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TMI Blog2017 (8) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... o treat the amount of Rs. 1901.73 crores as 'finance lease' instead of 'operational lease' after verifying the chart of lease as for A.Y. 1997-98. 2. The appellant craves leave to add to, alter, amend or vary from the above grounds of appeal at or before the time of hearing." 3. The grounds raised by the assessee in cross objection No. 100/Del/2015 are reproduced as under: "1. (a) The Ld. Assessing Officer has erred in concluding that the lease transaction of the assessee is an operating lease, ignoring the facts and circumstances of the case that the assessee company is engaged in leasing Rolling Stock assets to Ministry of Railway, wherein the risks and rewards incidental to ownership of leased assets substantially vest with the lessee, hence this is a finance lease as per AS-19. (b) Further the Assessing officer has made an addition of Rs. 1901.73 Crore on account of capital Recovery on leased assets to lease income by treating it as an operating lease, on the basis of surmises and conjecture without understanding the substance of the lease transaction of the assessee, ignoring the fact that the assessee has already added Rs. 2538.56 Crore on account of depreciation und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision for gratuity while calculating book profit u/s 115JB of the Income Tax Act, 1961 on the basis of surmises and conjecture. 6. The assessee reserves its right to add or delete any grounds of appeal at the time of hearing. 5. The facts in brief of the case are that the assessee company, a Govt. of India Undertaking, deals in leasing and finance activity exclusively for Indian Railways. The assessee company was engaged in leasing Rolling Stock assets to the Ministry of Railways on a single client relationship basis. The assessee raises funds by way of issue of taxable/tax-free bonds and through loans from banks etc. The assessee earns income from lease rent and income on deposits and investments. 5.1 For the year under consideration, the assessee filed return electronically on 29/09/2010 declaring total income of Rs. nil and book profits of Rs. 788,21,03,248/- under section 115JB of the Income-tax Act, 1961 (in short "the Act"). The case was selected for scrutiny and notice under section 143(2) of the Act was issued and complied with. The assessment under section 143(3) of the Act was completed on 28/02/2013 after making various additions under the normal provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is Rs. 126,256.42 lacs and Finance income is Rs. 157,820.46 lacs. Total of capital recovery is Rs. 126,256.37 lakhs and total of Lease Equalization is NIL. Since, in the present case also, as per this chart, even after deduction of finance income 14.97% pa., the full value of the cost of assets i.e., Rs. 162,256.37 lacs is fully recovered in lease period of 30 years and hence, it is a case of Finance Lease as per the guidelines issued by ICAI. In the light of various judicial pronouncements cited by Ld. A.R. of the assessee, we find no reason for not accepting the basis as suggested by ICAI in these guidelines for deciding the character of lease in the present case as finance lease. However, the assessee company has given this chart for opening value of lease assets in the assessment year 1997-98, which is examined by us. Similar chart for assets given on lease during A.Y. 1997-98 and in subsequent years is not furnished to us. Hence, the A.O. should verify those charts and if this condition is satisfied, all those transactions should also be accepted as finance lease transactions..............." Similarly, it is seen that this issue has been dealt by the Hon'ble ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to the quantum of rolling stock. If the purchase price of the rolling stock stands subjected to revenue deduction, would have its own consequences and lead to abnormal financial results and absurdities. The balance-sheet records that the total rolling stock aggregate was Rs. 19,771.35 crores. The depreciation claimed (which may include certain fixed assets also which were not subject matter of finance leases) was Rs. 5,352.57 crores. Clearly, therefore, the purchase value of the leased assets did not find reflection or deduction in the profit and loss account. Legal ratio of Virtual Soft Systems Ltd. (supra) is that as long as the assessee does not indulge in any manipulation of the figures and the capital cost, IRR, etc., are computed in accordance with the accountancy standards and no error or can be found, lease equalization charge should not be disallowed." 11. Respectfully, following the above decision of the Hon'ble High Court and the decision of the Tribunal in the case of the assessee, we are of the considered opinion that there is no error in the order of the Ld. CIT-(A). We order accordingly. Thus, the grounds of the appeal of the Revenue are dismissed and the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the method as may be prescribed. The said method has been prescribed in Rule 8D of the Income Tax Rules, 1962. 13.5 We find that in the instant case, the Assessing Officer has recorded dissatisfaction with the claim of the assessee that no expenses were incurred in relation to income which does not form part of the total income under this Act 13.6 In our opinion, 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 (supra) 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crystallized in earlier years and therefore cannot be allowed in the year under consideration. Before the Ld. CIT-(A) the assessee claimed that the expenses comprises mainly of arrears of salary and service tax and crystallized in the year under consideration. 15.3 The Ld. CIT-(A) decided the issue as under: "10.2 On careful examination of each item of expenses embedded in prior period expenses, I find that an amount of Rs. 3.12 lakh on account of Service Tax is to be allowed u/ 43B, even though the same pertain to FY 2007-08 and 2008-09, on actual payment basis. Further, regarding the claim of an amount of Rs. 7.89 lakh towards 60% of the arrears of salary, pertain to January, 2006 to August, 2008 paid to the officials on deputation from Ministry of Railways, in my view since these officials were not posted with the appellant company, no provision could have been made in the earlier years by the appellant company. However, since the arrears got due, while these officials were serving with the appellant company on deputation basis, the liability in respect of the same is held to have been crystallized during the year. Lastly, an amount of Rs. 0.05 lakh towards reimbursement to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. 15.7 In view of the facts and circumstances and also in view of the decision of the Hon'ble Supreme Court in the case of Excel industries (supra), we direct the Assessing Officer to delete the balance addition out of addition on prior period expenses of Rs. 12,28,000/-. The ground of the appeal is allowed. 16. In grounds No. 4 and 5, the assessee has raised the issue of addition under section 115JB of the Act for provision of leave travel assistance amounting to Rs. 69,000/-and addition for provision of gratuity amounting to Rs. 6, 35,000/-respectively. 16.1 According to the Ld. CIT-(A) provisions other than a ascertained liabilities are t ..... 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