2024 (2) TMI 982 - AT - Income Tax

Lease rental payments allowed as deductible expenditure, foreign tax credit claim remitted for verification

NTT Global Data Centers & Cloud Infrastructure India Private Limited {Erstwhile Netmagic IT Services Private Limited} Versus National e-assessment Centre {Now known as National Faceless Appeal Centre), Delhi

ITAT Mumbai allowed assessee's appeal on three grounds. First, lease rental payments were permitted as deductible expenditure, following SC and Karnataka ... Disallowance of finance lease rental payments - claim of the assessee to claim the lease rent as an expenditure in their computation - HELD THAT:- The same set of transaction on which lessor (Cisco Systems Capital (India) Private Limited) was allowed to claim the deduction/depreciation in their computation and the resultant of the same transaction i.e., in the case of lessee (i.e. assessee), revenue cannot take a different view. Therefore, in our considered view the claim made by the assessee is on the same lease, therefore, we respectfully following decisions of the Hon’ble Karnataka High Court [2021 (7) TMI 121 - KARNATAKA HIGH COURT] and Hon’ble Supreme Court in the case of ICDS Limited[2013 (1) TMI 344 - SUPREME COURT] we are inclined to allow the claim of the assessee to claim the lease rent as an expenditure in their computation. This case being peculiar we are inclined to allow the ground raised by the assessee. Accordingly, ground raised by the assessee is allowed. Disallowance of expenses treating the same as provisions - HELD THAT:- Before us, Ld.AR of the assessee brought to our notice summary of expenses disallowed by the AO along with the supporting evidences which was also submitted before Ld. CIT(A). The various expenditures claimed by the assessee are disallowed without there being any proper verification. Therefore, we are inclined to remit this issue along with the various supporting evidences submitted by the assessee to the file of the AO with a direction to verify the same as per law. It is needless to say that assessee may be given proper opportunity of being heard. Accordingly, Ground No. 2 raised by the assessee is allowed for statistical purpose. Foreign Tax Credit - assessee had inadvertently failed to claim credit of foreign taxes in its return of income - AR submitted that the assessee is eligible to claim credit of foreign taxes paid in Japan to avoid any double taxation in respect of same income. HELD THAT:- During the course of assessment proceedings, the assessee submitted a claim for credit of foreign taxes to the AO. AO did not grant credit of foreign taxes paid without giving any reason for the same. The Assessing Officer ought to have granted credit of foreign taxes in light of CBDT Circular 14 (XL-35) dated 11.4.1955 which states that it is the duty of the Assessing Officer to give to the Assessee any legitimate and legal tax relief to which the Assessee is entitled but has omitted to claim for one reason or another - Thus considering the overall merits on the submissions made by the assessee and there is merit in claim of the assessee. Therefore, we are inclined to remit this issue back to the file of assessing officer with a direction to verify the records submitted by the assessee on merit and as per law. Issues Involved:1. Disallowance of finance lease rental payments.2. Disallowance of expenses treating the same as provisions.3. Non-grant of foreign tax credit.Summary:Issue 1: Disallowance of Finance Lease Rental PaymentsThe assessee claimed finance lease rental payments of Rs. 6,47,09,747/- as revenue expenditure under section 37(1) of the Income Tax Act. The Assessing Officer (AO) disallowed the claim, treating the principal component of the lease rental as capital expenditure. The CIT(A) upheld the AO's order. The assessee argued that the lease payments were for the use of assets, not acquisition, citing CBDT Circular No. 2 dated 09.02.2001 and the Supreme Court decision in ICDS Ltd. The Tribunal, after reviewing the lease agreements and relevant clauses, concluded that the lease rentals are for the use of assets and allowed the claim as revenue expenditure, referencing decisions in favor of the assessee, including those by the Karnataka High Court and Supreme Court in similar cases.Issue 2: Disallowance of Expenses Treating the Same as ProvisionsThe AO disallowed expenses amounting to Rs. 4,14,46,637/- treating them as provisions not incurred or paid in the relevant assessment year. The CIT(A) upheld the disallowance. The assessee argued that the expenses were incurred in the relevant year and supported by invoices. The Tribunal noted the lack of proper verification by the AO and remitted the issue back to the AO for verification of the supporting evidence, directing that the assessee be given an opportunity to be heard.Issue 3: Non-grant of Foreign Tax CreditThe assessee claimed foreign tax credit for taxes paid in Japan on income from technical services rendered to NTT Communications Corporation. The AO denied the credit without providing reasons. The Tribunal, noting the assessee's eligibility under the India-Japan tax treaty and the inadvertent omission in the return, remitted the issue back to the AO for verification and granting of the foreign tax credit as per law, ensuring the assessee is given a proper opportunity to be heard.Conclusion:The appeal was partly allowed, with the Tribunal granting the claim for finance lease rental payments, remitting the issues of disallowed expenses and foreign tax credit back to the AO for further verification and proper adjudication.