High Court allows appeals on depreciation claims, deems SLB transactions compliant with Income Tax Act.

The High Court allowed the appeals, holding that the appellant was entitled to the depreciation claims. The Court found the SLB transactions genuine and in compliance with Section 32 of the Income Tax Act. The impugned order of the Income Tax Appellate Tribunal and the Assessing Officer was set aside, and the order of the Commissioner of Income Tax (Appeals) was restored.

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Issues Involved:
1. Disallowance of depreciation on the sale and lease back (SLB) transaction.
2. Claim of depreciation without offering lease rental income.
3. Depreciation claim on assets forming part of the block of assets after the lease period expired.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on the Sale and Lease Back (SLB) Transaction:
The appellant, a leasing company, engaged in a SLB Agreement with the Tamil Nadu Electricity Board (TNEB) for assets such as Meters, Shunt Capacitor Banks, and Outdoor Circuit Breakers. The appellant purchased these assets from TNEB and leased them back, claiming 50% depreciation as the assets were not used for more than 182 days. The Assessing Officer disallowed the depreciation, treating the SLB transactions as loan transactions. The Tribunal upheld this view, stating that the SLB Agreement was not genuine and was under the garb of a loan transaction. They noted that the machinery and equipment were never individually identified, the written down value could not be ascertained, and there was no actual delivery or possession transfer. The High Court, however, found that the appellant satisfied the conditions for claiming depreciation under Section 32 of the Income Tax Act, 1961. The Court concluded that the SLB transaction was genuine, emphasizing the existence of relevant agreements, terms, and invoices, and restored the order of the Commissioner of Income Tax (Appeals), which allowed the 50% depreciation claim.

2. Claim of Depreciation Without Offering Lease Rental Income:
The Tribunal held that since the assessee had not offered lease rental income, the claim of depreciation could not be allowed. The appellant argued that the assets covered by the SLB Agreement were new and entitled to 100% depreciation under Section 32 of the Income Tax Act. The High Court agreed with the appellant, stating that the business of leasing qualifies for depreciation claims as long as the assets are owned and used for business purposes. The Court noted that the appellant's business involved leasing, and the assets leased out were part of its business, thus satisfying the conditions under Section 32.

3. Depreciation Claim on Assets Forming Part of the Block of Assets After the Lease Period Expired:
For four other leases with different companies, the lease period was over, and the appellant did not take back the assets but claimed depreciation. The Assessing Officer disallowed this, arguing that the assets were not put to use in the leasing business. The Commissioner of Income Tax (Appeals) accepted the appellant's case, stating that since the assets continued to remain with the lessees and the appellant was not able to collect lease rent or take possession, it would be presumed that the equipment was used in the business of the appellant. The High Court concurred with this view, allowing the depreciation claim of Rs.51,46,787/-.

Conclusion:
The High Court allowed the appeals, holding that the appellant was entitled to the depreciation claims. The Court found the SLB transactions genuine and in compliance with Section 32 of the Income Tax Act. The impugned order of the Income Tax Appellate Tribunal and the Assessing Officer was set aside, and the order of the Commissioner of Income Tax (Appeals) was restored.

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