2013 (3) TMI 457

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....scounting and inter corporate deposits. The main addition on which the penalty has been levied is the addition of Rs. 1,02,48,840, made on account of lease equalization. The Assessing Officer, at Para-7.1 of the assessment order, states that in Schedule-13 of Profit & Loss account, the assessee had reduced the equalization account from the income earned from the leasing and hire purchase. When asked for an explanation, the assessee relied on the guidance note issued by the Institute of Chartered Accountants of India for the accounting of finance lease transactions. The assessee's reply is extracted below for ready reference:- "The ICAI have issued a guidance note for the accounting of finance lease transaction. Lease rentals to be recovere....

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....ross lease rental is split into the finance charge calculated on the basis of the implicit rate and capital recover (lease charge). The difference between the capital recovery and minimum stutory depreciation is credited in lease equalization account. The net result is that the finance charge is booked as income and the capital recovery is deducted by way of statutory depreciation and lease equalization. At the end of lease period by way of statutory depreciation and lease equalization. At the end of lease period the total of statutory depreciation and the lease equalization provided would be equal to the cost of the leased asset. The lease equalization therefore is not in nature of income but only capital recovery and hence question of pay....