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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.
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