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TMI Blog2012 (11) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that it had complied with all such observations of the statutory auditors and the same were reflected in the directors’ report in point no.III at page no.8 of the annual accounts of the assessee. On similar facts, the accounts books of the assessee were accepted by the department in the earlier years as well as in the subsequent assessment year 2006- 2007 - AO without bringing any material deficiencies in the books of the accounts to show as to how the appellant’s profit for the relevant period cannot be ascertained correctly on the basis of the books of accounts maintained by wrongly invoking the provisions of section 145(3) - in favour of assessee. Disallowance of depreciation - leased assets - Held that:- the Revenue have not gone into the terms and conditions of the lease agreements entered into by the assessee-company. There is no finding by the AO that these lease were only finance lease and not operating lease - set aside the issue to the file of the AO with direction to decide the issue afresh relying on Asea Brown Boveri Ltd. Versus AFCI [2004 (10) TMI 325 - SUPREME COURT OF INDIA] wherein held that in case of finance lease, it is the lessee who, for all practical pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law and on facts in not examining whether the bad and doubtful debts had been categorized by the assessee within the provisions of Section 43D of the Act, as per the conditions laid down in the Incometax Rules. 3. The learned CIT-DR has relied on the order of the AO. The learned counsel for the assessee submitted that the issue in the grounds of the appeals of the Revenue regarding the addition made on account of non-charging of interest on non-performing advances on accrual basis is covered in favour of the assessee with the decision of the ITAT, Ahmedabad in assessee s own case for the earlier assessment year 2001-2002 in ITA Nos.2909/Ahd/2004 dated 29.4.2009. He submitted that the provision of Section 43D was introduced w.e.f. 1-4-2000 and the said provision was considered by the Tribunal in assessee s case for the earlier assessment year 2001- 2002. 4. We have considered rival submissions and have perused the orders of the AO and the CIT(A) and also the order of the Tribunal in assessee s own case for the earlier assessment year 2001-2002 (supra). We find that the assessee is a financial institution owned by the Government of Gujarat. The interest on sticky loan which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clear that the accounts of the assessee did not reflect the true state of affairs and profit of the assessee for the relevant period. He relied on the order of the AO. 7. The learned counsel for the assessee has opposed the submission of the learned CIT-DR. He submitted that the so-called objection of the auditors were only routine noting of the auditors and in the similar facts with similar objections of the statutory auditors, the books of accounts of the assessee were accepted in all the earlier years as well as in the succeeding assessment year 2006-2007. He submitted that main objection of the auditors were with respect to procedural lapses and internal checks and controls and that the management of the assessee had complied with all such observations and the same were reflected in the directors report in point no. III at page no.8 of the annual account. He referred to copy of the auditors report filed in the compilation before the Tribunal in support of the case of the assessee. He submitted that the accounts of the assessee were subject to various audits, and there is internal audit, statutory audit as well as CAG audit. The comments of the auditors are more in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the appeal of the assessee in both the appeals are as under: 1. The ld.CIT(A) has erred in law and on facts in upholding the disallowance of depreciation of Rs.69,98,367/- for A.Y.2002-2003 and Rs.52,48,755/- for A.Y.2003-2004 on leased assets without properly appreciating the facts of the appellant engaged in the business of financing by way of term loans, lease finance etc. for industrial units in the State of Gujarat. 2. He has erred in law on facts in holding that actual owner of leased assets are the lessees and not the appellant. 3. He has erred in law and on facts in confirming the disallowance of depreciation without applying the principle of consistency in as much as that in the earlier years no such disallowance of deprecation was made. 4. He has erred in law on facts in confirming the disallowance of depreciation without considering fact that AO ha snot held that depreciation on leased assets is not allowable. 5. On the facts the depreciation for Rs.69,98,367/- for A.Y.2002-2003 and Rs.52,48,755/- for A.Y.2003-2004 on leased assets ought to have been allowed. 10. The learned counsel for the assessee submitted that the depreciation on leased assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng by the AO that these lease were only finance lease and not operating lease. In the facts and circumstances of the case, we consider that it will be necessary to go into the terms and conditions of the lease agreement entered into by the assessee and to record a clear finding whether it is a finance lease or operating lease. In this view of the matter, we set aside the issue to the file of the AO with direction to decide the issue afresh in accordance with law after going through the terms and conditions of the lease deeds in the light of the decision of the Hon ble Supreme Court in the case of Asea Brown Boveri Ltd. Vs. IFCI (supra) and to record a clear finding whether the lease was finance lease or operating lease after allowing reasonable opportunity of hearing to the assessee. We direct accordingly. ITA No.483/Ahd/2011 Asstt.Year 2006-2007 (Assessee s appeal) 14. The grounds of the assessee s appeal are as under: 1. The ld.CIT(A) has erred in law and on facts in upholding the disallowance of penal interest Rs.51,14,787/- for late payment by wrongly holding the same to be against the public policy without properly appreciating the facts of the appellant engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finance by way of term loans, lease finance etc. for the industrial units in the State of Gujarat during the relevant period and has earned interest thereon. The penal interest in the nature of finance charges for late payment of instalment/amount could not be equated with penalty imposable due to some infringement of law. The use of the word penal interest as a nomenclature does not mean any penalty for infringement of law. We find that the observations of the CIT(A) that such late payment is against the public policy and amount paid by the same could not be allowed as deductible expenses u/s.37(1A) in view of the explanation to section 37(1), is not sustainable in law. The interest charged at the rate of 2% per month for delayed payment of instalment by the assessee-company could not be equated with payment made against the public policy or payment made in contravention of law. We are of the considered view that the interest paid by the assessee on delayed payment of instalment to the State of Gujarat is in the nature of financial charges for late payment of instalment. In this view of the matter, we hold that no case of disallowance by holding the payment of penal interest a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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