Bombay High Court
The Commissioner Of Income Tax-I vs M/S. Sunflag Iron & Steel Co. Ltd on 21 October, 2011
Bench: B. P. Dharmadhikari, A.P. Bhangale
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.
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Shri Anand Parchure, Advocate for Appellant.
Shri C.J. Thakkar, Advocate for Respondent.
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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)
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
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
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
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)
(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.
11. 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
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
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
