Madras High Court
M/S. First Leasing Company Of India ... vs The Deputy Commissioner Of Income Tax on 13 September, 2012
Author: Chitra Venkataraman
Bench: Chitra Venkataraman, K.Ravichandrabaabu
In the High Court of Judicature at Madras Dated: 13.09.2012 Coram The Honourable Mrs.JUSTICE CHITRA VENKATARAMAN and The Honourable Mr.JUSTICE K.RAVICHANDRABAABU Tax Case (Appeal) No.1145 of 2006 and TCMP.No. 1599 of 2006 M/s. First Leasing Company of India Limited 749, Anna Salai Chennai 600 002 ... Appellant Vs. The Deputy Commissioner of Income Tax Central Circle I (5) Chennai 600 034 ... Respondent Tax Case (Appeal) against the order of the Income Tax Appellate Tribunal, Madras A Bench dated 30.12.2005 in ITA. 1922/ Mds/ 2000 for assessment year 1996-97. For Appellant : Mr.V.S.Jayakumar For Respondent : Mr.T.Ravikumar ------- J U D G M E N T
(Judgment of the Court was delivered by CHITRA VENKATARAMAN,J.) The assessee is on appeal as against the order of the Tribunal. The assessment year under consideration is 1996 97. Following are the questions of law raised for consideration in the above Tax Case (Appeal):-
" 1. Whether the Tribunal was right in disallowing depreciation on sale and lease back contracts and lease contracts with regard to five companies when the requirements of Section 32 (1) had been satisfied ?
2. Whether the Tribunal was justified in disallowing depreciation with regard to these contracts on grounds that the supplier of the material was not traceable or for other technical reasons ignoring the facts that clearly indicate that requirements of Section 32 had been satisfied ? and
3. Whether the Tribunal was right in holding that the valuation of assets is leased in the case of M/s. Sanghi Textiles Ltd. M/s.Enterprising Enterprises and M/s. Patheja Forgings & Auto Parts Mfg. Ltd. are not justifiable?"
2. The assessee herein is a company engaged in leasing and financing. A reading of the order of the authorities below shows that there were two types of transactions; one is relating to sale and lease back transaction and other one is relating to lease transactions. As far as the sale and lease back transactions and direct lease are concerned, following are the details as found in the order of assessment as well as in the lower court authorities order.:-
SALE AND LEASE BACK TRANSACTION (1) Sanghi Textiles Liited DIRECT LEASE TRANSACTION (1) MID EAST INTEGRATED STEEL LIMITED (2) VICTORY GLASS AND INDUSTRIES LIMITED (3) H.K. DATAREX LIMITED (4) SITAPUR PLYWOOD LIMITED (5) GSL INDIA LIMITED
3. The lease transactions were entered into by the assessee with the lessees in respect of the machineries supplied by the third parties. The details of which are as follows:-
================================================================================================= ANNEXURE A SALE AND LEASE BACK ================================================================================================= Sl Name of Amount Lease Rate Date of Interest Depn. Disallowed NO. the Party Advanced rentals of advance compondent offered depn.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1 Asian Electronics 47551535 6326327 100 24.1.95 9985822 47551535 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 2 BPL Projects & Systems 4017023 309554 25 21.12.95 281191 502127 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 3 Enterprising Enterprises 6000000 1235190 25 25.7.95 945000 1500000 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 4 IOCL 24660000 3072307 100 29.9.95 2589300 24660000 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 5 K.K.Nag Ltd 5000000 944912 25 25.8.95 700000 1250000 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 6 NILE Ltd 17000000 2103307 100 25.9.95 2082500 17000000 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 7 NEPC Micon Ltd 100000000 24035144 100 25.5.95 19250000 100000000 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 8 Patheja Forgings 50000000 32114006 25 12.5.95 9625000 12500000 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 9 Sanghi Textiles 50000000 25000010 100 12.5.95 9625000 50000000 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Total 304228558 95140757 55083813 254963662 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ================================================================================================= ANNEXURE - B - LEASE TRANSACTIONS ================================================================================================= Sl. Lessee Supplier Interes Amount Date Dep Lease Depn.
No t rec rentals disallo
. Compone iat wed
nt ion
(%)
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1 IPCA Rupa 2574310 23/5/95 25 643577 Laborat Construct ory ion ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 2 GSL Allwyn 787500 5000000 5795 1250000 India Engn 4328757 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 3 -do- Maruti 658000 3525000 14.8.95 1175000 Eng.
Works 1175000 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 4 -do- 787500 5000000 10795 1250000 Isotex Corp ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 5 Sitapur Assam 2100448 5000160 19.1.94 100 2552729 10002135 Plywood Solvex ..
Limited Ltd 25.1.94
5001975
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 6 Victory Makali 311595 5935155 4196 25 271863 1483788 Glass Fabricato rs ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 7 HK Silicon 613375 7010000 23.1.95 25 735140 1752500 Datarex Specialit LTd ies ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 8 Indofil Virgo 1400757 27.12.95 25 175094 Chemic Engn.
Ltd ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 9 Galaxy Krishna 2105275 100 2528530 10040750 Indofab Technomec Ltd h Engi.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 10 Mid Kirloskar 8484000 100 1140134 40400000 East Oil Integra Engines ted Ltd.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Total 15847693 67529267 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
4. A reading of the order of the Assessing Officer shows that the Assessing Officer treated the transactions under Annexure A viz., sale and lease back transactions as not a genuine sale and lease back transactions and thereby disallowed the depreciation claim. So too, in the case of lease transactions the Officer held that they were not genuine transactions and considered them as mere finance transactions. Thus, the claim of depreciation was also rejected. On appeal, the Commissioner of Income Tax (Appeals) allowed the depreciation on certain assets in Schedule 'A' as lease transaction and disallowed the depreciation in Schedule 'B' transactions. As far as the present Tax Case (Appeal) is concerned, the Commissioner of Income Tax (Appeals) disallowed the claim of the assessee in respect of the all the following transactions:-
SALE AND LEASE BACK TRANSACTION (1) Sanghi Textiles Liited DIRECT LEASE TRANSACTION (1) MID EAST INTEGRATED STEEL LIMITED (2) VICTORY GLASS AND INDUSTRIES LIMITED (3) H.K. DATAREX LIMITED (4) SITAPUR PLYWOOD LIMITED (5) GSL INDIA LIMITED
5. The Tribunal confirmed the order of the Commissioner of Income Tax (Appeals) hence, the present appeal by the assessee. The transactions mentioned above are under consideration before us.
6. As far as the claim of the assessee in respect of these cases are concerned, we may point out herein that the issues raised are purely factual. Considering the scope of an appeal before this Court under Section 260A of the Income Tax Act, the interference with the order of the Tribunal giving factual finding is almost nil, unless the assessee is in a position to show perversity in the reasoning of the Tribunal in not considering the material evidence placed before the Tribunal by the assessee. The assessee has produced the documents before this Court, which were stated to have been filed before the authorities below. We have gone through them in the course of hearing before us. We may observe herein that practically as though as a first or a second Appellate Authority, we have considered all the materials and we have no hesitation in holding that there is no error in the reasoning of the Tribunal and so too the orders of the Assessing Officer as well as the Commissioner of Income Tax (Appeals). All the three authorities have spoken in one voice and we have no hesitation in rejecting the assessee's appeal. Having gone through the contention of the assessee with reference to various records, we are duty bound to state the facts herein.
7. As far as the sale and lease back transaction relating to Sanghi Textiles Limited is concerned, a reading of the order of assessment shows that the subject matter of sale and lease back transactions were solid waste control equipment located at Sanghi Textiles Limited (Paper Division), Joghigopa, Goalpara, Bongaigaon, Assam, 783382. They were purchased from Ashok Paper Mills (Assam) Limited (A Govt. of Assam undertaking). The valuation report is dated 27.3.96. According to the officer, there were no basis indicated for valuation. The assessee was called upon to explain the basis for the claim of depreciation. On going through the documents filed, in particular, insurance certificate dated 28.11.96, showing net value of the assets indicated therein, the Assessing Officer came to the conclusion that these transactions were only finance transaction as the accommodation given by the assessee to the lessee for purchase of machinery. The assets covered by alleged lease continued to be at the location of the assessee both prior to and after the date of alleged sale. On the materials available, the Officer came to the conclusion that in the name of lease and sale and lease back transactions, the assessee had merely provided working capital requirements and not for acquiring any new assets. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax (Appeals). The first Appellate Authority pointed out that the assessee had filed copy of the lease agreement, sale agreement and copies of invoices. According to a report received from the Officer having jurisdiction over the seller / lessee, the assets leased for a financial consideration of Rs. 5 crores were valued at Rs.1,54,00,000/- by the Departmental valuer as on 31.12.1992. The valuation report obtained by the assessee on 27th March 1996 showed the value of the assets at Rs.5,19,40,000/-. The first Appellate Authority viewed that there was no proper description, hence the same had to be rejected as self serving document. Pointing out to the vast difference between the purchase value and the lease back value, the Commissioner of Income Tax (Appeals) held that the transactions was purely one of a financial one. Thus, he rejected the case of the assessee. Aggrieved by this, the assessee went on appeal before the Tribunal.
8. In paragraph 17 of the order of the Tribunal, the claim of the assessee was considered. The Tribunal pointed out that the assets which were the subject matter of sale and lease were 15 years old and the assets could not be removed and delivered to the assessee. There was no document to show that the impugned equipment were delivered to the assessee and thereafter redelivered to the lessee. Referring to the certificate from the Chartered Accountant of the lessee company, the Tribunal held that this certificate was only given to believe the transaction as genuine one. In the absence of any explanation from the assessee as regards the vast difference in the value and there being no document to show that there was any reality about the transaction, the claim of the assessee was rejected. As far as this claim is concerned, the assessee contended that when it had submitted copies of lease agreement, sale agreement and copies of invoices and insurance certificate and valuation report, the onus of proof as regards the nature of the transaction as sale and lease back transaction was finally established by the assessee. Learned counsel for the assessee submitted that the assets had been acquired at the market value and there was no ground to hold that the valuation was inflated. Taking the view that the law recognised constructive and symbolic delivery, the assessee submitted that the Tribunal committed serious error in holding that there was no delivery to the assessee, which was the subject matter of the sale and lease back transactions.
9. As far as the contention of the assessee is concerned, a perusal of the valuation certificate issued by the lessee company shows that the lease machines were purchased by the lessee and were erected 15 years back and that these equipments could work for another 15 years. We do not understand how this document would enure to the benefit of the assessee in establishing the case of the sale and lease back transactions. The valuation report dated 27.3.1996 enclosed in Volume II does not in any manner carry the case of the assessee that the transaction of sale and lease back were genuine transactions. It is no doubt true that the assessee had enclosed copies of invoices in favour of the First Leasing Company. But it does not explain as regards the vast difference between the value of the machinery purchased by the lessee and the value at which it had been sold in lease back transaction. On the admitted fact the machines were purchased and erected 15 years back by the lessee company, it is difficult for this Court to accept the case of the assessee that the document produced by the assessee would substantiate the claim as regards the genuineness of the transactions. In the circumstances, we confirm the order of the Tribunal.
10. The second transaction is relating to Mid East Integrated Steels Limited. It is a case of sale and lease back transaction. A reading of the order of the Assessing Officer in this regard shows that the assessee claimed depreciation of Rs.4,04,00,000 on assets, turbines for turbo generators, stated to have been acquired from M/s.Kirloskar Oil Engines Limited and leased out by the assessee to Mid East Integrated Steels Limited. The assessee filed copies of the invoices said to have been issued by Kirloskar Oil Engines Limited and valuation report from a Chartered Engineer. It is stated that there was a search in the premises of the lessee on 26.2.1997. The seized documents revealed that the lessee had obtained a loan of Rs.4,04,00,000 from First Leasing Company of India Limited. Subsequent enquiries with the supplier of assets revealed that no invoices were issued in the name of the assessee company. The supplier further confirmed that the goods were sold to Mideast Integrated Steels Limited and only on their request, duplicate invoices were issued. Kirloskar Oil Engines Limited further admitted to have issue duplicate invoices for turbo blowers in the name of Lloyds Finance Limited at the request of the lessee. It was also noted that money was paid directly to the lessee. The invoices were dated 11.9.95 for Rs.2,10,08,000/- and 31.8.95 for the same amount. In considering the claim of the assessee, the Assessing Officer held that the assessee had not proved the ownership of the assets to claim depreciation. The lease rentals in this case were paid from February 1995 onwards and invoices were dated 29.9.95. Thus, without the existence of assets, the lease rentals had been collected which pointed out clearly the nature of financial transaction. The Officer further pointed out that the supplier had denied the issuing of invoices in the name of the assessee, as such, there was no title vesting with the assessee. The valuation report furnished by the assessee was of no consequence since nowhere in the report of the Chartered Engineer has identified the assets on which depreciation is claimed.
11. Referring to the invoices, the Officer pointed out that description therein was Turbo blower and not turbines. In the absence of any confirmation letter from Kirloskar Oil Engines Limited and the lessee, the Officer concluded that the transactions were purely a financial transaction. Thus, the Officer rejected the assessee's claim. On appeal before the first Appellate Authority, it was pointed out that in the letter dated 16.11.1998 the lessee confirmed in writing that all leasing transactions had been shown as financial transactions. The lessee company categorically denied having sold any turbines to the assessee herein and on appreciation of facts available, the Commissioner of Income Tax (Appeals) rejected the case of the assessee. On appeal before the Tribunal, in paragraph 19 of its order, the Tribunal considered the case of the assessee and once again reaffirmed the view of the Commissioner of Income Tax (Appeals). The Tribunal pointed out that the assessee had not furnished any confirmation letter for having purchased machinery from Kirloskar Oil Engines Limited. The assets were not identified and rightly the authorities below rejected the claim of the assessee for depreciation.
12. As far as this particular claim is concerned, learned counsel for the assessee pointed out to the invoice raised by Kirloskar Oil Engines Limited in the name of the assessee company, wherein the name of the lessee company was mentioned as a consignee and a suit filed before this Court in C.S.No. 876 of 1999 for mandatory injunction directing the defendant, lessee herein to forthwith procure an invoice from Kirloskar Oil Engines Limited for the sale of two wind turbines in favour of the assessee, wherein this Court by judgment dated 26.8.2002 decreed the suit in favour of the assessee, only to substantiate its contention that the assessee had infact leased out the machineries to the lessee.
13. As far as the judgment passed in C.S.No. 876 of 1999 is concerned, a reading of the same shows that in the said suit for mandatory injunction directing the defendant, lessee herein to forthwith procure an invoice from Kirloskar Oil Engines Limited for the sale of two wind turbines described in the schedule to the plaint in favour of the assessee, the defendant, the lessee herein, remand ex parte. Based on the evidence of P.W.1 and Exhibits P1 to P16, the suit was decreed. We do not think that this judgment would be of any assistance to the assessee. As evident from the reading of the judgment, the prayer was only for mandatory injunction to direct the defendant to get invoices from Kirloskar Oil Engines Limited for sale of two turbines. Whether this is for the purpose of complying with the requirements of Income Tax Act or for any other purpose, it is for the assessee to explain. In any event, this judgment passed in favour of the assessee does not in any manner speak about the genuineness of the lease transactions. Apart from this, learned counsel for the assessee also placed before us the order of the Delhi High Court passed in C.P.No. 337 of 1996 wherein assessee has filed C.A.No. 1318 of 2004 in C.A.No. 1212 of 2004. The cause title therein reads as Batliboi Limited V. Mesco Limited and others. The petitioning creditors were ICICI Bank and First Leasing Company. A reading of the order narrating the application contents shows that the assessee herein had given boilers and turbines to the company on lease basis. When we enquired the learned counsel for the assessee as to whether Mideast Integrated Steel Limited and the company in C.P.No. 337 of 1996 are one and same, we could not get any definite answer, except to the fact that Mideast Integrated Steel Limited is located in Lewis Road, Bhuwaneshwar, Orissa. Thus, this Court does not draw any support either from the judgment of this Court or from the Company Court, High court, Delhi orders to accept the case of the assessee, to hold that the assessee had substantiated its contention that the transactions in question was a genuine lease transaction. When the supplier had denied to have supplied the turbines to the assessee for the purpose of supplying it to the lessee, we have no hesitation in confirming the order of the Tribunal.
14. The third case of dispute in the appeal before us is as regards alleged lease in favour of Victory Glass and Industries Limited. Even herein, to verify the claim of the assessee, the Assessing Officer sent a letter of inquiry to the supplier to the address given in the invoice, wherein, the supplier was directed to give copies of invoices, delivery challan issued to the lessee/ lessor, exact present location of the equipment/ machinery, evidence for transportation of the plant and machinery to the site, proof including installation report if any for installation of machinery at the lesee's premises, date of installation of the machinery, copy of the accounts of assessee company in the book of accounts for the period 1.4.95 to 31.3.96 and PAN and jurisdiction / Designation of Assessing Officer under the Income Tax Act. The Assessing Officer pointed out that there was no confirmation letter or correspondence on the installation certificate, evidence for transportation of the machinery from the supplier to the lessee filed in support of the contention. When the assessee merely filed copies of invoices and lease agreements, the same would not be sufficient to allow the claim of depreciation. In the circumstances, the Assessing Officer rejected the assessee's case. On appeal, the Commissioner of Income Tax (Appeals) pointed out that enquiries made by the Assessing Officer revealed that both the name of the supplier and address were unidentifiable. The letter addressed to the supplier to verify the transaction were returned unserved and it was indicated to the assessee on 15.12.1998. The Sales Tax Authorities confirmed that the numbers quoted in the invoice was not allotted by their department. From the above details, it was evident that Victory Glass and Industries Limited had taken possession of the assets from Makali Fabricators & Engineers, Howrah on 10.1.1996 and the assessee had paid supplier by means of a draft dated 9.2.1996. But even prior to the date of payment, equipment was purportedly delivered to the lessee. The Commissioner of Income Tax (Appeal) disbelieved the assessee's contention. On appeal, the Tribunal confirmed the findings of the Commissioner of Income Tax (Appeals) and held that the assessee had failed to substantiate its contention that the purchase of machineries was for the purpose of lease to Victory Glass and Industries Limited.
15. As far as this company is concerned, learned counsel for the assessee submitted that merely because the Revenue could not trace the supplier, no adverse inference could be drawn against the assessee that there was no sale of equipment to enable the assesse to supply the same to Victory Glass & Industries Limited. When the assessee had discharged its burden by producing confirmation certificate and invoice copy, the Tribunal should have considered the same in favour of the assessee that it had discharged his burden. In this connection, learned counsel for the assessee took us through the invoices of Makali Fabricators & Engineers which contains registration number. We do not think that this could automatically enure to the benefit of the assessee. As pointed out by the Assessing Officer, when the registration number contained in the invoice, was not the one allotted by respective statutory authority, one cannot grant relief to the assessee merely on the ground that invoice carried sales tax registration number. It is not denied by the assessee that the letters sent to Makali Fabricators & Engineers were returned unserved and in spite of intimation given to the assessee about this, the assessee had not taken steps to substantiate the existence of the Makali Fabricators to effect sale by the assessee. In the absence of substantial material, rightly the Tribunal came to the conclusion that the transactions could not be taken as lease transactions. As such, we have no hesitation in confirming the order of the Tribunal.
16. As far as the lease said to have been given in favour of H.K.Datarax Limited is concerned, the Assessing Authority pointed out that a letter of inquiry was sent to the supplier to furnish the details of copies of invoices, delivery challan issued to the lessee/ lessor, exact present location of the equipment/ machinery, evidence for transportation of the plant and machinery to the site, proof including installation report if any for installation of machinery at the lesee's premises, date of installation of the machinery, copy of the accounts of assessee company in the book of accounts for the period 1.4.95 to 31.3.96 and PAN and jurisdiction / Designation of Assessing Officer under the Income Tax Act. The letter addressed to the supplier Silicon Specialities was returned unserved by postal authorities. Departmental enquiries revealed that no such company ever existed in the vicinity in the recent past. In the circumstances, the claim of the assessee was rejected. The reasoning given by the Officer was similar to that of what had been given in respect of previous case Victory Glass and Industries Limited. On appeal, the first Appellate Authority pointed out that the assessee could not file any evidence as to the existence of the supplier or existence of the assets. The fact that the assesse had lodged a claim before the liquidation proceedings per se could not be taken as a sufficient proof as regards the subject matter of the alleged lease. In the absence of any material, the Commissioner of Income Tax (Appeals) rejected the claim of the assessee. On appeal before the Tribunal, in paragraph 21 of its order the Tribunal considered the case of the assessee and rejected the same. It held that the assessee had failed to establish its case.
17. Learned counsel appearing for the assessee pointed out to the liquidation proceedings in the case of H.K.Datarax Private Limited. Learned counsel for the assessee placed before us the copy of the affidavit of proof of debt filed by assessee company in C.P.No. 8 of 1997 on the file Karnataka High Court in the matter of liquidation proceedings of H.K.Datarax Private Limited. The assessee had given details about the machinieries which were leased out and which were under hire purchase. The assessee lodged claim before the Official Liquidator enclosing the copies of the agreement and invoice stating the location of assets. A reading of the document show that there was no doubt that H.K.Datarax Private Limited was under liquidation and as a creditor the assessee had lodged its claim before the Court. But we do not find any material to show as to how the assessee had purchased machinery from Silicon Specialities. As already seen from the order of the Commissioner of Income Tax (Appeals), the letter addressed to the supplier was returned unserved and further inquiry revealed that there was no such company ever existed at the said address. The assessee was put on notice about this. However, no materials were placed before the authorities as to the existence of the supplier. This with the supplier not identified, rightly the claim of the assessee as a owner of the machinery was rejected. The fact that the lessee had subsequently gone for liquidation per se would not substantiate the claim of the assessee as regards its purchase from Silicon Specialities for the purpose of claiming depreciation. As such, we have no hesitation in confirming the order of the Tribunal.
18. The next direct lease stated to have been given to M/s. Sitapur Plywood Limited. Here too, the Assessing Officer directed the supplier Assam Solvex to furnish copies of invoices, delivery challan issued to the lessee/ lessor, exact present location of the equipment/ machinery, evidence for transportation of the plant and machinery to the site, proof including installation report if any for installation of machinery at the lesee's premises, date of installation of the machinery, copy of the accounts of assessee company in the book of accounts for the period 1.4.95 to 31.3.96 and PAN and jurisdiction / Designation of Assessing Officer under the Income Tax Act. The letter addressed to the Assam Solvex was returned unserved by postal authorities. Though the invoice was dated 19.11.1994, the assets are insured on 14.4.95. The factory was no longer in existence at the end of 1996. The Officer pointed out that the supplier was engaged in the business of extracting vegetable oils and manufacture of plywood products like packaging materials and never engaged in the business of manufacture of items mentioned in the invoice and that there was no document available to verify the genuineness of the transaction. In the circumstances, the Assessing Officer rejected the claim of the appeal. On appeal before the Commissioner of Income Tax (Appeals), once again the finding of fact given by the Assessing Officer was confirmed. Further appeal before the Tribunal also ended in same fate. Hence, the present appeal.
19. As far as this aspect is concerned, as in the case of earlier instances, when the supplier is not there at all to identify the sale of machinery to the assessee herein, rightly the Tribunal rejected the case of the assessee. As such, we have no hesitation in confirming the order of the Tribunal.
20. As regards the direct lease transaction of GSL India Limited, the assessee is stated to have acquired assets from M/s.Isotex Corporation, M/s.Allwyn Engineers and M/s. Maruti Engineering Industries, all located at Ahmedabad. Spot enquiries were made by the Department and the addresses of the three suppliers were found to be fake. In the light of the fact that the suppliers were not traceable and the addresses given were not in existence, the claim of the assessee was rejected. The finding of fact given by the Assessing Officer was confirmed by first and second Appellate Authorities. Hence, the present appeal before this Court.
21. The case of the assessee with reference to the claim of depreciation on the alleged lease transaction with GSL India is not different from the claim as regards earlier instances. The Tribunal pointed out that disbursement of money for the purpose of machinery was made not to the supplier but to the lessee. On going through the documents and as the letters which were issued to the supplier were returned unserved, rightly the Tribunal confirmed the order of the Assessing Authority.
22. It may be noted that in none of the instances, the assessee substantiated the existence of the supplier and the consideration that had gone between the assessee and the said supplier to result in sale in favour of the assessee to lease the assets to the lessee. Even though learned counsel for the assessee placed reliance on the decisions of the Apex Court reported in 223 ITR 271 J.B.BODA & CO., v. CENTRAL BOARD OF DIRECT TAXES and 159 ITR 78 CIT v. ORISSA CORPORATION, that in the absence of service of notice, no inference could be drawn on the mere ground that the notice sent to the supplier were returned unserved, it may be pointed out herein that unlike in the reported case, the Revenue sought for particulars of PAN number of the suppliers and the concerned jurisdiction of the Officer to find out whether there had been any reality consideration passing from the assessee to the said suppliers. In the absence of proof of suppliers and there being no attempt on the part of the assessee to establish the said fact that there was in fact a sale in its favour, rightly, the authorities rejected the case of the assessee. Mere production of lease agreement and copies of invoices indicating alleged sale in favour of the assessee would not be a sufficient ground to grant the relief. A perusal of the documents relied on by the assessee clearly show that the assessee could not in any manner substantiate its case that there had been purchase of machineries for the purpose of effecting lease in favour of the lessees. As rightly pointed out by the authorities below, the transactions were purely financial transactions and they were given the name of the lease transactions through the lease agreements. There being no error in the reasoning given by the Tribunal, we have no hesitation in rejecting the case of the assessee, thereby confirming the order of the Tribunal.
23. In the result, the above Tax Case (Appeal) is dismissed. No costs. Consequently, connected TCMP is closed.
bg To
1. The Deputy Commissioner of Income Tax Central Circle I (5), Chennai 600 034
2. The Income Tax Appellate Tribunal, Madras A Bench