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2010 (3) TMI 853 - AT - Income TaxFinance charges in respect of hire purchase and lease transactions disallowed - difference in method of accounting - AO has accepted the accrual basis of accounting - Held that - CIT(Appeals) has accepted the cash basis of accounting by following the case of Annamalai Finance Ltd. v. Addl. CIT which has been upheld even by the hon ble jurisdictional High Court 2004 (10) TMI 51 - MADRAS High Court by holding that the enabling clause in the finance agreement by itself between the assessee-company and its clients (customers) would not create any income. Against revenue. Long-term capital loss on account of sale of shares disallowed - Held that - Disallowance of long-term capital gain/loss is not based on any solid/valid grounds. A commercial transaction between two separate legal entities, even if they belong to the same group, cannot be ignored - See McDowell & Co. Ltd. v. CTO 1985 (4) TMI 64 - SUPREME Court & Azadi Bachao Andolan (2003 -TMI - 6130 - SUPREME Court) - confirm the impugned deletion Bad debts - assessee has submitted that as per section 36(1)(vii) of the Act the entire sum has been written off and conforms with the Reserve Bank of India directions issued in this regard - Held that - As decided in CIT v. HCL Comnet Systems & Services Ltd. 2008 (9) TMI 18 - SUPREME COURT provision made towards irrecoverability of the debt can t be said to be a provision for liability - AO was not justified in adding back the provision for doubtful debts under clause (c) of the Explanation to Section 115JA. Revenue appeal dismissed.
Issues Involved:
1. Additional finance charges in hire purchase and lease transactions 2. Long-term capital loss on sale of shares 3. Provision for bad debts Issue 1: Additional Finance Charges The appeal involved the acceptance of additional finance charges in hire purchase and lease transactions by the assessee based on cash basis accounting, which was disputed by the Assessing Officer. The Commissioner of Income-tax (Appeals) upheld the cash basis accounting method, citing a previous tribunal order and a High Court decision. The tribunal found in favor of the assessee, stating that the enabling clause in the finance agreement did not create income, as per the High Court's binding decision. The tribunal confirmed the appellate finding, rejecting the Revenue's appeal on this issue. Issue 2: Long-term Capital Loss on Sale of Shares The dispute centered around a long-term capital loss claimed by the assessee on the sale of shares to a sister concern at a lower rate. The Assessing Officer questioned the sale price, but the Commissioner of Income-tax (Appeals) accepted the assessee's explanation based on continuous losses incurred by the company. The tribunal upheld the appellate finding, emphasizing that commercial transactions between related parties should not be disregarded. Citing relevant case law, the tribunal confirmed the deletion of the long-term capital loss disallowance. Issue 3: Provision for Bad Debts The assessee claimed a bad debt amount, which the Assessing Officer contested. The assessee argued that the write-off was in compliance with RBI guidelines and section 36(1)(vii) of the Income-tax Act. The Commissioner of Income-tax (Appeals) and the tribunal supported the assessee's position, citing relevant tribunal orders and a Supreme Court decision. The tribunal agreed with the appellate reasoning, dismissing the Revenue's appeal on the grounds of bad debts provision. The tribunal consolidated its decision on identical issues across appeals involving different assessees, emphasizing the consistency in its findings. By upholding the appellate findings in favor of the assessees on all issues, the tribunal dismissed the Revenue's appeals in all three cases.
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