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Issues Involved:
1. Rejection of Assessee's Claim for Lease Rentals. 2. Disallowance of Expenditure on Stamp Duty and Registration Fee for Increasing Authorized Capital. Issue-wise Detailed Analysis: 1. Rejection of Assessee's Claim for Lease Rentals: The assessee, a company incorporated on 20th Sept. 1988, sold its SCADA system to RCFTL on 30th March 1993 for Rs. 8,03,38,800 and leased it back for 60 months with total lease rentals of Rs. 10,55,65,200. A supplemental agreement on 5th April 1993 extended the lease period to a primary period of 60 months and a secondary period of 120 months. The assessee debited Rs. 70,83,671 annually in its books but claimed Rs. 2,11,13,040 as a deduction in its income return, leading to a disallowance by the AO of Rs. 1,40,29,369. The AO's disallowance was based on the principle that the assessee could not claim a larger deduction than what was recorded in its books, citing s. 145(1) of the IT Act and various judicial precedents. The CIT(A) upheld this view, emphasizing the need to adhere to the method of accounting regularly followed by the assessee and the ICAI guidelines. In its defense, the assessee argued that the entire lease rental was a contractual liability and should be deductible, irrespective of book entries. The assessee cited several Supreme Court and High Court decisions, including Kedarnath Jute Manufacturing Co. Ltd. vs. CIT, which established that the existence or absence of entries in the books of account should not be decisive in determining the deductibility of a liability. The Tribunal concluded that the two agreements (30th March 1993 and 5th April 1993) should be treated separately. The supplemental agreement, which modified the original lease terms, did not affect the claim of the assessee regarding the allowability of lease rentals. The Tribunal held that the assessee's claim of Rs. 2,11,13,040 was allowable as it was a contractual liability that had accrued and been paid, notwithstanding the entries in the books of account. The Tribunal directed the AO to allow the assessee's claim accordingly. 2. Disallowance of Expenditure on Stamp Duty and Registration Fee for Increasing Authorized Capital: The assessee incurred an expenditure of Rs. 50 lakhs towards stamp duty and registration fees for increasing its authorized capital from Rs. 100 crores to Rs. 200 crores. The AO and CIT(A) disallowed this expenditure, treating it as capital in nature, based on Supreme Court decisions in Punjab State Industrial Development Corporation Ltd. vs. CIT and Brooke Bond (India) Ltd. vs. CIT. The assessee contended that the expenditure was revenue in nature and alternatively claimed it under s. 35D of the IT Act. However, the Tribunal upheld the disallowance, agreeing with the CIT(A) that the expenditure was capital in nature and not allowable under s. 35D as it was not connected with the public issue of shares. Conclusion: The appeals for the assessment years 1994-95 and 1995-96 were allowed in favor of the assessee regarding the lease rentals, while the appeal for the assessment year 1996-97 was partly allowed, with the disallowance of Rs. 50 lakhs for stamp duty and registration fees being upheld.
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