TaxTMI 
TaxTMI 
TaxTMI 
2006 (3) TMI 272
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....books and written submissions: (1) Paper book I consisting of pp. 1 to 149. In this paper book, the assessee has filed the details of lease transactions. (2) Paper book II with pp. 1 to 127 consisting of details of lease transactions. (3) Paper book III in the shape of written submissions where Annexures are provided in regard to lease transactions including copies of lease agreements consisting of pp. 1 to 77. (4) Paper book IV with pp. 1 to 95 consisting of transactions between the assessee and DLWL. (5) Paper book consisting of Vol. 1 pp. 1 to 239, Vol. II pp. 243 to 509 and Vol. III pp. 510 to 732 comprising of various case laws. (6) Written submissions in the shape of paper book named as written submissions from pp. 1 to 41. 4. During the course of hearing, the learned counsel of the assessee however relied mainly on written submissions i.e. paper book III and paper book IV consisting of Annexures. 5. The learned Departmental Representative has also filed a paper book consisting of pp. 1 to 36 and written submissions. 6. In view of the Hon'ble jurisdictional High Court ordor dt. 2nd Feb., 2006, this case was taken up for hearing on day-to-day basis and it was heard. T....
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....as remitted back to the assessee towards lease rentals. 8. The assessee capitalized these SPVL worth Rs. 2.13 crores during the relevant assessment year and claimed depreciation @ 50 per cent, being used for less than 180 days at Rs. 1.05 crores. The assessee got the loan from IREDA sanctioned vide letter dt. 14th Feb., 2001 and after that the assessee ordered for the purchase of 5000 SPVL @ Rs. 4,260 from PESL, Hyderabad, on 19th March, 2001. Subsequently the assessee entered into lease agreements for these SPVL with the lessees on various dates from 22nd March, 2001 to 31st March, 2001 against the invoices raised by the PESL on various dates from 24th March, 2001 to 31st March, 2001. The assessee claimed to have taken delivery of SPVL at a godown taken on rent at Hyderabad by PESL. One interesting feature in the purchase of these SPVL is that the employees of PESL were authorized by the assessee to take delivery of these SPVL and the employees of PESL undertook the marketing of SPVL on lease basis. However, the SPVL wore supplied after manufacturing to sub-lessees of these 6 lessees after May, 2001. The end user received these SPVL after May, 2001. Even the freight charges of th....
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....ssees to 8-3-2001 (6 parties)] Cash 18-9-2000 43,900 to 8-3-2001 --------------- Total 58,50,600 ------------------------------------------------- 10. It is also a fact that the loan by IREDA was disbursed in the month of May, 2001, whereas the lease transactions by way of lease agreements were entered in the end of March, 2001. However, these SPVL were supplied to the endusers only in May, 200l. 11. The AO in view of these facts has narrated various discrepancies in his order at pp. 24 to 27 numbering (i) to (xxii). Even the AO found that the assessee had failed to produce the 6 lessees or their books of account during the course of assessment proceedings. 12. In view of these facts, the AO held that the lease transactions are sham and accordingly disallowed depreciation. The CIT(A) confirmed the action of the AO. Aggrieved the assessee is before us in second appeal. 13. Before us, the learned counsel of the assessee, Shri K. Ravi first of all argued that the principles of natural justice are violated reason being that in paras 4 and 5.1 of the assessment order it is recorded that the statement from one Mr. Sharath Saxena, the CEO of PESL was recorded and the same st....
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....happened by cheque. The learned counsel of the assessee further reiterated the same arguments regarding three parties namely Catholic Charities, Solar Alternatives, Bhagalpur Societies which produced bills of purchase of lanterns from PESL and when these facts were put during the course of survey to the managing director, he cannot reply. It is also stated that that parties have denied the existence of the lease deed. He argued that apparently the AO has chosen to extract self-serving statement from these three parties. The AO in fairness should have confronted these three parties when the lease deeds are available and asked them for their reactions. In view of this, the learned counsel of the assessee argued that those statements cannot be relied upon. He further argued that it is not sure that the SVPLs said to have been purchased by the lessees and leased out by the assessee are one and the same. 15. In view of this, it is said that, the AO writes in the assessment order that that the assessee claimed that 3200 numbers of SVPL were leased out to Sunline Enemy Solutions and received money against the same but from the end-user list submitted by IREDA that only 45 SVPL were lease....
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....ipation of the loan application of Marg being approved by IREDA and the said term-lending institution had been giving impression that it is likely to sanction at any time. These lease rentals were utilised by PESL for working capital needs since no margin money was received from Marg. Since advance rentals utilized by PESL, the margin money received from Marg returned to them later. (iv) With regard to point No (iv) the assessee stated that PESL started the marketing activity in August, 2000, in anticipation of IREDA loan, the prospective lessees had agreed to give lease rentals in advance because they were offered solar lanterns on lease at a lower price than the prevailing market rate at that time. The lessees prepared to wait for deliveries because of lower prices. However, IREDA sanction of loan was delayed and therefore release of purchase order and delivery delayed. (v) With regard to point No. (v) the assessee stated that it is submitted that the cash received is only Rs. 3,13,000 and not Rs. 4,99,000. This amount is withdrawn from the bank account of Photon Energy Systems Ltd. on various days and deposited on the same day into the UTI bank account of Marg in Hyderabad and....
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....tax registration and waybills (Form X, issued by Andhra Pradesh Government). To facilitate free movement of goods through sales-tax check posts, at the request of Marg, PESL had issued their invoices and waybills for transportation of lanterns on behalf of Marg. The lessees had wrongly produced these bills meant for transportation instead of Marg bills leasing the lanterns. (xi) With regard to point No. (xi) the assessee stated that the AO in the earlier question stated that the Catholic Charities produced some invoices raised by Marg for the lanterns towards purchase. It may please be noted that first of all it is not a purchase by Catholic Charities from Marg. It is a transaction of lease. This has been specifically mentioned in the said delivery challan which may be taken note of. (xii) With regard to point No. (xii) the assessee stated that PESL had agreed at the time of accepting the purchase order to procure lease rental of Rs. 3,000 per system for a lease period of 5 years. As per the agreement they have effected payment @ Rs. 3,000 per system. It was further substantiated/confirmed in the sworn statement recorded in the course of survey by Sharad Saxena. CEO of PESL that ....
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....ken Dasti summons for production of witness. It was the duty of the ITO to enforce the attendance of the witness if his evidence is material, in exercise of his powers under s. 131 of the Act r/w order 16, r. 10 of CPC. (d) Sadaram Puranchand vs. CIT (1937) 5 ITC 459 (Cal) (e) Munnalal Murlidhar vs. CIT (f) S. Velu Palandar vs. Dy. CIT (1972) 83 ITR 683 (Mad) (g) Addl. CIT vs. Radhey Sham Jagdish Prasad (1979) 9 CTR (All) 143 : (1979) 117 ITR 186 (All). At last, the learned counsel of the assessee argued that broadly it might be stated that, assessment order up to para 13.8 is surmises and conjectures of the AO who presumed the transaction must happen in a particular manner and furtherance of the manner in which the AO wanted that these transactions must happen, evidences are called for and since those evidences were not available, the AO in para 13.9 concluded that the transaction is sham with a view to avoid tax. However, the AO only goes to disallow depreciation, therefore, the inevitable conclusion is that the AO is unable to assert with clear and cogent evidence that the transaction is sham and chooses only to disallow the depreciation. The AO should have and must have co....
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.... the taxing provision". Further at p. 859A it was held that "the burden was on the Department to prove that the money belongs to the assessee by bringing proper evidence on record". (c) Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC) (d) Parimisetti Seetharamamma vs. CIT (1965) 57 ITR 532 (SC) (e) CIT vs. Chari & Chari Ltd. (1965) 57 ITR 400 (SC) (f) Janki Ram Bahadur Ram vs. CIT (1965) 57 ITR 21 (SC) (g) Sir Shadi Lal Sugar & General Mills Ltd. & Anr. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC) (h) Bhogilal H. Patel vs. CIT (1969) 74 ITR 692 (Bom) (i) Dilip Kumar Roy vs. CIT (1974) 94 ITR 1 (Bom) (j) Addl. CIT vs. S. Krishnaswamy Reddiar (1978) 115 ITR 505 (Mad) (k) Maharaja Chintamani Saran Nath Sah Deo vs. CIT (1971) 82 ITR 464 (SC); Dr. K. George Thomas vs. CIT (1985) 49 CTR (SC) 204 : (1985) 156 ITR 412 (SC); CIT vs. Giridharram Hartram Bhagat (1984) 43 CTR (Guj) 225 : (1985) 154 ITR 10 (Guj) wherein it was held that burden is on Revenue to prove that the receipt (is) of revenue character. (1) Bishnu Priya Chodurani AIR 1924 Cal : ILR 50 Cal 907 wherein it was held that where an assessee should deny that he is in receipt of income ....
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....etters from major parties with whom. the lease transaction has been entered into by the assessee. (10) Detailed summary showing the number of sets-sent to individuals lessees. (11) Confirmation from the PESL that it has collected the advance lease rental from the individual lessees on behalf of your appellant in the sworn statement. 21. In view of these arguments, the learned counsel of the assessee stated that the lease transactions entered by the assessee with the above six parties and with sublessees are genuine transactions and in no way it can be held as sham transactions and accordingly he urged the Bench to allow depreciation on these assets (SVPLs) leased to various lessees. 22. On the other hand the learned Departmental Representative opened his arguments that the PESL is the manufacturer of SVPL and it collected advances from various customers proposing to sell SVPL. At the same lime the assessee was looking for finance from IREDA which offers finance at the rate of 2 per cent per annum. IREDA offers finance only on solar lanterns and wind mills, etc., i.e., energy equipments. The assessee's regular business is that of construction and not that of financing or leasing....
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....essees who are none other than the buyers of SVPL from PESL and only the sales transactions of PESL to buyers were extrapolated and routed through the assessee's books to enable the assessee to make a bogus claim of depreciation and obtain soft loans from IREDA. The learned Departmental Representative further relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More 1973 CTR (SC) 500 : (1971) 82 ITR 540 (SC). 24. As regards to the onus the learned Departmental Representative argued that to claim depreciation primary onus is on the assessee to prove beyond doubt the genuineness of the transactions. The assessee was requested to produce the said parties along with their books of account and bank statements for verification. There was no compliance, even (when) summons under s. 131 were issued to all six lessees at the addresses given by the assessee. Two lessees were not at the ,given addresses and the summons returned back. As per the claim of the assessee one party changed the address. The new address was furnished by the assessee only on 15th March, 2004 whereas the assessment was getting barred by limitation on 31st March, 2004. The unique situati....
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.... have confirmed (that) the invoices issued by PESL are for purchase and payments were made against this bill. (xi) The upfront lease advance for the entire period of 5 years was paid by the so-called lessees much in advance of receipt of the asset which is an unknown practice. Further, such a payment was alleged to assessee who does not have any previous experience in production/marketing of such a commodity. It is to be noted that such advance was made much before entering into the lease agreement which is also uncommon. (xii) The godown rent deed, lease agreements, receipt of goods at godown, delivery challans to end-users are all signed by employees of PESL on behalf of assessee. (xiii) PESL collected different sums from each party though the lease rent as per agreement was @ Rs. 3,000 Not a single party paid exactly Rs. 3,000. What is the sanctity of such a lease agreement? How an agent (PESL) can make such arbitrary collections? (xiv) PESL gave only Rs. 3,000 per unit to assessee as lease rent advance when it collected much from several parties. How an agent can act like this? 25. Further the learned Departmental Representative on the allegation that sufficient opportunit....
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....SL. It is here pertinent to mention that the employees of PESL wore authorised to take delivery of the SVPLs and even the same employees of PESL did marketing of these SVPLs by way of lease. Ultimately PESL dispatched these SVPLs only after May, 2001. The invoices were raised during the period 24th March, 2001 to 31st March, 2001 by PESL on these six lessees and other sublessees. Even the freight charges were borne by PESL. The lease rentals were also collected by PESL. The assessee offered these lease rentals as income in each of the five years, i.e., 1/5th in each year and claimed 100 per cent depreciation on these assets but during the year the assessee claimed 50 per cent as the transaction was after September, 2000. PESL collected advance lease rent from these six lessees proposing to sell SVPLs. The assessee was also looking for finances from IREDA which offers soft loans at the rate of 2 per cent per annum but the finance is offered only on solar lanterns, i.e., SVPLs and windmills, etc. From the above facts it is clear that the assessee is not in the business of finance or leasing rather is in the business of construction. The assessee only approached PESL to show as if it ....
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....4,31,250 25.5.2001 496587 8,62,500 25.5.2001 260083 4,31,250 -------------------------------------------- Total 34,50,000 Total 34,50,000 ----------------------------------------------------- It is seen that the payments made by assessee to PESL in the month of April, and May, 2001 and the advance rentals received by assessee from PESL only in April and May. It is also noticed that the money received by PESL from IREDA was remitted back to the assessee towards lease rentals only in the month of May, June and November, 2001 and the same was received by the assessee from PESL as advance rentals received. This clearly shows that the assessee got soft loans from IREDA and the same was utilized for making paper entry to show these SVPLs leased out to these six lessees whereas it is a fact that SVPLs were supplied to these lessees by PESL and not by assessee. When survey was conducted in the business premises of the assessee along with the business premises of PESL at Hyderabad, the managing director of the assessee in his sworn statement admitted that only PESL and their people know about the transactions and he is not aware about these transactions except that they have purchas....
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.... the cheque payments? A. The covering letters have been misplaced. Q. Did you contact any of the lessees personally or through your representatives? Furnish the names of the persons. A. No, I have not contacted any lessee in person nor through our representatives. Only PESL has contacted the lessees. In question No. 22 he has admitted that even the sales agreement were signed by PESL. The relevant question No. 22 and answer to the same is reproduced asunder: Q. Who has signed the lease agreement? A. I am going through all the correspondence and lease agreements for the first time and I don't know who has signed the lease agreement. I have authorized PESL to sign the lease agreement. Further vide question Nos. 45, 46, 47 and 48, the Revenue has clarified that the assessee was not aware about the six lease transactions and even these lease rentals and the objection of the assessee that it was not confronted with the result of enquiry with these six lease parties, proves wrong. The relevant question and answer Nos. 46, 47 and 48 are reproduced as under: Q. Enquiry was conducted with M/s Bhagalpur Social Service Society. They have stated that they have purchased the lanterns fr....
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....---------------- 2 019/2000-01 30.03.2001 500 1,925 9,62,500 3 001/2000-01 30.03.2001 400 1,925 7,70,000 ------------------------------------------------- How have you recorded the transactions mentioned above in your books? especially, in view of the fact that you have leased 1350 lanterns to Catholic Charities. A. These invoices have not gone from our office nor we have any information, these are also not recorded in our books. Q. In the invoice No. 019/2000-01, it is stated that 'received on 6th June, 2001'. In the invoice No. 0144/2000-01, it is stated that 'received on 6th May, 2001'. This means that the goods are received only in the month of May, 2001, although the invoices are dt. 30th March, 2001. Do you agree with this? A. The invoices have not gone from our office. Vide question Nos. 53 and 54, the assessee replied that he is not aware about the payment details made by Bhagalpur Charities to PESL on 19th Jan., 2001 and 30th March, 2001. Vide question No. 55, the assessee was put to test whether he is aware about the transaction of money received from Catholic Charities on various dates, he was not aware and the relevant question No. 55 and answer reads as under: ....
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....lopment Corporation of Andhra Pradesh Ltd., which is dt. 3rd March, 2006 issued by the Dy. General Manager (SE) Fac, who certified that the supply of SVPLs was manufactured by PESL, Hyderabad. Even the assessee has not made any request for admission of additional evidence and even there is no such party to whom the assessee has supplied SVPLs is not coming out of the orders of authorities below and hence the same cannot be admitted. 30. The learned counsel of the assessee argued that the principles of natural justice have been violated, as no opportunity was provided. It is seen from the statement of managing director of the company recorded during the course of survey on 20th Feb., 2004 that the assessee himself refused that he is not having any explanation, when he was confronted with the discrepancies. It is seen that the assessee could not produce the six parties along with the books of account, bank statements with whom it has entered into lease agreements. Even the addresses supplied in few of the cases were wrong and summons issued by IT Department could not be served. Even the assessee is not aware of the names and addresses of the parties as is evident from the above fact....
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....o the income which means whenever a particular item of receipt is subjected to tax then definitely onus will be on the Revenue to prove that such item is in the nature of income. However, in the case before us, the issue relates to allowance of depreciation and, therefore, the decisions relied on by the learned counsel of the assessee cannot apply because in case of claim of expenditure and or depreciation the onus always will be on the assessee to prove that it has incurred such expenditure or claim of depreciation is justified. 31. As regards to natural justice the assessee was confronted at the time of survey whatever evidences the Department has discovered/recovered as is evident from the statement of the managing director of the assessee recorded on 20th Feb., 2004 wherein he has shown his inability to prove these transactions. Extract of the statements are reproduced above. 32.1 In view of the entire spectrum of facts, it is seen that the assessee has already received the advance lease rentals before (he) entered into lease transactions/agreements and adjusted the advance sale consideration against the advance lease rentals. The so-called lease agreements never intended to ....
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....preciation hence these transactions are held as sham transactions and nothing else. Even from the above facts, it is gathered that the testing in most of the assets was done in the month of May, 2001 and the asset was not put to use during the relevant assessment year. As we have already held that the transaction is sham, hence, we need not deliberate on this issue. But we agree with the contention of the learned counsel of the assessee that once the AO concludes that the transaction is sham with a view to avoid tax, can the AO only go to disallow the depreciation. The AO should have and must have considered the conclusion of the sham transactions and disregarded the lease income which the assessee has admitted in the returns of income. In view of this, we direct the AO to allow relief on these lease rentals received by the assessee in consequence to lease agreements entered into with six lessees. Accordingly, the AO is directed to exclude the income returned on account of lease rentals. Accordingly, this issue of the assessee's appeal is allowed partly. 33. Coming to the second issue, under dispute is the amount received from Das Lagerway Windfarm Ltd. (DLWL) amounting to Rs. 1,8....
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....------------------------------------------- Financial Receipts Payments Income Credit showed year (Rs.in (Rs.in (Rs.in as advance lacs) lacs) lacs) received as on 31/03 (Rs. in lacs) ------------------------------------------------------- 1998-99 518.08 12.8 318.00 187.74 1999-2000 699.30 - 607.35 279.09 2000-01 158.30 153.0 98.31 185.92 2001-02 37.10 86.0 NIL 137.00 2002-03 7.00 - NIL 144.00 ------------------------------------------------------- 35. It was noticed by the AO that as on 1st April, 2000, the assessee has shown receipt of Rs. 279 lakhs and out of which the assessee has offered a sum of Rs. 98 lakhs as income. It was further noticed by the AO that during financial year 2000-01 relevant to asst. yr. 2001-02 the assessee has received a sum of Rs. 158 lakhs from DLWL on account of execution of civil and electrical work and out of this a sum of Rs. 108 lakhs was paid to M/s Wescare India Ltd., a sister-concern of DLWL, on account of DLWL and a sum of Rs. 45 lakhs was returned back to M/s DLWL. When the AO enquired from the assessee these details, the assessee could not submit any reply. The AO then issued notice under s. 133(6) for calling of information f....
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.... and showed part of it as advance and remaining as income of the year. He argued that as per the claim of the assessee, advances outstanding as on 31st March, 2001 was Rs. 185.92 lakhs as advance received, being an outstanding liability due to dispute in various Courts. In reply to this, he argued that the assessee's contention of receipt of advances is not correct. He argued that as per the evidence the assessee raised a bill after completion of each work and after certification of the same by DLWL they used to receive the payments. Further he argued that as per MoD, dt. 11th July, 2001, the issue involved was that some of the bills raised by the assessee were not certified by DLWL and this was settled by payments of Rs. 59.95 lakhs. Further, by another MoD dt. 1st April, 2002 the matter was finally settled and the assessee was paid another Rs. 7 lakhs. Even the explanation from the assessee was called on several occasions vide questionnaire dt. 31st Dec., 2003, 3rd Feb., 2004, 16th March, 2004 and order sheet entry dt. 30th March, 2004. Regarding these payments, the assessee failed to offer any explanation but he only explained that there existed a dispute with DLWL and advance r....
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....quent to signing of MoD dt. 11th July, 2001 and 1st April, 2002 as per the terms and conditions contained therein. We have gone through these two MoDs. The learned counsel of the assessee has referred to cl. 9 of MoD dt. 1st April, 2002 which reads as under: "As agreed by both the parties in MoD, dt. 11th July, 2001 the party of the second part have already submitted the MoD in the Courts where cases are filed by party of the second part and withdrawn all the cases and whereas the party of the first part so far not withdrawn the cases. The party of the first part hereby agreed. to withdraw all the cases on (or) before 1st April, 2002 and produce the necessary papers as proof from the relevant authorities, to enable the part of the second party to effect the full and final settlement of Rs. 7,00,000 (Rupees seven lakhs only) vide Standard Chartered Grindlays Bank, Hyd Branch, Cheque No. 146753, dt. 1st April, 2002. Further upon signing of this MoD and subsequent to honouring of the commitments mentioned above and clearance of payments all the transactions done before between both the parties become squared up and all liabilities stand cleared on both the parties." As per the MoU t....
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....n the managing director of Marg Construction Ltd. Shri G.R.K Reddy and Shri V.R. Ragunathan of M/s Wescare India Ltd. The relevant part of the FIR is being reproduced: "I am a chairman and managing director in Marg Construction Ltd. 501, Apex Chambers, 20, Sir Thiyagaraya Road, Chennai-600 017, a well known corporate in wind energy sector. The accused is well known to me and approached and informed that he is developing a property situated at 57/2B, East Coast Road, Thiruvanmiyur, Chennai, and it is almost in completing stage and insisted me to purchase two flats. The said Mr. G.R.K. Reddy also informed that the construction of the building will be over within two months. I was interested in purchasing two flats situated at eighth floor known as Sri Sai Sabhodaya in block front and approached the accused and he agreed to sell the fiat at the rate of Rs. 1,250 per sq. ft. The total consideration comes to Rs. 68,75,000 (Rupees sixty eight lakhs seventy five thousand only). Believing the words of the accused Mr. G.R.K. Reddy I agreed to purchase fiats admeasuring super built area of 2700 sq. ft. and 2500 sq. ft., respectively. Then he asked me to sign in certain agreements for the co....