M/S. INFRASTRUCTURE LEASING & FINANCIAL SERVICES LTD, MUMBAI V. THE ACIT 10(1), MUMBAI

ITA 4319/MUM/2007

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3642 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 20-04-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 06-06-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C S NAIK
• Assessee Lawyers: DILIP V LAKHANI
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; Retrospective amendment; Capital expenditure
• Section: 143(3); 14A; 115JB; 37(1); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I , MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA , ACCOUNTANT MEMBER ITA NO. 4319 /MUM/20 07 : (A.Y : 200 3 - 0 4 ) M/S. INFRASTRUCTURE LEASING & FINANCIAL SERVICES LTD., PLOT NO. C - 22, G BLOCK, BANDRA - KURLA COMPLEX, BANDRA (E), MUMBAI 400 051 (APPELLANT) PAN : AA ACI0989F VS ADDL. CIT, RANGE - 10(1), MUMBAI (RESPONDENT) ITA NO. 4 189 /MUM/2007 : (A.Y : 200 3 - 04 ) ACIT, RANGE - 10(1), MUMBAI ( APPELLANT ) VS M/S. INFRASTRUCTURE LEASING & FINANCIAL SERVICES LTD., PLOT NO. C - 22, G BLOCK, BANDRA - KURLA COMPLEX, BANDRA (E), MUMBAI 400 051 PAN : AAACI0989F ( RESPONDENT ) ASSESSEE BY : SHRI DILIP V. LAKHANI REVENUE BY : SHRI B.C.S. NAIK ( CIT - DR) DATE OF HEARING : 10/02/2016 DATE OF PRONOUNCEMENT : 09 /0 3 /2016 O R D E R PER ASHWANI TANEJA , A M : THESE CROSS - APPEALS HAVE BEEN FILED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) - 10 , MUMBAI (IN SHORT REFERRED TO AS CIT(A)) DT. 28 . 3 .20 07 PASSED AGAINST THE ASSESSMENT ORDER OF THE 2 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) ASSESSING OFFICER (IN SHORT REFERRED TO AS AO) U/S. 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT REFERRED TO AS THE ACT) DT. 30 .1 1 .20 05 FOR THE A.Y 200 3 - 0 4 . 2. FIRST WE TAKE UP THE ASSESSEES APPEAL IN ITA N O. 431 9/MUM/2007 . THE GROUNDS RAISED BY THE A SSESSEE ARE REPRODUCED AS UNDER : 1. THE LEARNED COMMR. OF INCOME TAX (A) HAS ERRED IN DISALLOWING RS.88,69,66 , 465/ - BEING T HE LEASE EQUALISATION CHARGE DEBITED TO PROFIT AND LOSS ACCOUNT. THE APPELLANT SUBMITS THAT THE SAID AMOUNT IS AN ALLOWABLE DEDUCTION U/S 37(1) OF THE INCOME TAX ACT, 1961. THE DISALLOWANCE IS MADE WITHOUT CONSIDERING THE FULL FACTS SUBMITTED BEFORE THE LEARNED ACIT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE DISALLOWANCE OF LEASE EQUALISATION CHARGE AMOUNTING TO RS.88,69,66,465/ - IS NOT CORRECT AND IS NOT JUSTIFIED AND BE DELETED. 3. THE LEARNED COMMR. OF INCOME TAX (A) HAS ERRED IN DISALLOWING THE CLAIM OF THE APPELLANT U/S 35D AT RS. 18,92,153/ - . ON THE FAC TS & CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMITS THAT THEY ARE ENTITLED TO DEDUCTION OF RS.18,92,153/ - U/S 35D OF THE INCOME TAX ACT, 1961. 4. THE LEARNED COM M R. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE ALLOCATION OF RS.32,32,00,000/ - AS THE INTE REST ATTRIBUTABLE TO EARNING INCOME U/S 10(23G). THE APPELLANT SUBMIT THAT THE METHOD ADOPTED BY THE ACIT AND CIT (A) IN DETERMINING INTEREST COST IS NOT JUSTIFIED AND THE QUANTIFICATION OF INTEREST OF RS.32,32,00 , 000/ - CRORES ATTRIBUTABLE TO EARNING U/S 10(23G) IS NOT CORRECT. THE APPELLANT SUBMIT THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE THE INTEREST ALLOCATION OF RS.32,32 , 00 , 000/ - SHOULD BE DELETED. 5. THE LEARNED COMMR. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE ALLOCATION OF RS.52,00,000/ - AS THE ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO EARNING INCOME U/S 10(23G). ON THE FACTS & CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMIT THAT THE ESTIMATION OF 1% OF THE ESTABLISHMENT AND ADMINISTRATIVE EXPENSES RELATING TO THE INCOME EARNED U/S 10(23G) IS N OT CORRECT AND IS NOT JUSTIFIED. 3 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) 6. THE APPELLANT SUBMIT THAT THE ALLOCATION OF ADMINISTRATIVE COST OF RS.52 , 00 , 000/ - SHOULD HE DELETED. 7. THE LEARNED COMMR. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THAT THE APPELLANT IS NOT ENTITLED TO DEDUCTION OF RS .4.45 CRORES U/S 80M OF INCOME TAX ACT. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE APPELLANT IS ENTITLED TO DEDUCTION U/S 80M OF INCOME TAX ACT. 8. THE LEARNED ACIT AND LEARNED COMMR. OF INCOME TAX (A) HAVE ERRED IN DETERMINING THE ALLOCATION OF INTERES T COST AMOUNTING TO RS.25.6 CRORES ATTRIBUTABLE TO INVESTMENTS YIELDING DIVIDEND INCOME. ON THE FACTS & CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMIT THAT ALLOCATION OF INTEREST COST IS NOT JUSTIFIED AND THE LEARNED ACIT AND LEARNED COMMR. OF INCOME TAX ( A) HAVE ERRED IN REJECTING THE CLAIM U/S 80M OF INCOME TAX ACT, 1961. 9. THE LEARNED COMMR. OF INCOME TAX (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF PROVISION FOR DIMINUTION IN THE VALUE OF SECURITIES AMOUNTING TO RS.1,77,50,886/ - WHILE COMPUTING BOO K PROFIT U/S. 115JB. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE APPELLANT SUBMITS THAT THE DISALLOWANCE OF RS.1,77,50,886/ - IS NOT JUSTIFIED AND BE DELETED. GROUND NOS. 1 & 2 : 3. IN THESE GROUNDS, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LOWER AUTHORITIES IN DISALLOWING LEASE EQUALIZATION CHARGE S DEBITED TO THE PROFIT & LOSS ACCOUNT. IT HAS BEEN SUBMITTED BY THE LD. C OUNSEL THAT SUCH AMOUNT IS ALLOWABLE AS DEDUCTION U/S. 37(1 ) OF THE ACT AND THE DISALLOWANCE WAS MADE WITHOUT CONSIDERING THE FULL FACTS BY THE LOWER AUTHORITIES. IT WAS FURTHER SUBMITTED THAT THIS ISSUE STANDS SQUARELY COVERED IN FAV OUR OF THE ASSESSEE BY THE JUDG MENT OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A .YS 1994 - 95 TO 1997 - 08 AND 1998 - 99 TO 2002 - 03. 4 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) 3.1 ON THE OTHER HAND, THE LD. DR HAS ALSO NOT DISPUTED THE SUBMISSION OF THE ASSESSEE THAT THE ISSUE IS COVERED BY THE EARLIER ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE. 3.2 WE HAVE GONE THROUGH THE FACTS OF THIS CASE AND THE SUBMISSIONS MADE BY BOTH THE SIDES. WE FIND THAT AN IDENTICAL ISSUE HAD COME UP IN THE EARLIER YEARS, WHEREIN THIS ISSUE HAS BEEN SENT BACK BY THE TRIBUNAL TO THE FILE OF THE AO VIDE ITS ORDER DT. 6.9.20 13 IN ITA NO. 2307 TO 2310/MUM/2011 FOR A.YS 1994 - 95 TO 1997 - 98 WITH THE FOLLOWING OBSERVATIONS : 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE GUIDANCE NOTE ISSUED BY ICAI EXPLAINING THE CONCEPT OF LEASE EQUALIZATION WITH THE ILLUSTRATION. THE SAID GUIDANCE NOTE IS BASICALLY ISSUED FOR THE PURPOSE OF ACCOUNTING AND THE CONCEPT OF LEASE EQUALIZATION, AS MENTIONED THEREIN, IS BASED ON THE RATIONALE OF MATCHING COST WITH REVENUE SO THAT THE PERIODIC NET INCOME FROM THE FINANCE LEASE IS DETERMINED IN A TRUE AND FAIR MANNER. THIS CONSTITUTES THE PARALLEL METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE FOR THE PURPOSE OF REVENUE RECOGNITION OF LEASING BUSINESS AND AS PER THIS M ETHOD, THE LEASE RENTAL IS SPLIT INTO FINANCE INCOME AND BALANCE 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 LEA SED ASSETS IS MORE THAN THE CORRESPONDING LEASE CHARGE, THE DIFFERENCE IS CREDITED TO THE P&L ACCOUNT AS LEASE EQUALIZATION. SIMILARLY, IF THE DEPRECIATION CLAIMED ON THE LEASED ASSET IS LESS THAN THE CORRESPONDING ANNUAL LEASE, P&L ACCOUNT IS DEBITED BY L EASE EQUALIZATION CHARGES EQUIVALENT TO THE DIFFERENCE AMOUNT. CONSEQUENTLY, THE FINANCE CHARGES, WHICH IS THE ACTUAL INCOME FROM THE LEASED TRANSACTION, IS RECOGNIZED AS REVENUE AND THE DIFFERENCE BETWEEN THE DEPRECIATION AND ANNUAL LEASE CHARGE IS DEBITE D OR CREDITED TO THE P&L ACCOUNT SO AS TO NULLIFY THE EFFECT OF SUCH DIFFERENCE ON THE PROFIT. THE RECOVERY OF INVESTMENT IN THE LEASED ASSETS MADE IN THE RELEVANT YEAR IS THUS MATCHED WITH THE 5 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) CORRESPONDING EXPENSES CLAIMED IN THE FORM OF DEPRECIATION AND THE EFFECT OF HIGHER OR LOWER CLAIM OF DEPRECIATION, THAN THE CORRESPONDING RECOVERY OF INVESTMENT MADE IN THE LEASED ASSETS IS NULLIFIED. IN THE BOOKS OF ACCOUNT, THE LEASING COMPANIES ARE ENTITLED TO CLAIM THE DEPRECIATION BY FOLLOWING ONE OF THE VARIOU S METHODS PRESCRIBED IN THE COMPANIES ACT AND IF SUCH DEPRECIATION CLAIMED IS MORE OR LESS THAN THE CORRESPONDING ANNUAL LEASE CHARGE REPRESENTING RECOVERY OF INVESTMENT IN THE LEASED 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 R EVENUE RECOGNITION OF LEASING INCOME AS PER THE GUIDANCE NOTE ISSUED BY ICAI. 8. IT IS NO DOUBT TRUE THAT THE CONCEPT OF LEASE EQUALIZATION CAN ALSO BE FOLLOWED FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME 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 ABSURDITY AND GIVE MISLEADING RESULT. IN THE CASES LIKE THE ONE IN HAND, WHERE THE RELEVANT TRANSACTIONS ARE TREATED AS FINANCE LEASE AND THE ASSESSEE IS ALLOWED DEPRECIATION AFTER HAVING FOUND HIM THE OWNER OF THE LEASED ASSETS, THE DEPRECIATION ALLOWED AS PER THE RATES PRESCRIBED IN THE INCOME TAX ACT COULD BE MORE THAN THE DEPRECIATIO N 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 FIRST YEAR ITSELF UNDER THE INCOME TAX ACT WHEREAS IN THE BOOKS OF ACCOUNT, IT MIGHT HAVE CLAIMED DEPRECIATION ON THE SAID LEASED ASSETS UNDER THE COMPANIES ACT @ 10%. IN SUCH A CASE, IF THE ANNUAL LEASING CHARGE IS EQUIVALENT TO 30% OF THE VALUE OF LEASED ASSETS, THE ASSESSEE WOULD DEBIT ITS P&L ACCOUNT 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 ASSESSEE UNDER THE INCOME TAX ACT IN ADD ITION TO 100% DEPRECIATION ALREADY ALLOWED, THE ASSESSEE WILL GET DEDUCTION OF 120% OF THE VALUE OF ASSET IN THE FIRST YEAR ITSELF AND THE VERY PURPOSE OF ADOPTING THE CONCEPT OF LEASE EQUALIZATION BASED 6 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) ON THE RATIONALE OF MATCHING COST WITH THE REVENUE W OULD BE DEFEATED. THIS WILL RESULT IN ABSURDITY AND GIVE MISLEADING RESULTS. IN OUR OPINION, IT IS THEREFORE NECESSARY THAT WHILE ALLOWING DEDUCTION ON ACCOUNT OF LEASE EQUALIZATION CHARGES FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER THE INCOME TAX ACT , THE DIFFERENCE BETWEEN THE ANNUAL LEASE CHARGE OF THE LEASED ASSETS AND DEPRECIATION ALLOWED ON THE SAID LEASED ASSET UNDER THE INCOME TAX ACT SHOULD BE TAKEN INTO CONSIDERATION AND NOT THE DIFFERENCE BETWEEN THE ANNUAL LEASE CHARGE AND DEPRECIATION CLAI MED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT AS PER THE COMPANIES ACT. WE, THEREFORE, RESTORE THIS ISSUE TO 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 WHICH THE A.O. SHALL VERIFY AND ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF LEASE EQUALIZATION CHARGES BASED ON SUCH VERIFICATION IN ACCORDANCE WITH LAW. 3.3 IT I S FURTHER NOTED BY US THAT SIMILAR ORDER HAS BEEN PASSED BY THE TRIBUNAL IN OTHER YEARS AND THIS ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE AO. 3.4 THEREFORE, RESPECTFULLY FOLLOWING THE JUDG MENT S OF THE COORDINATE BENCH IN THE EARLIER YEARS, WE SEND THESE ISSUES BACK TO THE FILE OF THE AO AND DIRECT HIM TO FOLLOW THE ORDER OF THE TRIBUNAL IN EARLIER YEARS AND DECIDE THIS ISSUE AFRESH AFTER GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. T HUS, WITH THESE DIRECTIONS THESE GROUNDS ARE RESTORED TO THE FILE OF THE AO. AS A RESULT, THESE GROUNDS MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 3 - 4 . THIS GROUND DEALS WITH THE ACTION OF LD. CIT(A) IN DISALL OWING THE CLAIM OF ASSESSEE U/S 35D OF RS.18,92,153/ - . IT HAS BEEN STATED BY THE LD. C OUNSEL THAT THIS IS SUE IS ALSO COVERED BY THE JUDG MENT OF THE TRIBUNAL IN 7 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) ASSESSEES OWN CASE. THE LD. DR DID NOT OPPOSE THE SUBMISSIONS OF THE ASSESSEE. 4.1 WE HAVE GONE THROUGH THE F ACTS OF THIS CASE AND NOTED THAT THIS ISSUE HAS ARISEN IN EARLIER YEARS ALSO. WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL FOR A.Y 1990 - 91 IN ITA NO. 127/BOM/95 DT. 30.5.2002 VIDE WHICH THIS ISSUE HAS BEEN RESTORED TO THE FILE OF THE AO TO DECIDE D AFRES H , WITH THE FOLLOWING OBSERVATIONS : 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE SEE CONSIDERABLE FORCE IN THE CONTENTION OF THE LEARNED COUNSEL OF THE ASSESSEE THAT IN THE ABSENCE OF A SPECIFIC DEFINITION, THE WORD INDUSTRIAL UNDERTAKING SHOULD BE INTERPRETED IN ITS POPULAR MEANING AND THAT IT SHOULD NOT BE CONFINED TO ONLY THE ACTIVITIES OF MANUFACTURE OR PRODUCTION. HOWEVER, WE FIND THAT THE ISSUE AS TO WHETHER OR NOT THE ACTIVITIES OF THE ASSESSEE AMOUNTED TO THE ASSESSEE BEING AN IN DUSTRIAL UNDERTAKING HAS NOT BEEN EXAMINED AT ALL EITHER BY THE ASSESSING OFFICER OR THE LEARNED CIT(A). THE ASSESSING OFFICER SIMPLY ASSUMED THAT THE ASSESSEE WAS NOT AN INDUSTRIAL UNDERTAKING OR THAT THERE WAS NO EXTENSION OF AN INDUSTRIAL UNDERTAKING. THE SAME COURSE HAS BEEN FOLLOWED BY THE LEARNED CIT(A). THE ASSESSEE HAS ALSO NOT RELIED UPON ANY SPECIFIC MATERIAL PRODUCED BEFORE THE AUTHORITIES BELOW IN THIS CONTEXT. WE ARE THEREFORE OF THE VIEW THAT THIS ISSUE HAS TO BE EXAMINED AND THE FACTS OF THE ASSESSEES CASE HAVE TO BE BROUGHT OUT BY THE ASSESSING OFFICER IN THE FIRST INSTANCE. WE THEREFORE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTIONS TO DECIDE THIS ISSUE AFRESH IN THE LIGHT OF OUR ORDER AFTER ALLOWING THE ASSE SSEE REASONABLE OPPORTUNITY OF BEING HEARD IN THE MATTER. 4.2 IT IS FURTHER NOTED BY US THAT IN OTHER YEARS ALSO, SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL AND THIS ISSUE HAS BEEN SENT BACK TO THE FILE OF THE AO, THEREFORE, IN THIS YEAR ALSO, WE FIND IT APPROPRIATE TO SENT THIS ISSUE BACK TO THE FILE OF THE AO AND DIRECT HIM TO FOLLOW THE DIRECTIONS GIVEN IN THE ORDER OF THE TRIBUNAL OF EARLIER YEARS AND RE - DECIDE THIS ISSUE 8 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) AFTER GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THIS GROU ND IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 4 : 5 . IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE ALLOCATION OF RS.32,32,00,000/ - AS INTEREST ATT RIBUTABLE TO EARNING INCOME U/S 10(23G) OF THE ACT. IT HAS BEEN SUBMITTED BY THE LD. COUNSEL THAT THE METHOD ADOPTED BY THE LOWER AUTHORITIES IN DETERMINING THE INTEREST COST WAS NOT JUSTIFIED AND THEREFORE QUANTIFICATION OF INTEREST ATT RIBUTABLE TO EARNING INCOME U/S 10(23G) OF THE AC T WAS NOT CORRECT. DURING THE COURSE OF HEARING, IT WAS FURTHER SUBMITTED THAT IN THE EARLIER YEARS ALSO, THIS ISSUE CAME UP BEFORE THE TRIBUNAL, WHEREIN ARGUMENTS OF THE ASSESSEE WERE ACCEPTED IN PRINCIPLE , BUT FOR THE LIMITED PURPOSE OF VERIFICATION OF FACTS, PARTICULARLY, FOR DETERMINING THE AMOUNT OF NET WORTH OF THE ASSESSEE, THIS ISSUE WAS SENT BACK TO THE FILE OF THE AO. THE LD. DR HAS RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 5 . 1 WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES A ND THE ORDERS OF THE TRIBUNAL FOR EARLIER YEARS. IT IS NOTED THAT VIDE ORDER DT. 17.12.2014 IN ITA NO. 6063/MUM/2002 AND OTHERS, THE TRIBUNAL HAS RESTORED THIS ISSUE TO THE FILE OF AO FOR VERIFICATION OF FACTS WITH THE FOLLOWING OBSERVATION : 4. THE NEXT COMMON ISSUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE ASSESSEE HAD CLAIMED EXEMPTION OF GROSS AMOUNT OF DIVIDEND INCOME AND INTEREST INCOME U/S 10(33)/10(23G) OF THE ACT. THE AO TOOK THE VIEW THAT ONLY THE NET INTEREST INCOME IS ELIGIBLE FOR EXEMPTION IN VIEW OF THE PROVISIONS OF SEC. 14A OF THE ACT. ACCORDINGLY, THE AO ALLOWED DEDUCTION OF NET INCOME ONLY IN ALL THE 9 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) THREE YEARS AND THE SAME WAS ALSO CONFIRMED BY LD. CIT(A). THE LD. A.R SUBMITTED THAT THE PROVISIONS OF SEC. 14A IS APPLI CABLE PROSPECTIVELY FROM AY 2008 - 09 ONWARDS ONLY. FURTHER, THE LD. A.R SUBMITTED THAT THE ASSESSEE IS HAVING BOTH OWN FUNDS AND LOAN FUNDS AND THE INVESTMENTS MADE IN ELIGIBLE COMPANIES ARE FUNDED OUT OF OWN FUNDS ONLY. IN THIS REGARD, THE LD A.R PLACED RELIANCE ON THE DECISION RENDERED BY HON'BLE MUMBAI HIGH COURT IN THE CASE OF M/S. RELIANCE UTILITIES & POWER LTD. (2009) (178 TAXMAN 135). WE NOTICE THAT THE ASSESSING OFFICER HAS NOT EXAMINED CONTENTIONS OF THE ASSESSEE ABOUT THE AVAILABILITY OF OWN FUN DS. IN ANY CASE, THE ASSESSEE IS REQUIRED TO PROVE THE NEXUS BETWEEN OWN FUNDS AND INVESTMENTS ON THE DATE OF MAKING INVESTMENT. SINCE THE CLAIM OF THE ASSESSEE REQUIRES VERIFICATION OF FACTUAL ASPECTS, WE ARE OF THE VIEW THAT THIS ISSUE ALSO REQUIRES EX AMINATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH BY DULY CONSIDERING THE INFORMATION/EXP LANATIONS THAT MAY BE FURNISHED BY THE ASSESSEE AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 5. 2 WE FIND THAT THE ISSUE INVOLVED IN THIS YEAR ALSO REQUIRES RE - LOOK TO ASCERTAIN THE CORRECT FACTS, AND THEREFORE, THIS ISSUE IS SENT BACK TO THE FILE OF AO. THE AO IS DIRECTED TO FOLLOW THE DIRECTIONS GIVEN IN THE ORDER OF THE TRIBUNAL OF EARLIER YEARS AND HE SHALL GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE TO BRING THE CORRECT FACTS ON RECORD. THE ASSESSEE IS DIRECTED TO SUBMIT THE RE QUIRED DETAILS AND EVIDENCES, AS MAY BE REQUIRED BY THE AO OR AS MAY BE CONSIDERED APPROPRIATE BY HIM AS PER LAW AND FACTS. THUS, WITH THESE DIRECTIONS, THIS ISSUE IS SENT BACK TO THE FILE OF THE AO. AS A RESULT, THIS GROUND IS ALLOWED FOR STATISTICAL PU RPOSE. GROUND NOS. 5 & 6 : 6 . THESE GROUNDS DEAL WITH THE ALLOCATION OF RS. 52,00,000/ - AS ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO EARNING INCOME U/S. 10(23G). I T IS NOTED THAT THE ISS UE INVOLVED IN THESE GROUNDS IS IDENTICAL TO THE ISSUE 10 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) INVOLVED IN GRO UND NO.4 ABOVE. IT IS FURTHER NOTED BY US THAT TH IS ISSUE HA S ALSO BEEN SENT BACK BY THE TRIBUNAL IN THE EARLIER YEAR TO THE FILE OF THE AO FOR VERIFICATION OF FACTS. THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL OF EARLIER YEARS, WE SEND T HIS ISSUE BACK TO THE FILE OF THE AO AND DIRECT HIM TO FOLLOW THE DIRECTIONS GIVEN IN THE ORDER OF THE EARLIER YEARS AND RE - DECIDE THIS ISSUE AFTER GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, WITH THESE DIRECTIONS THIS ISSUE IS SENT BACK TO THE FILE OF THE AO AND THESE GROUNDS MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. GROUND NOS. 7 & 8 : 7 . THESE GROUNDS DEAL WITH THE GRIEVANCE OF THE ASSESSEE REGARDING ACTION OF LD. CIT(A) IN CONFIRMING THAT THE ASSESSEE WAS NOT ENTITLED TO DE DUCTION OF RS. 4.45 CRORES U/S. 80M OF THE ACT. IT IS NOTED THAT THIS ISSUE HA S ALSO BEEN SENT BACK BY THE TRIBUNAL IN A.YS 1999 - 2000 TO 2001 - 02 AND ALSO IN A.Y 1998 - 99 FOR VERIFYING THE NET WORTH OF THE ASSESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE JU DG MENT OF THE TRIBUNAL , WE SEND THIS ISSUE BACK TO THE FILE OF THE AO AND DIRECT HIM TO FOLLOW THE DIRECTIONS GIVEN IN THE ORDERS OF THE TRIBUNAL OF EARLIER YEARS AND RE - DECIDE THIS ISSUE AFTER GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THESE GROUNDS MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO . 9: 8 . THIS GROUND DEALS WITH THE ACTION OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF PROVISION FOR DIMINUTION IN THE VALUE OF THE SECURITIES AMOUNTING TO RS.1,77,50,886/ - WH ILE COMPUTING THE BOOK PROFIT U/S. 11 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) 115JB. IT HAS BEEN BROUGHT TO OUR NOTICE THAT IN A.Y 2002 - 03 THIS ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE AO BY THE TRIBUNAL VIDE ITS ORDER DT. 17.12.2014 IN ITA NO. 77/MUM/2006 WITH THE FOLLOWING OBSERVATIONS : 6. THE NEXT ISSUE RELATES TO THE ADDITION OF PROVISION FOR DIMINUTION IN THE VALUE SECURITIES. THE LD A.R SUBMITTED THAT THE SECURITIES FORMS PART OF THE ASSESSEES STOCK IN TRADE AND THE ASSESSEE IS VALUING THE STOCK AT COST OR MARKET VALUE WHICHEVER IS LOWER. THE LD A.R SUBMITTED THAT THE MARKET VALUE OF SECURITIES FLUCTUATE EVERY YEAR AND HENCE THE ASSESSEE HAS FOLLOWED THE SYSTEM OF MAKING PROVISION EVERY YEAR, INSTEAD OF WRITING OFF THE LOSS ARISING ON ACCOUNT OF FALL IN THE MARKET VALUE OF SECU RITIES BELOW THE COST. HOWEVER, WE NOTICE THAT THE CLAIM OF THE ASSESSEE THAT THE SECURITIES ARE FORMING PART OF STOCK IN TRADE HAS NOT BEEN EXAMINED BY THE TAX AUTHORITIES. FURTHER THE CLAIM OF THE ASSESSEE THAT IT WAS FOLLOWING THE SYSTEM OF VALUING TH E SECURITIES UNDER THE PRINCIPLE, VIZ., COST OR MARKET VALUE WHICHEVER IS LOWER ALSO REQUIRES EXAMINATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSI NG OFFICER TO EXAMINE THE CLAIM OF THE ASSESSEE AFRESH AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 8.1 IT IS NOTED THAT NO DISTINCTION HAS BEEN MADE ON FACTS BY THE PARTIES, AND THEREFORE, RESPECTFULLY FOLLOWING THE JUDG MENT OF THE TRIBUNAL IN THE EARLIER YEAR, WE SEND THIS ISSUE BACK TO THE FILE OF THE AO AND DIRECT HIM TO FOLLOW THE DIRECTIONS OF THE TRIBUNAL IN ITS ORDER GIVEN IN THE EARLIER YEAR AND RE - DECIDE THIS ISSUE AFTER GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THIS GROUND MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 12 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) 9 . NOW, WE TAKE UP THE APPEAL OF THE REVENUE IN ITA N O . 4189/MUM/2007 WHEREIN THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF CLUB EXPENSES AMOUNTING TO RS.6,66,063 / - IGNORING THE CASE LAWS RELIED UPON BY THE ASSESSING OFFICER IN SUPPORT OF THE DISALLOWANCE MADE ON THE BASIS OF FACTS INDICAT ING THAT CLUB EXPENSES WERE NOT UTILIZED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE DEPRECIATION ON LEASE ASSETS HOLDING THAT ALL THE LE ASE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH VARIOUS LESSEES, ON THE BASIS OF SIMILAR AGREEMENTS, WERE GENUINE LEASE TRANSACTIONS, IGNORING THE FACT THAT THE TESTS LAID DOWN BY THE SUPREME COURT IN THE CASE OF DAMODAR VALLEY CORPORATION VS. STATE OF BIHAR (12 ITR 102) AND SUNDARAM FINANCE LTD. VS. STATE OF KERALA (1966 SC 1178) WERE NOT SATISFIED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE DEPRECIATION ON LEASE ASSETS RELYIN G O N HIS OWN DECISION IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 1996 - 97 TO 2002 - 03 IGNORING THE FACTS THAT THE DECISION GIVEN BY THE LD.C I T (A) ON THIS ISSUE FOR ASSESSMENT YEARS 1996 - 97 TO 2002 - 03 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AN APPEAL FILE D TO HON'BLE ITAT IS STILL PENDING AND THE ISSUE HAS NOT REACHED ITS FINALITY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF PROVISION FOR NON PERFORMING AS SETS OF RS.9,36,22,902/ - TO THE BOOK PROFIT U/S. 115JA OF THE I.T. ACT RELYING ON THE DECISION GIVEN BY THE HON'BLE SUPREME COURT IN THE CASE OF APPOLLO TYRES LTD. 255 ITR 273 AND ALSO THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. KINETIC MOTORS COMPANY LTD. 262 ITR 330 BY IGNORING THE FACT THAT AS PER SECTION 115JA(2) OF THE I.T. ACT THE ASSESSEE COMPANY PREPARES ITS PROFIT & LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PART II & I II OF SCHEDULE VI OF THE COMP ANIES ACT, 1956 AS INCREASED BY AMOUNT SHOWN AS PROVISION, RESERVE, 13 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) PAYMENTS, EXPENDITURE RELATABLE TO ANY INCOME TO WHICH ANY OF THE PROVISIONS OF SCHEDULE I II APPLIES. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED C IT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF PROVISION FOR NON PERFORMING ASSETS AMOUNTING TO RS.9,36,22,902/ - TO THE BOOK PROFIT U/S. 115JA OF THE I.T. ACT BY IGNORING THE FACT THAT THE DECISION GIVEN ON THE SAME ISSUE BY THE LD.CIT (A) CIT (A) FOR ASSESSMENT YEARS 1999 - 2000 AND 2001 - 02 HAS NOT BEEN ACCEPTED, APPEAL FILED TO THE HON'BLE ITAT IS STILL PENDING AND THE ISSUE HAS NOT REACHED ITS FINALITY. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF LEASE EQUALIZATION RESERVE OF RS.88,69,66,465/ - TO BOOK PROFIT U/S. 115JA OF THE I.T. ACT, 1961 RELYING ON THE DECISION GIVEN BY THE HON'BLE SUPREME COURT IN THE CASE OF A POLLO TYRES LTD. 255 ITR 273 AN D ALSO THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. KINETIC MOTORS COMPANY LTD. 262 ITR 330 AND CIT VS. I CHIJI FORGINGS (251 ITR 50) BY IGNORING THE FACT THAT THE ASSESSEE HAS REDUCED THE LEASE EQUALIZATION AMOUNT FROM THE GROSS LEASE RENTALS A ND TRANSFERRED THE SAME TO FIXED ASSET ACCOUNTS AS PER SCHEDULE H OF BALANCE SHEET THEREBY CREATING A RESERVE CALLED LEASE EQUALIZATION RESERVE.' 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELET ING THE ADDITION MADE ON ACCOUNT OF LEASE EQUALIZATION RESERVE OF RS.88,69,66,465/ - TO THE BOOK PROFIT U/S. 115JA OF THE I.T. ACT BY IGNORING THE FACT THAT THE DECISION GIVEN BY THE LD.CIT (A) ON THIS ISSUE FOR A.Y.1997 - 98 HAS NOT BEEN ACCEPTED BY THE DEPA RTMENT AND AN APPEAL FILED TO HON'BLE ITAT IS STILL PENDING AND THE ISSUE HAS NOT REACHED ITS FINALITY. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF LEASE EQUALIZATION RESERVE TO THE BOOK PROFIT U/S. 115JA OF THE I.T. ACT BY IGNORING THE FACT THAT LEASE EQUALIZATION RESERVE NOT BEING AN EXPENDITURE ON DEPRECATION AND BEING TREATED AS A RESERVE, AS PER EXPLANATION (B) OF SECTION 115JA, THE AMOUNT CARRIED TO A NY RESERVE BY WHATEVER NAME CALLED HAS TO BE ADDED TO THE NET PROFIT IN ORDER TO ARRIVE AT THE BOOK PROFIT. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE INTEREST U/S. 234D RELYING ON THE 14 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) DECISION OF THE TRIBUNAL IN THE CASE OF GLAXO SMITKLINE VS. CIT (TTJ (DEL)(108)) BY IGNORING THE FACT THAT THE SECTION 234D INSERTED W.E.F. 1.6.2003 APPLIES SQUARELY IN THIS CASE. GROUND NO. 1 : 1 0 . IN THIS GROUND, THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION MADE ON ACCOUNT OF CLUB EXPENSES OF RS.6, 66,063/ - . DURING THE COURSE OF HEARING IT WAS ARGUED THAT TH IS ISSUE IS COVERED BY THE JUDG MENT OF THE TRIBUNAL IN ASSESSEES OWN CASE IN A.YS 1993 - 94, 1994 - 95, 1996 - 97 AND 1997 - 98 AND IN A.YS 1998 - 99, 1999 - 2000, 2000 - 01, 2001 - 02 AND 2002 - 03 THIS ISSUE HAS BEEN ACCEPTED IN PRINCIPLE BY THE TRIBUNAL, BUT RESTORED IT BACK TO THE FILE OF THE AO FOR VERIFICATION OF FACTS. 1 0 . 1 WE HAVE GONE THROUGH THE JUDG MENT OF THE TRIBUN AL FOR A.Y 1998 - 99 IN ITA NO. 4600/MUM/2001 DT. 10.4.2015. IN THIS ORDER, THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN PRINCIPLE, BUT RESTORED IT BACK FOR THE LIMITED PURPOSE OF VERIFICATION OF THE RELEVANT FACTS WITH THE FOLLOWING OBSE RVATIONS : 14. IN GROUND NO. 1 THE REVENUE HAS CHALLENGED THE DELETION OF DISALLOWANCE OF CLUB EXPENSES OF THE EXECUTIVES OF RS.15,30,456/ - . IT HAS BEEN ADMITTED BY BOTH THE PARTIES AND THIS ISSUE HAD COME UP FOR CONSIDERATION IN ASSESSEE'S OWN CASE FOR THE EARLIER YEARS WHEREIN IT STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN A.YS. 1993 - 94, 1994 - 95 AND 1996 - 97. LEARNED COUNSEL ALSO SUBMITTED THAT THIS ISSUE ALSO STANDS COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS . UNITED GLASS MG F. CO. LTD. I N CIVIL APPEAL NO. 6447 OF 2012 ORDER DATED 12 TH SEPTEMBER 2012. 15. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THIS ISSUE TOO HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL AFTER RELYING UPON THE DECISIO N OF HON'BLE BOMBAY HIGH COURT IN THE CASE 15 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) OF OTIS ELEVATOR REPORTED IN 195 JTR 682. I N THE A . Y 2002 - 03, THE T RIBUNAL FOLLOWING THE DECISION OF HON'BLE S U PREME COURT IN THE UNITED GLASS MG F . HAS HELD THAT, CLUB MEMBERSHIP FEE FOR EMPLOYEES INCURRED BY THE ASSESSEE IS ALLOWABLE U/S 37(1). ACCORDINGLY, WE HOLD THAT SUCH EXPENSES ARE ALLOWABLE AS BUSINESS EXPENDITURE, WHICH HAS RIGHT L Y BEEN DELETED BY THE LD. C I T(A). HOWEVER, THE ORDER BY THE REVENUE AUTHORITIES DO NOT INDICATE IF ANY PART OF THE IMPUGNED EXP ENDITURE INCLUDES EXPENDITURE BY WAY OF ENTRANCE FEES, WHICH, WHERE SO, WOULD ASSUME THE CHARACTER OF A CAPITAL EXPENDITURE, INADMISSIBLE U/S 37(1). WE DECIDE ACCORDINGLY, SO THAT AO SHALL ALLOW THE EXPENDITURE SUBJECT TO HIS VERIFICATION AS TO CLUB ENTRAN CE FEES, IF ANY. 10.2 THUS, RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE, BUT FOR THE LIMITED PURPOSE OF VERIFICATION OF FACTS, THIS ISSUE IS RESTORED BACK TO THE FILE OF THE AO. THE AO IS DI RECTED TO GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE BEFORE DECIDING THIS ISSUE AFRESH. THE AO SHALL FOLLOW THE DIRECTIONS GIVEN BY THE TRIBUNAL IN THE AFORESAID ORDER BEFORE RE - DECIDING THIS ISSUE. THUS, THIS GROUND MAY BE TREATED AS ALLOWED F OR STATISTICAL PURPOSES. GROUND NOS. 2 & 3 - 11 . THESE GROUNDS DEAL WITH THE ACTION OF THE LD. CIT(A) IN ALLOWING DEPRECIATION O N LEASED ASSETS. DURING THE COURSE OF HEARING, IT HAS BEEN SUBMITTED BEFORE US THAT THIS ISSUE IS ALSO COVERED BY THE ORDER OF THE TRIBUNAL FOR A.Y 1996 - 97, 1998 - 98 AND 2002 - 03. 11 . 1 WITH THE ASSISTANCE OF THE PARTIES, WE HAVE GONE THROUGH THE ORDERS OF THE TRIBUNAL OF EARLIER YEARS AND FIND THAT THIS ISSUE CAME UP BEFORE THE TRIBUNAL IN A.YS 1996 - 97 AND 1997 - 98 AND THE TRIBUN AL VIDE ITS 16 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) ORDER DT. 10.7.2013 IN ITA NO. 3689/MUM/2001 AND OTHERS HELD AS UNDER: 3. GROUND NOS. 2 TO 2.7 RELATES TO THE CLAIM OF DEPRECIATION ON LEASED ASSETS. THE ASSESSING OFFICER HAS DISCUSSED THE LEASING TRANSACTIONS OF THE ASSESSEE AT PAGE 4 PARA 11 ONWARDS OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS CLAIMED TO HAVE CARRIED OUT BUSINESS OF LEASING OF VARIOUS ASSETS AND ACCORDINGLY LEASE RENTALS HAVE BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT AND DEPRECIATION U/S. 32(1) OF THE ACT HAS ALSO BEEN CLAIMED. THE ASSESSING OFFICER SOUGHT DETAILS FROM THE ASSESSEE IN RESPECT OF LEASED TRANSACTIONS. AFTER DISCUSSING THE FACTS OF THE CASE AT LENGTH AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO VARIOUS C LAUSES OF THE LEASE AGREEMENT, THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT THE TRUE NATURE OF THE TRANSACTION IS ONE OF FINANCE TRANSACTION AND IT WAS IN THE GUISE OF LEASE TRANSACTIONS FOR EXPECTED TAX BENEFITS. THE ASSESSING OFFICER FINALLY CAME TO THE CONCLUSION THAT THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION OF EQUIPMENT LEASED OUT DURING THE YEAR INCLUDING THE DEPRECIATION ON SALE OF LEASED BACK TRANSACTION AND DISALLOWED THE TOTAL DEPRECIATION OF ALL THE ASSETS AT RS.37,04,84,925/ - . HOWEVER, T HE ASSESSING OFFICER REDUCED THE CAPITAL COMPONENT AT RS.4,61,94,437/ - THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A). THE CIT(A) HAS DISCUSSED THIS GRIEVANCE OF THE ASSESSEE AT PARA 37 ONWARDS. IT WAS CLAIMED BEFORE THE CIT(A) THAT IF THE DEPRECIATION ON THE LEASED ASSETS ARE NOT ALLOWED, THE CONCEPT OF GENERAL LEASING TRANSACTIONS WILL BE RENDERED MEANINGLESS. AFTER CONSIDERING THE FACTS AND SUBMISSIONS OF THE ASSESSEE, THE CIT(A) OBSERVED THAT THE ASSESSEE COMPANY HAS BEEN IN THE BUSINESS OF LEASING A ND HAS BEEN ALLOWED THE DEPRECIATION ON THE LEASED ASSETS IN THE PAST. THE CIT(A) WENT ON TO EXHIBIT THE CLAIM OF THE ASSESSEE FROM A Y 1989 - 90 TO A Y 1995 - 96 AT PAGE 17 PARA 42 OF HIS ORDER. THE CIT(A) OBSERVED THAT FROM A.Y 1989 - 90 TO A.Y. 1995 - 96 DEPREC IATION ON LEASED ASSETS WAS ALLOWED AT THE ASSESSMENT STAGE ITSELF AND DEPRECIATION ON SALE OF LEASED BACK TRANSACTION WAS ALSO ALLOWED IN ALL THESE ASSESSMENT YEARS. THE CIT(A) WAS CONVINCED THAT IT IS A GENUINE LEASE TRANSACTION AND NOT A CASE OF FINANCE TRANSACTION AND ALLOWED THE CLAIM OF DEPRECIATION TO THE TUNE OF RS.37,04,84,924/ - . 17 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) 4. BEFORE US, THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE RELATING TO ALLOWABILITY OF DEPRECIATION ON LEASED ASSETS HAS NOW BEEN SETTLED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON`BLE SUPREME COURT IN THE CASE OF ICDS LIMITED 29 TAXMAN.COM 129. THE COUNSEL FURTHER SUBMITTED THAT THE SAID DECISION OF THE HON'BLE SUPREME COURT HAS BEEN FOLLOWED BY THE TRIBUNAL IN THE CASE OF LARSEN & TOUBRO IN ITA NO.2200/MUM/2000. THE DR STRONGLY SUPPORTED THE FINDINGS OF THE ASSESSING OFFICER. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE FIND FORCE IN THE SUBMISSIONS OF THE COUNSEL THAT THIS ISSUE IS NOW SETTLED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE S UPREME COURT. THIS DECISION OF THE HON'BLE SUPREME COURT HAS BEEN FOLLOWED BY THE TRIBUNAL IN THE CASE OF LARSEN & TOUBRO IN ITA NO.2200/MUM/2000, WHERE THE SAME COMBINATION HAS DELIVERED THE JUDGMENT AT PARA 28 PAGE 10 OF THE SAID ORDER. THE BENCH HAS ALS O FOLLOWED THE DECISION OF THE TRIBUNAL IN THE CASE OF DEVELOPMENT CREDIT BANK LIMITED IN ITA NO. 7664/MUM/2007 & 27 ORS. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT AND OF THE TRIBUNAL (SUPRA), WE CONFIRM THE FINDINGS OF THE CIT(A). G ROUND NOS. 2 TO 2.7 IS ACCORDINGLY DISMISSED. 11 . 2 IT IS FURTHER NOTED BY US THAT A SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN OTHER YEARS. THUS, RESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNAL IN THE EARLIER YEARS, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DISMISS THE GROUNDS RAISED BY THE REVENUE. THUS, THESE GROUNDS ARE DISMISSED. GROUND NOS. 4 & 5 : 12 . IN THESE GROUNDS, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION MADE ON ACCOUNT OF PROVISION FOR NON - PERFORMING ASSETS OF RS.9,36,22,902/ - TO THE BOOK PROFIT U/S. 115JA OF THE ACT. IT WAS FAIRLY SUBMITTED DURING THE COURS E OF HEARING BEFORE US 18 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE REVENUE BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN A.Y 2002 - 03. 12.1 WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN A.Y 2002 - 03 AND FIND THAT THIS IS SUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL VIDE ITS ORDER DT. 17.12.2014 IN ITA NO. 978/MUM/2006 WITH THE FOLLOWING OBSERVATIONS : 5. THE NEXT ISSUE RELATES TO THE ADDITION OF PROVISION FOR NON - PERFORMING ASSETS WHILE COMPUTING THE BOOK P ROFIT U/S 115JB OF THE ACT. THE ASSESSING OFFICER ADDED THE SAME BY TREATING AS UNASCERTAINED LIABILITY. THE LD A.R SUBMITTED THAT IT WAS A DIMINUTION IN THE VALUE OF ASSETS AND HENCE THE SAME CANNOT BE CONSIDERED AS UNASCERTAINED LIABILITY. HOWEVER, W E NOTICE THAT THE FINANCE ACT, 2009 HAS MADE AMENDMENT IN SEC. 115JB OF THE ACT WITH RETROSPECTIVE EFFECT FROM 1.4.2001 BY INSERTING THE FOLLOWING ITEM TO BE ADDED TO THE BOOK PROFIT: - (I) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN TH E VALUE OF ANY ASSET. HENCE, THE PROVISION FOR NON - PERFORMING ASSETS, BEING A PROVISION FOR DIMINUTION IN THE VALUE OF ASSET, THE SAME IS REQUIRED TO BE ADDED TO THE BOOK PROFITS. ACCORDINGLY, WE CONFIRM THE ORDER OF LD CIT(A) ON THIS ISSUE. THUS, RE SPECTFULLY FOLLOWING THE JUDG MENT OF THE TRIBUNAL WE DECIDE THIS ISSUE AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE AND HOLD THAT THE PROVISION FOR NON - PERFORMING ASSETS, BEING A PROVISION FOR DIMINUTION IN THE VALUE OF THE ASSET, IS REQUIRED TO BE AD DED TO THE BOOK PROFITS. THUS, THESE GROUNDS ARE TREATED AS ALLOWED IN FAVOUR OF THE REVENUE. 19 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) GROUND NOS. 6 TO 8 : 13 . IN THESE GROUNDS , THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION MADE ON ACCOUNT OF LEASE EQUALIZATION RESERVE OF RS.88,69,66,465/ - WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. A PERUSAL OF THE ORDER OF THE LD. CIT(A) REVEALS THAT T HIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY HIM BY RELYING UPON HIS OWN ORDER DT. 8.2.2007 FOR A.Y 1999 - 2000 WITH THE FOLLOWING OBSERVATIONS : THE APPELLANT HAS CHALLENGED THE DISALLOWANCE OF THE CLAIM OF LEASE EQUALIZATION AMOUNT OF RS.88,69,66,465/ - WHILE COMPUTING THE BOOK PROFIT U/S. 155JB. THE SAME ISSUE WAS DECIDED IN FAVOUR OF THE APPELLANT IN MY APPELLATE ORDER DATED 8/2/2007 FOR A.Y 1999 - 2000 AS UNDER : I HAVE GONE THROUGH THE CONTENTION OF THE APPELLANT AND FIND SOME MERIT IN ITS CASE. IN SO FAR AS ACCOUNTS OF THE APPELLANT COMPANY WERE PREPARED AS PER THE PROVISIONS OF COMPANIES ACT WHICH REQUIRE THE COMPANY TO NECESSARILY FOLLOW THE MANDATORY ACCOUNTING STANDARDS RECOMMENDED BY THE ICAI. FURTHER IT IS NOW WELL SETTLED T HAT AO HAS NO JURISDICTION TO REWRITE THE BOOKS OF THE ASSESSEE FOR THE PURPOSE OF ARRIVING AT BOOK PROFIT U/S. 115JB OF THE ACT. IN THE INSTANT CASE THE AO HAS TRIED TO REWRITE THE BOOKS BY STATING THAT THE APPELLANT COMPANY SHOULD HAVE CREDITED GROSS LE ASE RENT TO THE PROFIT AND LOSS ACCOUNT AND NOT NET AMOUNT AFTER DEDUCTING LEASE EQUALIZATION RESERVE. THEREFORE, TAKING THE CUE FROM THE JUDGEMENT OF APEX COURT IN CASE OF APOLLO TYRES, ADDITION MADE BY THE AO IN THIS REGARD IS DELETED. SINCE THE FACT S OF THIS YEAR ARE SIMILAR TO THE FACTS OF A.Y 1997 - 98 AND THE ARGUMENTS OF THE APPELLANT ARE SUPPORTED BY THE DECISION OF SUPREME COURT IN THE CASE OF APPOLLO TYRES LTD. 255 ITR 273 AND ALSO THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF KINETIC MOTORS CO. LTD. 262 ITR 330. FURTHER, ANOTHER DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. ECHJAY FORGING 251 ITR 15 AND ALSO THE DECISION OF MUMBAI ITAT IN THE CASE OF INDIAN HOTELS CO. LTD. 92 ITD 97 ALSO SUPPORT THE CLAIM OF APPELLANT, THEREFORE, RELY ING ON THE FINDINGS OF MY 20 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) PREDECESSOR IN APPELLANTS OWN CASE AND VARIOUS CASE LAWS DISCUSSED ABOVE, I AM OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN ADDING THE LEASE EQUALIZATION RESERVE WHILE COMPUTING THE BOOK PROFIT. THUS, GROUND NO. 9 AND 10 ARE ALL OWED. SINCE THE FACTS OF THIS YEAR ARE SIMILAR TO THE FACTS OF A.Y 1997 - 98, THEREFORE RELYING ON FINDINGS OF MY PREDECESSOR AND MY OWN FINDINGS, TH E AO IS DIRECTED TO NOT TO ADD EQUALISATION RESERVE WHILE COMPUTING THE BOOK PROFIT. THUS, THIS GROUND OF APPEAL IS ALLOWED. 13.1 THE LD. DR HAS RELIED UPON THE ORDER OF THE AO AND THE ASSESSEE HAS RELIED UPON THE ORDER OF THE LD. CIT(A ) AS WELL AS THE FOLLOWING JUDG MENTS : ICICI VENTURE FUNDS (KARNATAKA HIGH COURT) IRCTC (DELHI HIGH COURT) ITO V. PAL CRE DIT AND CAPITAL LTD. (MUMBAI ITAT) 13 . 2 WE HAVE GONE THROUGH THE ORDER OF THE LD. CIT(A) AS WELL AS THE SUBMISSIONS MADE BY BOTH THE SIDES. IT IS NOTED THAT IN THE FIRST PARAGRAPH, THE LD. CIT(A) HAS RELIED UPON HIS ORDER FOR A.Y 1999 - 2000 BUT IN THE LAST PARAGRAPH HE HAS MADE A MENTION ABOUT H IS ORDER FOR A.Y 1997 - 98. THERE APPEARS TO BE SOME CONTRADICTION IN THIS REGARD. FURTHER, NOTHING HAS BEEN SUBMITTED BEFORE US BY THE LD. COUNSEL OF THE ASSESSEE DURING THE COURSE OF THE SUBMISSION OR IN A CHART CONTAINING THE BRIEF SYNOPSIS AS TO WHAT H APPENED WITH REGARD TO THIS ISSUE IN A.Y 1999 - 2000 OR IN A.Y 1997 - 98 SUBSEQUENTLY AT THE STAGE OF THE TRIBUNAL. IT IS FURTHER NOTED BY US THAT IN THE ASSESSEES APPEAL, SIMILAR ISSUE WITH REGARD TO DISALLOWANCE OF LEASE EQUALIZATION RESERVE IS INVOLVED WH ICH HAS BEEN RESTORED BACK TO THE FILE OF THE AO WHILE DISPOSING GROUND NO. 1 OF ASSESSEES APPEAL. THEREFORE, IN VIEW OF THESE FACTS AND FAIRNESS AND JUSTICE, WE FIND IT APPROPRIATE THAT THIS ISSUE SHOULD ALSO GO BACK TO THE 21 M/S. INFRASTRUCTURE LEASING & FIN . SER . LTD. ( ITA NOS. 4319 & 4189/MUM/2007 ) FILE OF THE AO FOR DECIDING A FRESH AFTER DECIDING GROUND NOS. 1 AND 2 OF ASSESSEES APPEAL. THE AO SHALL GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSEE IS PERMITTED TO RAISE ALL LEGAL AND FACTUAL ISSUES BEFORE TH E AO AND CAN RELY UPON THE JUDG MENTS WHICH HAVE BEE N RELIED BEFORE US. THUS, GROUND NOS. 6 TO 8 OF THE REVENUES APPEAL MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 9 : 14. THIS GROUND DEALS WITH INTEREST U/S 234D. IT HAS BEEN SUBMITTED THAT THIS GROUND IS CONSEQUENTIAL. THEREFORE, IT IS DISMISSED. 15. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES AND REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 9 T H MARCH, 2016. SD/ - SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER (ASHWANI TANEJA) ACCOUNTANT MEMBER MUMBAI, DATE : 9 T H MARCH, 2016 COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, I BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR *SSL* I.T.A.T, MUMBAI