×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
Both the appeals by Assessee are directed against different Orders of the Ld. CIT(A). Both the appeals are decided together.
2. We have heard the Learned Representatives of both the parties and perused the material on record. The appeals are decided as under.
ITA.No.376/Del./2014 – A Y 2009-2010 :
3. This appeal by Assessee has been directed against the Order of the Ld. CIT(A)-XXXII, New Delhi, Dated 20.11.2013, for the A.Y. 2009-2010, challenging the disallowance of Rs.50,09,835/- recognised as principal payments made towards finance lease.
4. Briefly the facts of the case are that assessee is a Public Limited Company engaged in the business of Information Technology Education and Knowledge Solutions. For the year under consideration, the assessee filed return of income on 29.09.2009 declaring Rs.25.81 crores, which was processed under section 143(1) of the I.T. Act, 1961. The issue in the present appeal is regarding disallowance of Rs.50,09,835/- towards finance lease. The A.O. noticed that assessee has claimed deduction of Rs.50,09,835/- in respect of payment of principal amount of finance lease. The A.O. asked the assessee to explain as to how this amount is allowable as revenue expenditure. After considering the reply filed by assessee, A.O. held that though the interest on such finance lease allowable as revenue expenditure, payment of principal amount cannot be allowed as revenue expenditure because it is capital expenditure in nature in respect of the value of leased assets. The A.O. following the Order of ITAT, Delhi Bench in the case of Rio Tinto India Pvt. Ltd., vs. ACIT in ITA.No.363/Del./2012 disallowed the deduction claimed by the assessee on account of principal amount of finance lease.
4.1. The addition was challenged before the Ld. CIT(A). The written submissions of assessee is reproduced in the appellate order in which the assessee has briefly explained that assessee had taken infrastructure/movable assets on lease which were located at the three places i.e., Malleswaram Centre, Bangalore, Mehdipatnam Centre, Hyderabad, Mylapore Centre, Chennai. It was further submitted that in accordance with the mandatory prescription of Accounting Standard AS-19 on “Leases” issued by the Institute of Chartered Accountants of India [“ICAI”], the aforesaid leases were recognised as finance lease. Accordingly, the present value of future lease rents was recognised as capital assets in the books of account and correspondingly recognised as liability. Lease rents payable over the period of lease are divided into two parts i.e., (i) principal payment of its cost of asset, which is reduced from the liability recognised in the books and (ii) finance charges, which is recognised as expense and debited to the P & L A/c. Accordingly in the books of account, out of the total lease rent of Rs.56,73,765/- paid by the assessee during the relevant previous year, an amount of Rs.50,09,835/- was adjusted against the principal repayments towards the cost of asset and the balance amount of Rs.6,63,930/- was recognised as interest and debited to P & L A/c, the details of which, are reproduced in the appellate order. It was submitted that since the entire lease rent was towards use of the infrastructure therefore, allowable as deduction in its entirety the purposes of computing taxable income under the Act.
4.1. The A.O. however disallowed the impugned amount being the amount attributable towards capital cost of assets in the books of account. It was submitted that AS19 on accounting for “Leases” issued by ICAI is only applicable for accounting of the lease transaction in thebooks of account. It is well settled Law that treatment in the books of account is not determinative of liability towards income tax for the purpose of the Act. The liability under the Act is governed by the provisions of the Act and is not dependent on the treatment followed for the same in the books of account. The assessee relied upon the decisions of the Hon’ble Supreme Court in the case of Sutlej Cotton Mills Ltd., vs. Commissioner of Income Tax 116 ITR 1 (SC) and Kedarnath Jute Mfg. Co., Ltd., vs. Commissioner of Income Tax 82 ITR 363 (SC). It was submitted that under the Income Tax Act depreciation is allowable under section 32 of the I.T. Act only to the ‘Owner’ of the asset. Lease charges paid for the use of the asset, without acquiring any ownership rights in the same, are allowable as revenue expenditure under section 37 of the I.T. Act. The assessee relied upon Circular No.2 of 2001 Dated 09.02.2001 issued by CBDT wherein it has been clarified that the aforesaid Accounting Standard issued by ICAI creating distinction between finance lease and operating lease will have no implications under the provisions of the Act. The assessee also relied upon FAQ No.82 CBDT’s Circular No.8/2005 Dated 29.08.2005, which provides that rent paid or payable for financial lease of a motor car is in the nature of expenditure on running and maintenance of motor car and, therefore, such expenditure would be treated as expenditure, within the scope of clause (1) sub-clause (H) of