TaxTMI 
TaxTMI 
2023 (11) TMI 1050
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.... 28.11.2017 declaring total income of Rs. 34,17,94,370/- under the normal provisions of the Act. The case was selected for scrutiny under CASS and accordingly statutory notices u/s 143(2) and 142(1) were issued and served on the assessee to which the A.R of the assessee appeared before the Assessing Officer and filed the relevant details. 4. During the course of assessment proceedings, the Assessing Officer noted that the assessee has claimed an amount of Rs. 3,43,44,661/- as revenue expenditure which is the principal amount of lease on vehicles and computers. On being asked by the Assessing Officer to justify the same, the assessee claimed that the leases are operating leases where the lessor is the owner of the assets till the end of the lease and the company does not claim depreciation on them. 5. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He noted that the registered ownership, insurance and usage of the assets leased in the instant case are with the assessee. He also noticed from the financials of financial year 2017-18 that the assessee has purchased and reclassified the computers and vehicles taken on lease to owned assets....
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....ner of the vehicle. 10. Referring to the decision of the Coordinate Bench of the Tribunal in the case of RAK Ceramics India (P) Ltd (ITA No.2226/Hyd/2017) order dated 15.11.2019, the learned Counsel for the assessee submitted that the Tribunal, following the decision of the Hon'ble Supreme Court in the case of ICDS Ltd (Supra) allowed the lease rental paid as revenue expenditure in the hands of the lessee itself. 11. So far as the contention of the Revenue that the assessee itself has reclassified the leased assets as owned assets in the books of account is concerned, he submitted that in terms of Accounting Standard 19-"Leases" ("AS-19") issued by the Institute of Chartered Accountants of India (ICAI), the assets acquired under financial lease has to be capitalized in the books of account and consequent liability thereon was also created. Accordingly, the assessee has charged depreciation on such assets in the P&L Account which was subsequently disallowed u/s 32 of the Act by the assessee while computing the taxable income as per the Act. 12. Referring to the decision of the Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd (116 ITR 1) and Kedarnath Jute Mfg.....
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....(leased assets) having Gross Block of Rs. 13,823.604 (Accumulated Depreciation of Rs. 13,823.64) has been reclassified from Leased Assets to Owned Assets". 18. Further, the learned DR drew our attention to page 105 of the Paper Book and had also drawn our attention to page 203 with respect to the ownership of vehicles which states as under: 2.5 Ownership of the Vehicle: The parties hereby confirm that their intent is that the Vehicle shall at all times remain the property of the Lessor. For the purposes of the Motor Vehicle Act, 1988 (the "Act") and the provisions thereof, the Vehicle provided on Lease hereunder shall be registered in the name of the Lessee as Registered Owner, as required under the provisions of the Act, for the benefit of the Lessor and expressly subject to the absolute ownership rights of the Lessor thereon and the Lessee undertakes and hereby authorizes the Lessor to have the said registration transferred in the name of the Lessor or its nominee at the end of Lease Term or upon Premature Termination of Lease, as the case may be, whenever required to do so. Subject to the compliance with the obligations under these presents the Lessee shall have the right....
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....isions cited before us by both sides. We find the assessee in the instant case has paid lease rentals for certain assets i.e. vehicles and computers which were taken on lease amounting to Rs. 3,43,44,661/- and claimed the same as a revenue expenditure while computing the income under the head profit and gains from business or profession. We find the Assessing Officer held that the registered ownership, insurance and usage of the leased assets are with the assessee. Further, the assessee itself has reclassified the computers and vehicles from leased assets to owned assets as per the audited financial statement. He therefore, disallowed the lease rent claimed by the assessee and treated the same as capital expenditure. We find in appeal, the learned CIT (A) NFAC held that the assessee is the owner of the leased vehicles and computers for the year under consideration. According to him, the registered ownership, insurance and usage of leased assets are with assessee. Therefore, the transaction was in nature of finance lease and not operating lease since the assessee has reclassified the leased assets to owned assets in its financial statement as well and is the real owner of the assets....