Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2001 (9) TMI AT This
Issues Involved:
1. Disallowance of depreciation on leased assets. Summary: Issue: Disallowance of Depreciation on Leased Assets The only ground in this appeal filed by the assessee is directed against disallowance of the assessee's claim of depreciation on the leased assets. The assessee purchased one Flameless Continuous Pusher Type Furnace and 733 Compressed Gas Cylinders, leasing them to different companies. The assessee claimed 100% depreciation on these assets u/s 32(1) of the Act. The Assessing Officer (AO) argued that the transactions were in the nature of finance leases and not genuine lease transactions, citing terms in the lease agreements that suggested the assets were held as security for loans. The AO disallowed the depreciation claim and added back certain amounts to the income of the assessee. The assessee appealed, arguing that the transactions were genuine lease agreements entered in the course of regular leasing business, and that all payments were made by account payee cheques. The CIT(A) upheld the AO's decision, stating that the transactions were finance transactions aimed at claiming 100% depreciation and reducing taxable income. The CIT(A) relied on various clauses in the lease agreements and RBI Circulars, concluding that the assessee did not assume the risk of ownership and that the transactions were not genuine leases. Before the Tribunal, the assessee argued that the transactions were transparent and supported by necessary documentation. The assessee referred to CBDT Instruction No. 1978 and Circular No. 2 of 2001, which advised ensuring that depreciation is not disallowed both to the lessor and lessee. The assessee also pointed out that the lessees had certified they did not claim depreciation on the assets. The Tribunal noted that the AO and CIT(A) had made factual inaccuracies and assumptions without proper enquiry. The Tribunal held that the lease agreements did not transfer ownership to the lessees, and the assessee remained the owner of the assets, entitled to depreciation. The Tribunal concluded that the authorities below rejected the assessee's claim of depreciation without proper justification. The Tribunal reversed their orders and directed the AO to allow the assessee depreciation as permissible under rules for the assessment year 1996-97. In the result, this appeal is allowed.
|