2015 (8) TMI 168

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....iled on 02.12.2003 declaring an income of Rs. 2,78,95,579/-. The assessment was taken up for scrutiny and scrutiny assessment u/s 143 (3) of the Income-tax Act, 1961 was completed by order dated 28.03.2006 assessing total income of Rs. 3,18,14,069/-. The assessment was reopened u/s 147 and reassessment was completed by order dated 05.11.2007 fixing a total income of Rs. 4,16,49,460/-. Against the order completed u/s 147 read with section 143 (3), assessee preferred an appeal to the CIT (A) and also a writ petition to the Hon'ble Delhi High Court. The Hon'ble Delhi High Court by judgment dated 26.09.2011 quashed the reassessment order on the ground that the reasons recorded show only a change of opinion and the reassessment proceedings are invalid. 3.1 Thereafter, a second notice dated 19.03.2010 was issued u/s 148 of the Act. The reasons recorded for issuance of notice dated 19.03.2010 reads as under :- " From the record it is found that the assessee, in its computation of income, had claimed and was allowed deduction of Rs. 24,88,202/-, under section 37 of the IT Act. It is observed that this expenditure was incurred for acquiring fixed assets (Rs. 15,58,610/-) and vehicles ....

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....ly, disallowance u/s 37 of the Act and excess managerial remuneration paid. The CIT (A) rejected the plea of the assessee that the reassessment is bad in law. As regards the issue on merits, the CIT (A) confirmed the disallowance u/s 37 of the Act amounting to Rs. 9,29,592/-. The CIT (A) also confirmed the AO's action in disallowing excess managerial remuneration paid. However, the CIT (A) accepted the alternative plea of the assessee and directed the amount to be excluded from the income of the assessee in the next assessment year. Since the alternative plea of the assessee was accepted with reference to the addition of Rs. 14,60,327/-, the assessee did not challenge the same before us. As regards the rejection of assessee's plea of reopening of reassessment and issue on merits, namely, the disallowance of Rs. 9,29,592/- on account of payment of lease amount, the assessee is in appeal before us raising the following grounds :- "1. That the CIT(A) erred on facts and in law in upholding the order passed by the assessing officer under section 143(3) read with section 147 of the Income-tax Act, 1961 ('the Act'), which is beyond jurisdiction, bad in law and void-ab-initio, ....

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.... allowed on the purported cost of the fixed asset. 5.1 After having heard rival submissions, we are of the view that AS-19 on accounting for "Leases" issued by the ICAI is only applicable for accounting the lease transaction in the books of accounts. It is a settled law that treatment in the books of accounts is not determinative of liability towards income-tax for the purpose of the Act. The liability under the Act is governed by provisions of the Act and is not dependent on the treatment followed for the same in the books of accounts. For above proposition, reference is made to Sutlej Cotton Mills Ltd. vs. CIT: 116 ITR 1 (SC) and Kedarnath Jute Mfg. Co. Ltd. vs. CIT: 82 ITR 363 (SC). AS-9 on accounting for leases classifies lease transactions for accounting purposes as under: (i) Finance Lease (ii) Operating Lease 5.2 Finance Lease, in AS-19, is described as a lease that transfers substantially all the risks and rewards in respect of ownership of an asset; title may or may not be transferred under such lease. An operating lease, on the other hand, is described as a lease other than a finance lease. The aforesaid Accounting Standard provides that under the finance leas....

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....mpairment provision. In the hands of the lessor, the entire 'lease rentals' and not merely the finance charges component thereof is taxed as income. The lessor, who is the legal owner of the asset, is entitled to claim depreciation under the provisions of the Act. 5.5 The aforesaid legal position finds support from the decision of the Hon'ble Supreme Court in the case of ICDS Ltd. vs. CIT - 350 ITR 527, wherein the Hon'ble Court held that the lessor is the owner of the leased property in case of finance lease, entitled to depreciation of the same. The pertinent observation of the Hon'ble Court is reproduced hereunder : " The revenue's objection to the claim of the assessee is founded on the lease agreement. It argued that at the end of the lease period, the ownership of the vehicle is transferred to the lessee at a nominal value not exceeding one per cent of the original cost of the vehicle, making the assessee in effect a financier. However the revenue's contention cannot be accepted. As long as the assessee has a right to retain the legal title of the vehicle against the rest of the world, it would be the owner of the vehicle in the eye of law. A scrutiny....