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15.03.2018 - Voice of CA presents - Latest Updates
Thursday, March 15, 2018

  I. Headlines Today:   

  1. Finance Bill 2018 as passed by Lok Sabha  (Click for detail)
  2. Snippets of changes made in Finance Bill, 2018 as passed by the Lok Sabha  (Click for detail)
  3. LTCG relief: Govt extends indexation benefit to investors of unlisted firms  (Click for detail)
  4. LS passes bill on damages for breach of contract  (Click for detail)
  5. Cabinet approves Agreement for the Avoidance of Double Taxation and Prevention of Fiscal Evasion between India and Iran  (Click for detail)
  6. Income tax department asks 10 PSU firms to pay more tax  (Click for detail)
  7. Sebi allows commodity bourses to carry forward unutilised IPF interest income  (Click for detail)

II. A Useful Presentation:


(Please click here)

(Contribution by CA. Sanjay K. Agarwal, Founder - Voice of CA; and contributor is available at Email-id: )

  III. Direct Taxes Case Laws: 

1.  CIT Vs. M/s. MGF India Ltd., I.T.A. No. 378/2004, Date of Pronouncement: 21.02.2018, High Court of Delhi

Whether the lease equalization charges can be deducted while computing book profit u/s 115JA of the Income Tax Act, 1961?

Held: In favour of Assessee

Brief facts:
The assessee’s commercial activity centres on leasing assets and the resultant income from it. In terms of lease agreements, ownership of the assets continues to vest with the assessee and the assets are shown in the balance sheet under the head “Fixed Assets”. However, the assessee does not credit the full amount of lease charges in Profit and Loss Account; some amounts are set apart to be carried over to the lease equalization reserve and only the balance amount is credited to the Profit and Loss Account. It was held that lease equalization could not fall within any allowable deduction or expense as it was a provision similar to depreciation and that the assessee incurred no liability of any nature. The Ld.AO added back the amount and the addition was sustained by the Ld.CIT(A). Being aggrieved, the assessee filed an appeal before the Hon’ble ITAT who deleted the addition. The revenue, being aggrieved, filed an appeal before the Hon’ble High Court.

The Hon’ble Court held that lease equalization charges is a method of re-calibrating the depreciation claimed by the assessee in a given accounting period. The method employed by the assessee, therefore, over the full term of the lease period would result in the lease equalization amount being reduced to a naught, as the debit and credits in the profit and loss account would square off with each other.” Therefore, the Revenue’s contention that the amount is unknown to the Act is a misappreciation of what constitutes a lease equalization charge. Therefore, as long as the method of accounting follows some established principles, one of which, includes offering only Revenue income for tax, we cannot find fault with the assessee debiting lease equalization charges in the AYs in issue, in its profit and loss account. It represents a true and fair view of the accounts, which is a statutory requirement under Section 211(2) of the Companies Act.
Hence, the appeal was held against the Revenue and in favour of the assessee.

(Please click here for judgment)

2.  CIT Vs. M/s NHPC LTD., I.T.A. No.151 of 2015 (O&M), Date of Order: 14.02.2018, High Court of Punjab & Haryana

Whether amount received as advance against depreciation cannot be added under the computation of the normal income?

Held: Yes

Brief facts:
The assessee supplies electricity to the State Electricity Board, Discoms etc. The tariff is determined and identified by the Central Electricity Regulatory Commission. The tariff consisted of depreciation, AAD, interest on loans, interest on working capital, operation and maintenance expenses and return on equity. While computing the net profit as per the normal provisions of Income Tax Act, 1961, the assessee deducted the AAD component from total sale price and only the balance amount net of AAD was taken into profit and loss account. The Ld. AO made an addition of Rs.133,81,00,000/- u/s 143(3) on account of amount received as Advance Against Depreciation, which the Ld. CIT(A) deleted and the Hon’ble Tribunal upheld the decision of the CIT(A). Being aggrieved, Revenue has filed an appeal before the Hon’ble High Court.

It was held by the Hon’ble High Court that AAD is merely income received in advance since it is not received for the relevant accounting year. The Hon’ble High Court placed reliance on the decision of Hon’ble Apex Court in assessee’s own case, National Hydroelectric Power Corp. Ltd. v. Commissioner of Income-Tax 2010 (320) ITR 374 wherein the Apex Court, for the purpose of clause (b) of the Explanation-I to Section 115JB categorically held that AAD “did not enter the stream of income for the purposes of determination of net profit at all”. Therefore, AAD was held not to constitutes income of the year in question.
Hence, the questions are answered against the appellant and in the favour of the respondent-assessee.

(Please click here for judgment)

Golden Rules:

  "Our Hopes & Dreams should be like Hair & Nail.
No matter how many times they are cut,
but they never stop growing" 


Thanks & Regards


Voice of CA 

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