THE COMMISSIONER OF INCOME TAX vs. M/S KRONE COMMUNICATIONS LIMITED

1 IN THE HIGH COURT OF KARNATAKA, BANGALORE DATED THIS THE 16TH DAY OF JULY, 2012 PRESENT THE HON'BLE MR. JUSTICE K.SREEDHAR RAO AND THE HON'BLE MR. JUSTICE B.MANOHAR I.T.A. No. 1294 OF 2006 BETWEEN:- 1. The Commissioner of Income-Tax, Central Office, C.R. Building, Queens Road, Bangalore. 2. The Assistant Commissioner of Income-Tax, Circle – 11(3), C.R. Building, Queens Road, Bangalore. Appellants (By Sri G. Kamaladhar, Advocate) AND:- M/s.Krone Communications Ltd., P.B.No.5812, No.30(c), II Phase, Peenya Bangalore. Respondent (By Sri Ramabhadran, Advocate)

2 This I.T.A. is filed u/s.260-A of I.T. Act, 1961 arising out of order dated 12-05-2006 passed in ITA No.525/Bang/2003, for the Assessment Year 1994-95, praying that this Hon’ble Court may be pleased to: (i) formulate the substantial questions of law stated therein and (ii) allow the appeal and set aside the order passed by the ITAT, Bangalore in ITA No.525/Bang/2003 dated 12-05- 2006 confirming the order of Appellate Commissioner & confirm the order passed by the Asst. Commissioner of Income Tax, Circle-11(3), Bangalore, in the interest of justice and equity. This appeal is coming on for hearing this day, SREEDHAR RAO, J., delivered the following: J U D G M E N T The Respondent is the assessee and had purchased bio gas and furnace. The sale invoice discloses the value of the said equipment at Rs.50,00,000/- each. The assessee had purchased the said equipment by taking finance from Kotak Mahindra and hire purchase agreement was entered into. 2. The assessee sought for depreciation as per the value stated in the sale invoice. The Assessing Authority held that the value in the sale invoice is inflated and the value of the equipment is Rs.2,50,00,000/- and not Rs.50,00,000/-. Accordingly, the claim of the assessee for depreciation is

3 rejected. The Commissioner of Income Tax in appeal confirmed the order of the Assessing Authority. The Tribunal in appeal has set aside the order of Commissioner of Income Tax and remanded the matter to the Assessing Authority to examine the issue afresh in accordance with the observation made which are as follows: “A review of the entire matter about the lack of enquiry made and not considering the tax in proper line, we come to the only plausible conclusion that the assessment deserves to be set aside and to be done afresh. We accordingly, set aside the assessment and direct the Assessing Officer to examine the issue afresh namely – (a) Whether the sale value of the bio gas plants and flameless furnace as per the sole invoice is assessed in the hands of supplier at the same value as has been done in the sale invoice. If it is so assessed, then the department can do the assessment in the hands of the assessee and to accept the same as a cost and allow the depreciation to the assessee at the cost as per the agreement. (b) The department would consider the decision of the Supreme Court with regard that provides that all that the assessee requires to prove the ownership and usage of the asset for claiming depreciation. In so far as the ownership is concerned, despite the assessee had purchased the

4 assets under Hire Purchase Agreement. In view of the Board Circular (supra), the assessee would be entitled to depreciation. The usage aspect is to be seen in the light of the decision of the Supreme Court i.e., if the business of the assessee is leasing and is using and has leased it, the usage stands proved. Keeping these two aspects in view, we direct the Assessing Officer to re-do the assessment afresh by giving the assessee sufficient opportunity of hearing. For statistical purpose the appeal is treated as allowed.” 3. It is the contention of the State in appeal that the observations made would make the Assessing Officer to accept the value stated in the sale invoice as binding and that there is no scope for Assessing Authority to find out the actual market value of the equipment. The Assessing Authority should be given scope to find out the actual market price of the equipment, otherwise whatever stated in the invoice, which is concocted document would become binding and results in injustice to revenue. 4. Per contra, the learned counsel for the respondents submitted that the observation made by the

5 Tribunal does not foreclose the discretion of the Assessing Authority to assess the market price of the equipment. However, it is essential that verification from the supplier is to be made and if the material furnished by the supplier would disclose that the sale price stated in the invoice is just and proper, accordingly the depreciation is to be allowed. The contention that the observation made have divested discretion of the Assessing Authority, is incorrect. 5. Heard. Learned counsel for both sides. It is clarified that the remand is an open remand. The Assessing Authority is free to assess sale value of the product with reference to the materials pertaining to the supplier and other relevant material if any. Accordingly, the appeal is disposed of. Sd/- JUDGE Sd/- JUDGE NM*