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Income Tax Appellate Tribunal, CIRCUIT BENCH AT MANGALORE
Before: SHRI INTURI RAMA RAO & SHRI SUDHANSHU SRIVASTAVA
Per INTURI RAMA RAO, AM : These are appeals filed by the revenue directed against different orders of the dated for the assessment years 1998-99 to 2000-01.
The facts relevant to assessment year 1998-99 are stated herein for the sake of clarity and convenience. to 1027/Bang/2016 Page 2 of 7 Brief facts of the case are that the respondent-assessee is a company incorporated under the provisions of the Companies Act. It is engaged in non-banking business. Return of income for the assessment year 1998-99 was filed on 30/11/1998 declaring a total income of Rs.73,78,590/-. The said return of income was revised at a loss of Rs.15,86,75,345/-. Against said return of income, assessment was originally completed u/s 143(3) of the Income-tax Act, 1961 [‘the Act’ for short] vide order dated 30/03/2001 determining the total loss at Rs.1,13,04,163/- and assessed the book profits u/s 115JA of the Act. The AO added back lease equalisation charges of Rs.11,09,04,763/- to the book profits for the purpose of determining tax liability u/s 115JA of the Act.
The assessee-company carried the matter in appeal to the CIT(A) who vide order dated 27/05/2003 allowed the appeal. The revenue felt aggrieved and carried the matter to the Tribunal. The Hon’ble Tribunal, vide order dated 19/02/2007 in dismissed the revenue’s appeal. The revenue carried the matter in appeal before the Hon’ble High Court u/s 260A of the Act. The Hon’ble High Court vide order dated 17/12/2013 in ITA 580/2007 set aside the matter to the file of the AO for de novo assessment in the light of the judgment of the Hon’ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT (255 ITR 273). to 1027/Bang/2016 Page 3 of 7 4. Pursuant to the order of the Hon’ble High Court of Karnataka, the AO passed assessment order u/s 143(3) r.w.s. 260A of the Act, vide order dated 11/02/2015. Following the decision of the Hon’ble Karnataka High Court in the case of CIT vs. Weizmann Homes Ltd. (357 ITR 74) and the co-ordinate bench decision in the case of Citi Financial Retail Services (India) Ltd., [TC (A) No.701 of 2009 dated 31/08/2009] added back lease equalization charges of Rs.11,09,04,763/- to the book profits for the purpose of computing tax liability under 115JA of the Act.
Being aggrieved, the assessee filed an appeal before the CIT(A), Mangalore vide impugned order allowed the appeal following the decision of the jurisdictional High Court in the case of CIT vs. ICICI Venture Funds Management Co. Ltd.(234 ITR 569).
Being aggrieved by this order of the CIT(A), the revenue is in appeal before us in the present appeal. The revenue raised the following identical grounds of appeal for assessment years 1998-99 to 2000-01:
During the course of hearing of the appeals, learned DR vehemently contended that the Hon’ble High Court of Karnataka has set aside the matter to the assessing authority accepting the contention of the learned counsel for assessee that lease equalization charges is nothing but diminution in the value of assets. Therefore, nature of the issue is not open for inquiry or consideration before the assessing authority. The assessing authority is bound to examine whether diminution in the value of assets can be added back to book profits for the purpose of computing tax liability u/s 115JA of the Act. Since the provisions of clause (g) to Explanation to sub-section (2) of section 115J was added by the Finance Act, 2009 with retrospective effect from 1/4/1998 providing for addition of any amount or amounts set aside as a provision for diminution in the value of assets to book profits for the purpose of computing tax liability u/s 115JA, same is squarely covered by the plain provisions of the Act. Thus he submitted that the CIT(A) passed the impugned order ignoring the plain provisions of the Act. He further submitted that the decision of the Hon’ble Karnataka High Court in the case of CIT vs. ICICI Venture Ltd. (supra) is not applicable to the facts of the present case inasmuch, it is admitted by the assessee-company to 1027/Bang/2016 Page 5 of 7 itself before the Hon’ble High Court that lease equalisation charges is nothing but provision for diminution in the value of assets.
On the other hand, learned counsel for assessee vehemently contested that the ratio of the judgment in the case of ICICI Venture Ltd., and the decision of the Hon’ble Delhi High Court in the case of CIT vs. Indian railway Finance Corporation Ltd. (49 taxmann.com 491)(Del) is squarely applicable.
We heard rival submissions and perused material on record. The issue in the present appeal is whether lease equalization charges, which is in the nature of provision for diminution in the value of assets as admitted by the assessee himself before the Hon'ble High Court can be added back to book profits u/s 115JA of the Act. The Hon’ble High Court has framed the following question of law as regards lease equalisation charges:
“1. Whether the Appellate Authorities were correct in holding that the provision for non-performing assets and lease equalization fund cannot be added back to the book profits as per explanation to section 115JA(2) of the Act.
The said question was answered by the Hon’ble High Court as follows:
“8. Insofar as the second substantial question of law is concerned, that was also a subject matter of the appeal in the case of The Commissioner of Income Tax to 1027/Bang/2016 Page 6 of 7 Vs. Weizmann Homes reported in (2013) 357 ITR 74 (Karn) wherein, it was held that by Finance Act No.2 of 2009 with effect from 01.04.1998, the Clause (g) had been substituted by including the amount or amounts set-aside as provisions for diminution in the value of the said asset. It was held to be retrospective in operation and therefore, the amount or amounts set- aside as provisions for diminution and any value of the assessment needs to be added back to book profits as per explanation to Section 115JA(2)of the Act.”
Thus the nature of provision is not open for consideration or adjudication before the AO. The AO was bound to adjudicate whether this provision can be added back to book profits for the purpose of determining tax liability u/s 115JA of the Act in the light of the submission made by the counsel for assessee that it is nothing but provision for diminution in the value of assets. Clause (g) to Explanation to sub-section (2) of section 115JA was inserted by the Finance Act, 2009 with retrospective effect from 1/4/1998 which reads as under:
“(g) the amount or amounts set aside as provision for diminution in the value of any asset, Therefore, having regard to the plain provisions of the Act, the said amount can be added back to book profits for the purpose of determining 115JA of the Act, as it is specifically authorised by clause (g) to Explanation to sub-section (2) of section 115J. This is permissible as per law laid down by the Hon’ble Supreme Court in the case of Apollo tyres (supra) and the decision of the Hon’ble Karnataka High Court in the case of Weizmann Homes Ltd.(supra). The decision of the Hon’ble Delhi High Court in the case of Indian railway Finance Corporation Ltd. (supra) is not to 1027/Bang/2016 Page 7 of 7 applicable to the facts of the present case as in that decision, it is not admitted that provision for lease equalisation charges is nothing but diminution in the value of assets. Therefore, the CIT(A) ought not to have allowed the claim of the assessee without examining the order of the Hon’ble High Court of Karnataka in detail. Therefore, the orders of the CIT(A) are reversed.
In the result, the appeals filed by the revenue are allowed.