Vijay Shanthi Builders Ltd — T.C.A. Nos. 641 and 642/2009

2026:MHC:1522 T.C.A.Nos.641 and 642 of 2009 IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on :06.04.2026 Pronounced on :20.04.2026 CORAM THE HONOURABLE DR. JUSTICE G. JAYACHANDRAN AND THE HONOURABLE MR.JUSTICE SHAMIM AHMED T.C.A.Nos.641 and 642 of 2009 T.C.A.No.641 of 2009: Commissioner of Income Tax, Chennai. ..Appellant/Appellant /versus/ M/s Vijay Shanthi Builders Ltd., No.3, Blackers Road, Anna Salai, Chennai 600 002. ..Respondent/Respondent Prayer: Tax Case Appeal is filed under of the Income Tax Act, 1961, against the Order of the Income Tax Appellate Tribunal, Madras ‘C’ Bench, dated 28.11.2008 in ITA No.584/Mds/2003. For Appellant :Dr.S.Sathiya Narayanan, Senior Standing Counsel For Respondent :Mr.Vishnu Mohan for Mr.R.Parthasarathy Page Nos.1/12 https://www.mhc.tn.gov.in/judis T.C.A.Nos.641 and 642 of 2009 T.C.A.No.642 of 2009: Commissioner of Income Tax, Chennai. ..Appellant/Appellant /versus/ M/s Vijay Shanthi Builders Ltd., No.3, Blackers Road, Anna Salai, Chennai 600 002. ..Respondent/Respondent Prayer: Tax Case Appeal is filed under of the Income Tax Act, 1961, against the Order of the Income Tax Appellate Tribunal, Madras ‘C’ Bench, dated 28.11.2008 in ITA No.724/Mds/2003. For Appellant :Dr.S.Sathiya Narayanan, Senior Standing Counsel For Respondent :Mr.Vishnu Mohan for Mr.R.Parthasarathy ------ COMMON JUDGMENT (Judgment was made by Dr.G.JAYACHANDRAN,J.) The Tax Case Appeals are filed by the Revenue, being aggrieved by the order of the Tribunal, confirming the order of the Appellate Authority held in favour of the Assessee. The return was processed under of the Income Tax Act, 1961(in short " ") making an addition of Rs.7,43,936/- on account of excess depreciation. After notice under of the IT Act, the Assessment Order was passed holding:- > (i)In respect of the land development account, the assessee claims expenses of Rs.44,63,562/-. The perusal of its accounts would show that these expenses have not been debited by assessee to the Profit and Loss Account. Instead, they are shown under ‘Current Assets’ (Schedule G) in the Balance Sheet under the head “Property Development Project in Progress as on 31.03.1996 (Total: Rs.10,87,33,207/-). There is no specific amount of this magnitude debited under “Construction Expenses”(Schedule O). (ii)Claiming depreciation at 50% of invoice value of cinematograph films purchased on 29.03.1996 from M/s Sri Varu Creations and immediately leased back to the same party is not a genuine transaction, therefore, the depreciation claim is fully rejected. (iii)The accounting method adopted in respect of construction expenses debited and other depreciation claimed are faulty. Hence, Rs.9,72,86,043/- levied as total tax. (iv)Similarly, for the year 1997-1998, when the Assessee declared total Page Nos.3/12 https://www.mhc.tn.gov.in/judis T.C.A.Nos.641 and 642 of 2009 income of Rs.8,44,740/-. Hearing notices were issued to the Assessee disallowed the assessee’s claim of depreciation a sum of Rs.91,23,873/- and 100% depreciation on the cinematographic films amounting to Rs.53,93,590/-, as a result, levied tax of Rs.70,82,301/-. We note that the disallowance of depreciation is only for questioning the transaction and not otherwise. It is not the case of the department that if the transaction is found to be genuine, the depreciation is not allowed. We note that the lease transaction is entered into the parties by executing lease deed which contains all the terms and condition of the transaction and also referring to sale as well as the lease back transaction. As per lease agreement dated 28.03.96, the lessee requested the lessor to purchase the equipment described in schedule I to the lease agreement at a price finalised by the parties and had offered to take on lease the said equipment thereafter purchase. Therefore, when the lease agreement itself contains all the terms and conditions and subsequent lease back transaction, then subsequent issuing of invoice/bills by M/s Sri Veeru Creations on 29.3.96 is in pursuance to the lease agreement which is also containing the terms and conditions of the purchase as well as lease back does not suffer from any illegality. Thus, we find no defect in the subsequent issue of bills against the consideration through two cheques on 28.3.96. We further note that even otherwise if a particular transaction is done with a motive to save the tax then the same cannot be treated as colourable devise if the transaction is otherwise permissible in law. Therefore, on the facts and in the circumstances of the case when the transaction itself is Page Nos.6/12 https://www.mhc.tn.gov.in/judis T.C.A.Nos.641 and 642 of 2009 permissible under law, then merely because the same is suspected by the Department, as a devise to evade tax, the said transaction cannot be held as lawful or colourable. In view of the above discussion, we find no error or illegality in the order of the CIT(appeals) on this issue. > 3.Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the sale and lease back transaction of cinematograph film is only with a motive to save tax and so cannot be treated as a colourable device? 10. Heard the learned Senior Standing Counsel appearing for the Revenue/appellant and the learned counsel appearing for the respondent/the assessee. Page Nos.8/12 https://www.mhc.tn.gov.in/judis T.C.A.Nos.641 and 642 of 2009 11. In so far as the question of adopting hybrid system of account in respect of receipt on sale of flats and expenditure of the construction, the said issue has been considered by the Hon’ble Supreme Court in , case (cited supra), in the following lines. 28. Turning now to the facts of the present case, we find that the sum of Rs 24,809 represented the estimated expenditure which had to be incurred by the appellant in discharging a liability which it had already undertaken under the terms of the deeds of sale of the lands in question and was an accrued liability which according to the mercantile system of accounting the appellant was entitled to debit in its books of account for the accounting year as against the receipts of Rs 43,692-11-9 which represented the sale proceeds of the said lands. Even under of the Income Tax Act, it might possibly be urged that the word “expended” was capable of being interpreted as “expendable” or “to be expended” at least in a case where a liability to incur the said expenses had been actually incurred by the assessee who adopted the mercantile system of accounting and the debit of Rs 24,809 was thus a proper debit in the present case. We need not however base our decision on any such consideration. We are definitely of opinion that the sum of Rs 24,809 represented the estimated amount which would have to be expended by the appellant in the course of carrying on its business and was incidental to the same and having regard to the accepted commercial practice and trading principles was a deduction which, if there was no specific provision for it under of the Act was certainly allowable deduction, in arriving at the profits and gains of the business of the appellant under of the Act, there being no prohibition against it, express or implied in the Act. What is paid by Page Nos.10/12 https://www.mhc.tn.gov.in/judis T.C.A.Nos.641 and 642 of 2009 the vendor to the assessee is the lease amount and not the sale consideration. For the said reason, we find that the Appellate Authority as well as the Tribunal have rightly applied the law to the facts of the case and have arrived at a correct decision. 15. As a result, the Substantial Questions of Law framed above are held against the appellant/revenue. 16. In fine, both the Case Appeals stand dismissed. No order as to costs. (G.JAYACHANDRAN, J.) (SHAMIM AHMED, J.) 20.04.2026 Neutral Citation:yes Index:yes/no ari Page Nos.11/12 https://www.mhc.tn.gov.in/judis T.C.A.Nos.641 and 642 of 2009 Dr.G.JAYACHANDRAN, J. and SHAMIM AHMED,J. ari delivery Common Judgment made in T.C.A.Nos.641 and 642 of 2009 20.04.2026 Page Nos.12/12 https://www.mhc.tn.gov.in/judis