IMPORTANT POINT
Where the Income Tax act is silent, Guidance Note of ICAI will apply.

JUDGMENT

R.K. Agrawal, J.

SLP (C) No. 25006 of 2012

Leave granted.

2. This batch of appeals has been filed against the impugned judgment and order dated 07.02.2012 passed by the High Court of Delhi at New Delhi in ITA Nos. 216, 398, 403, 404 and 680 of 2011 whereby the Division Bench of the High Court upheld the decision of the Income Tax Appellate Tribunal (in short 'the Tribunal') dated 19.02.2010. Since the moot question of law in all these appeals is akin, hence, vide this common judgment, all the appeals would stand disposed of.

3. In order to appreciate the controversy at hand, it is pertinent to allude to the relevant facts in a summarized way for the proper insightful of the instant case.

(a) The appellant herein is the Income Tax Department, on the other hand, the Respondent - M/s Virtual Soft Systems Ltd. is a company registered under the provisions of the Companies Act, 1956.

(b) On 29.12.1999, the Respondent filed return of income for the Assessment Year 1999-2000 declaring loss of Rs. 70,24,178/- while claiming an amount of Rs. 1,65,12,077/- as deduction for lease equalization charges.

(c) On scrutiny, the Assessing Officer, after perusal of the return and hearing the parties, vide Assessment Order dated 28.01.2005 disallowed deduction claimed as the lease equalization charges amounting to Rs. 1,65,12,077/- and added the same to the income of the Respondent under the Income Tax Act, 1961 (in short 'the IT Act').

(d) Being aggrieved with the said Assessment Order, the Respondent preferred an appeal before the Commissioner of Income Tax (Appeals). Learned CIT (Appeals), vide order dated 15.09.2005, upheld the order of the Assessing Officer and dismissed the appeal. (e) Being dissatisfied, the Respondent preferred an appeal before the ITAT. Vide order dated 19.02.2010, the ITAT allowed the appeal of the Respondent while setting aside the orders passed by Learned CIT (Appeals) and the Assessing Officer.

(f) Being aggrieved, the Revenue took the matter before the High Court. The High Court, vide judgment and order dated 07.02.2012, dismissed the appeals at the preliminary stage while confirming the decision of the ITAT.

(g) Hence, this instant appeal has been filed before this Court by the Revenue.

4. We have given our thoughtful consideration to the submissions of learned senior counsel for the parties and perused the relevant records of the case.

Point(s) for consideration:-

5. The short question that arises for consideration before this Court is whether the deduction on account of lease equalization charges from lease rental income can be allowed under the Income Tax Act, 1961, on the basis of Guidance Note issued by the Institute of Chartered Accountants of India (ICAI)?

Rival submissions:-

6. At the outset, learned senior counsel for the Revenue contended that the lease equalization charge is an additional deduction debited to Profit and Loss Account (P&L) in addition to the depreciation claimed in books so as to make it equal to capital recovery. This is an artificial calculation which bifurcates lease rental to capital recovery and interest component. Learned senior counsel further contended that in fact the entire lease income constitutes income of the assessee. Also, there is no concept of deduction regarding the lease equalization charges under the IT Act. Hence, learned senior counsel contended that impugned decision of the High Court is perverse and is liable to be set aside.

7. On the other hand, learned senior counsel for the Respondent submitted that this issue is no longer res integra. Now, it is a settled principle that a Guidance Note issued by the ICAI carries great weight and by adopting a method of accounting prescribed in such a Guidance Note, in order to compute real income and offering the same for taxation, cannot be disregarded by the Assessing Officer unless such action falls within the scope and ambit of Section 145(3) of the IT Act. Further, it was submitted that the lease equalization charge was nothing bu