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2018 (2) TMI 1535 - HC - Income TaxMAT computation - whether lease equalization charges can be deducted while computing book profit - Held that:- Capital recovery can be known, as is evident, on deduction of financing charges from the lease rentals. In sum and substance, lease equalization charges “is a method of re-calibrating the depreciation claimed by the assessee in a given accounting period. The method employed by the assessee, therefore, over the full term of the lease period would result in the lease equalization amount being reduced to a naught, as the debit and credits in the profit and loss account would square off with each other.” Revenue’s contention that the amount is unknown to the Act - as held in the decision, is a misappreciation of what constitutes a lease equalization charge. Therefore, as long as the method of accounting follows some established principles, one of which, includes offering only Revenue income for tax, we cannot find fault with the assessee debiting lease equalization charges in the AYs in issue, in its profit and loss account. It represents a true and fair view of the accounts, which is a statutory requirement under Section 211(2) of the Companies Act. For these reasons, the first question is answered in favour of the assessee and against the Revenue. Whether the provisions for non-performing assets are liable to be adjusted while computing book profit under Section 115JA of the Act? - Held that:- The lease equalization charges are not to be treated as adjustments needing to be added back while computing book profits, under Section 115JA on account of Explanation 1. This Court is in agreement with that view. Accordingly the second question too is answered in favour of the assessee.
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