Itta/34/2003 Of The Comm Of Income Tax Hyd v. Khaitan Tibrewala Elec Ltd Hyd

HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAMI.T.T.A No.34 of 2003 JUDGMENT:-(Per Hon’ble Sri Justice L.Narasimha Reddy) This appeal under Section 260A of the Income Tax Act isfiled by the assessee, feeling aggrieved by the order, dated30.10.2000, passed by the Hyderabad Bench ‘A’ of the Income TaxAppellate Tribunal (for short ‘the Tribunal’) in IT(SS)A/283/Hyd/1997. It is in relation to a block assessment madeas a result of search conducted on 20.11.1996. The appellant is a Company manufacturing fans and otherelectrical items as its main activity, and it is assessed to incometax. In the returns submitted for the assessment year 1995-96, itclaimed depreciation of Rs.50 lakhs being cost of 1005 BeerKeggs. According to it, the Beer Keggs were purchased at a costof Rs.50,00,176/- from M/s.Trans-Asia Private Limited andthereafter, they were given on lease to M/s. Rajasthan BeveragesLimited (for short M/s.R.B.L.) for a period of 72 months. Thedepreciation so claimed was allowed by the Assessing Officer. A search was conducted in the premises of the ManagingDirector of the appellant company on 20.11.1996. A doubt wasentertained as to the genuinity of the transaction of purchasing ofBeer Keggs. The matter was entrusted to the Additional Director ofIncome Tax at New Delhi for verification and he, in turn, caused the recording of statements from the Office of M/s.R.B.L. It emergedthat the Beer Keggs were disposed of as scrap between April andOctober, 1995 by M/s.R.B.L. Taking note of these and other aspects that emerged as aresult of search, a block assessment for the period between 1987-88 and 1997-98 was made. The depreciation in relation to BeerKeggs was disallowed by the Assessing Officer. The same waschallenged in appeal before the Tribunal. The Tribunal allowed theappeal. Hence, this further appeal. Sri J.V.Prasad, learned counsel for the appellant, submitsthat even if the undisputed facts related to the transaction of thealleged purchase and leasing of Beer Keggs were taken intoaccount, it emerges that it was a sham transaction and that therewas absolutely no basis for the Tribunal in reversing the orderpassed by the Assessing Officer. He contends that when the leaseitself was for a period of three years, the question of the leasedmaterial being sold as scrap hardly within one month, does notarise. He contends that to cover up the very surreptitioustransaction, several efforts were made and all of them were provedto be untenable. Learned counsel submits that the observationmade by the Tribunal that the findings were recorded by theAssessing Officer without giving opportunity to the respondent istotally incorrect. Sri Y.Ratnakar, learned counsel for the respondent, on theother hand, submits that the transaction of purchase of Beer Keggsas well as leasing the same to M/s.R.B.L. are borne out by recordand only on being satisfied about the genuinity thereof, the Assessing Officer allowed the depreciation in the regularassessment. He contends that a roving enquiry, without anyreference to the respondent, was undertaken by the Departmentand the Assessing Officer has made observations contrary torecord and disallowed the depreciation. He submits that theTribunal has applied the correct principles of law and arrived atproper conclusion. Another facet of the argument of the learned counsel for therespondent is that though the respondent availed the benefit ofdepreciation of Rs.50 lakhs, in a way, income tax was paid on ahigher sum which was stipulated for rent of 72 months and that hisclient has no objection for levy of tax on the lease amount, even ifany part of it has skipped the assessment. Assessing Officer allowed the depreciation in the regularassessment. He contends that a roving enquiry, without anyreference to the respondent, was undertaken by the Departmentand the Assessing Officer has made observations contrary torecord and disallowed the depreciation. He submits that theTribunal has applied the correct principles of law and arrived atproper conclusion. Another facet of the argument of the learned counsel for therespondent is that though the respondent availed the benefit ofdepreciation of Rs.50 lakhs, in a way, income tax was paid on ahigher sum which was stipulated for rent of 72 months and that hisclient has no objection for levy of tax on the lease amount, even ifany part of it has skipped the assessment. In the regular assessment, the depreciation claimed by theappellant for the amount representing consideration for payment ofBeer Keggs was allowed obviously because the cost of each ofthem was less than Rs.5000/- or because it was otherwise inaccordance with law. In the course of search conducted in theyear 1996, several aspects were noticed. Serious doubt wasentertained as to the genuinity of the transaction of purchase ofBeer Keggs. Though the principal activity of the respondent was inthe field of electrical goods, the depreciation was claimed inrespect of items pertaining to manufacturing and sale ofintoxicants. Even at the block assessment level, objection was notraised for undertaking such an activity by the respondent. Thedoubt was only about the genuinity of the transaction. Beer Keggswere said to have been purchased in the month of March 1995 andimmediately, they were said to have been leased to M/s.B.R.L. for a period of 72 months. What was surprising was that the ManagingDirector of M/s.B.R.L., the lessee, stated that the Beer Keggstaken on lease from the respondent were sold as scrap betweenApril and October, 1995. It is just un-understandable asto how within one month, brand new Beer Keggs have becomescrap. By referring to those and other facts, the Assessing Officerpassed an order of block assessment disallowing the depreciation. The Tribunal was mostly impressed by the fact that therespondent filed a suit for recovery of the amount of leaserepresenting rent against M/s.R.B.L. and that complaints underSection 138 of the Negotiable Instruments Act were also filed. Itfailed to take note of the fact that the suit as well as the complaintswere filed subsequent to the search, almost as an after thought. The observation that the statements said to have been recordedfrom the officials of M/s.R.B.L. were not put to the respondent, isequally untenable. Nowhere in the block assessment proceedings,the respondent made a request to furnish any material pertaining tothe verification of the genuinity of the transaction. There wasabsolutely no basis for the Tribunal in reversing the order passedby the Assessing Officer. In the ordinary course, we should allow the appeal and setaside the order passed by the Tribunal. However, across the Bar,learned counsel for the respondent submitted that his client isagreeable to bring the entire lease amount covered by the leasedeed to tax. We are informed that the lease amount for three yearsis more than the cost of the Beer Keggs and in such an event, itwould wipe the benefits that have accrued to the respondent onaccount of depreciation. We, therefore, dispose of the appeal upholding the orderpassed by the Tribunal by recording a statement made on behalf ofthe respondent that it is agreeable to bring the lease amount for theentire period of 72 months being Rs.56,58,000/- under the purviewof the tax. If the said amount has been subjected to tax, theAssessing Officer shall pass necessary orders of implementationin this regard. There shall be no order as to costs. Miscellaneous petitions, if any, filed in this appeal shall alsostand disposed of. _______________________ L. NARASIMHA REDDY, J Date:27.08.2014kdl ________________________ CHALLA KODANDA RAM, J