Case Law Details
DCIT Vs Religare Finvest Ltd (ITAT Delhi)
The issue revolved around whether the lessor could claim depreciation on leased assets under a finance lease agreement.
The appellant, Religare Finvest Ltd, had claimed depreciation of Rs. 12,65,90,130/- on assets acquired under a finance lease. The Assessing Officer disallowed this claim, arguing that the depreciation should be allowed only to the owner of the assets. However, the ITAT Delhi upheld the appellant’s claim, citing relevant provisions of AS-19 and Circular No. 2/2001 issued by the CBDT.
According to AS-19 and the CBDT circular, the capitalization of assets acquired under a finance lease by the lessee does not affect the allowance of depreciation on those assets. The ownership of the asset is determined by the terms of the contract between the lessor and the lessee. Therefore, the lessor is entitled to claim depreciation on the leased assets, as affirmed by the Hon’ble Supreme Court in the case of ICDS Ltd. vs. CIT.
The ITAT Delhi directed the Assessing Officer to verify the finance lease agreement and allow the depreciation claim accordingly. This decision has significant implications for lessors in leasing transactions, clarifying their entitlement to claim depreciation on leased assets.
The ITAT Delhi’s ruling in the case of DCIT vs. Religare Finvest Ltd establishes that the lessor is entitled to claim depreciation on leased assets under a finance lease agreement. This decision aligns with AS-19, CBDT circulars, and the Supreme Court’s interpretation of the law.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by Revenue is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-7, New Delhi, dated 14.11.2018 and pertains to Assessment Year 2011-12. The Grounds of appeal are as under:-
“1. That on facts and under he circumstances of the case, he Ld. CIT(A) has erred in law and facts in giving the direction on the Addition of Rs. 12,65,90,130/- on account of excess claim of Depreciation.
2. On the facts and under the circumstances of the case, the Ld. CIT(A) has erred in law and facts in dialing to adjudicate the issue on the which addition was made by the AO and instead allowing the relief subject to verification of the finance Lease Agreement.
3. The appellant craves to be allowed to add any fresh grounds of appea l and / or delete or amend any of the grounds of appeal. ”
2. Brief facts of the case are that the appellant e–filed its return of income on 27.09.2011 for the Assessment Year 2011-12 declaring income of Rs. 2,10,99,76,285/-which was subsequently revised on 30.03.2013 declaring a income of Rs. 2,29,52,07,193/. The case was selected for scrutiny. Order u/s 143(3) was passed on 30.03.2014, Assessing the income at Rs. 2,36,11,07,150/-after making addition of Rs. 6,43,69,971/-u/s 14A read with Section 8D and addition of Rs. 15,29,982/- on account of SAR expenses. Subsequently, the AO noticed that the appellant claimed deprecation of Rs. 22,91,58,130/- in its computation of income. However, as per 3CD annexure of depreciation, it was noticed that depreciation was available amounting to Rs. 14,56,05,769/- (13,20,16,000 + 1,35,89,769),which has resulted into excess claim of depreciation amounting to Rs. 835.52 lakhs. Accordingly, notice u/s 148 was issued to the appellant after prior approval of Pr. CIT, Delhi-7. Order u/s 143(3)/147 was passed on 30.12.2017, Assessing the income at Rs. 2,48,76,97,280/- after disallowance of Rs. 12,65,90,130/- on account of excess claim of depreciation.
2.1 The aforesaid disallowance has been made by the Assessing Officer by making following computation.
“5. The assessee vide its reply dated 04.07.2016 has given the following bifurcation of the depreciation claimed by the assessee of Rs. 22,91,58,130/- it in its computation of income:
|
S.No. |
Particulars | Amt. (Rs. In lac) | |
| 1 | Depreciation allowable as per the Act for the year ended 31.03.2011 as per the depreciation appendix attached to the tax audit report | 1320.16 | |
| Less: adjustment of depreciation impact on account of cars given on finance lease but depreciation calculated @30% | 195.19 | ||
| Less: Adjustment for assets considered under the head “computers” and office equipment consequent to the assessment order of assessment order of AY 10-11-This fact was clarified to the AO during assessment as this was one of the reasons for revising the income tax return. This is discussed in detail under para 5 of this submission. | 99.29 | ||
| 2 | Depreciation on cars given on fiancé lease | 1265.90 | |
| Total | 2291.58 | ||
5.1 Further, on perusal of the appendix – ‘B’ of clause 14 of depreciation of 3CD Audit report it is seen hat said amount of Rs. 1265.90 lacs as mentioned by the assessee has not been shown anywhere in the audit report. Hence, the assessee can only be allowed the depreciation of Rs. 1025.68 lacs only.
5.2 In view of the above, the amount of Rs. 12,65,90,130/- (22,91,58,130- 10,25,68,000) is being disallowed and added to the total income of the assessee. ”
2.2 Against the order before the Ld. CIT(A), the Ld. CIT(A) deleted the addition by observing as under:
“6.2 I have carefully considered the findings of the AO and the submissions made by the Ld. AR. From the submission of the Ld. AR it is seen that during the course o f appellate proceedings, it is noticed that the appellant had claimed depreciation of Rs. 12,65,90,130/- on assets under “Finance Lease”. After the issuance of AS-19 issued by the ICAI, the Central Board of Direct Taxes vide Circular No. 2/2001 dated 9 February 2001 has clarified that capitalization of assets acquired under the finance lease by the lessees in their books of account will not have any bearing on the allowance of depreciation on those asses under section 32 of the Income Tax Act and also states that the ownership of the asset is determined by the terms of contract between the lessor and the lessee. The above circular indicates that the owner is entitled to depreciation, whether he is lessee or lessor, depending upon the terms o f the contract.
6.3 Further, the Hon’ble Supreme Court in the case of ICDS Ltd. vs. CIT has reversed the Hon’ble Karnataka High Court’s decision on the issue of allowing depreciation in the heads of lessor in a leasing transaction and re-affirmed the position that in a leasing transaction it is lessor and not the lessee who is entitled to claim depreciation on the leased assets. Accordingly, the depreciation of Rs. 12,65,90,130/-on assets under “Finance Lease” is allowable in the case of the appellant unless specifically given away as per agreement. The AO is directed to verify the finance lease agreement and allow relief accordingly. ”
3. Against this order, the Revenue is in appeal before us.
4. We have heard both the parties and perused the records. We find that the Ld. CIT(A) has duly taken the note that after issuance of AS-19 issued by the ICAI, the CBDT vide Circular No. 2/2001 dated 9 February 2011 has clarified that capitalization of assets acquired under the finance lease by the lessees in their books of account will not have any bearing on the allowance of depreciation on those assets under Section 32 of the Income Tax Act and also states that the ownership of the asset is determined by the terms of contract between the lessor and the lessee. Further, as per the above circular the owner is entitled to depreciation, whether he is lessee or lessor, depending upon the terms of the contract.
4.1 Further, the Ld. CIT(A) taken the note of the Hon’ble Supreme Court in the case of ICDS Ltd. vs. CIT. The Hon’ble Supreme Court has reaffirmed the position that in a leasing transaction it is the lessor and not the lessee, who is entitled to claim deprecation on the leased assets. Hence, we are of the opinion that the order of the Ld. CIT(A) is in accordance with law, in the facts and circumstances of the case. We find no reason to interfere with the order of the Ld. CIT(A).
5. In the result, appeal of the Revenue stand dismissed.
Order pronounced in the open court on 12/05/2023
