2005 (2) TMI 764 - AT - Income Tax

Issues Involved:
1. Disallowance on revaluation of tools.
2. Filing fee for increasing authorized capital as revenue expenditure.
3. Disallowance of motor car maintenance.
4. Exclusion of receipt of sale proceeds of scrap in total turnover for section 80HHC relief.
5. Exclusion of income from sale of securities for section 80HHC relief.
6. Expenditure for repairing machinery as capital or revenue.
7. Replacement of machinery as capital or revenue.
8. Exclusion of excise duty and sales tax from total turnover for section 80HHC relief.
9. Inclusion of processing charges in total turnover for section 80HHC relief.
10. Treatment of insurance compensation received for damaged machinery.

Detailed Analysis:

1. Disallowance on Revaluation of Tools:
The issue was regarding the disallowance of Rs. 20,983 on revaluation of tools. Both parties agreed that this issue had been previously settled by the Tribunal for the Assessment Years 1991-92 and 1992-93 in favor of the assessee, following the judgment of the Kerala High Court in CAIT v. Midland Rubber & Produce Co. Ltd. [1990] 182 ITR 493. The Tribunal upheld the claim of the assessee and directed the Assessing Officer to delete the addition.

2. Filing Fee for Increasing Authorized Capital as Revenue Expenditure:
The assessee claimed the filing fee paid to the Registrar of Companies for increasing authorized capital as revenue expenditure. Both parties conceded that the Supreme Court in Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798 had settled this issue. The Tribunal upheld the CIT(A)'s order, rejecting the assessee's ground of appeal.

3. Disallowance of Motor Car Maintenance:
The issue concerned the disallowance of motor car maintenance to the extent of 7.5%. Both parties agreed that this issue had been previously addressed by the Tribunal for the Assessment Year 1991-92, where it was found that no disallowance could be made in the hands of the company. The Tribunal upheld the claim of the assessee and allowed this ground of appeal.

4. Exclusion of Receipt of Sale Proceeds of Scrap in Total Turnover for Section 80HHC Relief:
The assessee argued that the sale proceeds of scrap generated during the manufacturing process should not be included in the total turnover for computing relief under section 80HHC. The Tribunal, however, held that since the scrap was generated during the manufacturing process and was related to the export activity, it should be included in the total turnover. The Tribunal confirmed the lower authority's order.

5. Exclusion of Income from Sale of Securities for Section 80HHC Relief:
The assessee contended that the profit from trading in securities should be included in the business profit for section 80HHC relief. The Tribunal, after considering the provisions of section 80HHC and the judgment of the Supreme Court in IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521, held that the profit from securities trading could not be included in the profit of the business for section 80HHC purposes. The Tribunal directed the Assessing Officer to recompute the total turnover by excluding the transaction arising out of securities.

6. Expenditure for Repairing Machinery as Capital or Revenue:
The Department argued that the replacement of certain machinery parts should be treated as capital expenditure. The Tribunal found that the replaced parts were necessary to keep the textile mills operational and did not increase the production capacity. Therefore, the expenditure was rightly treated as revenue in nature by the first Appellate authority.

7. Replacement of Machinery as Capital or Revenue:
The issue was whether the cost of replacing machinery in the textile mills should be treated as capital expenditure. The Tribunal held that since the replacement did not increase the production capacity and was necessary to maintain the mills' operational condition, the expenditure was revenue in nature. The Tribunal upheld the first Appellate authority's order.

8. Exclusion of Excise Duty and Sales Tax from Total Turnover for Section 80HHC Relief:
Both parties agreed that excise duty and sales tax should be excluded from the total turnover for section 80HHC purposes, following the Madras High Court's decision in CIT v. Madras Motors Ltd. [2002] 257 ITR 60. The Tribunal confirmed the lower authority's order.

9. Inclusion of Processing Charges in Total Turnover for Section 80HHC Relief:
The issue was whether processing charges should be included in the total turnover for section 80HHC purposes. The Tribunal, following the Bombay High Court's decision in CIT v. Bangalore Clothing Co. [2003] 260 ITR 371, held that processing charges related to the manufacturing activity should be included in the total turnover. The Tribunal confirmed the lower authority's order.

10. Treatment of Insurance Compensation Received for Damaged Machinery:
The assessee received insurance compensation for machinery damaged in a fire. The Tribunal, following the Supreme Court's judgment in CIT v. Sirpur Paper Mills Ltd. [1978] 112 ITR 776, held that the compensation received for waiving the reinstatement of the damaged machinery was capital in nature. The Tribunal confirmed the first Appellate authority's order.

Conclusion:
The Tribunal partly allowed the assessee's appeal (I.T.A. No. 2704(Mds)/96) and dismissed the Department's appeal (I.T.A. No. 51(Mds)/97).

← Previous Next →