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TMI Blog2024 (9) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... ed U/s143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter called the Act ) subsequent to the direction of the Ld. Dispute Resolution Panel (DRP) vide direction dated 13/09/2021 for Asst. Year 2011-12. 2. The brief facts of the case are, the assessee filed its return of income on 30/09/2011 and revised the return of income on 19/11/2012 by declaring Nil income under the normal provisions of the Act and book profit of Rs. 2,57,77,405/- u/s 115JB of the Act. The case was selected for scrutiny by issue of notice u/s 143(2) and duly served. The case was referred to TPO u/s 92CA of the Act for assessing Arm s Length Price of the international transaction. 3. The relevant facts relating to the ground raised by the assessee are, the Assessing Officer observed that assessee made the principal payment of lease rental amounting to Rs. 7,31,504/-. The Assessing Officer observed that in Assessment Year 2008-09, the ITAT Bench in the case of assessee s own case given the following directions, the same was reproduced by the AO in his order. For the sake of clarity the same are reproduced here under:- 10. Principal payments on lease rentals 10.1 Further, on the issue of principal payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to as the learned Assessing Officer or the Ld. AO ) under section 143(3) read with section 144C read with section 254 of the Income-tax Act, 1961 (hereinafter referred to as the Act ) on the following grounds, which are without prejudice to each other: 1. That the Ld. AO has erred in facts of the case and in law in making a disallowance of INR 3,72,621/- (principal payment of INR 7,31,504 minus consequential depreciation of INR 3,58,883) in respect of lease rental paid by the Appellant, termed as 'principal payment towards finance lease', n respect of motor vehicles taken on lease by the Appellant alleging that such payments is towards acquisition of capital asset and accordingly, is a capital expenditure. 2. That the Ld. AO has erred in solely relying in the case of IndusInd Bank Ltd. vs. Additional Commissioner of Income Tax (2012) 15 ITR (T) 89 (Mumbai) without appreciating the subsequent judgement of Hon'ble Supreme Court in case of I.C.D.S. Ltd. v. CIT reported in (2013) (350 ITR 527) (SC) and judgements of jurisdictional Delhi Tribunal in case of NIIT Ltd. v. Deputy Commissioner of Income-tax, LTU, Central Circle-16(1), New Delhi [2019] 112 taxmann.com 66 and M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce are as follows. The assessee company acquired vehicles worth Rs. 27,88,776/- on financial lease. In terms of Accounting Standard 19- Leases ('AS-19') issued by the Institute of Chartered Accountants of India ('ICAI'), the assets acquired under financial lease were capitalized in the books of accounts and consequent liability thereon was also created. However, for the purposes of the Act, the lease rental of Rs. 9,29,592/- (apart from finance charges already debited in the profit and loss account) paid by the assessee in the year under consideration was claimed as deduction under section 37 of the Act. The AO disallowed the aforesaid claim of deduction on the ground that since the payments made by the assessee was in the nature of a 'finance lease', the same was required to be capitalized and not allowable as deduction under section 37 of the Act. Further, depreciation was also not allowed on the purported cost of the fixed asset. 5.1 After having heard rival submissions, we are of the view that AS-19 on accounting for Leases issued by the ICAI is only applicable for accounting the lease transaction in the books of accounts. It is a settled law that treatm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard on 'Leases' issued by the Institute of Chartered Accountants of India require capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will have no implication on the allowance of depreciation on assets under the Act. 5.4 Thus, the CBDT's view on the treatment of finance lease is not aligned to the accountant's perspective of a finance lease. For accounting purposes, although the lessee shows the asset in his balance sheet, charges depreciation in accounts and even makes impairment provision, yet the assessee is not eligible to claim depreciation under the Act, which is allowed to the legal owner of the asset. Furthermore, not only the interest/ Finance/ other charges component in the lease payments, but the entire ease payments are treated as a deductible expense and no deduction is allowed for the impairment provision. In the hands of the lessor, the entire lease rentals' and not merely the finance charges component thereof is taxed as income. The lessor, who is the legal owner of the asset, is entitled to claim depreciation under the provisions of the Act. 5.5 The aforesaid legal position finds support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court. (iii) The decision of the Jharkhand High Court in the case of CIT vs. Tata Robins Fraser Ltd 253 CTR 227, wherein it was held that a lease agreement providing lessee a right to purchase an asset is not Hire Purchase Agreement until such right is exercised by the lessee. 5.8 In view of the aforesaid reasoning and the judicial precedents, we hold that disallowance of Rs. 9,29,592/- is not justified on facts and circumstances of the case. It is ordered accordingly. 8. Respectfully following the same, we are inclined to allow the appeal filed by the assessee. Further, we observed that the Ld. DR relied on the decision of Hon ble Kolkata High Court which is relating to Assessment Year 1955-56. There were several conflicting decisions and much water was flown. Therefore, the above decision cannot be relied upon and further several clarifications were issued by the CBDT itself. Coming to the decision of Co-ordinate Bench in assessee s own case for Asst. Year 2008-09, we observed that in Assessment Year 2010-11, the same decision was followed and remitted the issue back to the file of Assessing Officer to follow the same. However, none of the counsels brought to our notice the cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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