2017 (3) TMI 884 - AT - Income Tax

Appellate Authority Emphasizes Deducting Expenditure from Taxed Income

DCIT-Circle-3 (3) (2), Mumbai Versus M/s. Universal Chemical and Industries Pvt. Ltd.

DCIT-Circle-3 (3) (2), Mumbai Versus M/s. Universal Chemical and Industries Pvt. Ltd. - TMI Issues:1. Addition made by the AO amounting to Rs. 8.45 crores2. Treatment of pre-operative domestic sales derived from trial runs3. Allowance of underlying expenditure from the receipts that have been taxedAnalysis:1. The Assessing Officer (AO) made an addition of Rs. 8.45 crores to the income of the assessee, which included pre-operative domestic sale derived from trial-runs, notional income from inter-division transfer of power, and sale of scrap. The AO held that the receipts should be taxed, disregarding the underlying expenditure. The First Appellate Authority (FAA) directed the AO to allow the underlying expenditure from the taxed receipts, emphasizing that income tax is leviable on profits and gains, not gross receipts. The FAA's decision was based on the principle that expenditure incurred by the assessee must be allowed from the income taxed. The FAA's order was upheld, dismissing the AO's appeal.2. The case referred to the judgment of Bokaro Steel Ltd., where the Supreme Court held that certain receipts directly connected to construction activities were considered capital receipts and could be set off against capital expenditure. The FAA in this case directed the assessee to allow the expenditure from the taxed receipts, following the principle that all expenditure incurred must be allowed from the income taxed. The Tribunal confirmed the FAA's decision, emphasizing the importance of allowing expenditure related to income taxed by the AO.3. The Tribunal's decision highlighted the fundamental principle of taxation jurisprudence that all expenditure incurred by the assessee must be allowed from the income taxed by the AO. By following this principle, the Tribunal upheld the FAA's order and decided the effective ground of appeal against the AO. The appeal filed by the AO was dismissed, affirming the FAA's directive to allow underlying expenditure from the taxed receipts.In conclusion, the judgment focused on the treatment of income and expenditure in relation to the taxation of receipts, emphasizing the necessity of allowing expenditure incurred by the assessee from the income taxed. The decision upheld the FAA's order and dismissed the AO's appeal, underscoring the fundamental principles of taxation jurisprudence.