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2007 (7) TMI 343 - AT - Income TaxMinimum Alternate Tax u/s 115JA - disallowance of lease equalization charges - non-banking finance company - Reserves or reserve funds - HELD THAT - The amount of lease equalization charge however is neither the portion of earnings/profits of an Enterprise nor the same is appropriated for a general or specific purpose. The same, in fact, is a charge against the profit to arrive at true and correct profits of the leasing business which by no means can be treated as part of undistributed profits or capital of the business. As per clause 1(1)(b) of Part III of Schedule VI of the Companies Act, it is clarified that the expression reserves shall not include any amount written off or retained by way of providing for depreciation, renewals or diminutions in the value of assets or retained by way of providing for any known liability. The expression 'reserve' thus has been defined in a negative manner and excludes certain amounts as specified. If the nature and character of lease equalization charges as evident from the purpose for which the same is provided as well as the accounting treatment given thereto in the books of account is considered in the light of the meaning of the expression 'reserves' as defined in the context of terms common used in financial statements as well as by the Hon'ble Apex Court in the case of State Bank of Patiala 1996 (3) TMI 128 - SUPREME COURT , we are of the view that the provision made for lease equalization charges cannot be regarded as an amount transferred to reserves as envisaged in Explanation (b) to section 115JA(2) and the same therefore, cannot be excluded while computing book profit u/s 115JA. In that view of the matter, we hold that the adjustment made by the Assessing Officer by adding the amount of lease equalization charges while computing the book profit u/s 115JA was not permissible since the said amount was not covered within any of the clauses of Explanation below section 115JA(2) including clause (b) and the Ld. CIT(A) therefore was not justified in confirming the adjustment so made by the Assessing Officer on this count. His impugned order on this issue is therefore, set aside and the Assessing Officer is directed to delete the adjustment/addition made on this issue. Ground No. 4 of the assessee's appeal is accordingly allowed. Delete the addition confirmed by the CIT(A) by disallowance of fees paid to RoC and expenditure treated as capital in nature is respectively while computing book profits u/s 115JA- Held That - The ld. DR has not been able to raise any material contention in this regard to point out as to how the adjustments in question made by the Assessing Officer while computing the book profits of the assessee were permissible under section 115JA, we hold, respectfully following the decision of Hon ble Supreme Court in the case of Apollo Tyres Ltd. (supra), that the said additions made by the Assessing Officer while computing the book profits of the assessee were beyond the scope of adjustments permissible under section 115JA and the ld. CIT(A) was not justified in confirming the same. The impugned order of the ld. CIT(A) on these issues is, therefore, reversed and the Assessing Officer is directed to delete the adjustments made on these counts while computing the book profits under section 115JA. Delete the addition confirmed by the ld. CIT(A) on account of provision for bad and doubtful debts while computing profits u/s 115JA - Held that - Accordingly, following the decision of Kolkata Special Bench of ITAT in the case of Usha Martine Industries Ltd. (supra), we hold that the ld. CIT(A) was not justified in confirming the disallowance made by the Assessing Officer on account of provision for bad and doubtful debts while computing book profits under section 115JA and setting aside his impugned order on this issue, we direct the Assessing Officer to delete the said disallowance. Delete the addition confirmed by the ld. CIT(A) on account of interest paid on interest tax liability while computing profits u/s 115JA - Held That - the decision of Delhi C Bench of ITAT rendered in the case of GE Capital Services India v. Dy. CIT for assessment years 1995-96, 1996-97 and 1997-98 vide its common order dated 25-8-2006 in ITA No. 2038/Delhi/2002 and others. A copy of the said order is also filed by him in the paper book at page Nos. 35 to 57 and a perusal of the same reveals that a similar disallowance made by the Assessing Officer and confirmed by the ld. CIT(A) was deleted by the Tribunal holding that the interest charged on interest tax liability was not of penal nature. Respectfully following the said decision of the Tribunal, we set aside the impugned order of the ld. CIT(A) confirming the disallowance made by the Assessing Officer on account of interest charged on interest tax liability and direct the Assessing Officer to delete the same. Ground No. 9 of the assessee s appeal is accordingly allowed. In the result, the appeal of the assessee is partly allowed.
Issues Involved:
1. Depreciation claim on commercial vehicles given on lease. 2. Disallowance of expenses for equity shares issuance. 3. Addition of lease equalization charges while computing book profits under section 115JA. 4. Disallowance of fees paid to RoC and capital expenditure while computing book profits under section 115JA. 5. Disallowance of provision for bad and doubtful debts while computing book profits under section 115JA. 6. Disallowance of interest paid on interest tax liability. Issue-wise Detailed Analysis: 1. Depreciation Claim on Commercial Vehicles Given on Lease: The assessee challenged the CIT(A)'s decision to restrict depreciation on leased commercial vehicles to 25% instead of 40%. The Tribunal observed that the Delhi High Court in CIT v. Bansal Credits Ltd. held that the end user's usage of the asset determines the depreciation rate. However, a more recent Delhi High Court decision in CIT v. M.G.F. (India) Ltd. stated that higher depreciation at 40% is allowed for vehicles leased out without needing to prove their use for hire. Following this, the Tribunal directed the Assessing Officer to allow the higher depreciation rate of 40%. 2. Disallowance of Expenses for Equity Shares Issuance: The assessee contested the addition of Rs. 14,70,000 as capital expenditure related to the issuance of equity shares. The Tribunal upheld the CIT(A)'s disallowance, relying on the Supreme Court's decision in Brooke Bond India Ltd. v. CIT, which categorized such expenses as capital expenditure. 3. Addition of Lease Equalization Charges While Computing Book Profits Under Section 115JA: The assessee deducted lease equalization charges from lease rental income in its profit and loss account but did not add them back while computing book profits under section 115JA. The Assessing Officer added these charges back, considering them notional. The Tribunal noted that similar issues were decided in favor of the assessee in the case of SREI International Finance Ltd., where it was held that lease equalization charges do not fall under any of the clauses in Explanation to section 115JA(2). The Tribunal concluded that lease equalization charges are not reserves and should not be added back while computing book profits, directing the Assessing Officer to delete the adjustment. 4. Disallowance of Fees Paid to RoC and Capital Expenditure While Computing Book Profits Under Section 115JA: The Tribunal addressed the disallowance of Rs. 2,46,792 (fees paid to RoC) and Rs. 1,24,350 (capital expenditure) while computing book profits under section 115JA. It was held that these additions were beyond the permissible adjustments under section 115JA, following the Supreme Court's decision in Apollo Tyres Ltd. The Tribunal directed the Assessing Officer to delete these adjustments. 5. Disallowance of Provision for Bad and Doubtful Debts While Computing Book Profits Under Section 115JA: The assessee contested the addition of Rs. 16,79,58,897 on account of provision for bad and doubtful debts. The Tribunal referred to the Special Bench decision in Jt. CIT v. Usha Martine Industries Ltd., which held that such provisions are not for liabilities but for diminution in asset value and should not be added back under section 115JA. The Tribunal directed the deletion of this disallowance. 6. Disallowance of Interest Paid on Interest Tax Liability: The assessee contested the disallowance of interest paid on interest tax liability. The Tribunal noted that a similar issue was decided in favor of the assessee in GE Capital Services India v. Dy. CIT, where it was held that such interest is not penal. Following this precedent, the Tribunal directed the deletion of this disallowance. Conclusion: The appeal was partly allowed, with the Tribunal directing the deletion of several disallowances and adjustments made by the Assessing Officer, thus providing relief to the assessee on multiple grounds.
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