2006 (2) TMI 219 - AT - Income Tax

Summary

Issues Involved:
1. Addition on account of lease equalization charges.
2. Computation of income under section 115JA of the Income-tax Act.
3. Grant of higher rate of depreciation on leased vehicles.
4. Allowability of loss on sale of re-possessed stock.

Detailed Analysis:

1. Addition on Account of Lease Equalization Charges:
The primary issue in the appeals filed by the assessee pertains to the addition made by the Assessing Officer (AO) on account of lease equalization charges. The assessee, engaged in the business of leasing and hire-purchase, claimed lease equalization charges as a deduction, which was disallowed by the revenue authorities. The AO argued that the lease equalization charge is an artificial provision similar to depreciation and not recognized under the Income-tax Act. The Tribunal upheld the AO's view, stating that the method of accounting prescribed by the Institute of Chartered Accountants of India (ICAI) is not applicable for computing taxable income under the Income-tax Act. The Tribunal concluded that the lease equalization charges reduce the real income of the assessee and are not allowable as a deduction.

2. Computation of Income under Section 115JA:
For the assessment year 1998-99, the issue was whether lease equalization charges should be added to the book profits as per section 115JA of the Act. The AO had increased the book profits by adding the lease equalization charges, treating them as provisions for unascertained liabilities. The Tribunal, referring to the Supreme Court's decision in Apollo Tyres Ltd. v. CIT, held that such adjustments cannot be made while determining income under section 115JA. The Tribunal allowed the assessee's appeal, stating that lease equalization charges are not provisions for unascertained liabilities and should not be added to the book profits.

3. Grant of Higher Rate of Depreciation on Leased Vehicles:
The revenue's appeals involved the issue of granting a higher rate of depreciation on leased vehicles. The Tribunal noted that similar issues had been decided in favor of the assessee in previous years, following the Delhi High Court's decision in CIT v. Bansal Credits Ltd. The Tribunal held that the assessee was entitled to claim depreciation at a higher rate of 40% on leased vehicles used in the business of leasing.

4. Allowability of Loss on Sale of Re-possessed Stock:
Another issue in the revenue's appeals was the disallowance of loss on the sale of re-possessed stock of vehicles. The Tribunal observed that this issue had also been decided in favor of the assessee in earlier years. The Tribunal upheld the assessee's claim for the loss on the sale of re-possessed stock, following the orders from previous assessment years.

Conclusion:
The Tribunal dismissed the assessee's appeals regarding the addition of lease equalization charges for the assessment years 1997-98 and 1999-2000. However, it allowed the appeal for the assessment year 1998-99, ruling that lease equalization charges should not be added to the book profits under section 115JA. The revenue's appeals were dismissed, affirming the higher rate of depreciation on leased vehicles and the allowability of loss on the sale of re-possessed stock.