TMI Blog2022 (12) TMI 1285X X X X Extracts X X X X X X X X Extracts X X X X ..... RT] as examined the guidelines issued by the Institute of Chartered Accountants of India (briefly referred to hereinafter as ICAI ) and also referred to Section 211 of the Companies Act, 1956 to emphasize that Accounting Standards prescribed by ICAI shall prevail until Accounting Standards are prescribed by the Central Government. Method of accounting followed as derived from ICAI Guidance Note is a valid method of capturing real income based on the substance of finance lease transaction. The rule of substance over form is a fundamental principle of accounting. No force in the contentions of the Revenue that the accounting standards prescribed by the Guidance Note cannot be used to bifurcate the lease rental to reach the real incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the Appellate Tribunal is correct in law in disallowing the lease equalization charge claimed as a deduction from gross lease rentals received by the assessee in respect of finance lease of assets? (B) Whether the Appellant Tribunal is correct in law in upholding the additions to lease rental income recognised by assessee in compliance with the mandatory accounting standard AS 19 read with accounting standard No.1 notified U/s.145 (2) of the Income Tax Act? (C) Whether the Appellate Tribunal is correct in law in disallowing the lease equalization charge claimed by the appellant which as per the accounting standard is meant to mitigate the effect of capital receipts embedded in lease rentals and disallowance of the lease equal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset leased minus the depreciation claim and the lease deposit received. This amount did not represent actual expenditure incurred in the business of the appellant and therefore, the claim was disallowed. CIT(A) held as follows: The appellant quantified lease equalization fund representing the difference, being the cost of asset leased minus the depreciation claimed and the lease deposit received. It is contended that the amount debited to the P L account is allowable as a deduction since it is worked out as prescribed by the Institute of Chartered Accountants. An amount can be allowable as a deduction provided it is an expenditure relatable to the business and is laid out wholly and exclusively for the purpose of the business. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of business. The AO is correct as per law in disallowing the claim for deduction. The AO s action is upheld. This ground of appeal fails and is rejected. 10. In appeal before the Tribunal, it was noticed that this issue was already decided by the Tribunal on previous occasions. Agreeing with the same, Tribunal held that the amount taken to the lease equalisation fund was not an allowable business expenditure as it was an appropriation of profit. 11. This issue is no longer res integra as the same has been answered by the Supreme Court in Commissioner of Income Tax-VI v. Virtual Soft Systems Limited (2018) 6 Supreme Court Cases 584. In the said decision, Supreme Court examined the guidelines issued by the Institute of Charter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expression accounting standards means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 (38 of 1949), as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of Section 210-A: Provided that the standards of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the accounting standards until the accounting standards are prescribed by the Central Government under this sub-section. (emphasis supplied) 13. The purpose behind the amendment in Section 211 of the Companies Act, 1956 was to give c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a revenue receipt chargeable to income tax. Hence, we do not find any force in the contentions of the Revenue that whole revenue from lease shall be subjected to tax under the IT Act. 13. Supreme Court considered the main contention of the Revenue that an assessee cannot be allowed to claim deduction regarding lease equalisation charges since there is no such express provision for deduction in the Act. This contention was repelled by the Supreme Court in the following manner: 19. In the present case, the relevant assessment year is 1999-2000. The main contention of the Revenue is that the respondent cannot be allowed to claim deduction regarding lease equalisation charges since as such there is no express provision regarding s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
