Supreme Court: Lease charges not reserve under 115-JB(2), bond issue expenses disallowed, depreciation allowed.

The Supreme Court directed the assessing officer to delete the addition of Rs.1,42,02,48,221/- to book profit on account of lease equalization charges, stating that such charges are not in the nature of a reserve to be added under section 115-JB(2). The matter of adding the same amount to total income was set aside for verification, following ITAT's precedent. Additionally, the assessing officer was directed to delete the disallowance of bond issue expenses and allow depreciation claimed on an office building purchased from NBCC, in favor of the assessee.

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Issues Involved:
1. Addition to book profit on account of Lease Equalization Charge.
2. Addition to total income on account of Lease Equalization Charge.
3. Disallowance of Bond Issue Expenses.
4. Disallowance of Depreciation on office building purchased from NBCC.

Summary:

1. Addition to book profit on account of Lease Equalization Charge:
The first issue relates to confirming the addition of Rs.1,42,02,48,221/- to book profit on account of lease equalization charges. The assessee argued that lease equalization charges represent recovery of fair value of leased assets and should be deducted from lease rentals, in accordance with the Institute of Chartered Accountants of India guidelines. The assessing officer rejected this, stating that the method of computation for Income-tax purposes is not determined by these guidelines. The CIT (A) upheld the addition based on the Authority for Advance Ruling in the case of NHPC Ltd., which was later reversed by the Supreme Court. The Supreme Court held that Advanced Against Depreciation (AAD) is not a reserve for the purpose of section 115-JB and is an allowable deduction. ITAT, Delhi Bench also supported this view in the case of G.E. Capital Transportation Financial Services Ltd. Thus, lease equalization charges are not in the nature of reserve to be added under clause (b) of Explanation 1 to section 115-JB(2). The assessing officer is directed to delete the addition.

2. Addition to total income on account of Lease Equalization Charge:
The assessing officer added Rs.1,42,02,48,221/- to the total income under normal provisions of the Act. The CIT (A) upheld the disallowance following previous years' decisions. ITAT, Delhi Bench had previously decided this issue in favor of the assessee, stating that lease equalization charges should be allowed as deduction. The matter is set aside to the assessing officer for verification, following the precedent set by ITAT.

3. Disallowance of Bond Issue Expenses:
The assessee incurred Rs.10,09,92,445/- towards bond issue expenses and claimed it as a deduction. The assessing officer treated it as capital expenditure. The CIT (A) upheld the disallowance. ITAT had allowed the appeal in favor of the assessee in previous years, following the Delhi High Court judgment in the case of M/s. Khirani Chemicals Ltd., which allowed such expenses as a permissible deduction. The assessing officer is directed to delete the addition.

4. Disallowance of Depreciation on office building purchased from NBCC:
The assessee claimed depreciation on office building at Rs.1,45,16,016/-. The assessing officer disallowed it, stating that mere occupation is not sufficient without a registered sale deed. The CIT (A) upheld the disallowance. ITAT had previously allowed depreciation for the assessee in a similar case, stating that possession and payment are sufficient for claiming depreciation, even if registration formalities are pending. Following the precedent, the assessee is entitled to depreciation.

Conclusion:
The appeal filed by the assessee is decided in favor of the assessee on all issues, with directions to the assessing officer to delete the additions and allow the deductions as indicated.

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