TaxTMI 
TaxTMI 
2006 (3) TMI 272
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....ssessee filed the following paper 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....
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....yderabad-500020 3. Energy Management Society 50 Pullad Post, Pathanamthitta, Kerala-689548 4. Catholic Charities, 1350 Patel Bagan, Sundernagar, Jamshedpur, Bihar - 8321O7 5. Bhagalpur Social Service 200 Society Chancery Office Post Box No. 61 Nawab Bagi Colony, Bhagalpur 812001 6. Solar Alternatives, St. Mary's Compound Church, 100 Phulwari Sharif, Patna, Bihar 800505 &....
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....received during the financial year 2002-03 from the lessees. The amount of Rs. 4,46,753 was declared as outstanding as on 31st March, 2003. The assessee claimed to have received lease rentals from the lessees, but in reality these lease rentals have come from PESL immediately after the assessee paid the margin money to PESL. On enquiry, the AO found that the payment was made by PESL towards the advance lease rental through account maintained at Dena Bank, Hyderabad. The AO has brought out this fact in the assessment order. It is also noted by the AO that the payment made by the assessee towards the margin money was received back instantaneously as advance lease rentals. 9. The AO made enquiries by issuing summons under s. 131 to the lessees. In some of the cases, summons could not be served as the parties were not available at the given addresses. Some of the replies received from the remaining persons. The two alleged lessees i.e., Bhagalpur Social Service Society and Solar Alternative have confirmed that they have purchased SPVL from PESL and not from the assessee and they have produced the copies of invoices of PESL towards the purchase of SPVL. Another party, Catholic Charit....
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....onfirmed 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 statement was never put to the assessee nor any opportunity was given to cross-examine Shri Sharath Saxena. He argued that reliance placed on this statement for the purpose of making an assessment order should be taken to be in violation of the rules of natural justice and assessment itself should be vitiated. Learned counsel of the assessee relied on the case law of Hon'ble apex Court in the case of Sukhdev Singh vs. Bhagat Ram AIR 1998 SC 1666 : (1998) 4 SCC 552 and in the case of Vasant D. Bhavsar vs. Bar Council of India (1999) 1 SCC 45 : JT 1999(5) SC 420. 14. He argued that it is clearly recorded in assessment order that the lease rentals were quoted by PESL on behalf of the assessee. It was argued by the learned counsel of the assessee that further in the assessment order, it is clearly r....
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....t 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 leased to them. The assessee claimed that Sunline Energy Solutions subleased remaining SVPL to various other parties and the payments were made by the sublessees directly to PESL as a measure of precaution. According to learned counsel of the assessee this is contrary to what the AO has observed in the last three lines of p. 2 of the assessment order which reads as under: "Sunline Energy Solutions retained 45 lanterns and subleased the balance lanterns to 23 parties and 192 individual users. In effect the lanterns were given to 29 nodal agencies and 192 individual users." The learned counsel of the assessee has also drawn our attention to the following submissions: (i) With regard to point No. (i) the assessee stated that, due to our critical financial conditions, we were not in a positio....
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....EDA 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 are reflected in the books of both Photon Energy Systems Ltd. and Marg. (vi) With regard to point No. (vi) the assessee stated that Photon has received the money from lessees on various dates and utilized the money for working capital. The inter-company accounts were reconciled at regular intervals and the parties details obtained for making necessary entries. (vii) With regard to point No. (vii) the assessed stated that our company is adopting accrual system of accounting and as such we have passed lease rental receivable for every year in advance and the payment was received later as such there is a mismatch between the date of passing the journal entry and receipt of money. We have received the entire money from Photon and not from the lessees and hence treated the exc....
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.... 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 Photon Energy remitted Rs. 1,45,27,850 towards lease rentals. (xiii) With regard to point No. (xiii) the assessee stated that we had leased 3,200 lanterns to Sunline Energy Solutions and they have retained 45 lanterns for self use and in turn leased out the balance 3155 lanterns to various end-users. We enclose a letter of confirmation with the names and addresses of the parties in this regard received from Sunline Energy Solutions. PESL collected the lease rental as a measure of precaution from the various users. Therefore, it will be seen that the answers have been given for every alleged discrepancy and it would be very clear that the AO is trying to presume a discrepancy while in fact it does not exist. To prove this, a few examples are taken. 16. Further....
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....nsactions 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 considered all the consequences of a sham transaction and disregarded the lease income which the AO has chosen not to do. Accordingly learned counsel of the assessee argued that AO upto para 13.8 has made an attempt to confuse higher authorities and no more. The learned counsel of the assessee also argued about the ownership and possession. The learned counsel of the assessee further relied on para from the book of Circular on Evidence 14th Edn. 1993 by Sudipto Sarkar and V.R. Manoharan which reads as under. "Sec. 91 of the Indian Evidence Act, 1872 lays down that when terms and conditions of the contract, or of a grant, or of any other disposition of property have been set out in writing by agreement of parties and in the case of documents req....
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....ja 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 from a particular source, it is for the ITO to prove that he made the income. (m) Sovaram Jokhiram vs. CIT AIR 1945 Pat 79 : (1914) 12 ITR 112 (Pat), wherein it was held that where property stands in the name of the assessee's wife, it is for the ITO to prove that she is only the benamidar. Where, therefore an assessee makes out a prima facie case, the burden rests on the Department to disprove to avoid it. [R.B.N.J. Naidu Cinema Exhibitor vs. CIT AIR 1956 Nag 157 at p. 59] (n) Ganga Ram Balmakund vs. CIT AIR 1937 Lah. 721 : (1937) 5 ITR 464 (Lah), wherein it was held that the IT authorities are abound to prove by "positive evidence" that the accounts are unreliable and their finding cannot be disturbed unl....
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....arious 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. The assessee approached PESL to show as if the SVPLs were sold to it and the same can be transferred to the buyers directly by PESL without making anyone realise who was the seller, etc. These SVPLs were delivered by employees of PESL who dealt with the buyers in the normal course as they do in a normal sales transaction. The buyers having received the SVPLs were never interested in knowing who were the owners/sellers/lessees, etc. on paper. The consideration was directly negotiated by PESL with the buyers and collected the same. The learned Departmental Representative further argued, that, that is the only reason why the amount paid by different buyers was different....
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....e 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 situation is that two parties have confirmed that they have purchased SVPLs only from PESL and not from the assessee. Only one party first stated that they purchased SVPLs from PESL but later on the assessee produced confirmation from this party stating that they procured SVPL from assessee through PESL. Specifically assessee was asked to produce the party but (there was) no compliance. The learned Departmental Representative in his written statements stated 14 reasons to meet the assessee's allegations and the reasons stated by the learned Departmental Representative are reproduced as under: (i) Assessee claims that PESL acted as its agent in marketing of lanterns b....
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....ed 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 opportunity was not allowed by the Ao for the cross-examination, first of all he argued that assessee has claimed depreciation and primary onus is on the assessee to prove the transactions beyond doubt by adducing necessary evidence. The learned Departmental Representative further argued that the primary evidence relied on by the AO are books of account of the assessee, various lease agreements as well as copies of invoices issued in favour of assessee which were available in the premises of assessee and were impounded subsequent to the survey in the assessee's premises. The result of enquiry conducted with third parties were put to the assess....
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....ing 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 has sold the SVPLs to the assessee and same was delivered to the buyers directly by PESL. The so-called buyers or lessees do not know that who is the seller or lessor. Even the so-called lessees/buyers (who) have received the SVPLs were never interested in knowing who were owners/sellers/lessors, etc. on paper. The consideration was directly negotiated by PESL with the buyers and collected directly from them. It is seen that the money received by PESL that IREDA was remitted back to the assessee towards lease rentals as mentioned below: ----------------------------------------------------------- Payments made  ....
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....nbsp; 30.6.2001 224617 9,00,000 22.10.2001 224828 2,00,000 23.11.2001 224872 3,00,000 13.11.2001 502970 35,50,350 17.11.2001 971940 17,02,004 Adjust- ment made by IREDA 30.6.2001 towards 15,91,838 dues From &nbs....
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....il 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 purchased SVPLs in financial year 2000-01 and leased out to six parties, i.e., lessees. The relevant question and answer No.8 of the statement recorded on 20th Feb., 2004 is being reproduced from the statement of the managing director." "Q. You have purchased solar lanterns in the financial year 2000-01 and leased it to six (6) parties, out of this three part....
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.... 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 from PESL, Hyderabad. In support of their claim, they have produced a copy of the invoice issued by PESL. They have confirmed that no purchase or lease was entered with you. Please go through the reply received from them and also the invoice. What is your explanation? A. As I have explained already, entire transaction in....
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....sp; lan- (Rs.) (Rs.) terns ------------------------------------------------- 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....
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....ied any transaction with you? What is your explanation? They have further stated that they have purchased the lanterns from PESL directly. What is your explanation? A. I'll not be able to give any explanation." 28. The assessee was put to every allegations and he was confronted but the assessee could not offer any explanation and even the mode of payment received by the assessee from PESL and payments made by assessee to PESL clearly show that these payments are just paper transactions and the assessee is not aware about these six lessees, as comes out from the above facts. 29. The assessee also has not contested the issue on facts and he has filed written statements which were already before the AO as well as CIT(A). The assessee before us has produced one certificate from Non-Conventional Energy Development 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 o....
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.... burden is on the assessee to prove that it has leased these SVPLs only then the burden will shift on the Revenue. Here during the course of survey, the assessee has not offered any explanation regarding these lease transactions and he could not adduce any evidence that these are genuine lease transactions entered by way of lease agreements. The primary burden is on the assessee to prove the transactions only then the burden will shift on the Revenue. The assessee could not prove the lease transactions as genuine. Almost all the parties denied the transactions with the assessee and all these lessees admitted that they have purchased SVPLs directly from the PESL. It is pertinent to note that the decisions relied on by the learned counsel of the assessee regarding burden or onus being on the Revenue, are relating to 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 o....
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....nspection ------------------------------------------------- 25/3/2001 1325 Godown, Hyderabad 8/5/2001 1100 Godown, Hyderabad 27/5/2001 2575 Godown, Hyderabad ------------------------------------------------- (b) The way bills, Form X, issued by Andhra Pradesh Government is valid from 1st April, 2001 to 31st March, 2002 (c) From the way bills and lorry receipts submitted by the assessee it is noticed that the goods are transported only after May, 2001 to the various nodal agencies. 14.3 Since the assessee has not despatched the goods to the end-users, the assets have not been put to use before 31st March, 2001. The assessee is hence not entitled for depreciation." 32.3 In view of these facts and circumstances, we fairly feel that the lease transactions entered into by the assessee with the above six lessees through PESL are only paper transactions. This is to claim depreciation hence t....
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....ue to dispute the work could not be completed. Hence the money received was shown as liability. The AO after going through the documents placed before him assessed the amount of Rs. 1,85,92,269 as income of the assessee. It is a finding of fact by the AO that the assessee is following accrual basis of accounting and the assessee is recognising the income as per the Accounting Standards issued by the ICAI. Even the assessee vide letter dt. 6th March, 2004 stated that the company is following accrual basis of accounting as recognised by ICAI and guidelines issued as per Accounting Standards. The income is accounted for on the basis of stages of completion of each project. The moment the bills are submitted, the DLWL is making payments and the assessee is recognising the same as income from the very beginning. The AO noticed from the assessee's books of account that during the financial year 2000-01 the assessee has shown credit as advances received as on 31st March, 2001 amounting to Rs. 1,85,92,269. The AO has brought out the details of receipt and income offered in the tabulated chart and the relevant portion in para 15.2 as detailed is being reproduced: ------------------------....
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....ny reply. The AO then issued notice under s. 133(6) for calling of information from M/s DLWL. M/s DLWL vide reply dt. 31st March, 2004 stated that no money or material is due from or to Marg Construction Ltd. DLWL further stated that all these payments have been made for the execution of civil and electrical work at Tadeperi, Ananthapar District, Andhra Pradesh for installation of windmills for which the work was completed in two phases, i.e., March, 1999 and March, 2000. It was further stated by DLWL that as per MoUs dt. 11th July, 2001 and 11th April, 2002 the final statement regarding payment of bill have already been made. The AO in view of these facts came to the conclusion that these advances shown by the assessee are nothing but payment received on account of completion of contract work executed by the assessee. The AO made the addition. Aggrieved the assessee preferred appeal before learned CIT(A). Learned CIT(A) confirmed the addition. Aggrieved the assessee is in appeal before us. 36. Before us learned counsel of the assessee filed the written submissions and relied on cl. XI of MoD dt. 1st April, 2002. He argued that MoD has not been acted upon and the matter is pendi....
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....explanation but he only explained that there existed a dispute with DLWL and advance receipt is a liability. Assessment was made on the basis of books of account of the assessee and MoD dt. 11th July, 2001 and 1st July, 2002, to those the assessee is a party. No external material was used for framing the assessment and assessee cannot allege violation of natural justice or non-granting of opportunity of being heard. Even the assessee was given enough opportunity on various dates. In view of this he argued that this addition made by the AO has rightly been confirmed by learned CIT(A). 38. We have heard both the sides and gone through the facts of the case. As regards to calculation of figures are concerned and the facts of the case are concerned neither the assessee nor the Departmental Representative has disputed. It is an admitted fact that the assessee received a sum of Rs. 279 lakhs and shown as credit received as advance as on 31st March, 2000. Similarly the assessee has also shown credit of Rs. 185.92 lakhs shown as advance received in its books as on 31st March, 2001. The assessee's contention in this regard is that this is a disputed amount and it is a liability. The asse....
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....ecome squared up and all liabilities stand cleared on both the parties." As per the MoU to which both the parties, i.e., the assessee as well as DLWL are signatory. By this MoU 1st April, 2002 vide cls. 10, 11 and 12 it is admitted that they have finally settled the matter regarding payment of money and material due from either of the parties. The relevant paras 10, 11 and 12 of the MoU dt. 1st April, 2002 read as under: "The party of the first part hereby consciously withdraws all letters alleging the party of the second part as having removed materials illegally. The party of the first part also acknowledges Rs. 7,00,000 (Rupees seven lakhs only) is towards full and final settlement, and that no money or materials are due from party of the second part. The party of the first part hereby undertakes to indemnify and keep indemnified the party of the second part against all or any claims that may arise in respect of any statutory dues, wages payable to workers, any amount that may be payable to suppliers, sub-contractors or any of their dues in connection with the work at Pulturu/Tadipatri site, Anandapur District, Andhra Pradesh." Before that the assessee has also en....