Lessor entitled to Claim Depreciation on  Leased Assets under Finance Lease: ITAT [Read Order]

The Delhi bench of Income Tax Appellate Tribunal (ITAT) has recently held that the lessor should be entitled to claim depreciation on leased assets under finance lease.

T Kipgen, counsel appeared for the revenue. Rohit Jain, counsel appeared for assessee. 

Assessee Religare Finvest Ltd.e–filed its return of income for the assessment year 2011-12 declaring income of Rs. 2,10,99,76,285/. Thereafter it was  revised and selected for scrutiny.

After making addition under Section  14A read with Section 8D of the Income Tax Act and addition of Rs. 15,29,982/- was made on account of SAR expenses.

Subsequently AO noted that appellant claimed depreciation of Rs. 22,91,58,130/- in its computation of income. Thereafter AO passed an assessment order after disallowance of Rs. 12,65,90,130/- on account of excess claim of depreciation.

Aggrived by the order assesee filed  an appeal before the CIT(A). The CIT(A) deleted the addition and observed that “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”.

Against the order the revenue filed an appeal before the tribunal.

During the proceedings the tribunal observed that,  as per the circular issued by the  CBDT vide Circular No. 2/2001  the owner is entitled to depreciation, whether he is lessee or lessor, depending upon the terms of the contract.

Thereafter the two member bench of Shamim Yahya, (Accountant Member) and Anubhav Sharma, (Judicial Member) dismissed the appeal filed by the revenue and held that in a leasing transaction it is the lessor and not the lessee, who was entitled to claim depreciation on the leased assets.

To Read the full text of the Order CLICK HERE

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