DCIT Vs Capsave Finance Pvt. Ltd. (ITAT Mumbai)
Depreciation Surrender & Principal Exclusion Intrinsically Linked- Only Interest Taxable in Finance Lease, Principal is Capital – Goetze case limits AO’s jurisdiction but not appellate powers
Capsave Finance Pvt Ltd, a NBFC engaged in leasing & asset financing, had filed return for AY 2018-19 offering entire finance lease rental income to tax & claiming depreciation on both operating & finance lease assets. During assessment, it revised computation, surrendering depreciation on finance lease assets (₹15.27 crore) & offering only interest component of finance lease rentals as taxable income, contending that principal recovery is capital in nature.
AO accepted surrender of depreciation but rejected exclusion of ₹6.81 crore representing principal recovery, holding it as a fresh claim not made in revised return u/s 139(5), relying on Goetze (India) Ltd (284 ITR 323 SC). Thus, AO added entire ₹15.27 crore depreciation back, without corresponding deduction of principal portion, leading to double taxation.
CIT(A) allowed partial relief. Relying on SC in Shriram Investments v. CIT (Civil Appeal No.6274/2013, dt 4.10.2024), it noted AO lacked power to entertain fresh claims, but held that Assessee’s revised computation was not a new claim but an intrinsic corollary of surrendering depreciation. To avoid taxing both depreciation disallowance & principal recovery, CIT(A) restricted addition to ₹8.45 crore (₹15.27 crore minus ₹6.81 crore).
