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2016 (9) TMI 954 - ITAT BANGALORE

2016 (9) TMI 954 - ITAT BANGALORE - TMI - Penalty u/s 271(1)(c) - Claim of depreciation on financed leased assets - Held that:- We note that the Assessing Officer while disallowing the depreciation has not excluded the capital / principle component in the lease rentals which are included in the total income of the assessee. If the Assessing Officer has taken a view that the transaction in question is a finance lease and depreciation on such asset is not allowable to the assessee then only the in .....

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e of the assessee would have been much less than the total income by allowing the claim of depreciation. We note that the assessee has included in the total income a sum of ₹ 17,63,40,728 being lease rentals which includes principle as well as finance charges. - Therefore in view of the above facts when the Assessing Officer while disallowing the claim of depreciation has not considered the exclusion of the principle component of the lease rental clearly shows that the penal provisions .....

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reciation on leased asset which is a possible view then disallowing of said claim of the assessee would not ipso facto amount to concealment of income or furnishing of inaccurate particulars of income. Accordingly, in view of the above discussion, we do not find any error or illegality in the impugned order of the CIT (Appeals). - Decided against revenue. - I.T. A. No.316/Bang/2014 - Dated:- 11-8-2016 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Appel .....

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and facts of the case. 2. The CIT (Appeals) erred in deleting the penalty imposed by the Assessing Officer on the issue of claim of depreciation on financed leased assets, even though the CIT (Appeals) as well as ITAT has upheld the addition made in the assessment order on the issue. 3. For these and such other grounds that may be urged at the time of hearing. 3. While completing the assessment under Section 143(3) of the Act on 29.12.2006 the Assessing Officer disallowed the claim of depreciat .....

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further noted that a similar issue was involved in the assessment year 2004-05 and depreciation was disallowed by treating the transaction as finance lease. The action of the Assessing Officer was upheld by the CIT (Appeals) and further by this Tribunal. In the meantime the Assessing Officer initiated penalty proceedings under Section 271(1)(c) of the Act and levied a minimum penalty of ₹ 2,54,46,736 vide order dt.6.5.2013. The assessee challenged the action of the Assessing Officer before .....

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of depreciation on the lease asset. He has further referred to the observation of the Assessing Officer that when the assessee has already claimed the entire purchase cost as business expenditure then the claim of depreciation is a bogus claim by the assessee and therefore the Assessing Officer is justified in levying the penalty under Section 271(1)(c) of the Act. He has relied upon the order of the Assessing Officer as well as the order of the Tribunal in the claim appeal. 5. On the other han .....

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rt has admitted the appeal filed by the assessee against the order of this Tribunal in quantum appeal for the year under consideration and therefore the substantial question of law has been admitted by the Hon'ble jurisdictional High Court which shows that the issue of disallowance of depreciation on lease asset is a debatable issue on which the penal provisions of Section 271(1)(c) of the Act cannot be attracted. The learned Authorised Representative has further pointed out that the assesse .....

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rrect income of the assessee is computed by considering only interest component in the lease receipts then there will be no further addition in the income of the assessee due to the disallowance of claim of depreciation. 6. We have considered the rival submissions as well as the relevant material on record. We find that though in the books of accounts the assessee has given the treatment to this transaction as purchase of the asset as well as sale of the asset. Therefore only by taking the entri .....

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ter leased out to other party. Therefore, it is not a case of purchase and lease back of the machinery to the same party. Further the invoice of purchase of machinery is in the name of the assessee and document under which the machinery has been given to the lessee is lease agreement. Even though the Assessing Officer treated the transaction as finance lease and consequently he has disallowed the claim of depreciation but the same will not ipso facto lead to the conclusion that the assessee has .....

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ort for the subject period with respect to its accounting policy on finance lease transaction, and the accounting and tax treatment in the books of account and return of income respectively. It was pointed out that the following disclosures were available on record before the Assessing Officer who could not have, therefore, applied section 271(1)(c) in this matter - * Schedule 16(f) of the significant accounting policies which is an int4egral part of the audited financial statement of the compan .....

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e Account Standard 19 issued by the Institute of Chartered Accountants of India. * Clause 13(d) of the tax audit report for the subject A.Y discloses the lease rental received during the A.Y. * Note to tax audit report discloses the accounting and tax treatment of assets leased on finance lease basis and depreciation thereof. Further, the audited financial statements along with the audited tax audit report for the subject A.Y. was furnished during the assessment proceedings under Section 143(2) .....

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ome. The fact that some bona fide explanations submitted by HPISPL were not accepted by the Department, cannot result in a situation where HPISPL has concealed particulars of its income. 7. It is manifest from the record that the assessee has duly disclosed the accounting policy which is part of the audited financial statement. Therefore the assessee explained the tax treatment of the asset leased on finance leased to the third party. Even otherwise we note that the Assessing Officer while disal .....

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