M/S. LEXICON FINANCE LTD.,MUMBAI vs. ACIT CIR - 2 (2), MUMBAI

Common grievance of the assessee in both the years relates to decline of claim of depreciation on the industrial boiler leased out to M/s Rohit Pulp & Paper Mills Ltd..

Rival contentions have been heard and record perused. Facts in brief are that during the assessment year 1998-99 assessee has leased out industrial boiler to one M/s Rohit Pulp & Paper Mills Ltd. This was claimed to have been purchased from M/s Industrial Boilers Ltd. in March 2 3939/05 1998. The AO found that major portion out of the total purchase price of Rs.67,40,160/- was directly paid by the so-called lessee to the supplier as per particulars given below :- Sr.No. Date Amount 1. 24-2-98 6,75,000 2. 16-3-98 20,00,000 3. 17-3-98 15,00,000 4. 13-3-98 7,00,000 5. 30-3-98 1,17,000 Total : 48,92,000 It was also found that even subsequent payments were made directed by M/s Rohit Pulp Papers Mills Ltd. to the supplier. Thus, the total payment of sale consideration was made by the so-called lessee to the supplier. The amount of Rs.60,38,160/- is claimed to have been reimbursed on 31-3- 1998 to the lessee by the assessee. In view of the observations, the AO inferred that “reimbursement” was in substance an act of financing done by the assessee for the investment made by M/s Rohit Pulp Paper Mills Ltd. in the purchase of the asset on the security of the same asset. The AO also observed that the supplier has raised five different invoices as under :- Sr.No. Date Amount 1. 18-3-98 1,83,080 2. 19-3-98 1,83,080 3. 22-3-98 36,81,200 4. 31-3-98 25,62,840 5. 31-3-98 1,50,000 Total : 67,60,200 The AO also found that the boiler was delivered by the supplier at the premises of the lessee and there was no physical movement of goods between the supplier and the assessee. The AO also observed that the 3 3939/05 impugned asset i.e. the boiler, forms an integral part of the production unit of the lessee and it cannot be removed from its factory. This shows that the primary period of lease of five years was so determined as to cover the entire useful life of the asset and its demise was considered as complete and irrevocable in practice. In view of the above observation the AO declined assessee’s claim of depreciation both the assessment years under consideration i.e. 1998-99 & 1999-2000.

By the impugned order, CIT(A) confirmed the action of AO.

It was contended by ld. AR that initially payment to industrial boilers limited was made by Rohit Pulp and Paper Mills Limited and the assessee has reimbursed the amount to them on 31-3-1998. As per ld. AR Industrial Boilers Limited raised their invoice for erecting and commissioning of the industrial boiler on 31.3.1998. The fact that the said asset had been received, erected and commissioned before 31.03.1998 is also confirmed by Rohit Pulp and Paper Mills Limited in paragraph 9 of its reply to the summons issued by the AO. Our attention was invited to the clause 2.3.1 at page 58 and clause 8.2.1 at page 67 of the lease agreement requiring the lessee to deliver the equipment to the lessor upon the termination of the agreement as well as empowering the lessor to re-possess the equipment. This fact has also been confirmed by Rohit Pulp and Paper Mills Limited in paragraph 26 of their reply to the summons issued by the AO. Ld. AR further contended that after the termination of lease, the assessee re-possessed the said asset and sold it to Fabritex Engineers. Ld. AR submitted that this would prove beyond any doubt that the lease 4 3939/05 was genuine and the assessee was the owner of the said asset. In view of the above arguments, ld. AR contended that the AO has wrongly declined the assessee’s claim of depreciation on leased assets.

On the other hand, ld. DR relied on the order of lower authorities.

We have considered rival contentions and carefully gone through the orders of authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by ld. AR and DR during the course of hearing before us. From the record we found that the bills for said boiler was raised between 18-3-1998 to 31-3-1998. The major bill of Rs.25,62,840/- and Rs.1,50,000/- was raised only on 31-3-1998. The nature of assets so supplied can be used only after proper installation. The fact that major bill was raised only on 31-3-1998 and it was also not made clear how the boiler was delivered from the site of supplier and installed at the site of lessee on 31-3-1998 itself. Since transportation of major part of boiler billed on 31st March, 1998, was not feasible from Vapi to Mumbai, on the very same date its installation and commissioning on the very same day is not proved. Therefore, we do not find any infirmity in the order of lower authorities for decline of claim of depreciation in the assessment year 1998-99.

The crucial fact which establishes assessee’s genuineness of lease transaction is the fact that assessee has stated to have repossessed the asset and sold it to Fabritex Engineers. However, documentary evidence to this effect has been filed first time before the Tribunal. As these are the 5 3939/05 crucial documents for deciding the genuineness of lease transaction and list of boiler which has been repossessed after termination of lease period, goes to the root of the issue, we restore this matter back to the file of AO for deciding afresh after considering the documentary evidence placed at page 128A to 128F of the paper book. We direct accordingly.

In the assessment year 1999-2000, the assessee is also aggrieved for decline of depreciation on the assets leased to Rajinder Steels Limited. Ld. AR drew our attention to the order of Tribunal in assessee’s own case for the assessment year 1996-97, wherein the Tribunal has allowed claim of depreciation. We also found that claim for depreciation on the said asset has also been upheld by the AO in his order dated 02.04.2004 giving effect to the CIT(A)'s order. For assessment year 1998- 99 though the Appellant's claim for depreciation on the asset leased to Rajinder Steels Limited was denied by the AO the same was upheld by the CIT(A). This position has been accepted by the Revenue as they have not preferred any appeal against the same to the Tribunal. Since the assessee’s claim for depreciation on asset leased to Rajinder Steels Limited has been consistently allowed in the past the same could not be disallowed for the year under consideration. Accordingly, we direct the AO to delete the disallowance of depreciation in respect to assets leased to Rajinder Steels Limited.

The assessee is also aggrieved for decline of depreciation on an asset being vapour absorption heat pump purchased by the assessee from Thermax Limited and leased to Aimco Pesticides Limited. The AO 6 3939/05 has doubted the genuineness of the lease agreement and the fact of assets having been used, accordingly declined the assessee’s claim. We have considered rival contentions and found that the relevant clauses in this agreement are on the same lines as the lease agreement with Rohit Pulp and Paper Mills ltd. As we have already restored the matter back to the file of AO with respect to the lease of boiler to Rohit Pulp and Paper Mills Ltd., we also restore this matter to the file of AO for deciding afresh assessee’s eligibility for depreciation in respect of vapour, observation, hitpump leased to Amico Pestisides Ltd. We direct accordingly.

In the result, appeal of assessee for A.Y.1998-1999 is dismissed, whereas appeal for A.Y.1999-2000 is allowed in part in terms indicated hereinabove. Order pronounced in the open court on this 23/06/2016. Sd/- Sd/- (RAM LAL NEGI) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 23/06/2016 प्र.कु.मभ/pkm, नन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. गार्ा पाईर / Guard file. 6. सत्मावऩत प्रनत //True Copy// आदेशाि सार/ BY ORDER,