DCIT, CHENNAI V. Citi Financial Retail Services India Limited, CHENNAI

ITA 1102/CHNY/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6247 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 1999-2000
• Appeal Filed On: 29-04-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM IRS
• Assessee Lawyers: V S JAYAKUMAR
• Keywords: Depreciation; Retrospective amendment
• Section: 143(3); 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . . !' , # '$ % BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI S.S. GODARA, JUDICIAL MEMBER ./ I.T.A. NOS.1102 & 1103/MDS/2014 ( / ASSESSMENT YEARS : 1999-2000 & 2000- 2001) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3) CHENNAI 600 034. ( &' /APPELLANT) VS M/S. CITI FINANCIAL RETAIL SERVICES INDIA LIMITED, 117, RADHAKRISHNAN SALAI, MYLAPORE, CHENNAI 600 004. [PAN:AAACN2379N] ( ()&' /RESPONDENT) / APPELLANT BY : SHRI. GURU BHASHYAM, IRS, JCIT. / RESPONDENT BY : SHRI. V.S. JAYAKUMAR, ADVOCATE /DATE OF HEARING : 02.07.2014 /DATE OF PRONOUNCEMENT : 02.07.2014 '* / O R D E R PER S.S. GODARA, JUDICIAL MEMBER THESE REVENUES APPEALS FOR ASSESSMENT YEARS 199 9-2000 AND 2000 -2001, EMANATE FROM A COMMON ORDER DATED 24.0 1.2014 PASSED ITA NOS.1102 & 1103/MDS/2014. :- 2 -: BY THE COMMISSIONER OF INCOME TAX (APPEALS)-II, CHE NNAI IN ITA NOS. 380 & 381/13-14 RESPECTIVELY, IN PROCEEDINGS UNDER SECTION 143(3) R.W.S 147 OF THE INCOME TAX ACT 1961 [IN SHORT THE ACT] DELETING ADDITIONS OF ` .97,19,760/- AND ` .1,69,31,685/- TOWARDS LEASE EQUALIZATION CHARGES FOR THE PURPOSES OF COMPUTING BOOK PROFITS U/S. 115JA OF THE ACT. SINCE THE ISSUE INVOLVED IN BOTH CASES IS IDENTIC AL, WE TAKE UP ITA NO.1102/MDS/2014 AS THE LEAD CASE. ITA NO.1102/MDS/2014 2 THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT I S ENGAGED IN THE BUSINESS OF LEASING, HIRE PURCHASE AND FINANCE OF V EHICLES. ON 16.12.1999, THE ASSESSEE HAD FILED ITS RETURN ADM ITTING INCOME OF ` .90,22,970/- UNDER NORMAL COMPUTATION AND ` .3,00,76,566/- UNDER MAT PROVISIONS U/S 115JA OF THE ACT. THE SAME WAS SUMMARILY PROCESSED. 3. IN SCRUTINY, THE ASSESSING OFFICER NOT ICED LEASE EQUALIZATION CHARGES OF ` .97,19,760/- ADDED BACK TO THE ASSESSEES PROFITS I N NORMAL COMPUTATION ONLY AND NOT FOR MATS COMPUT ATION. HE WAS OF THE VIEW THAT THESE CHARGES HAD ARISEN IN BOOKS FRO M COLLECTION OF LEASE MONEY MORE OR LESS THAN THE STATUTORY DEPRECI ATION ALLOWABLE ON ITA NOS.1102 & 1103/MDS/2014. :- 3 -: LEASED ASSETS. PER ASSESSING OFFICER, THESE LEASE EQUALIZATION CHARGES WERE A PROVISION TO ADJUST THE COST OF ASSETS RECO VERED FROM THE CONCERNED LESSEES WITH THE ACTUAL DEPRECIATION CLA IMED. SO, HE FORMED AN OPINION THAT THIS WAS ONLY AN UNASCERTAIN ED LIABILITY TO BE ADDED BACK TO BOOK PROFITS U/S. 115JA. 4. ONLY ON BEING PUT UP TO NOTICE, THE AS SESSEE PLEADED TO HAVE COMPUTED THESE LEASE EQUALIZATION CHARGES AS PER TH E RELEVANT ACCOUNTING STANDARDS AND GUIDANCE NOTES ISSUED BY T HE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA FOR PREPARING FINANC IAL STATEMENTS WHICH COULD NOT BE ADDED TO ITS BOOK PROFITS. IN AS SESSMENT ORDER DATED 30.11.2006, THE ASSESSING OFFICER OBSERVED TH AT SINCE THE IMPUGNED LEASE EQUALIZATION CHARGES WERE NOT AS PER THE COMPANIES ACT, THEY HAD TO BE ADDED TO BOOK PROFITS. HE ALSO HELD THAT THESE CHARGES WERE A NOTIONAL FIGURE IN THE NATURE OF AN UNASCERTAINED LIABILITY NOT PAYABLE TO ANYBODY IN THE SHAPE OF A PROVISION ONLY. PROCEEDING ON THIS REASONING, HE MADE THE IMPUGNED ADDITION IN ASSESSEES BOOK PROFITS U/S. 115JA. 5. IN ASSESSEES APPEAL, THE CIT(A) HAS ACCEPTED I TS CONTENTIONS AS UNDER:- ITA NOS.1102 & 1103/MDS/2014. :- 4 -: 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS MADE BY THE LEARNED AR, I HAVE GONE THR OUGH THE DECISION OF THE HONBLE HIGH COURT OF MADRAS AS REP ORTED IN 318 ITR 435 AND FIND THE ISSUE UNDER APPEAL TO BE S QUARELY COVERED IN FAVOUR OF THE APPELLANT BY THE SAID DEC ISION. THE RELEVANT EXTRACT OF BUSINESS AND IS REPRODUCED AS U NDER:- 33. THIS IS IN ACCORDANCE WITH THE GUIDANCE NORMS ON ACCOUNTING FOR LEASES. THE DEPARTMENT CONCEDES THA T THE AMOUNT OF LEASE EQUALIZATION CHARGES OVER THE PERIOD OF LEASE IS EQUAL TO THE DIFFERENCE BETWEEN THE QUANTUM OF PRINCIPAL RECOVERED AND THE RESIDUAL VAL UE. BUT HYPOTHETICALLY JUSTIFIES ITS TREATMENT AS A RES ERVE ON THE GROUND THAT THERE WILL BE COME YEARS WHEN THE QUANTUM OF THE PROVISION IS MORE THAN NECESSARY. W HEN THE LEASE EQUALIZATION CHARGES IS DEBITED AS PER TH E GUIDELINES AND WHEN THE DEPARTMENT ALSO ADMITS THE ABOVE, WE CANNOT APPRECIATE THE STAND OF THE DEPARTMENT THAT IT SHOULD BE TREATED AS A RESERVE W HICH STAND THAT IT IS TAKING FOR THE FIRST TIME ON THE G ROUND THAT THERE MAY BE SOME YEARS WHEN THE QUANTUM OF TH E PROVISION IS MORE THAN NECESSARY. 34. FROM THIS, IT IS CLEAR THAT IN ACCORDANCE WITH THE GUIDANCE NOTE THE APPELLANT HAD DEBITED THE SAME ON ACCOUNT OF DEPRECATION AND LEASE EQUALIZATION CHARG ES BEFORE DETERMINING THE PROFITS AND IN THIS KIND OF LEASE, THE LESSOR RECOVERS THE ENTIRE COST OF THE LEASED A SSETS OVER THE PERIOD OF LEASE ALONG WITH THE INTEREST ON THE AMOUNT FINANCED. 35. IN HCL COMNET SYSTEMS CASE (2008) 305 ITR 409 THE SUPREME COURT HELD THAT A PROVISION MADE TO COVER ITA NOS.1102 & 1103/MDS/2014. :- 5 -: THE DIMINUTION MADE IN THE VALUE OF THE ASSET CAN NOT BE SAID TO BE A PROVISION FOR A LIABILITY AND HELD THAT THE ASSESSING OFFICER COULD NOT ADD BACK THE SAID PROVISION UNDER CLAUSE OF THE EXPLANATION TO SECT ION 115JA OF THE 1961, ACT. THE FOURTH QUESTION IN T. C (A) NOS. 108 AND 110 OF 2002 ARE ANSWERED IN FAVOUR OF THE ASSESSEE. THE SAID DECISION OF THE HONBLE HIGH COURT ON THE PROVISIONS OF SECTION 115JA WOULD BE EQUALLY APPLICABLE TO THE PROVISIONS OF SECTION 115JB ALSO. RESPECTFULLY FOLLOWING THE DEC ISION OF THE JURISDICTIONAL HIGH COURT OF MADRAS, I HOLD THAT TH E AO WAS NOT CORRECT IN ADDING THE LEASE EQUALISATION CHARGES TO THE INC OME OF THE APPELLANT FOR THE PURPOSES OF SECTION 115JB AND DIR ECT THE ASSESSING OFFICER TO REDUCE THIS AMOUNT FOR THE SAID PURPOSE. THE GROUNDS OF APPEAL AS THEY RELATE TO THIS ISSUE, THEREFORE ARE ALLOWED. AFTER CONSIDERING THE SUBMISSION ON ALL GROUNDS OF APPEAL, THE APPEAL IN ITA NO.381/13-14 IS PARTLY ALLOWED. THEREFORE, THE REVENUE IS IN APPEAL. 6. WE HAVE HEARD BOTH SIDES AND GONE T HROUGH THE CASE FILE. THE REVENUE REFERS TO SECTION 115JA EXPLANATION 1(G ) OF THE ACT INSERTED BY THE FINANCE ACT, 2009 WITH RETROSPECTI VE EFFECT FROM 01.04.1998 READING AS UNDER:- THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET. ITA NOS.1102 & 1103/MDS/2014. :- 6 -: IN VIEW THEREOF, THE REVENUE CONTENDS THAT THI S LEGISLATION WAS NOWHERE AN ISSUE IN CASE LAW TVS FINANCE AND SERVICES LTD (SUPRA) NOR THE SAME HAS BEEN CONSIDERED IN THE CIT (A)S ORDER. THEREAFTER, IT QUOTES FOLLOWING CASE LAWS:- (I) M/S. CITI FINANICAL RETAIL SERVICES (INDIA) LTD VS. ACIT, CHENNAI IN T.C.(A) NO.701 OF 2009 DATED 31.8.2009 (ASSESSEES OWN CASE FOR A.Y. 1997-1998). (II) CIT VS. WEIZMANN HOMES LTD. (2013) 357 ITR 74 (KARNATAKA) (III) CIT VS. WEIZMANN HOMES LTD. [2014] 45 TAXMANN.COM 279 (KARNATAKA). ACCORDINGLY, THE REVENUE PRAYS FOR ACC EPTANCE OF ITS APPEAL. 7. IN REPLY, THE ASSESSEE SEEKS TO JUSTIFY THE C IT(A)S ORDER UNDER CHALLENGE. HOWEVER, ON BEING SPECIFICALLY QUERIED A BOUT THE AFORESAID AMENDMENT, IT FAILS TO GIVE ANY SPECIFIC CLARIFICAT ION BASED ON ANY MATERIAL TO DISTINGUISH ITS LEASE EQUALIZATION CHAR GES TO BE OUT OF THE PURVIEW OF SEC 115JA EXPLANATION1(G). IN THESE CIRC UMSTANCES, WE OBSERVE THAT AFTER RETROSPECTIVE AMENDMENT IN THE A CT BY WAY OF THE FINANCE ACT, 2009, THE ASSESSEES STAND IS NO MORE SUSTAINABLE. IT IS TO BE SEEN THAT THE HONBLE HIGH COURT IN ASSESSEES C ASE FOR ASSESSMENT YEAR1997-98 HAS TAKEN COGNIZANCE OF THE ABOVESTATED AMENDMENT QUA ITA NOS.1102 & 1103/MDS/2014. :- 7 -: IDENTICAL LEASE EQUALIZATION CHARGES TO OBSERVE THA T THIS AMENDMENT WOULD APPLY FROM 01.04.1998. WE REITERATE THAT ASS ESSMENT YEAR INVOLVED BEFORE US IS 1999-2000. THUS, WE FIND THA T THE CASE LAW OF CIT VS. WEIZMANN HOMES LTD (SUPRA) POST FACTO AMEND MENT SQUARELY APPLIES IN THIS CASE. SO, WE ACCEPT THE REVENUES GROUNDS AND HOLD THAT THE ASSESSEES LEASE EQUALIZATION CHARGES OF ` .97,19,760/- HAVE TO BE ADDED TO ITS BOOK PROFITS U/S. 115JA AND LEAV E IT OPEN FOR THE ASSESSING OFFICER TO MAKE NECESSARY COMPUTATION AS PER LAW. THE CASE ITA/1102/MDS/2014 IS ALLOWED. 8. SAME ORDER TO FOLLOW IN ITA NO.1103/MDS/ 2014. 9. TO SUM UP, BOTH REVENUES APPEALS ITA NO. 1 102 &1103/MDS/ 2014 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT TH E TIME OF HEARING ON WEDNESDAY, THE 2ND OF JULY, 2014 AT CHENNAI. SD/- SD/- ( . . . ) (DR. O.K. NARAYANAN) / VICE PRESIDENT ( . . !' ) (S.S. GODARA) # '$ / JUDICIAL MEMBER DATED:02 ND JULY, 2014. K.V #$ %&'& /COPY TO: 1. /APPELLANT /2. /RESPONDENT 3. ( ( )/CIT(A) 4. ( /CIT 5. &)* + /DR 6. *,- /GF. ITA NOS.1102 & 1103/MDS/2014. :- 8 -: