TMI Blog2017 (8) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 contempla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee respectively and the cross objection of the assessee are directed against order dated 31/04/2014 passed by the Commissioner of Income-tax (Appeals)- LTU, New Delhi [in short the CIT-(A) ] in relation to assessment year 2010-11. The issues raised in these cross appeals and the cross objections are interconnected, and therefore, same were heard together and disposed off by this consolidated order. 2. The grounds of appeal raised by the Revenue in ITA No. 3992/Del/2014 are reproduced as under: 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in restoring back the issue to the AO with the direction to treat the amount of ₹ 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LTU has erred in not allowing complete relief of disallowance of ₹ 12,28,000/- made by Assessing Officer on account of prior period expenditure while computing total income (instead allowed partial relief of ₹ 11.06 Lacs) ignoring the fact that no expenses have been claimed in earlier year and no benefit has been claimed, on the basis of surmises and conjecture. 4. The Ld. CIT (Appeals) - LTU has erred in confirming the addition of ₹ 69,000/- made by the Assessing Officer being provision for Leave Travel Assistance while calculating book profit u/s 115JB of the Income Tax Act, 1961 on the basis of surmises and conjecture. 5. The Ld. CIT (Appeals) - LTU has erred in confirming the addition of ₹ 6,35,000/- made by the Assessing Officer being provision 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 ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as finance lease transaction and restored the matter to the Assessing Officer for verification of facts of lease charges. The relevant finding of the Ld. CIT-(A) is reproduced as under: 5.3 From the statement of facts and the appellant s arguments, it is seen that the above issue has been decided by Hon ble ITAT in ITA Nos. 699, 359,3357 and 2109/Del/2004 for the assessment year 1997-98, 1998-99, 1999- 2000 and 2000-01 vide their order dated 08.08.2008 by observing as under: The chart for 30 years of opening balance in the present year i.e. A. Y. 1997-98 is submitted by the Ld. A.R. of the assessee. As per the same, opening balance of leased assets is ₹ 126,256.37 lacs, rate of depreciation as per Companies Act is 4.75%, and rate of interest is 14.97%. The total for 30 years of depreciation is ₹ 126,256.42 lacs and Finance income is ₹ 157,820.46 lacs. Total of capital recovery is ₹ 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., ₹ 162,256.37 lacs is fully recovered in lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation (an undisputed position as the claim of depreciation was not questioned). Depreciation was duly debited and accounted in the profit and loss account. 10. Further, in para-14 of the decision, the Hon ble High Court held that lease equalization charges should not be disallowed. The relevant finding of the unable High Court is reproduced as under: 14. A perusal of the balance-sheet and the profit and loss account for the assessment year 2000-01 reflects the said position. In the said year, the assessee had received lease rentals of ₹ 2,700.48 crores, from which lease equalization account of ₹ 142,03 crores was reduced. The paid up capital of the respondent company held by the President of India and his nominees was ₹ 232 crores. The addition of the fixed assets in the said year was ₹ 2,273 crores which is reflective as the addition 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 ₹ 19,771.35 crores. The depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Rules is required to be made even in the cases where the assessee claims that no expenditure has been incurred by him in relation to income, which does not form part of the total income under this Act. Accordingly, she submitted that the disallowance might be upheld. 13.4 We have heard the rival submission and perused the relevant material on record. The section 14A(3) of the Act has clearly specified that where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act, the provisions of sub-section (2) shall apply. According to section 14A(2), wherever the Assessing Officer is dissatisfied with the correctness of the claim of the assessee in respect of the expenditure in relation to income which does not form part of the total income under this Act, he shall determine the amount of such expenditure incurred in 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition sustained by the Ld. CIT-(A) out of the addition of ₹ 12,28,000/- made by the Assessing Officer towards prior period expenses. The learned CIT-(A) allowed relief of ₹ 11.06 lakhs. 15.1 The Assessing Officer observed following prior period expenses claimed by the assessee: i. Bond Servicing : Rs.3,14,000/- ii. Legal Professional : ₹ 20,000/- iii. Registrar fee : ₹ 18,000/- iv. Rating fee : Rs.2,82,000/- v. Travelling expenses : . 23,000/- vi. Service Tax : Rs.3,12,000/- vii. Arrear of Salary : Rs.7,89,000/- viii. Salary and employee benefit : ₹ 84,000/- Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.06 lakh. 15.4 Before us, the learned counsel submitted that tax rates in the earlier years and in the year under consideration are same and thus following the finding of the Hon ble Supreme Court in the case of Excel Industries Ltd., reported in 358 ITR 295 (SC), there would not be any impact on the net tax paid by the assessee. 15.5 The Ld. CIT(DR), on the other hand, relied on the order of the lower authorities. 15.6 We find that the Ld. 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook profit in terms of clause (c) of Explanation-1 to section 115JB(2) of the Act. Now, the only question before us is whether the provision made by the assessee for Leave Travel concession and gratuity are ascertained liability. 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 the Hon ble Supreme Court 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. Accordingly, we find no error in the order of the Ld. CIT-(A) on the issue in dispute and the grounds No. 4 and 5 of the appeal are accordingly dismissed. 17. In the result, appeal of the Revenue is dismissed and cross objection of the assessee is allowed, whereas the appeal of the assessee is partly allowed. The decision is pronounced in the ope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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