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2017 (1) TMI 1214 - ITAT DELHIMAT computation - Contribution under 'U.P. Sheera Niyantran Adhiniyam’ - whether is required to be added for the purposes of computing 'Book Profit’ under section 115JB ? - Held that:- Disallowance on account of Molasses Reserve Fund-the contribution to the Molasses reserve fund can be viewed as a provision in nature and it is not an actual liability and the provision created for additional storage facility is obviously in the nature of provision for contingent liability, therefore, the impugned amount being contingent in nature deserves to be added back while computing income u/s 115JB of the Act. See Rai Bahadur Narain Singh Sugar Mills Ltd. Versus Addl. CIT [2015 (3) TMI 926 - ITAT DELHI] Addition to capital subsidy to the book profits while computing income under the section 115JB - Held that:- As already been accepted by the Hon’ble High Court in assessee’s own case for AY 1990-91 that the subsidy received by the assessee is in the nature of capital subsidy, hence, the same cannot be treated as revenue and thus, the income approach of accounting for capital subsidy received as government grant is not applicable in this case as per AS-12 where in para 5.2 it has been made clear that the capital approach is to be followed in respect of government grants and it is inappropriate to recognize government grants in profit and loss statements because they are not earned to represent an incentive provided by the government. Accordingly, conclusion of the CIT(A) on this issue is not found to be sustainable and we demolish the same by directing the AO that the amount of capital subsidy to the book profits while computing the income u/s 115JB of the Act is not an appropriation of profits and there is no such debit to the profit and loss account for the alleged appropriation and, therefore, the same cannot be added while computing the income u/s 115JB of the Act. Accordingly, ground of the assessee are allowed. Consultancy fee incurred in relation to plant and machinery - revenue v/s capital expenditure - Held that:- 70% of the payment was towards purchase of a new plant and machinery, which forms part of block of plant and machinery for the purpose of depreciation. It is evident from the above that payment for consultancy was not only for examining the old turbine, but it was consultancy for purchase of a substitute turbine, which forms part of block of the plant and machinery. In such facts and circumstances, we are of the opinion, that at least 70% of the payment of consultancy fee paid by the assessee is expenditure in the nature of capital expenditure and the balance expenditure falls in the nature of revenue expenditure. However, we agreed with the contention of the learned counsel that if this expenditure is held as capital in nature, then depreciation should be allowed to the assessee. We, therefore, direct the Assessing Officer to consider the 70% of the payment on consultancy fee as capital expenditure for inclusion under the block of asset of plant and machinery and allow the depreciation accordingly. This ground of the appeal is partly allowed.
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