2014 (2) TMI 672 - AT - Income Tax

Disallowance of depreciation Held that - The decision in Deputy Commissioner of Income Tax, Circle-11 (1), New Delhi. Versus M/s Escorts Finance Ltd. 2012 (9) TMI 473 - ITAT, DELHI followed -assessee was claiming depreciation on old vehicles only which were already let out on hire and on which the assessee had already been allowed depreciation @ 40% - vehicles owned by a non-banking finance company leased to third party are eligible for higher rate of depreciation @ 40% - thus, the assessee was rightly eligible for depreciation at higher rate Decided in favour of Assessee. Treatment of capital loss Speculation loss as per Explanation to Section 73 of the IT Act OR not Held that - The decision in Deputy Commissioner of Income Tax, Circle-11 (1), New Delhi. Versus M/s Escorts Finance Ltd. 2012 (9) TMI 473 - ITAT, DELHI followed - Explanation to Section 73 does not apply to investments in Govt. Securities, and also the fact recorded by the CIT (A) that the assessee is not in the business of trading in share and has incurred a loss on its investment - the actions of the AO in invoking Explanation to Section 73 is wrong Decided against Revenue. Disallowance u/s 14A of the Act Held that - The decision in Maxopp Investment Ltd. & Others Versus Commissioner of Income Tax 2011 (11) TMI 267 - Delhi High Court followed the matter remitted back and the AO is directed for fresh adjudication Decided in favour of Revenue. Deletion made on account of reversal of income charged to P&L A/c Held that - The assessee has recognized the income in the earlier assessment years - it is not the case of recognizing current year income - the parties accounts would have been debited, increasing the balance in the debtor account to the extent of interest accrued but not received - Reversal of such income, which is already accounted as income in the earlier assessment year would be possible only by, part write off the debts - The accounting entries and treatment in the books have to be considered and it has to be seen whether there is part write off of debts in the books of accounts - Verification of facts is required Matter remitted back to the AO for fresh adjudication Decided in favour of Revenue. Disallowances of calculation of book profit u/s 115JB of the Act Held that - The assessee company while preparing the computation of income added back the provision - In the current A.Y. 2008-09 a part of this provision for doubtful advances was written back to the profit & loss a/c on the ground that the provision in question is no longer required - Such withdrawal from the reserve of a provision has to be deducted while computing book profits u/s 115 JB of the IT Act, as per the Section - there was no infirmity in the order of the first appellate authority Decided against Revenue.

Issues Involved:
1. Disallowance of depreciation on leased vehicles.
2. Treatment of long-term capital loss as speculation loss.
3. Disallowance under Section 14A of the Income Tax Act.
4. Reversal of income charged to Profit & Loss Account.
5. Difference between information received through AIR and the books of the assessee.
6. Calculation of book profit under Section 115JB of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Leased Vehicles:
The assessee, a Non-Banking Financial Company, claimed depreciation on motor lorries, taxis, and motor cars leased out in its business. The Assessing Officer (AO) allowed depreciation at a lower rate, citing previous litigation. The CIT (A) upheld the AO's decision. However, the Tribunal reversed this, noting that no fresh leasing activity was done, and the vehicles were old and already allowed higher depreciation in previous years. The Tribunal followed the Delhi High Court's judgment in CIT v. MGF, allowing higher depreciation rates for such vehicles.

2. Treatment of Long-Term Capital Loss as Speculation Loss:
The AO treated the long-term capital loss from share trading as speculation loss under Section 73. The CIT (A) disagreed, noting the assessee was not engaged in the business of trading shares. The Tribunal upheld this view, referencing previous ITAT orders and the definition in Section 73, which does not apply to government securities. The Tribunal confirmed the loss was capital in nature, not speculative.

3. Disallowance under Section 14A of the Income Tax Act:
The AO made disallowances under Section 14A, which the CIT (A) deleted. The Tribunal, following its decision for A.Y. 2004-05, remanded the issue back to the AO for fresh adjudication, directing the application of the Delhi High Court's ruling in Maxopp Investment Ltd.

4. Reversal of Income Charged to Profit & Loss Account:
The AO added back a substantial amount of reversed interest income. The CIT (A) allowed the reversal per RBI norms and ITAT precedents. However, the Tribunal, referencing the Supreme Court's decision in Southern Technologies Ltd. and the Delhi High Court's ruling in Vasisth Chay Vyapar Ltd., remanded the issue back to the AO for verification of facts and fresh adjudication, emphasizing that RBI norms do not override the Income Tax Act provisions.

5. Difference Between Information Received Through AIR and Books of the Assessee:
The AO made an addition based on AIR information not reconciled by the assessee. The CIT (A) deleted the addition, noting the AO did not verify the assessee's denial of transactions with certain parties. The Tribunal upheld the CIT (A)'s decision, as the AO failed to discharge the onus of proof.

6. Calculation of Book Profit under Section 115JB of the Income Tax Act:
The AO added back a provision written back to the profit & loss account while calculating book profit under Section 115JB. The CIT (A) directed the AO to reduce this amount, as it was no longer required and credited back. The Tribunal found no fault in this decision, affirming the CIT (A)'s order.

Conclusion:
The Tribunal allowed the appeals of the assessee regarding depreciation on leased vehicles and the treatment of long-term capital loss. It remanded issues related to Section 14A disallowances and reversal of income for fresh adjudication. Additions based on AIR information were dismissed, and the CIT (A)'s decision on book profit calculation under Section 115JB was upheld.

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