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04-09-2019, Sundaram Finance, Section 41(4), 28, 36, Tribunal Chennai

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5 days 5 hours ago #10752 by amit
Section - 41(4), 28, 36
Order Date - 04-09-2019
Favouring - Partly
Court - Tribunal Chennai
Appellant - Sundaram Finance Ltd.
Respondent - JCIT
Justice - N.R.S. GANESAN JM & S. JAYARAMAN AM
Citation - 919Taxpundit73
Appeal No. - I.T.A.No.72/CHNY/2015
Asstt. Year - 2004 -05

Order

PER : S. JAYARAMAN

The assessee & the Revenue filed the above appeals against the orders of the Commissioner of Income Tax (Appeals), Large Taxpayer Unit, Chennai in ITA Tr.No.7/13-14/LTU(A) and ITA Tr.No.6/13-14/LTU(A) both dated 14.11.2014 for the assessment years 2004-05 & 2005-06, respectively.

2. The assessee is a public limited company, NBFC engaged in the business of hire purchase financing, equipment leasing and allied activities. It has been following the mercantile system of accounting. Since inception, Even Spread Method (ESM) as the basis for apportionment of Hire installment into principal and finance income, has been adopted by the assessee consistently over the years. The Hire purchase agreement entered into with the clients provides for recognizing the income /expenses, as the case may be, on ESM basis. So, the assessee recognised the hire purchase income on ESM basis both for Book and Income Tax purposes upto the previous year ended 31.03.2000 relevant to Assessment year 2000-01. From previous year 2000-01 onwards, it followed IRR method for the apportionment of the Hire installment into principal and finance charges component as prescribed by the Accounting Standard on Leases (AS 19) issued by the Institute of Chartered Accountants of India. Though it switched over to IRR method for Books to comply with the Accounting Standard, however, it continued to follow ESM for recognizing the Hire purchase income for Income Tax purposes as sec 145(1) required the assessees to compute the profits and gains of business or profession or Income from other sources in accordance with either on cash or mercantile system of accounting regularly employed by them. The assessment position regarding the same in the earlier years is summarised as under:

2.1 However, while making the assessments for the assessment years 2004-05 and 2005-06, the A O concluded that the entire hire purchase transactions are loan and the interest rate implicit in the transaction i.e., Internal Rate of Return (IRR) method adopted in the books determines the real income and assessed accordingly. Aggrieved, the assessee filed appeals before the CIT(A) and the Ld. CIT(A) found that in the assessee's own case for AY. 2001-02, in the similar issue, the Hon'ble ITAT Chennai in ITA No.955/Mds/05 and ITA No.829/Mds/05 dated 31.7.2007 decided the issue in favour of the revenue, therefore, following it he dismissed the appeals against which the assessee filed these appeals.

3. Before us, the Ld.AR relied on the decision of the jurisdictional Hon’ble High Court of Madras in its own case viz M/s. Sundaram Finance Limited vs. ACIT in Tax Case Appeal No.158 of 2009, dated 05.03.2019.

4. We heard the rival submissions. In the above case, i.e., in Tax Case Appeal No.158 of 2009, dated 05.03.2019, on the following question of law :

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