2013 (12) TMI 1412 - AT - Income Tax

Tribunal validates revenue expenditure, affirms relief on book profit computation

Assistant Commissioner of Income-tax Versus Praga Tools Ltd.

Assistant Commissioner of Income-tax Versus Praga Tools Ltd. - [2013] 23 ITR 622 Issues:1. Challenge to deletion of expenditure claimed towards shifting of plant and machinery.2. Relief granted on computation of book profit under section 115JB of the Act.Issue 1: Challenge to deletion of expenditure claimed towards shifting of plant and machineryThe Department challenged the deletion of an addition made by the Assessing Officer on account of expenditure claimed towards shifting of plant and machinery. The Assessing Officer disallowed the claimed amount as capital expenditure, adding it to the total income. However, the Commissioner of Income-tax (Appeals) deleted the addition after considering the assessee's explanation that the expenditure was solely for relocation purposes and did not result in any enduring benefit. The Commissioner held that the shifting of existing assets was revenue expenditure and thus allowable. The Tribunal concurred with this view, noting that no new assets were added, and the expenditure did not enhance capacity or structure. The Tribunal dismissed the Revenue's ground, upholding the Commissioner's decision.Issue 2: Relief granted on computation of book profit under section 115JB of the ActThe Assessing Officer computed profit under section 115JB of the Act as the assessee did not declare income under this section. The assessee contended that it qualified for relief under clause (vii) of Explanation 1 of section 115JB(2) due to becoming a sick company and achieving positive net worth for the first time in the relevant assessment year. The Commissioner of Income-tax (Appeals) allowed the deduction under clause (vii) after analyzing the provisions and the assessee's financial status. The Tribunal noted that the assessee had been declared a sick industrial company with negative net worth, turning positive in the relevant year. The Tribunal held that the deduction under clause (vii) was applicable to the assessee, contrary to the Assessing Officer's interpretation. The Tribunal upheld the Commissioner's decision, dismissing the Department's grounds. Consequently, the appeal filed by the Department was dismissed by the Tribunal.This judgment from the Appellate Tribunal ITAT Hyderabad involved two main issues. Firstly, the Tribunal upheld the deletion of an addition made by the Assessing Officer regarding expenditure claimed for shifting plant and machinery, considering it as revenue expenditure. Secondly, the Tribunal affirmed the relief granted by the Commissioner of Income-tax (Appeals) on the computation of book profit under section 115JB of the Act for a company that had turned from a sick company to positive net worth. The Tribunal provided detailed reasoning for each issue, ultimately dismissing the appeal filed by the Department.