2022 (3) TMI 1041 - HC - Income Tax

Depreciation on assets leased merely on the basis that lease agreements - whether the transactions involved in the case are lease or financial arrangement? - HELD THAT - Tribunal was examining the matter in the second round but that itself would not preclude the assessee to place on record the copies of the lease agreements for the examination of the Tribunal notwithstanding certain clauses of the lease agreements extracted by the AO in the assessment order. Assessee instead of furnishing the lease agreement copies has taken a circuitous method of defending its action of having submitted the copies of the lease agreements in the first round of litigation so in the Miscellaneous Petition. In the absence of furnishing the relevant lease agreements the Tribunal had no other option but to give weightage to the finding of the Assessing Officer as recorded in the order impugned. In view of the undertaking given by the learned Senior Counsel appearing for the appellant-assessee that the copies of the lease agreements would be furnished before the Tribunal within a period of four weeks from today which is sine qua non for deciding the issue whether the transactions are lease or financial arrangement we are of the considered opinion that the interest of justice and equity would be met in setting aside the impugned orders and restoring the matters to the file of the Tribunal to provide an opportunity to the appellant-assessee to furnish the lease agreements before the Tribunal. If such lease agreements are furnished before the Tribunal within a period of four weeks from today the Tribunal shall consider the same in accordance with law and shall take a proper decision in an expedite manner after providing an opportunity of hearing to the appellant-assessee. It is needless to observe that all the rights and contentions of the parties are left open to be urged before the Tribunal including the issues raised in the form of substantial questions of law before this Court. After considering all these issues the Tribunal shall pass appropriate orders in accordance with law in an expedite manner. - Decided in favour of assessee.

Issues involved:
1. Appeal against order of Income Tax Appellate Tribunal
2. Denial of deduction of depreciation on leased assets
3. Validity of lease transactions
4. Adjudication of depreciation issue for specific assessment years
5. Dismissal of belated mistake apparent from record
6. Denial of depreciation based on non-payment of excise duty
7. Denial of interest on refund under Section 244A

Analysis:

1. Appeal against order of Income Tax Appellate Tribunal:
The appeals were filed under Section 260A of the Income Tax Act, 1961, challenging the order passed by the Income Tax Appellate Tribunal. The Tribunal held that the transactions were financial in nature, not lease transactions. The appellant, a public limited company engaged in non-banking financial activities, contended that the Tribunal's approach was flawed due to the absence of lease agreements on record.

2. Denial of deduction of depreciation on leased assets:
The primary issue revolved around the denial of depreciation on assets leased by the appellant. The Tribunal rejected the claim based on the absence of lease agreements. The appellant argued that the lease agreements were submitted earlier, and the Tribunal should reconsider the matter based on the clauses of these agreements.

3. Validity of lease transactions:
The Tribunal questioned the validity of the lease transactions, deeming them as sham and perverse. The appellant sought a review, emphasizing that the transactions were genuine lease agreements and not financial arrangements. The Tribunal's decision was based on the absence of lease agreements on record.

4. Adjudication of depreciation issue for specific assessment years:
Specific substantial questions of law were raised for different assessment years regarding the denial of depreciation on leased assets. The appellant contended that the Tribunal erred in dismissing the issue without proper adjudication, especially when specific grounds were raised.

5. Dismissal of belated mistake apparent from record:
The Tribunal dismissed a belated mistake apparent from the record, added through a miscellaneous petition. The appellant argued that the dismissal was unjustified, as the mistake was acknowledged and rectified at the earliest opportunity.

6. Denial of depreciation based on non-payment of excise duty:
The Tribunal denied depreciation on assets leased to specific entities due to non-payment of excise duty and partial cost coverage. The appellant challenged this decision, asserting that the excise duty component was not part of the actual cost under the relevant section.

7. Denial of interest on refund under Section 244A:
The Tribunal upheld the denial of the appellant's claim for interest on refund under Section 244A. The appellant contested this decision, questioning the justification for denying the interest claim.

In conclusion, the High Court set aside the impugned orders and directed the appellant to furnish the lease agreements before the Tribunal for further consideration. The Court emphasized the importance of providing all relevant documents for a fair assessment of the transactions. The Tribunal was instructed to reevaluate the matter, considering all arguments and issues raised by the parties, and pass appropriate orders promptly.

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