Tribunal Dismisses Revenue's Appeal: Upholds Depreciation on Pre-Operative Expenses and Accurate Book Profit Computation.

The revenue's appeal was dismissed by the Tribunal on both issues. First, the Tribunal upheld the CIT(A)'s decision to delete the disallowance of depreciation on pre-operative expenses, agreeing that such expenses can be capitalized and are eligible for depreciation. Second, the Tribunal supported the CIT(A)'s ruling on the computation of book profit under section 115JB, affirming that the income credited to the Profit & Loss Account should be considered for deduction, not the amount determined by the Assessing Officer. The Tribunal's decisions were consistent with judicial precedents and interpretations of the Income-tax Act.

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Issues Involved:

1. Deletion of disallowance made by the Assessing Officer out of depreciation of pre-operative expenses.
2. Allowing the deduction claimed under section 10B of the Income-tax Act for the purpose of book profit under section 115JB.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance Made by the Assessing Officer Out of Depreciation of Pre-Operative Expenses:

The first issue concerns the disallowance of depreciation amounting to Rs. 9,817 by the Assessing Officer. The Assessing Officer's rationale was that the depreciation amount of Rs. 32,268 included in the pre-operative expenses capitalized to plant and machinery should reduce the opening WDV of plant and machinery, resulting in a disallowance of depreciation on plant and machinery at 25% of Rs. 39,268, i.e., Rs. 9,817. Consequently, the depreciation claimed was adjusted from Rs. 35,39,436 to Rs. 35,29,619.

The assessee argued before the CIT(A) by relying on the decision of the Mumbai Tribunal in the case of *Gujarat Ambuja Cements Ltd. v. Asstt. CIT [2005] 4 SOT 59*. The Tribunal had held that preoperative expenses, whether directly or indirectly related to the setting up of business or installation of machinery, can be capitalized and are entitled to depreciation as per rules. The CIT(A) agreed with this position and deleted the addition made by the Assessing Officer.

Upon appeal, the Tribunal noted that no contrary decision was shown or relied upon by the Departmental Representative (DR). Therefore, the Tribunal declined to interfere with the findings of the CIT(A) and dismissed the ground.

2. Allowing the Deduction Claimed Under Section 10B of the Income-tax Act for the Purpose of Book Profit Under Section 115JB:

The second issue pertains to the computation of book profit under section 115JB. The income of the unit eligible for deduction under section 10B was credited by the assessee in its Profit & Loss Account at Rs. 32,50,760, but the exemption claimed under section 10B was Rs. 5,95,935, with the deduction allowed by the Assessing Officer being Rs. 4,90,103. The Assessing Officer reduced Rs. 4,90,103 from the net profit shown in the Profit & Loss Account, contrary to the assessee's claim that the reduction should be Rs. 32,50,760.

The CIT(A) referred to decisions from various tribunals and courts, including *CIT v. GTN Textiles Ltd. [2001] 248 ITR 372 (Ker.)* and *Dy. CIT v. Gobind Rubber (P.) Ltd. [2004] 89 ITD 457 (Bom.)*, which supported the assessee's position that the amount credited in the Profit & Loss Account should be considered for deduction. The CIT(A) held that the Assessing Officer could not replace the amount of Rs. 32,50,760 with Rs. 4,90,103 while computing book profit under section 115JB.

The Tribunal, upon review, upheld the CIT(A)'s decision, citing the scheme of section 115JB, which levies Minimum Alternate Tax (MAT) based on book profit disclosed in the Profit & Loss Account prepared per Companies Act provisions. The Tribunal emphasized that the adjustments specified in the Explanation to section 115JB should be the only modifications to the book profit. The Tribunal referenced the decision in *Moser Baer India Ltd. v. Dy. CIT [2007] 17 SOT 510 (Delhi)*, which supported the assessee's interpretation.

The Tribunal concluded that the amount of income credited to the Profit & Loss Account should be considered for reduction under clause (ii) of the Explanation to section 115JB(2), not the amount determined by the Assessing Officer under regular provisions. The Tribunal dismissed the department's appeal on this ground.

Conclusion:

The appeal filed by the revenue was dismissed on both grounds. The Tribunal upheld the CIT(A)'s decisions regarding the deletion of disallowance of depreciation on pre-operative expenses and the computation of book profit under section 115JB, aligning with judicial precedents and interpretations of the relevant sections of the Income-tax Act.

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