2023 (5) TMI 1237 - AT - Income Tax

Excess claim of Depreciation - appellant had claimed depreciation on assets under Finance Lease - Scope of AS-19 issued by the ICAI - determination of ownership of asset - CIT-A deleted the addition - HELD THAT - We find that the Ld. CIT(A) has duly taken the note that after issuance of AS-19 issued by the ICAI the CBDT vide Circular No. 2/2001 dated 9 February 2011 has clarified that capitalization of assets acquired under the finance lease by the lessees in their books of account will not have any bearing on the allowance of depreciation on those assets u/s 32 of the Income Tax Act and also states that the ownership of the asset is determined by the terms of contract between the lessor and the lessee. As per the above circular the owner is entitled to depreciation whether he is lessee or lessor depending upon the terms of the contract. CIT(A) taken the note of case of ICDS Ltd. 2013 (1) TMI 344 - SUPREME COURT wherein as reaffirmed the position that in a leasing transaction it is the lessor and not the lessee who is entitled to claim depreciation on the leased assets. Hence the order of the Ld. CIT(A) is in accordance with law - Decided against revenue.

Summary

Issues:
- Excess claim of Depreciation
- Failure to adjudicate the issue of addition made by AO
- Request for fresh grounds of appeal

Excess claim of Depreciation:
The appellant filed its return of income for Assessment Year 2011-12, initially declaring income of Rs. 2,10,99,76,285/- which was later revised to Rs. 2,29,52,07,193/-. During scrutiny, the Assessing Officer (AO) noted an excess claim of depreciation amounting to Rs. 835.52 lakhs. Subsequently, a notice u/s 148 was issued, and the income was assessed at Rs. 2,48,76,97,280/- after disallowance of Rs. 12,65,90,130/- on account of excess claim of depreciation. The AO disallowed the amount based on discrepancies in the depreciation claimed by the appellant, leading to the addition.

Failure to adjudicate the issue of addition made by AO:
The AO disallowed the excess claim of depreciation based on a detailed computation provided by the appellant. However, the Learned Commissioner of Income Tax (Appeals) (CIT(A)) deleted the addition after considering the appellant's submissions. The CIT(A) observed that ownership of assets acquired under finance lease does not impact the allowance of depreciation under Section 32 of the Income Tax Act. Referring to relevant circulars and judicial decisions, the CIT(A) directed the AO to verify the finance lease agreement and allow relief accordingly.

Request for fresh grounds of appeal:
The appellant sought permission to add, delete, or amend any grounds of appeal. However, the focus of the judgment was on the issues of excess claim of depreciation and the ownership of assets under finance lease. The decision to dismiss the Revenue's appeal was based on the legal interpretations regarding depreciation in leasing transactions, as clarified by circulars and judicial precedents.