1993-VIL-170-ITAT-
Equivalent Citation: TTJ 048, 531,
Income Tax Appellate Tribunal BOMBAY
Date: 16.08.1993
MULRAJ DWARKADAS GOCULDAS.
Vs
DEPUTY COMMISSIONER OF INCOME TAX.
BENCH
Member(s) : N. R. PRABHU., R. D. AGRAWALA.
JUDGMENT
This is an appeal by the assessee against the order of the CIT(A), for the asst. yr. 1985-86.
2. The first ground of appeal is that the CIT(A) was in error in upholding the disallowance of depreciation of Rs. 3,43,620 on gas cylinders purchased by the assessee and used in his business.
3. It is contended by the learned counsel for the assessee that the assessee had entered into an agreement to purchase 166 gas cylinders from Industrial Engineers. The initial payment made for the purchase, which was of the sum of Rs. 25,000, was on 23rd Jan., 1985. Subsequently, on 5th Feb., 1985 and 20th Feb., 1985, the assessee paid Rs. 1 lac and Rs. 2,18,600 respectively. The gas cylinders were kept at the godown of Bharat Engineering Co., which is a company connected with the vendor in this case. The assessee had entered into an agreement with Aggarwal Steel Industries for the lease of these assets. Such an agreement was entered into on 15th March, 1985. The assessee had also received a sum of Rs. 5,000 as advance. The agreement with Aggarwal Steel Industries stipulated that this party would give an advance of Rs. 17,000 and further a bank guarantee equal to the cost of the cylinders to the assessee. The lessee had obtained the bank guarantee on 10th May, 1985. The assessee had also taken into consideration the lease rent for the period 15th March to 31st March, 1985 and offered the same for taxation. It was also brought to tax by the Assessing Officer. In the return of income filed, the assessee claimed depreciation at 100 per cent on the cost of these cylinders on the ground that the same have been used in the business. The Assessing Officer rejected the claim on a consideration of total irrelevant materials. He has observed that the cylinders were carbon dioxide cylinders and a no objection certificate was filed by M/s Industrial Engineers for converting the cylinders into oxygen cylinders. According to him, the no objection certificate was received only on 1st April, 1985 and this would go to show that the cylinders were in fact leased out only after 1st April, 1985. He failed to appreciate that the no objection certificate was only a procedural requirement and that it did not come in the way of the assessee leasing the cylinders to M/s Aggarwal Steel Industries. He also failed to appreciate that the full consideration for the cylinders were paid much before the no objection certificate was received. As a matter of fact, he should have taken note of the fact the no objection certificate was applied for in the month of March. The cylinders used for filling up carbon dioxide and oxygen are the same cylinders and the assessee was interested only in leasing out the cylinders. There was no mala fide intention on the part of the assessee as has been alleged by the Assessing Officer in his order. He has further adverted to the fact that the agreement between the assessee and the lessee did not bear any date. It was explained to him that this must have been the result of a mistake on the part of the parties to the agreement and the same cannot be indicative of what the Assessing Officer alleges that the agreement was entered into on a later date. If the intention was to ante-date the agreement, nothing prevented the parties to the agreement to do the same. The Assessing Officer has, in this connection, also examined Bholanathji Agarwal. Sri Bholanathji Agarwal, in his deposition, has stated that he was acquainted with the assessee who was the lessor in this case. He was only dealing with Sri S.D. Gune, a responsible person who was in the employment of the assessee. How the statement could be used to deny its claim, according to the assessee, is beyond any comprehension. A lot of store has been laid by on a letter dt. 15th May, 1985 found in the course of survey operation, wherein Sri Gune had requested the lessee to take delivery of the cylinders on 15th March, 1985. It has never been the case of the assessee that the cylinders were physically handed over but the claim has been that the cylinders were used in the leasing business. In the leasing business, the assets will have to be treated as being used when they are formally introduced in the business. In this case, this event had taken place as early as on 15th March, 1985. The delivery was not immediately granted only for the reason that there was delay in the matter of getting a bank guarantee from the lessee. That should not detract from the merits of the case of the assessee that the assets were used in the business. It need not be emphasised that the user of the leased item will have to wait for the convenience of the lessee. The lessor is no longer in the picture when no sooner an agreement to lease is executed and the same is acted upon. In such circumstances, for the Revenue to contend that there was no user by the assessee would be a travesty of facts.
4. The learned Departmental Representative, on the other hand, contends that the assessee was unsuccessful in his attempt to prove that the goods were put to use in the previous year relevant to the assessment year under consideration and, in this connection, he relies on the material on which a lot of reliance has been placed by the Revenue authorities, including the CIT(A). All the evidence that was produced was doctored to meet the requirements of the assessee, i.e., to get the claim admitted with a view to reducing the incidence of tax. This was a clear case of tax planning with should be discarded.
5. We have heard the parties to the dispute and, in our view, the claim of the assessee is unexceptionable. It is on record that the cylinders were acquired by the assessee as early as in the month of February, 1985. There was an agreement between the assessee and the lessee and, as per that agreement, the lease was to commence from 15th March, 1985. The assessee had also shown in its financial accounts the lease rent relatable to the period 15th March to 31st March, 1985, though the same was received in the month of June. Neither the deposition of Sri Bholanathji Agarwal nor the fact that the lease agreement was undated can be a ground for drawing an adverse inference. Sri Agarwal has never stated that the lease agreement had commenced on a later date. Non-delivery of the cylinders was on account of the fact that certain formalities which the lessee was required to comply with, were not finalised. In this case, the bank guarantee was received only in the month of May. It is true that the Department came across a letter written by one of the employees of the assessee dt. 15th May, 1985 requiring the lessee to take delivery of the cylinders. But, this letter was never produced before the IT authorities. This letter was written long before the survey was conducted by the Department, or the assessment of the assessee was taken up. Nothing to our mind turns on this letter. In a leasing business, what is required before depreciation could be allowed is that the asset must have been formally introduced in the business of lease. It would be immaterial if the lessee has not put to use the leased out asset. So long as the assets have been used in the leasing business in the sense that they are leased out to the lessee, there would be no good ground for denying depreciation. The claim of the Department that this was intended to reduce the incidence of tax has also not much substance. The income of the assessee in the subsequent two years is of the same order as in the year under consideration. By falsifying the claim, the assessee could at best withhold the payment of tax for a few months and nothing more. The depreciation is something which the assessee is entitled to get either in this year or the year to follow because it is not the case of the Department that the cylinders were never given on lease. As observed earlier, there is enough material to show that the assessee had acquired the cylinders in the previous year relevant to the assessment year under consideration, and there was also an agreement of lease between the assessee and the lessee. The assessee had also received by way of advance a sum of Rs. 5,000 which fact has been conveniently omitted by the Revenue in their discussion on the merits of the case. We, in the circumstances, hold that the Department was not justified in not granting depreciation.
6. The next ground of appeal, which is against charging of interest under s. 217(1A) of the Act would not survive in view of our finding that the assessee is entitled to depreciation on the cost of the cylinders.
7. The appeal is allowed.
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