TaxTMI 
TaxTMI 
2014 (2) TMI 476
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....B) RSEB for purchase of Shunt Capacitors from RSEB worth Rs.3.95 crores. During the course of assessment proceedings, the AO asked assessee to file complete details, i.e. description of assets, the dates and years in which these assets were purchased by RSEB, the dates and places of installation, copies of lease agreement etc. On perusal of details filed by assessee, AO found that such assets were purchased by RSEB from Bharat Heavy Electricals Limited and M.B. in the years 1988 to 1993 and RSEB had claimed 100% depreciation on these assets before selling them to assessee. That the cost of assets to RSEB was Rs.3,02,23,846/- and the same, after using them for a period of 2 to 7 years, were sold to the assessee on 25.3.1995 at Rs.395 Lakhs. The assessee was asked to file valuation report which was filed by the assessee. It was also stated that the physical inspection of the assets was carried out by RSEB and the valuer M/s Kotak Mahindra Finance Ltd. AO after considering the terms of agreement entered into between the parties stated that it was not a true lease transaction but was only a financial transaction. That the assessee being in the business of leasing, would not, as a prude....
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....operty and consequently is not entitled to claim depreciation in respect of equipments which are subject matter of the lease deed. Thus, the Tribunal concluded that it was a case of Finance lease and the assessee could not be treated as owner and therefore, was not entitled for depreciation. It is relevant to state that the Tribunal in para 15 of its order stated that "we do not consider the arguments raised before the Tribunal that assessee had colourable device to reduce its tax liability." That the Tribunal proceeded on the assumptions that agreement between the parties were legal. 3.2 Pursuant thereto the AO made assessment giving effect to the order of Tribunal on 26.12.2008 and also initiated penalty proceedings u/s 271(1)( c ) of the Act. AO vide order dated 30.6.2009 after considering the submissions of the assessee levied penalty at the rate of 150% of the tax sought to be evaded on Rs.1,97,50,000/- which worked to Rs.1,36,27,500/-. It is relevant to state that during the course of penalty proceedings, the assessee stated that the penalty proceedings are barred by limitation because the Tribunal order is dated 28.02.2007 and whereas the penalty order is dated 30.6.2009 ....
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....Court in the case of Asea Brown Boveri Ltd V/s Industrial Finance Corporation of India (supra), wherein the Tribunal itself has mentioned that there is a sea change taken place by delivery of the judgment by the Hon'ble Apex Court in the case of Asea Brown Boveri Ltd V/s Industrial Finance Corporation of India (supra) that in the case of Finance lease, it is the lessee who is the owner of the assets and not a lessor. Therefore, lessor cannot claim depreciation. Ld. AR further submitted that similar issue had been considered by ITAT, Mumbai in the case of Cable Corporation of India in ITA Nos.2366, 2416 and 3433/Mum/2000 (AY-1996-97) order dated 29.10.2007 (copy placed on file) and Tribunal on similar type of transaction of purchase and lease back of the assets to APSEB allowed depreciation even after considering the decision of the Hon'ble Apex Court in the case of Asea Brown Bovery Ltd (supra). Ld. AR submitted that it was a debatable issue before giving decision by Hon'ble Apex Court in the case of Asea Brown Bovery Ltd (supra) and the Hon'ble Bombay High Court has also admitted the appeal filed by assessee against the order of Tribunal to disallow depreciation and referred pages....
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....nance lease it is a lessee, who for all practical purposes, is the owner of the assets and not the lessor and therefore the lessor is not entitled to claim depreciation. We observe that in the case before us, the assessee entered into a purchase agreement with RSEB to purchase Shunt Capacitors and thereafter entered into another agreement to lease them out. The Tribunal has held that said transaction is a finance transaction on considering the terms and conditions of the agreements entered into. It is relevant to state that the Tribunal while considering the claim of the assessee of depreciation has stated in para 15 as under : "15. Before parting with this issue, we may mention that arguments were raised to the effect that assessee adopted a colourable device in order to reduce its tax liability. These arguments are not being dealt with by us since we have proceeded on the assumption that agreements between the parties were legal. The issue whether there was a colourable device or not has become academic and therefore need not be decided" Therefore, it is evident that the Tribunal has not accepted that the assessee has adopted colourable device in order to reduce its tax lia....