The Income Tax Appellate Tribunal (ITAT), Chennai bench has held that the amount of payment of lease rental cannot be treated as Revenue expenditure as the assessee’s claim for depreciation was allowed by the income tax department and as per the agreement it was not clear as to whether the same is a finance lease or operating lease.
The assessee, M/s Tristar Container Services has taken containers on lease. In the books of account, the containers were taken as assets. The assessee also claimed depreciation on the containers in the income-tax computation. According to the Ld. counsel, the assessee added back the book depreciation and claimed containers lease rental as revenue expenditure. However, the Assessing Officer disallowed the claim of the assessee. The Assessing Officer allowed the depreciation. The assesssee claimed that the entire amount has to be allowed as revenue expenditure.
However, the department observed that the assessee has treated the containers as capital asset in the books. Since it was treated as capital asset, the authorities disallowed the claim of the assessee towards payment of lease rental, however, he allowed the depreciation as claimed.
A bench of Shri N.R.S. Ganesan, Judicial Member and Shri D.S. Sunder Singh, Accountant Member observed that “the assessee claims that the containers were taken as lease. A copy of the agreement available at paper-book shows that it is a lease-cum purchase of containers. It is not clear from the agreement whether it is a finance lease or operating lease. The fact remains that the assessee treated the containers as capital asset and alternatively claimed depreciation also. The alternative claim of depreciation was allowed by the Assessing Officer.”
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