of CIT vs. Shaan Finance (P) Ltd. (1998) 146 CTR (SC) 110 : (1998) 231 ITR 308 (SC), United Technologies Ltd. vs. Dy. CIT (2000) 69 TTJ (Ahd) 25 : (2000) 73 ITD 150 (Ahd), New Deal Finance & Investment Ltd. vs. Dy. CIT (2000) 69 TTJ (Chennai) 410 : (2000) 74 ITD 469 (Chennai) and Mulraj Dwarkadas Gokuldas vs. Dy. CIT (1994) 48 TTJ (Bom) 531. 6. As regards lease of assets by the assessee to NACAST, the assessee has given on lease the following assets: Rs. "Steam generator supplied by Thermax Babcock & Wilcox Ltd., Bhopal 4,25,50,000 Dust Collector, self-fabricated by NACAST 2,39,66,000" It was submitted that the AO ....
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....e and M/s Prakash Industries Ltd. and M/s Vatan Dye Chem (Export) Ltd. as well as M/s Apex Carbonix (P) Ltd., learned Authorised Representative submitted that the AO has relied on certain enquiry conducted at the back of the assessee and result of which was only partly confronted to the assessee and the assessee was not given an opportunity to cross-examine those persons who have stated before the officer who conducted enquiry on behalf of the AO that they have not supplied any equipment to various lessees in relation to which the assessee has claimed depreciation. It was submitted that as far as the assessee is concerned, it has asked the lessees to identify the suppliers of the equipment which they wanted to take on lease. Since the lessees have identified the suppliers as well as the machinery which they wanted to take on lease and the assessee has in fact paid the amount to the supplier as identified by lessee by account payee cheques and existence of leased assets in the premises of the lessees was verified by the officers of the bank, the assessee should be allowed claim of depreciation. It was submitted that the AO has not made any enquiry in relation to the bank account of ....
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....liers have denied having supplied the disputed machinery to the lessees. It was submitted that the assessee has adopted this colourable device with the sole purpose of claiming depreciation to reduce its tax liability and the assets in question were never purchased and leased out and the entire paper work done in the form of leasing out of assets, issuing of vouchers-cum-delivery challan, etc. was done to give appearance of genuineness of transactions for the purpose of claiming depreciation. Accordingly, it was pleaded that the case of the assessee should be decided in the light of the observations made in the case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC), as those transactions were nothing but colourable device to evade tax. Reliance was placed on the decisions in the cases of Mysore Dasaprakash vs. CIT (1989) 75 CTR (Mad) 120 : (1989) 177 ITR 38 (Mad), CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC), Mysore Minerals Ltd. vs. CIT (1999) 156 CTR (SC) 1 : (1999) 239 ITR 775 (SC) and Gowri Shankar Finance Ltd. vs. CIT (2001) 166 CTR (Kar) 137 : (2001) 248 ITR 713 (Kar). 9. We have considered the rival submissio....
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.... bank and enclosing performance bank guarantee in favour of bank 186-189 Purchase order for boiler 191 Letter dt. 26-3-1996 from NACAST seeking disbursement of payment 192 Installation certificate 194 Copy of letter dt. 31-3-1996 from NACAST confirming that dust catcher was self-fabricated and was not a second asset 209 Copy of report from Sh. Dalbir Singh dt. 10-8-2000 reg. NACAST, enclosing the followings 210-215 Copy of provisional registration order under the Indian Boilers Act 216 Copy of drawings approved by the Maharashtra Government 217-219 Copy of challans/GRs 220-222 Copy of the contract for transportation of boilers 223-239 Statement of a/cs of supplies made at site of NACAST 240-255 Copy of invoices raised by Thermax and delivery challans, etc. 256-309 Copy of GA drawings of the various boilers 310 Copy of letter dt. 9-8-2000 from authorised signatory of Thermax confirming supply of boilers 311 Copy of photographs of boiler 312-314 Copy of invoices raised by Beekay Engg. for fabrication of dust collector 315-317 Technical note on dust collector 318 Photographs of dust c....
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....ssets and the genuineness of the transactions of purchase and lease back and as such the claim of depreciation by the assessee in relation to assets purchased from PSEB and NACAST and then leased back by it to PSEB and NACAST respectively, is directed to be allowed. 10. As regards the remaining three leases entered into between the assessee and Prakash Inds. Ltd., Vatan Dye Chem. (Export) Ltd. and Apex Carbonix (P) Ltd., the position is slightly different. In the case of these three lessees, the Bank of Punjab Ltd., the appellant-assessee before us, has asked these lessees to identify the equipment required by them and identify the suppliers of that equipment. The assessee has made payments to the suppliers of equipment at the instance of lessees by account payee cheques. However, on enquiry the AO found that some of the suppliers did not exist at the addresses given, while some of them though existing at the place mentioned in the invoice were not capable of manufacturing or supplying the type of equipment needed by the lessees and in some cases like that of M/s Prakash Engg. Works and M/s Ashish Engg. Works whose proprietor and partner Sh. Mohinder Lal Ghia and Sh. R.K. Aggarw....