Contention not raised before Lower Authorities, cannot constitute ‘Substantial Question of Law’: Bombay High Court [Read Judgment]

The Bombay High Court, in the case of L & T Finance Ltd. v. DCIT, held that a new contention which was not raised before the lower forums does not constitute a ‘substantial question of law’ to evoke jurisdiction of the High Court.

The bench constituting of S.C. Dharmadhikari and B.P. Colabawalla were hearing an appeal filed by a Non-Banking Financial Company engaged in the business of leasing, hire purchase and other financial activities. The appellant securitized rent receivables in the year 2002-04 in the year 2001-02 at the rate of 10.50% for the Net Present Value at Rs. 9.33 Crores. This amount was hence adjusted against the outstanding rent receivable of Rs. 7.64 Crores in books of accounts of the appellant and the balance amount of Rs. 1.69 Crores being recognized as a profit on securitization of lease receivables in the profit and loss account.

The Assessing Officer (AO), on the basis of this balance of profit, opened the proceedings taking into consideration that the gain related to the business of the appellant and also arose in the normal course of business. Being aggrieved by the order of the AO, the appellant approached the Commissioner of Income Tax (Appeals) (CIT) and the Income Tax Appellate Tribunal who confirmed the addition and hence the present appeal.

The issue before the present court was with respect to the treatment of an amount of Rs. 1.69 Crores credited on account of securitization of lease rentals receivables in subsequent years to the Profit and Loss Account.

Mr. Sheth on behalf of the assessee argued that the appellant in law was entitled to spread over this income of Rs. 1.69 Crores over a period of time from 2002-04 on the basis of the Matching Concept. Further, if such a concept was not applied, then the profit would get wholly distorted.

The Hon’ble Court, however, rejecting the contention of the appellant reasoned that in facts of the present case, there was no factual foundation laid by the appellant for contending that the “matching concept” was not applied by the authorities below. In fact, ongoing through the orders passed by the authorities below, the “matching concept” was never even argued or raised before them. It hence held that this argument can never give rise to a substantial question of law in the facts and circumstances of the present case.