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2017 (8) TMI 417 - AT - Income TaxAddition of lease transaction as operating lease - capital recovery of the assets to lease income - leasing Rolling Stocks assets by the assessee to the Ministry of Railways - CIT-(A) held that lease transaction as finance lease - Held that - Ld. CIT-(A) following the direction of the ITAT in earlier years, correctly accepted the lease transaction of the assessee as finance lease transaction and restored the matter to the Assessing Officer for verification of facts of lease charges. Hon ble Delhi High Court in the case of the assessee for assessment year 2001-02 (2014 (6) TMI 224 - DELHI HIGH COURT) considered the lease transaction as finance lease. Also lease equalization charges should not be disallowed. - Decided in favour of assessee. Disallowance u/s 14A under the normal provisions of the Act - Held that - Once the Assessing Officer recorded the dissatisfaction and invoked section 14A(2) of the Act, he is duty-bound to compute the disallowance in terms of Rule 8D of the Rules. In the case of Gujarat Narmda Valley Fertilisers Company Limited (2014 (3) TMI 847 - GUJARAT HIGH COURT) the issue was that interest free funds available with the assessee were much larger as compared to the investment in mutual funds and shares and therefore, the Assessing Officer was held wrong in disallowing interest expenditure under section 14A of the Act. Before us, the Ld. counsel of the assessee has not brought on record any facts which could establish that the ratio of the Hon ble High Court would apply in the case. In view of above facts and circumstances, we do not find any infirmity in the order of the Ld. CIT-(A) on the issue in dispute and accordingly, the ground of the appeal of assessee is dismissed. MAT - calculating the book profit under section 115JB of the Act, disallowance related to exempt income cannot be made following section 14A read with Rule 8D - Held that - We find that the issue has been decided recently by the special bench of the Tribunal in the case of Vireet Investment (2017 (6) TMI 1124 - ITAT DELHI) in assessment year 2008-09, wherein it is held that computation under clause (f) of Explanation-1 to section 115 JB(2) of the Act is to be made without resorting to the computation as contemplated under section 14A read with rule 8D of the rules. Thus, respectfully following the above decision of the special bench of Tribunal, we set aside the decision of the Ld. CIT-(A) and delete the disallowance. - Decided in favour of assessee Disallowance of prior period expenses - Held that - CIT-(A) has already allowed substantial relief holding that expenses on Salary, Leave Travel concession etc. related to employees on deputation, were crystallized in the year under consideration. We find that the remaining expenses are in respect of the arrear of salary and service tax. We find that payment of service tax is allowed on the paid basis in terms of section 43B of the Act. Thus, only expense left is a arrear of salary amounting ₹ 7,89,000/-. The Ld. counsel claimed that the said expense was crystallized during the year under consideration similar to other expenses on salary which have been allowed by the Ld. CIT-(A) and against which, the Revenue has not filed any appeal. Before us, the Revenue did not bring on record any evidence to controvert the arguments of the ld. counsel. See case of Excel Industries Ltd., 2013 (10) TMI 324 - SUPREME COURT - Decided in favour of assessee Addition under section 115JB for provision of leave travel assistance and addition for provision of gratuity - Held that - The assessee has claimed that provision have been made on the actuarial valuation, however we find that no documentary evidence in support of the claim has either been made before the lower authorities or before us. In absence of any such documentary evidence furnished, the claim of the assessee that same are ascertained liability cannot be accepted. In the decision of Rotork Controls India Pvt. Ltd. Vs. CIT 2009 (5) TMI 16 - SUPREME COURT OF INDIA as relied upon by the assessee, the provision made for warranty claim on the basis of past experience, was held to be allowable under section 37(1) of the Act. Thus, the said decision is not relevant in the instant case. - Decided against assessee.
Issues Involved:
1. Classification of lease transactions as finance lease or operating lease. 2. Disallowance under section 14A of the Income Tax Act. 3. Calculation of book profit under section 115JB of the Income Tax Act. 4. Allowability of prior period expenses. 5. Addition under section 115JB for provisions of leave travel assistance and gratuity. Detailed Analysis: 1. Classification of Lease Transactions: The primary issue was whether the lease transactions of the assessee, a government undertaking leasing Rolling Stock assets to the Ministry of Railways, should be classified as finance lease or operating lease. The Assessing Officer (AO) treated the lease as an operating lease and added ?1901.73 crores to the lease income. However, the CIT(A) classified it as a finance lease. The ITAT upheld the CIT(A)'s decision, referencing previous judgments by the Delhi High Court and ITAT, which had consistently classified similar transactions as finance leases. The ITAT directed the AO to verify the lease charges as per the guidelines issued by ICAI. 2. Disallowance Under Section 14A: The AO disallowed ?99,925 under section 14A, claiming the assessee incurred expenses to earn exempt income. The CIT(A) upheld this disallowance. The ITAT noted that the AO was dissatisfied with the assessee's claim of no expenses incurred for earning exempt income and invoked Rule 8D. The ITAT found no infirmity in the CIT(A)'s order, thus dismissing the assessee's appeal on this ground. 3. Calculation of Book Profit Under Section 115JB: The AO added ?99,925 to the book profit under section 115JB, related to exempt income. The CIT(A) upheld this addition. However, the ITAT referenced the Special Bench decision in Vireet Investment, which held that clause (f) of Explanation-1 to section 115JB(2) should be computed without resorting to section 14A read with Rule 8D. Thus, the ITAT deleted the disallowance, allowing the assessee's appeal on this ground. 4. Allowability of Prior Period Expenses: The AO disallowed prior period expenses totaling ?12,28,000, stating they crystallized in earlier years. The CIT(A) allowed partial relief of ?11.06 lakhs, recognizing that certain expenses crystallized in the current year. The ITAT, referencing the Supreme Court's decision in Excel Industries, directed the AO to delete the balance addition, acknowledging that the tax rates remained the same across years and the expenses crystallized in the current year. 5. Addition Under Section 115JB for Provisions: The AO added ?69,000 for leave travel assistance and ?6,35,000 for gratuity under section 115JB, considering them unascertained liabilities. The CIT(A) upheld these additions. The ITAT noted that the assessee failed to provide documentary evidence supporting the claim that these provisions were ascertained liabilities based on actuarial valuation. Consequently, the ITAT dismissed the assessee's appeal on these grounds. Conclusion: The ITAT dismissed the Revenue's appeal and allowed the assessee's cross objection, while partly allowing the assessee's separate appeal. The decision was pronounced on 24th July 2017.
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