2019 (7) TMI 227 - AT - Income Tax

ITAT affirms CIT(A) decisions for assessee: Technical know-how expenses, sales tax subsidy, book profits deduction upheld.

The ITAT upheld the decisions of the CIT(A) in favor of the assessee on all counts: technical know-how expenses were classified as revenue expenditure, ... Addition made on account of technical knowhow fees - nature of expenditure - revenue expenditure and not capital expenditure - HELD THAT:- As decided in assessee's own case [2019 (6) TMI 655 - ITAT CHANDIGARH] in view of the findings of the CIT(A) that identical issue stands decided in favour of the assessee in assessment year 2009-10 [2013 (10) TMI 924 - ITAT CHANDIGARH] by the I.T.A.T., which has been admitted to by the Revenue also and no distinguishing facts having been brought to our notice by the Ld. DR, the Ld.CIT(A), we hold, has rightly allowed the assessee’s appeal following the order of the I.T.A.T. in assessee’s own case for assessment year 2009-10. We therefore find no reason to interfere in the order of the Ld.CIT(A) holding the technical knowhow expenses as revenue in nature. Addition on account of sales tax subsidy - HELD THAT:- As decided in assessee's own case [2019 (6) TMI 655 - ITAT CHANDIGARH] since the issue of sales tax subsidy received by the assessee by virtue of scheme of Punjab Government has already been decided by the I.T.A.T. in the case of the assessee itself in the preceding years, holding the same to be capital in nature and with no distinguishing facts having been brought to our notice by the DR, we see no reason to interfere in the order of the Ld.CIT(A) allowing the assessee’s appeal following with order of the I.T.A.T. MAT computation - disallowance of claim of the assessee for deduction of the sales tax subsidy from the book profit under section 115JB - HELD THAT:- As decided in assessee's own case [2019 (6) TMI 655 - ITAT CHANDIGARH] we find is identical to that in H.M Steels [2018 (11) TMI 1628 - ITAT CHANDIGARH] ,with the Sales tax subsidy having been held to be capital in nature. In view of the same ,the issue we hold is squarely covered by the decision of the ITAT in the case of H.M Steels, following which we hold that the sales tax subsidy is to be reduced from the Book Profits for the purposes of paying tax u/s 115JB. - Assessee's appeal allowed. Issues Involved:1. Classification of technical know-how expenses as revenue or capital expenditure.2. Treatment of sales tax subsidy as capital or revenue receipt.3. Deduction of sales tax subsidy from book profits under section 115JB.Detailed Analysis:1. Classification of Technical Know-How Expenses:Issue: Whether the expenses on technical know-how should be classified as revenue expenditure or capital expenditure.Analysis:The assessee claimed expenses on technical know-how as revenue expenditure. The Assessing Officer (A.O.) classified these expenses as capital expenditure, arguing that the know-how was linked to substantial modernization and expansion, thus providing an enduring benefit. The CIT(A) reversed this decision, following precedents from earlier years where similar expenses were treated as revenue expenditure. The ITAT upheld the CIT(A)'s decision, noting that the issue had been consistently decided in favor of the assessee in previous years, including the assessment year 2009-10. The ITAT found no distinguishing facts to alter this conclusion and dismissed the Revenue's appeal on this ground.Key Sentences:- 'The assessee had claimed expenses on technical know-how, of Rs. 39,35,029/- as revenue expenditure in its Profit & Loss Account.'- 'The CIT(A) allowed the assessee’s appeal on finding that identical issue had been adjudicated by the CIT(A) in earlier years in favour of the assessee.'- 'We hold, has rightly allowed the assessee’s appeal following the order of the I.T.A.T. in assessee’s own case for assessment year 2009-10.'2. Treatment of Sales Tax Subsidy:Issue: Whether the sales tax subsidy should be treated as a capital receipt or a revenue receipt.Analysis:The A.O. treated the sales tax subsidy as a revenue receipt, citing a decision by the Hon'ble Delhi High Court. However, the CIT(A) treated it as a capital receipt, referencing previous ITAT decisions in the assessee's favor. The ITAT upheld the CIT(A)'s decision, noting that the issue had been consistently decided in favor of the assessee in earlier years, including assessment year 2008-09. The ITAT found no new facts to distinguish the current case from previous rulings and dismissed the Revenue's appeal on this ground.Key Sentences:- 'The assessee had reduced its taxable profits by claiming a deduction of Rs. 1,84,45,151/- on account of notional sales tax liability arising out of such subsidy, by treating the same as capital receipt instead of revenue receipt.'- 'The Ld.CIT(A) after going through the order of the I.T.A.T. in the case of the assessee... found that the issue of sales tax subsidy had been decided by the I.T.A.T. in favour of the assessee holding the same to be capital in nature.'- 'We see no reason to interfere in the order of the Ld.CIT(A) allowing the assessee’s appeal following with order of the I.T.A.T.'3. Deduction of Sales Tax Subsidy from Book Profits under Section 115JB:Issue: Whether the sales tax subsidy should be deducted from book profits under section 115JB of the Income Tax Act.Analysis:The CIT(A) did not allow the deduction of sales tax subsidy from book profits under section 115JB, citing that for the purpose of section 115JB, the assessee could not go beyond the net profits shown in its books of account. The ITAT, however, found that this issue had been decided in favor of the assessee in previous cases, including a recent decision in the case of H.M. Steels Ltd. The ITAT held that sales tax subsidy, being capital in nature, should be excluded from book profits for the purpose of section 115JB.Key Sentences:- 'The Ld.CIT(A) held that for the purpose of section 115JB of the Act the assessee could not go beyond the net profits shown in its books of account.'- 'The issue to be adjudicated is whether sales tax subsidy is to be reduced while computing the Book Profits for the purposes of levying Minimum Alternate Tax (MAT) as per the provisions of section 115JB of the Act.'- 'We hold that the sales tax subsidy is to be reduced from the Book Profits for the purposes of paying tax u/s 115JB of the Act.'Conclusion:The ITAT dismissed the Revenue's appeal and allowed the assessee's appeal, holding that:1. Technical know-how expenses are to be treated as revenue expenditure.2. Sales tax subsidy is to be treated as a capital receipt.3. Sales tax subsidy should be deducted from book profits under section 115JB.