1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH, NAGPUR.
INCOME TAX APPEAL Nos. 74, 101 AND 134 OF 2010.
The Commissioner of Income Tax-I,
Aayakar Bhawan, Civil Lines,
Nagpur. ig .... APPELLANT.
VERSUS
M/s. Sunflag Iron & Steel Co. Ltd.,
33, Mount Road, Sadar,
Nagpur. .... RESPONDENT.
----------------
Shri Anand Parchure, Advocate for Appellant.
Shri C.J. Thakkar, Advocate for Respondent.
-----------------
CORAM : B.P.DHARMADHIKARI
& A.P. BHANGALE, JJ.
Date of Reserving the Judgment : 11.10.2011 Date of Pronouncement : 21.10.2011 JUDGMENT : (Per B.P. Dharmadhikari, J) ::: Downloaded on - 09/06/2013 17:52:48 ::: 2
1. These Appeals under Section 260A of the Income Tax Act, 1961 filed by the Department are against same assessee and arise out of common order dated 31.07.2009 delivered by the ITAT, Nagpur. The assessment years involved are 2002-03, 2003-04 and 2004-05. Shri Parchure, learned Counsel appearing for the department has pointed out that the question of admissibility of deduction under Section 80 HHC, is involved in all these matters. While additional question of nature of expenditure on repairs of transformers, falls for consideration in Income Tax Appeal No.101/2010, which is for the assessment year 2004-05.
2. In this background we have heard Shri Anand Parchure, learned Counsel for the appellant and Shri C.J.
Thakkar, learned Counsel for respondent in all the appeals finally.
3. Shri Parchure, learned Counsel for department has contended that the transformer was virtually re-built and hence expenses of Rs. 1,80,85,276/- could not have been ::: Downloaded on - 09/06/2013 17:52:48 ::: 3 treated as on current repairs. He has contended that this expenditure is too high to accept it as revenue expenditure.
According to the department, this was a capital expenditure.
4. Shri Thakkar, learned Counsel on the other hand has pointed out that the nature of expenditure is already accepted by two authorities and it being a finding of fact, this Court should not interfere.
5. After hearing the respective counsel, we find that the assessee has claimed expenditure of Rs. 1,80,85,276/- on account of repairs of 40 MVA Transformer. A.O. had found that the book value has been completely exhausted, and therefore, held that it was of case of making new transformer.
The assessee submitted that, if it was required to import a transformer, it would have taken 6 months, and therefore, to keep the operations running, existing transformer, which got damaged in the year under consideration was repaired on emergency basis. A.O. has also found that the assessee Company had received a sum of Rs. 47,00,000/- through ::: Downloaded on - 09/06/2013 17:52:48 ::: 4 Insurance Company, and after deducting that amount, the A.O. found that expenditure of Rs. 1,33,85,276/- to be capital in nature and hence, made dis-allowance therefor.
6. The fact that the transformer existed; that it got damaged and that it was repaired, is not in dispute. The department has not pointed out that the assessee was not using old transformers, but had fixed a new 40 MVA Transformer. ITAT has found that it was because of extensive repairs, consequent to severe damage to an existing business asset. It therefore, concluded that it was case of restoration of its existing capabilities and not a case of acquisition of new asset or obtaining any advantage of enduring nature, which is certainly a different aspect than mere repairs/restoration of capacity. It is to be noted that all these findings are basically finding of fact.
7. Shri Parchure, learned Counsel had relied upon the judgment of Hon'ble Apex Court reported at (2009) 182 TAXMAN 141 (SC) (Commissioner of Income Tax .vrs. Sri ::: Downloaded on - 09/06/2013 17:52:48 ::: 5 Mangayarkarasi Mills (P) Ltd.). There the assessee was engaged in manufacture and sale of Cotton Yarn and expenditure incurred on replacement of machinery was claimed as revenue expenditure. A.O. has disallowed that claim and he treated it as capital in nature. Even in books of account the assessee had treated it as capital expenditure.
The assessee had claimed that replacement made at the most amounted to a repair made to the process of manufacture of yarn. The Hon'ble Apex Court noted that if replacement was held to be "current repairs" in such case, Section 31(I) of Income Tax Act will be completely redundant. The Hon'ble Apex Court found that repairs implies existence of a part of machine which has malfunction. We, therefore, find that this judgment does not help the department at all in the present facts.
8. Shri Thakkar, learned Counsel has made reference to judgments of Hon'ble Apex Court reported at (1980) 15 CTR (SC) 154 (Commissioner of Income Tax .vrs. Kalyanji Mavji and company), (1992) 198 ITR 535 (Cal) ::: Downloaded on - 09/06/2013 17:52:48 ::: 6 (Commissioner of Income Tax .vrs. Tea Estates (P) Ltd), (2007) 211 CTR (SC) 281 (Commissioner of Income Tax .vrs.
Saravana Spinning Mills (P) Ltd.)and (2006) 284 ITR 621 (Mad) (Commissioner of Income Tax .vrs. Saleem Co-
operative Spinning Mills Ltd.), to support the application of mind by ITAT. As we find no substantial questions of law arise in this respect, it is not necessary to refer to these precedents.
9. Other contention of Shri Parchure, learned Counsel about reduction as under under Section 115 JB(IV). He has stated that as the assessee did not have any eligible profit, deduction under Section 80 HHC could not have been computed.
10. Shri Thakkar, learned counsel has relied upon judgment of Hon'ble Apex Court reported at (2010) 234 CTR (SC) 139 (Ajanta Pharma Ltd. .vrs. Commissioner of Income Tax ) and urged that issue is squarely covered in his favour because of this judgment.
::: Downloaded on - 09/06/2013 17:52:48 ::: 711. We have perused the said judgment. The Hon'ble Apex Court has stated that Section 115 JB is a self-contained code and it takes deemed income by referring to "book profit".
Book profits are to be computed by making deductions as prescribed in clause [a] to [f] of explanation appearing in sub-
section [2] and by reducing the income as per various heads, as stipulated in clause (i) to (iii) thereof. The provisions of Section 80 HHC are held to operate in different sphere. The Hon'ble Apex Court has noted essential conditions for invoking Section 80 HHC (1) and found that same were conditions of eligibility. Section 80 HHC (3) deals with computation of tax incentive. Section 115 JB, vide clause (iv) exclude eligible profits derived from exports. It is also noted that computation of book profits under section 115 JB is different from normal computation under 1961 Act/computation under Chapter VIA. The argument of department that both "eligibility" as well as "deductibility" of the profit needs to be considered together for working out deductions, is found without merit. In this connection ::: Downloaded on - 09/06/2013 17:52:48 ::: 8 reference can be made to the judgment of ITAT Mumbai Bench which has been restored by the Hon'ble Apex Court by setting aside the judgment of this High Court. It was pointed out to ITAT in that for Section 115 JB matter, that the profit eligible for deductions and calculated under Section 80 HHC (3) needed to be deducted while determining the book profit, even though assessee was not allowed deductions under section 80 HHC, as there was loss. Similar contention is being raised before us by Shri Parchure, learned Counsel. It is to be noted that when income tax payable on total income as computed normally is less than the prescribed percentage of its book profit, that book profit is treated as total income of assessee for computation of tax under Section 115 JB (1).
12. Computation of book profit under section 115 JB at a particular amount by the A.O., is not in dispute before us in all three matters. Deductions under section 80 HHC is being claimed from that amount in respective years. We, therefore, find no merit in the arguments by Shri Parchure, learned counsel. The controversy stands concluded by the ::: Downloaded on - 09/06/2013 17:52:48 ::: 9 judgment of Hon'ble Apex Court in the case of Ajanta Pharma Limited .vs. Commissioner of Income Tax (supra). We, therefore, find no substantial questions of law arising even on that count in any of the matters.
13. All three appeals are accordingly dismissed. No costs.
JUDGE JUDGE
Rgd
::: Downloaded on - 09/06/2013 17:52:48 :::