2013 (9) TMI 1248 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of lease equalization charges by the A.O.
2. Confirmation of disallowance by the ld. CIT(A).

Summary:

Disallowance of Lease Equalization Charges by the A.O.:

The assessee, a non-banking finance company (NBFC), claimed deductions for lease equalization charges as per ICAI guidelines. The A.O. disallowed these deductions, arguing that the ICAI guidelines do not alter the non-cash nature of lease equalization charges and that there is no provision u/s 30 to 43D or u/s 37 of the Income Tax Act allowing such deductions. The A.O. held that lease equalization is merely an accounting adjustment and not an actual expenditure.

Confirmation of Disallowance by the ld. CIT(A):

The assessee appealed to the ld. CIT(A), contending that lease equalization charges are part of the statutory accounting method prescribed by ICAI to reflect true income. The ld. CIT(A) upheld the A.O.'s decision, stating that the concept of lease equalization reserve is not recognized under the Income Tax Act. He emphasized that allowing such deductions would result in double deductions for the cost of leased assets, which is not permissible.

Tribunal's Decision:

The Tribunal considered the rival submissions and the guidance note issued by ICAI. It acknowledged that the concept of lease equalization is an accounting method to match cost with revenue. However, it stressed that for tax purposes, the difference between the annual lease charge and the depreciation allowed under the Income Tax Act should be considered, not the depreciation claimed in the books as per the Companies Act. The Tribunal restored the issue to the A.O. for fresh consideration, directing the assessee to provide the working of lease equalization charges based on the depreciation figures allowed under the Income Tax Act.

Conclusion:

The appeals were treated as allowed for statistical purposes, with the A.O. instructed to verify and allow the claim of the assessee for deduction on account of lease equalization charges in accordance with the law.

Order pronounced in the open court on 6th Sept. 2013.