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2015 (10) TMI 242 - ITAT CHENNAI

2015 (10) TMI 242 - ITAT CHENNAI - TMI - Addition made towards “provision for lease equalization charges” while computing the book profit of the assessee for the purpose of determining tax U/s.115 JB - CIT(A) deleted the addition - Held that:- “Provisions for lease equalization charges” cannot be added back to the profit of the assessee company for computing tax under the provisions of section 115JB of the Act and also under the normal provisions of the Act, because the assessee has only rightly .....

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fore with the above observations, we remit back both these cases to the file of Ld. Assessing Officer to verify whether the “Provision for lease equalization charges” debited in the P&L A/c of the assessee with the corresponding credit to “lease equalization reserves” are provided in the manner as stated hereinabove by the Ld. A.R and accordingly computed the profit of the assessee as per the normal provisions of the Act, and also for the purpose 115JB of the Act, and if so, delete the addition .....

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ioner of Income Tax(A)-III, Chennai dated 30.12.2013 in ITA Nos.784,893,1011,1139 & 1234/13-14 passed under Sec.143(3) of the Act r.w.s 147&115WE(2) of the Act for the assessment years 2006-07 and 2007-08. 2. The Revenue has raised three elaborate and identical grounds in its appeals for both the assessment years; however the crux of the issue is that the Revenue is aggrieved by the order of the Ld. CIT (A) who had erred in deleting the addition made towards provision for lease equalizat .....

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ores and 9.69 crores respectively. Thereafter the case was selected for scrutiny and assessment was completed U/s.143(3) r.w.s Section 115WE of the Act, wherein the Ld. Assessing Officer added back the Provision for lease equalization charges that is debited in the P&L A/c of the company to the Book Profits , for the purpose of tax computation U/s.115JB of the Act, thereby making an addition of 47,78,834 for A.Y 2006-07 and 1,09,58,683/- for A.Y. 2007-08. On appeal, the Ld. CIT (A) following .....

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ompany for the purpose of computing tax U/s.115 JB of the Act. Ld. A.R. on the other hand submitted that the assessee being bound by the Reserve Bank Of India guidelines which in compliance with the Companies Act , has debited the Provision for lease equalization charges as per the Accounting Standard-19 which is mandatorily applicable in the case of companies and therefore, the same should not be added to the Book Profit for computing tax U/s.115JB of the Act. The Ld. A.R. also placed reliance .....

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ther required to be written off as Provisions for lease equalization charges because the entire lease installments received during the relevant assessment year which consists of lease rent and a portion of the principal amount , is credited in the books of accounts as the income of the assessee. The Ld. A.R. further explained that if Provision for lease equalization charges is not debited in the P&L A/c of the assessee, then the profit of the assessee will be overstated in the P&L A/c to .....

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s as its income for the relevant assessment year and therefore in order to recognize only the lease rental as its income for the relevant assessment year, the excess amount of the principle portion embedded in the lease installment over and above the depreciation written off as per the Income Tax Act has to be excluded while arriving at the correct profit of the assessee. Accordingly such excess principle portion embedded in the total lease installment is debited in the P&L A/c of the assess .....

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h the Accounting Standrard-19. Accounting Standard-19(18 & 19) provides as follows: AS-18: A finance lease gives rise to a depreciation expense for the asset as well as a finance expense for each accounting period. The depreciation policy for a leased asset should be consistent with that for depreciable assets which are owned, and the depreciation recognized should be calculated on the basis set out in Accounting Standard (AS)-6. Depreciation Accounting. If there is no reasonable certainty t .....

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se term, the period of expected use is the useful life of the asset; otherwise the asset is depreciated over the lease term or its useful life, whichever is shorter. Further, in the case of Apollo Tyres Ltd. Vs. CIT reported in 255 ITR 273 the Hon ble Apex Court held as follows:- The Assessing Officer, while computing the book profits of a company under section 115J of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified by the authorities under th .....

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ompanies Act in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinised and certified by statutory auditors and approv .....

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