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III. Direct Taxes Case Laws:
1. CIT Vs. M/s. MGF India Ltd., I.T.A. No. 378/2004, Date of Pronouncement: 21.02.2018, High Court of Delhi
Issue:
Whether the lease equalization charges can be deducted while computing book profit u/s 115JA of the Income Tax Act, 1961?
Held: In favour of Assessee
Brief facts:
The assessee’s commercial activity centres on leasing assets and the
resultant income from it. In terms of lease agreements, ownership of the
assets continues to vest with the assessee and the assets are shown in
the balance sheet under the head “Fixed Assets”. However, the assessee
does not credit the full amount of lease charges in Profit and Loss
Account; some amounts are set apart to be carried over to the lease
equalization reserve and only the balance amount is credited to the
Profit and Loss Account. It was held that lease equalization could not
fall within any allowable deduction or expense as it was a provision
similar to depreciation and that the assessee incurred no liability of
any nature. The Ld.AO added back the amount and the addition was
sustained by the Ld.CIT(A). Being aggrieved, the assessee filed an
appeal before the Hon’ble ITAT who deleted the addition. The revenue,
being aggrieved, filed an appeal before the Hon’ble High Court.
Held:
The Hon’ble Court held that lease equalization charges is a method of
re-calibrating the depreciation claimed by the assessee in a given
accounting period. The method employed by the assessee, therefore, over
the full term of the lease period would result in the lease equalization
amount being reduced to a naught, as the debit and credits in the
profit and loss account would square off with each other.” Therefore,
the Revenue’s contention that the amount is unknown to the Act is a
misappreciation of what constitutes a lease equalization charge.
Therefore, as long as the method of accounting follows some established
principles, one of which, includes offering only Revenue income for tax,
we cannot find fault with the assessee debiting lease equalization
charges in the AYs in issue, in its profit and loss account. It
represents a true and fair view of the accounts, which is a statutory
requirement under Section 211(2) of the Companies Act.
Hence, the appeal was held against the Revenue and in favour of the assessee.
(Please click here for judgment)
2. CIT Vs. M/s NHPC LTD., I.T.A. No.151 of 2015 (O&M), Date of Order: 14.02.2018, High Court of Punjab & Haryana
Issue:
Whether amount received as advance against depreciation cannot be added under the computation of the normal income?
Held: Yes
Brief facts:
The assessee supplies electricity to the State Electricity Board,
Discoms etc. The tariff is determined and identified by the Central
Electricity Regulatory Commission. The tariff consisted of depreciation,
AAD, interest on loans, interest on working capital, operation and
maintenance expenses and return on equity. While computing the net
profit as per the normal provisions of Income Tax Act, 1961, the
assessee deducted the AAD component from total sale price and only the
balance amount net of AAD was taken into profit and loss account. The
Ld. AO made an addition of Rs.133,81,00,000/- u/s 143(3) on account of
amount received as Advance Against Depreciation, which the Ld. CIT(A)
deleted and the Hon’ble Tribunal upheld the decision of the CIT(A).
Being aggrieved, Revenue has filed an appeal before the Hon’ble High
Court.
Held:
It was held by the Hon’ble High Court that AAD is merely income
received in advance since it is not received for the relevant accounting
year. The Hon’ble High Court placed reliance on the decision of Hon’ble
Apex Court in assessee’s own case, National Hydroelectric Power Corp.
Ltd. v. Commissioner of Income-Tax 2010 (320) ITR 374 wherein the Apex
Court, for the purpose of clause (b) of the Explanation-I to Section
115JB categorically held that AAD “did not enter the stream of income
for the purposes of determination of net profit at all”. Therefore, AAD
was held not to constitutes income of the year in question.
Hence, the questions are answered against the appellant and in the favour of the respondent-assessee.
(Please click here for judgment)
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