COMMISSIONER OF INCOME TAX Vs. ZUARI FINANCE LTD.

JUDGEMENT

(1.) THIS appeal at the instance of the Revenue, filed under Section 260A of the Income Tax Act, 1961 (for short "the Act"), is directed against the judgment and order passed by the Income Tax Appellate Tribunal on May 2, 2001.

(2.) RESPONDENT No. 1 is a limited company engaged, inter alia, in the business of leasing and financing. On December 2, 1996, respondent No. 1 (hereinafter referred to as "the assessee"), filed a return of its income declaring income of Rs. 3,54,930, during the assessment year 1996 -97 on gross receipts of Rs. 6,71,11/527. In the profit and loss account, the assessee has debited a sum of Rs. 17,02,225 under the head "Depreciation", in respect of a machine called "Mechanical Skimmer Oil and Grease Removal System" (for short the "skimmer machine"). The assessee had shown this machine as its fixed asset and claimed 100% depreciation on it under Rule 5 of the Income Tax Rules. The assessee had also claimed a sum of Rs. 3,95,000 as a business expenditure on account of foreign travel expenses incurred by its directors and consultants for the purpose of the business. The return filed by the assessee was processed under Section 143(1)(a) of the Act, but was subsequently taken up for scrutiny after issuance of a notice under Section 143(2) of the Act. The Assessing Officer asked the assessee to produce the purchase invoice of the skimmer machine in respect of which it had claimed depreciation to the extent of Rs. 17,02,225 under Rule 5 of the Income Tax Rules, 1962. By a reply dated January 5, 1999, the assessee claimed that it had purchased the machinery from its sister concern, M/s. Hede Consultancy Co. Pvt. Ltd. (for short "HCC"), on made -to -order basis and had paid to it a sum of Rs. 17,02,225 between June 23, 1995 and September 8, 1995. The details of payment were also furnished. The skimmer machine was thereafter given on lease to Global Environmental Technology Services - -a division of H.C.C. and the lease agreement provided for total lease rentals of Rs. 19,19,945, to be paid in quarterly installments from February, 1996, to November, 1997. The Assessing Officer doubted the genuineness of the entire transaction and in particular doubted whether the said machine was really manufactured by H.C.C., and sold to the assessee and taken back on lease by it. In view of this, the Assessing Officer issued notices to the persons from whom the manufacturer had purchased the raw materials and components necessary for manufacturing of the skimmer machine and after recording their statements, concluded that the transactions of manufacture and sale of the machine by H.C.C. to the assessee and its lease back, were not genuine and, therefore, the assessee was not entitled to claim depreciation of Rs. 17,02,250, as claimed by it. As regards the claim for deduction of travelling expenses the Assessing Officer held that the foreign travel expenses appeared to be personal trips of directors and the wife of the vice -chairman. He also held that Mrs. S.P. Hede, wife of Mr. P.R. Hede - -the vice -chairman of the assessee, had merely accompanied her husband during the foreign trips, without there being any business purpose. He, therefore, held that the foreign travel expenses were not incurred wholly and exclusively for the purpose of business and, therefore, disallowed the foreign travel expenditure to the extent of Rs. 3,95,000. Since the assessee had tried to evade payment of taxes, proceedings under Section 271(1)(c) of the Act were initiated separately.

(3.) THE assessee carried the matter before the Income Tax Appellate Tribunal (for short "the Tribunal"). The Tribunal held that the assessee had proved beyond doubt that it had got fabricated the skimmer machine and that the same had been given under lease to H.C.C. It also held that the lease transaction was genuine. As regards the foreign travel expenses of Rs. 3,95,000, the Tribunal held that it cannot be said that the foreign travel was not wholly and exclusively for the business of the assessee and the mere fact that the foreign travel did not fructify in any business was not a ground for disallowing the foreign travel expenditure. In view of this finding on both the issues, by the impugned order dated May 2, 2001, the Tribunal allowed the appeal.