TaxTMI 
TaxTMI 
2025 (4) TMI 986
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....e Tax (Appeals)-2, New Delhi [hereinafter, the 'CIT(A)'] 2. Vide three grounds & its sub grounds, three issues raised in this appeal are as under: i. Disallowance of Lease Equalization Reserve of Rs. 86,30,697/-. ii. Disallowance of bad debts of Rs. 32,21,200/- written off under section 36(2) of the Income Tax Act, 1961 (hereinafter, the 'Act'). iii. Chargeability of interest under section 234B and 234C of the Act. 3. The relevant facts giving rise to this appeal are that the assessee provides software development services. The assessee filed its Income Tax Return (hereinafter, the 'ITR') on 28.11.2014declaring income of Rs. 20,61,14,690/-. The case was scrutinized and consequential assessment was completed ....
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....d these debts had actually become bad non-recoverable. Aggrieved, the assessee filed appeal before the CIT(A), who did not find any infirmity in the assessment order; therefore, he sustained both disallowances. 4. The Ld. Counsel, at the outset, contended that the aforesaid actions of the AO and Ld. CIT(A) were based on incorrect and erroneous appreciation of the facts of the case and law. It was specifically submitted that the leasing agreement generally had an escalation clause, wherein, lease rentals were proposed to be increased on year-to-year basis or upon some agreed duration. In terms of Accounting Standard-19, the lease rentals needed to be recognized over the period of the lease on a straight line basis. Para 23 of AS 19 provid....
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....g its total income. It was submitted that the assessee had debited the equated rental expenditure of Rs. 8,95,44,771/- instead of the actual rent expenses of Rs. 9,81,75,768/- to its Profit & Loss account. Therefore, in order to recognize lease rental expense on straight-line basis over the lease term further claimed Rs. 86,30,697 in its ITR the form of a equalization reserve. The Ld. Counsel drew our attention to the assessee's reply dated 21.09.201 filed before the AO enclosing detailed year-wise working of rent/lease equalization reserve, actual rentals and equated rental during the relevant previous year. The actual rental and the rent expenditure accounted in the books of accounts was Rs. l1,74,50,631/-. The complete break-up of the re....
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....ecifically submitted that these debts were securities given to various persons for the business purposes of the assessee. It was submitted that the sum of Rs. 13,99,504/- deposited to STPI Authority, Noida Rs. 2,57,501/- with BSNL and VSNL were written off as the same were not recoverable. These sums were verifiable from the Govt. Records. Rental deposit ofRs.7,48,890/- given for the employees' accommodations were written off on the ground that these amounts were not recoverable. Miscellaneous amounts given for business purposes were also written off. Deposits of Rs. 5,29,539/- given to rent works for the IT assets were also written off on the ground that these were not recoverable. It was categorically submitted that since these debts were....
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....9 Taxman 68 (Del.), CIT V. Shreyans Industries Limited: 207 CTR 281 (P&H), CIT V. Indin Biselers: 181 ITR 69 (Mad.), CIT V. City Union Bank Ld.: 291 ITR 144 (Mad), CIT v M/s Vijay Construction: 311 ITR 381 (Mad.) 10, CIT V. Mahindra N. Shah: 200 CTR 18 (Guj.), ITO v. Gokaldas Pragji: 24 ITD 25 (Ahd.), Gujarat Fluoro Chemicals Ltd. v. JCIT: 76 TTJ 313 (Ahd.), ACIT v. Shantilal Balabhai: 74 TTJ 506 (Abd.), ITO vs. Ashok Kumar Lalitkumar: 53 ITD 326 (Ahd.), Yubo Investment Co. Pvt. Ltd v. DIT: ITA No. 807/Mad/2012 (Chennai), TRF Ltd vs. CIT: 323 ITR 397 (SC), etc. in view of the above, the Ld. Counsel prayed for relief. 6. The Ld. Sr. DR, placing reliance on the findings of lower authorities, argued vehemently. 7. We have heard both part....
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.... claimed the same rent as expenditure for the entire period of lease spanning over more than one year. The quantum of increase in the rent as per the lease agreement has been claimed separately under the head 'rent/lease equalization reserve' in the computation of the income. This method of accounting is being followed consistently over the years and the Revenue is accepting it in some preceding and subsequent years. In principle, the same has to be allowed as business expenditure irrespective of nomenclature under which such expenditure is put into. The said head 'lease/rent equalization reserve' is not the contingent liability and a reserve. In view of the above, we are of the considered view that the said disallowance of Lease Equalizati....