2012 (11) TMI 142 - AT - Income Tax

Disallowance of depreciation on the leased assets - Finance lease vs Operating lease - Held that - As it appears that the assessee is not interested in pursuing the appeal. It has been held by the Hon ble Supreme Court in the case of B.N. Bhattachargee and Anr. (1979 (5) TMI 4 - SUPREME COURT) that appeal does not mean only filing of memo of appeal but also pursuing it effectively. In cases where the assessee does not want to pursue the appeal, Court/Tribunal have inherent power to dismiss the appeal for non prosecution - against assessee. It is not a case of operating lease and hence no granting of depreciation - Held that - As decided in M/s.IndusInd Bank Limited Versus ADCIT 2012 (3) TMI 212 - ITAT MUMBAI Only the lessee can be treated as owner of the asset in case of a finance lease and is entitled to claim depreciation as per law. No depreciation can be allowed to the lessor in case of a genuine finance lease - Finance lease is for a fixed period & non-cancellable. Lessee uses the asset for its entire economic life & all risks and rewards incidental to ownership are transferred to the lessee even though title may or may not be eventually transferred to him. There is a fixed obligation on the lessee for payment of lease money. As no distinguishing feature brought on record, it is fair and reasonable that the matter should go back to the file of the A.O. to decided afresh - in favour of revenue by way of remand.

Summary

Issues:
1. Disallowance of depreciation on equipment leased to a company.
2. Disallowance of depreciation on leased assets under leasing transactions.

Detailed Analysis:
1. The judgment involves cross-appeals by the assessee and the Revenue against the order passed by the CIT(A) for the assessment year 1995-96. The original assessment was completed, assessing the income at a different amount than the loss returned by the assessee. The A.O. disallowed depreciation, leading to an income assessment. The CIT(A) partly allowed the appeal, leading to both parties appealing to the ITAT Mumbai.
2. The assessee's appeal focused on the disallowance of depreciation on equipment leased to a company and the levy of interest under specific sections of the Income Tax Act. However, as the assessee did not actively pursue the appeal, it was dismissed as unadmitted by the ITAT Mumbai, citing relevant legal precedents.
3. The Revenue's appeal centered around the disallowance of depreciation on leased assets under leasing transactions. The A.O. deemed these transactions as sham and devoid of commercial reality, disallowing the claimed depreciation. The CIT(A) found the lessees genuine but restricted the disallowance due to overvaluation of equipment.
4. The ITAT Mumbai, after considering submissions and legal precedents, found merit in the Revenue's plea. Referring to a Special Bench decision and a Supreme Court judgment, the ITAT concluded that the issue was covered, and the matter should be remanded to the A.O. for fresh consideration in light of the legal principles cited. Consequently, the Revenue's appeal was partly allowed for statistical purposes, while the assessee's appeal was dismissed.

This detailed analysis showcases the legal intricacies and reasoning behind the ITAT Mumbai's judgment on the issues raised in the cross-appeals, providing a comprehensive overview of the case's background, arguments presented, and the final decision rendered by the tribunal.