COMMISSIONER OF INCOME TAX Vs. COSMO FILMS LIMITED

JUDGEMENT

(1.) This appeal under Section 260-A of the Income-tax Act, 1961 (hereinafter referred to as the said Act?) has been preferred by the revenue being aggrieved by the judgment and / or order dated 22.02.2008 passed by the Income-tax Appellate Tribunal in revenue?s appeal being ITA No.4516/Del/2003 pertaining to the assessment year 1996-97, inasmuch as the Income-tax Appellate Tribunal had dismissed the appeal of the revenue on the ground that the Commissioner of Income-tax (Appeals) had erred in deleting the addition of 2,30,40,000/- made on account of depreciation. The Assessing Officer by virtue of his assessment order dated 29.03.2001 had disallowed the claim of the respondent / assessee with regard to 100% depreciation on the equipment purchased by it from the Haryana State Electricity Board (hereinafter referred to as HSEB?), which was already installed at the said Board?s Thermal Power Station at Faridabad and immediately thereupon leasing the said equipment back to the HSEB on certain terms and conditions. The assessing officer had placed reliance on the Supreme Court decision in the case of McDowell and Company Limited v. Commercial Tax Officer, 1985 154 ITR 148. The Assessing Officer came to the conclusion that the transaction was not a case of purchase and lease back of equipment, but was a pure financial and loan transaction and, accordingly, the claim of 100% depreciation to the tune of 2,30,40,000/- claimed by the respondent / assessee was disallowed. The Commissioner of Income-tax (Appeals) by virtue of his order dated 31.07.2003, placed reliance on the decision of the Income-tax Appellate Tribunal in the case of Consortium Finance Limited v. JCITD: 82 ITD 808 and held that a genuine transaction of purchase and lease back had taken place and that, as the assessee was carrying on the business of leasing also, apart from other businesses, it was entitled to the claim of depreciation and consequently the appeal was allowed insofar as the claim of depreciation was concerned.

(2.) As indicated above, the revenue, being aggrieved by the order passed by the Commissioner of Income-tax (Appeals), New Delhi filed an appeal (ITA No.4516/Del/2003) on the following grounds:-

(3.) The Income-tax Appellate Tribunal by virtue of the impugned order dated 22.02.2008 dismissed the revenue?s appeal after observing that the departmental representative of the revenue could not bring to the notice of the Tribunal any fact from which the tribunal could come to the conclusion that the sale and lease back transaction between the assessee and the HSEB was not a genuine transaction. Relying upon the decision of the High Court of Bombay in the case of Commissioner of Incometax v. Zuari Finance Ltd and Another: 271 ITR 538 and on the decision of the Rajasthan High Court in the case of Commissioner of Income-tax v. Rajasthan State Electricity Board,2006 204 CTR(Raj) 415, the Tribunal held that in similar circumstances the said High Courts had allowed the claim of depreciation in the cases of sale and lease back transactions involving the State Electricity Boards. The Tribunal also took note of the fact that the decision of the Karnataka High Court in the case of Avasarala Automation Limited v. The Joint Commissioner of Income Tax, 2004 266 ITR 178, which had been relied upon by the department, had been considered in the Bombay High Court decision as well as in the decision rendered by the Rajasthan High Court and had been distinguished by the said High Courts.