2014 (4) TMI 1149 - AT - Income Tax

Depreciation on assets purchased from certain parties and given back on lease - Held that - We direct the A.O. to allow the claim of the assessee for depreciation on the assets given under sale and lease back basis. The A.O. is also directed to withdraw any corresponding benefit given to the assessee by excluding the value of capital component of the lease rent from the income of the assessee. See M/s ICDS. LTD. Versus COMMISSIONER OF INCOME TAX. MYSORE & ANR. 2013 (1) TMI 344 - SUPREME COURT

Summary

Issues:
Rectification of disallowance of depreciation on assets purchased and given back on lease basis.

Analysis:
The applicant sought rectification of a tribunal order confirming the disallowance of depreciation on assets purchased and leased back. The tribunal had upheld the disallowance based on a previous Special Bench decision. However, a subsequent Supreme Court decision in the case of I.C.D.S Ltd. held that even in finance leases, the lessor is eligible to claim depreciation. The tribunal acknowledged the inconsistency between its previous decision and the Supreme Court ruling, noting that the lessor should be allowed to claim depreciation. Citing the precedent set by the Supreme Court in ACIT vs. Saurashtra Kutch Stock Exchange Ltd., the tribunal rectified its order and directed the Assessing Officer to allow the depreciation claim on assets given under sale and lease back arrangements, while also withdrawing any corresponding benefit granted to the assessee.

In conclusion, the tribunal allowed the Miscellaneous Applications filed by the assessee, rectifying the order to permit the depreciation claim on assets given under sale and lease back agreements. The decision was made in light of the Supreme Court ruling, aligning the tribunal's decision with the legal precedent established by the higher court.