TaxTMI 
TaxTMI 
2014 (6) TMI 70
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....pect of purchases of cops. Reasons assigned by her for doing the same are wrong and insufficient. 3. On the basis of the facts and in the circumstances of the case and in law she has further erred in relying on the decision of McDowel & Co. 154 ITR 148 when no tax evasion is proved in the instant case nor is there any basis to consider the transaction as colourable device to gain a fiscal advantage when the transaction of sale and leaseback is plain and bonafide commercial transaction. There is no evidence on record to prove that the price paid by the Assessee is abnormal or higher than the market price. As a consequence thereof she has erred in confirming the disallowance of depreciation made by the Assessing Officer. 4. She has further observed that the matter requires consideration from the point of view of Explanation 3 to Section 43(1), but instead of directing the Assessing Officer to fix a reasonable price as the actual cost to the Assessee as per the provisions of Explanation 3 to Section 43(1), she has proceeded to hold that the claim of depreciation of the appellant is hit by the above explanation which on the basis of the evidence on the record is unsustainable. ....
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....er alia entered into a sale and lease back transaction with M/s Sri Synthetics Ltd. (SSL), Ujjain, M.P. In the said transactions the assessee claimed to have purchased COPS numbering 1,00,000/- for a consideration of Rs. 50,00,000/- @ Rs. 50 per COP. During the course of the assessment proceedings the assessee produce sale bills to show that purchases have been made. The assessee also submitted the details of cheque in favour of SSL of Rs. 50,00,000/- and the lease agreement dated 27.3.1995 by which the assets were leased back to the seller at quarterly lease rental of Rs. 4,80,000/-. The Assessing Officer got conducted an inquiry through the ADI (Inv.)-II, Indore, in respect of the transaction of purchase and lease back. The ADIT(Inv.)-II, Indore, informed the results of inquiry to the Assessing Officer. 4. It was explained in the inquiry report that the COPS are made of Aluminium/Steel on different size. These are of cylinder shape and used for raping the yarn which is the final product of yarn manufacturing process. The COPS are fitted in the machine and after wrapping the yarn thereupon the same are detached for sale. The blank COPS which received back from the party to whom....
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....alise the lease proposal of SSL. The COPS as segregated and valued by Government Approved valuer were inspected by the officials of the assessee company and accordingly, the assessee made full payment of Rs. 50,00,000/- vide cheque no. 110414 dated 27.3.1995. The Ld. AR has further contended that the assessee got the possession of the COPS at the site and since the same were leased back to the SSL therefore, the COPS were handed over to the SSL. The transaction of purchase and lease back was completed vide leased agreement dated 27.3.1995. The Ld. AR has further contended that there is no dispute regarding the payment of consideration of Rs. 50,00,000/- which was duly received by SSL and acknowledged by issuing a receipt. The valuation of the assets and payment of consideration has not been questioned by the AO. The Assessing Officer questioned the nature of lease whether it is an operational lease or finance lease by issuing the show-caused notice however, the AO has concluded that the purchase and lease back transaction is a sham transaction. Once, the AO was of the view that the transaction in question is a financial transaction then it cannot be held that the same is a sham tra....
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....ferred the documents of purchase, insurance policies, loan taken from the bank and the charge of the bank is shown in the insurance policy and submitted that the assessee has proved the transaction of purchase and lease back by producing all the relevant record and evidence. The SSL has also certified and confirmed the transaction of sale and lease back as well as the continuance ownership of the asset with the assessee. The Ld. AR has referred the certificate/confirmation at page no. 110 and 111 of the paper book and submitted that SSL has confirmed the transaction as well as reaffirm the clauses of the agreement whereby the COPS are in good working condition at the time of lease transaction. The Ld. AR has further pointed out that an identical issue has been considered and decided by the Co-ordinate Bench of this Tribunal in case of Larson & Toubro Ltd. in ITA No. 220/2000 vide order dated 1.5.2013. The Coordinate Bench of this Tribunal has followed the decision of Hon'ble Supreme Court in case of ICDS Ltd. Vs CIT (supra) and held that the claim of depreciation on sale and lease back of asset is allowable. The Ld. AR has also relied upon the decision of Delhi Benches of this Trib....
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....the submissions/reply of the assessee before the A.O and submitted that the valuation of the COPS was got by SSL and not by the assessee. He has further submitted that no identification of the assets was made. He has referred the report of ADIT(Inv.)-II, Indore, and submitted that there were 3 lakhs COPS in the factory of SSL and there is no marking which COPS were purchased by the assessee and given back on lease. He has further submitted that the COPS were of different size and there is nothing either in the invoice or valuation report or lease agreement to indicate the size of the COPS purchased by the assessee and given back on lease. The Ld. DR has further submitted that the cost of the new COPS varies from Rs. 25 to Rs. 50 each whereas the assessee has purchased the COPS @ Rs. 50/- each which is not the actual price of the COPS which are old and not new therefore, the valuation is not proper and correct. The Ld. DR has submitted that the entire transaction is paper transaction and no physical or actual transfer of the asset is made. The assessee itself has accepted that the COPS were already with the SSL and even after the payment the same remained with the SSL which shows th....
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....f DCIT Vs Prithvi Prakashan (P) Ltd. 53 SOT 187 (Mum)(URO) and submitted that the Tribunal has held that the assessee's claim for depreciation on the iron role was rejected on the ground that the assessee has not taken physical possession of the roles and thus it was Sham transaction. 7. In rebuttal the Ld. AR has submitted that the agreement is standard/master agreement which is use for all type of lease transactions therefore, some of the clause which are out of context for a particular transaction have to be ignored. He has further submitted that the decision relied upon by the Ld. DR are not applicable to the facts of the assessee's case because there is no dispute about the consideration, valuation and existence of the asset. He has further submitted that at the end of the expiry of the lease period the assessee sold the asset at the agreed value/price to the lessee. The Ld. AR has referred the letter dated 23.3.1998 of SSL and submitted that the COPS in question have been segregated at the request of the Chartered Engineer prior to the valuation and accordingly the valuation was done after one lakh COPS were segregated and inspected by the Chartered Engineer as well as by ....
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....Some security amount is also kept by the company from purchaser towards the COPS. On receiving back the COPS are collected in COPS section and after some repairs/cleaning the same are again sent to respective section for its reuse. 2. On further verification, it is seen that COPS are found in huge number counting of which is not possible as some COPS are lying for repairs, some are fitted on the machines, some are in transit and some are in circulation of processing. These facts are also stated by the Accounts Manager. The record of COPS is maintained in COPS section. 3. As regards the transaction with M/s Olympia Capitals Ltd., Bombay (under sale & lease back - agreement) the Manager, Accounts was specifically required to explain the nature of the same and his statement was again recorded. The modus operandi of the transaction with M/s Olympia Capitals Ltd., Bombay is "that the company M/s Shri Synthetics Ltd., Ujjain, has sold one lacs of COPS for Rs. 50,00,000/- to M/s Olympia Capitals and it obtained the right of use of COPS under the Agreement of Lease" termed as lease agreement. The point wise details collected are as follows:- 1. The company M/s Shri Synthetics L....
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....he purchaser parties, lying in COPS section for its reuse etc. In the above transaction with Olympia for sale of one lakh COPS it is not verifiable that new COPS has been sold or the COPS which were already in use. It is to be mentioned that no physical delivery of COPS has been made. Only paper transaction has been arranged to make the availability of funds to shri Synthetics Ltd., Ujjain. In respect of sale price is taken at Rs. 50 each irrespective considering the old or new COPS." 9. It is clear from the investigation made by the ADI(Inv.)-II, Indore that the statement of Shri R. S. Tosniwal (Accounts) and Shri Ashok Mehta, Assistance Manager, COPS, section of SSL were recorded. These two officers of SSL have explained the function and necessity of the COPS as well the material/metal and size and shape of the COPS. It was found that COPS are part of the machinery which are very essential for raping final product (Yarn) on it. The investigation team has stated in the report that M/s SSL has sold one lac of COPS for Rs. 50,00,000/- to M/s Olympia Capitals Ltd. (the assessee) and the same COPS were taken by SSL under right to use as per the agreement of lease. There is no di....
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....ing but wastage of time and money. Even during the investigation it was found that the transaction of sale of one lac COPS took place thereafter the same were taken back on lease by the SSL from the assessee. Both the parties entered into the lease agreement. The existence of the COPS and payment of consideration against the sale bill dated 24.3.1995 has been again confirmed by the investigation carried out by ADI(Inv.)-II, Indore. Therefore, the genuineness of the transaction has not been doubted even by the ADI(Inv.)-II, Indore in the report. However, a reference has been made that since no physical delivery of COPS has been made it was only a paper transaction. As we have already discussed that when the COPS were pre-existed at the place of SSL prior to the sale then at the time of sale and lease back it is not necessary to transport the COPS first from the SSL to the assessee's place and then again from the assessee's place to SSL. The assessee has placed on record the communication between the parties which shows that the director and the other officers of the assessee physically inspected the COPS at the plant of SSL before completing the deal of purchase of one lac COPS and ....
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....neous sales account and taken as profit on sale of COPS. Thus, it is clear that the sale proceeds of the COPS was not treated as a capital receipt but was shown as income of the SSL and on the other hand claiming 100% depreciation by the assessee of the same amount neutralise the Revenue effect. Thus, on one hand the transaction of sale and lease back has resulted an income of Rs. 50,00,000/- in the hand of SSL and on the other hand, the assessee has claimed 100% depreciation on the said amount. Further the amount of lease rent paid by the SSL has been shown as expenditure per contra the said amount has been shown by the assessee as income. Accordingly, taking the holistic view the overall result of the transaction is Revenue neutral and therefore, it cannot be said that it is a colourable device to avoid due tax. The Ld. CIT has also placed reliance on the explanation 3 to section 43(1) of the Income Tax Act to deny the assessee's claim of depreciation. For ready reference we reproduce explanation 3 to section 43(1) as under: "Explanation 3 - Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his busin....
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....his decision of the Hon'ble Supreme Court has been followed by the Tribunal in the case of Development Credit Bank Ltd. Vs DCIT in ITA No. 7625/M/2007 and 27 others. After considering the facts of the case in the light of these judicial decisions, we find that the issue is squarely covered in favour of the assessee. Accordingly, we direct the A.O to allow the depreciation on sale and leased back assets (SLB). However, we find that while disallowing the claim of depreciation, the Ld. CIT(A) has directed the A.O to exclude from the assessed income of the value of the capital component of the lease rentals of the year. Since we have allowed the claim of depreciation, the A.O is directed not to give any other benefit to the assessee and if he has excluded the value of capital component of the lease rent of the year, the same should be added back. Ground NO. 11 is accordingly allowed." 12. Further the issue of depreciation on COPS has been considered by the Delhi Benches of this Tribunal in case of Modipon Ltd. Vs ITO in para 94 as under: "94. We have given consideration to the above arguments. The photographs of the cops as fitted to the plant & machinery of the assessee as also ....