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I. Sale and lease back transactions :

(1) M/s Khoday India Ltd.

(2) M/s Mohan Breweries & Distilleries Ltd.

II Straight lease transactions :

(1) M/s Kedia Distilleries Ltd.

(2) M/s Mahalakshmi Sugar Mills Company Ltd.

(3) M/s Prakash Industries (4) M/s Carews Pharmaceuticals Ltd.

(5) M/s Seethapur Plywoods Industries (6) M/s Patheja Forgings & Auto Parts Ltd.

III. Mortgage transactions:

(1) M/s Marvel Sales & Services Ltd.

2. The learned counsel for the assessee has relied on the following case laws, commentaries and Acts :

10. The remand report should be submitted on or before 22nd Feb., 1999."

The learned counsel for the assessee argued that for proper disposal of this appeal, the additional ground as regards to these issues, should be first adjudicated upon. The learned counsel for the assessee further submitted that the AO has not given the copies of the valuation reports and the materials collected and relied upon by him for passing the assessment order against the assessee. The assessee has requested the AO to furnish the copies of the valuation reports time and again and he only provided the valuation reports on 27th May, 2004, which were made part of paper book by the assessee in assessee's paper book I at p. 39. The learned counsel for the assessee also argued that other materials relied on by the AO and the CIT(A) in his order dt. 28th June, 2000, was furnished only at the stage of the Tribunal by the CIT, Departmental Representative in Departmental paper books 1 and II and the Department has made out totally a new case based on these new materials in respect of these transactions. The learned counsel for the assessee further narrated the fact that the aspect relating to the date of lease, existence of assets on the date of lease and transaction of assets, etc., in respect of transactions of M/s Khoday India Ltd. and M/s Mohan Breweries & Distilleries Ltd. were never raised by the Department at the earlier stage and it was undisputed or unquestioned by the lower authorities at any time that is the reason why lease deeds relating to these transactions were not made part of the assessee's paper book and no adverse inference can be drawn against the assessee. The learned counsel for the assessee further argued that the Department can confine itself only to the difference in valuation of the assets in question and it cannot travel beyond the scope of the said objection and in this matter, the Department has made out totally a new case and the argument, if accepted, it would amount to enhancement by the Tribunal which is beyond the scope and powers of the Tribunal. He further stated that the learned Departmental Representative very clearly considered that he is only bringing to the attention of the Bench that the AO had not gone on that footing. The learned counsel for the assessee further argued that the Department is relying only on the assessment orders in the case of M/s Five Brothers Trading & Investment Co. (P) Ltd., Kanakapura Trading & Investment (P) Ltd. and in those cases, there is no Departmental valuation as per the counsel of the assessee, He further argued that in the case of M/s Mohan Breweries & Distilleries Ltd., the asset was purchased by the suppliers under a scheme of amalgamation. He further argued that the Department has accepted that the asset is in existence as they have not doubted the existence of asset but the objection was only that the original invoice was not produced by the assessee at the time of assessment. The asset was proved by the assessee by the certificate issued by the valuer and the same should have been accepted as such, and in the alternative, the Department could have summoned the valuer and examined him and offered cross-examination to the assessee. The learned counsel for the assessee further argued that the valuation was prepared by a qualified valuer and his valuation should be accepted as that was substantiated on reasoning. M/s Khoday India Ltd. has replied in response to the letter written by the Asstt. CIT, Bangalore, that the Department has seized the books of account in pursuance of a search on that party and they are not in a position to furnish the details. The learned counsel for the assessee has further drawn our attention to the assessee's paper book I and stated that in the cases of M/s Khoday India Ltd. and M/s Mohan Breweries & Distilleries Ltd., the invoice, valuation certificate, assessment and appellate orders in the cases of M/s Five Brothers Trading & Investment Co. (P) Ltd. and Kanakapura Trading & Investment (P) Ltd., Departmental valuation certificate, lessee's valuation certificates have been submitted at pp. 1 to 43. He also relied on the decision of the Hon'ble Supreme Court in the case of Rukmanand Baisolia v. State of Bihar AIR 1971 SC 746.

"P.S. Manohar Chartered Engineer Bangalore.

Valuation Certificate This is to certify that the value of empty oak wood barrels which is under consideration of sale per proforma invoice dt. 7th Oct., 1994, of Khoday India Ltd. to M/s First Leasing Co. of India Ltd., Madras, is Rs. 4,800 each.

Sd/- P.S. Manohar, BE, MIE, C. Engg.

Certified Chartered Engineer Place :

Bangalore Dt. 7th Oct., 1994"

He further argued that the assessee has not furnished the original invoices evidencing the cost of purchase in the lands of the lessee. Even, the lessee did not furnish the invoices called upon by the AO vide letter dt. 14th March, 1998, which is annexed as Annexs. 4 and 5 to the Departmental written submissions dt. 23rd June, 2004. Actually and factually, he further argued that the cost of purchase of barrels in the hands of the lessee ranged from Rs. 380 to 720 during the relevant period mentioned above. He further argued that the chartered engineer is not an authorised person or registered with the IT Department as provided under the IT Act to give valuation report. The said valuer has merely relied on the proforma invoice of the lessee dt. 7th Oct., 1994, and not on any credible information as it can be seen from the valuation report reproduced above, Even, he pointed out the deficiency that the proforma invoice is of a date after the invoice of sale dt. 26th Sept., 1994, issued by the lessee to the assessee. Even, the assessee could not explain as to how the proforma invoice can be raised by the lessee to the assessee after the invoice of sale. In view of this, he further argued that the valuation report is an afterthought just to claim the bogus depreciation. The valuation certificate does not even show the postal or complete address of the engineer. Moreover, the assessee by way of the additional ground has sought to cross-examine its own valuer. He further argued that it is very difficult for the AO to verify the existence of valuer, genuineness of his certificate and asking him to appear for cross-examination. In view of this, it is clearly established that no such person by the name of valuer exists, the valuation certificate is bogus and there is no ground for the assessee to attach any credibility of the so-called valuation report. He further argued that any addition to the above, even the assessee has not furnished a copy of the lease agreement in its paper books. However, the Department has provided the same in the Departmental paper book II at p. 96, wherein the lease value has been shown at Rs. 2 crores. He further argued that doubting the agreement by narrating the fact that the agreement was entered into on 6th Oct., 1993, in the asst. yr. 1994-95 and the assessment year under appeal is 1995-96, However, the invoice is of dt. 7th Oct., 1994, and after such agreement entered into between the lessee and the assessee, even the installation of the equipment shown as on 6th Oct., 1994, which is also prior to the date of invoice. In view of this, he doubted the genuineness of the lease agreement and the claim of depreciation. He further argued that as to how the assessee chose to buy a fully depreciated assets at such inflated price, as the intention is very clear that the assessee only wanted to fund the lessee and opted for an old asset so that it can claim bogus depreciation on inflated prices to avoid the incidence of income-tax in its hands and then transaction is in the guise of a lease transaction which is nothing but purely a financial transaction. The learned Departmental Representative further objected to the admission of additional grounds as Shri P.S. Manohar, the valuer of the assessee, is not the Departmental valuer in the case of M/s Khoday India Ltd. and Shri A.S. Anandram in the case of M/s Mohan Breweries & Distilleries Ltd. is the Departmental valuer. He argued that there are several other compelling and surrounding circumstances in respect of these transactions which go to prove that they are not genuine transactions. Therefore, there is no reason to allow cross-examination of valuers which will be of no consequence in deciding the issue in hand. The learned Departmental Representative further argued in respect of M/s Mohan Breweries & Distilleries Ltd. that the assessee has not furnished the copies of lease agreements in its paper books and there are two lease agreements which are finding place in the paper book at pp. 71 and 83 of the Departmental paper book II and the lease value of the asset is at Rs. 3 crores each. He argued that it may be seen from the Annex. B to the agreement at p. 82 of the Departmental paper book II that the schedule description of equipment and the location of the equipment is blank and not filled up. In view of this, he argued that there was no equipment which was leased by the assessee though it has furnished invoices at pp. 29 to 31 of the assessee's paper book I. These invoices are dt. 20th Sept., 1994, i.e., 6 1/2 month after the date of lease of the equipment at pp. 71 and 83. In regard to the second lease agreement, the invoice dt. 26th Sept., 1994, is reflected at p. 35 of the assessee's paper book I and that also after the date of leasing the equipment. He further argued that the equipments leased are machineries of the lessee's distilleries factory including the fermentation tank, storage tanks, 250 KVA generator set and 100 tonne capacity airconditioner plant. Further, he argued that these are permanently fastened to the distillery equipments which are attached to the earth. To this transaction, the provisions of Sale of Goods Act and the Registration Act apply and the sale made to the assessee by the lessee under the sale and lease back transaction is not a valid sale under the above-mentioned enactments. The learned Departmental Representative further argued that the value adopted by the AO based on the value determined by the Departmental Valuation Officer which is the lower figure than the cost of equipment adopted by the assessee as the assessee has contested the valuation made by the Departmental valuer and has relied on its valuation done through a chartered engineer whose valuation report is placed at pp. 33 and 34 of the assessee's paper book I. The learned Departmental Representative argued that the assessee's chartered engineer is not a valuation officer and registered valuer for the purpose of IT Department and further, the valuation of the chartered engineer is not based on any evidence or details whereas the Departmental valuation is based on the reasons and the report is a detailed one. The learned Departmental Representative further argued that in the case of sale and lease back transaction, the assessee has purchased old equipment owned by the lessee and leased out by the lessee and all the equipments are depreciated to the maximum extent, and the assessee has not given any evidence as regards to the cost of equipment purchased by the assessee originally. The AO time and again asked for original invoices from the assessee relating to the purchase of assets but those have not produced by the assessee. He further argued that the AO has rightly asked for the original invoice as he has doubted the value of the assets which has been fixed at very higher rate without any basis. Since the AO himself being not competent to value the equipments, referred the matter to the Departmental Valuation Officer who is an expert, qualified and competent to value the assets as per the authority under the IT Act and accordingly, he determined the fair market value of the assets. In view of this, he finally concluded that value adopted by the AO for allowing depreciation on both the transactions is the correct value and accordingly depreciation has rightly been disallowed.

11. As regards to disallowance of depreciation in respect of assets given on sale and lease back to M/s Mohan Breweries & Distilleries Ltd., the AO while framing the assessment found that the lessee has acquired these assets as per the scheme of amalgamation approved by the BIFR vide order dt. 20th May, 1994, from M/s Vorion Chemicals & Distilleries Ltd. and these assets were put to use for more than 10 years by the lessee. Subsequently, these assets were sold to the assessee-company and the assessee-company leased out the same to M/s Mohan Breweries & Distilleries Ltd. The assessee valued the property for sale as on the date of sale on the basis of valuation done by the chartered engineer. Before the AO, no invoices were produced by the assessee except the two invoices of diesel generators. As per the valuation report the machineries were valued based on verification of details of assets as available with the assessee, like the total life, depreciated physical working period, etc. and on the basis of details and records furnished by the assessee. The AO gave a finding that nothing was mentioned in the valuation report as regards to the anticipated life, purchase value of machines, etc. However, in the valuation report, the date of manufacturing was mentioned as on 20th May, 1993. Before the AO, the assessee has produced nothing which was produced before the valuer and it is not clear that before the valuer which documents were produced. In these circumstances, the AO referred the matter to the Departmental valuer for valuing the assets. The Departmental valuer after inspection of the assets valued the assets at Rs. 1,60,11,290 as against the value shown in the lease agreement at Rs. 5,50,05,000. The AO further gave the reasoning that the lessee would have claimed depreciation @ 25 per cent for the last many years and accordingly, he adopted the actual cost of purchase for restricting the claim of depreciation of the assessee at Rs. 1,60,11,290.