AI Drafter 
TaxTMI 
TaxTMI 
2003 (9) TMI 36
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....of Rs. 1,60,18,854 (rupees one crore sixty lakhs eighteen thousand eight hundred fifty four only); and on the same day, by means of a separate lease deed, it had leased back the said machinery/equipment to the APSEB for a monthly rent of Rs.2,19,498.35 (rupees two lakhs nineteen thousand four hundred ninety-eight and paise thirty-five only) for a period of 72 months commencing from September 29, 1995, till August 29, 2001. The assessee claimed 100 per cent. depreciation in respect of the said leased machinery as the machinery purchased, according to the assessee, was pollution control equipment. The Assessing Officer by his order annexure E dated March 26, 1999, disallowed the depreciation claimed by the assessee to the extent of Rs. 1,60,18,854 on the ground that the assessee was unable to establish the ownership of the said equipment and explain the details of the assets and furnish the written down value of the said equipment in the hands of the assessee; and, therefore, in the facts and circumstances of the case, the transaction entered into between the assessee and the APSEB should be treated only as finance transaction and not a genuine lease transaction wherein a sum o....
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....pellate authorities in treating the transaction between the appellant and the APSEB as the financial transaction and bringing to tax the notional interest at 18 per cent. on the net sum paid by the appellant to the APSEB? 5. Whether the order of the Tribunal was perverse in so far as in spite of producing all necessary details to identify the assets and the transaction as entered into between the appellant and the APSEB to the said transaction had been treated as a sham transaction?" Sri G. Sarangan, the learned senior advocate appearing along with Sri S. Parthasarathi, for the assessee, strongly urged that since the purchase of machinery/equipment from the APSEB was made by means of agreement of sale deed dated September 29, 1995; and on the same day by means of lease deed, the assessee had leased back the machinery/equipment in question, to the APSEB; and the APSEB being a statutory corporation incorporated by the Government of Andhra Pradesh; the Tribunal, the appellate authority and the Assessing Officer have seriously erred in law in ignoring the said written documents and proceeding to take the view that the transaction in question is a colourable transaction entered in....
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....tores v. CIT [2002] 253 ITR 341 (P&H). He also referred to us certain passages from Kanga and Palkhivala's at pages 21A, 46, 48, 50, 51, 53, 54, where judgments of various courts are referred to, and submitted that the Tribunal has failed to consider that the decision of the Supreme Court in the case of McDowell [1985] 154 ITR 148 relied upon by the Tribunal has absolutely no application to the facts of the present case and the Tribunal has failed to consider that it is open to the assessee to have a tax planning and all tax planning allowable in law cannot be equated or treated as the planning meant for evasion of tax. However, Sri M.V. Seshachala, learned counsel appearing for the respondent, meeting every one of the submissions made by Sri Sarangan pointed out that all the three authorities, on appreciation of the materials placed before them including the sale agreement and the lease agreement, having recorded a finding that the transaction in question is a financial transaction and the sale agreement relied upon by the assessee by virtue of which it is stated to have purchased the machinery/equipment in question and also the lease agreement by virtue of which it is stated t....
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....learned counsel, the said report would clearly support the conclusion reached by the Tribunal as well as the appellate authority and the Assessing Officer that the transaction in question is only a colourable transaction. He submitted that when the machinery/equipment in question was being utilised by the APSEB; and was admittedly embedded to the earth, and the case put forward by the assessee also shows that the said machinery/equipment was required by the APSEB; and since it is not the case of the assessee that the machinery/equipment was dismantled or detached from the earth and actual possession was handed over to the APSEB by the assessee, the only inference and irresistible conclusion any reasonable person or authority could arrive at, which as a matter of fact has been arrived at by the Tribunal and the subordinate authorities, is that the transaction in question is a sham transaction. Therefore, he submits that the conclusion reached by the Tribunal and the subordinate authorities do not call for any interference in this appeal. In support of his submission that the transaction is a sham transaction, he relied upon the decision of the hon'ble Supreme Court in the case of Wo....
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.... by the High Court. Of course, the proviso to the section shows that nothing shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law, not formulated by it, if the court is satisfied that the case involves such a question. The proviso presupposes that the court shall indicate in its order the substantial question of law which it proposes to decide even if such substantial question of law was not earlier formulated by it. The existence of a 'substantial question of law' is thus, the sine qua non for the exercise of the jurisdiction under the amended provisions of section 100 of the Code of Civil Procedure." Keeping the above principle in mind, we will now proceed to examine the contention advanced by Sri Sarangan. In our view, there is no merit in anyone of the submissions advanced by learned counsel for the appellant. The orders impugned do not suffer from any error, much less, do they suffer from any infirmity involving a substantial question of law. The findings recorded by the Tribunal and the subordinate authorities, as rightly pointed out by Sri Seshachala are purely questions of ....
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....itten down value as per section 43(1) of the Act in support of the machinery/equipment could not be ascertained; (iv) market value of the asset without valuer assessment also could not be ascertained; (v) there is no actual delivery or handing over of possession of the machinery/equipment by the APSEB to the assessee on completion of the sale of the said machinery/equipment; (vii) there was also no redelivery or handing over of the possession of the machinery/equipment by the assessee to the APSEB ; and (viii) the machinery/equipment also was embedded or attached to the earth. The order made by the Assessing Officer also indicates that the assessee has not co-operated before him in the course of the assessment proceedings for the purpose of identification of machinery/equipment to verify the actual value of the machinery and the equipment stated to have been purchased and also the nature of machinery/ equipment purchased. In this connection, it is useful to refer to the observation made in paras. 5 and 6 of the order of assessment, which reads as hereunder: "5. In response to the above, the assessee-company filed a letter dated March 25, 1999, wherein it is stated that some of t....
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....ompany has not furnished all the required factual information so as to examine this issue in detail and come to reasonable conclusion. Therefore, it is inferred that the assessee has no explanation to offer on these issues." The appellate authority, after elaborately considering the case pleaded by the assessee and also after looking into the valuation report dated October 15, 1999, had concurred with the conclusion reached by the Assessing Officer. The conclusion reached both by the appellate authority and the Assessing Officer has been confirmed by the Tribunal in the order impugned. Therefore, if on a careful analysis of the material placed, the Assessing Officer, the appellate authority and the Tribunal, have not believed the case pleaded by the assessee, in our view, the said finding is not liable to be interfered with in exercise of our power under section 260A of the Act. It is not permissible for this court to reappreciate the evidence over and again and come to a different conclusion. It is only in case of errors of substantial question of law, this court can upset the finding recorded by the Tribunal. We are unable to accede to the submissions of Sri Sarangan that the ....
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....ct. Sri Sarangan repeatedly submitted that the APSEB being a statute of the Government of Andhra Pradesh has not denied both the sale and the lease transaction in question and it was not permissible for the Assessing Officer and the Tribunal to go beyond the said transaction, we find it difficult to accede to his submission. The Assessing Officer, in our view, is entitled to go into the genuineness or otherwise of the transaction entered into for the purpose of determining, whether any attempt is made by the assessee to avoid payment of tax. If an instrumentality of the State or the Department of the State, is one of the parties to the transaction, it may be one of the circumstances that may be taken into account by the Assessing Officer while considering the claim regarding the genuineness of the transaction, but it cannot be conclusive in nature which will bind the Assessing Officer. In the instant case, as noticed by us earlier, all the three authorities have come to the conclusion that the transaction in question is a colourable transaction. Even we are unable to appreciate as to what prompted the assessee to purchase second hand machinery/equipment, which never came to be move....
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....y/equipment is not a genuine transaction on the ground that the said documents were not registered. In the facts and circumstances of the case, it is not possible to take the view that the Tribunal was not justified in holding that the transaction in question is not in the nature of tax planning adopted by the assessee intending to avoidance of tax liability by so arranging its commercial affairs so that charge of tax is distributed. As noticed by us earlier, the taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the assessee has chosen to conceal by a device he legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship. However, the only restriction is that the legal effect of the transaction should not be displaced by probing into the "substance of the transaction". Therefore, while every person is entitled to so arrange his affairs as to avoid taxation, the arrangement must be real and genuine and not a sham or make-believe one. In the instant case, the Tribunal, the appellate authority and the Assessing Officer have recorded a finding that ....
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....ke this, we consider that it is the duty of this court not to give judicial vindication to such an act of avoidance of payment of tax in the guise of sophisticated use of language as "tax planning". We are of the view that the decision in the case of Arvind Narottam [1988] 173 ITR 479 (SC), relied upon by Sri Sarangan, is of no assistance to him. No doubt, in the said decision, both the Chief Justice (R.S. Pathak C.J.I.) who delivered the main judgment and Mr. Justice Sabyasachi Mukharji who agreed with his view, decided the case on the language of the deed of settlement, which came up for consideration before the court in the said case. The observation made by the Mr. Justice Sabyasachi Mukharji in the said case, on which considerable reliance is placed by Sri Sarangan, is of no assistance to him. However, it is useful to refer to the said observation, which reads as hereunder: "Dr. V. Gauri Shankar, appearing on behalf of the Revenue, made an appeal before us stating that we should really construe the three trust deeds together and see 'the game of the hidden purpose' behind these trust deeds which were, in fact, for the sole and exclusive benefit of the assessee. He drew o....