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The Deputy Commissioner of Income Tax, Chennai 600 034. Vs M/s. Citi Financial Retail Services India Limited, Radhakrishnan Salai, Mylapore, Chennai 600 004.
July, 11th 2014
                   " A " BENCH, CHENNAI


        I.T.A. Nos.1102 & 1103/Mds/2014
      (  / Assessment Years : 1999-2000 & 2000- 2001)

The Deputy Commissioner of    M/s. Citi Financial Retail Services
Income Tax,                Vs India Limited,
Company Circle I(3)           117, Radhakrishnan Salai,
Chennai 600 034.              Mylapore,
                              Chennai 600 004.


( /Appellant)                        (    /Respondent)

   / Appellant by               :   Shri. Guru Bhashyam, IRS, JCIT.
        / Respondent by :           Shri. V.S. Jayakumar, Advocate

   /Date of hearing                       : 02.07.2014
   /Date of Pronouncement                 : 02.07.2014

                          / O R D E R


        These Revenue's appeals for assessment years 1999-2000 and

 2000 -2001, emanate from a common order dated 24.01.2014 passed
                                   :- 2 -:     ITA Nos.1102 & 1103/Mds/2014.

by the Commissioner of Income Tax (Appeals)-II, Chennai in ITA Nos.

380 & 381/13-14 respectively, in proceedings under section 143(3)

r.w.s 147 of the Income Tax Act 1961 [in short the "Act"] deleting

additions    of   `.97,19,760/-   and    `.1,69,31,685/-     towards    lease

equalization charges for the purposes of computing book profits u/s.

115JA of the Act.

              Since the issue involved in both cases is identical, we take

up ITA No.1102/Mds/2014 as the `lead' case.

ITA No.1102/Mds/2014

2     The assessee is a private limited company. It is engaged in the

business of leasing, hire purchase and finance of vehicles.                On

16.12.1999, the assessee had filed its `return' admitting income of

`.90,22,970/- under `normal' computation and `.3,00,76,566/- under

'MAT' provisions      u/s 115JA of the Act. The same was `summarily'


3.          In scrutiny, the Assessing Officer noticed lease equalization

charges of `.97,19,760/- added back to the assessee's profits in

normal computation only and not for          MAT's computation. He was of

the view that these charges had arisen in books from collection of

lease money more or less than the statutory depreciation allowable on
                                 :- 3 -:   ITA Nos.1102 & 1103/Mds/2014.

leased assets. Per Assessing Officer, these lease equalization charges

were a   provision to adjust the cost of assets recovered from the

concerned    lessees with the actual depreciation claimed.        So, he

formed an opinion that this was only an unascertained liability to be

added back to book profits u/s. 115JA.

4.       Only on being put up to notice, the assessee pleaded to have

computed these lease equalization charges as per the relevant

accounting standards and guidance notes issued by the Institute of

Chartered Accountants of India for preparing financial statements

which could not be added to its book profits. In assessment order

dated 30.11.2006, the Assessing Officer observed that since the

impugned lease equalization charges were not as per the Companies

Act, they had to be added to book profits. He also held that these

charges were a notional figure in the nature of an unascertained

liability not payable to anybody in the shape of a provision only.

Proceeding on this reasoning, he made the impugned addition in

assessee's book profits u/s. 115JA.

5.     In assessee's appeal, the CIT(A) has accepted its contentions

as under:-
                        :- 4 -:     ITA Nos.1102 & 1103/Mds/2014.

"5.2   I have carefully considered the facts of the case and the
submissions made by the learned AR, I have gone through the
decision of the Hon'ble High Court of Madras as reported in
318 ITR 435 and find the issue under appeal to be squarely
covered in favour of the appellant by the said decision. The
relevant extract of business and is reproduced as under:-
       "33.     This is in accordance with the guidance norms on
       accounting for leases. The Department concedes that
       the amount of lease equalization charges over the
       period of lease is equal to the difference between the
       quantum of principal recovered and the residual value.
       But hypothetically justifies its treatment as a reserve on
       the ground that there will be come years when the
       quantum of the provision is more than necessary. When
       the lease equalization charges is debited as per the
       guidelines and when the Department also admits the
       above,     we   cannot     appreciate   the   stand   of   the
       Department that it should be treated as a reserve which
       stand that it is taking for the first time on the ground
       that there may be some years when the quantum of the
       provision is more than necessary.
       34.      From this, it is clear that in accordance with the
       guidance note the appellant had debited the same on
       account of deprecation and lease equalization charges
       before determining the profits and in this kind of lease,
       the lessor recovers the entire cost of the leased assets
       over the period of lease along with the interest on the
       amount financed.
       35.      In HCL Comnet systems' case (2008) 305 ITR 409
       the Supreme Court held that a provision made `' to cover
                                    :- 5 -:     ITA Nos.1102 & 1103/Mds/2014.

                   the diminution made in the value of the asset'' cannot
                   be said to be `' a provision for a liability'' and held that `'
                   the Assessing Officer could not add back the said
                   provision under clause © of the Explanation to section
                   115JA of the 1961, Act." The fourth question in T.C (A)
                   Nos. 108 and 110 of 2002 are answered in favour of the

            The said decision of the Hon'ble High Court on the provisions
     of section 115JA would be equally applicable to the provisions of
     section 115JB also.         Respectfully following the decision of the
     jurisdictional High Court of Madras, I hold that the AO was not correct
     in adding the lease equalisation charges to the income of the
     appellant for the purposes of section 115JB and direct the Assessing
     Officer to reduce this amount for the said purpose. The grounds of
     appeal as they relate to this issue, therefore are allowed.

            After considering the submission on all grounds of appeal, the
     appeal in ITA No.381/13-14 is partly allowed.''

                   Therefore, the Revenue is in appeal.

6.         We have heard both sides and gone through the case file.

The Revenue refers to section 115JA Explanation 1(g) of the Act

inserted by the    Finance Act, 2009 with retrospective effect from

01.04.1998 reading as under:-

            "the amount or amounts set aside as provision for

            diminution in the value of any asset''.
                                     :- 6 -:     ITA Nos.1102 & 1103/Mds/2014.

              In view thereof, the Revenue contends that this legislation

was nowhere an issue in          case law      TVS Finance and Services Ltd

(supra) nor the same has been considered in the CIT(A)'s order.

Thereafter, it quotes following case laws:-

      (i) M/s. Citi Finanical Retail Services (India) Ltd vs. ACIT,
             Chennai in T.C.(A) No.701 of 2009 dated 31.8.2009
             (assessee's own case for A.Y. 1997-1998).
      (ii)     CIT vs. Weizmann Homes Ltd. (2013) 357 ITR 74
      (iii)     CIT Vs. Weizmann Homes Ltd. [2014] 45
                279 (Karnataka).

             Accordingly, the Revenue prays for acceptance of its appeal.

7.   In reply, the assessee seeks to justify the CIT(A)'s order under

challenge. However, on being specifically queried about the aforesaid

amendment, it fails to give any specific clarification based on any

material to distinguish its lease equalization charges to be out of the

purview of sec 115JA Explanation1(g). In these circumstances, we

observe that after retrospective amendment in the Act by way of the

Finance Act, 2009, the assessee's stand is no more sustainable. It is to

be seen that the hon'ble High Court in assessee's case for assessment

year1997-98 has taken cognizance of the abovestated amendment qua
                                         :- 7 -:   ITA Nos.1102 & 1103/Mds/2014.

      identical lease equalization charges to observe that this amendment

      would apply from 01.04.1998.         We reiterate that assessment year

      involved before us is 1999-2000. Thus, we find that the case law of

      CIT vs. Weizmann Homes Ltd (supra) post facto amendment squarely

      applies in this case. So, we accept the Revenue's grounds and hold

      that the assessee's lease equalization charges of `.97,19,760/- have

      to be added to its book profits u/s. 115JA and leave it open for the

      Assessing Officer to make necessary computation as per law.             The

      case ITA/1102/Mds/2014 is allowed.

     8.          Same order to follow in ITA No.1103/Mds/2014.

     9.          To sum up, both Revenue's appeals ITA No. 1102 &1103/Mds/

     2014 are allowed.

                  Order pronounced in the open court at the time of hearing on
      Wednesday, the 2nd of July, 2014 at Chennai.

          Sd/-                                                     Sd/-

  (. .      . )                                                (. . )
(DR. O.K. NARAYANAN)                                  (S.S. GODARA)
  / VICE PRESIDENT                                      / JUDICIAL MEMBER
      Dated:02nd July, 2014.
       /Copy to:                   1.  /Appellant        /2.    /Respondent 3.
   ()/CIT(A) 4.  /CIT 5.    /DR
 6. /GF.
:- 8 -:   ITA Nos.1102 & 1103/Mds/2014.
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