M/s Canbank Factors Ltd.,, Bangalore v. DCIT, Bangalore

ITA 804/BANG/2009 | 1997-1998
Pronouncement Date: 26-04-2010 | Result: Dismissed

Appeal Details

RSA Number 80421114 RSA 2009
Assessee PAN IONOF3702R
Bench Bangalore
Appeal Number ITA 804/BANG/2009
Duration Of Justice 8 month(s) 15 day(s)
Appellant M/s Canbank Factors Ltd.,, Bangalore
Respondent DCIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 26-04-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 26-04-2010
Date Of Final Hearing 12-04-2010
Next Hearing Date 12-04-2010
Assessment Year 1997-1998
Appeal Filed On 10-08-2009
Judgment Text
PAGE 1 OF 14 ITA NO.804/BANG/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A' BEFORE DR. O K NARAYANAN VICE PRESIDENT AND SHRI GEORGE GEORGE K J.M. ITA NO.804/BANG/09 (ASST. YEAR 1997-98) M/S CANBANK FACTORS LTD. NO.17 SESHADRI ROAD BANGALORE. - APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(2) BANGALORE. - RESPONDENT APPELLANT BY : SHRI C R PANDIT ADVOCATE RESPONDENT BY : SHRI JASON P BOAZ CIT-I O R D E R PER GEORGE GEORGE : THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE CIT(A)'S ORDER DATED 27.5.2009 IN RELATION TO ASST. YEAR 199 7-98. 2. THE SOLITARY ISSUE THAT ARISE FOR OUR CONSIDERA TION IS WHETHER THE CIT(A) IS JUSTIFIED IN CONFIRMING THE A SSESSING OFFICER'S ACTION IN DENYING THE DEPRECIATION AMOUNTING TO RS. 99 12 800/-. 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF LEASING AND HIRE PURCHASE. THE ASSESSEE FILED THE RETURN OF INCOME FOR ASST. YEAR 1997-98 U/S 139(1) OF THE I T ACT 1961 ON 28.11.1997 PAGE 2 OF 14 ITA NO.804/BANG/2009 2 DECLARING AN INCOME OF RS.7 45 27 000/-. THE RETUR N WAS PROCESSED U/S 143(1)(A) OF THE ACT ON 16.11.1998. THE CASE WAS S ELECTED FOR SCRUTINY AND NOTICE U/S 143(2) DATED 16.11.98 WAS ISSUED TO THE ASSESSEE. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 21.2.2000 ON AN ASSESSED INCOME OF RS.7 57 55 040/-. THE ASSESSEE'S ASSESS MENT WAS REOPENED U/S 147 BY ISSUING NOTICE U/S 148 DATED 9.1.2002 ON THE BASIS OF THE SURVEY REPORT MADE BY THE DIT(INV.) HUBLI PURSUAN T TO THE SURVEY CONDUCTED BY HIM ON THE PREMISES OF M/S BELLARY STE ELS & ALLOYS LTD. (BSAL). ON COMPLETION OF REASSESSMENT PROCEEDINGS ORDER DATED 28.3.2002 WAS PASSED U/S 143(3) R.W.S. 147 OF THE A CT FOR A TOTAL INCOME OF RS.8 54 67 839/- BY DISALLOWING THE DEPRE CIATION CLAIM @ 100% ON THE ASSETS (ROLLERS) LEASED BY THE ASSESSEE TO BSAL. 4. THE BASIS ON WHICH DEPRECIATION WAS DISALLOWED WAS DUE TO THE FOLLOWING REASONS:- I) THERE ARE NO WRITTEN ORDERS/DOCUMENTS LIKE QUOTATIONS ENQUIRY LETTERS INSTALLATION REPORTS A ND DELIVERY CHALLANS IN THE POSSESSION OF THE ASSESSEE COMPANY. II) EVEN THE PHOTOCOPIES OF THE SAME DELIVERY CHALLANS FOUND DO NOT BEAR THE SEALS OF SALES TAX CHECK POST . III) USUALLY MACHINERIES LIKE SGCI ROLLS ARE TAILOR MADE TO THE SPECIFICATION OF THE PURCHASER WHICH REQUIRE S TIME TO MANUFACTURE AND DELIVER. BEFORE THE ORDERS ARE PLACED CORRESPONDENCE LIKE ENQUIRIES QUOTATIONS ARE USUALLY FOLLOWED BUT IN THIS CASE N O SUCH CORRESPONDENCE IS AVAILABLE. IV) NO STOCK REGISTER IS KEPT FOR ROLLS OBTAINED ON LEA SE IN THE ABSENCE OF WHICH IT IS NOT KNOWN HOW THE LESSEE WILL BE IN A POSITION TO RETURN THE ROLLERS TO LESSORS AFTER THE PERIOD OF LEASE. PAGE 3 OF 14 ITA NO.804/BANG/2009 3 V) THE PHOTOCOPY OF TRANSPORT BILLS FOUND DO NOT CONTAIN CHECK-POST SEALS THOUGH CONSIGNMENTS ARE STATED TO BE TRANSPORTED FROM CHENNAI AND MUMBAI. VI) DURING THE COURSE OF SURVEY 361 ROLLS WERE FOUND BUT AS PER INFORMATION FURNISHED BY THE LESSEE IT SHOULD HAVE BEEN IN POSSESSION OF 3702 ROLLS WHICH WERE OBTAINED ON LEASE. IT COULD NOT EXPLAIN THE DISCREPANCY AND WHEREABOUTS OF THE REMAINING ROLLS. VII) NONE OF THE ROLLS IN ITS POSSESSION CONTAINED DISTINCTIVE MARKING OF THE FINANCIERS/LESSORS WHO LEASED THESE ROLLS. VIII) ALL THE THREE TRANSPORTERS VIZ. NOBLE ROADLINES MUMBAI SRI BALAJI ROADWAYS AND M/S MADRAS GOODS MOVERS CHENNAI HAVE CLEARLY STATED THAT THEY TRANSPORTED ONLY BULK SCRAP AND COAL TO THE ABOVE COMPANY AND DENIED TO HAVE TRANSPORTED M S ROLLS. FURTHER BOTH THE CHENNAI TRANSPORTS STATED THAT THE BILLS AND SIGNATURE FOUND AT THE ASSESSEE' S PREMISES ARE FORGED. IX) ANY MACHINERY PARTS INCLUDING SCGI ROLLS TRANSPORTED INTO KARFNATAKA STATE IS LIABLE FOR 2% OF ENTRY TAX BUT LESSEE COULD NOT PRODUCE ANY EVIDENC E FOR PAYMENT OF ENTRY TAX. X) THE SO-CALLED SUPPLIERS VIZ. M/S B H ENTERPRISES M/S B H INTERNATIONAL AT MUMBAI AND B M STEELS (P) LTD. CHENNAI WERE ENQUIRED AS TO WHETHER THEY HAD SUPPLIED THE ROLLS TO THE LESSEE. BOTH THE SUPPLIERS OF MUMBAI HAVE DENIED THAT THEY HAVE SUPPLIED ANY ROLLS TO THE ASSESSEE BUT CONFIRMED TH E FACT THAT THESE BILLS WERE RAISED TO FACILITATE FINANCING FROM CREDIT INSTITUTIONS AND SALE PROCEED S RECEIVED FROM CREDIT INSTITUTIONS WERE RETURNED TO THE LESSEE IMMEDIATELY. THE SUPPLIER OF MUMBAI HAD EXPIRED BUT THE COMPANY'S BANK PASS BOOK SHOWED THAT AFTER RECEIVING SALE PROCEEDS FROM BANKS THEY WERE IMMEDIATELY SENT BACK TO THE LESSEE. XI) THE C.AS OF THE ASSESSEE COMPANY ALSO ADMITTED THAT THE TRANSACTIONS ENTERED ARE ONLY FINANCING TRANSACTIONS. PAGE 4 OF 14 ITA NO.804/BANG/2009 4 XII) SHRI S MADHAVA M.D. OF THE LESSEE COMPANY HAS ADMITTED VIDE LETTER DATED 3.10.2000 THAT ALL LEASE TRANSACTIONS ARE ONLY FINANCING TRANSACTIONS OBTAIN ED TO REPAY THE EARLIER LOANS OUTSTANDING AND HE IS NO T IN A POSITION TO PROVE THE EXISTENCE OF THE SUPPLIE R OF THE M S ROLLS OR HIS CAPACITY TO MANUFACTURE OR PRODUCE THE EQUIPMENT WHICH ARE SUPPLIED TO THEM AS PER THE INVOICES. 5. FINALLY THE ASSESSING OFFICER CONCLUDED BY HOL DING AGAINST THE ASSESSEE IN THE FOLLOWING TERMS:- 'DEPRECIATION CLAIM IS CLAIM FOR DEDUCTION OF EXPENSES. IT IS THE ONUS OF THE ASSESSEE TO PROVE THAT THE ASSETS WERE ACTUALLY PURCHASED FOR THE VALUE SPECIFIED THAT THE ASSET EXISTED ACTUALLY AN D WAS USED BY IT IN ITS BUSINESS. IN A CASE LIKE THI S WHERE THE AVAILABLE MATERIALS CLEARLY POINT TO THE FACT THAT THE ASSESSEE WAS INTERESTED IN MAKING FUNDS AVAILABLE TO M/S BELLARY STEELS ETC. AT A RAT E OF RETURN MUCH BELOW THE NORMAL LENDING RATES AND EVEN LESS THAN WHAT IT COULD HAVE OBTAINED BY DEPOSITING THE AMOUNT IN SOME SAFE DEPOSIT. WHEN THIS IS TAKEN IN CONJUNCTION WITH OTHER FACTS SUCH AS ASSESSEE'S NOT GIVING THE NECESSARY CARE TO VERIFY EVEN THE EXISTENCE OF THE ASSET AND BEING SATISFIED MERELY WITH CERTAIN DOCUMENTS TO SUPPORT THE CLAIM OF PURCHASE AND PRICE AND INSPECTION REPORT BY SOME OFFICIALS WHO CERTIFIED THAT THE ASSET EXISTED THAT THE OFFICIAL NOT NOTING THAT THE ASSE T INVOLVED WAS OLD AND NOT NEW OR THAT IT WAS 'SOLD' TO DIFFERENT PERSONS AND NOT TO THE ASSESSEE ONLY AND THAT THE ASSESSEE'S LIABILITY TO SHOW THAT THE ASSETS EXIST AT ALL EXCEPT THROUGH DOCUMENTS IT WOULD BE CLEAR THAT IN THESE TRANSACTIONS THE ASSESSEE WAS GUIDED BY THE DESIRE TO CONVERT AN ORDINARY CASE OF LENDING OF MONEY TO A CASE OF PURCHASE AND LEASE OF ASSET. PAGE 5 OF 14 ITA NO.804/BANG/2009 5 IT IS NECESSARY IN SUCH CASE TO INSIST PROOF REGARDING THE CLAIM OF DEPRECIATION THAT IS TO SHOW THAT 1) THE ASSET EXISTED 2) THE COST OF ACQUISITION OF THE ASSET WAS REASONABLE WITH REFERENCE TO THE PURCHASE PRICE SHOWN 3) THE ASSESSEE WAS SOLE OWNER OF THE ASSET 4) THE ASSET WAS USED IN THE BUSINESS OF THE ASSESSEE. EXCEPT TO FILE SOME PAPERS TO SHOW THAT THE FORM OF THE TRANSACTIONS HAS BEEN MAINTAINED THE ASSESSEE HAS NOT SHOWN ANY EVIDENCE TO PROVE (1) (2) & (3) ABOVE. SINCE THE REQUIREMENTS AT ABOVE IS ALSO NOT PROVED TO HAVE BEEN FULFILLED IT HAS TO BE TAKEN THAT CONDITION AT (4) ABOVE IS ALSO NOT PROVED TO HAVE BEEN FULFILLED. SINCE THE ASSESSEE HAS NOT PROVED THE CLAIM APPLYING THE STRICT PROOF TO BE EMPLOYED IN A CASE LIKE THIS THE CLAIM OF DEPRECIATION ON THE ASSET IS TO BE DISALLOWED'. 6. AGGRIEVED BY THE SAID REASSESSMENT ORDER DATED 28.3.2002 THE ASSESSEE FILED AN APPEAL TO THE CIT(A)-I WHO B Y HIS APPELLATE ORDER DATED 28.9.2004 IN ITA NO.539/AC-11(2)/CIT(A)-I/02- 03 UPHELD THE DISALLOWANCE OF DEPRECIATION ON ASSETS LEASED TO BA SL BUT ALLOWED THE ASSESSEE'S CLAIM TO EXCLUDE FROM THE TOTAL INCOME THE PRINCIPAL COMPONENT OF THE LEASE RENTALS RECEIVED DURING THE YEAR. ACCORDINGLY ORDER DATED 20.4.2005 WAS PASSED TO GIVE EFFECT TO THE SAID APPELLATE ORDER ALLOWING RELIEF TO THE EXTENT OF RS.5 81 787/ - TO THE ASSESSEE. 7. THE GIST OF THE FINDING OF THE CIT(A) ARE SUMMA RIZED AS FOLLOWS:- PAGE 6 OF 14 ITA NO.804/BANG/2009 6 DURING THE COURSE OF THE SURVEY CONDUCTED AT BSAL'S PREMISES ONLY 361 ROLLERS WERE FOUND ALTHOUGH AS PER RECORDS BSAL HAD OBTAINED ON LEASE 3702 ROLLERS. BSAL COULD NEITHER EXPLAIN THE DISCREPANCY NOR PROVIDE ANY INFORMATION REGARDING THE WHEREABOUTS OF THE REMAINING ROLLERS AT THE TIM E OF THE SURVEY. THIS RAISED A STRONG PRESUMPTION TH AT BSAL HAD ENTERED INTO BOGUS LEASING TRANSACTIONS WITH VARIOUS FINANCIAL INSTITUTIONS/ALLEGED LESSORS . NONE OF THE ROLLERS FOUND AT THE TIME OF SURVEY CONTAINED DISTINCTIVE MARKINGS OF THE FINANCIERS/LESSORS. THUS THERE WAS NO EVIDENCE TH AT OUT OF 361 ROLELRS FOUND AT THE TIME OF SURVEY ANY OF THE ROLLERS BELONGED TO THE APPELLANT. THE ALLEGED SUPPLIERS OF THE ROLLERS HAD DENIED THA T THEY HAD SUPPLIED ANY ROLLERS TO THE APPELLANT AND HAD CONFIRMED THE FACT THAT THESE BILLS WERE RAISED TO FACILITATE FINANCING FROM CREDIT INSTITUTIONS AND S ALE PROCEEDS RECEIVED FROM THE CREDIT INSTITUTIONS WERE RETURNED TO THE LESSEE IMMEDIATELY. IN HER REPORT DATED 23.7.2004 THE AO HAD REFERRED TO THE REPORT OF THE DDIT CHENNAI WHICH STATED THA T M/S B M STEELS PVT. LTD. (THE SUPPLIER) WAS ACTING AS AN AGENT TO BSAL AND NO PROPER BOOKS WERE MAINTAINED BY THEM. WHAT WAS RECEIVED BY THE COMPANY WAS ONLY COMMISSION FROM BSAL. BANK ACCOUNTS REVEALS THAT AMOUNTS EXCEEDING RS.40 CRORES WERE SHOWN AS CREDITED FROM 01.05.1996 TO 31.12.1997 FROM VARIOUS FINANCIAL INSTITUTIONS AND THESE AMOUNTS WERE THEN DIVERTED BACK TO BSAL BY CHEQUES AND DDS. M/S B M STEELS DID NOT HAVE THE CAPACITY TO SUPPLY EITHER RAW MATERIALS OR ROLLERS. THE TRANSPORTERS HAD CLEARLY STATED THAT EXCEPT SCRAP NOTHING ELSE WAS TRANSPORTED. THE SGCI ROLLERS WERE CLAIMED TO HAVE BEEN TRANSPORTED INTO KARNATAKA STATE FROM OUTSIDE AND WERE LIABLE TO ENTRY TAX. THE LESSEE COULD NOT PRODUCE ANY EVIDENCE FOR PAYMENT OF ENTRY TAX. PAGE 7 OF 14 ITA NO.804/BANG/2009 7 ALSO THE TRANSPORT BILLS DID NOT CONTAIN ANY CHECK- POST SEALS. DURING THE COURSE OF THE SURVEY THE CHARTERED ACCOUNTANTS OF BSAL ADMITTED THAT THE TRANSACTIONS ENTERED INTO WERE ONLY FINANCING TRANSACTIONS. THE MANAGING DIRECTOR OF THE LESSEE COMPANY ALSO ADMITTED VIDE LETTER DATED 03.10.2000 THAT ALL THE LEASE TRANSACTIONS WERE ONLY FINANCING TRANSACTIONS OBTAINED TO REPAY EARLIER LOANS OUTSTANDING AND THA T HE WAS NOT IN A POSITION TO PROVE EITHER THE EXISTE NCE OF THE SUPPLIERS OF THE ROLLERS OR THEIR CAPACITY T O MANUFACTURE OR PRODUCE THE SAME. 8. AGAINST THE ABOVE APPELLATE ORDER DATED 28.9.2004 O F THE CIT(A)-I THE ASSESSEE FILED AN APPEAL TO THE ITAT. BY ITS ORDER DATED ITA NO.3478/BANG/2004 DATED 03.11.2006 THE ITAT SE T ASIDE THE SAID APPELLATE ORDER AND UPHELD THE ASSESSEE'S CONTENTIO N THAT THEIR OBJECTIONS TO THE REOPENING OF ASSESSMENT U/S 147 H AD NOT BEEN DULY ADDRESSED BY A SPEAKING ORDER AND ON THAT GROUND RE MANDED THE CASE TO THE AO TO DISPOSE OF THE ASSESSEE'S OBJECTIONS TO R EOPENING OF THE ASSESSMENT U/S 147. IN ITS SAID ORDER DATED 3.11.2 006 THE ITAT ALSO HELD THAT 'THE AO WILL BE FREE TO DECIDE THE CASE O N MERITS ALSO'. 8.1 TO GIVE EFFECT TO THE HON'BLE ITAT'S ORDER THE AO ISSUED LETTER DATED 14/9/2007 STATING THE REASONS FOR REOP ENING OF THE ASSESSMENT 'AS NOTED IN THE ASSESSMENT RECORDS' AND PROVIDED AN OPPORTUNITY TO THE ASSESSEE TO FILE WRITTEN OBJECTI ONS IF ANY AGAINST THE REOPENING OF THE ASSESSMENT FOR AY 1997-98 U/S 147 AFTER INSPECTING THE RECORDS OF THE CASE. THE ASSESSEE INSPECTED TH E RECORDS AND APPEARED ON 3.10.2007 AND ARGUED AGAINST THE REOPEN ING AND ALSO FILED WRITTEN OBJECTIONS DATED 27.9.2007. PAGE 8 OF 14 ITA NO.804/BANG/2009 8 8.2 THEREAFTER THE LEARNED AO PASSED A SPEAKING ORDER DATED 8.10.2007 OVER-RULING THE ASSESSEE'S OBJECTIONS AN D UPHOLDING THE SAID REOPENING OF ASSESSMENT U/S 147. THE AO ALSO ISSUED A FRESH NOTICE U/S 143(2) DATED 9.10.2007 TO THE ASSESSEE. THE ASSESSE E DULY ENTERED APPEARANCE ON 12.11.2007 AND FILED WRITTEN SUBMISSI ONS BEARING SAME DATE. 8.3 AFTER GOING THROUGH THE WRITTEN SUBMISSIONS M ADE BY THE ASSESSEE THE LEARNED AO HAS PASSED ORDER DATED 22. 11.2007 CONFIRMING THE EARLIER ORDER U/S 143(3) R.W.S. 147 DATED 28.3. 2002 WHICH WAS SET ASIDE BY THE HON'BLE ITAT BY ITS ORDER DATED 3.11.2 006. 9. THE CIT(A) IN THE SECOND ROUND CONFIRMED THE ASSESSING OFFICER'S ACTION BY HOLDING THE ASSET ON WHICH THE DEPRECIATION IS CLAIMED IS NON-EXISTENT AND THEREFORE THE QUESTION OF OWNERSHIP OR ELIGIBILITY FOR DEPRECIATION DOES NOT ARISE. 10. AGGRIEVED BY THE ORDER OF CIT(A) DT. 27.5.2009 FOR REDRESSAL THE ASSESSEE IS IN APPEAL BEFORE US PRA YING FOR FOLLOWING RELIEFS:- I) TO ANNUL AND QUASH THE IMPUGNED (APPELLATE) ORDER DATED 27.5.2009 IN APPEAL ITA NO.283/DC- 11(2)/A-I/07-08 PASSED BY THE CIT(A)-I BANGALORE. II) TO HOLD THAT DEPRECIATION IS CORRECTLY LEGALLY AND PROPERLY ALLOWABLE TO THE ASSESSEE ON THE 'LEASE CONTRACT' WHICH BEING A 'BUSINESS AND COMMERCIAL RIGHT OF THE ASSESSEE' TO COLLECT LEASE RENT IS AN INTANGIBLE ASSET ON WHICH DEPRECIATION IS ALLOWABLE U/S 31(1)(II) OF THE I T ACT 1961. PAGE 9 OF 14 ITA NO.804/BANG/2009 9 III) TO HOLD THAT THE DEPRECIATION OF RS.99 12 800/- CLAIMED BY THE ASSESSEE IS ALLOWABLE U/S 31(1)(II) OF THE I T ACT 1961 ON THE LEASE CONTRACT HELD BY THE ASSESSEE AS LESSOR IN AS MUCH AS IS A DEPRECIABLE INTANGIBLE ASSET OWNED BY THE ASSESSEE AND USED FOR THE PURPOSES OF HIS BUSINESS OF EARNING INCOME BY WAY OF LEASE RENTS. IV) TO HOLD THAT THERE ARE NO GROUNDS TO REJECT THE ASSESSEE'S CONTENTION THAT THE 32 NUMBERS STEEL-MIL L ROLLERS WHICH WAS THE SUBJECT MATTER OF THE ASSESSEE'S LEASE CONTRACT WITH M/S BELLARY STEELS & ALLOYS LTD. (BSAL) WERE AMONG THE 361 NUMBERS OF STEEL-MILL ROLLERS THAT EXISTED AND WERE ACTUALL Y FOUND IN THE PREMISES OF M/S BSAL. V) IN THE ALTERNATIVE TO HOLD THAT THE NON-EXISTENCE OF THE STEEL-MILL ROLLERS (I.E. THE TANGIBLE ASSET IN RESPECT OF WHICH THE ASSESSEE HOLDS THE LEASE CONTRACT) IS IRRELEVANT TO THE ISSUE OF WHETHER OR NOT DEPRECIATION IS ALLOWABLE TO THE ASSESSEE ON THE LEASE CONTRACT U/S 32(1)(II). VI) TO HOLD THAT THE TANGIBLE ASSET (I.E. STEEL-MILL RO LLERS) WHICH FORMS THE SUBJECT MATTER OF THE LEASE CONTRACT IS RELEVANT ONLY FOR THE LIMITED PURPOSE O F ASCERTAINING THE RATE OF DEPRECIATION ALLOWABLE U/S 32(1)(II) ON THE INTANGIBLE ASSET (I.E. LEASE CONTR ACT) WHICH THE ASSESSEE OWNS AND USES FOR THE PURPOSES OF HIS BUSINESS (I.E. THE BUSINESS OF EARNING LEASE RENTS). VII) TO QUASH THE DEMAND OF RS.85 632/- MADE ON THE ASSESSEE IN THE NOTICE DATED 22.11.2007 U/S 156 ISSUED CONSEQUENTIAL TO THE DISALLOWANCE OF THE DEPRECIATION ON 32 NUMBERS STEEL-MILL ROLLERS. 11. THE LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. HE ALSO FILED A WRITTEN SUBMISS ION DATED 12TH APRIL 2010 WHEREIN IT WAS STATED THAT PHYSICAL INSPECTIO N OF 32 NOS. ROLLERS WAS CARRIED OUT BY THE ASSESSEE'S STAFF ON 29.3.199 7. THE INSPECTION PAGE 10 OF 14 ITA NO.804/BANG/2009 10 REPORT DATED 31.3.97 SUPPORTED BY PHOTOGRAPH OF THE ASSETS (ROLLERS) AND INSURANCE POLICY TAKEN BY BSAL IN THE NAME OF THE A SSESSEE WERE BROUGHT ON RECORD. IT WAS FURTHER SUBMITTED WHEN THE DEPARTMENT MADE SURVEY IN THE PREMISES OF BSAL THERE WERE 361 ROLL ERS AND THE DEPARTMENT FAILED TO BRING ON RECORD ANY EVIDENTIAR Y MATERIAL TO SHOW THAT 32 ROLLERS LEASED BY THE ASSESSEE TO BSAL ARE NOT AMONG THE 361 ROLLERS FOUND AT THE PREMISES OF THE BSAL. FURTHER MORE IT WAS SUBMITTED THE ASSESSEE HAS ALSO FURNISHED THE INSP ECTION AND VALUATION REPORT DATED 1.2.2002 SUBMITTED BY A CHARTERED ENGI NEER & APPROVED VALUER FOR NATIONALISED BANKS CATEGORICALLY STATIN G THAT HE HAD VISITED BELLARY STEELS & ALLOYS LTD. ON 17.1.2002 AND IDENT IFIED AND PHYSICALLY VERIFIED AND PHOTOGRAPHED 32 NUMBERS ROLLERS LEASED BY THE ASSESSEE. IT WAS FURTHER CONTENDED EVEN ASSUMING IF THE ASSETS WERE FICTITIOUS IT HAS NOT RESULTED IN LOSS OF REVENUE TO THE DEPARTME NT AS LEASE RENTALS ARE OFFERED TO TAX. 12. PER CONTRA THE LEARNED DR SUPPORTED THE FINDI NGS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE DEPARTMENT ON ACCOUNT OF SURVEY CATEGORICALLY FOUND THE ENTIRE TRANSACTIONS TO BE A BOGUS TRANSACTIONS AND ON EXAMINATION OF THE SUPPLIER AND THE TRANSPORTER OF THE MACHINERY IT WAS FOUND THAT THE ASSET IN QUEST ION WAS NOT EXISTING. HENCE IT WAS SUBMITTED THAT THE ORDERS OF THE AUTH ORITIES BELOW ARE NOT TO BE INTERFERED. 13. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. WE ARE NOT CALLED TO ANSWER W HETHER ASSESSEE WHO IS IN THE BUSINESS OF FINANCIAL LEASING AND NOT LEA SING OF EQUIPMENT IS PAGE 11 OF 14 ITA NO.804/BANG/2009 11 ENTITLED TO DEPRECIATION ON FINANCIALLY LEASED ASSE TS. NOR DOES THE QUESTION ARISE WHEN THE LESSEE CLAIMED DEPRECIATION WHETHER THE LESSOR (ASSESSEE) IS ENTITLED TO DEPRECIATION. IN THE INS TANT CASE THE DEPARTMENT HAS DENIED THE BENEFITS OF DEPRECIATION SOLELY FOR THE REASON THAT THE ASSETS IN QUESTION WERE NON-EXISTENT. NOW LET US E XAMINE THE FACTORS WHICH WEIGHED WITH THE REVENUE IN DECIDING THAT THE ASSETS WHICH ARE LEASED TO BSAL IS NON-EXISTENT. A SURVEY WAS COND UCTED U/S 133A OF THE I T ACT AT THE PREMISES OF BELLARY STEEL & ALLO YS LTD. (BSAL) BELLARY ON 1.8.2000. THE SURVEY WAS CONDUCTED BASE D ON THE INFORMATION THAT NUMEROUS FINANCE COMPANIES INCLUDI NG THE ASSESSEE HAD ENTERED INTO TRANSACTIONS WITH BSAL WHICH WOUL D ENABLE THE ASSESSEE TO CLAIM 100% DEPRECIATION ON ASSETS (ROLL ING MILL ROLLERS). ON ACCOUNT OF SURVEY IT WAS REVEALED THAT THE ASSE TS IN QUESTION DID NOT EXIST AT ALL. THE SALIENT FEATURE RECAPITULATED P URSUANT TO SURVEY ARE AS FOLLOWS:- I) ENQUIRIES CONDUCTED BY THE DDIT UNIT-2(1) CHENNAI FROM M/S B M STEELS PVT. LTD. (SUPPLIER OF ROLLERS) REVEALED THAT M/S B M STEELS WAS ACTING AS AN AGENT TO BSAL AND NO PROPER BOOKS OF ACCOUNT WERE MAINTAINED BY THEM. WHAT WAS RECEIVED BY THE COMPANY WAS ONLY COMMISSION BY BSAL. II) BANK ACCOUNTS REVEALED THAT AMOUNT EXCEEDING RS.40 CRORES AND ABOVE WERE SHOWN AS CREDITS OVER A PERIOD FROM 1.5.1996 TO 31.12.1997 FROM VARIOUS FINANCIAL INSTITUTIONS AND THESE AMOUNTS WERE THEN DIVERTED BANK TO BSAL THROUGH CHEQUES AND DDS. III) M/S B M STEELS DID NOT HAVE THE CAPABILITY TO SUPPL Y RAW MATERIAL OR THE SAID ROLLERS. ENQUIRIES WERE A LSO CONDUCTED WITH THE TRANSPORTERS WHO CATEGORICALLY STATED THAT EXCEPT SCRAP NOTHING ELSE WAS TRANSPORTED. WHEN THE SUPPLIER M/S B M STEELS DID PAGE 12 OF 14 ITA NO.804/BANG/2009 12 NOT HAVE ANY CAPACITY TO SUPPLY THE SAID ROLLERS T HE QUESTION OF INSTALLING THE SAME DID NOT ARISE. SIGNIFICANTLY IT WAS BSAL WHO WAS IN COLLUSION WITH ITS AGENT M/S B M STEELS IN ORGANIZING THE WHOLE LEASE FINANCING TRANSACTIONS WHO WAS RESPONSIBLE FOR THE INSTALLATION CERTIFICATE AND AUTHORIZATION. IV) MERELY OBTAINING THE PHOTOGRAPHS OF THE ROLLERS DID NOT PROVE THE EXISTENCE OF THE ASSETS IN THE HANDS OF THE APPELLANT AS ALL THE ROLLERS WERE IDENTICAL AND THERE WERE NO SPECIFIC IDENTIFICATION MARKS ON THEM TO DIFFERENTIATE THE SAME. SIMILARLY TAKING AN INSURANCE POLICY AGAINST A/C BSAL DID NOT PROVE THE EXISTENCE OF SPECIFIC SGCI ROLLERS BELONGING TO THE APPELLANT. V) WITH REGARD TO THE APPELLANT'S CLAIM THAT OUT OF TH E 361 ROLLERS FOUND AT THE BSAL PREMISES 32 BELONGED TO IT IT IS PERTINENT TO NOTE THAT THE SA ME CLAIMS WERE MADE BY EACH OF THE FINANCIAL INSTITUTIONS WHICH HAD ENTERED INTO LEASE TRANSACTIONS WITH BSAL. MULTIPLE CLAIMS OF DEPRECIATION ON THE SAME ASSETS ARE NEITHER ACCEPTABLE NOR ALLOWABLE. VI) IN ADDITION THE APPELLANT DID NOT HAVE ANY SPECIFI C INFORMATION TO PROVE BEYOND A SHADOW OF DOUBT THAT THE SGCI ROLLERS INDICATED IN THE PHOTOGRAPH WERE THE ONES BELONGING TO IT ESPECIALLY SINCE THE SO- CALLED MARKINGS ON THE ROLLERS WERE NOT VISIBLE AFT ER A WHILE. TO SUM UP NOTHING PREVENTED THE LESSEE FROM SHOWING THE SAME SET OF ROLLERS TO ALL THE FINANCIERS CONCERNED AS THOUGH IT WAS THEIR ROLLERS AND THEREFORE BELONGED TO THEM. VII) FINALLY DURING THE COURSE OF THE SURVEY CONDUCTED U/S 133A THE LESSEE I.E. BSAL HAD AGREED THAT IT WAS ADOPTING THIS METHOD OF OBTAINING FINANCE WITHOUT ACTUALLY BUYING THE SGCI ROLLERS. 13.1 BASED ON THE ABOVE INFORMATION AND ENQUIRY CO NDUCTED FROM THE SUPPLIERS M/S B M STEELS AS WELL AS THE LE SSEE I.E. BSAL PAGE 13 OF 14 ITA NO.804/BANG/2009 13 BELLARY THE ASSESSING OFFICER ARRIVED AT THE CONCL USION THAT THE MATERIAL GATHERED PROVED BEYOND A SHADOW OF DOUBT T HAT THE ROLLERS ON WHICH DEPRECIATION WAS CLAIMED WAS IN FACT NON-EX ISTENT. 13.2 BEFORE THE FIRST APPELLATE AUTHORITY IT WAS SUBMITTED THAT THE LEASE PERIOD WITH BSAL HAD EXPIRED ON SEPTEMBER 2001 AND ON ACCOUNT OF NON-PAYMENT OF THE LEASE RENTAL AND FOR NON-DELIVERY OF THE LEASE ASSETS THE ASSESSEE HAD FILED ARBITRATION AG AINST THE LESSEE (BSAL). THE FIRST APPELLATE AUTHORITY APART FROM REITERATING THE FINDINGS OF THE ASSESSING OFFICER HAS ALSO HELD TH AT DURING THE COURSE OF SURVEY ONLY 361 ROLLS WERE FOUND ALTHOUGH AS P ER THE RECORD OF BSAL IT HAD OBTAINED ON LEASE 3702 ROLLS. MOREOVE R IT WAS MENTIONED THAT VARIOUS OTHER FINANCIAL INSTITUTIONS ARE ALSO CLAIMING THAT THEY HAVE ENTERED ON A SIMILAR TRANSACTIONS WITH TH E ASSESSEE. 13.3 THE ASSESSING OFFICER IN HIS ORIGINAL ORDER D ATED 28.3.2002 HAD ELABORATED HOW THIS TYPE OF FINANCE LEASING TRANSACTION IS BENEFICIAL TO BOTH THE LENDER AND THE BORROWER AT THE COST OF REVENUE. IN THE INSTANT CASE ENQUIRIES WERE MADE WITH THE S UPPLIERS OF THE ASSET (ROLLERS) NAMELY M/S B H ENTERPRISES M/S B H INT ERNATIONAL AT MUMBAI AND B M STEELS (P) LTD. CHENNAI. ALL THE S UPPLIERS HAVE DENIED THAT THEY HAVE SUPPLIED ANY ROLLS TO THE ASS ESSEE BUT HAD CONFIRMED THE FACT THAT THESE BILLS WERE RAISED TO FACILITATE FINANCING FROM CREDIT INSTITUTIONS AND SALE PROCEEDS RECEIVED FROM CREDIT INSTITUTIONS WERE RETURNED TO THE LESSEE I.E. BSAL IMMEDIATELY. ANOTHER IMPORTANT FACT TO BE NOTED IS SHRI S MADHA VA M D OF THE LESSEE COMPANY HAD ADMITTED VIDE LETTER DATED 3.10. 2000 ALL THE LEASE PAGE 14 OF 14 ITA NO.804/BANG/2009 14 TRANSACTIONS ARE ONLY FINANCING TRANSACTIONS OBTAIN ED TO REPAY THE EARLIER LOANS OUTSTANDING AND HE IS NOT IN A POSITION TO PR OVE THE EXISTENCE OF M S ROLLERS. ALL THESE FACTORS CLEARLY POINTS THAT THE TRANSACTIONS IN QUESTION ARE NOT GENUINE. THE ASSESSEE OUGHT TO HA VE TAKEN MORE CARE AND SHOULD NOT HAVE MADE FUNDS AVAILABLE TO M/S BSA L AT A RATE OF RETURN MUCH BELOW THE NORMAL LENDING RATES. ON EXA MINATION OF THE TRANSACTION WITH THE ASSESSEE WE ARE OF THE VIEW T HAT THE ASSESSEE WAS GUIDED BY THE DESIRE TO CONVERT AN ORDINARY CASE OF LENDING OF MONEY TO A CASE OF PURCHASE AND LEASE OF ASSETS. THEREFORE ON THE FACTS OF THIS CASE WE ARE OF THE FIRM VIEW THAT THE ASSESSEE HAS NOT DISCHARGED HIS ONUS OF PROVING THE PHYSICAL EXISTENCE OF THE ASSET ON WHICH THE DEPRECIATION IS CLAIMED. FOR THE ABOVE-MENTIONED R EASONS THE GROUNDS RAISED ARE REJECTED. 14. IN THE RESULT THE APPEAL FILED BY THE ASSESSE E IS DISMISSED. THE ORDER IS PRONOUNCED ON ...26TH......APRIL 20 10 SD/- SD/- (DR. O K NARAYANAN) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER COPY TO : 1. THE ASSESSEE 2.THE REVENUE 3. THE CIT(A) CONCERNED. 4. THE CIT CONCERNED. 5. THE DR 6. GUARD FILE. 7. GF ITAT NEW DELHI. MSP/16.4. BY ORDER ASST. REGISTRAR ITAT BANGALORE.