TaxTMI 
TaxTMI 
2008 (5) TMI 301
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....dit side by sale on hire-purchase in contra entry of Rs. 79,14,700. On a query raised by the Assessing Officer, a date-wise list of hire-purchase transactions containing names and addresses was filed. From this list, the Assessing Officer found that payments of Rs. 23,37,000 in cash exceeding Rs. 20,000 in respect of 32 parties (33 instances) were made. The Assessing Officer required the assessee to explain as to why 20 per cent of the total amount of Rs. 23,37,000 paid in excess of Rs. 20,000 should not be disallowed under section 40A(3) of the Act. It was explained that the transactions were not in the nature of expenditure. They were simply loan transactions. The reliance was placed on CBDT in Notification S.O. No. 624 of14-2-1969wherein it was clarified that the loan transactions were not expenditure and the repayment of principal was not an expenditure deductible in computing the taxable income of the assessee. The Assessing Officer noted that the CIT (Appeals) under Interest-tax Act proceedings in the case of assessee relying on ITAT Hyderabad Bench decision in the case of N.K. Leasing & Construction (P.) Ltd. v. Dy. CIT [2001] 79 ITD 658, deleted the addition in respect of f....
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....bmitted that under hire-purchase agreement the assessee was the owner of the vehicles and the person, who had taken the loan was a hirer. The agreements entered into between the parties were not in respect of purchase and sale of any commodity. For the purpose of accountancy the assessee had shown the advances as purchases and credited the same amount to the sales account. The assessee was not engaged in any trading activity, which is carried on by the persons engaged in the business for earning the profits. He placed reliance on the decision of Hon'ble Gujarat High Court in the case of H. Mohmed & Co. v. CIT [1977] 107 ITR 637. The assessee earned income by way of finance charges on advances given. He further submitted that the word 'any expenditure' referred to in section 40A(3) was of wide import and covered all expenses to be taken into account while determining the gross profit. The gross profit is determined by the difference between the opening stock and purchases on debit side and closing stock and sales on the credit. In the case of assessee, there was no gross profit as there was no difference at all in the figures shown as purchases on one side and the sales ....
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....essee arranged funds and agreements were entered into to safeguard its interests. The entire amount was not paid by the assessee. Part of the amount was paid by the purchasers of the vehicle themselves. The hire-purchase is the name given to the loan transactions. In commercial sense, a commodity is traded and not an asset. The vehicles purchased by the purchaser and financed under hire-purchase agreement, are movable assets in the hands of assessee and not the commodities. The payment is not made directly by the assessee to the owner of the vehicle. He further submitted that the decision taken under the Interest-tax Act could not be made applicable to income-tax proceedings as converse may not always be true particularly when financial transactions are involved. No doubt till the date all instalments were paid by the purchaser, the vehicles were shown in the books of account as owned by the assessee. This will hardly make any change in the situation when the assessee is not a trader in motor vehicles. He placed reliance on the decision of Delhi Stock Exchange Association Ltd v. CIT [1961] 41 ITR 495 at page 498 (SC) for the proposition that it was not how an assessee treated any m....
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....tocks will be hit by the provisions of section 40A(3). He, therefore, supported the order of the ld. CIT (Appeals). 9. We have heard both the parties and gone through the relevant records. There is no dispute that the assessee is engaged in the business of hire-purchase. Under hire-purchase transactions, the vehicles financed by the assessee are treated as owned by assessee till the principal amount together with finance charges is realized. The assessee finances the vehicles identified by the purchasers from the parties and enters into hire-purchase agreement. In the books of account the vehicles are shown as stock on hire under hire-purchase basis. The assessee has not earned income from sale of vehicles under hire-purchase agreement. The income is received from finance charges on monies so advanced. It is also an undisputed fact that the assessee has not financed the full cost of the vehicles. Part of it has been contributed by the purchaser. The sale bill has been issued in the name of the purchaser by the seller which is commonly prevalent in case of hire-purchase transactions. In the case of State of Kerala v. Modern Plastic Industries [1984] 57 STC 64 (Ker.), which involved....
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....he cases where the financier is also dealer in the assets he lets on hire purchase, the decision of Modern Plastic will be applicable in the most of the cases of hire-purchase. Respectfully following the decision of Hon'ble Kerala High Court it is held that the true nature of the transactions is only a financial agreement in favour of the purchasers of the vehicles. 11. As regards the entries recorded in the books of account it is settled law as held in the case of Kedarnath Jute Mfg. Co. Ltd., that whether the assessee is entitled to a particular deduction or not will depend on the provisions of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter some misapprehension or mistake fails to make an entry in the books of account and if under the law, a deduction must be allowed by the Assessing Officer, the assessee will not lose the right of claiming or will not be debarred from being allowed that deduction. Similar view has been taken in the case of Sutlej Cotton Mills Ltd. Therefore, it is wrong on the part of the revenue authorities that ....