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TMI Blog2019 (7) TMI 1532X X X X Extracts X X X X X X X X Extracts X X X X ..... periodic lease rentals towards use of asset for normal business operations and are revenue in nature and therefore is an eligible business expenditure u/s 37(1) of the Income Tax Act, 1961. Further revenue and income earned by assessee by using these assets has been offered for tax. 2.2 That the accounting treatment of such expenditure cannot affect the treatment of the same under the Act for the purpose of computing the total income. 3. That the Ld. CIT(A) has sustained the addition without considering the supporting evidences in the form of invoices, confirmation, rental schedules and schedule containing the detail of assets. 4. That the Ld. CIT(A) has not considered the fact that the lessor, M/s. SREI Equipment Finance Pvt. Ltd. has itself offered the entire amount of lease rental received from the assessee for tax and addition of the same amount in the hands of the assessee tantamount to double taxation. 5. That the Ld. CIT(A) has not considered the undertaking given by the lessor stating that they had capitalized the asset given on lease to the assessee and claimed depreciation u/s 32 of the Income Tax Act, 1961, while filing the return of Income for AY 2012-13. 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stating that they had capitalized the asset given on lease to the assessee and claimed depreciation u/s 32 of the Income Tax Act 1961, while filing the return of Income for AY 2014-15. 6. Without prejudice to the aforesaid grounds, the Id. CIT(A) ought to have allowed the depreciation u/s 32 of the Act on impugned addition of Rs. 2,67,38,822/- if he treated the same as capital in nature. 7. That the Ld. CIT(A) has not considered the Circular No. 2 of 2001 dated 9.2.2001: 247 ITR (St.) 53, issued by the Central 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." 3. The facts and issues contested in the appeal for both the Assessment Years are identical; therefore, we are taking up the facts of A.Y. 2012-13. The assessee is engaged in business of information tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction. There is involvement of two parties only i.e. M/s. NIIT Ltd. (Lessee) and M/s. SREI Equipment Finance Ltd. (Lessor) in respect of transaction for sale and lease. The Ld. AR further submitted that the assets involved in the said transaction are intangibles, the existence of which can be established through financial statement of company capitalizing the cost of assets developed by the company, copyright certificates issued by the Registrar of Copyrights - Government of India, CD of the Software, Invoices raised by NIIT to its various customers who uses these softwares; various indirect taxes levied on the transaction of sale and renting of software. The Ld. AR submitted that since the company started developing these capital IPR's in financial year 2007-08 using its internal resources, had the company not capitalized the salary cost, the same would have been claiming the bonafide expenditures in the year when these were incurred, but the assessee company claimed lease rent over the lease period. In the entire transaction, the company followed all direct as well as indirect tax compliances which shows bonafide intention of the company rather than indulging in tax evasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness across the country. Any modification in the assets could have hampered the entire business of the assessee and resulting into huge loses. The assets involved in the transaction are intangibles which do not require any physical delivery/ movement. Delivery of passwords, manuals, contents, authorization etc. was duly made which was sufficient to comply with the requirement of sale. The assessee was not having any intention to reduce its tax burden. The lease agreement in which assessee entered into for taking the assets back on lease is an operating lease agreement. Lessor is the owner of the software license and all rights to use the software; lessee shall not have any title to the software; once the lease period expired, lessee to disable authorizations, return all manuals, passwords etc. the updates effected by the lessee to become the property of the lessor on termination of lease. The Ld. AR submitted that to hold the transaction of operating or finance lease one should scrutinize the agreement entered into between the parties. The Ld. AR relied upon the various decisions of the Hon'ble Supreme Court, various High Courts, and Tribunals. The Ld. AR also distinguished deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets. On the other hand, the corresponding party i.e. M/s. SREI Equipment Finance Pvt. Ltd. claimed the depreciation on these assets at 60% in their accounts by reducing their taxable income. Thus, both the parties have taken benefit of deductions against the taxable incomes on the basis of sham agreements and manipulating the transactions in guise of finance lease. Thus, the Ld. AR submitted that the decision of the Hon'ble Supreme Court in case of ICDS Ltd. Vs. CIT 350 ITR 527 as well as CIT vs. Virtual Software Systems Ltd. 404 ITR 409 are applicable in the present case. The Ld. DR submitted that the CIT(A) as well as the Assessing Officer rightly made addition of finance lease expenses in assessment year 2012- 13 and 2014-15. 7. We have heard both the parties and perused the relevant material available on record. From the records it can be seen that it is an undisputed fact that the lessee had been using the assets for his business purpose and transaction was duly recognized through lease deed. Though the CIT(A) mentioned that the lease deed is unsigned yet the assessee produced the signed copy of the lease deed before us which is genuine. Thus, the agreement cannot be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 -ditto- Oct-11 8,45,66,412 25,23,174 75,63,555 50,40,381 -ditto- Nov-11 7,95,26,031 -ditto- Dec-11 7,95,26,031 -ditto- Jan-12 7,95,26,031 23,73,896 75,63,555 51,89,659 -ditto- Feb-12 7,43,36,372 -ditto- Mar-12 7,43,36,372 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 Rs. 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 Rs. 3,02,54,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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