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TMI Blog2017 (3) TMI 1817X X X X Extracts X X X X X X X X Extracts X X X X ..... e order u/s. 143(3) of the Act is bad in law, illegal, ultravirus, in excess of and /or in want of jurisdiction and otherwise void. (iii) The CIT failed to appreciate that the AO. while passing order u/s 143(3) dated 20.03.2013 has considered the facts of the case and had taken the legally correct view of allowing depreciation to the appellant as per the provisions of the Income Tax Act and hence the order passed by the assessing officer is not erroneous so as to be prejudicial to the interest of the revenue within the meaning and as contemplated u/s 263 of the Income Tax Act. (vi) The CIT further erred in viewing the leased transaction with a jaundiced eye and applying the same view as taken in the case of leasing banks and financial institutions, to the appellant, disregarding the fact that the appellant was not a normal leasing company, but was an industrial company. (v) He failed to appreciate that the appellant was a regular corporate assessee and the assets given on lease were the assets owned by it and the lease rent income was offered as business income. (vi) He further failed to appreciate that the fact of leasing such asset and claiming of depreciation thereon was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lease value of plant and machinery from block of assets, therefore, the assessee has claimed excess depreciation of Rs. 3,22,55,807/- 3. In response to the show cause notice as to why the following amount should not be considered as underassessment :- Add: Finance lease rentals deduced in computation of income 21,45,45,500 Less: lease rentals including principal from computation of income -37,14,49,991 Add: Depreciation as per IT Act (Plant and machinery) 34,75,58,071 Net under assessment 19,06,53,580 The assessee, after explaining the entire facts and background of the lease agreement, submitted as under: i) The polymer plant which has been leased by the assessee to RIL was an asset which was held for more than five years; ii) The assets could not be utilized at its present location, i.e.. 5, TTC Industrial Area, Ghansoli, Navi Mumbai, Thane that is why, it was decided to lease the said asset to RIL which had needed it for its Dahej Manufacturing Division, PO Dahej, Bharuch, Gujarat. Accordingly all expenditure in addition to the actual cost of such asset in the books of Rs. 97.37 crores was incurred for dismantling the aforesaid asset from its current location a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he show cause notice. Finally, he held that the assessment order is erroneous and prejudicial to the interest of revenue and therefore, the same was set aside with a direction to the AO to make fresh assessment after conducting inquiries in details and the submissions as offered by the assessee in the return of income. 7. Before us, Ld. Counsel Shri Arvind Sonde, submitted that, first of all, it is not a case of lack of inquiry or partial inquiry, because precisely on the same issue, a query was raised by the Ld.AO during the course of the assessment proceedings and the assessee vide letter dated 5.2.2013 have explained the entire matter in detail along with a copy of lease agreement and treatment in the books of account; as well as CBDT Circular No. 2/2001 dated 9.2.2001. This reply was filed along with all the relevant annexures which will go to show that the assessee has given the entire details as well as explanation and on examination of such details and explanation, the AO has accepted the assessee‟s contention as well as claim of depreciation on lease assets. He further submitted that in a leasing transaction, the Lessor is entitled to claim depreciation as long as he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintains and operates the machinery, etc., undertakes indemnity and agrees to bear the risk of loss or damage, if any. Thus, the ratio of the Hon‟ble Supreme Court if applied on the present facts, then ostensibly the depreciation has to be allowed in the case of lessee and not the lessor. He also relied upon the various decisions as to the scope of section 263 and under what circumstances the assessment order can be held to be erroneous so far as prejudicial to the interest of the revenue. 9. We have heard the rival submissions and perused the relevant record and impugned orders and the case law as referred by both the parties. The main issue which has been raised in the impugned order by the Ld.PCIT in his revisionary jurisdictional order is that, the assessee has wrongly claimed depreciation on the leased assets as a Lessor and the AO has erroneously allowed such claim of depreciation. However, he has not categorically specified as to what has been the lack of inquiry or non-application of mind by the AO at the time of assessment. He has not highlighted as to what kind of inquiry should have been made by the AO before allowing depreciation on leased assets. Here it is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Lessor) had given on lease its polymer plant located at 5, TIC Industrial Area, Ghansoli, Thane Belapur Road, Navi Mumbai - 400 701 to Reliance Industries Ltd. (Lessee) as per lease agreement dt. 31.12.2008 - Annexure 8(1)(i). The entries passed in the books of accounts in the year of leasing plant to Reliance Industries Limited is shown in Annexure 8(1)(ii). We wish to bring to your notice that w.e.f. 01.04.2001, Accounting Standard 19 (AS - 19) issued by Institute of Chartered Accountants of India ( ICAI ) dealing with Treatment of leased assets, has come into effect in respect of assets leased on or after 1.4.2001. Accordingly, when such assets are given on finance lease after 01.04.2001, the lessor, in this case RCPTIL, has reduced the value of such assets from its gross block of fixed assets under the Companies Act and has shown the corresponding amount as 'lease receivable' from RIL. However, since the lessor, i.e. RCPTIL is the owner of such assets as provided in CBDT circular no. 2/2001 dt. 09.02.2001 [copy enclosed Annexure 8(1)(iii)], in the depreciation working given u/s 32 in the TAR, such assets are not reduced from the gross block and depreciation as eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack of inquiry made by the AO on the impugned issue. Whence, the AO has applied his mind on the given facts and material on record which has been specifically required by him, then it cannot be held that the AO has passed the assessment order without any application of mind. Once, a particular view has been taken by the AO which is a possible view in facts and in law, then unless the Ld. PCIT points out that, such view is not tenable either on law or on facts, then such an assessment order cannot be cancelled within the scope and ambit of section u/s 263 of the Act. This proposition is well settled by the Hon‟ble Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83; and in the case of CIT V/s Max India Ltd[2008] 166 Taxman 188 (SC). Thus, on this ground alone that the AO has applied his mind and taken a view therefore, such an order of assessment cannot be held to be "erroneous in so far as prejudicial to the interest of revenue‟, unless it is shown that the view of the AO, itself is untenable in law and on facts. Here the ld.PCIT has not even specified as to what kind on enquiry is to be conducted by the AO. Thus, such an assessment order cann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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