M/S. SRINIDHI TEXTILES,ERODE vs. ACIT, ERODE

आदेश / O R D E R PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

1.0 This is an appeal filed by the assessee against the Order dated 02.12.2011 of Commissioner of Income Tax (Appeals)-I, Coimbatore, in for the AY 2008-09.All the grounds of appeal are related to the depreciation on the effluent treatment plant.

2.0 The assessment was completed u/s.143(3) by an order dated 31.12.2010. Consequent to the revision Order u/s.263 of the Ld.CIT(A)- II, Coimbatore, dated 30/03/2012 the AO disallowed the depreciation amounting to Rs.1,75,95,696/- for the AY 2007-08 holding that the transfer of assets on which the depreciation was claimed was a sham transaction. For the AY 2008-09, the AO disallowed the depreciation on the same reasons merely on the ground that the company has obtained a loan from TIIC and without taking approval from lender the company cannot transfer the assets.

4.0 The entire building and machinery on which the depreciation claimed was mortgaged to TIIC and the assessee has borrowed the loans from TIIC. As per the Mortgage Deed, transfer/letting out of the property to the third party without written consent from the TIIC is not permissible.

The relevant paragraphs Nos.6 & 7 of the Mortgage Deed, was reproduced by the AO in his Order which reads as under:

“That the power of leasing contained in section 65-A of the Transfer of Property Act, 1882, shall not be exercised by the Borrower without the written consent of the Corporation first had and obtained provided that so long as the Borrower sha11 lawfully be ITA No.470/Mds/2012 & :- 3 -: in possession of the mortgaged premises it shall be lawful for the Brower from time to time to let the whole or part or parts thereof on monthly tenancies or on leases for any term agreed to by the Corporation with the Written consent of the Corporation first and obtained”. and also at Page No.7 item No.(p) reads as under: “That the Borrower undertake to take all the machineries purchased with the finance mode by the Corporation under this deed or otherwise to the premises of its factory situated on the First Schedule lands and erect them in due-course and not to take them elsewhere or to create any charge thereon in favour of anybody else”. The above said mortgage deed was registered under document No.887/2003 at the office of the Sub-Registrar, Erode.

4.1 In view of clauses in the mortgage deed the AO was of the opinion that the company cannot transfer the properties held under mortgage to the assessee as share capital and thus the entire transaction is a sham transaction. Accordingly, the depreciation claimed by the assessee was allowed by the AO.

5.0 On the same facts for the AY 2007-08, this Tribunal has remitted the matter back to the file of the AO to examine the documents relating to transfer of assets from company to the assessee independently without linking to the Mortgage Deed and decide afresh on merits. Since the facts are the same, we deem it fit to remit the assessment for the AY 2008-09 also to the file of the AO to examine the issue of transfer of assets independently without linking to the condition of the Mortgage Deed and decide the case on merits. In the result, the appeal of the assesse is allowed for statistical purposes.

ITA No.470/Mds/2012 & :- 4 -:

ITA No.1891/2013 for the AY 2009-10:

For the AY 2009-10, the AO disallowed the depreciation of Rs.29,57,307/- since the assets of M/s.Srinidhi Fabrics (P) Ltd., was brought as share capital contribution as per the facts discussed in 143(3) for the AY 2008-09. The assessee went on appeal before the Ld.CIT(A) and the Ld.CIT(A) dismissed the appeal. Since, the facts of the case are same as of AY 2008-09, we remit the matter back to the AO to re- examine the issue independently without linking to the conditions in Mortgage Deed and decide the claim of depreciation on merits. Accordingly, the Order of the lower authorities are set aside and the issue is remitted back to the file of AO.

In the result, the appeal of the assessee is allowed for statistical purposes.