Court rules in favor of tax authorities in depreciation dispute for sale and lease back transactions.

The appeals by the assessee for assessment years 1995-96, 1996-97, and 1997-98 were dismissed. The court upheld the disallowance of depreciation in sale and lease back transactions, treating the lease transactions as finance transactions. Relying on the Special Bench's order in a similar case, the court clarified that in finance leases, the lessor is not entitled to depreciation, while the lessee, as the actual owner, can claim depreciation. The CIT(A)'s decision to deny depreciation to the assessee was affirmed by the court on May 9, 2012.

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Issues:
Disallowance of depreciation in sale and lease back transactions.

Analysis:
The appeals by the assessee for assessment years 1995-96, 1996-97, and 1997-98 revolve around the disallowance of depreciation in sale and lease back transactions. The common ground challenges the CIT(A)'s decision to uphold the disallowance of depreciation by treating the lease transactions as finance transactions. Both parties agree that the issue is covered by the Special Bench's order in the case of M/s. IndusInd Bank Ltd. vs. Addl. CIT. The Tribunal's order clarifies that in finance leases, depreciation is not admissible to the lessor, who is merely a nominal owner, while the lessee, the actual owner bearing all risks and rewards, is entitled to depreciation. Consequently, the CIT(A) was deemed correct in denying depreciation to the assessee.

In conclusion, all three appeals are dismissed based on the Tribunal's decision regarding the treatment of finance leases and the entitlement to depreciation. The order was pronounced on May 9, 2012, affirming the denial of depreciation to the assessee in the sale and lease back transactions.

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