TMI Blog2016 (7) TMI 907X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO. In the instant case, admittedly assessment is reopened within four years and the assessment was reopened for considering the disallowance expenditure of tools. As such, we cannot say that there is a change of opinion, since there is no opinion formed by the AO in the re-opening of assessment on this issue. Accordingly, we upheld the reopening of assessment made by the AO. Treatment of expenditure on tools as capital expenditure - Held that:- Sub-section (3) of section 211 provides that until the Central Government prescribes an accounting standard in consultation with the National Advisory Committee as set up under section 210A of the Companies Act, 1956, pursuant to a recommendation of the Institute of Chartered Accountants of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax (Appeals)-11 dated 22.01.2016 pertaining to the assessment years 2008-09 2009-10. 2. The first ground in ITA No.797/Mds./16 is with regard to reopening of assessment u/s.147 of the Act. 3. The facts of the issue are that the assessee company is engaged in manufacture of automobile component and also making dyes moulds, jigs and fixtures and special purpose tools as per customer s requirements. The assessee filed e-return for assessment year 2008-09 on 29.09.2008 admitting an income of ₹ 1,12,41,631/- and the assessment u/s.143(3) was completed on 27.12.2010 accepting the income returned. Subsequently, the AO found that under the head Manufacturing and other expenses an amount of ₹ 67,39,084/- was included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of Ld.CIT(A). 5. We have heard both the parties and perused the material on record. The reopening of assessment notice was given to the assessee within four years from the end of the relevant assessment year and in view of the Explanation-1 to sec.147 of the Act, the AO is justified in issuing the notice u/s.148 of the Act for the purpose of re-assessment. After First April, 1989, the AO has power to reopen the assessment u/s.147 of the Act provided AO has a reason to believe that income has escaped assessment and there is tangible material to come to the conclusion that there is an escapement of income; mere change of opinion cannot be a reason for reopening the concluded assessment. The issue was taken by the Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there is a change of opinion, since there is no opinion formed by the AO in the re-opening of assessment on this issue. Accordingly, we upheld the reopening of assessment made by the AO. This ground raised by the assessee for assessment year 2008-09 stands rejected. 6. Coming to the second common ground in both the appeals is with regard to treatment of expenditure on tools as capital expenditure. According to ld.A.R, the life of the tools is very short like screw drivers, spanners which are purchased along with machineries. These items by wear and tear, gets worn out and have to be replaced and such replacement are revenue expenditure only and cannot be considered as capital expenditure. Ld.A.R placed reliance on the following judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nventory and charged to profit and loss account as and when they are consumed during the ordinary course of business. On the other hand, if the machinery spares are of the nature of capital spares/insurance spares which are specific to a particular item of fixed asset and their use is irregular, then, they should be capitalized separately and depreciated on a systematic basis over a time frame not exceeding the useful life of the fixed asset to which they relate. As a matter of fact, in case the fixed asset to which they relate, is discarded, the machinery spares will also have to be disposed of as these spares are integral parts of the fixed asset. It is to be noted that these Accounting Standards are mandatory in nature and applied to acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spares in consonance with the mandatory provisions of Accounting Standards (AS) 2 and (AS) 10. The assessee has been maintaining a mercantile system of accounting, therefore, the treatment of emergency spares in accordance with the revised Accounting Standard (AS) 2 and (AS) 10 would be in consonance with the mercantile system of accounting which under the Act the Revenue is required to look at for computing income of the assessee chargeable under the head Profits and gains from business. The submission of ld.D.R that the accounting treatment to be meted out to a transaction in accordance with the Accounting Standard has no relevance for the purposes of the Income-tax Act, 1961, is a submission which does not commend to us. Thus, expend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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