2016 (10) TMI 5 - AT - Income Tax

Penalty under Section 271(1)(c) - disallowance of depreciation in respect of assets given under finance lease by treating the lease transaction as finance transaction - Held that - As decided in assessee s own case for the instant assessment year 2002-03 under appeal by holding that the assessee is entitled to claim depreciation in respect of assets given under sale and lease back basis The AO was directed to withdraw the corresponding benefit given to the assessee by excluding the value of capital component of the lease rent from the income of the assessee. The Tribunal has in the assessee s own case has also allowed the assessee s claim of depreciation in respect of assets given under sale and lease back basis for the assessment years 1995-96 to 1999-00 following the judgment of Hon ble Supreme Court in the case of ICDS Limited v. CIT (2013 (1) TMI 344 - SUPREME COURT ) and the AO was directed to withdraw the corresponding benefit given to the assessee by excluding the value of capital component of the lease rent from the income of the assessee. The Tribunal has also allowed the afore-stated relief for assessment year 2000-01 to 2003-04 in assessee s own case The Tribunal has also deleted the penalty levied by the AO and as sustained by learned CIT(A) on the disallowance of the assessee s claim of depreciation in respect of assets given under sale and lease back basis for the assessment years 1995-96 to 1999-00 . Under the above circumstances, we are of the considered view that the penalty levied by the AO and as confirmed/sustained by the learned CIT(A) on the disallowance of the assessee s claim of depreciation in respect of assets given under sale and lease back basis for the instant assessment year 2002-03 cannot survive as quantum additions itself had already been deleted by the Tribunal as set out above and hence we order deletion of penalty levied u/s 271(1)(c) of the Act by the AO and as confirmed/sustained by the learned CIT(A). - Decided in favour of assessee.

Summary

Issues involved:
1. Disallowance of depreciation in finance lease transactions.
2. Calculation of penalty under Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:
1. Disallowance of depreciation in finance lease transactions:
The appeal was filed by the assessee company against the appellate order upholding the penalty under Section 271(1)(c) of the Income Tax Act, 1961 related to the disallowance of depreciation in respect of assets given under finance lease. The AO disallowed the claim of depreciation on assets on a 'sale and lease back' basis. The assessee claimed depreciation on assets amounting to ?30,29,07,166, which included depreciation on assets from various lease transactions. The AO observed that the lease transactions were considered financial transactions in previous years, leading to disallowance of depreciation. The CIT(A) confirmed the disallowance, and penalty proceedings were initiated against the assessee for furnishing inaccurate particulars of income. The AO levied a penalty of ?2,15,25,626, which was confirmed by the CIT(A). However, the CIT(A directed the AO to recompute the penalty amount based on the inaccurate particulars of income furnished by the assessee.

2. Calculation of penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The Tribunal, in the assessee's own case, decided in favor of the assessee regarding the claim of depreciation on assets given under a 'sale and lease back' basis for various assessment years. The Tribunal held that the assessee was entitled to claim depreciation in such cases. Consequently, the Tribunal directed the AO to withdraw the benefit given to the assessee by excluding the value of the capital component of the lease rent from the income. The Tribunal also allowed the claim of depreciation for other assessment years and deleted the penalties levied by the AO and confirmed by the CIT(A) for disallowance of depreciation. Considering these decisions, the Tribunal in the present case ordered the deletion of the penalty levied under Section 271(1)(c) of the Act as the quantum additions had already been deleted by the Tribunal in the assessee's favor.

In conclusion, the Tribunal allowed the assessee's appeal, directing the deletion of the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961, for the disallowance of depreciation in finance lease transactions, based on the favorable decisions in the assessee's own case regarding similar issues.