THE ACIT RG 8(3), MUMBAI V. M/S. SWIFT FINLEASE (INDIA) LTD, MUMBAI

ITA 5377/MUM/2007

• Counselvise Citation: 537719914 RSA 2007
• Duration Of Justice: 3 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 10-05-2011
• Assessment Year: 1997-1998
• Appeal Filed On: 09-08-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: SHRIRAM BAJAJ
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO. 5377/MUM./2007 (ASSESSMENT YEAR : 1977-98 ) DATE OF HEARING: 10.5.2011 ASSTT. COMMISSIONER OF INCOME TAX RANGE-8(3), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S M/S. SWIFT FINLEASE (INDIA) LTD. 101-106, NEELKANTH COMMERCIAL CENTRE, SAHAR ROAD, ANDHERI (E) MUMBAI 400 099 PAN AAACS7413G .... RESPONDENT REVENUE BY : MR. S.K. SINGH ASSESSEE BY : MR. SHRIRAM BAJAJ O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE REVENUE, IS DIRECTED A GAINST THE IMPUGNED ORDER DATED 8 TH MAY 2007, PASSED BY THE COMMISSIONER (APPEALS)- XXIX, MUMBAI, FOR ASSESSMENT YEAR 1997-98, CANCELIN G PENALTY OF ` 46,94,679, IMPOSED BY THE ASSESSING OFFICER UNDER S ECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ). 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE IS A COMPANY AND IT WAS ENGAGED IN THE BUSINESS OF LEASING, BILL DISCOUNTIN G AND INTER CORPORATE DEPOSITS. THE MAIN ADDITION ON WHICH THE PENALTY HA S BEEN LEVIED IS THE ADDITION OF ` 1,02,48,840, MADE ON ACCOUNT OF LEASE EQUALIZATION . THE ASSESSING OFFICER, AT PARA-7.1 OF THE ASSESSMENT OR DER, STATES THAT IN M/S. SWIFT FINLEASE (INDIA) LTD. ITA NO.5377/MUM./2007 2 SCHEDULE-13 OF PROFIT & LOSS ACCOUNT, THE ASSESSEE HAD REDUCED THE EQUALIZATION ACCOUNT FROM THE INCOME EARNED FROM TH E LEASING AND HIRE PURCHASE. WHEN ASKED FOR AN EXPLANATION, THE ASSESS EE RELIED ON THE GUIDANCE NOTE ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA FOR THE ACCOUNTING OF FINANCE LEASE TRANSACTIONS. THE A SSESSEES REPLY IS EXTRACTED BELOW FOR READY REFERENCE:- THE ICAI HAVE ISSUED A GUIDANCE NOTE FOR THE ACCOUN TING OF FINANCE LEASE TRANSACTION. LEASE RENTALS TO BE RECOVERED FR OM THE LESSEE INCLUDE AN INCOME ELEMENT I.E., THE INTEREST RATE I MPLICIT IN THE LEASE TO THE NET INVESTMENT IN THE LEASE DURING THE RELEVANT PERIOD. THE BALANCE PORTION IS THE ANNUAL LEASE CHARGE I.E., REQUIRED T O BE MADE TO THE PROFIT & LOSS ACCOUNT. THIS CHARGE REPRESENT THE RE COVERY OF THE NET INVESTMENT / FAIR VALUE OF THE LEASED ASSET OVER TH E LEASE TERM. THE ANNUAL LEASE CHARGE COMPRISES MINIMUM STATUTORY DEP RECIATION I.E., DEPRECIATION AS PER THE COMPANIES ACT, 1956, AND WH ERE THE ANNUAL CHARGE IS MORE THAN THE MINIMUM STATUTORY DEPRECIAT ION THE BALANCE WOULD BE THE LEASE EQUALIZATION CHARGE. A SEPARATE LEASE EQUALIZATION ACCOUNT SHOULD BE OPE NED WITH A CORRESPONDING DEBIT / CREDIT TO LEASE ADJUSTMENT AC COUNT AS THE CASE MAY BE. 3. THE ASSESSING OFFICER WAS OF THE OPINION THAT LEASE EQUALIZATION IS ONLY AN ACCOUNTING TREATMENT AND THAT NO SUCH DEDUCTION IS ALLOWABLE UNDER THE ACT. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN, THE FO LLOWING NOTE WAS GIVEN BY THE ASSESSEE. AS PER THE GUIDELINES ISSUED BY THE ICAI FROM 1 ST APRIL 1995, LEASE EQUALIZATION ACCOUNT IS TO BE MAINTAINED IN RESPECT OF LEASE TRANSACTIONS BY NBFC. THE LEASE RENTALS CHARGED BY NBFC ON LEASE BUSINESS COMPRISES OF THE FINANCE CHARGE AS WELL AS RECOVERY OF THE CAPITAL COST. THE LEASED ASSET IS WRITTEN OFF IN TH E BOOK OF LESSOR DURING THE PRIMARY PERIOD OF LEASE. THE ANNUAL STATUTORY D EPRECIATION CHARGED ON THE ASSET IS NORMALLY LESS THAN THE CAPITAL RECO VERY EFFECTED DURING THE YEAR. AS SUCH, THE GROSS LEASE RENTAL IS SPLIT INTO THE FINANCE CHARGE CALCULATED ON THE BASIS OF THE IMPLICIT RATE AND CA PITAL RECOVER (LEASE CHARGE). THE DIFFERENCE BETWEEN THE CAPITAL RECOVER Y AND MINIMUM STUTORY DEPRECIATION IS CREDITED IN LEASE EQUALIZAT ION ACCOUNT. THE NET RESULT IS THAT THE FINANCE CHARGE IS BOOKED AS INCO ME AND THE CAPITAL RECOVERY IS DEDUCTED BY WAY OF STATUTORY DEPRECIATI ON AND LEASE EQUALIZATION. AT THE END OF LEASE PERIOD BY WAY OF STATUTORY DEPRECIATION AND LEASE EQUALIZATION. AT THE END OF LEASE PERIOD THE TOTAL OF STATUTORY DEPRECIATION AND THE LEASE EQUAL IZATION PROVIDED WOULD BE EQUAL TO THE COST OF THE LEASED ASSET. THE LEASE EQUALIZATION THEREFORE IS NOT IN NATURE OF INCOME BUT ONLY CAPIT AL RECOVERY AND M/S. SWIFT FINLEASE (INDIA) LTD. ITA NO.5377/MUM./2007 3 HENCE QUESTION OF PAYING INCOME TAX ON THIS AMOUNT DOES NOT ARISE AT ALL. 4. THE ASSESSING OFFICER REJECTED THE CONTENTION ON TH E GROUND THAT THE ASSESSEES CLAIM IS NOT BASED ON ANY LEGAL FOOTING. HE ALSO SAID THAT THE ISSUE WHETHER A RECEIPT WAS TAXABLE OR NOT HAS TO BE DECI DED IN ACCORDANCE WITH INCOME TAX PAID AND NOT IN ACCORDANCE WITH ACCOUNTI NG PRINCIPLES. HE DISALLOWED THE CLAIM. 5. THE FIRST APPELLATE AUTHORITY CONFIRMED THE VIEW OF THE ASSESSING OFFICER. SUBSEQUENTLY, THE ASSESSING OFFICER LEVIED PENALTY UNDER SECTION 271(1)(C). ON APPEAL, THE FIRST APPELLATE AUTHORITY HELD THAT THE ASSESSEE HAD MADE A CLAIM BASED ON A GUIDANCE NOTE BY THE ICAI A ND SUCH CLAIM CANNOT BE CONSIDERED AS MALAFIDE CLAIM. HE DELETED THE PEN ALTY. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE LEARNED COUNSEL, MR. SHRIRAM BAJA J, APPEARING ON BEHALF OF THE ASSESSEE AS WELL AS THE LEARNED DEPAR TMENTAL REPRESENTATIVE, MR. S.K. SINGH. 7. THE ISSUE WHETHER LEASE EQUALIZATION FUND CAN BE CH ARGED TO PROFIT & LOSS ACCOUNT, HAS BEEN A MATTER OF DEBATE. CONFLICT ING VIEWS HAVE BEEN TAKEN BY VARIOUS BENCHES OF THIS TRIBUNAL IN THOSE YEARS. THE ASSESSEE HAS MAINTAINED ITS BOOKS OF ACCOUNT IN ACCORDANCE WITH THE GUIDANCE NOTE ISSUED BY THE ICAI AND, HENCE, IT CANNOT BE FAULTED FOR TH E SAME. IN THE GUIDANCE NOTE, THE INSTITUTE LAID DOWN AS TO MANNER IN WHICH THE INCOME HAS TO BE DETERMINED IN THE CASE OF FINANCE LEASE TRANSACTION S. UNDER THESE CIRCUM- STANCES, IT CANNOT BE SAID THAT THE CLAIM OF THE AS SESSEE IS UNTENABLE CLAIM. MERELY MAKING A CLAIM DOES NOT TENTAMOUNTS TO FURNI SHING INACCURATE PARTICULARS OR CONCEALMENT OF INCOME. IN FACT, IN A SSESSEES OWN CASE FOR IMMEDIATELY PRECEDING ASSESSMENT YEAR 1996-97, THE ASSESSING OFFICER, IN HIS ORDER DATED 31 ST DECEMBER 1998, PASSED UNDER SECTION 143(3), AND ALLOWED THIS CLAIM OF THE ASSESSEE. THE HYDERABAD B ENCH OF THIS TRIBUNAL IN JCIT V/S PACT SECURITIES AND FINANCIAL LTD., (2003) 86 ITD 115 (HYD.), HAD M/S. SWIFT FINLEASE (INDIA) LTD. ITA NO.5377/MUM./2007 4 CONSIDERED THIS ISSUE OF ALLOWABILITY OF LEASE EQUA LIZATION AND HELD IN FAVOUR OF THE ASSESSEE. 8. THE DELHI BENCH OF THIS TRIBUNAL IN VERTUAL SOFT SY STEMS LTD. V/S ACIT, (2010) 38 SOT 412 (DEL.), ON SIMILAR FACTS, HAS HEL D THAT GUIDANCE NOTE OF THE ICAI WOULD BE APPLICABLE. WE ALSO FIND THAT THE ASSESSEES APPEAL BEFORE THIS BENCH OF THE TRIBUNAL ON THIS VERY ISSUE WAS D ISMISSED FOR NON- PROSECUTION IN LIMINE. 9. ON THESE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE CLAIM OF ASSESSEE HAS BEEN DISALLOWED, IS A DEBATABLE MATTER AND UNDER SUCH CIRCUMSTANCES, NO PENALTY CAN BE LEVIED UNDER SECTI ON 271(1)(C). WE RELY ON THE JUDGMENT OF HON'BLE SUPREME COURT IN CIT V/S RE LIANCE PETROPRODUCTS PVT. LTD. (2010) 322 ITR 158 (SC). WE, THUS, DO NOT FIND ANY COGENT REASON TO DISTURB THE ORDER PASSED BY THE COMMISSIONER (AP PEALS). THIS GROUND OF REVENUE IS DISMISSED. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.5.2011 SD/- N.V. VASUDEVAN JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 20.5.2011 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, J BENCH, ITAT, MUMBAI TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI