TaxTMI 
TaxTMI 
2008 (2) TMI 656
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....ished along with the return of income. 3. The assessee filed original return of income declaring 'Nil' income. As income of Rs. 24.30 crores being the book profit was offered for taxation under section 115JB of the Income-tax Act. Later on a revised return was filed on 21-11-2003 wherein income computed under section 115JB was revised by showing book profit of Rs. 15.69 crores. In the revised return the claim of deduction under section 80-IA pertaining to Chloromethane Division was withdrawn. 4. The first ground of appeal relates to the deletion of disallowance of depreciation of Rs. 2,21,878 in respect of assets of SRF International Division. The Assessing Officer noted that there was business activity in this division during the year. The Assessing Officer therefore, disallowed the depreciation on the assets of said division on the ground that assets had not been put to use during the year. Before the learned CIT(A) it was submitted that the assets in question were acquired six years back and were regularly used in the business. Though during the year there was of business in this division, the depreciation is allowable on the basis of 'block of assets' in respect of each i....
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.... v. CIT [1980] 123 ITR 404, even if the assets were not actually used if the assets were kept ready for use by the owner in his business, will entitle the assessee to claim depreciation. 7. We have considered rival submissions. Under section 32(1) depreciation on certain assets owned and used for the purpose of business is allowable and the same is allowable at the prescribed percentage on the written down value of block of assets, which comprises various assets entitled to same rate of depreciation. Thus, the ownership and user both are the criteria for claim of depreciation. However, the user criteria is to be fulfilled at the time when the asset is to form part of block of assets. Once the assets are part of block of assets, it looses its individual cost or written down value. In a way it looses its identity. Thereafter the depreciation is allowable on the entire block of assets. In the present case, it is seen that the assets of international division is not a separate block of assets. The block of assets of the entire assets of all the divisions form block of assets. Even these were ready for use though not used actually. Accordingly, applying the ratio laid down by the Hon....
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.... claim before the Assessing Officer was always that though the same is capital expenditure, the appropriate rate is 100 per cent as applicable to temporary structure. Since items are not in the nature of temporary structure but are of the nature of furniture and fixture, which is entitled to depreciation @ 10 per cent only, the action of the Assessing Officer is to be upheld. For making an alternative claim as revenue expenditure, the assessee has not filed revised return and hence, claim was not examined from such angle. Thus, the learned CIT(A) was in error in holding that the expenditure was revenue nature. He accordingly pleaded that on the basis of available facts the finding should be as to whether the assessee is entitled to 100 per cent depreciation on such items. 11. The learned counsel for the assessee on the other hand, supported the appellate order. He submitted that he is entitled to raise additional ground before the learned CIT(A) and there is no bar for the same. The decision of Hon'ble Supreme Court in the case of Goetze (India) (P.) Ltd. v. CIT [2006] 284 ITR 323 is not applicable to the facts of the present case as the claim was made before the learned CIT(A) ....
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.... went to enhance the capacity of its personnel, however, the advantage derived from the training of its employees would last only till the employee continued in service or till technological advances rendered further training necessary. Training of personnel is a continuous process and incurring of expenditure thereon is necessary for keeping the employees abreast with the latest technology. No new asset is brought into existence. Therefore, the disallowance is to be deleted. 15. The learned DR sought to rely upon finding of the Assessing Officer whereas the learned counsel for the assessee relied upon observations of the learned CIT(A). Shri Vohra also relied upon the decision of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 and that of Hon'ble Calcutta High Court in the case of CIT v. Berger Paints (India) Ltd. (No. 2) [2002] 254 ITR 503 . 16. We have considered the rival submissions. Under the scheme of Income-tax Act, the expenditure can either a capital expenditure or revenue expenditure. Deferred revenue expenditure is not recognized under the Income-tax Act. The training of personnel does not bring into existence any capital as....
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....it as per provisions of section 115JB, the assessee did not add back an amount of Rs. 77,82,41,111 pertaining to provision of deferred tax liability. The assessee contended that the same do not fall in clause (a) of Explanation to second proviso to section 115JB(2), read with section 2(43) of the Act. The Assessing Officer held that deferred tax liability is a provision for income-tax payable in future, it falls within the meaning of Explanation (a) which mandates accretion of the net profit by the amount of income-tax paid or payable and the provision thereof for determining the book profits under section 115JB. He accordingly added the sum while computing book profit. 21. The learned CIT(A) held that under clause (a) of Explanation to section 115JB of the Act what can be added is 'the amount of income-tax paid or payable, and the provision therefor'. The provision of Accounting Standard-22 relate to accounting treatment for taxes on income. Matching of taxes against revenue for a period was a special requirement. Since there is difference between income as per profit & loss account and income computed under the provision of Income-tax Act, due to various factors like depreciat....
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....ccounting Standard-22 mandates to provide for deferred tax liability. In certain circumstances even the deferred tax asset may also be created. Thus, the provision either for deferred tax liability or for deferred tax asset is ultimately neutral and neither creates a liability nor creates an asset but only to reflect the true picture of the taxes in respect of income of the current year, the provision is being made. Such taxes are neither payable nor refundable. Accordingly, the same does not fall under 'Income-tax paid or payable and the provision therefor' as contained in clause (a) of Explanation to section 115JB. He accordingly pleaded that the order of the learned CIT(A) may be upheld. 24. We have considered the rival submission. The Explanation to section 115JB prescribes as under :- "Explanation.-For the purposes of this section, 'book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- (a)the amount of income-tax paid or payable, and the provision therefor; or (b )the amounts carried to any reserves, by whatever name called [other than a reserve specified under secti....
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....een taxable income and accounting income arises due to :- (a )there are differences between items of revenue and expenses as appearing in the statement of profit and loss and the items which are considered as revenue, expenses or deductions for tax purposes; (b )there are differences between the amount in respect of particular item of revenue or expense as recognized in the statement of profit and loss and the corresponding amount which is recognised for the computation of taxable income." In Accounting Standard-22 the following terms are defined :- "Deferred tax is the tax effect of timing differences.-Timing differences are the differences between taxable income and accounting income for a period that originate in one period and are capable of reversal in one or more subsequent periods. The Timing Differences arise for various reasons such as- (i )Expenses debited in the statement of profit and loss for accounting purposes but allowed for tax purposes in subsequent year, e.g. (a )Expenditure of the nature mentioned in section 43B ( e.g., taxes, duty, cess, fees, etc.) accrued in the statement of profit and loss on mercantile basis but allowed for tax purposes....
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....B the book profit is to be computed for the year. Impliedly if the amount of tax payable is for the year, the same needs to be added while computing the book profit. However, the deferred tax liability is neither the tax paid nor payable for the year. It is accounted only to iron out the difference which arise due to different treatment given to various items of income and expense in the Companies Act and under the Income-tax Act e.g., if the amount is provided in the accounts as deferred revenue expenditure but under the Income-tax Act whole of the expenditure is claimed and allowed, the liability of tax payable for the year will be less. Conversely even if some deferred revenue expenditure are provided in subsequent years, the assessee does not get deduction thereof in subsequent years. In a way even though no expenses are accounted for in the profit & loss account, due to income-tax laws, the assessee is required to pay lesser tax on higher income declared. To that extent, tax payable for the year will be lesser but in fact when it comes to subsequent years, though the expenses are booked in the profit and loss account, the same are not tax deductible and the assessee is require....
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.... tax for the period. The Panaji Bench of Tribunal in the case of Salgaokar Mining India (P.) Ltd. v. Joint CIT [2006] 287 ITR 197/102 ITD289 had also held that interest on income-tax and income-tax paid/payable are to be treated separately as they are separate and distinct from each other. Likewise deferred tax charge cannot be kept at par with income-tax paid/payable as both are quite different. That apart, the objective behind enacting AS-22 by the ICAI as deferred tax charge was meant to remove the difference between taxable income and accounting income arising due to difference between items of revenue and expenses as appearing in the statement of profit and loss account and the items which are considered as revenue expenses or deductions for tax purposes or there is differences between the amount in respect of a particular item of revenue or expense as recognized in the statement of profit and loss and the corresponding amount, which is recognized for the computation of taxable income. Therefore, the deferred tax charge could not be termed as income-tax paid or payable, which had to be paid out of the profit earned by the assessee for the year under consideration and, therefor....
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....s scientifically made and globally accepted, the same could not be considered as an unascertained liability within the meaning of Explanation (c) to section 115JB(2). Moreover, such calculation of deferred tax charge by the assessee had not been disputed by the revenue and such calculation of deferred tax liability had also been accepted as reasonably ascertained by the revenue which arguing the case. Therefore, the third limb of objection raised by the revenue was also devoid of any merit. Further, any withdrawal from the provision for deferred tax liability would be offered for tax in accordance with the proviso of Explanation (i) to section 115JB. Hence the revenue would not be worse off (except the timing difference) if the deferred tax charge is not added back to arrive at the book profit. In case a deferred tax asset is created by crediting the profit and loss account, it would be considered as part of book profit and it would result in absurdity if provision for deferred tax liability (which is debited to the profit and loss account) is also added back to arrive at the book profit. Therefore, deferred tax charge is not covered by any of the clauses of the Explanation t....