Itta/136/2004 Of Chandana Leaphin Finance Ltd v. The Commissioner Of Income Tax

THE HON’BLE SRI JUSTICE DILIP B.BHOSALEANDTHE HON’BLE SRI JUSTICE A.RAMALINGESWARA RAO I.T.T.A. Nos.252 & 291 of 2003, 76 & 77 of 2006 and 132 & 136 of2004 ORAL JUDGMENT:(per the Hon’ble Sri Justice Dilip B.Bhosale) The first four appeals, under Section 260A of the Income TaxAct, 1961 (for short ‘the Act’), are preferred by the Revenue. Out ofwhich, first two appeals are against the orders dated 30-07-2002 and 29-11-2002 in I.T.A.Nos.142/HYD/2002 and141/HYD/2002 respectively and the remaining two are against thecommon order dated 26-03-2002 rendered by the Income TaxAppellate Tribunal in Income Tax Appeal bearing No.229/HYD/2000and 273/HYD/2000. By these orders, the Tribunal allowed theIncome Tax Appeals filed by the respondent-assessee against theorders of the Commissioner of Income Tax (Appeals) dated 10-12-2001, 14-12-2001 and 28-01-2000. Insofar as ITA No.273/Hyd/2000is concerned, that was also disposed off by the order dated 28-01-2000 along with the assessee’s appeal bearing ITA No.229/Hyd/2000. All these appeals pertain to the assessmentyears 1996-97 to 1999-2000. 2. Before the Commissioner of Income Tax (Appeals), theassessees had called in question the orders of Assessing Officer(for short ‘the A.O.’), who, while completing the assessment for therelevant assessment years disallowed the deduction of the “leaseequalization” charges from the lease rental income. The disallowedamounts by the CIT (Appeals) in these appeals are ofRs.48,56,224/-, Rs,44,18,245/- and Rs.13,16,123/-. 3. Since the questions raised and the assessee in all fourappeals are common, for the sake of convenience we state thefacts leading to I.T.T.A.No.252 of 2003 preferred by the Revenue,to the extent they are necessary, as follows: the assessee-Company had filed its return of income on 30.11.1998 declaring theincome of Rs.58,65,660/-. The return was processed under Section143 (1) (a) of the Act on 28.09.1999 without any adjustments. Thenthe assessee’s case was selected for scrutiny by issue of a noticeunder Section 143(2) dated 28.09.1999. The notice was served onthe assessee on 11.10.1999. Subsequently, notices under Section 142 (1) and 143 (2) were issued, in response to which,Chartered Accountant of the assessee appeared before the A.O.and furnished details called for. The assessment was thencompleted and the A.O. disallowed the lease equalization chargesof Rs.48,56,224/- from the lease rental charges for the assessmentyear 1998-99. 3.1 During the assessment year 1998-99, the assessee hadgiven certain assets on lease and shown gross lease rentals ofRs.1,14,91,395/-, as income in the profit and loss account. Out ofthis, a sum of Rs.48,56,224/- was claimed as deduction by way of“lease equalization charges” from the lease rental income. In thecourse of assessment proceedings, it was submitted on behalf ofthe assessee that the treatment in the accounts had been given asper the “Guidance Note” on accounting for leases, issued by theInstitution of Chartered Accountants of India (for short ‘the ICAI”).In this backdrop, the question that was considered by the Tribunaland CIT (Appeals) was whether the assessee could take recourseto the “Guidance Note” issued by the ICAI qua accounting for leasein determination of its income, and whether the deduction as claimed by the assessee ought to be allowed. 4. The CIT (Appeals) disallowed the “lease equalization”charges from the lease rental income, whereas the Tribunal allowedand hence, the Revenue preferred the above four appeals raisingfive questions of law in the memorandum of appeals. At the stageof admitting the appeals no substantial question of law was framed. In view thereof, learned senior counsel for the Revenue, fairlysubmitted that only the following substantial question of law, in theirappeals, arise for our consideration: claimed by the assessee ought to be allowed. 4. The CIT (Appeals) disallowed the “lease equalization”charges from the lease rental income, whereas the Tribunal allowedand hence, the Revenue preferred the above four appeals raisingfive questions of law in the memorandum of appeals. At the stageof admitting the appeals no substantial question of law was framed. In view thereof, learned senior counsel for the Revenue, fairlysubmitted that only the following substantial question of law, in theirappeals, arise for our consideration: (1)whether, on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal wasjustified in allowing the assessee to deduct thelease equalization charges from the lease rentalincome, accepting its accounting policy based onthe Guidance Note issued by ICAI for preparation ofaccounts and whether it would override the statutoryprovisions of the Act?of the case, the Income Tax Appellate Tribunal wasjustified in allowing the assessee to deduct thelease equalization charges from the lease rentalincome, accepting its accounting policy based onthe Guidance Note issued by ICAI for preparation ofaccounts and whether it would override the statutoryprovisions of the Act? 5. The remaining two appeals, bearing I.T.T.A.Nos.132 and 136of 2004, preferred by the assessees, are against the orders passedby all the three authorities, disallowing the deduction of “leaseequalization charges” from the gross lease receipts, holding thatthe assessee was in the wrong in employing the “Guidance Note”issued by ICAI for computing their income from lease rent. Inthese appeals, the following substantial question of law is raised forour consideration : (1) Whether on the facts and in the circumstances of the case,the Tribunal was justified in law in disallowing deduction of leaseequalization charges from the gross lease receipts? 6. Counsel for the assessees, at the outset, invited ourattention to the judgments of Delhi High Court in Commissioner of Income Tax Vs. Virtual Soft System Limited[[1]]and of KarnatakaHigh Court in Prakash Leasing Limited Vs. Deputy Commissioner of Income Tax, Central Circle-III, Bangalore[[2]]and contended that similar questions fell for consideration of theseHigh Courts and based on the Guidance Note issued by ICAI heldthat the assessees are entitled for deduction of lease equalizationcharges from lease receipts. In short, it was contended that thequestions raised in these appeals are squarely covered by thosejudgments. It was further submitted that the assessee is entitled tohave its accounting policy taking recourse to the Guidance Noteissued by ICAI, while accounting for lease transactions. It wasfurther submitted that the Courts have accepted therecommendations issued by ICAI from time to time, with respect tothe manner and mode of reflecting transactions in books ofaccounts, in number of judgments pronounced by High Courts aswell as the Supreme Court. Lastly, he submitted that what isprovided in the Guidance Note stands transacted into an accountingstandard issued by the ICAI and approved under sub-section (2) ofsection 145 of the Act by the Central Government. 7. Mr.S.R.Ashok, learned Senior Counsel appearing for theRevenue, on the other hand, at the outset, invited our attention toSection 145 of the Act, in particular sub-section (2) thereof, andsubmitted that neither the accounting standards nor the GuidanceNote issued by ICAI could be taken recourse to in the absence of anotification being issued by the Central Government ascontemplated by sub-section (2). He submitted that Delhi HighCourt and Karnataka High Court did not consider the provisionscontained in sub-section (2) of Section 145 of the Act in properperspective, and without reference thereto considered whether the 7. Mr.S.R.Ashok, learned Senior Counsel appearing for theRevenue, on the other hand, at the outset, invited our attention toSection 145 of the Act, in particular sub-section (2) thereof, andsubmitted that neither the accounting standards nor the GuidanceNote issued by ICAI could be taken recourse to in the absence of anotification being issued by the Central Government ascontemplated by sub-section (2). He submitted that Delhi HighCourt and Karnataka High Court did not consider the provisionscontained in sub-section (2) of Section 145 of the Act in properperspective, and without reference thereto considered whether the Guidance Note could be the basis for accepting the accountingsystem followed by the assessee. He submitted that the taxableincome of the assessee should be determined as per the IncomeTax Act and not on the basis of the Guidance Note issued by ICAI.In other words, it was submitted that the assessee cannot takerecourse to the Guidance Note issued by ICAI qua accounting forlease in determination of its income and, therefore, in that regardwhether a particular deduction ought to be allowed or disallowed,one should only have to look to the provisions of the Income TaxAct. 8. The arguments advanced by learned counsel for the partieswere centered around the judgment of Delhi High Court in VirtualSoft Systems Limited and of Karnataka High Court in PrakashLeasing Limited and also the provisions contained in sub-section(2) of Section 145 of the Income Tax Act. In view thereof, we wouldlike to have a glance at both the judgments and the provisions ofSection 145(2) of the Income Tax Act. 8.1 I n Virtual Soft Systems Limited (supra), the followingquestions were framed: (1)Whether, on the facts and circumstances of thecase, the Income-tax Appellate Tribunal erred in lawand on the merits in allowing the deduction of thelease equalization charges from the lease rentalincome?case, the Income-tax Appellate Tribunal erred in lawand on the merits in allowing the deduction of thelease equalization charges from the lease rentalincome? (2)Whether the Guidance Note issued by the ICAI forpresentation of accounts would override the statutoryprovisions of the Income-tax Act 1986?presentation of accounts would override the statutoryprovisions of the Income-tax Act 1986? 8.2 The facts leading to the appeal before Delhi High Court werealmost similar, in the sense the assessment of the assessee forthe assessment year 1996-97 was set aside by the Commissionerdirecting the Assessing Officer to include the assessee’s lease rental income. For the assessment years 1997-98 to 2000-2001,the assessments were reopened by the Assessing Officer and hecame to the conclusion that the taxable income of the assesseehad to be determined in accordance with the Act and not on thebasis of the Guidance Note, which only provided guidelines forpreparation of financial statements for the purpose of accounting. The Assessing Officer accordingly disallowed the sum attributed tolease equalization charges, and, consequently, added to theassessee’s income. The Commissioner (Appeals) confirmed theorder of the Assessing Officer, whereas the Tribunal allowed theappeals of the assessee on merits. In this backdrop, the relevantobservations made by Delhi High Court in Virtual Soft Systems Limited (supra) read thus: rental income. For the assessment years 1997-98 to 2000-2001,the assessments were reopened by the Assessing Officer and hecame to the conclusion that the taxable income of the assesseehad to be determined in accordance with the Act and not on thebasis of the Guidance Note, which only provided guidelines forpreparation of financial statements for the purpose of accounting. The Assessing Officer accordingly disallowed the sum attributed tolease equalization charges, and, consequently, added to theassessee’s income. The Commissioner (Appeals) confirmed theorder of the Assessing Officer, whereas the Tribunal allowed theappeals of the assessee on merits. In this backdrop, the relevantobservations made by Delhi High Court in Virtual Soft Systems Limited (supra) read thus: “In this background what is required to be considered iswhether the books of account could be rejected by theAssessing Officer merely for the reason that recourse to theguidance note was taken by the assessee. In this regard, wewould be required to examine the provisions of Section 145 ofthe Income-tax Act. Section 145 of the Income-tax adverts tothe method of accounting followed by an assessee. Sub-section (1) of Section 145 provides that income chargeableunder the head “Profits and gains of business or profession”or “Income from other sources” shall be computed either oncash basis or on mercantile system, whichever method beingregularly employed by the assessee. This provision is,however, subject to the Central Government notifyingaccounting standard in respect of any class of assessee orclass of income. Sub-section (3) of Section 145 empowersthe Assessing Officer to disregard the books of accountsubmitted by the assessee only if he is not satisfied with thecorrectness or completeness of the accounts of theassessee or the method of accounting employed by theassessee or on account of accounting standards notifiedunder sub-section (2), not being particularly followed by theassesee. In this particular case, the Assessing Officer hasdisregarded, in substance, the method of accounting followedby the assessee qua lease rentals without basing it on thegrounds provided in Section 145 of the Income-tax Act. Thefact that the assessee justified its method of accounting, by taking recourse to the Guidance Note issued by the ICAI inthat behalf, was disregarded, on what we would term as, adisjointed reading of the provisions of the said Guidance Note.Both the Assessing Officer as well as the Commissioner ofIncome-tax (Appeals) have adverted to paragraph 2 of theGuidance Note to come to what we consider an erroneousconclusion inasmuch as they have held that in determining asto whether deduction on account of the lease equalizationcharges ought to be allowed or not, what has to be borne inmind is ultimately the provisions of the Income-tax Act. In ourview, such an observation in paragraph 2 of the GuidanceNote is really saying the obvious. Therefore, even if thisGuidance Note was silent on this aspect the provisions of theIncome-tax Act would undoubtedly still apply. Thus, as towhat is the impact of provision of paragraph 2 of theGuidance Note will be considered by us as we progressfurther with our judgment. 9.1. However, what is important at this stage is to firstaddress ourselves to the aspect as to whether the AssessingOfficer could have disregarded the method of accountingfollowed by the assessee in respect of lease rentals. In ourview, the Assessing Officer could not have done so, as themethod of accounting was based on a guideline commendedfor adoption by a professional body such as the ICAI. TheGuidance Note reflects the best practices adopted byaccountants the world over. The fact that, at the relevantpoint in time, it was not mandatory to adopt the methodologyprofessed by the Guidance Note issued by the ICAI isirrelevant for the reason that, as long as there was adisclosure of the change in the Accounting Policy in theaccounts, which had a backing of a professional body suchas the ICAI, it could not be discarded by the AssessingOfficer. This is specially so, since the ICAI is recognized asthe body vested with the authority to recommend accountingstandards for ultimate prescription by the CentralGovernment in consultation by the National AdvisoryCommittee of Accounting Standards, for presentation offinancial statements. The provisions of Section 211(3c) of theCompanies Act are quite clear on this aspect. As a matter offact, the proviso to the said sub-section, quite clearlyspecifies that till such time the Central Governmentprescribes the accounting standards the accountingstandards issued by the ICAI shall be deemed to be therelevant accounting standards. The relevant provision readsas follows: “211.(3C) For the purposes of this section, the expression ‘accounting standards’ means the standards ofaccounting, recommended by the Institute of CharteredAccountants of India constituted under the CharteredAccountants Act, 1949 (38 of 1949), as may be prescribed bythe Central Government in consultation with the NationalAdvisory Committee on Accounting Standards establishedunder sub-section (1) of Section 201A: Provided that the standards of accounting specified bythe Institute of Chartered Accountants of India shall bedeemed to be the accounting standards until the accountingstandards are prescribed by the Central Government underthis sub-section.” In this context, it would be important to note thatAccounting Standard 1 pertaining to disclosure of accountingpolicies has already been notified by the ICAI as havingattained mandatory status for periods commencing on or afterApril 1,1991. It is not the Assessing Officer’s case that theaccounting policy with regard to the lease rentals was notdisclosed by the assessee. The Assessing Officer seems tohave taken umbrage to the change in the accounting policyhaving been brought about only with effect from theassessment year 1996-97. In our view, as long as there wasa disclosure of the factum of change in the accounting policyand its effect in the accounts no fault could be found with thechange in the accounting policy merely on account of the factthat it was employed for the first time in the assessment year1996-97. The change in the accounting policy, as noticed byus above, had the imprimatur of a duly recognizedprofessional body, i.e., the ICAI. Therefore, notwithstandingthe fact that the opinion of the ICAI was expressed in aGuidance Note which had not attained a mandatory status,would not, in our view, provide a basis to the AssessingOfficer to disregard the books of accounts of the assesseeand in effect method of accounting for leases followed by theassessee.” 8.3 The Karnataka High Court, in Prakash Leasing Limited(supra) framed the following questions of law: 1.Whether in law the Tribunal was justified in confirmingthe disallowance made by the lower authorities on the claimof the appellant with regard to the lease equalizationaccount to the extent of Rs.4,35,89,466/-? 2. Whether in law the Tribunal is justified in notappreciating that the appellant being a NBFC had followedthe norms required by its regulatory authority namely RBIand hence the claim made by the appellant with regard to 8.3 The Karnataka High Court, in Prakash Leasing Limited(supra) framed the following questions of law: 1.Whether in law the Tribunal was justified in confirmingthe disallowance made by the lower authorities on the claimof the appellant with regard to the lease equalizationaccount to the extent of Rs.4,35,89,466/-? 2. Whether in law the Tribunal is justified in notappreciating that the appellant being a NBFC had followedthe norms required by its regulatory authority namely RBIand hence the claim made by the appellant with regard to the lease equalization account was perfectly in order?3.Whether in law the Tribunal was justified in declining toaccept the deduction claimed by the appellant which was inaccordance with accounting standard which wasconsistently followed which declares the real income in therelevant year? 4.Whether in law the Tribunal was justified in concludingthat Lease Equalization Reserve is an appropriation of profitand thus cannot be allowed as deduction? 8.4 Karnataka High Court considered several judgmentsincluding the judgment of Delhi High Court in Virtual Soft SystemsLimited (supra) and in paragraph 12, observed thus: “Admittedly, insofar as the lease equalization chargesare concerned, it is not provided in the notified accountingstandards by the Department. It is also not in dispute that inthe Act what the lease equalization charges is not explained. In the absence of any specific provision in the Act dealing onthe subject, when the accounting standard is now made thebasis for maintaining the accounts for the purpose of incometax, even if the Central Government has not notified in theOfficial Gazette the accounting standards, certainly theaccounting standards prescribed by the Institute of CharteredAccountants has to be followed. In fact, the Hon’ble SupremeCourt in Challapalli Sugars Limited Vs. CIT (1975) 98 ITR 167has put its seal of approval on adopting the accountingstandards while interpreting Section 10(2) (vi), (via), (vib) andSection 10(5) of the Indian Income Tax Act 1922, whileinterpreting the expression ‘actual cost’. The Supreme Courtheld in (ITR page 173): “as the expression ‘actual cost’ has notbeen defined, it should, in, our opinion, be construed in thesense which no commercial man would misunderstand. Forthis purpose, it would be necessary to ascertain theconnotation of the above expression in accordance with thenormal rules of accountancy prevailing in commerce andindustry. Therefore, it is judicially accepted that whendetermining whether there has in fact been accrual of liability orincome, the accountancy standards prescribed by the ICAIwould have to be followed and applied.” Therefore, thereasoning of the authorities though the claim of the assessee isbased on such accounting standards of ICAI while decidingwhether receipt of money is taxable or not it has to be decidedin accordance with the provisions of law and not in accordancewith the accounting practice has no substance as there is no inconsistency between the said accounting practice and anyprovisions of the Act.” inconsistency between the said accounting practice and anyprovisions of the Act.” 9. We would now like to consider the provisions of Section 145of the Act. Section 145 deals with method of accounting. Thisprovision was substituted by the Finance Act, 1995 w.e.f.1-4-1997.In the present case, we are concerned with the assessment years1997-1998 to 2000-2001. Sub-section (1) of Section 145 states thatincome chargeable under the head “Profits and gains of business orprofession” or “Income from other sources” shall, subject to theprovisions of sub-section (2), be computed in accordance witheither cash or mercantile system of accounting regularly employedby the assessee. Sub-section (2) provides that the CentralGovernment may notify in the Official Gazette from time to time“accounting standards” to be followed by any class of assessees orin respect of any class of income. Sub-section (3) of Section 145 ofthe Act provides where the Assessing Officer is not satisfied aboutthe correctness or completeness of the accounts of the assessee,or where the method of accounting provided in sub-section (1), oraccounting standards as notified under sub-section (2), have notbeen regularly followed by the assessee, the Assessing Officermay make an assessment in the manner provided in Section 144 ofthe Act. 10. On the basis of the provisions contained in Section 145 ofthe Act, it was submitted on behalf of the Revenue that the taxableincome of the assessee should be determined as per the Act andthat the “Guidance Note” issued by ICAI cannot be the basis forsuch determination. It was further submitted that the Guidance Noteor the accounting standards prescribed by ICAI cannot be takenrecourse to or taken into account unless the Central Government notify such accounting standards in the Official Gazette to befollowed by any class of assesses or in respect of any class ofincome. Then, it was submitted that the word “may” in sub-section(2) should be read as “shall” having regard to the scheme ofSection 145 of the Act. In other words, it was submitted that underany circumstances, the accounting standards or Guidance Noteissued by ICAI cannot be taken recourse to while accounting forlease transactions unless the accounting standard is notified in theOfficial Gazette by the Central Government. 11. In the present case, at the relevant time, the accountingstandard employed by the assessee was not notified though it wassubsequently notified by the Central Government. We would,therefore, like to examine the question on the premise that at therelevant time the accounting standards employed by the assesseesin the present case was not notified by the Central Government. 12. The ICAI’s publication on the subject indicates that the“Guidance Note” on accounting leases was issued by it, for the firsttime, in 1988, which was then revised in 1995. On 1-4-2001, theICAI did publish Accounting Standard 19 in respect of leases. It isnot in dispute that the said Accounting Standard 19 is applicable inrespect of assets leased during accounting periods commencing onor after April 1, 2001. The assessment years, which are underconsideration, in these appeals are prior to 1-4-2001. We are notentering into the details as to how the accounting standards work orapplied in respect of lease income since the question that falls forour consideration is whether the assessees in these appeals wereobliged to employ or to take recourse to Guidance Note issued byICAI on accounting for leases even though the accounting standardwas not notified by the Central Government in the Official Gazette as contemplated by sub-section (2) of Section 145 of the Act. It isnot in dispute that the Guidance Note reflects the best practicesadopted by the Accountants in India. Further, it cannot be disputedthat ICAI is the authority to recommend accounting standards forultimate prescription by the Central Government in consultation bythe National Advisory Committee of Accounting Standards, forpresentation of financial statements. In support, as observed by theDelhi High Court in Virtual Soft Systems Limited, the provisionsof Section 211(3C) of the Companies Act are quite clear. Theproviso to this Section clearly specifies that till such time theCentral Government prescribes the accounting standards issued bythe ICAI shall be deemed to be the relevant accounting standards.It is not in dispute that the Accounting Standard 19 prescribed on 1-4-2001 in respect of leases and the accounting standardincorporated in the Guidance Note is one and the same. Therefore,notwithstanding the fact that the opinion of the ICAI was expressedin a Guidance Note which had not attained a mandatory status,would not, in our view provide a basis to the Assessing Officer todisregard the books of accounts of the assessee and in effectmethod of accounting for leases followed by the assessee asobserved by the Delhi High Court in Virtual Soft Systems Limited(supra). In this connection, we would like to make a reference tothe judgment of the Supreme Court in CIT Vs.Bilahari Investment (P) Ltd.[[3]]wherein it was observed that every assessee is entitledto arrange its affairs and follow the method of accounting, which theDepartment has earlier accepted. It is only in those cases wherethe Department records a finding that the method adopted by theassessee results in distortion of profits that Department can insiston substitution of the existing method. Therefore, certainly themethod adopted by the assessee in maintaining its accounts for the earlier period is an important factor, which the authorities have tokeep in mind at the time of framing the assessment orders. It iswell settled that in determining whether there has in fact beenaccrual of liability or income, the accountancy standards prescribedby the ICAI would have to be followed and applied. [See ChallapalliSugars Ltd., Vs. CIT (1975) 98 ITR 167]. In this judgment, theSupreme Court has put its seal of approval on adopting theaccounting standards while interpreting Section 10(2)(vi), (via),(vib)and Section 10(5) of the Indian Income Tax Act,1922, and theexpression “actual cost”. Thus, even if at the relevant time, it wasnot mandatory to adopt the methodology prescribed by theGuidance Note or for that matter the accounting standard as it wasnot notified by the Central Government in the Official Gazette, inour opinion, it is not relevant for the reason that, as long as therewas a disclosure of the Accounting Policy in the accounts, whichhad a backing of a professional body, such as ICAI, it could not bediscarded by the Assessing Officer. 13. Lastly, we would like to consider the submission that theword ‘may’ employed in sub-section(2) of Section 145 of the Actshould be read as ‘shall’. Sub-section(2) provides that the CentralGovernment “may” notify in the official gazette from time to timeaccounting standards to be followed by any class of assessees orin respect of any class of income. The question, therefore, iswhether in the absence of such notification, being issued by theCentral Government, the accounting standards or the GuidanceNote, prescribing the accounting standards, issued by ICAI couldbe adopted as a method for accounting. It is judicially accepted thatin determining whether there has in fact been accrual of liability orincome, the accountancy standards prescribed by the ICAI wouldhave to be followed and applied. In other words, the accounting standards prescribed by the ICAI has received recognition inseveral decisions of the High Courts and the Supreme Court. Wehave also made reference to the provisions of Section 211 (3c) ofthe Companies Act, 1956. Proviso to this Section clearly specifiesthat till such time Central Government prescribes, the accountingstandards issued by ICAI shall be deemed to be the relevantaccounting standards. Keeping that in view, it would not be possibleto read the word ‘may’ employed in sub-section(2) of Section 145 ofthe Act as ‘shall’. It is well settled that the word ‘may’ normallyindicate that the provision is not mandatory. It is also true that theword ‘may’ can also be used in the sense ‘shall’ or ‘must’ by theLegislature. The intent of the Legislature, however, will have to begathered from the scheme of the relevant provision, Chapter or therelevant Statute and also judicial pronouncements dealing with therelevant provision. Having regard to the provisions contained inSection 145 of the Act, we are of the opinion that the word ‘may’used in sub-section(2) thereof cannot be read as ‘shall’. Merelybecause, the Central Government has not notified in the officialgazette “accounting standards” to be followed by any class ofassessees or in respect of any class of income, it cannot be statedthat the “accounting standards” prescribed by ICAI or theaccounting standards reflected in the “Guidance Note” cannot beadopted as an accounting method by an assessee. Thus, thissubmission also deserves to be rejected. 14. Therefore, in our opinion, notwithstanding the fact that theopinion of the ICAI was expressed in the Guidance Note, which hadnot attained a mandatory status, would not, in our view, be a groundto discard the books of accounts of the assessee or method ofaccounting for lease followed by the assessee and disallowing theassessee to deduct the lease equalization charges from the lease rental income. 15. Thus, substantial questions of law framed by us areanswered in favour of the assessee and against the Revenue. Thefirst four(4) appeals filed by the Revenue are accordingly dismissedand the remaining two(2) appeals filed by the assessee are allowedwith no order as to costs. 16. Miscellaneous petitions pending in the appeals, if any, alsostand disposed of. _______________ Dilip B.Bhosale, J 5[th] February, 2015.Kdl/Tsnr ______________________ A.Ramalingeswara Rao, J Note : L.R. copy to be marked : YES / NO [1](2012) 205 Taxman 257 (Delhi)(2012) 205 Taxman 257 (Delhi) [2](2012) 208 Taxman 464 (Karnataka)(2012) 208 Taxman 464 (Karnataka) [3][2008] 299 ITR 1