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TMI Blog2013 (9) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... lease agreement had been attempted to be used as a device to reduce tax liability of assessee - the assessee lessor was not entitled to depreciation - Only the lessee can be treated as owner of the asset in case of a finance lease - It was he who was entitled to claim depreciation as per law - No depreciation can be allowed to the lessor in such a case of a genuine finance lease - it was a case of mere advancing of loan by the assessee to Indo Gulf Fertilizers - There was, in fact, no genuine leasing of boiler, neither operating nor finance - In that view of the matter also no depreciation was admissible to the assessee-lessor. - Decided against the assessee. Validity of Lease Transaction - Whether the lease transaction was treated as non-genuine or finance transaction then lease rentals may not be taken as income for the relevant and subsequent years and directions may be accordingly given – Held that:- The only amount offered was only Rs. 60,000/- in this year stated to be six days lease - Even though assessee accepted 96 lakhs deposit but accounted Rs.84 lacs as lease rental receivable and nine lakhs as advance received in the books - Since the agreement itself was not genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Ground Nos. 1.1 1.2 1. The learned Commissioner of Income-tax (A) erred in confirming the order of A.O. disallowing depreciation of Rs. 1,06,42,500/- claimed on lease transaction with M/s. SOL Ltd. in respect of 3 Boilers without appreciating that all evidence necessary prove have the genuineness of the lease transaction were produced by the Appellant and hence the depreciation of Rs. 1,06,42,500/- claimed by the Appellant may be allowed. Revised Ground No. 2: Original Ground No. 1.3 2. Without prejudice to above, if the lease transaction is treated as non-genuine or finance transaction then lease rentals may not be taken as income for the relevant and subsequent years and directions may be accordingly given. Revised Ground No. 3: Original Ground Nos. 2.1 2.2 3. The learned Commissioner of Income-tax (A) erred in confirming the order of A.O. levying interest u/s 220(2) of Rs. 31,18,046/- without appreciating that demand becomes due only on the making of fresh assessment and not from the original assessment order which was set aside and hence the interest levied u/s 220(2) may be deleted. 3. Briefly stated, assessee claimed depreciation at 100% on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain confirmed the addition without giving any specific finding on the fresh evidence and rather sating that fresh evidence go against assessee. Ld.CIT(A), however after examining the reports relied on by assessee, gave a finding that the assets stated in valuation report of M/s Potdar Consultants are not same as specified in purchase invoices and lease deed. He confirmed the order of AO. Hence, the present appeal. 4. Ld. Counsel referring to the valuation report of the M/s Potdar Consultants, M/s Chopra Chopra obtained by official liquidator submitted that assessee purchased 3 boilers, paid amount by cheque, accounted for lease rents. Existence of boilers is proved by report of Potdar Consultants, and Chopra Chopra and further installation certificate by M/s.SOL Ltd. was also on record. He further submitted that Ld.CIT(A) rejected the contentions on the basis of calculations for which he is not competent. It was further submitted that both valuation reports refer to only 3 boilers and not to any other. It was further submitted that lease is not a finance lease and referred to clauses in lease agreement. Without prejudice, it was submitted that depreciation is allowable on fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 3 Lakhs for each quarter. Therefore, for a period of 36 months, Rs. 84 lakhs was stated as lease income. However, in the schedule to the agreement period of 36 months was modified to 42 months i.e. @ Rs. two lakhs per month. Contrast to this, what the assessee stated to have offered is as under: Year ending Amount 31.3.97 Rs. 60,000 31.3.98 Rs. 36,00,000 31.3.99 Rs. 35,60,000 31.3.2000 Rs. 11,80,000 Rs. 84,00,000 Even though the total amount tallies, the rate and period varies from the agreement. Even though assessee paid Rs.1,06,42,500/- for the purchase of equipment to M/s. Chemcon Industries, the same was transferred immediately to the account of M/s. SOL Ltd. opened in Fort, Bombay in March 1997 (The finding of CIT(A) in first round of assessment which are not contradicted) and assessee received back an amount of Rs. 96,00,000/- from the M/s. SOL Ltd. as security deposit. It was already established by AO that M/s. Chemcon Industries does not exist and assessee did not furnish any evidence with reference to the same so far. Whether the said concern exists and manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, most respectfully prayed that this Hon ble Court may be pleased to: (a) direct the Official Liquidator to furnish copies of the Valuation Report dated 31st December, 1996, prepared by M/s. Potdar Consultants, Valuers and another Valuation Report dated 24th June, 1999 prepared by M/s. Chopra and Chopra, Valuers in Company Petition No. 152 of 1998 as well as copies of the latest annual report of SOL Limited and the relevant extract of the Applicant s Account in the books of the Company. (b) Direct the Official Liquidator to confirm that the Boilers mentioned in the Lease Agreement dated 9th September, 1996 are in possession of the Official Liquidator: (c) pass such other and further order(s) as this Hon ble Court may deem fit and proper in the facts and circumstances of the present case. On the above prayer, the Hon ble. Judge passed the order dated 15/11/2000 as under: CA 1273/2000 Learned Counsel for the O.L. seeks time to file reply. Reply, if any be filed within three months. Rejoinder, if any, be filed within four weeks thereafter. The applicant is directed to be present at the factory premises at Bulandshahar on 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reasons discussed above that it is a simple case of advancing of loan by the assessee to the lease and the so called lease agreement, in the facts and circumstances of the present case, has been attempted to be used as a device to reduce tax liability of assessee. Accordingly, the second question is also answered in negative by holding that the assessee lessor is not entitled to depreciation. 9. We, therefore, sum up our conclusion as under:- (i) If the conditions as laid down in the judgments of Asea Brown Boveri Limited (supra) and Association of Leasing Financial Services Companies (supra) are satisfied in a lease agreement, it will be a case of finance lease and not operating lease. (ii) Only the lessee can be treated as owner of the asset in case of a finance lease. It is he who is entitled to claim depreciation as per law. No depreciation can be allowed to the lessor in such a case of a genuine finance lease. (iii) The facts and circumstances of the present case show that it was a case of mere advancing of loan by the assessee to Indo Gulf Fertilizers. There was, in fact, no genuine leasing of boiler, neither operating nor finance. In that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt assessment order under appeal was passed. Facts are that the original order of assessment was passed on 25.03.2001. Assessee preferred appeals to CIT(A) then ITAT. Finally the Assessing Officer passed order u/s. 143(3) r.w.s. 254, and has charged interest u/s 220(2) with reference to the due date for payment of demand as per the original notice of demand. The assessee had relied upon circular No. 334 dated 3rd April, 1982 and it was contended that as per the CBDT circular interest can be charged only after expiry of 45 days from the date of service of notice pursuant to the fresh assessment order. 8.2 This issue is covered by the Co-ordinate Bench decision in the case of Narad Investments Trading P. Ltd, ITA No. 3360/Mum/2010 dt. 19.10.2011 wherein on similar facts, the issue is considered elaborately and held as under: 3.2 We have perused the records and considered the rival contentions carefully. The dispute is regarding levy of interest u/s. 220(2) of the income Tax Act, 1961. Under the said section, interest at a specified rate is chargeable in case the demand raised on the assessee as per the demand notice is not paid within the time allowed in the notice. The is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with reference to the due date reckoned from original demand notice and with reference to the tax finally determined in the assessment. In the present case, the original order of assessment was confirmed by CIT(A) but on further appeal, the Tribunal set aside the order of CIT(A) and the issue restored to the Assessing Officer. Therefore in terms of the circular of CBDT (supra), the interest under section 220(2) has to be charged only in respect of demand raised as per the fresh assessment order. The CIT(A) following certain judgments has held that interest under section 220(2) has to be levied from date of default of demand notice issued as per the original assessment order. We have perused the judgments cited by CIT(A) and the same are found to be distinguishable. In case of Pitamber Das Duli (supra), Hon'ble High Court of Madhya Pradesh has held that in case the order of CIT(A) is set aside and the order of Assessing Officer is restored, then, the demand raised on the basis of original assessment order will get revived and the assessee is liable to pay interest on that demand from the date of original order. Obviously, the case is not applicable to the present situation as the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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