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DCIT (LTU) , NBCC Plaza, Pushp Vihar, New Delhi Versus Indian Railway Finance Corporation Ltd. And Vice-Versa

Addition of lease transaction as operating lease - capital recovery of the assets to lease income - leasing Rolling Stocks assets by the assessee to the Ministry of Railways - CIT-(A) held that lease transaction as finance lease - Held that:- Ld. CIT-(A) following the direction of the ITAT in earlier years, correctly accepted the lease transaction of the assessee as ‘finance lease’ transaction and restored the matter to the Assessing Officer for verification of facts of lease charges. Hon’ble De .....

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In the case of Gujarat Narmda Valley Fertilisers Company Limited (2014 (3)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 .....

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Vireet Investment (2017 (6)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 contemplated under section 14A read with rule 8D of the rules. Thus, respectfully following the above decision of the special bench of Tribunal, we set aside the decision of the Ld. CIT-(A) and delete the disallowance. - Decided in favour of assessee - Disallowance .....

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0/-. 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 record any evidence to controvert the arguments of the ld. counsel. See case of Excel Industries Ltd.,[2013 (10)324 - SUPREME COURT ] - Decided in favour of assessee - Addition under section 115JB for provision of le .....

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SUPREME COURT OF INDIA] as 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. - Decided against assessee. - ITA No. 3992/Del/2014, C.O. No. 100/Del/2015 And ITA No. 4069/Del/2014 - Dated:- 24-7-2017 - SH. I.C. SUDHIR, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Department : Smt. Rachna Singh, CIT(DR) For The Asses .....

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ted 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 appea .....

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essee, hence this is a finance lease as per AS-19. (b) Further the Assessing officer has made an addition of ₹ 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 ₹ 2538.56 Crore on account of depreciation under Companies Act, since it is a finance lea .....

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-08, 2008-09 8& 2009-10 raising similar ground of appeal which has since been allowed in favour of the assessee (IRFC) by Hon ble Delhi High Court vide ITA 1189/2011, ITA 103/2015, ITA 104/2015, ITA 105/2015, ITA 106/2015. 2. The assessee reserves his right to add or delete any grounds of appeal at the time of hearing. 4. The grounds raised in appeal by the assessee in ITA No. 4069/Del/2014 are reproduced as under: 1. The Ld. CIT (Appeals) - LTU has erred in upholding the addition of ₹ .....

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dend income on the basis of surmises and conjecture. 3. The Ld. CIT (Appeals) - 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 .....

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e 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 ear .....

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g various additions under the normal provisions of the Act as well as under section 115JB of the Act. Aggrieved, the assessee filed appeal before the CIT-(A), who partly allowed the appeal. Aggrieved, the Revenue filed appeal, whereas the assessee filed the cross objection to the appeal of the Revenue, as well as filed a separate appeal, raising the grounds as reproduced above. ITA No. 3992/Del/2014 & C.O. No. 100/Del/2015 6. First we take up the appeal of the Revenue alongwith cross objecti .....

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assessee. 7.1 At the outset, the Ld. counsel of the assessee submitted that issue in dispute has already been decided in favour of the assessee by the Hon ble Delhi High Court for assessment year 2001-02, 2007-08, 2008- 09 and 2009-10. On the other hand, the Ld. CIT DR, relied on the order of the Assessing Officer, however could not controvert the submission of the Ld. counsel of the assessee. 8. We have heard the rival submissions and perused the relevant material on record. We find that the L .....

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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 an .....

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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 sat .....

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ore back this issue to the file of AO with the directions to verify the chart of lease as for assessment year 1997-98 and if it is similar, then the transaction should be accepted as finance lease transaction. Ground No. l is therefore allowed for statistical purposes. 9. The Hon ble Delhi High Court in the case of the assessee for assessment year 2001-02 reported in 362 ITR 548 (Delhi) considered the lease transaction as finance lease. The relevant findings of the Hon ble Delhi High Court are r .....

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e income earned by way of lease rental was the interest (revenue earning) and the amount financed (capital financed) but during the terms of the lease, as the respondent continued to be the owner he also enjoyed and claimed the benefit of depreciation (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 charg .....

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ores. 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 depreciation claimed (which may include certain fixed assets also which were not .....

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. 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 grounds of the cross objection of the assessee are allowed. ITA No. 4069/Del/2014 12. Now, we take up the appeal of the assessee in ITA No. 4069/Del/2014. 13. The ground No. 1 in the appe .....

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puted disallowance of ₹ 99,925/-. The Ld. CIT-(A) upheld the disallowance. 13.2 Before us, the Ld. counsel of the assessee relied on the submission made before the Ld. CIT-(A) and submitted that investments were made in earlier years and during the year under consideration, no expenses were incurred by the assessee for earning the exempt income. The Ld. counsel relied on the decision of the Hon ble High Court of Gujarat in the case of Commissioner of Income Tax-III Vs. Gujarat Narmada Vall .....

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is 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 th .....

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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 therefor .....

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assessee has raised the issue that while 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 of the Rules. The Assessing Officer made disallowance of the amount of ₹ 99,925/-as computed under section 14A read with Rule 8D of the Rules, for amount of expenditure related to exempted income in terms of clause (f) of Explanation-1 to the section 115JB(2) of the Act. The Ld. CIT-(A) upheld the .....

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made without resorting to the computation as contemplated under section 14A read with rule 8D of the rules. Thus, respectfully following the above decision of the special bench of Tribunal, we set aside the decision of the Ld. CIT-(A) and delete the disallowance. The ground no. 2 of the appeal is accordingly allowed. 15. In ground No. 3, the assessee is aggrieved with the addition sustained by the Ld. CIT-(A) out of the addition of ₹ 12,28,000/- made by the Assessing Officer towards prior .....

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15.2 The Assessing Officer further mentioned that after adjusting receipt of interest on bonds of ₹ 6,05,000/- and postage and Telegraph of ₹ 9000/-, the assessee claimed prior period expenses of ₹ 12,28,000/- in the profit and loss account. According to the Assessing Officer these expenses 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 sa .....

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ry, 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 ₹ 0.05 lakh towards .....

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or's in FY 2008- 09 - ₹ 3.14 Lakh. (c) Rating fees to JCRA for FY 2008-09 - ₹ 2.82 Lakh. (d) Payment to Balmer Lawrie towards Air Travel of officials in earlier years - ₹ 0.23 Lakh. (e) Payment of LTC - ₹ 1.52 lakh. In view of the above, the appellant gets relief of ₹ 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 Cour .....

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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 record any .....

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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 .....

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amounting to ₹ 6, 35,000/-respectively. 16.1 According to the Ld. CIT-(A) provisions other than a ascertained liabilities are to be added to the book profit, accordingly he upheld the disallowance of both the items under section 115 JB of the Act. 16.2 Before us, the Ld. counsel submitted that both these provisions have been ascertained as per the actuarial valuation and therefore being ascertained liability, are allowable in view of the decision of the Hon ble Supreme Court in the case o .....

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