INFRASTRUCTURE LEASING & FINANCIAL SERVICES LTD, MUMBAI V. DCIT SP RG 32, MUMBAI

ITA 2308/MUM/2011

• Counselvise Citation: 230819914 RSA 2011
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 10-07-2013
• Assessment Year: 1994-1995
• Appeal Filed On: 22-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K SHUKLA
• Assessee Lawyers: P V LAKHANI
• Keywords: Depreciation
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI .. , !'# $ $ $ $ ! %, & !'# !' BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, J M !./ I.T.A. NOS. 2307 /MUM/2011 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEAR : 1996-97) !./ I.T.A. NO. 2308 /MUM/2011 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEAR : 1994-95) !./ I.T.A. NO. 2309 /MUM/2011 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEAR : 1995-96) !./ I.T.A. NO. 2310 /MUM/2011 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEAR : 1997-98) INFRASTRUCTURE LEASING & FINANCIAL SERVICES LTD., THE IL&FS FINANCIAL CENTER, PLOT NO. C-22, G BLOCK, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. ) ) ) ) / VS. DY. COMMISSIONER OF INCOME TAX SPL. EG. 32, MUMBAI. #+ !./ PAN : AAACI 0989F ( +, / // / APPELLANT ) .. ( -.+, / RESPONDENT ) +, / 0 ! / APPELLANT BY : SHRI P.V. LAKHANI -.+, / 0 ! / RESPONDENT BY : SHRI P.K. SHUKLA !)$ / / // / DATE OF HEARING : 10-07-2013 12* / / DATE OF PRONOUNCEMENT : 06-09-2013 ITA 2307 TO 2310/MUM/2011 2 '3 / O R D E R PER P.M. JAGTAP, A.M . : .. , !'# THESE FOUR APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST FOUR SEPARATE ORDERS PASSED BY THE LD. CIT(A) 21, MUMB AI DTD. 06-12-2010 FOR ASSESSMENT YEARS 1994-95 TO 1997-98 AND THE SAME IN VOLVE A COMMON SOLITARY ISSUE RELATING TO THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF LEASE EQUALIZATION AS UNDER:- ASST. YEAR LEASE EQUALIZATION(RS) 1994-95 1,85,22,575/- 1995-96 4,29,99,207/- 1996-97 10,06,36,228/- 1997-98 27,07,84,766/- 2. THE ASSESSEE IN THE PRESENT CASE IS A NON-BANKIN G FINANCE COMPANY (NBFC) REGISTERED WITH RESERVE BANK OF INDIA. IT IS PROMOTED BY VARIOUS BANKS AND FINANCIAL INSTITUTIONS AND IS MAINLY ENGAGED IN LEASING BUSINESS. DURING THE YEARS UNDER CONSIDERATION, THE ASSESSEE HAD ENT ERED INTO VARIOUS TRANSACTIONS OF FINANCE LEASE AND AFTER WORKING OUT THE LEASE EQUALIZATION IN RESPECT OF EACH AND EVERY LEASE TRANSACTIONS AS PER THE GUIDELINES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (IC AI), THE LEASE EQUALIZATION SO WORKED OUT WAS CLAIMED BY THE ASSESSEE AS DEDUCT ION WHILE COMPUTING ITS TOTAL INCOME. WHILE EXPLAINING ITS CLAIM FOR DEDUCT ION ON ACCOUNT OF LEASE EQUALIZATION, IT WAS SUBMITTED ON BEHALF OF THE ASS ESSEE BEFORE THE A.O. THAT THE FINANCE INCOME WHICH IS EMBEDDED IN THE LEASE R ENTAL WAS DETERMINED BY USING IMPLICIT RATE AND THE DIFFERENCE BETWEEN THE LEASE RENTAL AND FINANCE INCOME WAS TREATED AS ANNUAL LEASE CHARGE. IT WAS CONTENDED THAT THE DEPRECIATION WAS PROVIDED IN THE BOOKS OF ACCOUNT B Y FOLLOWING STRAIGHT LINE METHOD OF DEPRECIATION AND IF THE ANNUAL LEASE CHAR GE WAS MORE THAN THE ITA 2307 TO 2310/MUM/2011 3 STATUTORY DEPRECIATION, DIFFERENCE WAS DEBITED TO P &L ACCOUNT AS LEASE EQUALIZATION WHEREAS IF THE ANNUAL CHARGE WAS MORE THAN THE DEPRECIATION THEN P&L WAS CREDITED ON ACCOUNT OF LEASE EQUALIZAT ION. IT WAS CONTENDED THAT THE LEASE EQUALIZATION ACCORDINGLY WAS DEBITED AND CREDITED TO THE P&L ACCOUNT AS PER THE METHOD OF ACCOUNTING PRESCRIBED BY ICAI TO REFLECT THE FAIR AND CORRECT INCOME AND THE NET AMOUNT OF LEASE EQUA LIZATION DEBITED TO THE P&L ACCOUNT WAS RIGHTLY CLAIMED AS DEDUCTION. THE A.O. DID NOT FIND MERIT IN THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE ON TH IS ISSUE. ACCORDING TO HIM, THE GUIDELINES ISSUED BY ICAI WOULD NOT CHANGE THE CHARACTER OF LEASE EQUALIZATION WHICH WAS IN THE NATURE OF NON-CASH CH ARGE ASSOCIATED WITH LEASE RENTAL. HE HELD THAT THERE WAS NO SPECIFIC O R GENERAL PROVISION CONTAINED IN SECTION 30 TO 43D OF THE ACT ALLOWING DEDUCTION ON ACCOUNT OF LEASE EQUALIZATION CHARGES. HE ALSO HELD THAT EVEN THE G ENERAL RESIDUARY SECTION 37 OF THE ACT WAS NOT APPLICABLE TO LEASE EQUALIZATION CHARGES AS THE SAME WAS NOT THE EXPENDITURE BUT WAS ONLY THE ACCOUNTING ADJ USTMENT TO COMPUTE FINANCE INCOME FROM THE LEASE TRANSACTIONS WHICH WA S INCLUDED IN THE LEASE RENTALS. HE ACCORDINGLY DISALLOWED THE CLAIM OF TH E ASSESSEE FOR DEDUCTION ON ACCOUNT OF LEASE EQUALIZATION IN ALL THE FOUR YEARS UNDER CONSIDERATION. 3. THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF LEASE EQUALIZATION CHARGES WAS CHALLENGED BY THE ASSESSEE IN THE APPEA LS FILED BEFORE THE LD. CIT(A) FOR ALL THE FOUR YEARS UNDER CONSIDERATION A ND THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE IN SUPPORT OF ITS CLAIM FOR DEDUCTION ON ACCOUNT OF LEASE EQUALIZATION CHARGES. THE DISALLOWANCE MADE BY ASSESSING OFFICER IS NOT JUSTIFIED. THE COMPANY IS ENGAGED IN THE BUSINESS OF LEASING OF EQ UIPMENTS. THE COMPANY ENTERS INTO LEASE AGREEMENTS WITH THE LESSE E AND AS PER THE LEASE AGREEMENT THE LEASE RENTAL ARE DUE. IN THE BO OKS OF ACCOUNTS THE COMPANY HAS FOLLOWED IRR METHOD OF DEPRECIATION. TH IS METHOD IS AS PER THE STIPULATION LAID OUT BY THE INSTITUTE OF CH ARTERED ACCOUNTANTS OF INDIA UNDER THE PRESCRIBED ACCOUNTING STANDARDS AND THE GUIDANCE NOTE ISSUED BY THE 1CM (COPY OF GUIDANCE NOTE ENCLO SED-REFER POINT NO. 9 TO 14 IN PAGE 4-6 OF THE GUIDANCE NOTE. ITA 2307 TO 2310/MUM/2011 4 AS REGARDS THE CLAIM OF LEASE EQUALIZATION IS CONCE RNED WE SUBMIT THAT LEASE RENTAL CONSIST OF PRINCIPAL RECOVERY AND INTE REST COMPONENT. THE LEASE RENTAL IS CHARGED BASED ON THE TERMS AND COND ITIONS THE LEASE ARRANGEMENT. WE PURCHASE THE ASSETS AND MAKE INVEST MENTS AND RECOUP THE SAID INVESTMENTS TOGETHER ALONGWITH THE RETURNS ON THE INVESTMENTS BY WAY OF LEASE RENTALS. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA HAS PRESCRIBED THE METHOD OF R ECOGNIZING THE INCOME AND THE OTHER ISSUES RELATED TO THE SAME. TH E FINANCE INCOME WHICH IS EMBEDDED IN THE LEASE RENTAL IS DERIVED FR OM THE LEASE RENTAL SPECIFIED IN THE AGREEMENTS USING IMPLICIT RATE OVE R THE PRIMARY LEASE PERIOD. THE DIFFERENCE BETWEEN THE LEASE RENTALS, B EING THE MINIMUM, LEASE PAYMENT, AND THE FINANCE INCOME IS TO BE TREA TED AS ANNUAL CHARGE. THE ANNUAL CHARGE COMPRISES OF STATUTORY DE PRECIATION AND LEASE EQUALIZATION. THE DEPRECIATION IS PROVIDED IN THE BOOKS OF ACCOUNTS BY FOLLOWING STRAIGHT LINE METHOD OF DEPRE CIATION AND THE RATES PRESCRIBED IN SCHEDULE XIV OF THE COMPANIES ACT, 19 56. IF THE ANNUAL LEASE CHARGE IS MORE THAN THE STATUTORY DEPRECIATIO N THEN THE PROFIT AND LOSS ACCOUNT IS CREDIT. THUS THE DEBIT TO PROFIT AN D LOSS ACCOUNT BY WAY OF THIS EQUALIZATION IS DIRECTLY CORRELATED TO LEAS E RENTALS. THE LEASE EQUALIZATION IS DEBITED TO PROFIT AND LOSS ACCOUNT AS PER THE STATUTORY METHOD OF ACCOUNTING PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND BY FOLLOWING THIS ACCOUNT ING WITH THE VIEW TO REFLECT THE FAIR AND. THE CORRECT INCOME. AS THE GR OSS LEASE RENTALS ARE OFFERED FOR TAX THE LEASE EQUALIZATION DEBITED TO P ROFIT AND LOSS ACCOUNT SHOULD ALSO BE ALLOWED AS DEDUCTION. WE ARE ENCLOSING A WORKSHEET CONTAINING THE DETAILS OF THE WORKING OF THE METHOD OF LEASE EQUALIZATION RESERVE FOR A LEAS E. AS CAN BE SEEN FROM THE SAME, THE GROSS LEASE RENTAL IS SPLIT UP I NTO TWO PARTS FINANCE INCOME WHICH COMPRISES THE RETURN ON INVEST MENT AND ANNUAL CHARGE WHICH IS THE CAPITAL RECOVERY ON THE INVESTM ENT. THIS CALCULATION IS BASED ON THE INTRINSIC IRR% OF THE TRANSACTION. THE ANNUAL CHARGE IS FURTHER BIFURCATED INTO STATUTORY DEPRECIATION (WHI CH IS THE DEPRECIATION AS PER THE COMPANIES ACT) AND LEASE EQUALIZATION RE SERVE (WHICH COULD BE EITHER DEBIT TO P&L OR CREDIT TO P&L BASED ON TH E TOTAL ANNUAL CHARGE). THIS BIFURCATION IS BEING DONE AS PER THE GUIDELINE PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) - THE GUIDANCE NOTE OF 1CM ENCLOSED AS AN ANNEXURE. ANY LEASE EQUA LIZATION WHICH IS A CREDIT TO THE P&L IS OFFERED FOR TAX BY THE COMPANY . THUS AS A COROLLARY, ANY DEBIT TO P&L ALSO SHOULD BE ALLOWED AS A DEDUCT ION. WE WISH TO SUBMIT BEFORE YOUR HONOUR, A RECENT CASE LAW OF HYDERABAD ITAT IN. THE CASE OF PACT SECURITIES & FINANCIAL LT D. WHEREIN IT HAS BEEN HELD THAT THE METHOD OF ACCOUNTING PRESCRIBED BY IC AI FOR LEASE TERMINAI ADJUSTMENT ACCOUNT IS ON INTERNATIONALLY A CCEPTED AND PROPER METHOD AND THEREFORE, THE METHOD HAD TO BE ACCEPTED BY THE INCOME- TAX AUTHORITIES AND THE ADDITION MADE BY THEM TO BE DELETED. ITA 2307 TO 2310/MUM/2011 5 4. THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE O N THIS ISSUE DID NOT FIND FAVOUR WITH THE LD. CIT(A). ACCORDING TO HIM, THERE MIGHT BE A CONCEPT OF LEASE EQUALIZATION RESERVE TOWARDS ACCOUNTING BUT T HERE WAS NO SUCH CONCEPT UNDER THE INCOME TAX ACT. HE HELD THAT THE BASIC P RINCIPLE OF TAXATION WAS THAT THE ENTIRE COST OF ASSET USED FOR THE PURPOSE OF BUSINESS WAS CHARGEABLE TO THE BUSINESS AND ONCE THE ENTIRE COST IS ALLOWED AS DEDUCTION UNDER THE INCOME TAX ACT IN THE FORM OF DEPRECIATION OVER THE NUMBER OF YEARS, THERE WAS NO FURTHER SCOPE FOR ALLOWING DEDUCTION SEPARAT ELY IN THE FORM OF LEASE EQUALIZATION. HE HELD THAT BY CLAIMING THE DEDUCTIO N ON ACCOUNT OF LEASE EQUALIZATION RESERVE IN ADDITION TO THE DEPRECIATIO N ON LEASED ASSETS, THE ASSESSEE WAS CLAIMING DOUBLE DEDUCTION ON ACCOUNT O F THE COST OF ASSETS LEASED. HE THEREFORE HELD THAT THE ASSESSEE BEING E LIGIBLE FOR DEDUCTION OF THE ENTIRE COST OF LEASED ASSETS IN THE FORM OF DEPRECI ATION, THERE WAS NO QUESTION OF ALLOWING SEPARATE DEDUCTION IN THE FORM OF LEASE EQUALIZATION RESERVE AND NO SUCH DEDUCTION WAS INDEED ALLOWED UNDER THE INCO ME TAX ACT. ACCORDINGLY, THE DISALLOWANCE MADE BY THE A.O. ON A CCOUNT OF LEASE EQUALIZATION RESERVE WAS CONFIRMED BY THE LD. CIT(A ) IN ALL THE FOUR YEARS UNDER CONSIDERATION. AGGRIEVED BY THE ORDERS OF TH E LD. CIT(A), THE ASSESSEE HAS PREFERRED THESE APPEALS BEFORE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE TOOK US THROUGH THE GUIDANCE NOTE ISSUED BY THE ICAI PLACED ON 83 TO 94 OF HIS PAPER BOOK AND EXPLAINED THE NATURE OF LEASE EQUALIZATION CHARGES AND THE EXACT PURPOSE FOR WHICH THE SAME ARE REQUIRED TO BE TAKEN INTO ACCOUNT IN THE C ASE OF A COMPANY ENGAGED IN LEASING BUSINESS. HE SUBMITTED THAT THE ASSESSEE BEING A NON-BANKING FINANCE COMPANY, IS OBLIGED TO FOLLOW THE GUIDANCE NOTE ISSUED BY ICAI AND PROVIDE FOR LEASE EQUALIZATION CHARGES AS SUGGESTED IN THE SAID GUIDANCE NOTE. HE CONTENDED THAT THE DEDUCTION CLAIMED BY THE ASSE SSEE FOR LEASE EQUALIZATION CHARGES SO PROVIDED THUS IS AN ALLOWAB LE DEDUCTION WHILE ITA 2307 TO 2310/MUM/2011 6 COMPUTING THE TOTAL INCOME OF THE ASSESSEE FOR THE PURPOSE OF INCOME TAX AND THE SAME IS ALLOWED IN THE FOLLOWING CASES:- I. CIT VS. VIRTUAL SOFT SYSTEMS LTD., (2012) 341 ITR 5 93(DEL) II. JCIT VS. PACT SECURITIES & FINANCIAL LTD.,(2003) 86 ITD 115(HYD.) III. CATHOLIC SYRIAN BANK VS. ACIT, (2010) 38 SOT 553 (C OCH) IV. PRAKASH LEASING LTD. VS. DCIT (IT APPEAL NOS. 301, 302 & 491 OF 2007 6. THE LD. D.R., ON THE OTHER HAND, STRONGLY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE THAT THE ASSESSEE ALREADY HAVING CLAIMED DEPRECIATION AT HIG HER RATE UNDER THE INCOME TAX ACT, NO FURTHER DEDUCTION ON ACCOUNT OF LEASE E QUALIZATION CHARGES IS ALLOWABLE TO THE ASSESSEE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE TH ROUGH THE GUIDANCE NOTE ISSUED BY ICAI EXPLAINING THE CONCEPT OF LEASE EQUA LIZATION WITH THE ILLUSTRATION. THE SAID GUIDANCE NOTE IS BASICALLY I SSUED FOR THE PURPOSE OF ACCOUNTING AND THE CONCEPT OF LEASE EQUALIZATION, A S MENTIONED THEREIN, IS BASED ON THE RATIONALE OF MATCHING COST WITH REVENU E SO THAT THE PERIODIC NET INCOME FROM THE FINANCE LEASE IS DETERMINED IN A TR UE AND FAIR MANNER. THIS CONSTITUTES THE PARALLEL METHOD OF ACCOUNTING FOLLO WED BY THE ASSESSEE FOR THE PURPOSE OF REVENUE RECOGNITION OF LEASING BUSINESS AND AS PER THIS METHOD, THE LEASE RENTAL IS SPLIT INTO FINANCE INCOME AND B ALANCE AMOUNT WHICH IS CALLED ANNUAL LEASE CHARGE. THE ANNUAL LEASE CHARGE REPRESENTS RECOVERY OF INVESTMENT MADE IN THE LEASED ASSET OVER THE LEASE TERM AND WHEN THE DEPRECIATION CLAIMED ON THE LEASED ASSETS IS MORE T HAN THE CORRESPONDING LEASE CHARGE, THE DIFFERENCE IS CREDITED TO THE P&L ACCOUNT AS LEASE EQUALIZATION. SIMILARLY, IF THE DEPRECIATION CLAIM ED ON THE LEASED ASSET IS LESS THAN THE CORRESPONDING ANNUAL LEASE, P&L ACCOUNT IS DEBITED BY LEASE EQUALIZATION CHARGES EQUIVALENT TO THE DIFFERENCE A MOUNT. CONSEQUENTLY, THE ITA 2307 TO 2310/MUM/2011 7 FINANCE CHARGES, WHICH IS THE ACTUAL INCOME FROM TH E LEASED TRANSACTION, IS RECOGNIZED AS REVENUE AND THE DIFFERENCE BETWEEN TH E DEPRECIATION AND ANNUAL LEASE CHARGE IS DEBITED OR CREDITED TO THE P &L ACCOUNT SO AS TO NULLIFY THE EFFECT OF SUCH DIFFERENCE ON THE PROFIT. THE RE COVERY OF INVESTMENT IN THE LEASED ASSETS MADE IN THE RELEVANT YEAR IS THUS MAT CHED WITH THE CORRESPONDING EXPENSES CLAIMED IN THE FORM OF DEPRE CIATION AND THE EFFECT OF HIGHER OR LOWER CLAIM OF DEPRECIATION, THAN THE COR RESPONDING RECOVERY OF INVESTMENT MADE IN THE LEASED ASSETS IS NULLIFIED. IN THE BOOKS OF ACCOUNT, THE LEASING COMPANIES ARE ENTITLED TO CLAIM THE DEP RECIATION BY FOLLOWING ONE OF THE VARIOUS METHODS PRESCRIBED IN THE COMPANIES ACT AND IF SUCH DEPRECIATION CLAIMED IS MORE OR LESS THAN THE CORRE SPONDING ANNUAL LEASE CHARGE REPRESENTING RECOVERY OF INVESTMENT IN THE L EASED ASSET OVER THE LEASE TERM, THE DIFFERENCE IS ADJUSTED IN THE FORM OF LEA SE EQUALIZATION BASED ON THE RATIONALE OF MATCHING COST WITH THE REVENUE SO THAT THE RESULTANT INCOME FROM THE LEASING IS TRUE AND FAIR. THE CONCEPT OF LEASE EQUALIZATION THUS IS BASICALLY AN ACCOUNTING CONCEPT AND THE SAME IS FOLLOWED FOR THE PURPOSE OF REVENUE RECOGNITION OF LEASING INCOME AS PER THE GUIDANCE N OTE ISSUED BY ICAI. 8. IT IS NO DOUBT TRUE THAT THE CONCEPT OF LEASE EQ UALIZATION CAN ALSO BE FOLLOWED FOR THE PURPOSE OF COMPUTING THE TOTAL INC OME UNDER THE INCOME TAX ACT AS HELD IN THE VARIOUS JUDICIAL PRONOUNCEMENTS CITED BY THE LD. COUNSEL FOR THE ASSESSEE. HOWEVER THE SAME, IN OUR OPINION, HAS TO BE DONE WITH PROPER CARE AND CAUTION OTHERWISE IT MAY RESULT IN ABSURDI TY AND GIVE MISLEADING RESULT. IN THE CASES LIKE THE ONE IN HAND, WHERE T HE RELEVANT TRANSACTIONS ARE TREATED AS FINANCE LEASE AND THE ASSESSEE IS ALLOWE D DEPRECIATION AFTER HAVING FOUND HIM THE OWNER OF THE LEASED ASSETS, THE DEPRE CIATION ALLOWED AS PER THE RATES PRESCRIBED IN THE INCOME TAX ACT COULD BE MOR E THAN THE DEPRECIATION CLAIMED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AT THE RATE PRESCRIBED UNDER THE COMPANIES ACT. FOR EXAMPLE, THE ASSESSEE MAY BE ENTITLED TO CLAIM DEPRECIATION AT 100% ON THE LEASED ASSETS IN THE FI RST YEAR ITSELF UNDER THE ITA 2307 TO 2310/MUM/2011 8 INCOME TAX ACT WHEREAS IN THE BOOKS OF ACCOUNT, IT MIGHT HAVE CLAIMED DEPRECIATION ON THE SAID LEASED ASSETS UNDER THE CO MPANIES ACT @ 10%. IN SUCH A CASE, IF THE ANNUAL LEASING CHARGE IS EQUIVA LENT TO 30% OF THE VALUE OF LEASED ASSETS, THE ASSESSEE WOULD DEBIT ITS P&L ACC OUNT BY LEASE EQUALIZATION CHARGES TO THE EXTENT OF 20% OF THE VALUE OF ASSET AS PER THE GUIDANCE NOTE ISSUED BY ICAI. IF THE LEASE EQUALIZATION CHARGES SO DEBITED ARE ALLOWED AS DEDUCTION WHILE COMPUTING THE TOTAL INCOME OF THE A SSESSEE UNDER THE INCOME TAX ACT IN ADDITION TO 100% DEPRECIATION ALREADY AL LOWED, THE ASSESSEE WILL GET DEDUCTION OF 120% OF THE VALUE OF ASSET IN THE FIRS T YEAR ITSELF AND THE VERY PURPOSE OF ADOPTING THE CONCEPT OF LEASE EQUALIZATI ON BASED ON THE RATIONALE OF MATCHING COST WITH THE REVENUE WOULD BE DEFEATED . THIS WILL RESULT IN ABSURDITY AND GIVE MISLEADING RESULTS. IN OUR OPINI ON, IT IS THEREFORE NECESSARY THAT WHILE ALLOWING DEDUCTION ON ACCOUNT OF LEASE E QUALIZATION CHARGES FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER THE INCOME TAX ACT, THE DIFFERENCE BETWEEN THE ANNUAL LEASE CHARGE OF THE LEASED ASSET S AND DEPRECIATION ALLOWED ON THE SAID LEASED ASSET UNDER THE INCOME T AX ACT SHOULD BE TAKEN INTO CONSIDERATION AND NOT THE DIFFERENCE BETWEEN T HE ANNUAL LEASE CHARGE AND DEPRECIATION CLAIMED BY THE ASSESSEE IN THE BOO KS OF ACCOUNT AS PER THE COMPANIES ACT. WE, THEREFORE, RESTORE THIS ISSUE T O THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH. THE ASSESSEE IS DIRECTED TO FURNISH THE WORKING OF LEASE EQUALIZATION CHARGES BASED ON THE FIGURES OF THE DEPRECIATION ON THE LEASED ASSETS ALLOWED AS PER THE INCOME TAX ACT WHI CH THE A.O. SHALL VERIFY AND ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION O N ACCOUNT OF LEASE EQUALIZATION CHARGES BASED ON SUCH VERIFICATION IN ACCORDANCE WITH LAW. ITA 2307 TO 2310/MUM/2011 9 9. IN THE RESULT, APPEALS OF THE ASSESSEE ARE TREAT ED AS ALLOWED FOR STATISTICAL PURPOSE. 4 5 &) %4 / !6/ 789 : #$ ; / <= ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH SEPT. 2013. . '3 / 12* >')5 06-09-2013 2 / SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) & !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; >') DATED 06-09-2013 $.&).!./ RK , SR. PS '3 / -&:? @?* '3 / -&:? @?* '3 / -&:? @?* '3 / -&:? @?*/ COPY OF THE ORDER FORWARDED TO : 1. +, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. A () / THE CIT(A)- 21MUMBAI 4. A / CIT MC X, MUMBAI 5. ?$D -&&) , , / DR, ITAT, MUMBAI I BENCH 6. E% F / GUARD FILE. '3)! '3)! '3)! '3)! / BY ORDER, !.? -& //TRUE COPY// 7 7 7 7/ // /!< !< !< !< ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI