2019 (11) TMI 209 - AT - Income Tax

Disallowance of principal payments made towards finance lease - allowable revenue expenditure - HELD THAT - It is well settled Law that rule of consistency do apply to the income tax proceedings. Therefore, the A.O. should not have taken out a different view in the assessment year under appeal, when similar claim of assessee have been allowed as revenue expenditure in earlier years. Nature of infrastructure facilities provided to the assessee on lease rent, it is clear that the same have been provided through Agreement for business purpose of the assessee. Since assessee used these items wholly and exclusively for the purpose of business and was not the owner of the same, therefore, assessee rightly claimed the same as revenue expenditure and rightly claimed the deduction of the same. It is also well settled Law that the liability under the Act is governed by the provisions of the Act and is not depending on the treatment followed for the same in the books of account. It is also well settled that whether the assessee was entitled to a particular deduction or not, would depend upon the provisions of Law relating thereto, and not on the view, which the assessee might take of his right, nor could the existence or absence of entries in the books of account by decisive or conclusive in the matter. No justification to sustain the addition. We, accordingly, set aside the Orders of the authorities below and delete the entire addition. Levy of penalty under section 271(1) (c) - disallowance of loss of 10B Unit, which claim of assessee have been allowed by the Ld. CIT(A) and addition have been deleted. - A.O. made further addition on account of finance lease and long term capital gains - HELD THAT - Matter requires reconsideration at the level of the Ld. CIT(A). It is well settled Law that CIT(A) while deciding the appeal of assessee shall have to mention point for determination and reasons for decision in the appellate order. CIT(A) confirmed the levy of penalty merely because Ld. CIT(A) confirmed both the additions on quantum appeal. It is well settled Law that quantum proceedings and penalty proceedings are independent and distinct in nature. CIT(A) shall have to give reasons for decision while confirming the penalty or deleting the addition. In this view of the matter, we set aside the impugned order and restore the penalty appeal to the file of CIT(A) with a direction to re-decide the appeal of assessee as per Law, giving reasons for decision in the appellate order. CIT(A) shall have to give reasonable, sufficient opportunity of being heard to the assessee. Appeal of Assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of ?50,09,835/- recognized as principal payments made towards finance lease.
2. Levy of penalty under section 271(1)(c) of the I.T. Act, 1961.

Issue 1: Disallowance of ?50,09,835/- towards finance lease

The assessee, a Public Limited Company engaged in Information Technology Education and Knowledge Solutions, filed a return of income for the A.Y. 2009-2010. The A.O. disallowed the deduction of ?50,09,835/- claimed as principal payments towards a finance lease, treating it as capital expenditure. The assessee argued that the lease payments were for infrastructure/movable assets located at three centers and, as per Accounting Standard AS-19, recognized as finance lease. The principal payments were capitalized, while finance charges were expensed. The assessee contended that the entire lease rent should be deductible as it was for business use, citing various judgments and CBDT circulars supporting the treatment of lease rentals as revenue expenditure.

The CIT(A) upheld the A.O.'s decision, referencing the ITAT's decision in Rio Tinto India Pvt. Ltd. The assessee reiterated that similar claims were allowed in previous years (A.Ys. 2007-2008 and 2008-2009) and other judgments supported their position. The ITAT noted that the assessee used the leased infrastructure exclusively for business purposes and was not the owner of the assets. The principle of consistency was emphasized, as similar claims were allowed in earlier years. The ITAT concluded that the lease rentals were revenue expenditures and allowed the assessee's appeal, deleting the addition.

Issue 2: Levy of penalty under section 271(1)(c) of the I.T. Act, 1961

The A.O. levied a penalty on the assessee for ?90,83,882/- based on additions of ?50,09,835/- (finance lease) and ?40,73,987/- (long term capital gains). The CIT(A) confirmed the penalty, as the additions were upheld in the quantum appeal. However, the ITAT highlighted that penalty proceedings are distinct from quantum proceedings and require independent reasoning. The ITAT set aside the penalty order and remanded the matter to the CIT(A) for reconsideration, instructing to provide detailed reasons and a fair hearing to the assessee.

Conclusion:

The ITAT allowed the appeal regarding the finance lease deduction, recognizing it as a revenue expenditure. The penalty appeal was allowed for statistical purposes, remanding it to the CIT(A) for a fresh decision with proper reasoning.