TMI Blog2013 (11) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... loan from the lessor to the lessee. In an operating lease, the lessor bears the risk of loss, the period is cancellable and lease rentals are not synchronized with the economic life of the asset. The assessee company claimed the lease rental by treating the said transaction as operating lease - However, in the assessment framed u/s 143(3), the AO disallowed the claim of impugned lease rental as he found the transaction was for the purpose of purchase of railway wagon by the assessee and assessee was the owner of the same by concluding the transaction as financial lease. Parial Disallowance of Interest – Held that:- Disallowance of proportionate interest cannot be made if the interest free advances have been made to the sister concerns for commercial expediency. Since in the instant case the assessee has conclusively proved that the amount has been paid to subsidiary companies for the purpose of business and no part of the amount of advance has been utilized by the Directors for their personal purpose and the entire amount has been utilized for the purpose of business, therefore, no proportionate disallowance of interest – Following the judgement of Taurian Iron and Steel Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting lease. However, in the assessment framed u/s 143(3), the AO disallowed the claim of impugned lease rental of Rs.8,88,45,834/- as he found the transaction was for the purpose of purchase of railway wagon by the assessee and assessee was the owner of the same by concluding the transaction as financial lease. 2.2 On appeal, the Ld.CIT(A) while confirming the disallowance, directed the AO to verify the amount of loan and the amounts of interest payment made on such loan towards the purchase of railway wagons through financial lease method and to allow the claim of interest payment accordingly as the same is allowable u/s 36(1)(iii) of the Act in view of the fact that the railway wagons were used for the purpose of business and the interest expenditure towards financing the purchase. The Ld.CIT(A) further directed the AO to verify the rate amount of depreciation on the asset and allow the same since the assessee is entitled to claim the depreciation u/s 32(1). 2.3 Aggrieved by the impugned decision, the assessee has raised Ground 1 challenging the decision of the Ld.CIT(A) confirming the disallowance made by the AO in the assessment. The Revenue raised Grounds no 1 2 which ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the paper book clearly establishes that the true nature of transaction of assessee is that of finance lease and it is the owner of the railway wagons as the total payment to be made in 25 months and security deposit given which approximately equal to the cost of wagons. Also, the appellant has the option to buy the wagons results in the presumption that the payment made by appellant in installments is towards purchase the railway wagons. In view of the fact that it is a case of payment of installment/EMI and not of lease rent payment, the lessor s ownership is only nominal symbolic. Thus the facts clearly establishe that the impugned transaction of the assessee is only a financial lease and not that of operation lease as set out in the judgement of the Hon ble Supreme Court in the cases of Asea Brown Boveri vs. IFCI Association of Leasing Financial Services Companies v. UOI. It is needless to emphasis that the Special Bench of the Mumbai ITAT in the case of Indusind Bank Ltd Vs ACIT (135 ITD 165 MUM) has concluded that the guiding principles laid down by the Supreme Court in the Asea Brown Boveri case for characterising a particular lease transaction as finance or op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to sister concerns and directors is challenged and also the Revenue has taken the ground that the verification of data amounts to set aside of the order and this power is not available with CIT(A). 3.1 The relevant facts are that during the previous year relevant to the assessment year under consideration, the assessee company had given advances (interest free) of Rs.61,68,842/- to its sister concern Rs.5,86,70,000/- to directors. However, in the assessment framed, the AO had computed the disallowance u/s. 36(1) (iii) on account of interest free loan to director and sister concerns @ 10.75% on total amount outstanding at the end of the year which amounted to Rs.69,70,175/- and disallowed the same. 3.2 On appeal, the Ld.CIT(A) directed the AO to verify the specific borrowings for specific purpose and also the details of loan given to directors and sister concern on various dates and reduce the disallowance by excluding the interest on specific borrowings and disallowed the interest in the ratio of own fund and such borrowed fund. This, the Ld.CIT(A) held in view of the alternate claim of the assessee that proportionate disallowance of interest should be calculated exclud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the decision of Hon'ble Supreme Court in the case of S.A. Builders (supra) according to which disallowance of proportionate interest cannot be made if the interest free advances have been made to the sister concerns for commercial expediency. Since in the instant case the assessee has conclusively proved that the amount has been paid to subsidiary companies for the purpose of business and no part of the amount of advance has been utilized by the Directors for their personal purpose and the entire amount has been utilized for the purpose of business, therefore, no proportionate disallowance of interest, in our opinion, can be made in the instant case. The various decisions of the tribunal relied on by the ld. counsel for the assessee also support the case of the assessee. In this view of the matter we set aside the order of the ld. CIT(A) and direct the A.O. to delete the disallowance of Rs. 12,46,272/-". Following the said decision of the co-ordinate Bench of the ITAT as the similar facts and issues are involved, we set aside the order of the Ld.CIT on this issue and direct the AO to delete the disallowance of Rs.69,70,175/-. Accordingly, Ground no 2 in the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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