Star Chemicals (Bom.) Pvt. Ltd. v. Dy. CIT

Case snapshot

Sections / provisions: 32

Questions before the Court / Tribunal

• S. 32 : Depreciation-Asset purchased from and leased back-Entitle depreciation-Assessment-Direction of the Tribunal to follow the Judgement of Special Bench-While giving effect High Court decided contrary to the Judgement of Special Bench-Assessing Officer is bound to follow the order of High Court -Asset purchased from and leased back -Entitle depreciation-Business expenditure-Amount paid fees paid to ITC Classic Finance Ltd has direct nexus with acquisition of the machinery from RSEB-Allowable as deduction. [S. 50, 143(3), 254(1)] Tribunal set aside the matter to the Assessing Officer and directed to follow…
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

M/s. Star Chemicals (Bom) Dy. CIT, Pvt. Ltd., Circle 3(3), 55/56, Jolly Maker Aayakar Bhavan, Vs. Chambers No.2, M.K. Road, Nariman Point, Mumbai - 400020 Mumbai – 400 020 PAN: AAACS7485E (Appellant) (Respondent)

Present for: Assessee by : Shri K. Shivaram, Sr. A.R. & Shri Rahul Hakani, A.R.

2. The appellant, M/s. Star Chemicals (Bom) Pvt. Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeals, sought to set aside the impugned order dated 04.09.2006 passed by Commissioner of Income Tax (Appeals)-XXXII,

ITA No.5986/M/2006 for A.Y. 1995-96 “1. Learned Commissioner of Income tax (Appeals) has erred in not considering various submissions made in the course of appellate proceedings including various judicial decisions relied upon by the assessee, while deciding the appeal of the Assessee. The entire issue relating to allowance of depreciation assessment order having been set aside by the Income tax Appellate Tribunal, the Commissioner of Income tax (Appeals) ought to have considered the submissions made and subsequent judicial decisions on the subject cited by the Assessee and decided various grounds of appeal raised by the Appellant.

2. Learned Commissioner of Income tax (Appeals) has erred in not allowing deprecation of Rs.1,77,00,000/- on the assets leased by the assessee to the Rajasthan State Electricity Board (RSEB). On the fact and in the circumstances of the case, depreciation of Rs.1,77,00,000/- ought to have been allowed.

Appellant / assessee submissions

11. The Ld. A.R. for the assessee challenging the impugned disallowance made by the AO and confirmed by the Ld. CIT(A) contended that the Ld. CIT(A) has erred in deciding the issue of depreciation against the assessee by merely relying upon the case rendered by Special Bench of the Tribunal in case of Mid East Portfolio Management Ltd. vs. DCIT (2003) 87 ITD (Mumbai) (SB) by ignoring the subsequent decision of “including the decision by jurisdictional High Court”.

16. In the backdrop of the aforesaid undisputed facts the Ld. A.R. for the assessee contended that when the saving devices are held to be rightly taxed as deemed capital gain under section 50 of

19. Aforesaid order passed by the co-ordinate Bench of the Tribunal in case of The West Coast Paper Mills Ltd. (supra) has been confirmed by the Hon’ble Bombay High Court vide order dated 389 of 2008, order available at page 440 to 441 by returning following findings: “1. Heard the learned Counsel appearing for both the sides. The case of the appellant before the Tribunal was that the transactions of buy back of lease equipments and granting lease of that equipments to various boards, were sham transactions entered into only for the purpose of

Revenue / respondent submissions

The packaged judgment does not separately label the respondent's submissions in an independently extractable passage. No contention is inferred; read the full order.

Court / Tribunal analysis and reasoning

are discussed at length. The assessing officer in fact has mentioned a search action u/s 132 conducted in the case of Virtuous Finance Ltd. But a perusal of the events recorded by the assessing authority in the assessment order does not bring out any material against the assessee other than the materials already disclosed by the assessee before the assessing authority. In the light of the details collected in the course of search, it is stated by the assessing authority that various papers of the Haryana State Electricity Board were peruse by him. But we find that those papers of Haryana State Electricity Board perused by the assessing officer in the light f the search; were riot any fresh materials or evidence. All those papers were always with the Haryana State Electricity Board and accessible to the department and furnished by the assessee company. Therefore, we are of the considered view that the highlighting of the search action in the assessment order is somewhat misleading.

21. The Calcutta High Court has held in Competent Authority vs Smt. Bani Roy Chowdhari 131 ITR 578 that where the transferor or transferee is government or statutory bodies, there cannot be any scope for collusion between parties. The court further held that when government or statutory body is party to a transaction, question of evasion of tax does not arise. In the present case three out of four lessees are State Government Undertakings. In the fats and circumstances, we find that there is no evidence to hold that the transactions were sham and therefore, the decisions of the Orissa High Court as well as the Gauhati High Court apply to the case and the claim of the assessee for depreciation at the rate of 100% need to be accepted as genuine. Therefore, we direct the assessing authority to grant the depreciation allowance as claimed by the assessee. This issue is decided in favour of the assessee.”

Operative decision and relief

2. Learned Commissioner of Income tax (Appeals) has erred in confirming the action of the Assessing Officer in not allowing deprecation of Rs.1,77,00,000/- on the assets leased by the assessee to the Rajasthan State Electricity Board (RSEB. On the fact and in the circumstances of the case, depreciation of Rs. 1,77,00,000/-ought to have been allowed.

3. This is second round of litigation for both the appeals qua A.Y. 1995-96 & 1996-97 as the same were remanded back to the Assessing Officer (AO) to decide afresh in the light of the decision

12. Bare perusal of the impugned order passed by the AO as well as the Ld. CIT(A) goes to prove that they have decided the issue strictly in accordance with the mandate of the Tribunal while remanding the case back to the AO by following the decision rendered by Mid East Portfolio Management Ltd. (supra). We are of the considered view that when the case has been remitted back to reconsider the same in the light of a particular decision rendered by Special Bench of the Tribunal, any subsequent decisions rendered by the Tribunal or Hon’ble High Court, if any need to be considered as there is no estoppel against law.

29. In view of what has been discussed above, appeals filed by the assessee for A.Y. 1995-96 and A.Y. 1996-97 are allowed.

Ratio and legal principle

• The packaged judgment addresses S. 32 : Depreciation-Asset purchased from and leased back-Entitle depreciation-Assessment-Direction of the Tribunal to follow the Judgement of Special Bench-While giving effect High Court decided contrary to the Judgement of Special Bench-Assessing Officer is bound to follow the order of High Court -Asset purchased from and leased back -Entitle depreciation-Business expenditure-Amount paid fees paid to ITC Classic Finance Ltd has direct nexus with acquisition of the machinery from RSEB-Allowable as deduction. [S. 50, 143(3), 254(1)] Tribunal set aside the matter to the Assessing Officer and directed to follow…. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with s. 32 : depreciation-asset purchased from and leased back-entitle depreciation-assessment-direction of the tribunal to follow the judgement of special bench-while giving effect high court decided contrary to the judgement of special bench-assessing officer is bound to follow the order of high court -asset purchased from and leased back -entitle depreciation-business expenditure-amount paid fees paid to itc classic finance ltd has direct nexus with acquisition of the machinery from rseb-allowable as deduction. [s. 50, 143(3), 254(1)] tribunal set aside the matter to the assessing officer and directed to follow… Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

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Section / provision impact

• 32 - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

• Rajesh R. Hemrajani v. ITAT - Bombay High Court
• Pujya Sindhi Panchayat Trust v. ITO(E) - ITAT Mumbai
• Annamma Samkutty v. ITO - ITAT Pune

Different outcome / possible distinction

• Pr. CIT (Central)-4 v. DBM Geotechnics & Construction Pvt. Ltd. - Partly allowed
• Pr. CIT (Central)-1 v. Surendra L. Hiranandani - Dismissed

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