ITAT grants depreciation on leased assets, annuls illegal reassessment, sets aside penalty proceedings.

The ITAT allowed the assessee's appeals for all assessment years (1994-95 to 1998-99), granting the claim for depreciation on leased assets. The reassessment proceedings for the assessment year 1994-95 were deemed illegal and annulled. Consequently, all penalty proceedings under section 271(1)(c) were set aside.

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Issues Involved:
1. Disallowance of depreciation on leased assets.
2. Legality of reopening the assessment under section 148.
3. Confirmation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Disallowance of Depreciation on Leased Assets
The primary issue across all appeals was whether the assessee was eligible to claim depreciation on assets leased out under sale and leaseback agreements. The CIT(A) had disallowed the depreciation claim, arguing that the transactions were essentially financial loans rather than genuine leases, thus the assessee was not the "owner" of the leased assets.

The ITAT noted that the assessee, a Non-Banking Financial Company (NBFC), was engaged in lease finance, hire purchase, and other financial services. The CIT(A) had relied on prior assessments and judgments, which were set aside by the Tribunal, to disallow the depreciation. The CIT(A) also called for a remand report from the Assessing Officer (AO), which supported the assessee's claim of ownership and eligibility for depreciation.

The ITAT considered several factors, including whether the assessee had legal and beneficial ownership of the assets, the nature of the lease agreements, and the conduct of the parties involved. The Tribunal referenced multiple case laws, including the Supreme Court decision in ICDS Ltd. vs CIT, which supported the assessee's claim of ownership and entitlement to depreciation.

Ultimately, the ITAT concluded that the transactions were genuine leases, not financial loans, and that the assessee was indeed the owner of the leased assets. Therefore, the depreciation claim was allowed.

2. Legality of Reopening the Assessment under Section 148
For the assessment year 1994-95, an additional issue was the legality of reopening the assessment under section 148. The assessee had filed an application under section 154 to withdraw its depreciation claim, which was pending when the AO initiated reassessment proceedings under section 148.

The ITAT cited the Bombay High Court decision in Hindustan Unilever Ltd. vs DCIT, which held that when an efficacious remedy like rectification under section 154 is available, recourse to section 147 for reopening the assessment is not warranted. The Tribunal found that the AO should have disposed of the section 154 application before initiating reassessment proceedings.

Consequently, the ITAT held that the reassessment proceedings were illegal and annulled all subsequent proceedings under section 148 for the assessment year 1994-95.

3. Confirmation of Penalty Proceedings under Section 271(1)(c)
The CIT(A) had confirmed penalty proceedings under section 271(1)(c) for concealment of income or furnishing inaccurate particulars. However, since the ITAT allowed the assessee's claim for depreciation and annulled the reassessment proceedings, the basis for the penalty no longer existed.

Conclusion
- The ITAT allowed the assessee's appeals for all assessment years (1994-95 to 1998-99) on merits, granting the claim for depreciation on leased assets.
- The reassessment proceedings for the assessment year 1994-95 were held to be illegal and annulled.
- Consequently, all penalty proceedings under section 271(1)(c) were also set aside.

Summary of Outcome:
- Assessee's appeal ITA 3991/M/09 for AY 94-95: Allowed
- Assessee's appeal ITA 3992/M/09 for AY 95-96: Allowed
- Assessee's appeal ITA 3993/M/09 for AY 96-97: Allowed
- Assessee's appeal ITA 3994/M/09 for AY 97-98: Allowed
- Assessee's appeal ITA 3995/M/09 for AY 98-99: Allowed

Order pronounced in the open Court on 21st November, 2014.

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