BRIJLAXMI LEASING & FINANCE PVT. LTD., BARODA v. THE DEPUTY CIT, CIRCLE -1, BARODA

ITA 1703/AHD/2003 | 1995-1996
Pronouncement Date: 08-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 170320514 RSA 2003
Assessee PAN AAACB9524F
Bench Ahmedabad
Appeal Number ITA 1703/AHD/2003
Duration Of Justice 6 year(s) 8 month(s) 17 day(s)
Appellant BRIJLAXMI LEASING & FINANCE PVT. LTD., BARODA
Respondent THE DEPUTY CIT, CIRCLE -1, BARODA
Appeal Type Income Tax Appeal
Pronouncement Date 08-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 08-01-2010
Date Of Final Hearing 05-01-2010
Next Hearing Date 05-01-2010
Assessment Year 1995-1996
Appeal Filed On 21-04-2003
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI BHAVNESH SAINI JM & SHRI A.N. PAHUJA AM I.T.A. NO.1703/AHD/2003 (ASSESSMENT YEAR 1995-96) BRIJLAXMI LEASING & FINANCE PVT LTD VS DY.CIT CIR CLE-1 204 STERLING CENTRE AAAYAKA R BHAVAN RACE COURSE R.C. DUTT ROAD ALKAPURI CI RCLE BARODA BARODA 390 005 [PAN : AAACB9524F] (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MK PATEL AR REVENUE BY : SHRI MC PANDIT DR O R D E R AN PAHUJA : THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 31-01-2003 OF THE LD. CIT(A)-III BARODA RAISES THE FOLLOWING GR OUNDS: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.2 61 359/- ON ACCOUNT OF DISALLOWANCE OF LOSS CL AIMED ON THE SALES OF SHARES. 2. IT IS PRAYED THAT THE ADDITION OF RS.2 61 359/- ON ACCOUNT OF DISALLOWANCE OF LOSS ON SALE OF SHARES BE DELETED. 3. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE TRA NSACTION OF PURCHASE AND LEASE BACK THE PLANT & MACHINERY TO GE LIKEPS PVT LTD. WAS ONLY A PAPER TRANSACTION AND THEREFOR E IT WAS A SHAM TRANSACTION. 4. THE LEARNED CIT(A) FURTHER ERRED IN CONFIRMING T HE DISALLOWANCE OF DEPRECIATION OF RS.9 98 342/- ON TH E PLANT & MACHINERIES SO PURCHASED AND LEASED BACK TO GELIKEP S PVT LTD. 5. IT IS PRAYED THAT THE ADDITION OF RS.9 98 342/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION BE DELETED 6. YOUR APPELLANT CRAVES LEAVE TO ADD ALTER OR AME ND ANY OF THE GROUNDS MENTIONED ABOVE. I.T.A. NO.1703/AHD/2003 2 2. ADVERTING FIRST TO GROUND NOS. 1 & 2 PERTAINING TO DISALLOWANCE OF RS. 2 61 359/- ON ACCOUNT OF LOSS ON SALE OF SHARES FA CTS IN BRIEF AS PER RELEVANT ORDERS ARE RETURN DECLARING INCOME OF RS.7 43 830/ - FILED ON 31.3.1997 BY THE ASSESSEE CARRYING ON THE BUSINESS OF LEASING FINA NCE AND INVESTMENT AFTER BEING PROCESSED ON 31.3.1997 U/S 143(1)(A) OF THE I NCOME-TAX ACT 1961[HEREINAFTER REFERRED TO AS THE ACT] WA S TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 9.4.1997. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE HAD CLAIMED LOSS OF RS.1 45 747/- ON SALE OF SHARES AFTER ADJUSTING THE PROFIT ON SALE OF SHARES. TO A QUERY BY THE AO T HE ASSESSEE POINTED OUT THAT THEY SUFFERED LOSS OF RS.2 29 270 ON SALE OF SHARES OF IPCL ASIAN PETROPRODUCTS FINOLEX PIPES LTD.. THE ASSESSEE ALSO SUFFERED LO SS OF RS.32 089 ON OTHER SHARE TRANSACTIONS FOR WHICH NO DETAILS WERE GIVE N. SINCE THE ASSESSEE COULD FURNISH ONLY THE DATE OF SALES OF SHARES AND FAILED TO FURNISH NAME AND ADDRESS OF THE BROKER DETAILS OF PAYMENTS FOR PURCHASE AND PUR CHASE/ SALE BILLS AS ALSO PROOF OF TAKING DELIVERY OF THESE SHARES THE AO DISALLO WED THE CLAIM OF LOSS OF RS. 2 61 359. ON APPEAL THE LD. CIT(A) RESTORED THE MA TTER TO THE FILE OF THE AO FOR FRESH CONSIDERATION IN THE LIGHT OF DETAILS IN THE FORM OF CONTRACT NOTES FILED BEFORE HIM. CONSEQUENTLY THE AO RECONSIDERED THE ISSUE W ITH REFERENCE TO THE COPIES OF CONTRACT NOTES AND CONCLUDED THAT THESE DETAILS WERE NOT SUFFICIENT TO ESTABLISH THE CLAIM OF LOSS. ACCORDINGLY HE MAINTAINED THE REJECTION OF CLAIM OF LOSS AS HAD BEEN DONE IN THE ORIGINAL ASSESSMENT. 3. ON APPEAL THE ASSESSEE SUBMITTED THAT AS THE MA TTER WAS VERY OLD THE ASSESSEE COULD NOT PRODUCE ALL THE CREDIT NOTES REQ UIRED FOR ESTABLISHING THE CLAIM OF LOSS ON SALE OF SHARES. THOUGH THE BILLS COULD NOT BE SUBMITTED BEFORE THE AO THE SAME BEING NOT AVAILABLE BUT THE AUDIT ED BOOKS OF ACCOUNTS OF THE ASSESSEE AND THE DETAILS OF BROKERS THROUGH WHOM TH E CONTRACT AND THE TRANSACTIONS WERE MADE DURING THE F.Y. 1994-95 WERE SUBMITTED. HOWEVER THE AO MERELY OVERLOOKED AND BRUSHED ASIDE THEM. HOWEV ER THE LD. CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE ON THE GRO UND THAT THE ASSESSEE I.T.A. NO.1703/AHD/2003 3 SUBMITTED FEW BILLS FOR PURCHASES OF SHARES FROM O NE OF THE BROKER OF BARODA STOCK EXCHANGE SHRI. A.K. NARIA AND COMPANY BESIDE S ONE BILL RELATING TO SALE OF SHARES OF IPCL AND THESE EVIDENCES LEAD NOWHERE AS THE REQUIRED CONTRACT NOTE AND RELEVANT BILLS WERE NOT MADE AVAILABLE EI THER BEFORE HIM OR THE AO DESPITE SUFFICIENT OPPORTUNITY GIVEN. ACCORDINGLY THE DISALLOWANCE OF LOSS ON SALE OF SHARES WAS CONFIRMED. 4 THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSE E SUBMITTED THAT AT LEAST LOSS ON SALE OF SHARES OF IPCL BE ALLOWED SINCE THE ASSE SSEE HAD SUBMITTED A COPY OF CONTRACT NOTE DATED 25.10.1994 ON SALE OF 7 900 SHA RES BESIDES CONTRACT NOTES FOR PURCHASE OF SHARES. ON THE OTHER HAND THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A). 5 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. THE LD. AR APPEARING BEFORE US PUT FORWARD THEIR CL AIM FOR LOSS ON SALE OF SHARES OF IPCL ONLY. THEREFORE WE HAVE NO OPTION BUT TO UPHOLD THE FINDINGS OF THE LD. CIT(A) REGARDING LOSS ON SALE OF SHARES OF THE OTHE R COMPANIES . AS REGARDS LOSS ON SALE OF SHARES OF IPCL WE FIND FROM COPIES OF CONTRACT NOTES ISSUED BY AK NARIA & CO[ PLACED ON PAGE 47 TO 57 OF THE PAPER B OOK] THAT THE ASSESSEE IS STATED TO HAVE PURCHASED 500 SHARES OF IPCL ON 25. 8.1994 1000 EACH ON 30.8.1994 & 31.8.1994 2200 ON 1.9.1994 1000 ON 13.9 .1994 & 1500 ON 14.9.1994. THUS TOTAL OF 7 200 SHARES OF IPCL ARE STATED TO HAVE BEEN PURCHASED UNTIL 14.9.1994. ANOTHER 600+1400 SHARES ARE STATED TO HAVE BEEN PURCHASED ON 11.11.1994. AS PER COPY OF CONTRACT NO TE PLACED ON PAGE 57 OF THE PAPER BOOK 5500+2400=7 900 SHARES OF IPCL ARE STAT ED TO HAVE BEEN SOLD ON 20.10.1994. HOW OUT OF PURCHASE OF ONLY 7 200 SHA RE OF IPCL 7900 HAVE BEEN SOLD HAS NOT BEEN EXPLAINED BEFORE US NOR BILLS AN D SCRIP NOS. OF THESE SHARES OR EVIDENCE OF DELIVERY AND PAYMENT FOR PURCHASE OF TH ESE SHARES HAS BEEN PLACED BEFORE THE LOWER AUTHORITIES AND EVEN BEFORE US. IN THESE CIRCUMSTANCES; ESPECIALLY WHEN THE RELEVANT EVIDENCE IS NOT FORTHC OMING FROM THE ASSESSEE I.T.A. NO.1703/AHD/2003 4 DESPITE SUFFICIENT OPPORTUNITY ALLOWED BY THE AO AN D THE LD. CIT(A) WE ARE NOT INCLINED TO INTERFERE WITH THE CONCLUSION DRAWN BY THE LD. CIT(A). CONSEQUENTLY GROUND NOS. 1 & 2 IN THE APPEAL ARE DISMISSED.. 6. NEXT GROUND NOS. 3 TO 5 RELATE TO CLAIM OF 100 % DEPRECIATION AMOUNTING TO RS.9 98 342 ON MACHINERIES PURCHASED FROM GELL IKEPS PVT LTD BARODA AND SUBSEQUENTLY LEASED BACK TO THEM. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE PURC HASED VIDE INVOICE NUMBER NIL DATED 25.3.1995 FOLLOWING MACHINERY FROM GELLIK EPS PVT LTD BARODA : S NO ITEM QTY AMOUNT 1 SS MOULD PIN BARS FOR SIZE O MOUNTED ON STEEL PLATES 450 217080 2 SS STEEL BARS MOUNTED STEEL PLATES FOR SIZE O 1150 554760 3 146 PLATES OF 334 MOULD PINS EACH 146 226502 TOTAL 998342 THE BILL FOR PURCHASE OF MACHINERY DID NOT CONTAIN MODE OF TRANSPORTATION AND THE DETAILS OF PAYMENTS. DURING THE COURSE OF HEARI NG ON 13.11.1997 AND IN SUBSEQUENT NOTICE DATED 31.12.1997 THE AO SOUGHT C ERTAIN DETAILS RELATING TO AFORESAID PURCHASE OF MACHINERY AS MENTIONED ON PAG E 6-7 OF THE ASSESSMENT ORDER DATED 30.3.1998.IN RESPONSE THE ASSESSEE VID E LETTER DATED 8.1.1998 SUBMITTED THAT THE MACHINERY WAS PURCHASED FOR MANU FACTURING EMPTY GELATINE CAPSULES AND SUBSEQUENTLY LEASED OUT TO THE AFORESA ID COMPANY .LEASE RENTALS ACCRUED AS A RESULT WERE OFFERED FOR TAXATION. THE ASSESSEE ALSO SUBMITTED THAT M/S GELIKEPS PURCHASED MACHINERY IN THE EARLIER YE ARS AND SUBMITTED THE FOLLOWING RELEVANT DETAILS: NAME OF PARTY DATE ITEM QUANTITY RATE AMOUNT INCLUDING S.T. 1.A. HARRISON ENGINEERS 28.6.83 CHROMIUM PLATED PIN PLATES 146 150 22 863 I.T.A. NO.1703/AHD/2003 5 1.B. DO. 28.6.83 S.S. MOULD PIN S PER DRAWING GKP/MP/2 48764 4 2 03 639 2. ACE MULTITECHS 22.3.90 S.S. PIN BARS WITH 4 PRELOCKS 450 450 2 17 080 3. .DO. 16.4.90 DO.. 1150 450 5 54 760 6.1 IT WAS FURTHER POINTED OUT BY THE ASSESS EE THE INDIVIDUAL ITEMS OF PLANT AND MACHINERY WERE LESS THAN RS.5000 EACH. ACCOR DING TO THE ASSESSEE THE AFORESAID MACHINERY WAS LEASED TO M/S GELIKEPS P VT LTD ON 27 TH MARCH 1995 FOR 48 MONTHS. WHAT HAPPENED ON EXPIRY OF THIS PER IOD AS TO WHETHER OR NOT MACHINERY WAS RETURNED IS NOT KNOWN NOR THE BASIS OF VALUATION OF MACHINERY ON THE DATE OF ITS PURCHASE IS EVIDENT THOUGH IT WA S MENTIONED BEFORE THE AO THAT PURCHASE WAS MADE AFTER ASCERTAINING THE PREVAILING MARKET PRICE.. ADMITTEDLY THE AFORESAID MACHINERY REMAINED IN THE CUSTODY OF GALLIKEPT PVT LTD SINCE THIS WERE NOT HANDED OVER TO PURCHASER BUT WAS SHOWN AS TAKEN BACK ON LEASE. THE LEASE RENT WAS REQUIRED TO BE PAID IN FIVE YEARS TIME WITH INTEREST HOWEVER ACTUALLY LEASE RENT WAS PAID UPTO 2/3 INSTALMENTS AND PAYMENT WAS STOPPED BECAUSE OF CASH CRUNCH. ACCORDING TO SHRI BHARAT P ATEL DIRECTOR OF GELIKEPS PVT LTD. ENTIRE DEAL WAS MADE FOR GETTING THE FINANCE SINCE THEIR COMPANY WAS FACING CASH CRUNCH. 6.2 AS MENTIONED IN THE ASSESSMENT ORDER THE A O DEPUTED HIS INSPECTOR ON 20 TH MARCH 1998 TO VISIT THE FACTORY OF GALLIKEPS PVT LTD.AT ATLADRA BARODA TO IDENTIFY THE MACHINERY SINCE THE ASSESSEE IN HIS S UBMISSION DATED 16-02-1998 PLEADED THAT MACHINERY PURCHASED BY THEM IS LYING I N THE FACTORY PREMISES OF GELIKEPS PVT LTD. AT BARODA. HOWEVER INSPECTOR DID NOT FIND ANY MACHINERY IN THE SAID PREMISES AND INSTEAD HE WAS INFORMED THAT MACHINERY HAS BEEN TRANSFERRED TO R ANOTHER FACTORY AT WILLSTRONG ENTE RPRISES 155 GIDC VITHAL UDYOG NAGAR VV NAGAR ANAND ON 15 TH SEPTEMBER 1995. IT WAS ALSO STATED THAT THE UNIT AT BARODA WAS LYING CLOSED SINCE AUGUST 1995 THE PRODUCTION OF 0 SIZE HARD GELATIN CAPSULES HAVING SUBSTANTIALLY REDUCED FROM ASSESSMENT YEAR 1994- I.T.A. NO.1703/AHD/2003 6 95. THE AO OBSERVED THAT THE ASSESSEE DID NOT EXPL AIN AS TO HOW COULD M/S GELIKEPS PVT LTD TRANSFER THE MACHINERY TO SOME OTH ER UNIT WITHOUT THE KNOWLEDGE OF THE ASSESSEE. SHRI BHARAT PATEL DIRECTOR OF THE COMPANY ADMITTED THAT TRANSFER OF THIS OLD MACHINERY TO THE ASSESSEE WAS ONLY ON PAPER BECAUSE MACHINERY WAS NEVER TRANSPORTED AND SUCH ARRANGEMEN T WAS MADE TO RECEIVE CASH FOR RUNNING THEIR FACTORY. IN NUTSHELL THE AO CONCLUDED THAT I). THE PURCHASE OF THIS MACHINERY IS A PAPER TRANS ACTION; THE ASSESSEE PURCHASED VERY OLD AND OBSOLETE MACHINERY LIKE SS M OULD PIN BARS AND PLATES WHICH ARE 6 TO 13 YEARS OLD AT AN EXORBITANT PRICE OF RS.9 98 342/-. SUCH MACHINERY WAS NEVER TRANSPORTED TO ASSESSEE BUT REM AINED THERE IN THE FACTORY OF GELIKEPS PVT LTD. II). GELIKEPS PVT LTD ENTERED IN TO THIS PAPER TRAN SACTION OF SALE OF SS MOULD PIN BARS AND PLATES NOT ONLY WITH ASSESSEE BUT ALSO WITH F.A. CHASMAWALA PVT LTD AJAY CORRUGATING INDS. PVT LTD. AND WORLD TRAD E IMPEX PVT LTD. ALL OF WHICH ARE DOING DIFFERENT BUSINESS AND HAVE NO CONNECTION WHATSOEVER WITH CAPSULE MANUFACTURING. THESE CONCERNS HAVE ONLY TWO THINGS IN COMMON THAT THEIR CHARTERED ACCOUNTANTS WERE M.V. DEY & VO AND ALL OF THEM ARE MAKING POSITIVE INCOME AND THEREFORE SUCH DEPRECIATION CLAIM AT 10 0% RATE ON PURCHASE OF SECOND HAND MACHINERY FROM GELIKEPS PVT LTD HELPED THEM TO REDUCE THEIR TAXABLE PROFIT. III). AS ADMITTED BY SHRI BHARAT PATEL DIRECTOR OF GLIKEPS PVT LTD. THEIR MACHINERY FOR MANUFACTURING HARD GELATNE CAPSULES H AD BECOME OBSOLETE AND UNVIABLE. IN SUCH CIRCUMSTANCES PURCHASE OF SUCH MACHINERY BY ASSESSEE IS NOT A BUSINESS TRANSACTION BUT A TRANSACTION FOR AV OIDANCE OF TAX. THIS COMPANY IS MANUFACTURING HARD GELATINE CAPSULES SINCE 1965 AND THEY STOPPED THE PRODUCTION OF HARD GELATINE CAPSULES IN AUG.1995 BE CAUSE IT WAS UNVIABLE. A MANUFACTURING ACTIVITY BECOMES UNVIABLE OVER A PERI OD OF TIME LOOKING TO OBSOLETE MACHINERY RESULTING INTO HIGH PRODUCTION C OST REDUCTION OF DEMAND LOSS I.T.A. NO.1703/AHD/2003 7 ON CARRYING OF SUCH MANUFACTURING ACTIVITY ETC. IN THESE CIRCUMSTANCES IT WAS KNOWN TO THE MANAGEMENT OF GELIKEPS PVT LTD IN ADVA NCE I.E. IN A.Y. 1995-96 THAT THEIR MACHINERY HAS BECOME OBSOLETE AND THEY H AVE TO STOP PRODUCTION. IN NORMAL CIRCUMSTANCES NO BODY WILL PURCHASE SUCH AN OLD AND OBSOLETE MACHINERY WITH WHICH PRODUCTION ACTIVITY IS NOT VIABLE. THER EFORE PURCHASE OF SUCH MACHINERY BY ASSESSEE IS PURELY A PAPER TRANSACTION . IV). THE UNIT OF GELIKEPS PVT LTD MANUFACTURING HAR D GELATINE CAPSULES HAS BEEN CLOSED DOWN SINCE JULY 1997 BY TTHE ORDER OF GUJARAT HIGH COURT BECAUSE IT WAS CONSIDERED A HIGH POLLUTION INDUSTRY AND WAS TAKEN OVER BY GUJARAT POLLUTION CONTROL BOARD. V). ASSESSEE HAS NOT SUBMITTED FULL DETAILS OF PAYM ENT OF RS.9 98 342/- TO GELIKEPS PVT LTD. THE CHEQUE NUMBERS DRAWEE BANK DETAILS ALONGWITH DATES ARE NOT SUBMITTED. THE BANK STATEMENT FROM WHICH SUCH PAYMENT WAS MADE WAS NOT PRODUCED FOR VERIFICATION. VI). ACCORDING TO ASSESSEE THIS MACHINERY WAS LEAS ED BACK TO GELIKEPS PVT LTD AS PER LEASE AGREEMENT DATED 27.3.95. THE LESS EE IS REQUIRED TO PAY LEASE RENT IN SIXTEEN QUARTERS. HOWEVER LESSEE HAS PAID ONLY ONE OR TWO INSTALLMENT AND SHRI BHARAT PATEL SUBMITTED THAT THEY COULD NOT PAY FURTHER INSTALLMENT OF LEASE RENT TO ASSESSEE DUE TO CASH CRUNCH. HOWEVER ASSESSEE AS A LESSOR NEVER DEMANDED TILL DATE ANY LEASE RENT FROM LESSEE AND THERE IS NO CORRESPONDENCE MADE BY ASSESSEE IN THIS REGARD. TH E ASSESSEE ALSO DID NOT ISSUE ANY LEGAL NOTICE TO GELIKEPS P LTD FOR RECOVE RY OF LEASE RENT. VI). ACCORDING TO ASSESSE THIS MACHINERY PURCHASED BY ASSESSEE ON 25.3.95 IS LYING AT THE FACTORY PREMISES OF GELLIKEPS PVT L TD AT ATLADARA BARODA. AS POINTED OUT ABOVE THE SAID MACHINERY WAS NOT FOUND IN THAT PREMISES DURING A SURVEY U/S 133A OF THE ACT I.T.A. NO.1703/AHD/2003 8 6.3 IN THE LIGHT OF AFORESAID FACTS RELYING U PON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF GOYAL GASES PVT LTD VS DCIT 227 ITR 536(DEL) THE AO DISALLOWED THE CLAIM FOR 100% DEPRECIATION O N SECOND HAND MACHINERY . 7. ON APPEAL THE LD. CIT(A) SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR AFFORDING AN OPPORTUNITY FOR CROSS EXAMINATION OF SHRI BHARAT PATEL. IN PURSUANCE TO THESE DIRECTIONS SINCE THE ASSESSEE C OULD NOT PRODUCE SHRI BHARAT PATEL FOR THE CROSS EXAMINATION PRESUMABLY DUE TO DISTURBANCES IN THE CITY THE AO DISALLOWED THE CLAIM . 8.. ON APPEAL THE LD. CIT(A) REMANDED THE MATTE R TO THE AO FOR AFFORDING AN OPPORTUNITY FOR CROSS EXAMINATION OF SHRI BHARAT PA TEL. IN HIS CROSS EXAMINATION SHRI BHARAT PATEL STATED THAT THE MACHINERY SOLD AN D LEASED BACK BY THEM WERE USED FOR THEIR MANUFACTURING ACTIVITY AND THE AO IS NOT CORRECT IN STATING THAT THE SAME WERE NOT USABLE AND WERE OBSOLETE. THESE MACH INERIES WERE USABLE AND NOT OBSOLETE AND THEY WERE IN FACT USED BY M/S GELL IKEPS IN THEIR MANUFACTURING ACTIVITY. THE LEARNED COUNSEL FOR THE ASSESSEE AC CORDINGLY PLEADED BEFORE THE CIT(A) THAT THE STATEMENT OF THE ASSESSING OFFICER REGARDING UNUSABILITY OF THE MACHINERY IS NOT CORROBORATED BY THE STATEMENT OF S HRI BHARAT PATEL AND THEREFORE THE DEPRECIATION SHOULD BE ALLOWED. HOW EVER THE LD. CIT(A) MAINTAINED THE DISALLOWANCE IN THE FOLLOWING TERMS: 4.4 ON CONSIDERATION OF THE FACTS OF THE CASE I F IND THAT THE MACHINERIES UNDER CONSIDERATION WERE VERY OLD AND T HE SELLER I.E. GELLIKPES HAVE ALREADY AVAILED OF 100% DEPRECIATION ON SUCH MACHINERIES IN THEIR CASE. IT IS A MATTER OF GREAT SURPRISE THAT SUCH OLD MACHINERIES WHICH WERE PURCHASED IN 1982-83 TO 1990-91 BY M/S GELLIKEPS WERE AGAIN SOLD AT THE SAME PRICE TO THE APPELLANT IN THE PRESENT ASSESSMENT YEAR AND THAT TOO FOR TAKING THEM BACK ON LEASE. THE STATEMENT OF BHARAT PATEL IN THE CROSS EXAMINATION THAT THE MACHINERIES WERE NOT OBSOLETE AND WERE USED BY M/S GELLIKPES IN THEIR MANUFACTURING ACTIVITY DOES NOT STAND ON S OLID GROUND. FIRSTLY BECAUSE DURING CROSS-EXAMINATION THE APPELL ANTS COUNSEL HAS PUT TO SHRI BHARAT PATEL LEADING QUESTION AND S ECONDLY EARLIER I.T.A. NO.1703/AHD/2003 9 SHRI BHARAT PATEL HAS ADMITTED ON 19-03-1998 THAT T HEY HAVE STOPPED PRODUCTION BECAUSE OF THEIR OBSOLETE MACHIN ERIES / PLANT FOR THE LAST TWO YEARS. FURTHER THE LEASE RENT HAS ALSO NOT BEEN PAID AFTER TWO THREE INSTALLMENTS. ALSO THE MACHINERIES UNDER CONSIDERATION HAVE BEEN SOLD AT THEIR ORIGINAL PRIC ES EVEN AFTER THEIR USE FOR A NUMBER OF YEARS. ALL THESE INDICATE THAT SALE AND LEASE BACK OF THE MACHINERY UNDER CONSIDERATION ARE NOTHI NG BUT ONLY PAPER TRANSACTION AND THEREFORE SHAM IN WHICH A CO LORABLE DEVICE HAS BEEN USED BY THE APPELLANT TO REDUCE ITS TAX LI ABILITY. THEREFORE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS U PHELD. IN DOING SO I AM ALSO FOLLOWING THE ORDER OF CIT(A) IN THE CASE OF M/S F.A. CHASMAWALA (APPEAL NO.CAB/IV-68/98-99 DATED 04-09-9 8 0- A.Y. 1995-96) WHEREIN THE SIMILAR ISSUE OF PURCHASE OF S IMILAR MACHINERIES FROM THE SAME SELLER I.E. M/S GELLICAPS AND LEASING THEM BACK TO THEM ONLY WAS CONSIDERED AND THE DISA LLOWANCE MADE IN RESPECT OF DEPRECIATION RELATES TO THE ALLE GED PURCHASES OF MACHINERIES IN THE HANDS OF LESSOR OF THE MACHINERI ES I.E. M/S F.A. CHASHMAWALA WAS CONFIRMED BY THE CIT(A). 9. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSE E WHILE CARRYING US THROUGH THE IMPUGNED ORDER CONTENDED THAT THE TRANSACTION WAS NOT A PAPER TRANSACTION . AS REGARDS RELIANCE ON THE DECISION OF FA CHASMAWALA B Y THE LD. CIT(A) THE LD. AR WHILE SUBMITTING A COPY OF CERTIFICATE ISSUED UNDER KVSS PLEADED THAT IN THAT CASE ISSUE WAS SETTLED UNDER KVSS.ON THE OTHER HAND THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A). 10. WE HAVE HEARD BOTH THE PARTIES AND GONE T HROUGH THE FACTS OF THE CASE. AN ASSESSEE WHO CLAIMS DEPRECIATION HAS TO SATISFY THE REVENUE THAT HE IS ENTITLED FOR GRANT OF DEPRECIATION ON ITEMS CLAIMED BY IT. THE BURDEN OF PROOF IS ON THE ASSESSEE. IN THE INSTANT CASE THE ASSESSING OF FICER AS WELL AS THE APPELLATE AUTHORITY AFTER CAREFUL CONSIDERATION OF THE CASE PLEADED BY THE ASSESSEE AND THE MATERIALS PLACED BY IT BEFORE THE ASSESSING OFF ICER HAVE RECORDED A FINDING THAT THE TRANSACTION SET UP BY THE ASSESSEE IS NOT A GENUINE ONE AND IS A COLOURABLE TRANSACTION INTENDED TO AVOID PAYMENT OF TAX. THEY HAVE NOT BELIEVED THE CASE OF THE ASSESSEE THAT THE ASSESSEE BY MEAN S OF SALE AGREEMENT DATED 25.3.1995 HAD PURCHASED THE MACHINERY/EQUIPMENT FRO M M/S GELIKEPS PVT. LTD. AND ON 27.3.1995 THE SAME MACHINERY WAS LEASED BAC K TO THE SELLER. I.T.A. NO.1703/AHD/2003 10 UNDISPUTEDLY THE SAID MACHINERY WAS NEVER TRANSPOR TED . IN FACT M/S GELIKEPS PVT. LTD. HAD PURCHASED THE MACHINERY IN JUNE 198 3 & MARCH/APRIL 1990. UNDISPUTEDLY THE UNIT OF THE SAID COMPANY AT ATAL DRA IS CLOSED SINCE AUGUST 1995 WHILE THE PRODUCTION OF 0 SIZED HARD GELATIN CAPSULES IN THE PERIOD RELEVANT TO THE AY 1994-95 WHICH WAS 5 43 25 000 HAD REDUCED TO ONLY 1 18 90 000 IN THE YEAR UNDER CONSIDERATION. THE SA ID COMPANY WAS FACING RESOURCE CRUNCH AND NEEDED FUNDS. THE WRITTEN DO WN VALUE AS PER SECTION 43(1) OF THE ACT IN RESPECT OF THE SAID MACHINERY I N THE HANDS OF M/S GELIKEPS P LTD. WAS NIL EACH ITEM HAVING COST BELOW RS. 5 000 EACH.. THE MARKET VALUE OF THE MACHINERY WITHOUT VALUER ASSESSMENT ALSO COULD NOT BE ASCERTAINED NOR THERE IS ANY MATERIAL BEFORE US THAT THERE WAS ACTUAL D ELIVERY OR HANDING OVER OF POSSESSION OF THE MACHINERY/EQUIPMENT BY M/S GELIKE PS P LTD TO THE ASSESSEE ON COMPLETION OF THE SALE OF THE SAID MACHINERY/EQU IPMENT; EVEN THERE WAS ALSO NO REDELIVERY OR HANDING OVER OF THE POSSESSION OF THE MACHINERY/EQUIPMENT BY THE ASSESSEE TO THE M/S GELIPEPS P LTD. AS POINTED OUT BY THE AO THE ASSESSEE DID NOT SUBMIT THE RELEVANT DETAILS AND DATES OF MA KING PAYMENT TO M/S GELIKEPS P LTD. WHILE THE MACHINERY WAS NOT FOUND IN THE FAC TORY PREMISES OF THE SAID COMPANY AT BARODA. EVEN THOUGH A COPY OF STATEMENT OF SHRI BHARAT PATEL AND THE RELEVANT LEASE DEED HAVE NOT BEEN PLACED BEFORE US IMPUGNED ORDERS REVEAL THAT THE LEASE AGREEMENT WAS FOR A PERIOD OF FOUR YEARS. WHAT HAPPENED TO THE SAID MACHINERY AFTER FOUR YEARS IS NOT EVIDE NT FROM RECORDS. THERE IS NOTHING TO SUGGEST THAT SAID MACHINERY WAS RETURNE D BY THE LESSEE COMPANY OR THAT THE LEASE AGREEMENT WAS RENEWED. IT IS ALSO NO T EVEN IN DISPUTE THAT LEASE RENTALS WERE NOT PAID BY THE LESSEE AFTER PAYING FI RST TWO OR THREE INSTALMENTS. EVEN THE PURPORTED PURCHASE PRICE OF THE MACHINERY IN THE YEAR UNDER CONSIDERATION IS STATED TO BE SAME AS THE ORIGINAL COST OF M/S GELICAPS P LTD. THERE IS NO MATERIAL BEFORE US SUGGESTING THAT FO R FIXING THE SAID PRICE ANY VALUATION WAS GOT DONE THROUGH AN APPROVED VALUER. THIS SHOWS THE REAL INTENTION OF THE PARTIES. SALE AND LEASE BACK (SLB) TRANSACTIONS HAVE BEEN RECOGNISED COMMERCIALLY BUT THE JUDICIAL EYE CAN CERTAINLY UNEARTH A DEVICE OR A SMOKE-SCREEN CREATED TO CONCEAL THE REAL INTENTION OF THE PARTIES AND FOR THIS I.T.A. NO.1703/AHD/2003 11 PURPOSE AUTHORITIES CAN EXAMINE THE GENUINENESS OF THE TRANSACTION IN QUESTION - THE ENQUIRY IS TO FIND OUT THE REAL INTENTION OF THE PARTIES AND ASCERTAIN WHETHER A SIMPLE LOAN TRANSACTION MASQUERADES AS AN SLB TRANS ACTION. IN THE FACTS OF THE CASE WE FIND THAT THE ENTIRE TRANSACTION AND THE SEQUENCE OF EVENTS WERE PREORDAINED OR PRE-PLANNED - OVERRIDING CONSIDERATI ON APPEARED TO BE THE PROSPECT OF GETTING 100 PER CENT DEPRECIATION AND THERE WAS NO INTENTION TO CONVEY ANY PROPERTY TO THE ASSESSEE AND THE LEASE WAS A MERE PAPER ARRANGEMENT AND A SIMPLE FINANCE TRANSACTION WAS PU T UNDER THE GARB OF LEASE. THE ASSESSING OFFICER IN OUR VIEW IS ENTITLED TO GO INTO THE GENUINENESS OR OTHERWISE OF THE TRANSACTION ENTERED INTO FOR THE P URPOSE OF DETERMINING WHETHER ANY ATTEMPT IS MADE BY THE ASSESSEE TO AVOID PAYMEN T OF TAX. IN THE INSTANT CASE AS NOTICED BY US EARLIER BOTH THE AUTHORITIE S BELOW HAVE COME TO THE CONCLUSION THAT THE TRANSACTION IN QUESTION IS A CO LOURABLE TRANSACTION. EVEN WE ARE UNABLE TO APPRECIATE AS TO WHAT PROMPTED THE AS SESSEE TO PURCHASE SECOND HAND MACHINERY/EQUIPMENT WHICH NEVER CAME TO BE MO VED FROM THE PLACE WHERE IT WAS LOCATED BY M/S GELIKEPS P LTD. AND AGA IN TO LEASE IT BACK TO THE SELLER WITHIN TWO DAYS AT THE FAG END OF THE RELEVA NT ACCOUNTING YEAR. AS RIGHTLY OBSERVED IN THE ORDERS IMPUGNED THERE WAS NO MAT ERIAL BEFORE THE LOWER AUTHORITIES NOR EVEN BEFORE US REGARDING PAYMENT M ADE BY THE ASSESSEE NOR THE RELEVANT BANK STATEMENT WAS PRODUCED. IN THE FACTS AND CIRCUMSTANCES OF THE CASE IT IS NOT POSSIBLE TO TAKE THE VIEW THAT THE LD. CIT(A) 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 T AX LIABILITY BY SO ARRANGING ITS COMMERCIAL AFFAIRS SO THAT CHARGE OF TAX IS DISTRIB UTED. AS NOTICED BY US EARLIER THE TAXING AUTHORITY IS ENTITLED AND IS INDEED BOUN D TO DETERMINE THE TRUE LEGAL RELATION RESULTING FROM A TRANSACTION. IF THE ASSES SEE HAS CHOSEN TO CONCEAL BY A DEVICE THE LEGAL RELATION IT IS OPEN TO THE TAXING AUTHORITIES TO UNRAVEL THE DEVICE AND TO DETERMINE THE TRUE CHARACTER OF THE RELATION SHIP. THOUGH EVERY PERSON IS ENTITLED TO SO ARRANGE HIS AFFAIRS AS TO AVOID TAXA TION THE ARRANGEMENT MUST BE REAL AND GENUINE AND NOT A SHAM OR MAKE-BELIEVE ONE . IN THE INSTANT CASE THE APPELLATE AUTHORITY AND THE ASSESSING OFFICER HAVE RECORDED A FINDING THAT THE I.T.A. NO.1703/AHD/2003 12 TRANSACTION IN QUESTION IS NOT REAL AND GENUINE; IT IS NOT IN THE NATURE OF A TAX PLANNING WHICH IS WITHIN THE FRAMEWORK OF LAW. IN T HE FACTS OF THIS CASE AS ADMITTED BY SHRI BHARAT PATEL DIRECTOR OF M/S GELI KEPS P LTD. THE ENTIRE DEAL WAS TO OBTAIN FINANCE SINCE THEIR COMPANY WAS FACIN G RESOURCE CRUNCH AND PRODUCTION OF GELATIN CAPSULES HAD GONE DOWN AND UL TIMATELY UNIT HAD TO BE CLOSED DOWN . IN THESE CIRCUMSTANCES WE ARE INCLIN ED TO TAKE THE VIEW THAT WHILE M/S GELIKEPS P LTD WAS INTERESTED IN SECURING FINAN CIAL ASSISTANCE BY WAY OF LOAN AND FOR THE SAID PURPOSE THE MACHINERY/EQUIPMENT WA S OFFERED AS A SECURITY BY CREATING THE DOCUMENTS IN QUESTION TO ASSURE REPAYM ENT OF THE LOAN ADVANCED THE ASSESSEE FOUND IT CONVENIENT TO ENTER INTO SUCH A TRANSACTION AS A DEVICE ADOPTED TO AVOID PAYMENT OF TAX. THEREFORE THE SUB ORDINATE AUTHORITIES WERE FULLY JUSTIFIED TAKING INTO ACCOUNT SEVERAL CIRCUMSTANCE S REFERRED TO BY THEM IN THE ORDERS IMPUGNED TO DETERMINE THE NATURE OF THE NEW AND SOPHISTICATED ACUMEN ADOPTED TO AVOID PAYMENT OF TAX LEGITIMATELY DUE TO THE STATE. IN A MATTER LIKE THIS WE CONSIDER THAT IT IS THE DUTY OF THE REVEN UE AUTHORITIES 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'. 10.1 IN VIEW OF THE FOREGOING WE ARE OF THE OPINION THIS IS NOT A GENUINE LEASE TRANSACTION. IT HAS BEEN GIVEN ONLY THE GARB OF LEASE TRANSACTION. THERE WAS NO INTENTION TO EFFECT THE SALE IN TRUTH AND REALIT Y TO THE ASSESSEE THE MACHINERY/EQUIPMENT NEVER CHANGED HANDS NOR THE ASS ESSEE CARED TO ASCERTAIN THE MARKET VALUE OF THE ASSETS THROUGH AN APPROVED VALUER. THERE WAS NO ACTUAL DELIVERY OR HANDING OVER OF POSSESSION OF MACHINERY /EQUIPMENT BY M/S GELIKEPS P LTD. TO THE ASSESSEE ON COMPLETION OF SALE AND TH ERE WAS ALSO NO RE-DELIVERY OR HANDING OVER OF POSSESSION OF THE MACHINERY/EQUIPME NT BY ASSESSEE TO THE SELLER. IN ANY EVENTUALITY THERE WAS NO SCOPE FOR T HE ASSETS COMING BACK TO THE LESSOR. HENCE ON THE BASIS OF ABOVESAID DISCUSSION S IN OUR OPINION GIVING A PURELY FINANCE TRANSACTION THE GARB OF SALE AND LE ASE BACK TRANSACTION TO CLAIM DEPRECIATION IS CLEARLY A COLOURABLE DEVICE AND SU BTERFUGE AND HENCE NO DEPRECIATION CAN BE ALLOWED IN THIS CASE. IN OUR V IEW IN THE FACTS AND I.T.A. NO.1703/AHD/2003 13 CIRCUMSTANCES OF THE CASE THE SUBORDINATE AUTHORI TIES WERE FULLY JUSTIFIED IN NOT ACCEPTING THE CASE PLEADED BY THE ASSESSEE FOR GRAN T OF DEPRECIATION. BUT WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL ON BEHALF 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 ACCORDING TO THE LD. AR THE ASSESSEE ADMITTED IN THE RETURN OF INCOME. IN VIEW OF THIS WE DIRECT THE AO TO VERIFY AND ALLOW RELIEF ON THE LEASE RENTALS RECEIVED BY THE ASSESSEE IN CONSEQUENCE TO LEASE AGREEMENT ENTERED WITH M/S GELIKEPS P LTD. ACCORDINGLY THE AO IS DIR ECTED TO EXCLUDE THE INCOME RETURNED ON ACCOUNT OF LEASE RENTAL AFTER NECESSARY VERIFICATION. ACCORDINGLY THIS ISSUE OF THE ASSESSEE'S APPEAL IS ALLOWED PARTLY . WITH THESE OBSERVATIONS WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS FULLY JUSTI FIED IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN UPHOLDING THE DISALLO WANCE. 11. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF THE RESIDUARY GROUND NO.6 ACCORDINGLY THIS GROUND IS DISMISSED. 12 IN THE RESULT APPEAL IS PARTLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 8THJA NUARY 2010. SD/- SD/- ( BHAVNESH SAINI) (A.N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED : 8 TH JANUARY 2010 PK/- COPY TO: 1. THE ASSESSEE 2. DY.CIT CIRCLE-1 BARODA 3. CIT(A)-III BARODA 4. CIT-CONCERNED 5. DR C BENCH BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD