L & T Finance Ltd. Vs. DCIT (ITAT Mumbai)
Depreciation in the case of finance lease is not admissible to the lessor who is simply a nominal and symbolic owner of the asset whereas the real owner who bears all the risks and rewards incidental to the ownership is the lessee.
In the judgment delivered subsequently in the case of I.C.D.S. Ltd. (supra), the Hon’ble Supreme Court has held that even in the case of finance lease, the lessor is eligible to claim depreciation.
In assessee’s own case in earlier years, the same issue arose before Tribunal, wherein the Tribunal held that in case of finance lease, the lessor was eligible to claim depreciation. Therefore, this issue was squarely covered in favour of the assessee. Hence, the claim of depreciation on earlier years transaction as well as in previous transaction was to be allowed.
Disallowance under section 14A—
When assessee’s own interest-free funds were more than investment, which yielded exempt income, then no dis allowance under section 14A on account of interest could be made.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This appeal by the Assessee is arising out of the order of Commissioner (Appeals)-5, Mumbai, (in short CIT(A)) in appeal No. CIT(A)-5/DCIT-2(2)/IT-118/2006-07 dated 15-11-2011. The Assessment was framed by the Deputy Commissioner, Circle-2(2), Mumbai (in short DCIT) for the assessment year 2004-05 vide order even dated 18-12-2006 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The first issue in this appeal of assessee is against the order of Commissioner (Appeals) confirming the disallowance of depreciation on assets given on lease by treating the lease transaction as finance transaction and also earlier years least transactions. For this assessee has raised following ground No.1 & 2: –
“1. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in confirming the dis allowance of depreciation on assets given under finance by treating the lease transaction as finance transaction.
2. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in confirming the dis allowance of depreciation in respect of assets given on lease by the appellant in earlier years.
3. At the outset, the learned Counsel for the assessee took us through page 2 of the assessment order and stated that the assessing officer relaying on the earlier years order for assessment year 1995-96 to assessment year 2003-04 disallowed the claim of depreciation on assets leased during the previous year amounting to Rs. 2,66,10,238 and also disallowed the depreciation in respect of the assets given on lease on earlier years to the tune of Rs. 11,58,10,481. Accordingly, the total depreciation disallowed by the assessing officer was Rs. 14,24,20,719. The learned Counsel for the assessee drew our attention to the following paragraphs of the assessment order: –
“The depreciation pertaining to lease transactions entered into during the previous year /is Rs. 2,66,10,2381- on various assets.
Based on the stands taken by the Department in assessment years 1995-96 to 2003-04, it can be concluded that the assessee is not entitled to any depreciation allowance under section 32 on the actual cost of the leased asset which was not really owned by it (actually owned by the lessee) but was held merely for the purpose of security of the loan given to the borrowers in the garb of lease transaction However, the capital or loan repayment component of lease rentals received during the previous year in respect of the lease alleged lease transactions which have been offered for taxation by the assessee in its return of income is being excluded from the assessed income.
Accordingly, the depreciation on assets leased during the previous year of Rs. 2,66,10,238 is also disallowed in its entirety. As a result against total depreciation claim of Rs. 15,09.82,3 161- on leased assets, depreciation of Rs. 14,24,20,719 Rs. 11,58,10,481 + Rs. 2,66,10,238 will be disallowed.”
