Tribunal rejects depreciation claim, includes lease rentals in income, directs interest levy under section 220(2).

The Tribunal disallowed the claim of depreciation on the leased assets, rejected the prayer to exclude lease rentals from income, and directed the AO to levy interest under section 220(2) from the date of the fresh assessment order. The assessee's appeal was partly allowed.

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Issues Involved:
1. Claim of depreciation on leased assets.
2. Treatment of lease transaction as non-genuine or finance transaction.
3. Levy of interest under section 220(2).

Issue-wise Detailed Analysis:

1. Claim of Depreciation on Leased Assets:
The assessee contested the disallowance of depreciation of Rs. 1,06,42,500/- on three boilers leased to M/s. SOL Ltd. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] found the lease transaction non-genuine, stating that the manufacturer and lessee were non-existent. The ITAT had earlier allowed additional evidence and remanded the case to the AO, who reaffirmed the disallowance. The CIT(A) found discrepancies in the valuation reports and purchase invoices, confirming the AO's decision. The Tribunal concluded that the transaction was not a genuine lease but an arrangement to claim depreciation, following the precedent set by the Special Bench in the case of Indus Ind Bank. Consequently, the claim of depreciation was disallowed.

2. Treatment of Lease Transaction as Non-genuine or Finance Transaction:
The assessee argued that if the lease transaction was deemed non-genuine or a finance transaction, the lease rentals should not be considered income for the relevant and subsequent years. The Tribunal rejected this prayer, noting that the assessee was unclear whether the income was lease or interest income. The entire transaction was deemed an attempt to claim depreciation at 100%, and no directions were given to the AO to re-examine the income components. The Tribunal emphasized that the assessee must address this issue in the relevant years or face the consequences.

3. Levy of Interest Under Section 220(2):
The assessee challenged the levy of interest from the date of the original assessment order, arguing that interest should be charged only from the date of the fresh assessment order. The Tribunal referred to CBDT Circular No. 334 dated 3rd April 1982, which clarifies that interest under section 220(2) should be charged only after the expiry of 35 days from the date of service of the demand notice pursuant to the fresh assessment order. The Tribunal followed the precedent set by the Co-ordinate Bench in the case of Narad Investments & Trading P. Ltd, directing the AO to levy interest from the date of the reassessment order only, thus modifying the AO and CIT(A)'s orders.

Conclusion:
The Tribunal disallowed the claim of depreciation on the leased assets, rejected the prayer to exclude lease rentals from income, and directed the AO to levy interest under section 220(2) from the date of the fresh assessment order. The assessee's appeal was partly allowed.

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