2020 (4) TMI 662 - AT - Income Tax

Revision u/s 263 - depreciation on the opening written down value ('WDV') of the block of assets leased out under finance lease arrangement, pursuant to allowance of depreciation on the same block of assets for prior years - HELD THAT - It is noted by the AO that on account of substantial part of the lease transactions conducted by the assessee being claimed as finance lease on which the lessee is claiming depreciation under the Companies Act instead of lessor claiming the depreciation. This fact was very much in the order of assessment that the assessee is claiming depreciation on assets leased out by it under finance lease and after making enquiry, the said depreciation was allowed by the AO in the Assessment Order and hence, the issue involved in the present year is squarely covered by the Tribunal order in assessee s own case for earlier Assessment Year i.e. 2008-09 in which it was held by the Tribunal that the Assessment Order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue as the finance lease transaction has been thoroughly examined by the AO in the light of evidence filed by the assessee. Revenue could not point out any difference in the facts in that year and in the present year therefore,in the present year also, the Assessment Order is neither erroneous nor prejudicial to the interest of the Revenue and hence, learned PCIT had no jurisdiction to revise the said Assessment Order under section 263 - Decided against revenue

Summary

Issues:
1. Validity of initiating proceedings under section 263 of the Act by the PCIT.
2. Consideration of submissions made by the Appellant by the PCIT.
3. Eligibility of lessor to claim depreciation under the Act.
4. Allowance of depreciation on the opening written down value of assets.

Issue 1: The main issue in this case was the validity of initiating proceedings under section 263 of the Act by the Principal Commissioner of Income Tax (PCIT). The PCIT had set aside the completed assessment and directed the Assessing Officer to reframe the assessment, citing errors in allowing depreciation and ownership consideration of assets. The PCIT argued that the assessment order was passed without proper enquiry regarding the eligibility of depreciation and ownership status of the assets. However, the Tribunal noted that the AO had indeed made inquiries and allowed depreciation after due consideration. The Tribunal found that the Assessment Order was not erroneous or prejudicial to the interest of the Revenue, as the AO had thoroughly examined the finance lease transaction based on evidence provided by the assessee.

Issue 2: Another issue raised was the consideration of submissions made by the Appellant by the PCIT. The Appellant contended that the PCIT erred in not considering their submissions and setting aside the completed assessment without proper justification. The Appellant also highlighted the decision of the Hon'ble Supreme Court in a relevant case, emphasizing the importance of judicial discipline. However, the Tribunal found that the PCIT's decision to set aside the assessment was not justified, as the AO had appropriately examined the allowability of depreciation and ownership of assets, rendering the PCIT's actions unwarranted.

Issue 3: The eligibility of the lessor to claim depreciation under the Act was also a significant issue in this case. The PCIT questioned the lessor's eligibility to claim depreciation on networking equipment leased out under a finance lease arrangement. However, the Tribunal observed that the AO had already applied his mind on the allowability of depreciation and had allowed it after due consideration. The Tribunal held that the lessor was eligible to claim depreciation under the Act, and the PCIT's doubts in this regard were unfounded.

Issue 4: Lastly, the allowance of depreciation on the opening written down value of assets leased out under a finance lease arrangement was raised as an issue. The PCIT had questioned the depreciation allowance on the opening written down value of assets, particularly concerning prior years' depreciation claims. The Tribunal noted that the AO had correctly allowed depreciation on the assets leased out under the finance lease arrangement, and the PCIT's objections on this matter were unfounded. The Tribunal ultimately allowed the appeal of the assessee, setting aside the PCIT's order and restoring the Assessment Order passed by the AO under section 143(3) of the IT Act, 1961.