TaxTMI 
TaxTMI 
2013 (11) TMI 201
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....he books of accounts the said lease transaction, following Accounting Standard 19 on lease as issued by The Institute of Chartered Accountants of India, was treated as finance lease & accordingly value of assets taken on lease was capitalized as fixed assets and interest & depreciation on the said assets i.e. wagons, were debited to profit & Loss account as an expenses. The said depreciation and interest expenses were deducted by the assessee company in its computation of total income while filing the return of income. Accordingly, the assessee company claimed the lease rental of Rs.8,88,45,834/- by treating the said transaction as operating lease. However, in the assessment framed u/s 143(3), the AO disallowed the claim of impugned lease rental of Rs.8,88,45,834/- as he found the transaction was for the purpose of purchase of railway wagon by the assessee and assessee was the owner of the same by concluding the transaction as financial lease. 2.2 On appeal, the Ld.CIT(A) while confirming the disallowance, directed the AO to verify the amount of loan and the amounts of interest payment made on such loan towards the purchase of railway wagons through financial lease method and to a....
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....3 provided at Page No. 14 of paper book, Note No. 5 of Schedule 21 at Page No. 26 of paper book, Schedule 5 of fixed assets Page No. 15 of paper book, it is clear that the assessee has capitalized the value of assets taken on finance lease and treated the assets of the company being 'Fixed Assets', which is a correct position of law as taken by assessee in its books of accounts as amount paid for acquiring 'Finance Lease Assets' is a capital expenditure and not eligible for deduction as revenue expenditure. The perusal of clause 3 which deals with 'lease rentals and payment' in the relevant agreement available at Page no. 104 to 286 of the paper book clearly establishes that the true nature of transaction of assessee is that of finance lease and it is the owner of the railway wagons as the total payment to be made in 25 months and security deposit given which approximately equal to the cost of wagons. Also, the appellant has the option to buy the wagons results in the presumption that the payment made by appellant in installments is towards purchase the railway wagons. In view of the fact that it is a case of payment of installment/EMI and not of lease rent payment, the lessor's 'o....
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....side bestowed on the Ld.CIT(A). 2.4.4 In view of the above discussion, Ground No 1 in the assesse's appeal and Grounds No. 1&2 in the Revenue's appeal are dismissed. 3. Ground No. 2 of the assessee's appeal and Grounds No.3 & 4 of Revenue's appeal are the common grounds. In this ground of the assessee's appeal, the finding of the Ld.CIT (A) in confirming the partial disallowance of interest on account of interest free advances given to sister concerns and Directors is challenged. In Grounds no 3 & 4 of the Revenue's appeal, the findings of the Ld.CIT(A) on partial allowance of interest on account of interest free loan/advances given to sister concerns and directors is challenged and also the Revenue has taken the ground that the verification of data amounts to set aside of the order and this power is not available with CIT(A). 3.1 The relevant facts are that during the previous year relevant to the assessment year under consideration, the assessee company had given advances (interest free) of Rs.61,68,842/- to its sister concern & Rs.5,86,70,000/- to directors. However, in the assessment framed, the AO had computed the disallowance u/s. 36(1) (iii) on account of interest free lo....
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.... investments would be out of the interest free fund generated or available with the company, if the interest free funds are sufficient to meet the investments. Since in the instant case, the interest free funds i.e. shareholders funds and free reserves and surplus are much higher than the interest free advances made to the sister concerns and since the assessee is maintaining a mixed bank account, therefore, in view of the decision of the Hon'ble jurisdictional High Court in the case of Reliance Utilities and Power Ltd. (supra) no disallowance of proportionate interest can be made. Further the case of the assessee is also squarely covered by the decision of Hon'ble Supreme Court in the case of S.A. Builders (supra) according to which disallowance of proportionate interest cannot be made if the interest free advances have been made to the sister concerns for commercial expediency. Since in the instant case the assessee has conclusively proved that the amount has been paid to subsidiary companies for the purpose of business and no part of the amount of advance has been utilized by the Directors for their personal purpose and the entire amount has been utilized for the p....