TMI Blog2014 (2) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... s – the matter remitted back to the AO to find out whether forward contract were made in the course of its business of export and whether the profit earned from exchange fluctuation were with reference to any particular contract for export of goods. Claim of depreciation on temporary parking shed – Held that:- The expenditure incurred was apart from the extent of expenditure thus incurred - whether the parking shed is a temporary one for parking vehicle or the shed itself is temporary one is not yet cleared - other temporary shed for keeping spares - ware-house and other expenditure incurred on storage facilities – there was no justifiable ground to accept the plea of the assessee that the parking shed put up by the assessee should be treated as temporary one for the purpose of granting depreciation at 100% - order set aside and the depreciation on the expenditure incurred on putting up of temporary shed for parking vehicle would be at 10% only – thus, the matter remitted back to the AO. Expenditure on dies & moulds – Held that:- Replacement of the new dye in the place of old dye would qualify for current repairs under Section 31 of the Act - The decision in CIT Vs. Sri Manga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100% depreciation can be granted on the parking sheds when even as per the assessee it would last for 20 years ? 3. Whether on the facts and circumstances of the case, the Tribunal was right in allowing expenditure related to advance given for R D equipment under Section 35(1)(iv) of the Income Tax Act ? 4. Whether on the facts and circumstances of the case, the Tribunal was right in holding that the expenditure on replacement of dies and moulds are to be allowed as a revenue expenditure contrary to its own orders in other cases, and when such expenditure was not debited in the profit and loss account, but only claimed in the Income Tax Adjustment statement ? 5. Whether on the facts and circumstances of the case, the Tribunal was right in holding that the assessee is entitled to deduction of entry tax paid under Section 43B without verifying whether such entry tax had been set off against sales tax paid and the treatment given to the same in its account ?" 2. The assessee is a company, which filed its return of income for the assessment year 2003-04 admitting total income of Rs.179,91,77,850/-. Subsequently, it filed a revised return. In the revised return, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o existence, expenditure claimed under Section 35D of the Act was not allowed; the expenditure would be allowed in the subsequent year if the assets had come into existence; the expenditure on R D work in progress which was disallowed in the assessment year 2002-03 was allowed during the year under consideration as the assets had been put to use. Thus, the balance amount of Rs.1,68,85,332/- was added to the total income of the assessee. 7. On the claim of deduction on the Entry Tax paid, the Assessing Officer pointed out that as per the Tamil Nadu General Sales Tax Act, the entry tax paid would be set off as against the sales tax paid by the assessee. Since the set off under the Sales Tax enactment is automatic, the entry tax payment could not be claimed as deduction. Thus, this claim was also disallowed. 8. On the Foreign Exchange forward contracts, the assessee pointed out that foreign contracts were booked for import of materials and export of goods. When the exchange rate moved favourably to the assessee, the forward contract was cancelled and gains were realized and were kept in the separate account of the general ledger and thus, these were business related, consequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the entry tax paid in the sales tax liability, Revenue was not concerned as to in what manner Entry Tax was adjusted with the Sales Tax liability. 15. Thus the First Appellate Authority allowed the assessee's appeal on the issue of R D expenditure, on the expenditure of dies and moulds and on payment of Entry Tax, but rejected the assessee's appeal on receipts on forward contract claim under Section 80HHC of the Act. Aggrieved by this, both the assessee and Revenue went on appeal before the Income Tax Appellate Tribunal. 16. As far as the claim for deduction towards income earned on forward contract was concerned, the Income Tax Appellate Tribunal (hereinafter called as "Tribunal") allowed the assessee's appeal holding that the decision of the Apex Court in the case of CIT Vs. K.Ravindranathan Nair reported in (2007) 295 ITR 228 was directly applicable to the facts of the case. Referring to the decision of the Apex Court in the case of CIT Vs. K.Ravindranathan Nair reported in (2007) 295 ITR 228, the Tribunal pointed out that as far as profit from foreign exchange fluctuation was concerned, the same was part of the export turnover, hence, could not be excluded from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see does not deny the fact that the forward contracts were entered into in the regular course of business. It however contended that in respect of the exports and imports made by the Company, based on the anticipated movement of the dollar and rupee, a forward cover is normally booked with the company's bankers; depending on the fluctuation, the assessee maintained the forward cover or withdrew the contract and that in this process, the assessee made gains which was credited to a separate account in the general ledger of the company and a sum of Rs.49,79,898/- was realised. As far as the claim on this amount as eligible profit for deduction under Section 80HHC of the Act is concerned, learned counsel appearing for the assessee placed heavy reliance on the Tribunal's order as well as the Commissioner's order only to submit that in respect of export house, it was entitled to deduction fully. 22. Learned counsel appearing for the assessee placed reliance on the decision of the Calcutta High Court in the case of Commissioner of Income Tax (Central), Calcutta Vs. Soorajmull Nagarmull reported in (1981) 129 ITR 169 as well as the decision of Bombay High Court in the case of Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng for the assessee submitted that such forward contracts were done on account of its export business and not in speculative manner and hence would qualify for deduction. Although we do not have material facts to decide on this issue and the contentions are general, we may point out that in the written statements before the Commissioner of Income Tax (Appeals), the assessee submitted that as an exporter of goods, forwards contracts were kept for export as well as import. But the written statement did not lead any further to know whether the receipt of the income on account of fluctuation was the income derived from any particular forward contract cancelled. Thus, question arises as to what extent the assessee would be entitled to deduction under Section 80HHC of the Act. After referring to the decision in the case of CIT Vs. K.Ravindranathan Nair reported in (2007) 295 ITR 228, the Tribunal straightaway allowed the case, holding that the profit from foreign exchange fluctuation was part of the export turnover. 25. Since the material facts are lacking in this case, we agree with the submission of the Revenue that the matter requires further consideration as to the extent of deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee should be treated as temporary one for the purpose of granting depreciation at 100%. We agree with the Revenue's contention that the shed itself would last for 20 years. Taking note of both these aspects, we agree with the Revenue and set aside the order of the Tribunal and allow the Tax Case (Appeal) that the depreciation on the expenditure incurred on putting up of temporary shed for parking vehicle would be at 10% only. Hence, we restore the order of the Assessing Officer. 28. As regards the expenditure on Research Development, after analysing the facts, the Tribunal rightly applied the decision reported in 255 ITR 395 in the case of CIT Vs. Rane Brake Linings Ltd. Consequently, we have no hesitation in rejecting the Revenue's plea. 29. As regards the expenditure on dies moulds, the assessee pointed out that it debited an amount of Rs.11,17,68,169/- towards dies and moulds only to replace them in the place of worn out dies and moulds. The assessee in the memorandum of income added this amount to the total income and claimed the cost of dies and moulds of Rs.22,66,52,504/- under Section 31 of the Act. The assessee stated that within a period of one year of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9) 315 ITR 114 (SC) and pointed out as under:- "10. The question as to whether the expenditure incurred on replacement of machinery is revenue or capital expenditure, particularly in the nature of replacements of parts, thus rests on the nature of expenditure incurred, vis-a-vis the benefit that the assessee derives. The ratio deductible from the decisions referred to above are: (i) To decide the applicability of Section 31(i), the test is not whether the expenditure is revenue or capital in nature, but whether the expenditure is "current repairs". The basic test is to find out whether expenditure is incurred to "preserve and maintain" an already existing asset and the expenditure must not be to bring a new asset into existence or to obtain a new advantage vide [2007] 293 ITR 201 (SC) (Commissioner of Income Tax Vs. Saravana Spinning Mills P. Ltd.) (ii) Under Section 31(i), the deduction admissible is only for current repairs. Therefore, the question as to whether the expenditure incurred by the assessee conceptually is revenue or capital in nature is not relevant for deciding the question whether such expenditure comes within the etymological meaning of the expression "curre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is evident that with regard to the moulds and dies attached to the machinery like press designs specification, moulds and dies are not independent of the plant and machinery, but are parts of the machinery. Once the dies are worn out, the machines cannot turn out the product to the business specifications and this has to be obtained only on a replacement of the dies and moulds, a fact which is not refuted by the revenue. It is no doubt true that the assessee claimed depreciation on dies and moulds. Yet in the decision in the case of CIT Vs. Mahalakshmi Textile Mills Ltd., reported in (1967) 66 ITR 710 (SC), the Apex Court pointed out that all questions whether of law or of fact, which relate to the assessment year of the assessee could be raised in any year under consideration before the Officer as well as before the Income Tax Appellate Tribunal too and if, for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, the grant of relief to an assessee is justified on another ground, the Revenue is bound to consider such claim of granting the relief. The Apex Court pointed out that the right of the assessee to the relief is not restric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We do not agree with the said line of reasoning. The payment made on the entry tax demand and its adjustment against the Sales Tax assessment has nothing to do with deduction provision under the Income Tax Act on the entry tax paid. Consequently, we reject the Revenue's plea on double deduction. The provisions of Sales Tax Act and the Income Tax Act are on the different lines. The adjustment or the treatment given under the Sales Tax Act cannot be read in to the Income Tax Act and the only question is whether the entry tax actually paid by the assessee during the year under consideration is allowable as deduction or not. The Tribunal rightly allowed the deduction claimed by the assessee on account of tax payment made under Entry Tax Act. Consequently, we reject the Revenue's appeal. 35. Insofar as T.C.(A).No.173 of 2009 is concerned, the first question on the claim of foreign exchange fluctuation of forward contract is concerned, the matter stands remitted back to the Assessing Officer for de novo consideration to the extent as indicated above. The order of the Tribunal is set aside. 36. As regards the claim of 100% depreciation by the assessee on the temporary parking shed, th ..... 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