TaxTMI 
TaxTMI 
2024 (9) TMI 341
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.... referred to TPO u/s 92CA of the Act for assessing Arm's Length Price of the international transaction. 3. The relevant facts relating to the ground raised by the assessee are, the Assessing Officer observed that assessee made the principal payment of lease rental amounting to Rs. 7,31,504/-. The Assessing Officer observed that in Assessment Year 2008-09, the ITAT Bench in the case of assessee's own case given the following directions, the same was reproduced by the AO in his order. For the sake of clarity the same are reproduced here under:- "10. Principal payments on lease rentals 10.1 Further, on the issue of principal payment on lease rental amounting to Rs. 7,31,504/-, Hon'ble ITAT has restored the issue back to the file of the AO to decide the same in the light of the direction of the Tribunal in assessment year 2008-09. The relevant extract is reproduced as under:- "Para 22. Without going into the merits or demerits of the deduction claimed by the assessee, we are of the view that in view of the issue being set aside by the Tribunal to the file of AO in later decision relating to assessment year 2008-09, we deem it fit to restore this issue ....
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.... the Appellant, termed as 'principal payment towards finance lease', în respect of motor vehicles taken on lease by the Appellant alleging that such payments is towards acquisition of capital asset and accordingly, is a capital expenditure. 2. That the Ld. AO has erred in solely relying in the case of IndusInd Bank Ltd. vs. Additional Commissioner of Income Tax (2012) 15 ITR (T) 89 (Mumbai) without appreciating the subsequent judgement of Hon'ble Supreme Court in case of I.C.D.S. Ltd. v. CIT reported in (2013) (350 ITR 527) (SC) and judgements of jurisdictional Delhi Tribunal in case of NIIT Ltd. v. Deputy Commissioner of Income-tax, LTU, Central Circle-16(1), New Delhi [2019] 112 taxmann.com 66 and M/s. Minda Corporation Limited, vs. DCIT, Circle 6 (1) [2016] 69 taxmann.com 317, wherein it was held that lessee is eligible for deduction of lease rental as revenue expenditure. 3. That the learned AO erred in facts and law in initiating the penalty proceedings under Section 271(1)(c) of the Act. The above grounds are independent and without prejudice to each other. The Appellant craves to leave to add, with draw, amend or vary the above gr....
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....lease rental of Rs. 9,29,592/- (apart from finance charges already debited in the profit and loss account) paid by the assessee in the year under consideration was claimed as deduction under section 37 of the Act. The AO disallowed the aforesaid claim of deduction on the ground that since the payments made by the assessee was in the nature of a 'finance lease', the same was required to be capitalized and not allowable as deduction under section 37 of the Act. Further, depreciation was also not 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 ....
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.... of finance lease is not aligned to the accountant's perspective of a finance lease. For accounting purposes, although the lessee shows the asset in his balance sheet, charges depreciation in accounts and even makes impairment provision, yet the assessee is not eligible to claim depreciation under the Act, which is allowed to the legal owner of the asset. Furthermore, not only the interest/ Finance/ other charges component in the lease payments, but the entire ease payments are treated as a deductible expense and no deduction is allowed for the impairment 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 lease property in case of finance lease, entitled to deprecation of the same. The pertinent observation of the Hon'ble Court is reproduced hereunder: ....