TaxTMI 
TaxTMI 
2026 (7) TMI 600
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....017-18 on 30.11.2017 declaring a total income of Rs. 3,63,20,900/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. Since the assessee had international transactions, the A.O made a reference to the Transfer Pricing Officer (TPO) to complete the Arm's Length Price (ALP) of the international transactions. The TPO proposed a TP adjustment of Rs. 1,28,00,168/- towards corporate guarantee given by the assessee to its subsidiary. The A.O passed the draft assessment order incorporating the TP adjustment. The A.O further made disallowance towards bad debts written off by the assessee amounting to Rs. 31,92,760/- and also disallowed the principle portion of the EMI on leased assets to the tune of Rs. 3,97,49,968/-. Since the preferred further remedy through CIT(A) route the A.O passed the final assessment order. On further appeal, the CIT(A) sustained the TP adjustment and deleted the corporate disallowances made by the A.O. The assessee and the Revenue are in appeal before the Tribunal against the order of the CIT(A). Assessee' appeal in IT(TP)A No.9/Chny/2026: CORPORATE GUARANTEE 3. The TPO noticed that the assessee has prov....
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.... that the transaction of providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act. 2012. The assessee argued that the Corporate Guarantee is an additional guarantee, provided by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of section 928 does not enlarge the scope of the term "international transaction" to include the Corporate Guarantee in the nature provided by the assessee therein. The Tribunal held that in case of default, Guarantor has to fulfill the liability and therefore, there is always an inherent risk in providing guarantees and that may be a reason that Finance provider insist on non-charging any commission from Associated Enterprise as a commercial principle. Further, it has been observed that this position indicates that provision of guarantee always involves risk and there is a service provided to the Associate Enterprise in increasing its creditworthiness in obtaining loans in the market, be from Financial institutions or from others. There may not be immediate charge on P & L account, but inherent risk cannot be rule....
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....f represents the detention charges not recoverable from M/s. Voltas Ltd. which has been written off as bad debts. The A.O however disallowed the claim of the assessee stating that the assessee failed to prove that the bad debts written off during the year were credited to the P & L account as the income in earlier years and offered to tax. On further appeal, the CIT(A) deleted the disallowance by placing reliance on the decision of Hon'ble Supreme Court in the case of TRF Ltd. vs. CIT [2010] 190 taxman 391 (SC) and the decision of the Jurisdictional High Court in the case of Citadel Fine Pharmaceuticals Ltd. [2025] 173 taxmann.com 142 (Mad.). 6. We have heard the parties, and perused the material available on record. The allowability of claim of bad debts based on actual write off is settled by the Hon'ble Supreme Court in the case of TRF Ltd. (Supra) where it has been held that - 2. In these appeals, we are concerned with assessment year 1990-91 and assessment year 1993-94. Prior to 1-4-1989, every assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of t....
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....see no reason to interference with the decision of the CIT(A) deleting the disallowance towards bad debts. DISALLOWANCE OF EMI PAID ON LEASED ASSETS: 8. The assessee in the return of income has claimed a deduction of Rs. 4,42,53,869/- towards EMI paid on leased assets. The said amount consisted of Rs. 3,97,49,968/- towards principal and Rs. 45,03,901/- towards interest. The assessee in the books of accounts capitalized the leased assets following accounting standard-19 and charged depreciation and interest to the P&L account. The assessee while computing the taxable income added back to the deprecation and interest charged in the books and claimed the entire amount of EMI as deduction. The A.O held that the principal amount of EMI is capital in nature and cannot be allowed as a deduction and disallowed the said amount. On further appeal, the CIT(A) deleted the disallowance by holding that - "5.7.2 I have perused the material placed on record. In the instant case, it is submitted that the appellant has capitalised lease assets in its books as per AS 19 and then disallowed interest component and depreciation for the computation of income under the Income tax Act. It wa....
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....nder operating lease. The dispute is only with respect to assets taken under finance lease. The same stem from the fact the assets under finance lease are capitalized in the Balance Sheet as Fixed Asset and depreciation is claimed on the same under the Companies Act. The lease rental payable by the assessee is shown as liabilities. The lease payment would have two components i.e., principal and finance charges. The finance charges have been debited to the Profit & Loss Account and the same has been allowed by Ld. AO. However, in the computation of income, the assessee reverses the depreciation and claim gross lease rental as deduction on the plea that Income Tax Act do not differentiate between finance lease as well as operating lease. We are of the considered opinion that whatever is the nature of lease, only the lessor is entitled for depreciation as per the decision of Hon'ble Supreme Court in ICDS Limited Vs CIT (350 ITR 527). The decision of Delhi Tribunal in Minda Corporation Ltd. V/s DCIT (69 Taxmann.com 317) has also support the same view. The case of the revenue is that in case of finance lease, substantial risks and rewards of ownership are transferred to the lessee and t....
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....ctions, the owner of the asset is entitled to the depreciation if the same is used in the business, under section 32 of the Income-tax. The ownership of the asset is determined by the terms of the contract between the lessor and the lessee. . . . . . . . . It has come to the notice of the Board that the New Accounting Standard on 'Leases' issued by the Institute of Chartered Accountants of India require capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will have no implication on the allowance of depreciation on assets under the Act." As observed by Delhi Tribunal, the CBDT's view on the treatment of finance lease is not aligned to the accountant's perspective of a finance lease. For accounting purposes, although the lessee shows the asset in his balance sheet, charges depreciation in accounts and even makes impairment provision, yet the assessee is not eligible to claim depreciation under the Act, which is to be allowed to the legal owner of the asset. Furthermore, not only the interest/ finance/ other charges component in the lease payments, but the entire lease payments are treated as a....
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....age nos. 55 to 64 of paper-book of this year, we find that the lease is in the nature of lease purchase. The assessee is required to pay lease rate on per day basis @USD .82 per day which includes reimbursement of domestication costs paid by the lessor. The term of lease is 5 years. On the last day of term, the assessee is required to pay further final payment of USD 1 also. The lessee, at its own expanses, is required to obtain insurance coverage and all responsibility in this regard shall rest with the lessee. The Lessee shall not be entitled for any abatement of rent or reduction thereof. The rents shall continue to be payable in all event unless expressly agreed. If any container is lost, damaged, stolen, destroyed etc., lessee's obligations to pay rental for that container would terminate and the lessor receives an amount equal to the balance of the rent owed for the remainder of the term. 12. As per business conditions, the lessee was required to return all the containers to lessor's depot at the designated locations. The lessee was liable to lessor for all damages to or loss or destruction of the container subsequent to delivery and prior to return to lessor except ....