TMI Blog2013 (9) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... o the reduced from the profits of the business in order to work out book profits of the company under the provisions of section 115JB of the Act. Adjustment on account of prior period items - Held that:- where the assessee had shown receipts on account of prior period adjustment on account of income tax refund and reversal of provision of income tax, the said items of receipts are not income in the hands of the assessee and the same have to be excluded from the profits reflected in the Profit & Loss Account while computing books profits under section 115JB of the Act. Allowability of Expenditure of Die Tooling Charges – Held that:- Following DCIT vs Metalman Auto Private Ltd [2000 (6) TMI 123 - ITAT CHANDIGARH-A] - To be revenue in nature since the expenditure were incurred for modernization of existing projects, which was already manufacturing the same products, and simply to increase the business more efficiently and more profitability, especially when the expenses were incurred for making technological changes - It was not the case of the revenue that new machinery was installed rather the assessee incurred expenses for the improvement of product and quality with an object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the circumstances of the case and in law, the Ld. CIT (A) has erred in allowing the appeal of the assessee without appreciating the facts of the case. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition made by the AO by assesing the Die Tooling charges of Rs.5,89,00,905/- as capital expenditure which was claimed by the assessee as revenue expenditure. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition made by the AO by assessing the Technical Know-how expenditure of Rs. 19,31,265/-as capital expenditure which was claimed by the assessee as revenue expenditure." 4. The learned A.R. for the assessee at the outset pointed out that both the grounds of appeal raised by the Revenue are covered by the order of the Tribunal in assessee's own case relating to earlier year. In respect of appeal of the assessee, it was pointed out by the learned A.R. for the assessee that the issue was in relation to the adjustment made under section 115JB of the Act. The first adjustment of fringe benefit tax was allowable under section 115JB of the Act in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. Explanation [1].-For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation on account of revaluation of assets referred to in clause (iia); or] [(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation.-For the purposes of this clause,- (a) the loss shall not include depreciation; (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or] (iv) the amount of profits eligible for deduction under section 80HHC, computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section; or (v) the amount of profits eligible for deduction under section 80HHE computed under sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section; or (vi) the amount of profits eligible for deduction under section 80HHF computed under sub-section (3) of that section, and subject to the conditions specified in that section; or (vii) the amount of profits of sick industrial c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of this section shall not apply to the income accrued or arising on or after the 1st day of April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be.] 7. Under section 115JB of the Act special provisions are laid out for payment of tax by certain companies, in such cases where the income tax payable on the total income computed under the Act is less than the prescribed percentage of its book profits, the said percentage varies from year to year. However for computing the book profits sub section (2) of section 115JB provides that the Profit Loss Account is to be prepared in accordance with the provisions of Part II and Part III of Schedule-VII to the Companies Act and while preparing the annual accounts, the accounting policies and accounting standards shall be the same as have been adopted for the purpose of preparing the Profit Loss Account by the said company. The term 'book profits' is defined by Explanation-1 to section 115JB of the Act which means the net profit as shown in the Profit Loss Account for the relevant previous year to be increased/decreased by the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in its Profit Loss Account and the said agricultural income in view of the definition of book profits is to the reduced from the profits of the business in order to work out book profits of the company under the provisions of section 115JB of the Act. 10. The last item is the prior period adjustment on account of income tax refund of Rs.10,82,230/- and reversal of excess provision of income tax relating to assessment year 2002-03 amounting to Rs. 10,54,594/-. The above said items were shown as receipts in the Profit Loss Account by the assessee. However, while computing book profits under section 115JB of the Act the said items were reduced by the assessee, which was not allowed by the Assessing Officer. Under the Explanation-1 in order to work out book profits under section 115JB of the Act the amount of income tax paid or payable or provision thereof is to be added to the profits reflected in the Profit Loss Account as per sub-clause(a) to Explanation-1 under section 115JB of the Act. Following the above said simile where the assessee had shown receipts on account of prior period adjustment on account of income tax refund and reversal of provision of income tax, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand the contention of the learned counsel for the assessee that for earlier assessment years, on identical fact, it was allowed as revenue expenditure. Reliance was also placed upon the decision in the case of CIT vs Madras Spinners Ltd (177 ITR 495) and 275 ITR 403. 13. We have considered the rival submissions and perused the material available on the file. The claim of the assessee before the ld assessing officer was as under:- "The company has claimed die tooling charges of Rs.5579108/- as revenue expenditure whereas the same has been capitalized in the books of account but the company has not claimed any depreciation on the same in the income tax return. The company has incurred the above said expenditure for development of die toolings to manufacture the automotive wheel rims with an object of achieving the maximum output. The expenditure has been incurred with an object of improving the existing products already manufactured by the company and does not relate to setting up to altogether new product or for setting up of a new unit. The company by incurring such expenditure has only effected economy and efficiency in manufacturing of the existing products an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department, both the parties submitted that the issue was covered by the order of this Tribunal in Department's appeal bearing ITA No. 341/Chd/2007 (A.Y. 2004-05) in favour of the assessee and against the Department. The Tribunal has decided the issue in favour of the assessee with the following observations : "4. The parties agreed that the issue is covered in favour of the assessee by the decision of the Tribunal for assessment year 2001-02 in I.T.A.No. 750/Chandi/2005, order dated 30.7.2007. The said order has further been followed in assessment year 2003-04 in I.T.A.No. 897/Chandi/2006, order dated 30.7.2007. For the sake of ready reference and adopting the reasoning we reproduce para Nos.9 to 11 of the order of the Tribunal in I.T.A.No. 750/Chandi/2005 (supra) as under :- "9. Next ground raised by the revenue is that the ld CIT(A) erred in allowing relief to the assessee on account of disallowance of expenses on technical know-how at Rs.58,44,711/- treating them as revenue as against capital expenditure as assessed by ld assessing officer. In nutshell, the ld Sr DR supported the assessment order. Reliance was placed upon the decision in 224 ITR 342 and 251 ITR 155. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds the foreign and domestic travel of the technicians would have to be borne by the assessee. From the details of the foreign traveling expenses, it is noticed that the entire expenditure has been incurred towards to fro travel between Japan and India for the purposes of training as per the technical collaboration agreement" If the aforesaid conclusion of the ld assessing officer is analysed. it says that these expenses are linked to the expansion of the present unit and virtually it is a new unit, therefore, the expenses are of capital nature whereas the conclusion of the ld CIT(A) is as under:- "The assessee was paying technical know how fees to M/s Ring Tech Co., Japan to increase the production and to reduce the rejections so as to improved the production quality and make the operation profitable. No capital asset as such has been acquired by the company, which could be considered to be of enduring nature. The object was to effect economy and efficiency in the manufacturing process. The acquisition of the knowledge has helped in substantial increase in production but in face of swift changes occurring in the technological world, it cannot be said that the chang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring benefit to the assessee, therefore, is of capital nature. The Hon'ble Calcutta High Court in the case of Shri Ram Bearings Ltd (251 ITR 155) wherein the assessee was allowed to use technical know how even after period of agreement, it was held that the benefit is of enduring nature, therefore, is of capital in nature. However, keeping in view the facts and circumstances and the latest decision of the Hon'ble jurisdictional High Court in the case of Swaraj Engines Ltd dated 18th May 2006 wherein the Hon'ble Court has already followed the decisions from the Hon'ble Apex Court in the case of Radha Swami Satsang vs CIT (supra) and Wavin India Ltd (supra), we uphold the stand of the ld CIT(A). Consequently, this ground of the revenue is also having no merit." 5. Respectfully following the above order of the Tribunal we uphold the view of the Commissioner of Income-tax (A) and dismiss the ground of appeal raised by the Revenue in this regard." 14. The facts of the present case being identical to the facts in assessment year 2008-09, we allow the claim of the assessee and uphold the order of the CIT (Appeals) in this regard. The ground No.3 raised by the Revenue is thus di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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