2011 (2) TMI 330 - HC - Income Tax

Deduction u/s 80IB - Revenue cannot be permitted to raise an issue in isolation in one year while accepting the finding on the same issue in assessee s own case of an earlier year - the appellant s contention that there is no reason to change the method of accounting regularly followed by it in writing off 80 per cent of tools and dies purchased every year - No new facts have been emerged this year which can justify the change in revenue s stand - That being the case, even if the tool/die is used for a few days, its value will reduce to the scrap value of the products As regards designing and consultancy charges on tools and dies being treated as revenue expenses, the Assessing Officer held that the said expenditure was required to be capitalized - The CIT (Appeals),correctly inferred that the consultancy charges is a revenue expenditure incurred in the course of carrying on the business and the same does not loss its revenue character merely because it is incurred in relation to tools/dies The Assessing Officer held that for earning dividend income, the assessee must be presumed to have incurred some expenditure which had been disallowed under section 14A - In this regard, the facts are that the assessee had earned income by way of interest on UTI Bonds and dividend of Rs. 54,000 and Rs. 9,30,8912 respectively, which was exempted from tax - There cannot be a presumption that certain expenditure is bound to be incurred for earning the exempt income - Quite clearly, the Assessing Officer had only made a presumption that certain expenditures have been incurred for earning the impugned exempt incomes Amount spent on consultancy on tools and dies are obviously revenue expenditure as expenditure on tools and dies itself could not be treated as capital expenditure - On the issue of disallowance under section 14A presumptive expenditure in absence of actual expenditure could not be taken into account - Both the appeals are dismissed

Issues Involved:
1. Deduction under section 80-IB on labor job receipts.
2. Deduction under section 80-IB on miscellaneous income.
3. Depreciation on assets not owned by the assessee.
4. Depreciation rate on electrical installations.
5. Exemption of dividend income not claimed in the return.
6. Writing off the cost of tools and dies.
7. Treatment of designing and consultancy charges as revenue or capital expenditure.
8. Disallowance under section 14A for presumed expenditure on exempt income.

Issue-wise Detailed Analysis:

1. Deduction under section 80-IB on labor job receipts:
The Tribunal affirmed the CIT(A)'s finding that job work income was earned by the assessee through manufacturing activities for outside parties, similar to those for its own products. This income was considered derived from eligible business under section 80-IB. The Tribunal referenced the Delhi High Court's decision in Northern Aromatics Ltd. and the Madras High Court's decision in CIT v. Taj Fire Works Industries, supporting the eligibility of such income for deduction.

2. Deduction under section 80-IB on miscellaneous income:
The CIT(A) held that miscellaneous receipts, rebate, discount, and balances written off were derived from the industrial undertaking, thus qualifying for deduction under section 80-IB. The Tribunal upheld this view due to the absence of adverse material and the smallness of the dispute.

3. Depreciation on assets not owned by the assessee:
The Tribunal upheld the CIT(A)'s decision allowing depreciation on air conditioners purchased in the name of the Managing Director and his wife, as they were acquired with the assessee's funds and used for business purposes. The beneficial owner was the assessee, not the individuals.

4. Depreciation rate on electrical installations:
The Tribunal confirmed the CIT(A)'s decision to allow depreciation at 25% on electrical installations, treating them as part of plant and machinery. This was consistent with the treatment in the previous assessment year.

5. Exemption of dividend income not claimed in the return:
The Tribunal found that the CIT(A) was correct in allowing the exemption under section 10(35) despite it not being claimed in the return. The Supreme Court's decision in Goetze (India) Ltd. v. CIT did not apply to statutory exemptions. The jurisdictional High Court's decision in CIT v. Rewari Central Cooperative Bank Ltd. supported this view.

6. Writing off the cost of tools and dies:
The Tribunal upheld the CIT(A)'s decision allowing the assessee to write off 80% of the cost of tools and dies, consistent with the method followed in previous years. Tools and dies lost resale value once used, justifying the write-off.

7. Treatment of designing and consultancy charges as revenue or capital expenditure:
The Tribunal agreed with the CIT(A) that designing and consultancy charges related to tools and dies were revenue expenditures. These expenses were incurred in the course of business and did not lose their revenue character.

8. Disallowance under section 14A for presumed expenditure on exempt income:
The Tribunal upheld the CIT(A)'s decision that disallowance under section 14A was not justified without evidence of actual expenditure incurred to earn exempt income. The jurisdictional High Court's decision in Hero Cycles Ltd. supported this view, rejecting presumptive expenditure.

Conclusion:
The High Court dismissed both appeals, finding no substantial questions of law. The Tribunal's decisions were consistent with earlier judgments and the principles of consistency, affirming the CIT(A)'s findings on all issues.

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