This appeal has been filed by assessee against order dt. 21st June, 2004 of CIT(A)-XXI, Mumbai. grounds of appeal raised by assessee may be reproduced below: (i) On facts and circumstances of case, learned CIT(A) erred in confirming disallowance of depreciation of Rs. 1,27,65,447 on plant and machinery which were leased out, as operating lease. (ii) learned CIT(A) erred in confirming disallowance of depreciation of Rs. 1,27,65,447 on leased assets, particularly when appellant s main business is leasing of assets. (iii) learned CIT(A) erred in confirming disallowance of depreciation of Rs. 22,44,853 which has been included in Rs. 1,27,65,447 being 50 per cent depreciation in respect of machinery purchased in asst. yr. 2000-01 particularly when 50 per cent depreciation was allowed in said assessment year. From above, it may be seen that only issue in dispute is disallowance of depreciation on plant and machinery claimed to have been leased out by assessee. It also appears from grounds of appeal that depreciation of Rs. 1,27,65,447 which has been disallowed is inclusive of sum of Rs. 22,44,853 being 50 per cent of depreciation in respect of plant and machinery which was leased out in preceding assessment year and on which 50 per cent depreciation was allowed as plant and machinery was used for period less than 180 days during that year. facts may be stated briefly. During course of assessment proceedings, AO found that assessee claimed 100 per cent depreciation on assets leased to M/s Asian Electronics Ltd. (AEL). assets comprised of automatic load monitoring systems of value of Rs 1,05,98,000 manufactured by aforesaid AEL, which is sister concern of assessee-company. assessee-company purchased relevant assets on 30th June, 2000 and leased back same to AEL on 1st July, 2000. In its turn, relevant assets were sub-leased by AEL to Transmission Corporation (TC) of A.P. State Electricity Board. AO was of view that sale and lease back (SLB) transaction between assessee-company and AEL was not genuine transaction. AO referred to Supreme Court decision in case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126: (1985) 154 ITR 148 (SC) as also Tribunal, Mumbai Special Bench decision in case of Mid East Portfolio Management Ltd. (MEPML) vs. Dy. CIT (2003) 81 TTJ (Mumbai)(SB) 0037: (2003) 87 ITD 537 (Mumbai)(SB). AO was of view that SLB transaction between two sister concerns was only financial arrangement. He, therefore, disallowed entire depreciation including 50 per cent depreciation in respect of assets leased out in preceding assessment year. AO also observed that in case of AEL, there were huge losses during asst. yrs. 2000-01 and 2001-02 and thus intention of SLB transaction was to avoid payment of legitimate tax by assessee-company, which reduced its taxable income by claiming 100 per cent depreciation on leased assets. When matter came up before learned CIT(A), it was contended that assets were brand new assets manufactured by AEL and never used by them. It was contended that these assets did not form part of block of assets in case of AEL and no depreciation was claimed by AEL. new plant and machinery was purchased by assessee-company from AEL at prevailing market price. It was, therefore, contended that it was genuine SLB transaction. learned CIT(A) examined issue in detail and noted that as per sale invoice dt. 30th June, 2000, sale price was stated to be Rs. 1,05,98,000, whereas excisable value as per invoice for removal of excisable goods from factory aggregated Rs. 64,96,000 only. learned CIT(A), therefore, concluded that assets were not purchased by assessee-company at prevailing market price. learned CIT(A) noted that these assets were sub-leased by AEL on 10th Oct., 2001 to TC. learned CIT(A) has reproduced at para 5 of his order certain clauses from agreement between AEL and TC. He has also reproduced at p. 6 of his order certain relevant clauses from lease agreement dt. 1st July, 2000 between assessee- company and AEL. learned CIT(A) observed that surrender of leased assets by AEL to assessee-company was not possible in view of para 5(b) of agreement dt. 10th Oct., 2001 since AEL has no rights to terminate agreement and had no right to move or shift equipments. It was specifically provided for that lease shall continue till it is terminated by TC. learned CIT(A) also observed that relevant goods were directly moved from premises of AEL at Sylvassa to Andhra Pradesh and thus property in equipment was never transferred to assessee-company. learned CIT(A) ultimately confirmed disallowance of depreciation on leased assets. He also confirmed disallowance of 50 per cent depreciation in respect of assets leased out in preceding assessment year. learned counsel, Shri V.H. Patil and Shri Satish Mody, appearing on behalf of assessee-company forcefully argued before us that revenue authorities had no basis whatsoever for holding that SLB transaction was not genuine or was not intended to be acted upon. It is submitted that entire transaction is absolutely within four corners of law. It is pointed out that assessee-company purchased equipments from AEL in view of fact that it wanted to expand its already existing business of leasing. assessee- company is engaged in business of leasing during preceding five years and lease income forms major portion of assessee s total income. It is contended that learned CIT(A) has wrongly assumed that equipment was purchased by assessee-company at price which is much higher than prevailing market price of equipment. Inviting our attention to material compiled in paper book, it is submitted that AEL had sold similar equipments at same price to outside parties. difference noted by learned CIT(A) is on account of fact that various other charges like excise duty payable, transportation, installation charges etc. are not included in value of Rs. 64,96,000 reflected in invoice in respect of excisable goods. It is vehemently contended that transactions are legal and genuine and same have been entered into by assessee-company only on account of commercial expediency. learned counsels for assessee relied on following judgments: (i) CIT vs. Zuari Finance Ltd. (2005) 193 CTR (Bom) 625: (2004) 271 ITR 538 (Bom) (ii) Industrial Development Corporation of Orissa Ltd. vs. CIT (2004) 189 CTR (Ori) 417: (2004) 268 ITR 130 (Ori) In case of Zuari Finance Ltd., (supra) it was held by Bombay High Court that once transaction of purchase and lease back is found to be genuine, assessee is entitled to depreciation. Similar finding was recorded in t h e case of Industrial Development Corporation of Orissa Ltd. (supra). learned counsels for assessee also drew k support from certain observations made by Supreme Court in case of Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450: (2003) 263 ITR 706 (SC). It is pointed out that in this case Supreme Court has made it very clear that act which is otherwise valid in law cannot be treated as non est merely on basis of some underlying motive supposedly resulting in some economic detriment or prejudice to national interests. In other words, if transaction is otherwise valid in law and results in reduction of tax liability of assessee, same cannot be discarded merely on ground that underlying motive of entering into transaction by assessee was to reduce its tax liability. It is argued that effect of Supreme Court decision in case of McDowell & Co. Ltd. (supra) stands substantially diluted by subsequent decision of Supreme Court in case of Azadi Bachao Andolan (supra). learned counsel referred to Tribunal Special Bench decision in case of MEPML (supra) and invited our attention to para 155 of order, which may be reproduced below: "Both sides relied on several orders of various Benches of Tribunal in support of their respective stands. In our opinion, there can only be superficial similarity between those cases and facts of cases before us. Each case has to be decided on its own merits and on basis of peculiar facts obtaining in that case, mere so when question of genuineness is involved. There can be no pigeon-holing of facts in sense that it cannot always be held that if facts follow particular pattern, then conclusion must be same. Genuineness of transaction is something which is to be linked to soul; facts merely constitute body and similarity between bodies does not ipso facto mean that souls are also identical. We have perused orders of various Benches of Tribunal cited before us and we generally find that in each of those cases Bench was satisfied with genuineness of find that in each of those cases Bench was satisfied with genuineness of otherwise of SLB transaction, whatever may be their reasons. We would resist temptation to generalize or to lay down norms in such cases. Norms may be laid down only if it is absolutely necessary to do so. In fact, there can be no common rules for finding out genuineness of particular SLB transaction, which can be of universal application. Nor can any such norms be exhaustive. However, very broadly and without limiting ourselves to what has been stated in our order, following may be considered to be relevant factors to be kept in view: (a) Was there intention to pass property in equipment to assessee? (b) Was equipment identified/ ascertained with reasonable clarity? (c) Was equipment valued, and if so, whether it was bona fide valuation? Was value inflated? How credible is report of valuer, if there is one? (d) What are terms of lease? Is document more of arrangement for security for loan and less of lease? (e) Is there any parallel or collateral documentation or correspondence or n understanding between parties which throw doubt on their intention professed by principle documentation? (f) What is conduct of parties? How transparent has it been? (g) If lessee is public utility undertaking, whether sale of equipment would be in conformity With rationale for its existence and whether it would have adverse impact on working? These are only some of factors that one is expected to keep in view in dealing with such cases. They are by no means exhaustive. Any other fact or circumstances which one consider relevant for reaching soul of matter must necessarily be taken into account. Ultimately, it is inference to be drawn on cumulative consideration of all facts and circumstances of case which is material." It is forcefully argued before us that assessee-company fulfils various tests of genuineness laid down by Tribunal Special Bench as mentioned above. learned CIT Departmental Representative, Shri R.K. Rai kly supported orders of Revenue authorities and contended that cogent material has been brought on record to establish beyond any doubt that SLB transaction between assessee-company and its sister concern AEL was neither genuine nor intended to be acted upon. learned CIT Departmental Representative invited our attention to contradictions between two lease agreements as brought put by learned CIT(A) in his order. It is contended that SLB transaction between assessee-company and AEL is not capable of being acted upon on account of binding stipulation in agreement between AEL and TC. It is contended that SLB transaction is not genuine commercial transaction, but is only subterfuge to avoid payment of legitimate tax. It is reiterated by learned CIT Departmental Representative that relevant transaction of SLB falls under prohibited category as explained by Tribunal Special Bench in case of MEPML (supra). He relied on Karnataka High Court decision in case of Avasarala Antomation Ltd. vs. Jt. CIT (2003) 185 CTR (Kar) 402: (2004) 266 ITR 178 (Kar). In this case also, transaction related to SLB and Karnataka High Court observed that AO is entitled to go into genuineness or otherwise of transaction for purpose of determining whether any attempt is made by assessee to avoid payment of tax. assessee who claims depreciation has to satisfy Revenue that he is entitled for grant of depreciation on items claimed by it. burden of proof is on assessee. We have given very careful consideration to elaborate submissions made before us by both sides and have considered relevant factual position in light of precedents cited before us. issue of grant of depreciation on assets forming part of SLB transaction has been considered in great detail by Tribunal Special Bench in case of MEPML (supra). It was observed by Special Bench that SLB transactions have been recognized and acted upon in commercial world for quite some time. Undoubtedly, such transactions cannot be de-recognized or invalidate by judicial decision. However, judicial eye can certainly unearth device or smokescreen created to conceal real intention of parties and for this purpose can examine genuineness of particular transaction which is called in question. observations contained at para 36 of Tribunal Special Bench order in case of MEPML (supra) may be reproduced below: "We are therefore of opinion that all SLB transactions as such cannot be considered to be dubious or colourable devices or subterfuges aimed at tax evasion. enquiry which Court or Tribunal can make, when faced with SLB transaction, is to find out real intention of parties and ascertain whether simple loan transaction masquerades as SLB transaction. Any transaction in which professed intention and intention gathered from documentation are same, viz., sale and lease back, must be considered to be genuine SLB transaction." If Special Bench decision is carefully gone through and analysed, principle which emerges is that each case must be and has to be decided on basis of peculiar facts and circumstances of that case. However, important observation made by Special Bench is that any transaction in which professed intention and intention gathered from documentation are same must be considered to be genuine SLB transaction. In our view, various cases which have been cited before us lay down undisputed rule that if SLB transaction is genuine and legally correct, depreciation as claimed by assessee cannot be disallowed. Thus, ultimately question boils down to genuineness of transaction. In our view, each case has to be judged and decided having regard to peculiar factual position of that case while drawing support from judicial and legal principles and guidelines which emerge from various cases available. In our view , Supreme Court decision in case of Azadi Bachao Andolan (supra) cannot be interpreted in way so as to conclude that depreciation has to be necessarily allowed even in respect of transaction which is not genuine and which is not intended to be acted upon by parties. With this background, facts of assessee s case may be put to scrutiny. In our view, relevant agreements executed between parties are most important material on basis of which this issue is required to be resolved. In our view, question as to whether equipment was purchased b y assessee-company at prevailing market price or not is of not much relevance. learned CIT(A) has, therefore, rightly referred to relevant stipulations in contractual agreements. lease agreement dt. 1st July, 2000 between assessee-company and AEL is for period of six years commencing from date of execution of agreement. In this agreement, under heading surrender , following stipulation is incorporated: "Unless lease is renewed as per terms of this agreement, upon expiration on earlier termination of lease, lessee shall deliver lessor said equipment at place at which it is located in good working order and condition, normal wear and tear resulting from proper use of equipment expected. Upon such surrender of equipment, lessor reserves right to dispose off asset in any manner as lessor may deem fit, subject however to fact that lessor reserves right to appoint lessee as its agent for such disposal." Further, in this agreement, under heading Events of default , certain clauses are enumerated which would be treated as events of default. Thereafter, under heading Remedies , it is stipulated that upon occurrence of any event of default, lessor, after giving notice to lessee, may terminate this agreement. lessor, upon occurrence of any event of default, has been further authorized to take following actions as per cls. (b) and (c) of agreement, which are reproduced below: "(b) Demand that lessee return all equipment to lessor at its own risk and expense, in same condition as delivered 14 days from date of demand, enter upon premises where such equipment is located and take immediate possession of and remove same, or take immediate possession of and remove same all without liability to lessor or its agents for such entry or for damage to property or otherwise, lessor may detach and dismantle equipment from any part of freehold or process machinery to which it may be affixed without written permission of lessee. (c) Sell any or all equipments at public or private sale with or without notice to lessee or otherwise dispose of, hold, use, operate, lease to others or keep idle such equipment all free and clear of any rights to lessee and without any duty to account to lessee for such action or inaction or for any proceeds with respect thereto in event that lessor sells leased equipment at public or private sale, sale proceeds (net and clear of all taxes and costs) shall be adjusted against arrears of rentals including late payment charges and balance lease rentals then remaining unpaid. Any excess/deficit of sales proceeds as compared to outstanding rentals will be refunded to/recovered from lessee." above-mentioned provisions are clear, categorical and leave no doubt that on expiry of lease period of six years, unless lease is renewed, equipment has to be delivered to lessor i.e., assessee-company. In event of default, assessee-company can take possession of equipment and dispose it of in whatever way it likes. reference may now be made to agreement of lease between AEL and TC. As per cl. (a) of para 4.2, lessor i.e., AEL undertakes to erect, transport, test and commission and maintain equipment during lease period at locations approved by lessee i.e., TC. period of lease is six years. From above clause, it may be seen that during period of lease, AEL has to maintain equipment. Para 5(b) stipulates as under: "On completion of fixed lease period of six years, lease shall continue without maintenance on consolidated lease rental of Re. 1 per annum for all banks and lessor will have no right to terminate agreement and lessor shall not keep or create any encumbrance on equipment and shall have no right to move or shift equipment. Lease shall continue till it is terminated by lessee." Further para 8(m) of this agreement stipulates as under: "After initial lease period of six years, equipment should be free from all encumbrances and equipment cannot be shifted/sold/mortgaged without concurrence of lessee." From above contractual stipulations, it is seen that on completion of lease period of six years, lease shall continue and AEL thereafter shall not maintain equipment. lease rent shall get reduced to nominal sum of R e . 1 per annum. lessor, i.e., AEL will have no right to terminate agreement and lessor shall not keep or create any encumbrances on equipment and shall have no right to move or shift equipment. Only lessee i.e., TC has been given right to terminate lease. In other words, TC will continue to enjoy usufruct of lease in perpetuity on payment of lease rent of Re. 1 per annum. There is no doubt that for all practical purposes, TC becomes undisputed owner of equipment after expiration of lease period of six years and lessor is divested of all rights and claims. From above, it is clear that there are glaring contradictions between two agreements. As per lease agreement between assessee-company and AEL, lease is terminated after six years unless it is renewed by mutual agreement. If not renewed, equipment has to be delivered back by AEL to assessee-company. However, AEL will never be in position to act upon stipulations of this agreement for simple reason that after six years, TC, for all practical purposes shall be de facto owner of equipment. Apparently and decidedly, lease agreement between assessee-company and AEL is not intended to be acted upon by parties. If two agreements are read together, it would be clear that agreement between assessee-company and AEL, which is sister concern, cannot be said to be genuine agreement intended to be acted upon. As matter of fact, by virtue of agreement between AEL and TC, assessee-company has practically lost all ownership rights over relevant assets or equipments. Considering entire facts and circumstances as mentioned above, we see no reason to interfere with order of learned CIT(A) insofar as disallowance of depreciation on assets shown to have been purchased and leased back to AEL during previous year relevant to present assessment year is concerned. Coming to further disallowance of depreciation of Rs. 22,44,853 being 50 per cent of depreciation in respect of plant and machinery put to use by assessee in preceding assessment year, in our view, there is hardly any basis for such disallowance. transaction originated in preceding assessment year. During that year, AO allowed depreciation. However, such allowance was restricted to 50 per cent as relevant assets were put to use for business purposes for period of less than 180 days. balance depreciation amounting to 50 per cent was claimed by assessee during present assessment year. From above, it may be seen that relevant transaction has been held to be genuine by AO and assessee s claim for depreciation has been duly considered and allowed in preceding assessment year. That assessment, we are informed, has become final and no further action either under s. 147 or under s. 263 of IT Act has been taken to disturb that assessment. In our view, allowing balance 50 per cent depreciation this year is only corollary to allowance of 50 per cent in preceding assessment year. Therefore, we direct that depreciation to extent of Rs. 22,44,853 may be allowed to assessee in respect of assets which were put to use during preceding assessment year. In result, assessee s appeal stands partly allowed. *** SHAH INVESTMENTS FINANCIAL DEVELOPMENTS CONSULTANTS LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX