2014 (12) TMI 881 - AT - Income Tax

Tribunal ruling favors assessee on key issues incl. disallowance of Lease Equalization Reserve & more

Infrastructure Leasing and Financial Services Ltd. Versus Asstt. Commissioner of Income Tax

The Tribunal ruled in favor of the assessee on various issues including disallowance of Lease Equalization Reserve, disallowance made under section 14A of ... Lease Equalization Reserve disallowed – Held that:- As decided in assesse’s own case for the earlier assessment year, the concept of Lease equalization charge is discussed and accordingly restored the matter back to the file of the AO for carrying out fresh examination – Decided in favour of assessee. Disallowance made u/s 14A – Held that:- The AO has not examined contentions of the assessee about the availability of own funds - in any case, the assessee is required to prove the nexus between own funds and investments on the date of making investment - since the claim of the assessee requires verification of factual aspects, thus issue also required examination by AO – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for fresh consideration. Addition of the amount disallowed u/s 14A – Computation of ‘Book Profit’ u/s 115JA – Held that:- In CIT Vs. Goetz India Ltd [2013 (12) TMI 607 - DELHI HIGH COURT] wherein it has been held that the amount disallowed u/s 14A of the Act under the normal provisions of the Act is required to be added while computing the book profit u/s 115JA of the Act - since the matter relating to the disallowance to be made u/s 14A is remitted to the AO, this issue is also remitted back for adjudication. Claim of provision for bad debts disallowed – Held that:- A specific query was put to assessee as to whether it would be acceptable to the assessee if the disallowance of Provision for bad debts is confirmed in these two years and a direction is given to the AO to exclude the amount so offered (reversal of provision) in subsequent years from the total income, the assessee, after consulting the company’s representative, agreed to the same - the disallowance of amount claimed as ‘Provision for bad debts’ in both the years stand confirmed – the AO is directed to exclude the amount offered by the assessee by reversal of Provision for bad debts in the years in which it was so offered. Expenses on clubs – Held that:- The club membership fees paid for employees is allowable u/s 37 - the issue requires fresh examination in the light of decision rendered by Hon’ble Supreme Court – thus, the order of the CIT(A) is set aside and remitted back to the AO for fresh consideration – Decided in favour of revenue. Interest claimed u/s 36(1)(iii) - part of interest has to be capitalized or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the assessee is entitled to claim interest expenditure u/s 36(1)(iii) in respect of capital borrowed for acquiring capital assets in these years and the order of the CIT(A) is upheld – Decided against revenue. Claim of depreciation on leased assets – Held that:- In earlier assessment year also, by following the decision in M/s ICDS. LTD. Versus COMMISSIONER OF INCOME TAX. MYSORE & ANR. [2013 (1) TMI 344 - SUPREME COURT] it has been held that the assessee is entitled to depreciation, if it has leased out the assets under operating lease – CIT(A) rightly was of the view that lease transactions were genuine in nature – Decided against revenue. Issues:1. Disallowance of Lease Equalization Reserve2. Disallowance made u/s 14A of the Act3. Addition of disallowed amount u/s 14A while computing 'Book Profit' u/s 115JA4. Disallowance of claim of 'Provision for Bad debts'5. Disallowance made u/s 35D of the Act6. Interest charged u/s 234B and 234C of the Act7. Expenditure on clubs8. Disallowance of interest claimed u/s 36(1)(iii) of the Act9. Claim of depreciation on leased assets10. Y2K expenses u/s 36(1)(xi) of the Act1. Disallowance of Lease Equalization Reserve:The Tribunal set aside the orders of the Ld CIT(A) and restored the matter to the file of the assessing officer for fresh examination based on previous decisions regarding Lease Equalization Reserve.2. Disallowance made u/s 14A of the Act:The Tribunal set aside the order of Ld CIT(A) and directed the assessing officer to examine the issue afresh considering the contentions and proofs provided by the assessee.3. Addition of disallowed amount u/s 14A while computing 'Book Profit' u/s 115JA:The Tribunal restored this issue to the assessing officer for reevaluation in light of a specific court decision.4. Disallowance of claim of 'Provision for Bad debts':The Tribunal confirmed the disallowance of the claim but directed the assessing officer to exclude the amount offered by the assessee in subsequent years.5. Disallowance made u/s 35D of the Act:The Tribunal remanded this issue to the assessing officer for further examination.6. Interest charged u/s 234B and 234C of the Act:The Tribunal noted that since the interest charged is consequential, it did not require adjudication.7. Expenditure on clubs:The Tribunal set aside the order of Ld CIT(A) for fresh consideration in light of a Supreme Court decision.8. Disallowance of interest claimed u/s 36(1)(iii) of the Act:The Tribunal upheld the order of Ld CIT(A) based on previous decisions and the relevant proviso in the Act.9. Claim of depreciation on leased assets:The Tribunal upheld the order of Ld CIT(A) based on the genuineness of lease transactions.10. Y2K expenses u/s 36(1)(xi) of the Act:The Tribunal confirmed the decision of Ld CIT(A) based on a relevant Tribunal decision.In conclusion, the appeals filed by the assessee were treated as allowed for statistical purposes, while the appeals filed by the revenue were dismissed.