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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
आदेश / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:
This appeal of assessee is arising out of the order of the Commissioner of Income Tax (Appeals)]-4, Mumbai, [in short CIT(A)], in dated 24.03.2017. The Assessment was framed by the Asst. Commissioner of Income Tax, Circle 16(1), Mumbai (in short ACIT/ITO/ AO) for the A.Y. 2012-13 vide order dated 16.03.2015, under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the Assessing Officer in making addition of lease premium paid but credited in the books of account of the assessee in regard to lease of equipments to SREI Equipments Finance Pvt. Ltd. amounting to Rs. 3,16,61,625/- as unexplained credit under section 68 of the Act. For this assessee has raised the following grounds: - “The order of the learned CIT (A) is contrary to the facts, law and circumstances of the case and is totally arbitrary in nature and amounts to adding income against an expenditure which the Assessee Company has not claimed in computing the taxable income for the year.
The learned CIT (A) erred in sustaining disallowance of the AO under Sec. 68- Cash credit, a lease obligation to SREI Equipment of Rs 3,16,61,625/- as unexplained credit despite: a. Assessee Company having produced following documents during appellate proceeding
Master Lease Agreement & Lease rental schedules.
Lease rental Invoice raised by lessor i.e. SREI Equipment Finance Pvt. Ltd. L-
3. Copy of the Bank statements showing payment of first lease rental.
CIT (A) having remanded these documents to remand officer for verification and remand officer having confirmed the genuineness of documents by a speaking order. b. The learned Cli (A) having confirmed in para 3.3 of its appellate order that I find that out of the total borrowing of Rs. 3,28,51,407/-. It is found that an amount of Rs. 3,1661,625/- is shown as borrowing from S.R.E.I. Equipments Finance Pvt. Ltd., when leaser has given equipment to the Appellant on rent ......... -. Thereby clearly confirming the nature and source of the transaction. Under these circumstance Sec. 68 of the Income Tax Act cannot be invoked.
Bombay High Court in S.K. Banerjee, J.V. Transport Plaza [2012] 20 taxmann.com 612 (Bombay) held that where the identity of the parties was well established and that there was no reason to either doubt the genuinesss of the transaction or capacity. Hence, there was no reason to disagree with the findings of fact which were based on evidence.
The Assessee Company has merely reflected the liability of long-term lease in liability side on the balance sheet and represented lease - right to use assets in the asset side following the emerging prescribed accounting treatment. Be Assessee Company has not claimed any lease rent as deduction in computing taxable income and therefore the borrowing cannot be added to income even on this count.”
Brief facts are that the assessee company entered into lease agreement for lease of IT equipments from SREI Equipment Finance Pvt. Ltd for an amount of Rs. 3,42,43,819/- and the lease rental had to be paid over a period of 4 years in 16 quarterly installments. The assessee company made this arrangement for making payment as on 31.03.2012 out of total cumulative lease rental of Rs. 3,42,43,819/- (for four years). The assessee company was able to pay a sum of Rs. 23,87,310/- on account of first installments of lease rentals and those payments was made from the assessee’s cash credit bank account maintained with bank of Maharashtra and a TDS was deducted on the same at Rs. 48,721/-. Similarly, for quarters 2, 3 and 4 TDS of Rs. 1,46,163/- was also accounted for. Accordingly, the balance liability outstanding was Rs. 3,16,61,625/- which was accounted for in the balance sheet under the head loan account but actually the assessee has to pay lease rent for coming 4 years and this is an outstanding liability. The assessee was able to pay only the first installments of lease rentals therefore closing balance of cumulative lease rental payable to SREI Equipment Finance Pvt. Ltd. was reflected in the balance sheet at Rs. 3,16,61,625/-. The Assessing Officer could not understand this and treated the same as unexplained credit under section 68 of the Act and made addition. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) after obtaining the remand report of the AO noted that the AO reported in its remand report No. ACIT/Circle-16(1)/Remand report/ Bellpepper 2012- 13/2016-17 dated 10.03.2017, whereby he conceded that the same reflected in the balance sheet as long term borrowing as the assessee
Financials but no such loan was taken or any cash was credited to the assessee’s books of account. The relevant portion of the remand report read as under: - “(a) Long term Borrowing of ₹ 3,28,51,407/- : In this regard it is seen that during the assessment proceedings the AO added an amount of ₹ 3,28,51,407/- being unexplained cash credit as the assessee could not establish identity, creditworthiness and genuiness. On perusal of documents submitted before your good office it is seen that the above amount consists of loan unsecured loan from Shri Shashi Kaant Bhatnagar, Ms, Shalini Shrivastav, Shri Manish Joshi, Ventura Impex which consists altogether 4% of above amount and balance ₹ 3,16,61,625/- from SREI Equipment Finance Pvt. Ltd. which is 96% of the above amount. Further it is seen that ₹ 3,16,61,625/- seen in balance sheet is on account of agreement for lease rent of IT equipments from SREI Equipment Finance Pvt. Ltd. of out of which assessee paid first installment and balance ₹ 3,16,61,625/- remains payable. The same was reflected in balance sheet as long term borrowing as the assessee treated the same as long-term borrowing in financials and as such no loan was taken or any cash was credited to assessee’s books. Further, as assessee could not pay the installment SREI equipments Finance Pvt. Ltd. has started arbitration proceedings for recovery of the same. Therefore, it can be concluded that assessee has been able to explain unsecured loan/ Long Term Borrowing of ₹ 3,28,51,407/-.”
The CIT(A) has not consider this remand report and noted that the Assessing Officer could not understand and he confirmed the outstanding amount as borrowing and unexplained, as the assessee failed to prove the genuineness of such borrowing. He confirmed the addition of Rs. 3,16,61,625/-. Aggrieved, assessee came in appeal before Tribunal.
We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that this is purely lease transactions and lease rentals accounted for in the books of account although under wrong head. This is simply outstanding lease rentals which are to be paid amounting to Rs. 3,26,61,625/- for future installments and nothing else. From the facts and the documents produced before us in assessee’s paper book consisting of pages 1-52 of assessee’s paper book 1 and pages 1-47 of assessee’s paper book 2 which includes the documents namely master lease agreement and lease rentals schedules, lease rental invoice raised by lessor i.e. SREI Equipment Finance Pvt. Ltd., balance sheets and profit and loss account depicting this entry and the schedules of accounts i.e. other current assets, wherein this loan was stated to be lease advance paid by assessee. Even, by going through the remand report of the Assessing Officer it is clear that this is not a receipt of amount rather these are lease rentals computed and accounted for in the books of account as advanced which is payable on future date. Part of the lease rental was paid during the year i.e. amounting to Rs. 23,87,310/- excluding the TDS deducted. It means that this balance is nothing but advance lease rentals accounted for payable. Hence, this amount is not at all unexplained, which can be