2013 (5) TMI 131 - AT - Income Tax

Depreciation on leased assets - Regarding Sale lease back - Held that - We are of the opinion that the assessee is entitled for the claim of depreciation under all the three circumstance, i.e. Sale lease back, genuineness of transaction and asset having being put to use. We, therefore, allow ground no. 1 the assessee's appeal and dismiss both the grounds of the department's appeal. Disallowance on account of capital in nature - Held that - we are of the view that getting the SPNS facility is of an enduring nature, with which not only the banks are hooked to each other, but, a great amount of facility is provided to the customers, . With acquiring this facility, so far as the assessee is concerned it is definitely of an enduring nature, for which, we are of the opinion, the assessee bank is entitled to get depreciation - The assessee's appeal is thus partly allowed. Regarding disallowance of stamp duty - Held that - we find that the assessee had added back the expense in its computation. Since the amount has already been added back, the revenue authorities erred in making a further disallowance, which has resulted in the double disallowance - set aside the order of the CIT(A) - This ground is allowed. Regarding disallowance for membership - The amount paid towards corporate membership is an expenditure incurred wholly and exclusively for the purposes of business and not towards capital account as it only facilitates smooth and efficient running of a business enterprise - - set aside the order of the CIT(A) on this issue and direct the AO to delete the disallowanc - Appeal was allowed. Regarding disallowance of depreciation claimed premises acquired by the assessee - Held that - It is not disputed that the property was repossessed from tenant after paying it off, and it is for the betterment of title of a capital asset, therefore, the expense has to be held to be of capital in nature we, set aside the order of the CIT(A) on this issue and direct the AO to allow depreciation as per law after verification of the dates of payment for repossession - the tenanted property cannot be held to be used by the assessee for the purposes of its business. Regarding levy of interest u/s 234A - Held that - Placing reliance on the cited cases and the decision of Collector, Land Acquisition vs Mst. Katiji and others, reported in 167 ITR 471, wherein the Hon'ble Supreme Court observes, When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred,........ , the Hon'ble Court further observes, There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of malafides - Set aside the order of the CIT(A) on this issue and direct the AO to cancel the interest - Appeal is filed by the assessee is partly allowed - Appeal filed by the department is dismissed.

Issues Involved:

1. Depreciation on leased assets.
2. Depreciation on premises.
3. Disallowance of expenses.
4. Interest tax.
5. Bad debts.
6. Disallowance under Section 14A.
7. Additional evidence and procedural issues.

Issue-wise Detailed Analysis:

1. Depreciation on Leased Assets:

The primary issue revolved around the assessee's claim for depreciation on various assets given on lease. The assessee, a private bank, had claimed depreciation on assets leased under two segments: sale and leaseback (SLB) and normal lease agreements. The AO disallowed the depreciation on grounds that the transactions were either not genuine or the assets were not put to use by the lessees. The CIT(A) upheld the AO's disallowance for SLB transactions but allowed depreciation for other transactions, which was contested by the department. The Tribunal, referencing the Delhi High Court's decision in Cosmo Films Ltd., concluded that SLB transactions are genuine and allowed the depreciation claim, reversing the AO's disallowance.

2. Depreciation on Premises:

The assessee claimed depreciation on premises acquired for business purposes. The AO disallowed the claim, treating the expenditure as capital in nature. The CIT(A) upheld this disallowance. However, the Tribunal directed the AO to allow depreciation after verifying the dates of payment for repossession, as the property was repossessed for betterment of title, making the expenditure capital in nature.

3. Disallowance of Expenses:

Several expenses were disallowed by the AO, including those for ATM link-up, stamp duty, and corporate membership. The Tribunal upheld the capital nature of the ATM link-up expenses but allowed depreciation. The disallowance of stamp duty was reversed as it resulted in double disallowance. Corporate membership expenses were allowed, following precedents that such expenses facilitate business operations.

4. Interest Tax:

The department's appeals related to the levy of interest tax on income from leasing transactions, arguing these were financial transactions. The Tribunal dismissed these appeals, holding that since the assessee was considered the owner of the leased assets, the income could not be treated as interest income for the purpose of interest tax.

5. Bad Debts:

The assessee's claim for bad debts was disallowed by the AO but allowed by the CIT(A), which was contested by the department. The Tribunal upheld the CIT(A)'s decision, noting that the write-off was in accordance with the provisions of law, and the assessee had debited accounts with amounts deemed irrecoverable.

6. Disallowance under Section 14A:

The AO made disallowances under Section 14A for expenses related to exempt income. The CIT(A) and Tribunal found the disallowances excessive and directed the AO to recompute the disallowance, ensuring it was reasonable and based on a proper examination of the assessee's accounts.

7. Additional Evidence and Procedural Issues:

The department argued procedural lapses, such as the CIT(A) not allowing the AO to access certain reports. The Tribunal found no violation of natural justice, noting the AO's involvement in the proceedings before the CIT(A). The Tribunal also addressed issues related to the validity of returns and the levy of interest under Section 234A, ruling in favor of the assessee where procedural defects were curable and did not justify additional levies.

Conclusion:

The Tribunal's consolidated order addressed multiple appeals and cross-appeals, providing a detailed examination of each issue. The decisions largely favored the assessee, allowing claims for depreciation on leased assets, reversing excessive disallowances, and ensuring procedural fairness. The department's appeals on interest tax and procedural grounds were dismissed, affirming the CIT(A)'s findings and the assessee's compliance with legal provisions.

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