ACIT, CHENNAI V. TVS Finance & Services Ltd., CHENNAI

ITA 1657/CHNY/2014

• Counselvise Citation: 165721714 RSA 2014
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 23-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 11-06-2014
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH JCITD R
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation
• Section: 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI ... , . , , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NOS.1657 & 1658 /MDS./2014 ( ! '! / ASSESSMENT YEARS :2006-07 & 2007-08) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(2),NEW BLOCK, NUNGAMBAKKAM, CHENNAI 600 034. VS. M/S.TVS FINANCE & SERVICES LTD., NO.29,HADDOES ROAD, CHENNAI. PAN AAACH 6041 B ( / APPELLANT ) ( / RESPONDENT ) #$ % & / APPELLANT BY : MR.A.V.SREEKANTH, JCIT,D.R '(#$ % & / RESPONDENT BY : MR.R.VIJAYARAGHAVAN,ADVOCATE ) * % +, / DATE OF HEARING : 23.06.2015 -' % +, /DATE OF PRONOUNCEMENT : 06.08.2015 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THESE TWO APPEALS ARE FILED BY THE REVENUE, AGGRI EVED BY THE COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-III, CHENNAI DATED 30.12.2013 IN ITA NOS.784,893,1011,11 39 & 1234/13- ITA NOS.1657 & 1658 /MDS/2014 2 14 PASSED UNDER SEC.143(3) OF THE ACT R.W.S 147&115 WE(2) OF THE ACT FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 . 2. THE REVENUE HAS RAISED THREE ELABORATE AND IDEN TICAL GROUNDS IN ITS APPEALS FOR BOTH THE ASSESSMENT YEARS; HOWEV ER THE CRUX OF THE ISSUE IS THAT THE REVENUE IS AGGRIEVED BY THE ORDER OF THE LD. CIT (A) WHO HAD ERRED IN DELETING THE ADDITION MADE TOWARDS PROVISION FOR LEASE EQUALIZATION CHARGES FOR ` 47,78,834/- FOR THE ASSESSMENT YEAR 2006-07 AND ` 1,09,58,683/- FOR THE ASSESSMENT YEAR 2007-08 WHILE COMPUTING THE BOOK PROFIT OF THE ASSESSEE FOR THE P URPOSE OF DETERMINING TAX U/S.115 JB OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN THE BUSINESS OF FINANCING TWO WHEELERS A ND CONSUMER DURABLES, FILED ITS RETURN OF INCOME FOR THE ASSESS MENT YEARS 2006-07 & 2007-08 ON 30.11.2006 & 31.01.2007 DECLARING LOS S OF APPROXIMATELY ` 10.87 CRORES AND `9.69 CRORES RESPECTIVELY. THEREAFTER THE CASE WAS SELECTED FOR SCRUTINY AND A SSESSMENT WAS COMPLETED U/S.143(3) R.W.S SECTION 115WE OF THE ACT , WHEREIN THE ITA NOS.1657 & 1658 /MDS/2014 3 LD. ASSESSING OFFICER ADDED BACK THE PROVISION FOR LEASE EQUALIZATION CHARGES THAT IS DEBITED IN THE P&L A/ C OF THE COMPANY TO THE BOOK PROFITS, FOR THE PURPOSE OF TAX COMPUTAT ION U/S.115JB OF THE ACT, THEREBY MAKING AN ADDITION OF ` 47,78,834 FOR A.Y 2006-07 AND ` 1,09,58,683/- FOR A.Y. 2007-08. ON APPEAL, THE LD . CIT (A) FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT IN THE APPELLANTS OWN CASE REPORTED IN 318 ITR 435 HELD T HE ISSUE IN FAVOUR OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD. CIT (A), THE REVENUE IS NOW IN APPEAL BEFORE US. 4. THE LD. D.R. RELYING IN THE ORDERS OF THE LD. A SSESSING OFFICER FOR BOTH THE ASSESSMENT YEARS SUBMITTED THAT THE AM OUNT NOTIONALLY DEBITED IN THE P&L A/C TOWARDS PROVISION FOR LEASE EQUALIZATION CHARGES HAS TO BE ADDED BACK TO THE BOOK PROFITS OF THE ASSESSEE COMPANY FOR THE PURPOSE OF COMPUTING TAX U/S.115 JB OF THE ACT. LD. A.R. ON THE OTHER HAND SUBMITTED THAT THE ASSESSEE BEING BOUND BY THE RESERVE BANK OF INDIA GUIDELINES WHICH IN COM PLIANCE WITH THE COMPANIES ACT, HAS DEBITED THE PROVISION FOR LEA SE EQUALIZATION CHARGES AS PER THE ACCOUNTING STANDARD-19 WHICH IS MANDATORILY ITA NOS.1657 & 1658 /MDS/2014 4 APPLICABLE IN THE CASE OF COMPANIES AND THEREFORE, THE SAME SHOULD NOT BE ADDED TO THE BOOK PROFIT FOR COMPUTING TAX U/S.115JB OF THE ACT. THE LD. A.R. ALSO PLACED RELIANCE IN THE DECIS IONS OF THE ASSESSEES OWN CASE BY THE HON. JURISDICTIONAL HIGH COURT FOR THE EARLIER ASSESSMENT YEAR REPORTED IN 318 ITR 435. T HE LD. A.R FURTHER ARGUED BY STATING THAT THE PROVISIONS FOR LEASE EQ UALIZATION CHARGES IS NOTHING BUT THE EXCESS OF THE PRINCIPLE PORTION EMBEDDED IN THE TOTAL LEASE INSTALLMENT RECEIVED DURING THE RELEV ANT ASSESSMENT YEAR OVER THE DEPRECIATION WRITTEN OFF FOR THE RELEVANT ASSESSMENT YEAR AS PER THE INCOME TAX ACT. LD. A.R. EXPLAINED THAT SUC H AMOUNT IS FURTHER REQUIRED TO BE WRITTEN OFF AS PROVISIONS F OR LEASE EQUALIZATION CHARGES BECAUSE THE ENTIRE LEASE INSTALLMENTS RE CEIVED DURING THE RELEVANT ASSESSMENT YEAR WHICH CONSISTS OF LEASE R ENT AND A PORTION OF THE PRINCIPAL AMOUNT, IS CREDITED IN THE BOOKS OF ACCOUNTS AS THE INCOME OF THE ASSESSEE. THE LD. A.R. FURTHER EXPLAI NED THAT IF PROVISION FOR LEASE EQUALIZATION CHARGES IS NOT D EBITED IN THE P&L A/C OF THE ASSESSEE, THEN THE PROFIT OF THE ASSESSE E WILL BE OVERSTATED IN THE P&L A/C TO THAT EXTENT AND THEREFORE IT WILL BE IN VIOLATION OF THE MATCHING PRINCIPLES RECOGNIZED BY THE INCOME TAX AC T. IT WAS ITA NOS.1657 & 1658 /MDS/2014 5 THEREFORE SUBMITTED THAT LEASE EQUALIZATION CHARGES SHOULD NOT BE ADDED BACK TO THE BOOK PROFIT OF THE ASSESSEE COMPA NY FOR COMPUTING TAX U/S.115JB OF THE ACT. 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND MERIT IN THE SUBMISSIONS OF THE LD. A.R. THE LD. A.R. HAS STATED THAT THE ASSESSEE HAS BOOKED THE ENTIRE LEASE INSTALLMENTS AS ITS INCOME FOR THE R ELEVANT ASSESSMENT YEAR AND THEREFORE IN ORDER TO RECOGNIZE ONLY THE L EASE RENTAL AS ITS INCOME FOR THE RELEVANT ASSESSMENT YEAR, THE EXCESS AMOUNT OF THE PRINCIPLE PORTION EMBEDDED IN THE LEASE INSTALLM ENT OVER AND ABOVE THE DEPRECIATION WRITTEN OFF AS PER THE INCOM E TAX ACT HAS TO BE EXCLUDED WHILE ARRIVING AT THE CORRECT PROFIT OF THE ASSESSEE. ACCORDINGLY SUCH EXCESS PRINCIPLE PORTION EMBEDDE D IN THE TOTAL LEASE INSTALLMENT IS DEBITED IN THE P&L A/C OF THE ASSESSEE AS PROVISIONS FOR LEASE EQUALIZATION CHARGES AND THE CORRESPONDINGLY CREDITED TO LEASE EQUALIZATION RESERVE A/C. THE N ET EFFECT ON SUCH TREATMENT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE W ILL REFLECT THE ACTUAL LEASE RENTAL INCOME ACCRUED TO THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR. SUBSEQUENTLY ON THE END OF THE LEA SE PERIOD THE ITA NOS.1657 & 1658 /MDS/2014 6 WRITTEN DOWN VALUE THAT REMAINS IN THE ASSET A/C WILL BE WRITTEN OFF BY CREDITING THE ASSET A/C AND DEBITING THE LEAS E EQUALIZATION RESERVE A/C IN ACCORDANCE WITH THE ACCOUNTING STAN DRARD-19. ACCOUNTING STANDARD-19(18 & 19) PROVIDES AS FOLLOWS : AS-18 : A FINANCE LEASE GIVES RISE TO A DEPRECIATION E XPENSE FOR THE ASSET AS WELL AS A FINANCE EXPENSE FOR EACH ACCOUNT ING PERIOD. THE DEPRECIATION POLICY FOR A LEASED ASSET SHOULD BE CO NSISTENT WITH THAT FOR DEPRECIABLE ASSETS WHICH ARE OWNED, AND THE DEPRECI ATION RECOGNIZED SHOULD BE CALCULATED ON THE BASIS SET OUT IN ACCOUN TING STANDARD (AS)-6. DEPRECIATION ACCOUNTING. IF THERE IS NO REASONABLE CERTAINTY THAT THE LESSEE WILL OBTAIN OWNERSHIP BY THE END OF THE LEAS E TERM, THE ASSET SHOULD BE FULLY DEPRECIATED OVER THE LEASE TERM OR ITS USEFUL LIFE, WHICHEVER IS SHORTER . AS-19 : THE DEPRECIABLE AMOUNT OF A LEASED ASSET IS ALL OCATED TO EACH ACCOUNTING PERIOD DURING THE PERIOD OF EXPECTED USE ON A SYSTEMATIC BASIS CONSISTENT WITH THE DEPRECIATION POLICY THE LESSEE ADOPTS FOR DEPRECIABLE ASSETS THAT ARE OWNED. IF THERE IS REASONABLE CERT AINTY THAT THE LESSEE WILL OBTAIN OWNERSHIP BY THE END OF THE LEASE TERM, THE PERIOD OF EXPECTED USE IS THE USEFUL LIFE OF THE ASSET; OTHERWISE THE ASSE T IS DEPRECIATED OVER THE LEASE TERM OR ITS USEFUL LIFE, WHICHEVER IS SHORTER . FURTHER, IN THE CASE OF APOLLO TYRES LTD. VS. CIT R EPORTED IN 255 ITR 273 THE HONBLE APEX COURT HELD AS FOLLOWS:- ITA NOS.1657 & 1658 /MDS/2014 7 THE ASSESSING OFFICER, WHILE COMPUTING THE BOOK PR OFITS OF A COMPANY UNDER SECTION 115J OF THE INCOME-TAX ACT, 1961, HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIE D BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAI NTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE ASSESSING OF FICER, THEREAFTER, HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTION S AS PROVIDED FOR IN THE EXPLANATION TO SECTION 115J. THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION. T HE USE OF THE WORDS IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT IN SECTION 115J WAS MADE FOR THE LIM ITED PURPOSE OF EMPOWERING THE ASSESSING OFFICER TO RELY UPON THE A UTHENTIC STATEMENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY, THE ASSESSING OFFICER HAS TO ACCEPT THE AU THENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE CO MPANIES ACT, WHICH OBLIGATE THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVIDED BY THAT ACT AND THE SAME TO BE SCRUTINISED AND CERTIFIED BY STATUTORY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THER EAFTER TO BE FILED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A STATUTO RY OBLIGATION ALSO TO EXAMINE AND BE SATISFIED THAT THE ACCOUNTS OF THE C OMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIE S ACT. SUB-SECTION (1A) OF SECTION 115J DOES NOT EMPOWER THE ASSESSING OFFICER TO EMBARK UPON A FRESH ENQUIRY IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY. THAT BEING THE CASE, THE PROVISIONS FOR LEASE EQUA LIZATION CHARGES CANNOT BE ADDED BACK TO THE PROFIT OF THE ASSESSEE COMPANY FOR COMPUTING TAX UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT AND ITA NOS.1657 & 1658 /MDS/2014 8 ALSO UNDER THE NORMAL PROVISIONS OF THE ACT, BECAUS E THE ASSESSEE HAS ONLY RIGHTLY RECOGNIZED ITS ACTUAL LEASE RENTAL INCOME IN ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT ASSESSMENT YEAR F OLLOWING THE MATCHING CONCEPT AND THE ACCOUNTING STANDARD-19. PRECISELY THE BOOK PROFIT COMPUTED BY THE ASSESSEE IN SUCH CASE WOULD BE AS PER THE PROVISIONS OF THE COMPANIES ACT AND IN COMP LIANCE WITH THE ACCOUNTING STANDARDS WHICH IS MANDATORY. HOWEVER, N EITHER FROM THE ORDER OF THE LD. ASSESSING OFFICER NOR FROM THE ORD ER OF THE LD. CIT (A) THESE FACTS ARE REVEALED. THEREFORE WITH THE A BOVE OBSERVATIONS, WE REMIT BACK BOTH THESE CASES TO THE FILE OF LD. A SSESSING OFFICER TO VERIFY WHETHER THE PROVISION FOR LEASE EQUALIZATIO N CHARGES DEBITED IN THE P&L A/C OF THE ASSESSEE WITH THE CORRESPONDI NG CREDIT TO LEASE EQUALIZATION RESERVES ARE PROVIDED IN THE MANNER A S STATED HEREINABOVE BY THE LD. A.R AND ACCORDINGLY COMPUTED THE PROFIT OF THE ASSESSEE AS PER THE NORMAL PROVISIONS OF THE AC T, AND ALSO FOR THE PURPOSE 115JB OF THE ACT, AND IF SO, DELETE THE ADD ITION MADE ON ACCOUNT OF PROVISION FOR LEASE EQUALIZATION CHARGE S AS DIRECTED BY THE LD. CIT (A) WHICH WILL BE IN PARITY WITH THE DE CISIONS CITED BY THE LD. A.R. IF THE FACTS ARE CONTRARY TO WHAT IS STATE D BY THE LD.AR BEFORE ITA NOS.1657 & 1658 /MDS/2014 9 US THEN THE LD.A.O SHALL PASS APPROPRIATE SPEAKING ORDER BASED ON THE FACTS OF THE CASE AS PER MERITS AND AS PER LAW AFTER AFFORDING SUFFICIENT OPPORTUNITY TO THE ASSESSEE OF BEING HEA RD. 6. IN THE RESULT, THE APPEALS OF THE REVENUE ARE AL LOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. ORDER PRONOUNCED ON 6 TH AUGUST, 2015 AT CHENNAI. SD/- SD/- ( . . . ) ( N.R.S.GANESAN ) ( . '#$ %' ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 6 TH AUGUST, 2015. K S SUNDARAM. % '+./ 0 /'+ /COPY TO: 1. #$ /APPELLANT 2. '(#$ /RESPONDENT 3. ) 1+ () /CIT(A) 4. ) 1+ /CIT 5. /4 '+5 /DR 6. 6! 7* /GF