TMI Blog2019 (7) TMI 1532X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) should have looked into the total installment amount which should have been allowed to the assessee during the first appellate proceedings which was not done by the Assessing Officer as well as by the CIT(A). The reliance of the Hon ble Supreme Court decision in case of Virtual Soft Systems [ 2018 (4) TMI 1472 - SUPREME COURT] will not be applicable in the present case as in the said case it is an admitted case of finance lease transaction and the department was disputing the accounting treatment. But the facts are different in the present case. In the present case the lease rentals constitutes the real business income which was not disputed by the Revenue. Therefore, the CIT(A) as well as the Assessing Officer were not correct in making addition on account of disallowance of principal portion of the financial lease expenses and treating the same as capital expenditure. Thus, the assessee be granted the benefit of the financial lease expenses - I.T.A. No. 6778/DEL/2018, I.T.A. No. 6779/DEL/2018 - - - Dated:- 26-7-2019 - SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER For the Appellant : Sh. Ajay Wadhwa, Adv. For the Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Board of Direct Taxes ( CBDT ) which clarifies that the distinction between operating lease and finance lease under accounting principles have no implications under the provisions of the Act. 8. That the grounds of appeal are without prejudice to each other. 9. That the appellant craves leave to add, alter, amend, substitute, delete and modify any or all the grounds of appeal, which are without prejudice to one another, before or at the time of hearing of the appeal. ITA no. 6779/Del/2018 (A.Y. 2014-15) 1. That on the facts and circumstances of the case, the order dated 16.08.2018 passed by the Learned Commissioner of Income-tax (Appeal) (hereinafter referred to as Ld. CIT (A) ) is bad in law and on facts. 2. That the Ld. CIT(A) has erred in sustaining the addition of ₹ 2,67,38,822/- made by the Id. AO on account of disallowance of principal portion of the financial lease expenses and treating the same as capital expenditure. 2.1 That the Id. CIT (A) as well as Id. AO have failed to consider that the finance lease expenses are periodic lease rentals towards use of asset for normal business operations and are revenue in nature and therefore is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 143(1) of the Income Tax Act, 1961. The case was selected for scrutiny and statutory notice u/s 143(2) of the Act was issued on 19.08.2015 and served upon the assessee. Notice u/s 142(1) of the Act along with detail questionnaire was issued on 19.08.2015. In response to the said notices CA of the Assessee appeared and attended the assessment proceedings from time to time. The assessee has shown income under the head income from business or profession, income from house property and income from other sources . The Assessing Officer observed that the assessee has claimed deduction of ₹ 1,99,66,749/- in A.Y. 2012-13 on account of payments of principal amounts of finance lease. The assessee before the Assessing Officer submitted that the company has taken assets and vehicles on lease and the accounting treatment in the books of accounts is done as per Accounting Standard-19 issued by ICAI where finance lease are considered as financial arrangements and the leased assets are capitalized at an amount equal to present value of future lease payments and a corresponding amount is recognized as liability. The assessee further explained that the lease payments are apportioned betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out that in the year of intangibles by the assessee to M/s. SREI Equipment Finance Ltd. the Assessee had duly paid the capital gain tax arose on conversion the CWIP into stock in trade which was duly accepted by the revenue. As regards finding of the CIT(A) that the agreement is unsigned, the same was filed before the CIT(A) with the signature of both parties. Thus, the agreement was genuine. Since the intangibles were taken on lease under the master operating lease agreement, the description of assets were not mentioned in the master agreement. The master agreement was omnibus agreement obviating the need to repeated agreements to be entered into in future. The sale agreement of the intangibles filed before the CIT(A) duly described the assets in its schedule 1 and schedule 2 which are sold to the lessor and taken back on lease by the assessee also the invoices raised by the lessor for lease rentals described the assets on which rent was received. The Ld. AR submitted that no rental schedule was fixed by the agreement in respect of non-existing assets given on lease which is an absurd observation by the assessing officer. The intangibles were taken on lease under the master ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / value of assets taken on finance lease. As regards Ground no. 3, the Ld. AR submitted that the Assessing Officer erred in not granting credit for the tax deducted at source in income tax computation form in name of the assessee as claimed by the return of income. As regards Ground no. 4 levy of interest u/s 234A, 234B and 234C the assessee denies its liability towards such interest. As regards Ground no. 5, the same is consequential. 6. The Ld. DR submitted that the starting point of the claim of assessee is the lease agreement dated 22.12.2009 which in itself is a sham agreement being unsigned by other party M/s. SREI Equipment Finance Pvt. Ltd. and without having any assets to be given on lease and without fixing the rental schedule. The assets which were given on lease have also been provided by the assessee only by selling the software / programs vide agreement dated 29.12.2009 with the condition that the purchaser party would neither modify, reverse, engineer the product, alter, adopt copy of the product and make derivative works out of the product nor would sale or give license of the product to any competitor of NIIT the nature of software / programmers sold by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on conversion of the CWIP into stock in trade which was duly accepted by the revenue. From the sale agreement of the intangibles filed before the CIT(A), the assets were duly described in schedule 1 and schedule 2 which were sold to the lessor and taken back on lease by the assessee. The assessee also raised the invoices for lease rentals describing therein the assets on which rent was received. The intangibles were taken on lease under the master operating lease agreement the same was decided by the lessor and lessee through rental schedule. M/s. SREI Equipment Finance Ltd. was not having any assets for the purpose of giving on lease to the assessee at the time of agreement, this observation of the CIT(A) is contrary to the records available before us. The master operating lease agreement was executed on 22.12.2009 which covers all future leases of equipments with M/s. SREI Equipments and the assets which were taken under the master agreement and the same were sold by the assessee to the lessor vide agreement dated 29.12.2009. The assets were developed by the assessee and the same are customize to the peculiar requirements of the assessee which enabled it to operate its business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TOTAL 1,02,87,472/- 3,02,54,220/- 1,99,66,310/- The reliance of the Hon ble Supreme Court decision in case of Virtual Soft Systems will not be applicable in the present case as in the said case it is an admitted case of finance lease transaction and the department was disputing the accounting treatment. But the facts are different in the present case. In the present case the lease rentals constitutes the real business income which was not disputed by the Revenue. Therefore, the CIT(A) as well as the Assessing Officer were not correct in making addition of ₹ 1,99,66,749/- on account of disallowance of principal portion of the financial lease expenses and treating the same as capital expenditure. Thus, the assessee be granted the benefit of the financial lease expenses on the amount of ₹ 3,02,54,220/-. Ground No. 1, 2, 2.1, 2.2 are allowed. 8. As regards Ground no. 3, the Ld. AR submitted that the Assessing Officer erred in not granting credit for the tax deducted at source in income tax computation form in name of the assessee as claimed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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