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The AO by this order Annexure-E dt 26th March, 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 of Rs. 1,60,18,854 was advanced by the assessee to APSEB. However, the AO excluded from the gross total of income, the leased rental offered for taxation by the assessee to the extent of Rs. 14,63,322 (Rupees fourteen lakhs sixty-three thousand three hundred twenty-two only). He proceeded to bring to tax the deemed interest income applying the rate of interest at 18 per cent per annum on net amount of Rs. 1,16,34,154 (Rupees one crore sixteen lakhs thirty-four thousand one hundred fifty only) advanced and brought to tax Rs. 10,47,100 (Rupees ten lakh forty-seven thousand one hundred only). The appellate authority, in its order Annexure-G dt. 22nd March, 2001, while giving some relief in respect of few other items, confirmed the order of assessment insofar as it relates to rejection of claim for depreciation in respect of the machinery/equipment in question purchased from APSEB an leased back to APSEB. The Tribunal, by means of its order dt. 30th Oct., 2001 rejected the appeal filed by the assessee challenging the correctness of the order Annexure-G passed by the appellate authority. Aggrieved by the said orders referred to above, this appeal is filed.

3. Whether the Tribunal was right in law in holding that the appellant was not entitled to 100 per cent depreciation on the assets purchased and leased back to APSEB especially when even APSEB had confirmed the transaction vide its declaration ?

4. Whether the Tribunal was right in law in upholding the action of the lower appellate authorities in treating the transaction between the appellant and 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 APSEB ?

5. Whether the order of the Tribunal was perverse insofar as in spite of producing all necessary details to identify the assets and the transaction as entered into between the appellant and APSEB to the said transaction had been treated as a sham transaction ?"

4. Sri G. Sarangan, learned senior advocate appearing along with Sri S. Parthasarathi, for the assessee, strongly urged that since the purchase of machinery/equipment from APSEB was made by means of agreement of sale deed dt. 29th Sept., 1995; and on the same day by means of lease deed, the assessee had leased back the machinery/equipment in question, to APSEB; and the APSEB being a statutory corporation incorporated by the Government of Andhra Pradesh; the Tribunal, the appellate authority and the AO 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 into between the assessee and APSEB for the avoidance of payment of tax and the transaction in question is really a financial transaction; and on that basis rejecting the claim made by the assessee for depreciation of the assets purchased by the assessee from APSEB. According to the learned counsel, the reason assigned by the Tribunal in the order impugned proceeds on the basis of conjectures and inferences and in disregard of the materials on record; and therefore, the finding recorded by the Tribunal should be held as perverse in law. Elaborating this submission, he pointed out that the entire approach made by the Tribunal and the subordinate authorities, to the matters in controversy is erroneous. It is his submission that the Tribunal proceeds on the basis that the sale and lease agreements require registration and since they are not registered, the case set up by the assessee cannot be accepted. He pointed out that since the transaction related to transfer of property in movables, i.e., machinery/equipment, the approach made by the Tribunal that the said documents require registration is totally erroneous and perverse in law. He further pointed out that even if the assessee carries an illegal business and for the said purpose, if the expenditure is incurred, the assessee is entitled to claim exemption for the same. Secondly, he submitted that since the parties have not provided for an interest under the lease agreement entered into between them, it was not permissible for the AO to proceed to assess the profit on the basis of an assumed interest received by the assessee on the amount stated to have been advanced. He also submitted that assuming that the depreciation claimed by the assessee cannot be accounted as the income of the assessee, the same is required to be computed under Sections 56 and 57(2) of the Act. In support of his submissions he relied upon the decision of the Hon'ble Supreme Court in the case of CIT v. Piara Singh , in the case of CIT v. Shaan Finance (P) Ltd. and Anr. , in the case of C/T v. Aswati Corporation , in the case of McDowell & Co. Ltd. v. CTO , in the case of CWT v. Arvind Narottam , in the case of Mohan Wahi v. CIT and Ors. , and in the case of Mittal Belting & Machinery Stores v. CIT & Anr. . He also referred to us certain passages from Kanga & Palkhivala's at pp. 21A, 46, 48, 50, 51, 53, 54 where judgments of various Courts are referred to, submitted that the Tribunal has failed to consider that the decision of the Hon'ble Supreme Court in the case of McDowell (supra) replied 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.

8. 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 any one of the submissions advanced by the learned counsel for the appellant, The orders impugned do not suffer from any error, much less, 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 fact. Having elaborately heard the learned counsel appearing for the parties and having carefully gone through the orders impugned, we have no hesitation to hold that the finding recorded by the Tribunal that the transaction between the assessee and the APSEB is a colourable transaction entered into between them for evasion of tax, is fully justified. The Tribunal, in the course of its order impugned, on consideration of the finding recorded by the appellate authority as well as the AO, has come to the conclusion that the transaction in question is a colourable transaction intended to avoid payment of tax. The said finding, in our view, does not suffer from any error involving substantial question of law. While it is permissible, as contended by Sri Sarangan, for an assessee to have tax planning, it is not permissible to prepare documents and to give the colour of real transaction on the basis of the said documents, which would enable the assessee to evade payment of tax. When an assessee makes a claim for depreciation on grounds allowed by law, it would always be open to the AO to lift the veil of the transaction put forward and find out as to whether the transaction put forward for the purpose of claiming depreciation is a genuine transaction or only a make-believe one intended to avoid payment of tax. 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 AO as well as the appellate authority and the Tribunal, after careful consideration of the case pleaded by the assessee and the materials placed by it before the AO, have recorded a finding that the transaction set up by the assessee is not a genuine one and a colourable transaction intended to avoid payment of tax: They have not believed the case of the assessee that the assessee, by means of sale agreement dt. 29th Sept., 1995, had purchased the machinery/equipment from APSEB and on the same day, by means of another lease agreement, the assessee has leased out the said machinery/equipment to APSEB, as claimed by it. While coming to the said conclusion, they have taken into account : (i) the documents in question were not registered; (ii) machinery/equipment were not identified; (iii) written 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 possession of the machinery/equipment by APSEB to the assessee on completion of the sale of the said machinery/equipment; (vii) there was also no redelivery or handing over the possession of the machinery/equipment by the assessee to the APSEB; and (viii) the machinery/equipment also were embedded or attached to the earth. The order made by the AO 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: