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2014 (6) TMI 969 - AT - Income TaxDepreciation on the assets given on lease under financial lease agreements - Held that - As per the parity of reasoning laid down by the Hon ble Supreme Court in the case of I.C.D.S. Ltd. (2013 (1) TMI 344 - SUPREME COURT) the assessee company being the owner of assets, is entitled to depreciation even where the assets have been leased out in terms of a financial lease. The Tribunal has noted the terms and conditions of the lease arrangement and observed that during the subsistence of the lease, the assessee-lessor continued to retain the ownership of the assets. Secondly, the requirement of putting to use of the assets for the purposes of business also stands fulfilled, inasmuch as assessee has used the assets in the course of his business of leasing. In this manner, the Tribunal, following the ratio of the judgment of the Hon ble Supreme Court in the case of I.C.D.S. Ltd. (supra) held the assessee eligible for the claim of depreciation on leased assets. The facts and circumstances of the case in the year under consideration are similar to those considered by the Tribunal in the assessee s own case for the assessment years 2004-05, 2005-06 and 2006-07 (supra) and therefore following the said precedent - Decided in favour of assessee Ad-hoc disallowance of commission expenditure - Held that - There is no direct clinching evidence to show that the claim made by the assessee was false or bogus and therefore the ad-hoc disallowance made by the Assessing Officer is quite unjustified. In this view of the matter, the CIT(A) ought to have deleted the entire addition rather than allowing part-relief, that too, on an ad- hoc basis. In conclusion, we hold that the income-tax authorities were not justified in making the impugned disallowance and accordingly, we set-aside the order of the CIT(A) and direct the Assessing Officer to delete the entire addition. - Decided in favour of assessee Addition on account of Bad debts - Held that - The impugned disallowance has been made by the Assessing Officer on mere conjectures and surmises. It is quite clear that the claim of the assessee for the bad debts written-off is in terms of section 36(1)(vii) r.w.s. 36(2) of the Act. It is also quite clear that the debts in question have been actually written-off as irrecoverable in the account books of the assessee. It is also not disputed by the Revenue that the impugned debts have arisen in the course of carrying on assessee s business of financing. In the background of the aforesaid undisputed facts, in our considered opinion, the issue is squarely covered by the proposition of law laid down by the Hon ble Supreme Court in the case of TRF Ltd. 2010 (2) TMI 211 - SUPREME COURT . Thus no error on the part of the CIT(A) in deleting the impugned addition. - Decided in favour of assessee Addition on income on account of non- performing assets - Held that - We hereby affirm the order of the CIT(A) holding that the amount representing unrecognized income on NPAs classified as per the RBI guidelines cannot be assessed on accrual basis - Decided in favour of assessee Disallowance u/s 14A - Held that - In the present case, the Assessing Officer has merely observed in one line that he does not agree with the contention of the assessee . Ostensibly, having regard to the manner in which the Assessing Officer has discussed the issue in the assessment order, the objective satisfaction contemplated in section 14A(2) of the Act is conspicuous by its absence. Therefore, in our view, the CIT(A) erred in rejecting the plea of the assessee that there was no satisfaction recorded by the Assessing Officer as required in terms of section 14A of the Act before invoking rule 8D of the Rules. Secondly, the CIT(A) has also proceeded on the basis that from the assessment year under consideration i.e. assessment year 2008-09 onwards application of rule 8D of the Rules is automatic. No doubt, rule 8D of the Rules is effective from assessment year 2008-09 onwards.Therefore, the CIT(A) is wrong in proceeding on the basis that from assessment year 2008-09 onwards application of rule 8D of the Rules is automatic and mandatory. Thus, in our view, the CIT(A) erred in sustaining the action of the Assessing Officer on the issue of computation of disallowance u/s 14A of the Act.- Decided in favour of assessee Denial of credit for the tax deducted at source on behalf of the assessee - Held that - We deem it fit and proper to affirm the directions of the CIT(A) with certain modifications. The Assessing Officer is hereby directed to allow credit for the tax deducted at source on behalf of the assessee in the light of the judgement of the Hon ble Allahabad High Court in the case of Rakesh Kumar Gupta ( 2014 (5) TMI 520 - ALLAHABAD HIGH COURT ). - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Depreciation on assets given on lease under financial lease. 2. Adhoc disallowance out of commission paid. 3. Disallowance of bad debts written-off. 4. Addition on account of interest on Non-Performing Assets (NPAs). 5. Disallowance under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules, 1962. 6. Non-grant of TDS credit. Issue-wise Detailed Analysis: 1. Depreciation on Assets Given on Lease under Financial Lease: The assessee claimed depreciation on assets leased out under financial lease agreements amounting to Rs. 21,76,76,824/-. The Assessing Officer disallowed the claim, arguing that in financial leases, the lessee is considered the owner of the asset, thus entitled to depreciation. The CIT(A) upheld this view, consistent with the preceding year. However, the Tribunal referenced its previous order favoring the assessee, supported by the Supreme Court's decision in I.C.D.S. Ltd. vs. CIT, which allowed depreciation claims for assets leased out under financial leases. The Tribunal allowed the assessee's claim for depreciation. 2. Adhoc Disallowance out of Commission Paid: The Assessing Officer made an ad-hoc disallowance of Rs. 2,56,76,115/- (5% of the total commission paid) due to incomplete confirmations from certain parties. The CIT(A) reduced this disallowance to 2%, amounting to Rs. 1,01,70,446/-. The Tribunal found the ad-hoc disallowance unsustainable, given that the assessee provided substantial supporting evidence, including bank letters and TDS certificates. The Tribunal directed the deletion of the entire disallowance, allowing the assessee's appeal and dismissing the Revenue's cross-ground. 3. Disallowance of Bad Debts Written-off: The Assessing Officer disallowed 20% of the bad debts written-off, amounting to Rs. 11,83,05,574/-, citing insufficient details and recovery efforts. The CIT(A) deleted the addition, referencing a similar deletion in the preceding year, which the Tribunal had affirmed. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in TRF Ltd. vs. CIT, which stated that post-01.04.1989, it suffices if the bad debt is written-off in the accounts. 4. Addition on Account of Interest on Non-Performing Assets (NPAs): The Assessing Officer added Rs. 12,87,37,505/- as income, rejecting the assessee's claim that interest on NPAs should not be recognized as income following RBI guidelines. The CIT(A) deleted the addition, referencing the Tribunal's order in Alfa Laval Financial Services Ltd. and the Delhi High Court's decision in Vasisth Chay Vyapar Ltd., which supported non-recognition of income on NPAs as per RBI norms. The Tribunal affirmed the CIT(A)'s decision, holding that unrecognized income on NPAs classified per RBI guidelines cannot be assessed on an accrual basis. 5. Disallowance under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules, 1962: The assessee disallowed Rs. 57,600/- u/s 14A, but the Assessing Officer enhanced this to Rs. 71,70,861/- using Rule 8D. The CIT(A) upheld this enhancement. The Tribunal found the Assessing Officer's action unjustified due to the lack of recorded satisfaction as mandated by Section 14A(2). The Tribunal directed the retention of the original disallowance of Rs. 57,600/- and deletion of the enhanced amount. 6. Non-grant of TDS Credit: The Assessing Officer denied credit for TDS amounting to Rs. 4,99,92,971/- due to mismatches with Form 26AS. The CIT(A) directed the allowance of TDS credit as per Form 26AS on the date of giving effect to his order. The Tribunal, referencing the Allahabad High Court's ruling in Rakesh Kumar Gupta vs. Union of India, directed the Assessing Officer to grant TDS credit based on TDS certificates, despite discrepancies in Form 26AS. Conclusion: The Tribunal allowed the assessee's appeals regarding depreciation on leased assets, ad-hoc disallowance of commission, and disallowance under Section 14A. It upheld the CIT(A)'s decisions on bad debts written-off and interest on NPAs. The Tribunal directed the allowance of TDS credit based on TDS certificates. The Revenue's appeals were dismissed.
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