N.L. KALRA, A.M. assessee has filed appeal against order of CIT(A)-III, Bangalore dt. 4th March, 2005. 2. effective grounds of appeal are as under : "On facts and in circumstances of case, learned CIT(A) erred in upholding validity of reopening of assessment under s. 14 7 of Act. learned CIT(A) ought to have appreciated that all material facts were available in return originally filed and on mere change of opinion assessment was not liable to be reopened and accordingly reassessment as made was bad in law and thus liable to be cancelled." 2.1 Grounds of appeal relating to reopening of assessment were taken as additional grounds of appeal and these were admitted by learned CIT(A). Before learned CIT(A), it was mentioned that on verification in case of M/s Bellary Steel & Alloys Ltd. (in short BSAL) and statement of Mr. Madhava, then managing director of BSAL, opinion was formed by AO that transaction of assessee-company with BSAL may be bogus. Such transaction was lease transaction and on basis of which assessee has claimed depreciation to extent of Rs. 1,6 7 ,23,582. Before learned CIT(A), learned Authorised Representative relied on following judgments on issue that reopening is not valid : (i)CIT vs. Nedungadi Bank Ltd. (2003) 182 CTR (Ker) 403 : (2003) 264 ITR 545 (Ker); (ii)Oil & Natural Gas Corpn. Ltd. vs. Dy. CIT (2004) 18 7 CTR (Uttaranchal) 462 : (2003) 262 ITR 648 (Uttaranchal); (iii)Parashuram Pottery Work Co. Ltd. vs. ITO 19 77 CTR (SC) 32 : (19 77 ) 106 ITR 1 (SC). 2.2 learned CIT(A) has recorded his findings in para 3.5 of his order. As per learned CIT(A), assessment was reopened on basis of survey under s. 133A conducted on premises of BSAL, Bellary. During such survey it was found that M.S. rolls given on lease by appellant-company to BSAL were not existing. This new information warranted reopening of assessment. Original assessment was made under s. 143(1) and therefore, AO did not have any occasion to form opinion while processing return. It has been held t h t case laws relied on by learned Authorised Representative are not applicable. 2.3 During course of proceedings before us, learned Authorised Representative has filed : (a)Paper book containing 21 pages and copy of paper book of 54 pages filed before CIT(A). (b)Another paper book containing 14 pages will be referred as paper book 2. learned Departmental Representative has also filed following : (a)Paper book containing 161 pages will be referred as DPB-I. (b)Paper book containing 42 pages will be referred as DPB-II. (c)Copy of survey report along with Annexures will be referred as SR. (d)Notes on arguments containing 12 pages will be referred as NR-1. (e)Notes on arguments containing 10 pages will be referred as NR-2. (f) Notes containing case laws relied on in 3 pages will be referred as NAR- 3. 2.4 learned Authorised Representative on issue of reopening has relied on same arguments as were given before learned CIT(A). learned Departmental Representative on pp. 5 and 6 of NR-2 has mentioned brief facts and has given case laws relied on. Notice under s. 148 has been issued on 23rd Feb., 2001 i.e.,before end of 4 years from assessment year for which notice under s. 148 is issued. As per this fact, case falls under Expln. 2(b)of s. 14 7 . Proviso to s. 148 is not attracted as no order under s. 143(3) has been passed before reopening. Under such circumstances, there is no necessity to prove that notice has been issued on account of failure on part of assessee to disclose fully and truly all material facts necessary for assessment. learned Departmental Representative relied on judgment of Bombay High Court in case ofDr. Amin s Pathology Laboratory vs. P.N. Prasad, Jt. CIT (2002) 1 7 2 CTR (Bom) 7 4 : (2001) 252 ITR 683 (Bom). Processing of return does not amount to assessment.Mahanagar Telephone Nigam Ltd. vs. Chairman, CBDT (2000) 162 CTR (Del) 554 : (2000) 246 ITR 1 7 3 (Del);Bharat V. Patel vs. Union of India (2004) 186 CTR (Guj) 639 : (2004) 268 ITR 116 (Guj). In absence of order under s. 143(3), there is no scope of change of opinion,Suman Steels vs. Union of India (2004) 269 ITR 412 (Raj),Mahanagar Telephone Nigam Ltd. s case (supra).After 1st April, 1989, power to reopen assessment is much wider. reason should be fair and not necessarily due to failure of assessee to disclose fully or partly some material facts necessary for assessmentBawa Abhai Singh vs. Dy. CIT (2001) 168 CTR (Del) 521 : (2002) 253 ITR 83 (Del). 3. We have heard both parties. It is fact that notice under s. 148 has been issued before end of four years of assessment year for which reopening has been done. In such case notice can be issued in case it falls under Expln. 2(b)to s. 14 7 . As per this Expln. 2(b),the case will be deemed to be case where income chargeable to tax has escaped assessment in case where no assessment has been made and it is noticed by AO that assessee has understated income or has claimed excessive loss, deduction, allowance or relief in return. Sec. 143(1) speaks about intimation. Assessment is made under s. 143(3) and such assessment is made after issue of notice under s. 143(2). In instant case, before issue of notice under s. 148, no notice under s. 143(2) had been issued and no assessment had been made under s. 143(3). Intimation cannot be equated with assessment. For this proposition, learned Departmental Representative had rightly relied on judgment of Delhi High Court inMahanagar Telephone Nigam Ltd. s case (supra)and of Gujarat High Court inBharat V. Patel s case (supra).The Department conducted survey under s. 133A on business premises of BSAL. Addl. DI (Inv.) vide his letter dt. 30th Oct., 2000 such survey report along with Annexures. subject mentioned in letter is : "Incorrect claim of depreciation in respect of non-existing assets allegedly leased by M/s MAA Communication Bozell Ltd., No. 6, Service Road, Domlur Layout, Bangalore, to M/s Bellary Steel & Alloys Ltd." Along with this letter, learned Addl. DI (Inv.) sent copy of letter from S. Madhva addressed to DDI (Inv.). In this letter managing director of BASL admitted that all lease finance agreements entered were genuine financial leases and not operational leases. This is detailed letter. After going through survey report and its annexures, prudent person will have reason to believe that claim of depreciation as made by assessee is excessive. learned jurisdictional High Court in case ofRatnachudamani S. Utnal vs. ITO (2004) 190 CTR (Kar) 132 : (2004) 269 ITR 2 7 2 (Kar)held that there should be aprima faciecase of escapement of income. material available at time of issue of notice need not conclusively prove escapement as that is not relevant at time of issue of notice. formation of belief by AO is within realm of subjective satisfaction.ITO vs. Selected Dalurband Coal Co. (P) Ltd. (1996) 132 CTR (SC) 162 : (1996) 21 7 ITR 59 7 (SC);Raymond Woollen Mills Ltd. vs. ITO (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC). 3 . 1 We have also gone through case laws relied on by learned Authorised Representative. In all those cases, reassessment was done on basis of notice issued after four years of end of assessment year for which assessment was reopened. Hence these case laws are of no help. 3.2 Considering above facts and position of law, it is held that AO was justified in issuing notice under s. 148 in instant case. 4. ground of appeal Nos. 3 to 10 are as under : "On facts, learned CIT(A) erred in upholding disallowance of depreciation on MS rolls leased to Bellary Steel & Alloys Ltd. (BSAL). learned CIT(A) ought to have appreciated that appellant had supported its claim with purchase of MS rolls through purchase agreement with M/s Kotak Mahindra Finance Ltd. and further supply of rolls to BSAL in pursuance of lease agreement and receipt of lease rent in course of its business and accordingly depreciation was rightly claimed by appellant which was required to be allowed. learned CIT(A) erred in upholding findings of assessing authority that lease was bogus, which was based on statement obtained from BSAL in course of survey under s. 133A of Act. learned CIT(A) ought to have appreciated that assessing authority did not give opportunity to appellant for rebuttal of information obtained behind back and also he ought to have appreciated that appellant was not given opportunity to cross-examine persons who had been examined and who had given adverse statement against appellant. learned CIT(A) ought to have appreciated information obtained against appellant were made use of to justify disallowance which was opposed to principles of natural justice in that no adequate opportunity was given to appellant in this regard and accordingly impugned disallowance and additions were opposed to law and liable to be deleted. learned CIT(A) ought to have appreciated that in course of remand in appeal proceedings even identity of MS rolls leased were proved and lease transaction had been confirmed by lessee and accordingly genuineness of lease had been established by appellant and consequently he ought to have directed assessing authority to allow depreciation as claimed by appellant in full. learned CIT(A) ought to have appreciated that disallowance of depreciation was only on surmises and suspicion and allegations that transaction was bogus was contrary to facts and evidence which were confirmed by parties to transaction and accordingly disallowance as made by assessing authority which was confirmed by appellate authority was against law and impugned addition in this regard is liable to be deleted. On facts, learned CIT(A) ought to have accepted evidence and explanation in full and allowed depreciation and deleted impugned addition." 4 . 1 AO noticed that assessee has claimed 100 per cent depreciation on MS rolls of Rs. 1,49,23,582 leased to BSAL. As per AO, following points were observed during course of investigation proceedings in case of BSAL : (i) There are no written orders/documents like quotations, enquiry letter, installation reports and delivery challan in possession of above company. (ii) Even photocopies of some delivery challans found do not bear seals of sales-tax check-post. (iii)Usually machineries like SGCI rolls are tailor*made to specification of purchaser which required time to manufacture and deliver. Before orders are placed, correspondences like enquiries, quotations are usually followed, but in this case no such correspondence is available. (iv) No stock register is kept for rolls obtained on lease in absence of which, it is not known how lessee will be in position to return rolls to lessors after period of lease. (v) photocopy of transport bills found do not contain check-post seals though consignments are stated to be transported from Chennai and Mumbai. (vi) During course of survey, 361 rolls were found but, as per information furnished by lessee, it should have been in possession of 3 7 2 rolls which were obtained on lease. It could not explain discrepancy and whereabouts of remaining rolls. (vii) None of rolls in its possession contained distinctive markings of financiers/lessors who leased these rolls. (viii) All three transportersviz.,Noble Roadlines, Mumbai, Sri Balaji Roadways and M/s Madras Goods Movers, Chennai have clearly stated that they transported only bulk scrap and coal to above company and denied to have transported MS rolls. Further, both Chennai transporters stated that bills and signatures found in assessee s premises are forged. (ix)Any machinery parts including SCGI Rolls transported into Karnataka State is liable for 2 per cent of entry tax but, lessee could not produce any evidence for payment of entry tax. (x) so-called supplier viz., M/s B.H. Enterprises, M/s B.H. International at Mumbai and B.M. Steels (P) Ltd. Chennai were enquired as to whether they had supplied rolls to lessee. Both suppliers of Mumbai have denied that they have supplied any rolls to assessee but confirmed fact that these bills were raised to facilitate financing from credit institutions and sale proceeds received from credit institutions were returned to lessee immediately. supplier of Mumbai had expired but, company s bank pass book showed that after receiving sale proceeds from banks, they were immediately sent back to lessee. (xi)The chartered accountants of assessee-company also admitted that transactions entered are only financing transactions. (xii)Shri S. Madhava, manning director of lessee company has admitted videletter dt. 3rd Oct., 2000 (copy enclosed) that all lease transactions are only financing transactions obtained to repay earlier loans outstanding and he is not in position to prove existence of supplier of MS Rolls or his capacity to manufacture or produce equipments which are supplied to them as per invoices. above facts were brought to knowledge of assessee and assessee was asked to furnish details as mentioned by AO in para 5 of his assessment order. In response to that query, assessee furnished copies of following documents : (a)Lease agreement with BSAL. (b)Document showing insurance coverage for amount of Rs. 12,398. (c) Document showing renewal of insurance on leased assets dt. 28th Oct., 1998. (d)Syndication of lease finance with Kotak Mahindra Finance Ltd. (e) Agreement copy, with hire-purchase agreement No. KMFL/695/95. (f) Invoice copies issued by B.H. International in four numbers. 4.2 AO also made enquiries for Kotak Mahindra Finance Ltd. (in brief KMFL). These rolls were acquired by appellant under hire-purchase from KMFL. AO noticed following discrepancies : (a) Serial number of transport bills vide which MS Rolls were transported were 501, 502, 503 and 504 as per copies of documents filed by KMFL while these were 1088, 1089, 1090 and 1092 as per details filed by assessee. (b)Handwriting in consignee copy is different from that of other one. KMFL denied veracity of bills submitted by appellant while, appellant denied veracity of bills submitted by KMFL. On further verification and investigation, following points were noticed by AO : (a) BSAL has not followed usual practice of leasing transactions. (b)Documents and records to be kept for genuine lease transactions were not found at premises of BSAL at time of survey. (c)Transport bills and delivery challan do not contain seal of sales-tax check-post though such rolls came from Maharashtra to Karnataka. (d) Neither appellant nor KMFL furnished any document or proof for negotiating supply of rolls from supplier. (e) Original transport bills, original delivery challans and original report of commissioning not produced. (f) DDIT (Inv.) made enquiries and ascertained weight of different coils. Weight of different types of coils is mentioned by AO in his order. On basis of such details, AO worked out weight of coils transported through different invoices as under : Invoice No. of Weight of Lorry No. No. coils coils MH-01-H- 1088 26 49.9 tons 445 KA-25-6 1089 24 50.2 tons 77 2 KA-25- 1090 24 45.15 tons 9886 MH-01-H- 1092 29 59.9 tons 7 129 normal lorry having capacity of 10 tons cannot carry above-referred huge weight. (g) Investigation authorities recorded statement of lorry driver and owners of lorries. It was admitted by them that said coils were never transported to BSAL. (h)The above lorries have not passed through check-post. On basis of above facts, show-cause notice was issued. In response to this show-cause (notice), written submissions were filed. It was submitted that whole formalities and procedures towards execution of contract was entrusted to KMFL. Hire-purchase agreement was entered with KMFL. Depreciation has been claimed as per circular of CBDT. 4.3 On basis of above discussion, learned AO in para 10 of his order observed as under : (i) abovesaid coils alleged to have been transported to Bellary in such fashion i.e., around 50 tonnes of weighment in one truck load which has capacity of 10 tonnes, is very absurd. This has been conclusively proved that coils have not reached Bellary at all. Neither, assessee nor KMFL are in position to explain how coils were transported to Bellary. (ii)Assessee could not prove beyond doubt that same coils have been transported as there is no sales-tax seal on any of transportation documents. (iii)Even in premises of BSAL number of coils that purportedly taken on lease were not available. Very few are available without any markings. He has not maintained any ledger or accounts as he is required to maintain as per law. (iv) On verification it was found, so-called manufacturer has no capacity to manufacture such huge number of MS rolls. (v)Even Mr. Mahadevan, managing director of BSAL has confessed to fact that company is raising lease finance in respect of non-existing assets with view to raise funds for their capital expenditure. (vi) It is also verified from check-posts that lorries alleged to have carried said MS rolls, in fact have not passed through check-posts on said dates. Even assessee has not produced any proof for this. (vii) It has been proved that assessee has not shown payment of entry tax imposed by Sales-tax Department at rate of 2 per cent at point of entry. (viii) Even manufacturer has categorically denied stating that they never supplied any rolls to BSAL. Since assessee has failed to prove beyond doubt existence of assets, AO disallowed depreciation under s. 32 of IT Act. 4.4 During course of appellate proceedings before learned CIT(A), appellant filed written submission. It was argued that discrepancies in respect of documents relating to transportation are to be explained by KMFL as it was actually KMFL who purchased assets. appellant has obtained such assets under hire-purchase agreement. It was argued that assets are identifiable even as of today. It was argued that opportunity in form of cross-examination should have been given to appellant to rebut adverse statement given by parties. In absence of such opportunity, reliance on statements cannot be made. AO in his remand report submitted that statement of Mr. Dinesan was recorded in presence of Authorised Representative of appellant. 4.5 In rejoinder to remand report, learned Authorised Representative submitted that opportunity of cross-examination cannot be equated with recording of statement in presence of Authorised Representative of appellant. Onus was on AO to have established that transaction is not genuine. 4.6 learned CIT(A) required additional report from AO. AO stated that Inspector visited premises of BSAL and found that marking of "MAA Rolls" is appearing on 103 rolls in 8 lots. learned CIT(A) held : (a) Since Mr. Dinesan of KMFL was examined in presence of Authorised Representative of appellant, hence learned Authorised Representative cannot take plea that he was not allowed to cross-examine. (b)The whereabouts of Sri Madhav are not known. His statement is one of many grounds to disallow depreciation. For confirming disallowance of depreciation, learned CIT(A) relied on following facts : (i) During course of survey at BSAL, no documents were found to support lease. No stock register was found. (ii)Photocopies of delivery challan did not bear seals of sales-tax check- post. (iii)No evidence of payment of entry tax filed. (iv) As per hire-purchase agreement, appellant was to seek prior permission of KMFL for removal of assets from his possession. No permission obtained to lease such articles. (v) As per cl. VII-2 of hire-purchase agreement, assets taken on hire- purchase must have marking of KMFL. No such marking found. (vi)Transporter has denied transportation of rolls from Mumbai to Bellary. (vii) Supplier also denied transaction. (viii) Marking of MS Rolls found during course of inspection by Inspector were temporary markings and this is afterthought to mislead Department. (ix)Original transportation bills have not been produced even before learned CIT(A). (x)As per Karnataka High Court judgment inAvasarala Automation Ltd. vs. Jt. CIT (2003) 185 CTR (Kar) 402 : (2004) 266 ITR 1 7 8 (Kar), disallowance of depreciation was confirmed when there was no identification of machinery in case of leasing machinery immediately after acquisition. 4. 7 During course of proceedings before us, learned Authorised Representative submitted that appellant purchased 103 MS rolls from M/s KMFL on hire-purchase and leased same to M/s BSAL. Persons involved in transaction are identifiable. assessee entered into hire-purchase agreement and such agreement is available. Similarly lease copy of lease agreement has also been filed. identity of asset has been proved by physical verification. leasing of asset is not solitary transaction. Similar lease transactions have been done in subsequent years and these have been accepted by Department. break-up of value of Rs. 1,6 7 ,23,582 is as under : Rs. Asset value 1,43,49,598 CST 5, 7 3,984 Finance charges 15,00,000 Syndication fee 3,00,000 Total : 1,6 7 ,23,582 learned Departmental Representative drew our attention to fact that Central Sales-tax has been paid on transaction. It was submitted that following statement/letter were given to appellant : (a)Copy of letters of Shri Madhava. (b)Copy of statement of Shri Himanshu R. Mehta. (c) Copy of statement of Shri Dinesh. In spite of several requests for cross-examination, appellant has not been provided that opportunity. It is true that statement of Shri Dinesh was recorded in presence of Authorised Representative of appellant but Authorised Representative was not permitted to protect interest of appellant. It was submitted that Authorised Representative was denied opportunity to cross-examine. various other statements that have been relied upon though mentioned as forming part of assessment records have not been given to appellant for rebuttal or cross-examination. These statements have been given to appellant before Tribunal. Those statements are contradictory to each other and are therefore not reliable. Statements of proprietor of Noble Roadlines was recorded in June, 2000 while reassessment proceedings have been initiated in February, 2001. These statements are not at request of appellant. Such persons are not witnesses of appellant. Such persons are witnesses of Department and it is for Department to substantiate its witness. Shri Sahajahan Nawadhar Khan of Noble Roadlines was examined and he stated that he is having only one bill book of 601 to 7 0. He stated that he is not maintaining books of account. He further stated that his son is maintaining requisite books. Shri Himanshu R. Mehta stated that rolls have not been supplied to M/s BSAL and only scrap has been supplied. However Sri B. Ramaswamy, D.G.M. of BSAL stated that rolls have not been supplied from 1998 and no scrap was purchased from M/s B.H. International or M/s B.H. Enterprises, concerns which are family concerns of Sri Himanshu Mehta. Books of account are not traceable but VDIS declarations have been made. Mahazar obtained from check-post at Nipani shows that three trucks have passed through check-post. It was argued that looking to trade between Maharashtra andKarnataka, it cannot be believed that only three trucks passed. It was stated that Mahazar does not relate to trucks involved in appellant s case. Sri S.K. Jain of BSAL was unable to produce original invoices. Such original delivery challans, transport bills and invoices were to be maintained by lessee. In case they are not produced by lessee then no adverse inference (can) be drawn against appellant. As per learned Authorised Representative, statements of Shri Ambedkar and Shri Abdul Khader have no relevance to appellant s case insofar as trucks have not been dealt with by appellant. It was further stated that Shri Madhava and his family members have declared nearly Rs. 100 crores in form of VDIS. It was again emphasised that all statements have been obtained before reopening of assessment proceedings and appellant has not been given opportunity to cross-examine any of these persons. deficiencies in hands of BSAL should not be ground for disallowing claim of appellant. 4.8 In respect of sales-tax and entry tax, it was mentioned that no entry tax is leviable on lease transactions. As regards sales-tax, Central sales-tax as claimed by M/s KMFL has been paid. However Shri Dinesh of KMFL stated that it has not been collected. This shows that Shri Dinesh is not aware of actual facts. Such deficiencies could have been reconciled during cross-examination and opportunity for such cross-examination has not been given. AO in his order has mentioned that suppliers of rolls do not have capacity of manufacture but D.G.M. of BSAL stated that such persons have earlier supplied rolls. Books of account of supplier are not traceable. It is further maintained that lessee has not maintained stock register. Non-maintenance of stock register by BSAL should not be held against appellant. Copies of transport bills were provided by BSAL and such bills contained receipt seal of BSAL. D.G.M., G.M. & M.D. of BSAL have been examined but Department has not questioned them on genuineness of transport bills. It is being stated that bills produced by appellant do not tally with bills produced by KMFL. There is nothing on record to infer as to how such bills were procured by KMFL. Statement of Shri Dinesh of KMFL has been proved wrong on issue of sales- tax. It is being argued by Department that Shri Dinesh was questioned about veracity of transport bills and he denied same but such denial is not coming out of statement of Shri Dinesh. In fact, appellant produced its copies of bills only after statement was recorded from Shri Dinesh and there could be no occasion for AO to confront Shri Dinesh with regard to genuineness of these bills. learned Authorised Representative argued that appellant has purchased rolls from persons who have been dealing with BSAL and who have supplied rolls to BSAL and they would obviously know type of rolls that BSAL requires and same had been leased to BSAL. It is fact that rolls found at time of survey were more than number leased by appellant. D.G.M. of BSAL is also not aware whether any balance rolls are kept in any other premises. It is also undisputed fact that life of these rolls are only 3 to 5 years. At time of survey, 112 scrap rolls were found in dumpyard. It is alleged that no identification marks were there on rolls. MS Rolls which have undergone substantial use would have their marking substantially rubbed off due to wear and tear. It was further argued that such rolls were insured with M/s Oriental Insurance Co. insurance company specifically marks identifies insurance in name of M/s KMFL, appellant and BSAL. user of asset will know identity of asset however much asset has been used or damaged. This is exactly why BSAL was able to identify and show rolls relating to appellant when Inspector had visited premises of BSAL. It may also be noted that at time of survey, BSAL was being run by so-called absconding person Sri Madhava when all these defects had been found and alleged against BSAL. 4.9 It is being alleged that trucks could not have carried said volume of rolls. None of these trucks have been verified and it is only statement being made. statement that all trucks are only 10 tonnes trucks but trucks are available which carry 50 tonnes capacity. order having been placed by BSAL with supplier of rolls and delivery having been done by suppliers directly to BSAL, appellant cannot be hauled up for any discrepancy in transportation. It may be appreciated that transportation bill submitted by appellant to AO specifically contains seal of BSAL for having received materials by BSAL. appellant has not undertaken transportation of material. BSAL approached appellant for lease of such rolls. financier was not willing to enter into agreement with BSAL due to its financial instability. fact that BSAL is financially unsound is clear from fact that company went before BIFR. appellant is still to receive lakhs from BSAL and criminal proceedings have been initiated against BSAL and its M.D. In transaction of lease, it is normal for lessee to arrange for lifting of plant and machinery from premises of supplier or for supplier to deliver at premises of BSAL. appellant is interested only in getting confirmation of delivery on consignment note of transporter with seal of BSAL confirming receipt of material. 4.10 In case decided by Karnataka High Court ofAvasarala Automation Ltd. vs. Jt. CIT (supra), existing assets were sold and leased back to vendor of that machinery. There was no registration of sale, nor was identification of machinery. appellant s case is completely different from above insofar as machinery has been purchased not from BSAL but from third party. It was leased to BSAL, concerned sales-tax paid, concerned insurance has also been paid. assets were identifiable and have also been identified. It is also mentioned that lease rentals have been assessed in subsequent years and taxes have been paid on same. It is only for this one year that depreciation has been withdrawn and transaction has been considered as finance transaction and not lease transaction. In subsequent years lease rentals have been taxed. 4.11 In normal lease transaction, there are three persons, (a) lessor, (b) lessee, (c)supplier of asset. In appellant s case, this is not so. There is existence of fourth person being hire-purchase financier. transaction between assessee and hire-purchase financiers, i.e., Kotak Mahindra is not disputed by Department. Only lease transaction is being disbelieved. assessee is claiming depreciation on leased assets only on account of CBDT Circular No. 9 of 1943 dt. 23rd March, 1943 r/w Instruction No. 109 7 , dt. 19th Sept., 19 77 . When hire-purchase transaction between assessee and KMFL is not disbelieved, it would not be appropriate to disbelieve leasing of assets. 4.12 learned Authorised Representative further pointed out that Sri S.K. Jain in his statement has mentioned that value of rolls vary between Rs. 20 to Rs. 30 per kg. If this is taken as decisive figure then weight of rolls as (in) each invoice will be around 11 tonnes at maximum. Such weight can be carried in truck. learned Authorised Representative further pointed out that telephone number on transportation bills provided by KMFL contained 7 digits phone number while copy of bills submitted by assessee contained 6 digits telephone number. During 1995, telephone numbers of Bombay were of 6 digits. Hence Shri Dinesh was to explain as to from where such bills were obtained by KMFL. It was therefore submitted that appeal be allowed on following grounds : (a)Total violation of principles of natural justice. (b)The transaction between appellant and KMFL having not been disproved or disbelieved. (c)The transaction between appellant and BSAL should not be looked at in isolation. (d)The invoices as seen would compare well with weight that each truck transported material. transport bills produced by appellant and as obtained from BSAL contain receipt seal of BSAL and thus they are only genuine. appellant has paid all concerned tax levies in regard to purchase of goods as required by law as existing then. (e)The asset has been identified not only by Departmental officers but also by insurance companies which hold contractual liabilities in event of destruction of assets. (f) Since transaction between appellant and KMFL has not been disbelieved, asset would stand in balance sheet of appellant and since asset has been used in business of leasing, appellant is entitled to depreciation. 4.13 learned Departmental Representative has also filed written submissions. As per written submission, usual procedure followed in lease transaction and documents/records (is) required to be kept in such transaction has been described as under : "The lessee who actually uses rolls, places order with supplier of rolls specifying number of rolls, their specifications, quality and other details. As lessee does not have money to finance purchase of said rolls, he enters into lease agreement with lessors for lease of said rolls. lessors, who are mostly finance companies directly make payment of rolls to suppliers. rolls are sent directly to lessee s premises by supplier. Soon after receipt of rolls, lessee forwards copy of invoice, delivery challan, lorry receipt and installation report to lessor acknowledging of receipt of rolls and its installation. lease agreementinter alia contains that lessors are rightful and absolute owners of rolls and that lessee has to pay lease rentals during lease period to lessors for use of rolls during lease period by them. It further requires that rolls are safely used and returned to lessors after lease period. It also requires that rolls are kept separately and are put identification marks on it with name of lessor. lease period, lease rental to be paid, regular interval at which it has to be paid, mode of payment, etc. is also contained in said lease agreement. Documents and records required to be kept. Therefore, normally, any genuine lease transaction requires that there should be correspondence between supplier and lessee about rolls to b e supplied, which at least should include technical specification of machinery, quality and number. lessee should have separate account of rolls so obtained on lease which should contain details like name of lessor, number of rolls obtained on lease, number of rolls returned to lessors after lease period and number of rolls which are still in his possession, etc. original delivery challans, transport bills and invoices should be available with him. rolls he has obtained on lease have to be marked with distinct identifications marks and name as per agreement." 4 . 1 4 learned Departmental Representative relied on judgment of jurisdictional High Court for proposition that burden is on assessee to prove that he is entitled to depreciation. ReferAvasarala Automation Ltd. vs. Jt. CIT (supra). learned Departmental Representative pointed that Department has tried to ascertain true facts in spite of non-co-operation from assessee. following efforts were made : (a) Show-cause notice issued to file details in respect of claim of depreciation. (b)Second show-cause notice issued on 11th Dec., 2001. (c)Enquiry made from KMFL. (d)Statement of Shri Dinesan on 20th March, 2002. (e)Detailed show-cause notice issued on 8th March, 2002. (f)Learned CIT(A) fixed appeal for hearing on 20th Dec., 2002; 16th Jan., 2003; 20th Jan., 2003; 12th Feb., 2004; 2 7 th Feb., 2004; 19th Aug., 2004; 31st Aug., 2004; 6th Jan., 2005; 2 7 th Jan., 2005; 18th Feb., 2005 and 25th Feb., 2005. (g)Remand report from AO received on 13th Jan., 2004 in response to letter of learned CIT(A) dt. 20th Jan., 2003. (h)Another report of AO dt. 20th Dec., 2004 along with Inspector s report. (i) Even before learned CIT(A), appellant was not able to produce original transportation bills and delivery challans. 4.15 Thereafter learned Departmental Representative pointed out discrepancies noticed in case of appellant and such discrepancies suggested that transaction of lease of MS Rolls is sham and not genuine. (i) No documents were found to show that written orders were placed to obtain rolls on lease. No correspondence like obtaining quotations, providing specifications, etc. with supplier found during survey of BSAL and no such details filed. (ii) During survey delivery challans of only 5 consignments found while BSAL has shown to have taken 80 consignments on lease from financial years 1993-94 to 199 7 -98. No original delivery challans were found and even not produced before learned CIT(A). (iii)Photocopy of some of delivery challans found did not contain seals of sales-tax check-post. (iv) BSAL has not kept separate account of rolls obtained on lease though such leased rolls were required to be returned to appellant after expiry of lease period. At time of survey, persons present were not able t o tell as to how many rolls have been taken on lease. As per learned Departmental Representative, these facts point out that no roll was taken on lease. (v)No original transport bills were found during course of survey. Photocopies of transport bills do not bear seal of sales-tax check- post. (vi) During survey of BSAL, only 361 rolls were found. It was stated that around 10 to 15 rolls have been melted since August, 1998 to June, 2000. As per information provided 1020 rolls valuing Rs. 19,64, 77 ,656 were obtained o n lease. total value of all rolls obtained is Rs. 7 1,31,29, 7 25. This means that 3 7 2 rolls have been obtained if amount is converted into rolls by taking value of 1020 rolls at Rs. 19,64, 77 ,656. Looking to number of rolls found during survey, it can be safely concluded that taking of rolls on lease was sham transaction. (vii)The learned Departmental Representative drew our attention to inventory prepared at time of survey. This inventory stock showed that rolls do not bear any identification mark. (viii) Enquiries were made from transporters of Mumbai and Chennai. These transporters including proprietor of Noble Roadlines stated that they have transported scrap and coal to BSAL. (ix)No entry tax on rolls received as lease from appellant has been paid. (x)Statement of Shri Abdul Khadar, driver of trucks bearing Regd. Nos. KA- 25/588 7 , KA-25/5888 and KA-25/4526 was recorded on 7 th June, 2000. Transport bills found during survey at premises of BSAL showed that rolls were transported from Mumbai to Bellary through above trucks. It was admitted by him that consignment from Mumbai to Bellary is undertaken through Nippani and Hubli. Usually 3 to 4 days are taken for such transaction. Enquiries were made from Nippani check-post. Enquiries revealed following facts : Date Probable of Vehicle Date date of passing Destination No. of Bill passing as per check-post. check- post. KA- 21- 19- 23 or 24 Hospet. 25/5888 8-1995 8-1995 KA- 20- 19- 22 or 23 Hospet. 25/588 7 8-1995 8-1995 KA- 19- 20- 21 or 22 Hospet. 25/4526 8-1995 8-1995 above facts clearly suggest that above-referred trucks have not transported so-called rolls. (xi)Copies of transport bills show that rolls were delivered in 2 days while enquiries conducted by Department indicated that it takes 3 to 4 days for transporting rolls from Mumbai. (xii)Sri S. Madhava M.D. of BSAL admitted vide letter dt. 3rd Oct., 2000 that all lease transactions are only financing transactions. He showed his inability to prove existence of supplier of MS Rolls. (xiii)The so-called supplier M/s B.H. International, Mumbai and M/s B.M. Steel (P) Ltd., Chennai denied to have supplied any rolls to assessee. It was confirmed that bills were raised to facilitate financing from credit institution. Sale proceeds received from credit institution were returned to lessee immediately. (xiv)Department made enquiries from M/s Lakshmichand Agarwal, G.E. Road, I.T.I., Khurshipar, Bhilai Nagar, Durg, M.P., manufacturer of rolls, in respect of weight of rolls. It was stated by him that smallest and lightest rolls weighs 1800 kgs. Hence around 5 to 6 rolls can be carried in truck. Weight of rolls carried by each truck is more than 40 tonnes if transport bills are believed and weight is determined as per enquiry made from Shri L.C. Agarwal. (xv)There are discrepancies in copies of transport bills furnished by KMFL vis-a-vis appellant. Serial numbers are different. Amount charged is different. Truck numbers appearing on bills are different. Shri Dinesh was examined in presence of Authorised Representative of appellant. (xvi)Whereabouts of Shri S. Madhava are not known and hence he could not be cross-examined. Depreciation has not been disallowed only on basis of statement of Shri Madhava. (xvii)Hire-purchase agreement showed that rolls should bear identification mark of KMFL. At time of survey, no identification marks were found. Subsequently, such identification marks have been manipulated. However, instead of putting identification mark in name of KMFL, identification was put in name of appellant. (xviii)Huge credits are appearing in name of supplier of rolls in books of lessee company. As and when lease rent was to be paid, such amount was received from supplier. This circumstantial evidence showed that lease transaction was shown. It is seen that such suppliers have given huge credit to BSAL without interest. (xix)Consumption of raw material by BSAL indicates that there was no need of additional rolls. (xx)Audit of lessee company vide statement dt. 24th Aug., 2000 admitted that they were informed by lessee company, that lease transactions were nothing but financial arrangements. (a)Digvijay Chemicals Ltd. vs. Asstt. CIT (2001) 16 7 CTR (All) 299 : (2001) 248 ITR 381 (All): It is not necessary that there must always be cross- examination of witness before discarding his evidence. (b)Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC): Surrounding circumstances and test of human probabilities have to be applied. (c)CIT vs. Daulat Ram Rawatmull 19 7 2 CTR (SC) 411 : (19 7 3) 8 7 ITR 349 (SC): onus to prove that apparent is not real is on party who claims it to be so. (d)Dhansiram Agarwalla vs. CIT (1996) 130 CTR (Gau) 559 : (1996) 21 7 ITR 4 (Gau): totality of circumstances and their combined effect are to be taken into consideration while deciding question whether particular fact is proved. (e)CIT vs. Golcha Properties (P) Ltd. (In Liquidation) (1996) 136 CTR (Raj) 222 : (199 7 ) 22 7 ITR 391 (Raj): Tribunal should arrive at finding that transaction is genuine or not in light of basic primary facts proved on record. 4.16 In reply, learned Authorised Representative submitted that appellant and BSAL are not hand in glove as alleged by learned Departmental Representative. appellant has filed criminal case against BSAL and its M.D. warrant of arrest has been issued against Shri Madhav, M.D. of BSAL. T h e learned Departmental Representative has submitted that substantial opportunity has been given to appellant by AO as well as learned CIT(A). learned Authorised Representative drew our attention to remand report available at pp. 186 to 189 of DPB-1 where learned AO has mentioned that delay in sending remand report is on account of fact that efforts were made to locate parties. It was argued that opportunity was given by learned CIT(A) to AO to substantiate case and to produce persons from w h o m statements have been recorded for cross-examination. learned Authorised Representative drew our attention to invoices available at pp. 134 to 138 of DPB-1 and such invoices contain order number and date. Hence, BSAL placed orders to supplier and such order was given much prior to date of delivery. Department has not obtained copy of order. Hence, it cannot be said that BSAL has not given specifications of items required. Hence no adverse inference can be drawn against assessee that normal procedure for procuring assets by lessee has not been followed. learned u t h o r i s e d Representative submitted that case ofDigvijay Chemicals Ltd.(supra)does not apply insofar as in appellant s case witnesses have been examined by Department and such evidences have been used against appellant and it is only on basis of such evidence which has been obtained through examination, has interpreted against appellant. decision in case ofKapurchand Shrimal vs. CIT (1981) 24 CTR (SC) 345 : (1981) 131 ITR 451 (SC)is in favour of appellant as learned CIT(A) has given opportunity to AO to produce those persons from whom statements had been recorded for cross-examination. AO failed to use such opportunity. In fact, AO has specifically mentioned his inability to produce persons. No further opportunity would make any difference. In fact, in appellate proceedings and consequent remand proceedings, appellant had been able to prove existence of asset by physical identification. decision inCIT vs. Rayala Corpn. (P) Ltd. (1995) 215 ITR 883 (Mad)is also exactly what appellant is praying for. appellant proved its transactions by identity, ability, creditworthiness of persons involved in transaction as also asset whereas Revenue is attempting to disallow depreciation on mere surmises and conjectures. decision in case ofTribhovandas Vithaldas vs. CIT (1986) 55 CTR (Guj) 214 : (1986) 159 ITR 236 (Guj)is also as prayed for by appellant. learned CIT(A) has rejected evidences placed by appellant while he has relied on evidences placed by Revenue though opportunity to rebut such evidences, in form of cross- examination, not granted. learned Authorised Representative argued that decision inKillick Nixon & Co. vs. CIT (196 7 ) 66 ITR 7 14 (SC)is in favour of appellant and principles laid down therein should be applied. It was argued that decision in case ofGolcha Properties (P) Ltd. (In Liquidation)(supra)has no application insofar as there is no veil to pierce and transaction as done by appellant is open book and genuine one. decision in case ofCIT vs. H.H. Maharani Sethu Parvathi Bayi (1998) 146 CTR (Ker) 181 : (1998) 232 ITR 6 7 8 (Ker)does not apply insofar as Revenue has not adduced any evidence to show that appellant s transactions were not genuine. decision inSumati Dayal scase (supra)does not apply to appellant s case insofar as surrounding circumstances and test of human probabilities show that transaction of appellant isbona fideand genuine. decision i n case ofDaulat Ram Rawatmull (supra)squarely placed onus on Revenue insofar as apparent and real is fact that appellant had entered into hire-purchase transaction and leased assets had received lease rental, had offered lease rentals to tax, had identified assets. decision in case ofDhansiram Agarwalla(supra)mentioned that totality of circumstances and combined affect is to be considered. When looked from angle, transaction between appellant and BSAL is genuine and no conclusion can be canvassed as nothing to contrary has been proved or shown. 5 . We have heard both parties. We have also gone through assessment record and record of learned CIT(A). Survey report dt. 30th Oct., 2000 from Addl. DIT (Inv.), Unit II, Bangalore, was received in office of AO on 29th Nov., 2000. Survey report was accompanied along with four Annexures which are hereunder : Annexure : List of lease transactions of S.G.C.-1 roll from financial years 1993-94 to 199 7 -98 containing name of financier, name of supplier, number of rolls and amount. Annexure B : List of copies of transport bills found containing name of roadline, date of transport, number of rolls, bill number and registration number of vehicle. Annexure C : Not available in assessment record. Page 16 and survey report show that it contains details of expenses to be disallowed in different assessment years. Such disallowance is relevant to BSAL. Not relevant in case of appellant. Annexure D : Computation of peak credit Year-wise B.H. Enterprises and B.H. International also included in computation of peak credit. Copy of letter dt. 30th Oct., 2000 from S. Madhava addressed to DDI (Inv.). Show-cause notice dt. 21st Dec., 2000 videwhich facts found during course of survey were intimated to assessee and assessee was required to furnish certain information. assessee was also required to show cause as to why remedial action be not taken to disallow depreciation on assets leased to BSAL. This show-cause notice was based on facts contained in survey report. There is no reply on record with reference to this show-cause notice. Notice under s. 148 issued on 23rd Feb., 2001 and served on same date. Letter dt. 23rd March, 2001 received in office of AO on 30th March, 2001 for appellant videwhich it stated that return filed earlier be treated as return in response to notice under s. 148. Notice under s. 143(2) vide which case was fixed for hearing on 20th Sept., 2001. There is nothing on record either on order sheet or in assessment record as to what happened on 20th Sept., 2001. It is clear from record that neither hearing was done on 20th Sept., 2001 nor any adjournment application filed. Notice under s. 143(2) was issued on 11th Dec., 2001 and case was fixed for 18th Feb., 2001. Fresh notices under s. 143(2) and were issued vide which case was fixed for hearing by AO on 11th Jan., 2002. Reply vide letter dt. 11th Jan., 2002 has been filed. Summon under s. 131 issued to associate V.P. KMFL on 15th Jan., 2002 for 22nd Jan., 2002. On 4th Feb., 2002, Shri Dinesh, executive of KMFL attended and he was asked to file certain details. Hearings were conducted on 25th Feb., 2002 and 2 7 th Feb., 2002. Show-cause notice issued on 8th March, 2002 and summon under s. 131 issued to Shri Dinesh for 20th March, 2002. Statement of Shri Dinesh recorded on 20th March, 2002 in presence of Authorised Representative of assessee; and copy of statement given to Authorised Representative for his comments. appellant filed reply to show-cause (notice) dt. 8th March, 2002 on 14th March, 2002. Authorised Representative of appellant was given copy of statement of Shri Dinesh and was required to file comments by 21st March, 2002. No comments filed. Assessment order passed on 28th March, 2002. 5.1 We have gone through record of learned CIT(A). Adjournment on 20th Dec., 2002 and 16th Jan., 2003 were sought by appellant. On 20th Jan., 2003, details were filed and remand report was sought by learned CIT(A). Remand report received on 20th Jan., 2004 and copy of such remand report given to appellant vide fixation notice dt. 21st Jan., 2004. Adjournment sought by learned Authorised Representative on 5th Feb., 2004, 13th Feb., 2004 and 2 7 th Feb., 2004. Fresh fixation notice issued on 30th July, 2004 for hearing on 19th Aug., 2004. Adjournments sought by Authorised Representative of appellant o n 19th Aug., 2004 and 31st Aug., 2004. Reply was filed by Authorised Representative and letter sent to AO for his comments on 23rd Sept., 2004. Reply from AO received on 21st Dec., 2004 videletter dt. 20th Dec., 2004. Hearings were adjourned on 6th Jan., 2005 and 2 7 th Jan., 2005 at request of Authorised Representative of appellant. Hearings were conducted on 18th Feb., 2005 and 25th Feb., 2005. Appellate order passed on 3rd March, 2005 by learned CIT(A). From above sequence of events, it is clear that AO after issuing notice under s. 148 on 23rd Feb., 2001 has not conducted any effective hearing till show-cause notice was issued on 8th March, 2002. During this intervening period, he has collected some details from KMFL. He has not provided copies of statement of persons from whom enquiries were conducted by Investigation Wing. Only conclusions drawn from such statements were communicated to appellant. AO provided copy of statement of Shri Dinesh to appellant of learned Authorised Representative on 20th March, 2002 and requested for his comments by 21st March, 2002. Authorised Representative of appellant has been mentioned as witness in statement. learned Departmental Representative submitted that appellant should have asked for cross-examination of Shri Dinesh as statement was recorded in his presence. As per learned Departmental Representative, it is clear that appellant was not interested in cross-examination. Perusal of record shows that copy of summon issued to Shri Dinesh of KMFL was not endorsed to appellant. It is true that order sheet shows that Authorised Representative of appellant was present. In statement he was shown as witness. It was duty of AO to have offered his witness for cross-examination and should have recorded this fact either in order sheet or in statement. It is, therefore, clear that appellant has not been provided opportunity to cross-examine Shri Dinesh. AO during course of assessment proceedings has not provided adequate opportunity to appellant. 5 . 2 During remand proceedings, AO issued letters/summons to following : (a)M/s B.H. International Summon under s. 131 to attend on 23rd May, 2003. (b)M/s Noble Roadlines Summon under s. 131 to attend on 23rd May, 2003. (b)M.D. of M/s BSAL Summon under s. 131 to attend on 23rd May, 2003. Summon sent to M/s Noble Roadlines and M/s B.H. International received back unserved. Summon issued in name of Shri S. Madhava was returned as unserved by Inspectors. This also shows that opportunity to cross- examination not afforded. 5.3 During course of proceedings before us, learned Departmental Representative has filed copies of statements of following persons : (a)Statement of Shri Shahajahan Nawadhar Khan, proprietor Noble Roadlines dt. 12th June, 2000. (b)Statement of Shri Himanshu R. Mehta, partner of M/s B.H. International dt. 26th June, 2000. (c) Mahazar dt. 8th June, 2000. (d)Statement of Shri R.K. Jain, G.M. (steel melting) of BSAL recorded on 1st June, 2000. (e)Stock inventory dt. 1st June, 2000 of BSAL. (f) Statement of Shri Ratanri, Senior Manager (Taxation) of BSAL dt. 1st June, 2000. (g)Statement of Shri Ahmed Khan A. Bugawadi, transporter dt. 6th June, 2000. (h)Statement of Shri Abdul Khader, truck driver, dt. 7 th June, 2000. (i)Statement of Shri B. Ramaswamy G.M. (Finance and Accounts) BSAL dt. 13th June, 2000. (j)Statement of Shri S. Madhava, MD, BSAL, dt. 7 th Aug., 2000. above referred statements have been referred by investigation wing in survey report. Copies of such statements were not provided to assessee at assessment stage. These were not made part of remand report sent by AO to learned CIT(A). Hence appellant has not got opportunity to cross-examine such witness. learned Authorised Representative has pointed out apparent contradictions in statement. Transport receipts as submitted by Shri Dinesh of KMFL contain weight and such weight is below 10 tonnes. Moreover rate per kg. as given by Mr. Jain in his statement is adopted and used for determining weight of goods as per different invoices, then weight for each invoice is within limit of normal capacity of truck. At p. 2 of NR-2, learned Departmental Representative has described usual procedure to be followed in lease transaction. It is mentioned : "Soon after receipt of rolls, lessee forwards copy of invoice, delivery challan, lorry receipt and installation report to lessor acknowledging receipt of rolls and its installation." learned Authorised Representative of appellant submitted copies of lorry receipts, invoices, delivery challans as obtained from lessee. Original documents should have been available with lessee. If originals are not produced by BSAL or are not found during survey then adverse inference cannot be drawn. In absence of cross-examination appellant was not able to explain as to why transport receipts as produced by KMFL were different from receipts obtained by appellant from lessee i.e.,BSAL. It is to be noted that Shri Dinesh joined two and half year prior to date of recording his statement, i.e., 20th March, 2002. It means Shri Dinesh joined KMFL sometime in September, 1999 and was not aware of transaction between appellant and KMFL. Denial of receipt of sales-tax on hire- purchase transaction is not correct as per documentary evidences filed by appellant. Regarding entry tax, learned Authorised Representative has submitted that rolls were obtained under hire-purchase from KMFL and hence appellant was not legal owner. These were given to BSAL on lease and BSAL has used such rolls. Entry tax is payable on goods entered in local area for consumption, use or sale. appellant has neither consumed nor used rolls. Question of sale of rolls does not arise as appellant is not legal owner. 5.4 It is also fact that life of rolls is around 3 to 5 years. appellant obtained these rolls under hire-purchase and such agreement was for five years. Asset was also leased for five years. appellant was fully aware that asset will be in form of scrap after end of lease period. Under such circumstances, it is not unusual for lessor to have been satisfied regarding receipt of assets by lease by obtaining copies of invoices, delivery challan, transport receipt and installation report particularly when transport receipts contained noting on behalf of lessee that material has been received. It can be safely inferred from sequence of events that appellant neither verified nor made attempts that copies of documents submitted by lessee were incorrect or false. However, when appellant was confronted with fact that such assets were not found during course of survey on premises of BSAL, appellant vide letter dt. 11th Jan., 2002 submitted as under : "We would like to mention lease agreement entered into by assessee is genuine operating lease. assessee would be in position to identify its assets leased out at lessee s place, if required we would also like to mention that number of steel rolling mills leased is about 100 which was in custody of lessee." However, AO did not make any verification as stock inventory prepared t time of survey indicated that no identification marks were available on steel rolls. When appellant is challenging finding, which has been recorded in his absence at premises of another assessee, then it was obligatory on part of AO to have given opportunity to appellant to prove its contention. During course of appellate proceedings, learned CIT(A) asked for remand report as it was also contended before him that assets can be identified. AO deputed his Inspector. Inspector in presence of Authorised Representative of appellant and director of BSAL verified that 103 rolls with identification mark of appellant are available at premises of BSAL. Even photograph was also enclosed. learned Departmental Representative argued that those markings have been done subsequently. For this conclusion, learned Departmental Representative submitted that as per hire-purchase agreement, such assets should have identification mark of KMFL instead of appellant and appellant committed mistake in putting identification mark of appellant company. This mistake suggests that it was done as after thought. Such argument may look attractive but no evidence furnished in support of such argument. Revenue has not made any effort to establish above argument as fact. What is apparent is real unless proved otherwise. 5.5 KMFL filed suit before Hon ble High Court of Chennai against appellant for recovery of instalments of hire-purchase not paid by appellant. Thereafter compromise was arrived at. Such details were filed before AO along with letter filed on 14th March, 2002. In suit filed, KMFL, attached affidavit of Shri Ramesh, executive of KMFL. In para 7 of plaint, it was submitted as under : "The plaintiff states that thereafter on 29th Sept., 1995, plaintiff disbursed sum of Rs. 1,49,23,582 to one M/s B.H. International, supplier of machinery and first defendant herein also took delivery of machinery from supplier." First defendant is appellant. In para 5 of affidavit of Shri Ramesh, form of delivery of machinery is mentioned. It shows that KMFL recognised that delivery of machinery has been made. 5 . 6 Another important aspect is that Revenue has not allowed deduction of hire-purchase amount. In case, transaction was purely financial transaction, then amount paid as hire-purchase of KMFL was to be allowed as deduction. By not allowing this deduction, Revenue has accepted that assets have been delivered. appellant has not claimed deduction of amount paid under hire-purchase, corresponding to cost of machinery as depreciation has been claimed. Such deduction has not been claimed in subsequent years also. Department in consistence with its finding that depreciation is not to be allowed, should have allowed amount paid under hire-purchase. In case depreciation is not allowed then lease rental in its entirety are not to be taxed. Lease rental in subsequent years offered for tax assessment for asst. yr. 199 7 -98 have become final as no reopening is possible at this moment. Moreover it will be relevant to analyse hire-purchase transaction and lease transaction. Hire-purchase. Appellant obtained funds of Rs. 1,40, 7 5,530 from KMFL and gave deposit of Rs. 45 lakhs. Such deposit was to be adjusted against hire-purchase instalments. appellant paid Rs. 18 lakhs to KMFL towards sales-tax and syndication fee. This amount was capitalised as cost of asset. This sum of Rs. 18 lakhs was also included in amounts to be paid as hire- purchase. Total amount payable under hire-purchase was Rs. 1,95,8 7 ,220. sum of Rs. 18 lakhs included in this payment was liability of appellant towards sales-tax and syndication fee. Hence against sum of Rs. 1,40, 7 5,530 received under hire-purchase for acquiring asset, appellant was to pay Rs. 1, 77 ,8 7 ,220 within period of five years. appellant had option to purchase asset during period of agreement and at end of agreement, such asset, at option of hirer, becomes absolute property of hirer. Lease agreement. For giving asset on lease, appellant paid sum of Rs. 1,49,23,382 to supplier of machinery. As per lease agreement, total sum receivable as lease rental during five years in twenty equal instalments comes to Rs. 1,43,98,280. If it was pure financial transaction then sum receivable as lease rental should have exceeded sum provided as finance. appellant received sum of Rs. 3 7 .5 lakhs as deposit to be adjusted against lease rental. appellant was to receive back asset after lease period. scrap value of asset and lease rental received in five years should have compensated appellant for investment in asset. This shows that lease agreement was for operational lease and it was not financial lease. 5. 7 Moreover Revenue will have to allow amounts paid under hire- purchase, in case it is held that it was financial lease. At present appellant has not claimed such deduction. Rate of tax in case of companies is nearly same. appellant by choosing to lease asset on which 100 per cent depreciation is admissible has not evaded any income but only has postponed tax liability to subsequent years. 5.8 appellant is claiming depreciation on basis of Circular No. 9 of 1943. circular is reproduced hereunder : "The following instructions are issued for dealing with cases in which asset is being acquired under, on what is known as, hire-purchase agreement : (i)In every case of payment purporting to be for hire-purchase, production of agreement under which payment is made should be insisted on. (ii) Where effect of agreement is that ownership of subject is at once transferred to lessee( e.g.,where lessor obtains right to sue for arrear instalments but no right to recovery of asset), transaction should be regarded as one of purchase by instalments and no deduction in respect of hire should be made. Depreciation should be allowed to lessee on entire purchase price as per agreement. (iii)Where terms of agreement provide that equipment shall eventually become property of hirer or confer on hirer option to purchase equipment, transaction should be regarded as one of hire- purchase. In such cases periodical payments made by hirer should for tax purposes be regarded as made up of : (a)Consideration for hire, to be allowed as deduction in assessment; and (b)Payment on account of purchase, to be treated as capital outlay, depreciation being allowed to lessee on initial value( i.e.,the amount for which hired subject would have been sold for cash at date of agreement.) allowance to be made in respect of hire should be difference between aggregate amount of periodical payments under initial value (as described above), amount of this allowance being spread over terms o f agreement. If, however, agreement were terminated either by outright purchase of equipment or its return to owner deduction should cease as from date of termination. assessee claiming this deduction should be asked to furnish certificate from vendor or other satisfactory evidence, of initial value (as described above). Where, no certificate of satisfactory evidence is forthcoming initial value should be arrived at by computing present value of amount payable under agreement at appropriate rate per annum. In doubtful cases facts should be reported to Board." From above circular it is clear that assessee should either be allowed depreciation by treating asset as purchased and no deduction on account of hire-purchase instalment. In such case, allowance to be made i n respect of hire-purchase should be difference between aggregate amount of chargeable payments and initial value. In instant case appellant has claimed deduction on account of difference between aggregate amount of periodical payments and initial value in subsequent years. Such deductions (are) claimed to have been allowed by Department in subsequent year. Moreover in year under reference, Department has not allowed deduction in respect of hire-purchase amount paid during year. Revenue cannot blow hot and cold, it will have to take stand consistent with stand adopted in subsequent assessment years. 5.9 During course of proceedings before us, learned Authorised Representative also filed copy of certificate which was filed before learned CIT(A) .The same is reproduced for ready reference : To Whom It May Concern Sub : Physical Verification (of) M.S. Rolls leased out to M/s Bellary Steels & Alloys Ltd. We have visited Bellary Steels & Alloys Ltd. for physical verification of MS rolls leased out by MAA Communications Ltd. We have carried out physical verification at 11 a.m. on 14th December, 2004, verification has been carried out in presence of income-tax officials and officials of Bellary Steel & Alloys Ltd. On verification it has been identified and proved existence of 103 rolls/assets leased out to Bellary Steels & Alloys Ltd.. Thanking you, Yours faithfully, For Bellary Steels & Alloys Ltd. Sd/xxx For MAA Communication Bozell Ltd. Sd/- xxx B.P. Ravishankar, Director Authorised Signatory From above certificate it is clear that appellant as well as BSAL have admitted that leased assets are lying at premises of lessee. This admission is only on basis of physical inspection of asset as done in presence of Inspector of Department. certificate, therefore, evidence to show that assets leased are available at premises of lessee and depreciation cannot be disallowed on ground that such assets were not found at time of survey. stock inventory was prepared at back of assessee and assessee contended before AO that assets are available. Hence, it is held that depreciation on such leased assets identified at premises of BSAL will be considered as assets of appellant for depreciation and on such assets depreciation may not be allowable to BSAL. 6 . 1 Kapurchand Shrimal vs. CIT (supra) In this case AO made assessment in case of HUF without holding enquiry into validity of claim of Hindu family that partition has taken place among members of family. following was question of law which was referred to Andhra Pradesh High Court : "Whether on facts and in circumstances of case, assessments made by ITO on HUF of Shri Kapoorchand Shrimal for years under reference without passing order under s. 25A was valid." Hon ble Supreme Court observed at p. 461 that question referred by Tribunal to High Court does not appear to be comprehensive enough to decide matter satisfactorily. question made has to be read as including further question regarding nature of orders to be passed by Tribunal if orders of assessments are held to be contrary to law. In light of above, order of assessment made by AO was set aside and Tribunal was asked to direct AO to make fresh assessment in accordance with law. In instant case, there is no occasion to decide that assessment has been made contrary to provisions of law but are concerned only with appreciation of evidences. Hence, this case law is not applicable. 6.2 Digvijay Chemicals Ltd. vs. Asstt. CIT (supra) In this case, learned Allahabad High Court has held that it is not necessary that there must be always cross-examination of witness before discarding his evidence. In this case certain unexplained investments were detected from loose sheets found during course of search and such investments were not disclosed in books of account. Affidavits, etc. filed by assessee were not found acceptable. However, in instant case, copies of statements recorded by Investigation Wing before start of assessment proceedings were not provided to assessee. These have been filed before Tribunal for first time. Moreover there is evidence that assets under reference have been found during inspection and this statement of fact was stated by appellant. AO in his own wisdom does not try to verify this contention. Inventory of stock found at premises of BSAL against back of assessee cannot be conclusive evidence in view of assertion of appellant that such assets are still available in business premises of BSAL. 6.3 CIT vs. Rayala Corpn. (P) Ltd. (supra) In this case reassessment notice was issued to assessee. assessee ignored notice, information as desired by AO was not furnished. AO, therefore, concluded best judgment assessment. Tribunal took evidences brought in first instance before it by way of affidavits on behalf of assessee and entertained arguments on behalf of assessee that there were some materials before AO and affidavit filed by M.R. Pratap in asst. yr. 1965-66 which was not considered by ITO. In light of above facts, matter was set aside. learned High Court remitted matter back to Tribunal for consideration of matter in all aspects strictly in accordance with law and for decision whether ITO has committed any error in his best judgment assessment by relying upon material that were available to him and drawing inference from such material. This case is of no help to Revenue, by implication it means Revenue cannot rely on evidences placed before Tribunal for first time. 6 . 4 Tribhovandas Vithaldas vs. CIT (supra) assessee claimed that there was partial partition in HUF and subsequently firm was formed with members of HUF as partners. AO rejected claim of partial partition and gave finding that funds received from partial partition were invested in firm as capital. assessee contended that amount received on partition was invested and capital contribution in firm was made by raising loans from creditors. AO was of opinion that such creditors were not men of means. appellate authority was of opinion that assumption by AO of net income of lenders was conservative as he had estimated household and other agricultural expenses at higher rate. amount borrowed were repaid in subsequent years. appellate authority asserted that borrowings were made for investment in firm. Tribunal while deciding appeal observed that it is not concerned with fact whether agriculturists who were said to have advanced money were capable of advancing amounts or not. Under these circumstances, learned Gujarat High Court held that Tribunal has simplified problem and has not considered rival contention on merits. In this case Tribunal was directed to rehear appeal and decide same as per law. There is no dispute to finding of High Court that rival contentions are to be considered and finding is to be recorded. 6.5 Cochin Plantations Ltd. vs. State of Kerala (199 7 ) 140 CTR (Ker) 1 7 8 : (199 7 ) 22 7 ITR 38 (Ker) In this case assessment was completed on 3rd Nov., 19 7 6 but order was communicated to assessee on 4th Dec., 19 7 6. In meanwhile, on 5th Nov., 19 7 6, assessee filed return of income. On receipt of assessment order assessee filed application under s. 19 of Agrl. IT Act, 1950 for cancelling assessment and to pass fresh assessment order on basis of return filed. On appeal, Tribunal has taken view that assessee has filed application under s. 19 and therefore matter cannot be considered on merits. learned High Court held that assessee filed its return month before assessment order was served on it. assessment order becomes effective only when it is issued from office of assessing authority. learned High Court, therefore, directed, application under s. 19 should be allowed and fresh opportunity should be given. This case law is of no help to Revenue as in instant case appellant is not asking for fresh opportunity before AO. 6 . 6 CIT vs. H.H. Maharani Sethu Parvathi Bayi (supra) In this case assessee transferred 4000 shares of company by way of share capital to firm in which he was partner. Tribunal upheld levy of capital gains on transfer of such shares. In view of Supreme Court judgment in case ofSunil Siddharthbhai vs.CIT(1985) 49 CTR (SC) 1 7 2 : (1985) 156 ITR 509 (SC), assessee filed application and that application was allowed as according to judgment of Supreme Court, no capital gain was liable. Revenue filed application against order of Tribunal videwhich it recalled its earlier order. In application, Revenue gave facts which suggested that shares were transferred to evade tax on capital gain as real person receiving share subsequently was not firm. Such petition was rejected. learned High Court held that such rejection was not justified. For coming to such conclusion, learned High Court relied on paras q u o t e d in judgment of Supreme Court in case ofSunil Siddharthbhai (supra)where it was held that no capital gain is taxable on in case firm is genuine and transaction is not sham or unreal transaction. There should be genuine intention to contribute to share capital of firm. In light of observation made by Supreme Court in its judgment, Kerala High Court held that Tribunal has not rightly rejected petition. facts of instant case are different from facts in case referred to above. 6. 7 Sumati Dayal vs. CIT (supra) In this case substantial amounts were credited in books of assessee and it was claimed that these amounts were received through winning horse racing in two consecutive accounting years. Settlement Commission rejected contention of assessee. knowledge of racing of assessee was very meagre. assessee won jackpot in single day at three different centres. This was contrary to statistical theory and experience of frequencies and probabilities. There were no drawings on race days for purchase of jackpot combination tickets. In subsequent years when winning from horse races became taxable, no winning from horse races were shown. In view of above findings of Settlement Commission, learned Supreme Court held that conclusion of Settlement Commission is correct as it has been arrived after applying test of human probabilities. In instant case, leased asset has been found at premises of BSAL by Revenue. Revenue is alleging that identification marks have been subsequently put. However, no evidence collected in support of such allegation. It is not uncommon that sometimes purchases are made from party while bills are received from other party. total amount receivable under lease agreement is less than amount advanced for purchase of asset. human probabilities are in favour of assessee as this can happen only in operational lease because assessee will get back his asset. In case it was financial lease then total amount receivable should be more than amount advanced for acquiring asset. 6.8 CIT vs. Daulat Ram Rawatmull (supra) In this case fixed deposits were issued by Jamnagar branch of bank on basis of amounts received in Calcutta. These were in name of sons of partners of partnership firm. partnership firm had overdraft account against collateral security of above referred two fixed deposits. question was as to whether fixed deposits could be taxed in hands of firm. Tribunal noticed that explanation with regard to source of deposit in personal assessment was found to be incorrect. Amounts were tendered at Calcutta, place where firm was doing business. deposits were offered as collateral security. learned High Court held that there is no nexus found between facts found and conclusions drawn. Supreme Court also upheld finding. learned Supreme Court observed that there should be some direct nexus between conclusion of fact arrived at and primary facts upon which such conclusion taken place. In instant case appellant as well as Revenue are arguing that original documents relating to transportation of assets, delivery order, etc. were to be available with lessee i.e.,BSAL. appellant has relied on copies of documents provided by lessee and submitted during course of proceedings that such assets can be verified. These primary facts are to be considered for arriving at conclusion. 6.9 Dhansiram Aggarwalla vs. CIT (supra) learned Gauhati High Court held that if explanation of assessee is accepted in earlier year then same explanation cannot be rejected in subsequent years as rule of consistency does apply to income-tax proceedings. Revenue has taxed lease rentals in subsequent years. In case Revenue holds that it was only financial lease, then interest component (of) lease rentals should have been taxed in subsequent years. 6.10 CIT vs. Raja Ginning Udyog (2004) 189 CTR (MP) 59 : (2004) 268 ITR 383 (MP) In this case some enquiry was conducted by AO on his own and he has not asked assessee to produce farmers who have accepted payments made to them with regard to cotton purchased by assessee. assessee was asked to produce farmers for first time on 4th Jan., 1993 i.e.,about three months before passing of final order. Since farmers were busy during this period, they could not be produced and no further opportunity in this regard was given. finding has been recorded in enquiry that was conducted by AO behind back of assessee. This violated t h e principle of natural justice. CIT(A) and Tribunal both found procedures adopted by AO as erroneous and against law. learned High Court held that above finding is finding of fact and does not give rise to substantial question of law. 6.11 CIT vs. Bharat Enterprises (2004) 190 CTR (Del) 259 : (2004) 269 ITR 140 (Del) In this case statement of some of persons raised doubt about correctness of accounts of assessee. But in view of apparent contradictions in these statements vis-a-vis their cross-examination, these were not sufficient to call for rejection of accounts of assessee. Learned Delhi High Court held that no substantial question of law arises. 6.12 learned Punjab and Haryana High Court in case ofCIT vs. Fazilka Co-operative Sugar Mills Ltd. (2002) 1 77 CTR (P&H) 255 : (2002) 255 ITR 411 (P&H)has to consider addition made for bogus purchases in case sales have been accepted and closing stock is accepted as opening stock of next year. learned High Court held as under : "Even no addition can be made for bogus purchase if sales have been accepted and closing stock is accepted as opening stock of next year. In this r e s p e c t observation in case ofFazilka Co-operative Sugar Mills Ltd.(supra)may be referred where it has been held : It has been further found that despite having made addition of more than Rs. 7 lakhs in value of stock-in-hand, no corresponding benefit was given by Revenue to assessee for asst. yr. 1992-93. This factual position has not been disputed. However, it has been contended that assessee having not claimed benefit, it was not entitled to make grievance on that account. We think that plea is untenable. If assessee had claimed benefit, Revenue would have contended before Tribunal that assessee has accepted addition. Otherwise, Revenue does not give benefit. So, it wants best of both sides. Still further, it appears to us that Revenue is only trying to fiddle with figures. In fact, addition to value of stock-in-hand has not resulted in any loss to Revenue. value which has been shown by assessee has been carried forward to next year. Thus, there is no loss of tax so far as Revenue is concerned. In instant case lease rentals as shown by appellant have been accepted for taxation, no deduction on account of hire-purchase has been allowed in subsequent year. In case transaction is to be held as financial transaction then lease rental will not be taxable. No interest component is involved in lease rentals as amount receivable is less than amount advanced for acquisition of asset. It is therefore clear that there is no loss of tax so far as Revenue is concerned. 7 . Considering facts that original documents of delivery, transportation, etc. were available with BSAL, statements recorded from various persons to show that transaction of acquisition of MS Rolls was not genuine were recorded before assessment proceedings and not made available to appellant, assertion of appellant before AO that such leased assets can be identified at premises of BSAL, aggregate of lease rental being less than amount advanced for acquiring asset, taxing of lease rental in subsequent years and not allowing deduction of hire charges and position of law as discussed above, it is held that appellant is entitled to depreciation on assets at 100 per cent of value so leased. 8 . next grievance of appellant is that alternatively learned CIT(A) should have allowed explanation of Rs. 18 lakhs representing finance charges and sales-tax on hire-purchase. This ground of appeal becomes infructuous as it is held that appellant is entitled to depreciation on value of asset capitalised. capitalised value includes sum of Rs. 18 lakhs. In result, appeal is partly allowed. *** MAA COMMUNICATION BOZELL LTD. v. DEPUTY COMMISSIONER OF INCOME TAX