2014 (12) TMI 1357 - AT - Income Tax

ITAT's Decision: Assessee's Appeal Partly Allowed, Revenue's Appeal Dismissed

The ITAT partly allowed the assessee's appeal for statistical purposes, while dismissing the revenue's appeal. The ITAT directed the assessing officer to ... Disallowance of Lease Equalization Reserve - Disallowance of expenditure it is not a prescribed expenditure u/s 30 to 37 - HELD THAT:- We have gone through the order passed by the Tribunal for AY 1998-99, wherein the Tribunal has extracted the observations made by the co-ordinate bench in the order passed for AY 1994-95 to 1997-98, wherein the Tribunal has explained the concept of Lease equalization charge and accordingly restored the matter back to the file of the assessing officer for carrying out fresh examination. Consistent with the view taken by the Tribunal in the earlier years, we set aside the orders of Ld CIT(A) in this year and restore the same to the file of the assessing officer with the direction to decide the issue afresh in the light of discussions made by the Tribunal in AY 1994-95 to 1997-98. MAT Computation - addition of “Provision for Non-Performing Assets” while computing the book profit u/s 115JB - assessing officer added the same by treating as “unascertained liability” - HELD THAT:- We notice that the Finance Act 2009 has made amendment in sec. 115JB of the Act with retrospective effect from 1.4.2001 by inserting the following item to be added to the book profit:- “(i) the amount or amounts set aside as provision for diminution in the value of any asset.” Hence, the provision for non-performing assets”, being a provision for diminution in the value of asset, the same is required to be added to the book profits. Accordingly, we confirm the order of Ld CIT(A) on this issue. Addition of “Provision for diminution in the value securities” - HELD THAT:- We notice that the claim of the assessee that the securities are forming part of stock in trade has not been examined by the tax authorities. Further the claim of the assessee that it was following the system of valuing the securities under the principle, viz., “cost or market value whichever is lower” also requires examination at the end of the assessing officer. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the assessing officer to examine the claim of the assessee afresh and take appropriate decision in accordance with the law. Expenditure incurred on clubs - Allowable revenue expenditure u/s 37 - HELD THAT:- A.R submitted that this issue is now covered by the decision of Hon’ble Supreme Court in the case of CIT Vs. United Glass Mfg. Co. Ltd [2012 (9) TMI 914 - SUPREME COURT] as held that the club membership fees paid for employees is allowable u/s 37 of the Act. Hence, we are of the view this issue requires fresh examination in the light of decision rendered. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO for fresh consideration. Claim of depreciation made on leased assets - HELD THAT:- Tribunal has allowed the claim of depreciation on leased assets by following the decision of Hon’ble Supreme Court in the case of ICDS Limited [2013 (1) TMI 344 - SUPREME COURT] There should not be any dispute that the assessee is entitled to depreciation, if it has leased out the assets under operating lease. AO had taken the view that the lease transactions entered into by the assessee were not genuine lease transactions. CIT(A) has come to the conclusion that the lease transactions were genuine in nature and he held so by placing reliance on the decision rendered in the preceding years. It was submitted that the lease transactions has been accepted by the Tribunal in the earlier years and accordingly depreciation was allowed. Accordingly, consistent with the view taken in the earlier years, we uphold the order of Ld CIT(A) on this issue. Issues:1. Disallowance of Lease Equalization Reserve2. Disallowance made u/s 35D of the Act3. Addition of Provision for Non-Performing Assets4. Addition of Provision for diminution in the value securities5. Interest charged u/s 234D of the Act6. Expenditure incurred on clubs7. Claim of depreciation made on leased assetsDetailed Analysis:1. Disallowance of Lease Equalization Reserve:The assessing officer disallowed the claim of lease equalization reserve as not a prescribed expenditure u/s 30 to 37 of the Act. The Ld CIT(A) also upheld this decision. However, the ITAT, in previous years, had restored similar matters back to the assessing officer for fresh examination. Following this precedent, the ITAT set aside the Ld CIT(A) orders and directed the assessing officer to decide the issue afresh based on previous Tribunal discussions.2. Disallowance made u/s 35D of the Act:The Ld A.R did not press the grounds related to this issue, leading to their dismissal as not pressed.3. Addition of Provision for Non-Performing Assets:The assessing officer added the provision for non-performing assets while computing book profit u/s 115JB of the Act, treating it as an unascertained liability. The ITAT confirmed this addition, citing an amendment in sec. 115JB that required such provisions to be added to book profits.4. Addition of Provision for diminution in the value securities:The ITAT set aside the Ld CIT(A) order regarding the provision for diminution in the value of securities, directing the assessing officer to examine the claim afresh. The claim that securities were part of stock in trade and valued based on the principle of 'cost or market value whichever is lower' needed further examination.5. Interest charged u/s 234D of the Act:The ITAT confirmed the Ld CIT(A) order regarding interest charged u/s 234D, noting the lack of specific details against the levy of interest by the assessee.6. Expenditure incurred on clubs:The ITAT set aside the Ld CIT(A) order on the expenditure incurred on clubs, citing a decision by the Hon'ble Supreme Court that club membership fees paid for employees are allowable u/s 37 of the Act. The issue required fresh examination in light of this decision.7. Claim of depreciation made on leased assets:The ITAT upheld the Ld CIT(A) order allowing the claim of depreciation on leased assets, emphasizing the genuineness of lease transactions and reliance on previous decisions supporting depreciation claims in similar cases.In conclusion, the appeal filed by the assessee was partly allowed for statistical purposes, while the appeal filed by the revenue was dismissed, as per the ITAT judgment delivered on 17th Dec, 2014.