TaxTMI 
TaxTMI 
2017 (8) TMI 114
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....a lease certain premises for the purpose of installation of the passive equipment for providing infrastructure support services to various telecommunication companies like Airtel, Idea, Vodafone, etc. and enters into live and license agreement with landlords for a period ranging between 15 to 20 years with the stipulation that the license fee increasable by 15% at the expiry of every 5 years. However, the company has been adopting the account policy in respect of leases as prescribed by the Accounting Standard-19 issued by the ICAI which says that if the payment terms include fixed escalation clause in non-cancellable lease, the effect of such increase is recognized on a straight line basis. In view of this there will be some difference in the actual lease amount that is accrued and the amount debited/credited to the P &L A/c due to the following of AS-19. The difference is called the Lease Equalization Amount and the company has been debiting or crediting this difference to the lease revenue equalization account, depending upon the fact whether the actually accrued lease amount is lesser or greater than the amount arrived by way of straight line basis. 3. For AY 2008-09 the dif....
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.... ITA No. 2823/Del/2013. ITA No. 4941/Del/2012 & 2823/Del/2013: 10. Adverting to the lease equalization charges, it is the argument of the Ld.AR that the assessee has been following the mercantile system of accounting as such the tax liability is only on such amount which is actually accrued to the assessee during the year but because of the accounting policy of the company in respect of the lease to follow AS-19, the lease payable or receivable has to be debited or credited to the profit and loss account on straight line basis. The difference between the accrued lease and the lease arrived on straight line basis is called lease equalization charges. For the initial years lease equalization charges will be more than the actual amount of lease accrued as such for such years lease amount arrived on straight line basis is credited to the profit and loss account but the lease equalization charges are reduced in the computation of income. Similarly as the years passed on, at one point of time actual lease accrued will exceed the lease amount on straight line basis as such from such point of time the lease equalization charges will be added to the computation of income. This is how ....
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....ctual lease amount that is accrued. This is exactly that was approved by the Ld. CIT (A) in respect of the year 2009-10. 12. In respect of the year 2008-09 also it's not in dispute that in respect of the property taken on lease, the assessee debited the straight line basis lease amount to rent account in the profit and loss account and because such amount is less than the actual amount that was received by Rs. 8,60,42,238/- they added it back in the computation of income, and the same was accepted by the AO. Having accepted this adjustment of the lease equalization charges in respect of the property taken on rent and having accepted the proposition that when the amount actually accrued exceeds the amount that was debited to the rent account, such exceeded portion has to be added back to the computation of income, the AO should have realized that the natural corollary for this in respect of the property given on lease would be that where the lease equalization charges that are credited to the Revenue are greater than the actual rent accrued, such excess portion shall be reduced in the computation of income. Accepting the lease equalization charges adjustment in respect of the pro....
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....e is sufficient recording of reasons by the AO to the effect that the expenditure offered by the assessee for earning the tax exempt income is not acceptable, these decisions are not at all helpful to the case of the assessee. 16. In this matter the total tax exempt income of the assessee is Rs. 52,15,095/- with the average investment value of Rs. 15,96,57,16,500/-. We find that the AO has rightly reached a conclusion that the expenditure at Rs. 5,21,510/- offered by the assessee cannot be accepted. However, by calculating the disallowance under Rule 8D(2) the AO reached the disallowance at Rs. 7,98,28,582/- whereas the Ld. CIT (A) felt that the action of the AO in invoking Rule 8D was arbitrary in as much as the profit and loss account shows the expenditure of personnel at Rs. 1.67 crores and an administrative and other at Rs. 1.32 crores as such put together it comes 2.99 crores. According to the Ld. CIT (A) when the total expenditure incurred by the assessee in respect of personnel, administrative and other was only Rs. 2.99 crores, invocation of Section 14A was against the spirit of the Section. 17. On this aspect Ld. AR argued that investment to a tune of Rs. 2,017/- cro....