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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & MS. KAVITHA RAJAGOPAL, JM
per the Memorandum and Articles of Association, the assessee was also engaged in the business of hiring to further substantiate its claim. The A.O. disallowed the depreciation claimed by the assessee for the reason that the hiring of plant and machinery was an internal arrangement between the two associated companies for the benefit of claiming
(A.Y.2013-14) ACIT vs. M/s. Mukand Sumi Metal Processing Limited depreciation. The A.O. further held that the business activity as per the joint venture had not commenced and carried out during the impugned year and that no manufacturing activity was found to have been carried out by the assessee, thereby rejecting the claim of the depreciation. The A.O. also rejected the alternate claim of the assessee in allowing atleast 50% of the depreciation on the eligible rate claimed by the assessee for the above mentioned reasons. The ld. CIT(A), on the other hand, allowed the claim of depreciation of the assessee on the ground that the A.O. has not disputed the fact that the transaction was genuine. The ld. CIT(A) further held that the mere internal arrangement for the purpose of getting tax benefit cannot be said to be a sham transaction and had relied upon the decision of the Hon’ble Punjab & Haryana High Court in the case of CIT vs. Punjab State Electricity Board [2009] 183 taxmann.com 419 (P & H) which held that the arrangement of affairs by the assessee to reduce the tax liability without violating the law as per the proposition laid down in Union of India vs. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) case by the Hon'ble Apex Court was held to be valid. The ld. CIT(A) further held that the lease rent offered by the assessee was higher than the depreciation claimed by atleast 3% and, hence, there was no loss of revenue. From the above observation, we are of the considered view that similar issue has been dealt with by the Hon'ble Apex Court in the case of K. M. Sugar Mills Ltd. vs. CIT [2015 373 ITR 42 (SC), wherein it was held that sale and leased back transaction was recognized for the purpose of claiming depreciation provided the twin condition of section 32 of the Act where the ownership and the use of the assets for business purpose was proved then the assessee was entitled to claim the depreciation. The assessee has also placed reliance on the decision of the Hon'ble Supreme Court in the case of I.C.D.S Ltd. vs. CIT [2013] 350 ITR
(A.Y.2013-14) ACIT vs. M/s. Mukand Sumi Metal Processing Limited 327 (SC) along with the other decisions which has reiterated the proposition that the assessee is the owner of the machineries and had given the same on lease where the lease rent was also offered to tax. The assessee was eligible to claim depreciation on the said plant and machinery at 15%. It is pertinent to point out that the A.O. in the present case has not disputed the transaction of purchase and sale of plant and machinery and, hence, the first condition of section 32 of the Act stipulating that ownership should be proved was satisfied by the assessee. The second condition emphasizing that it has to be put to use for the purpose of the business of the assessee has also been substantiated by the assessee vide the hiring agreement entered into by the assessee and M/s. Mukand Ltd. and further the lease rent offered was taxed by the A.O. as offered by the assessee as ‘business income’.
From the above observation, we are of the considered view that the ld. CIT(A) has rightly allowed the depreciation on plant and machinery as per section 32(1) of the Act and, hence, we find no infirmity in the order of the ld. CIT(A). Therefore, the grounds raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 02.06.2023.