2014 (7) TMI 125 - AT - Income Tax

Capital recovery on leased assets Held that - As it has already been decided in earlier assessment year, even after deduction of finance income, the full value of the cost of assets is fully recovered in lease period of 30 years and it is a case of Finance Lease as per the guidelines issued by ICAI - the AO should verify the charts and if the condition is satisfied, all the transactions should also be accepted as finance lease transactions thus, the matter is remitted back to the AO Decided in favour of Revenue. Bond issue expenses Held that - The expenditure would qualify only for amortization u/s 35D of the Act - the expenditure was a permissible deduction and accordingly deleted the addition made by the AO thus, bond issue expenses will be allowable as deduction as revenue expenditure Decided against Revenue. Prior paid expenses Held that - If the AO is of the view that the expenses are pertaining to the prior period, it is required to be considered for the prior and allowed in that year - If it is found that the expenses are allowable in this year on the basis of crystallization of liability, it may be considered in the year the assessee is directed to place necessary evidence in support of claim of expenses the AO is directed to determine the allowability of the expenses - the matter is remitted back to the AO.

Summary

Issues Involved: Appeal filed by Revenue against order of CIT (Appeals) for assessment year 2004-05 on various grounds including addition of capital recovery on leased assets, provision for gratuity, provision for leave encashment, disallowance of bond issue expenses, disallowance of prior period expenses, and disallowance of depreciation on foreign currency fluctuation capitalized.

Analysis:

1. Ground No. 1 - Capital Recovery on Leased Assets:
- The Tribunal found that this issue was covered in favor of the assessee by an earlier order for assessment years 1997-98 to 2000-2001. The Tribunal directed the Assessing Officer to act as per the directions of the earlier order, restoring the ground to the office of the Assessing Officer.

2. Ground No. 2 & 3 - Provision for Gratuity and Leave Encashment:
- The Departmental Representative argued that these provisions should be added to the computation of income u/s 115JB. However, the AR contended that these were ascertained liabilities and not mere provisions, supported by case laws. The Tribunal dismissed these grounds in favor of the assessee.

3. Ground No. 4 & 5 - Disallowance of Bond Issue Expenses and Prior Period Expenses:
- These grounds were covered in favor of the assessee by Tribunal's orders for earlier assessment years. The Tribunal followed previous judgments and dismissed these grounds in favor of the assessee.

4. Ground No. 6 - Depreciation on Capitalized Foreign Exchange Fluctuation:
- The AR argued that the depreciation on capitalized loss due to foreign exchange fluctuation is a revenue expenditure allowable under the Act. The Tribunal agreed with the AR's submissions and dismissed this ground in favor of the assessee, citing relevant judicial pronouncements.

5. General Ground No. 7:
- The Tribunal noted that this ground was general in nature and did not require adjudication.

6. Overall Decision:
- The Tribunal partly allowed the appeal filed by Revenue for statistical purposes, dismissing most of the grounds raised by the Revenue in favor of the assessee based on legal interpretations, case laws, and previous Tribunal orders.

This comprehensive analysis covers the various issues raised in the legal judgment, detailing the arguments presented by both parties and the Tribunal's reasoning for each ground of appeal.