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Issues Involved:
1. Deletion of depreciation on leased assets. 2. Validity of proceedings under section 147 of the Act. 3. Validity of assessment due to issuance of notice under section 143(2) after the expiry period. 4. Alternative plea for taxing only the interest component in lease rent. Issue-wise Analysis: 1. Deletion of Depreciation on Leased Assets: The primary issue in the revenue's appeal was the deletion of depreciation of Rs. 6,26,263 on leased assets. The revenue contended that the lease transactions were finance leases, not operating leases, and thus, depreciation should not be allowed. The assessee, a company engaged in leasing assets, had entered into a purchase and lease-back transaction with M/s. Salem Textiles Ltd. The Assessing Officer (AO) concluded that the transaction was not genuine, as it was simply a means of providing finance without actual transfer of ownership or movement of machinery. The AO relied on various legal precedents and accounting standards to categorize the transaction as a finance lease, thereby disallowing the depreciation claim. However, the CIT (Appeals) allowed the depreciation claim, considering the transaction genuine based on the existence and use of assets, payment of purchase price, and duly executed lease agreements. 2. Validity of Proceedings Under Section 147 of the Act: The assessee objected to the validity of the proceedings under section 147, arguing that the notice under section 148 was issued without jurisdiction. The CIT (Appeals) upheld the validity of the proceedings, stating that the initiation under section 147 was valid and the provisions of section 143(2) were not applicable to cases covered by section 147. The Tribunal agreed with the CIT (Appeals), confirming the validity of the reassessment proceedings. 3. Validity of Assessment Due to Issuance of Notice Under Section 143(2) After the Expiry Period: The assessee also objected to the assessment's validity, as the notice under section 143(2) was issued after the expiry of 12 months from the end of the month in which the return was furnished in response to notice under section 148. The CIT (Appeals) held that the provisions of section 143(2) were not applicable to cases covered by section 147. The Tribunal upheld this view, stating that the amendment to section 148 by the Finance Act, 2006, validated the service of notice under section 143(2) even after the expiry period, provided it was within the time limit for making the assessment. 4. Alternative Plea for Taxing Only the Interest Component in Lease Rent: The assessee argued that if depreciation was not allowed, only the interest component in the lease rent should be taxed. The AO rejected this plea, stating that the issue was not finally settled and the lease income offered by the assessee could not be split at that stage. The Tribunal, having confirmed the genuineness of the transaction and the allowance of depreciation, found no necessity to consider this alternative plea. Conclusion: The Tribunal upheld the CIT (Appeals)'s order allowing the assessee's claim of depreciation, confirming the genuineness of the purchase and lease-back transaction. The Tribunal also dismissed the revenue's appeal and the assessee's cross-objection, affirming the validity of the reassessment proceedings and the assessment order.
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