2019 (9) TMI 623 - AT - Income Tax

Tribunal partially overturns CIT's revision order on depreciation, 145A adjustment, and 35(1)(iv) deduction.

Navin Fluorine International Limited Versus The Commissioner of Income Tax-7, Mumbai

The Tribunal partly allowed the appeal by reversing the CIT's revision order on the issues of depreciation on impaired fixed assets, adjustment under ... Adjustment u/s 145A - assessee company has claimed deduction on account of adjustment made to the value of the closing stock in the earlier years and has been allowed as deduction - HELD THAT:- Assessee is following the method of accounting consistently and even in AY 2007-08 and 2008-09 assessing officer accept the contentions of the assessee and no adjustment was made u/s 145 A while assessing the income under section 143(3) of the Act. Similarly, in AY 2009-10, the AO do not accept the contention of the assessee and adjustment was made u/s 144 while assessing the income under section 143(3) of the Act. Based on the working of assessment years 2007-09 and 2008-09, the income was reduced by a sum of ₹ 1,32,86,625/-. Adjustment carried out u/s 145A of the Act in assessing the income for AY 2009-10 is in according with the consistency followed by income tax department and not by the assessee. Hence, we are of the view that the direction of revision by CIT is without any basis on merits. The assessee has full proof case. On this issue, we allow the claim of the assessee. Allowability of capital expenditure - assets acquired but not put to use during the year ended 31.03.2009 claimed under section 35(1)(vi) read with section 35(2) - HELD THAT:- For the purpose of availing deduction of capital expenditure u/s. 35(1)(iv) of the Act, an assessee has to incur expenditure of capital in nature on scientific research relating to its business. The language employed in Section 35 of the Act, nowhere provides for the purpose of allowability of capital expenditure u/s. 35(1)(iv) of the Act that the assessee has to use the asset for research and development purposes during the relevant previous year in which such expenditure is incurred. The assessee becomes entitled to deduction even if the asset in question is not actually used, provided it has incurred capital expenditure during the previous year on scientific research. For the purpose of claiming deduction of capital expenditure u/s. 35(1)(iv) read with Section 35(2) of the Act, what is necessary is incurrence of expenditure, which the assessee company has incurred and not the user of the asset during the previous year in which such expenditure is incurred. Further, the eligible year of claiming deduction is the year of incurrence of such expenditure. It will be observed that as per Section 35(I)(iv) read with Section 35(2) of the Act, deduction for capital expenditure incurred is allowable. Central Board of Direct Taxes vide their Circular No. 5-P (LXXVI63) of 1967 also endorses the above proposition Even, the circular issued by the Central Board of Direct Taxes are legally binding on the Revenue authorities as held by the Hon. Supreme Court in the case of UCO Bank Vs. CIT [1999 (5) TMI 3 - SUPREME COURT] . Hence, we are of the view that this issue is allowable on merits and we accordingly, reverse the revision order of CIT on this issue. We reverse the revision order passed by CIT under section 263 of the Act but sustain the order on the issue of MAT Credit. Issues Involved:1. Validity of the revision order under section 263 of the Income-tax Act, 1961.2. MAT credit allowance.3. Depreciation claim on impaired fixed assets.4. Adjustment under section 145A of the Act.5. Deduction of capital expenditure under section 35(1)(iv) read with section 35(2) of the Act.Issue-wise Detailed Analysis:1. Validity of the Revision Order under Section 263:The primary issue in this appeal is the challenge against the revision order passed by the Commissioner of Income Tax (CIT) under section 263 of the Income-tax Act, 1961. The assessee contended that the assessment order passed under section 143(3) dated 29-12-2011 was not erroneous and prejudicial to the interest of the revenue, and thus, the CIT's revision order dated 24-01-2014 should be quashed.2. MAT Credit Allowance:The CIT's revision order contended that MAT credit of Rs. 19,88,06,245/- was allowed without proper enquiry, as there was no MAT credit remaining to be carried forward from the earlier assessment year. The assessee's counsel agreed that this issue was against the assessee, thereby conceding that the revision was within the framework of law regarding MAT credit.3. Depreciation Claim on Impaired Fixed Assets:The CIT's revision order questioned the allowance of depreciation on fixed assets transferred to the 'Impairment of Fixed Assets Account.' The assessee argued that once an asset is part of the block of assets, depreciation cannot be denied on the ground that one of the assets is not used in the year under consideration. Citing the Delhi High Court's decision in CIT Vs. Yamaha Motor India Pvt. Ltd. (2010) 328 ITR 297, it was argued that the user of assets should be considered for the block as a whole rather than individual assets. The Tribunal agreed with the assessee, noting that the assets forming part of the block of assets were used for business purposes in the earlier years, and thus, depreciation should be allowed. The revision order on this issue was quashed.4. Adjustment under Section 145A of the Act:The CIT's revision order contended that the deduction of Rs. 1,32,86,625/- on account of adjustment to the value of the closing stock was not properly examined by the Assessing Officer (AO). The assessee argued that the adjustment was made by the AO himself based on the method followed in previous assessment years (2007-08 and 2008-09). The Tribunal found that the assessee consistently followed the method of accounting, and the adjustment carried out under section 145A was in line with the directions of the Income Tax Department. Therefore, the Tribunal allowed the assessee's claim and reversed the CIT's revision order on this issue.5. Deduction of Capital Expenditure under Section 35(1)(iv) read with Section 35(2) of the Act:The CIT's revision order questioned the allowability of capital expenditure on scientific research for assets not put to use during the year ended 31.03.2009. The assessee contended that under section 35(1)(iv) read with section 35(2), the deduction is allowable for the year in which the expenditure is incurred, regardless of whether the asset is used in that year. The Tribunal agreed, noting that the language of the statute does not require the asset to be used in the year of expenditure for the deduction to be allowed. The Tribunal also referenced the Central Board of Direct Taxes (CBDT) Circular No. 5-P (LXXVI63) of 1967, which supports this interpretation. Consequently, the Tribunal reversed the CIT's revision order on this issue.Conclusion:The Tribunal partly allowed the appeal of the assessee by reversing the CIT's revision order on the issues of depreciation on impaired fixed assets, adjustment under section 145A, and deduction of capital expenditure under section 35(1)(iv). However, the Tribunal sustained the CIT's order regarding the MAT credit issue. The appeal was thus partly allowed.