Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2008 (2) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2008 (2) TMI 656 - AT - Income TaxDisallowance of Depreciation - Business expenditure - Loss due to exchange fluctuation - Computation of books profit u/s 115JB - Addition made by Deferred Tax and Provision for bad and doubtful debts Disallowance of Depreciation - Assets of International Division - assets in question were acquired six years back and were regularly used in the business - HELD THAT:- In the present case, it is seen that the assets of international division is not a separate block of assets. The block of assets of the entire assets of all the divisions form block of assets. Even these were ready for use though not used actually. Accordingly, applying the ratio laid down in the case of Capital Bus Service (P.) Ltd.[1980 (2) TMI 69 - DELHI HIGH COURT] the claim is allowable. This ground accordingly fails. Disallowance on being depreciation claimed @ 100 per cent on assets in nature of temporary structure - assessee had taken premises on lease for a period of three years in its Infotech Division - It is correct to hold that an alternate claim can be made before the learned CIT(A) for the first time and in disposing of the appeal under section 251 of the Act, the Commissioner (Appeals) have power to pass such orders as he thinks fit. His powers include powers to reduce, enhance or annul the assessment. Having power to reduce the assessment, the learned CIT(A) was justified in entertaining claim as to whether the expenses can be allowed as revenue expenditure. We find that the expenses in a leased premises on partition, false ceiling, painting, white-washing, renovation of toilets etc. are revenue expenditure and do not bring into existence any capital asset as such. Accordingly, the claim of the assessee was rightly allowed by the learned CIT(A). Disallowance being 50 per cent of the expenditure for recruitment and training of its staff personnel - Enduring benefit is one of the tests to determine whether the expenditure is capital or revenue. However, it is not a foolproof test and even in some occasion such test will fail if the circumstances so demand. This was so precisely laid in the case of Alembic Chemicals Works Co. Ltd.[1989 (3) TMI 5 - SUPREME COURT]. The training expenses is an ongoing process and do not bring into existence any capital asset to the assessee. By training its personnel the business of the assessee is carried on more efficiently and smoothly. It only facilitates proper functioning keeping in view the new technology advances. Thus, expenditure being inclined wholly and exclusively for the purpose of business which cannot be categorized as capital expenditure, cannot be spread over number of years. Accordingly, ground No. 4 fails. Disallowance on being loss due to exchange fluctuation on the amount borrowed on foreign currency for the purpose of working capital - No dispute to the fact that the loan in foreign currency was taken on revenue account and in relation to working of the company. The only ground for disallowance is that the loss does not arise till the loan is repaid. The High Court in the case of CIT v. Woodward Governor India (P.) Ltd. [2007 (4) TMI 118 - DELHI HIGH COURT] had opined that if the foreign currency loan is obtained on revenue account, the loss due to fluctuation accrues at the end of the financial year even if such loan is not repaid during the year. The liability is an ascertained liability and not a contingent liability. Accordingly, the loss was rightly held allowable by the learned CIT(A). Addition on account of deferred tax liability while computing book profit u/s 115JB - The word ‘tax’ is defined in section 2(43) of the Act. As per the definition ‘tax’ means income-tax chargeable under the provisions of this Act. The provision for deferred tax is not tax payable under the Act. The deferred tax liability is created where the assessee gains tax advantage of temporary nature which are payable in subsequent years. When tax liability of subsequent years are determined, the amount is decreased from deferred tax liability and actual provision is made for the current tax liability. What can be added under clause (a) of Explanation to section 115JB is the income paid or payable on the current income computed under the provisions of the Act and not the liability which is deferred or becomes payable in subsequent years. Thus, the deferred tax liability provided not being falling in clause (a) of Explanation to section 115JB cannot be added to book profit for purpose of section 115JB of the Act. Addition on being provision for bad and doubtful debts while computing book profit u/s 115JB of the Act - The Hon’ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002 (5) TMI 5 - SUPREME COURT], held that the AO cannot recast the profit and loss account if the same is prepared in accordance with Parts II & III of Schedule VI of the Companies Act for the purpose of computing book profit under section 115J. Accordingly, the amount of provision for bad and doubtful debts cannot be considered as amount credited to reserve and hence cannot be added while computing book profit under section 115JB. The amount is not a provision for making liability as by making provision the assessee merely restates the assets. Thus even under clause (c) of Explanation to section 115JB the same cannot be added while computing book profit. In the result, the appeal is dismissed.
|