APPASAHEB NALAWADE GADHINGLAJ SAHAKARI SAKHAR KARKHANA LTD.,KOLHAPUR vs. DC/ACIT CIRCLE-1, KOLHAPUR, KOLHAPUR

After considering the reply of the assessee, Ld. CIT(A)/NFAC dismissed the appeal filed by the assessee by observing as under :- “5.0 Decision: The grounds of appeal and submissions filed have been perused. The appellant is a co-operative society registered under the Maharashtra Co-operative Societies Act, 1960, engaged in manufacture and sale of sugar and it by-products. The appellant filed its return of income for the A.Y 2018-19 by declaring Nil income. The appellant had claimed depreciation of Rs.22,09,817/- on property leased out. The Assessing Officer held that the appellant had given the sugar factory on lease from F.Y 2013-14 onwards and had not used the same in the F.Y 17-18 and hence was not eligible to can deprecation on the asset. The assessment 143(3) r.w.s. 143(3A) & 143(3B) of the Act was completed on 05.04.2021 by assessing the total income Rs.22,09,817 by disallowing the claim of depreciations 5.1. The AO held that as the appellant is not operating the sugar factory for production and had leased it out from F.Y 2013-14 onwards, the appellant was not eligible to claim depreciation from this asset u/s 32 of the I.T.Act, 1961. 5.2. The appellant has relied on the Indian Accounting Standard 19 claiming that the lessor is eligible to claim depreciation on the leased asset. The appellant further justified the claim for depreciation stating that though the factory was leased out, it was still being used for the purpose of business i.e. crushing of sugar cane. 5.3. During appellate proceedings, in order to take a decision about the ownership of the asset, the appellant was requested to furnish copy of the lease agreement. Though many opportunities were provided to the appellant to furnish copy of the Lease agreement, the appellant failed to submit the same. Instead of furnishing copy of the Lease agreement, the appellant repeatedly submitted the same reply which was not substantiated with credible evidence to allow depreciation claimed by the appellant. Since the appellant failed to submit the required evidence, the claim of depreciation by the appellant is not allowable. Accordingly, the action of the AO is hereby upheld and the grounds of the appeal of the appellant is dismissed. 6.0 In effect, the appeal of the appellant is dismissed.”

It is this order against which the assessee is in appeal before this Tribunal.

Ld. AR appearing from the side of the assessee submitted before us that the order passed by Ld. CIT(A)/NFAC is unjustified. Ld. AR further submitted before the Bench that the return of income for assessment year 2016-17 was also subject to scrutiny assessment and similar disallowance of depreciation was made by the Assessing Officer. The disallowance of depreciation was deleted by Ld. CIT(A)/NFAC vide order dated 17.12.2019, copy of which is placed in paper book and the Revenue is not in appeal against the order of Ld. CIT(A) allowing depreciation. Ld. AR submitted that the return for assessment year 2017-18 was also subject to scrutiny but no such disallowance of depreciation was made by the Assessing Officer. It was contended before the Bench that the assets were leased out for the purposes of manufacturing of sugar and cane crushing that is for business purposes and the assets were admittedly owned by the assessee since the depreciation claimed was allowed in earlier years also. Ld. AR relied on the order passed by a Coordinate Bench of this Tribunal in the case of IndusInd Bank Ltd vs. Addl. CIT, Special Range, Mumbai [2012] 19 taxmann.com 173 (Mumbai) wherein it was held that only the lessee can be treated as owner of the asset in case of a finance lease and it is he who is entitled to claim depreciation as per law and depreciation can be allowed to the lessor in such a case of a genuine finance lease. Accordingly, it was prayed by Ld. AR to set-aside the order passed by Ld. CIT(A)/NFAC and requested to delete the disallowance of depreciation made by the Assessing Officer.

Ld. DR appearing from the side of the Revenue supported the orders passed by subordinate authorities and requested to confirm the same.

We have heard Ld. counsels from both the sides and perused the material available on record including paper book and case laws furnished by the assessee. In this regard, we find that earlier the assessee itself was running the sugar factory but due to financial crisis the factory with all assets was handed over to other party for running the business. We also find from the details that the income by leasing out the factory was shown as business income by the assessee cooperative society and in earlier years such depreciation was also allowed to the assessee cooperative society under similar facts and circumstances of the case. In this regard, copy of assessment order for assessment year 2017-18 and copy of first appeal order for assessment year 2016-17 were produced before us wherein depreciation was allowed to the assessee cooperative society. The Revenue is not in appeal against the order of Ld. CIT(A) allowing depreciation on such leased assets. Under these circumstances, we find force in the arguments of Ld. counsel of the assessee that the Assessing Officer as well as Ld. CIT(A)/NFAC erred in not allowing the depreciation claimed by the assessee since the same was already allowed in earlier years and therefore there is no reason to disallow the same in subsequent years. Accordingly, the order passed by Ld. CIT(A)/NFAC is set- aside and the Assessing Officer is directed to allow the depreciation claimed by the assessee. Thus, the grounds raised by the assessee are allowed.