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2012 Supreme(Del) 353
HIGH COURT OF DELHI
SANJAY KISHAN KAUL & RAJIV SHAKDHER, JJ
CIT
Versus
Virtual Soft Systems Ltd.
ITA Nos. 216 of 2011, 398 of 2011, 403 of 2011, 404 of 2011 & 680 of 2011
Decided On: 07-02-2012
Advocate Appeared:
For the Appellant:Ms. Rashmi Chopra, Advocate.
For the Respondent:S. Krishnan, Advocate.
The method of accounting followed by the assessee, based on the ICAI's Guidance Note, enabled it to determine the real income and offer it for tax, and the assessing officer's disallowance of the deduction added to the taxable income of the assessee that was not part of its income, but only an adjustment of the amount claimed as depreciation.
Headnote:
lease equalization charges - Income Tax - Section 143(3), Section 152, Section 263, Section 147, Section 148, Section 234B, Section 234C, Section 271(1)(c), Section 145, Section 211(3C) of the Income Tax Act, 1961 - The court discussed the method of accounting employed by the assessee to determine the real income derived from lease of assets, the relevance of the Guidance Note issued by the Institute of Chartered Accountants of India (ICAI), and the treatment of lease equalization charges. The court held that the method of accounting followed by the assessee, based on the ICAI's Guidance Note, enabled it to determine the real income and offer it for tax, and that the assessing officer's disallowance of the deduction added to the taxable income of the assessee that was not part of its income, but only an adjustment of the amount claimed as depreciation.
Fact of the Case:
The appeals challenged a common judgment of the Income Tax Appellate Tribunal regarding the deduction of lease equalization charges from lease rental income. The assessment years in issue were AYs 1996-97 to 2000-01. The original assessment for AY 1996-97 was set aside by the Commissioner of Income Tax (CIT) and subsequently re-computed, leading to a negative income for the assessee. For the remaining four assessment years, the assessing officer re-opened the assessments and disallowed the lease equalization charges, adding them to the assessee's income.
Finding of the Court:
The Tribunal allowed the appeals of the assessee, holding that the method of accounting followed by the assessee, based on the ICAI's Guidance Note, enabled it to determine the real income and offer it for tax. The court upheld the Tribunal's finding, stating that the assessing officer's disallowance of the deduction added to the taxable income of the assessee that was not part of its income, but only an adjustment of the amount claimed as depreciation.
Issues: The main issue was whether the method of accounting employed by the assessee to determine the real income derived from lease of assets, based on the ICAI's Guidance Note, could be given a go-by by the assessing officer.
Ratio Decidendi: The method of accounting followed by the assessee, based on the ICAI's Guidance Note, enabled it to determine the real income and offer it for tax. The assessing officer's disallowance of the deduction added to the taxable income of the assessee that was not part of its income, but only an adjustment of the amount claimed as depreciation.
Final Decision: Both questions of law were answered in favor of the assessee and against the revenue. The appeals of the revenue were dismissed.
RAJIV SHAKDHER, J
1. The captioned appeals lay challenge to a common judgment of the Income Tax Appellate Tribunal, Delhi Bench, New Delhi (in short the Tribunal) passed on 19.02.2010. The only point raised in the captioned appeals is: whether an assesse’ sleased rental income could be allowed to be reduced by taking recourse to lease equalization charges.
2. It is relevant to note that before the Tribunal the assessment years (in short AY) in issue were: AYs 1996-97 to 2000-01. Thus, the Tribunal, by virtue of the impugned judgment dealt in all with five (5) appeals being ITA Nos. 117, 118, 119, 120 & 2292/Del/2006&04. In so far as the first appeal was concerned, that is, the one relating to 1996-97, the challenge before the Tribunal was laid vis-a-vis the order dated 26.03.2004, passed by the Commissioner of Income Tax (in short CIT) under Section 263 of the Income Tax Act, 1961 (in short the I.T. Act). The issue on merits was the same as indicated hereinabove by us. As regards the remaining four (4) appeals, what was challenged before the Tribunal was a common order of the Commissioner of Income Tax (Appeals) [in short the CIT(A)] dated 15.09.2003 pertaining to AY 1997-98 to 2000-01. In these appeals as indicated in the judgment of the Tribunal, there were two issues raised. The first issue, pertained to the validity of the re-assessment proceedings carried out in the case, while the second issue, on merits, was the same as indicated above by us.
3. It is in this factual background that the Tribunal, in the first instance, dealt with the issue on merits and, having come to the conclusion that the contention of the assessee had to be sustained, the validity of the order passed in AY 1996-97 under Section 263 of the IT Act or, the validity of the re-assessment proceedings, in so far as, the remaining four assessment years were concerned, was not examined, as they had become, according to the Tribunal, “of academic interest”.
4. It is in this background that the Revenue has come up in appeal to this court. ASSESSMENT YEAR 1996-97
4.1 In respect of AY 1996-97, the original assessment was completed, on 30.03.1999, under Section 143(3) of the IT Act. The said assessment was set aside by CIT(A). Consequently, an order under Section 143(3) read with Section 152 of the IT Act was passed on 19.03.2002. This order led to a determination of, a negative income, qua the assessee, which was, pegged at (-) Rs 11,02,255. The said order of assessment dated 19.03.2002, was set aside by the CIT in exercise of its power under Section 263 of the IT Act vide order dated 26.03.2004. By this order the CIT, directed inclusion of a sum of Rs 33,77,830/-in the assessee’sincome, on account of lease rental. Consequent thereto, the assessee was issued a notice under Section 143(2) of the IT Act and, after hearing the representative of the assessee, the total assessable income of the assessee was re-computed, by the order dated 09.03.2005 as follows. Income as per Order u/s 250/143(3) dated 19-03-2002 (-) 11,02,255/-Add: Lease Rental 33,77,830/-Total Assessable income 22,75,575/-
4.2 The asessee’sincome was thus assessed at Rs. 22,75,575/-, interest was also levied under Section 234B and Section 234C of the IT Act; orders were also issued for initiation of penalty proceedings under Section 271(1)(c) of the IT Act.
4.3 The assessee being aggrieved, impugned the substantive order of the CIT dated 26.03.2004 passed under Section 263 of I.T. Act in appeal before the Tribunal, which culminated in the impugned judgment. ASSESSMENT YEAR 1998-99 TO 2000-01
4.4 In so far as the remaining four assessment years were concerned the assessing officer appears to have passed separate orders of even date, i.e., 28.01.2005.A perusal of the order would show that a common thread flows through the said assessment orders.
4.5 The assessment’swere re-opened for the said years, by the assessing officer, after taking recourse to the provisions of section 147/148 of the Not
