2015 (5) TMI 1068 - AT - Income Tax

Depreciation on assets given under sale and lease back basis - Held that - As in assessee s own case for earlier assessment years i.e. A.Ys.1995-96 to 1999-2000 wherein the Tribunal directed the Assessing Officer to allow claim of depreciation on the assets given under sale and lease back basis and the Assessing Officer was also directed to withdraw any corresponding benefit given to the assessee by excluding the value of capital component of the lease rent from the income of the assessee. In arriving at such conclusion the ITAT, in the following orders, followed the decision of Hon ble Apex Court in the case of I.C.D.S. Ltd. 2013 (1) TMI 344 - SUPREME COURT Disallowable u/s. 14A - Held that - As in the case of Godrej Boyce Manufacturing Co. (2010 (8) TMI 77 - BOMBAY HIGH COURT) wherein it was held that Rule 8D is prospective in operation and hence disallowance, if any, has to be made in accordance with section 14A of the Income Tax Act and the tax authorities ought to have verified the reasonableness of interest referable to exempt income. Thus we hereby set aside the order of learned CIT(A) and restore the matter back to the file of the Assessing Officer with a direction to the Assessing Officer to re-examine the matter in the light of the provisions of section 14A of the Act.

Summary

Issues:
1. Disallowance of depreciation on assets given under finance lease.
2. Disallowance of depreciation on assets given under sale and lease back basis.
3. Taxability of notional gain arising from securitization of lease receivables.
4. Disallowance under section 14A of the Income Tax Act.

Analysis:
1. Disallowance of Depreciation on Finance Lease Assets:
- The appellant, a finance company, claimed depreciation on leased assets. The Assessing Officer treated the lease transactions as finance transactions, denying depreciation. The CIT(A) affirmed this decision. The appellant argued ownership of assets entitled them to depreciation. The ITAT, following previous decisions, allowed the depreciation claim and directed withdrawal of corresponding benefits.

2. Disallowance of Depreciation on Sale and Lease Back Assets:
- The appellant claimed depreciation on assets given under sale and lease back basis. The Assessing Officer considered these as finance transactions, disallowing depreciation. The CIT(A) upheld this disallowance. The ITAT, in line with previous rulings, allowed depreciation and directed withdrawal of benefits.

3. Taxability of Notional Gain from Securitization:
- The appellant deferred gains from securitization of lease receivables over two years. The CIT(A) treated this gain as revenue, not capital, as it arose from business activities. The ITAT upheld this decision, noting lack of contradictory evidence from the appellant.

4. Disallowance under Section 14A of the Income Tax Act:
- The Assessing Officer disallowed a certain amount under section 14A. The CIT(A) applied Rule 8D based on a Special Bench decision. The appellant cited a High Court ruling that Rule 8D is prospective, not retrospective. The ITAT set aside the CIT(A) order, directing re-examination by the Assessing Officer in line with section 14A.

This judgment allowed depreciation claims on finance lease and sale and lease back assets, upheld taxability of gains from securitization, and directed re-examination of disallowance under section 14A. The ITAT's decision was based on consistency with previous rulings and legal provisions, ensuring fair treatment in tax matters for the appellant.