2011 (10) TMI 25 - HC - Income Tax

Current repairs u/s 31- repair of damaged transformer - Held that - The fact that the transformer existed; that it got damaged and that it was repaired is not in dispute. The department has not pointed out that the assessee was not using old transformers but had fixed a new 40 MVA Transformer. ITAT has found that it was because of extensive repairs consequent to severe damage to an existing business asset. It therefore concluded that it was case of restoration of its existing capabilities and not a case of acquisition of new asset or obtaining any advantage of enduring nature which is certainly a different aspect than mere repairs/restoration of capacity. - No substantial question of law arisen - decided in favor of assessee. Computation of MAT (Minimum Alternate Tax) - Deduction u/s 80HHC - Decision of Apex court in Ajanta Pharma Ltd. vrs. Commissioner of Income Tax (2010 -TMI - 77381 - SUPREME COURT) - Held that - Book profits are to be computed by making deductions as prescribed in clause a to f of explanation appearing in subsection 2 and by reducing the income as per various heads as stipulated in clause (i) to (iii) thereof. The provisions of Section 80 HHC are held to operate in different sphere. The Hon ble Apex Court has noted essential conditions for invoking Section 80 HHC (1) and found that same were conditions of eligibility. Section 80 HHC (3) deals with computation of tax incentive. Section 115 JB vide clause (iv) exclude eligible profits derived from exports. It is also noted that computation of book profits under section 115 JB is different from normal computation under 1961 Act/computation under Chapter VIA. - Decided in favor of assessee.

Summary

Issues Involved:
1. Admissibility of deduction under Section 80 HHC for assessment years 2002-03, 2003-04, and 2004-05.
2. Nature of expenditure on repairs of transformers for the assessment year 2004-05.
3. Reduction under Section 115 JB(IV) for the absence of eligible profit.

Analysis:

Admissibility of Deduction under Section 80 HHC:
The Appeals filed by the Department under Section 260A of the Income Tax Act challenged the common order delivered by the ITAT, Nagpur, regarding the admissibility of deduction under Section 80 HHC for the same assessee for the assessment years 2002-03, 2003-04, and 2004-05. The Department contended that the expenses on repairs of a transformer were of a capital nature, while the Counsel for the respondent argued that the nature of expenditure had already been accepted by two authorities. The Court noted that the expenditure claimed was for repairs of a damaged transformer to keep operations running, and after considering the facts, it was concluded that it was a case of restoration of existing capabilities and not acquisition of a new asset. The Court emphasized that these findings were factual and dismissed the appeals.

Nature of Expenditure on Repairs of Transformers:
The specific issue of the nature of expenditure on repairs of transformers for the assessment year 2004-05 was also addressed. The Department argued that the high expenses indicated a capital expenditure, while the respondent's Counsel pointed out that the expenditure was necessary due to severe damage to an existing business asset. The Court found that the repairs were extensive and aimed at restoring existing capabilities, not acquiring new assets. The Court upheld the findings of the ITAT as factual and dismissed the appeals.

Reduction under Section 115 JB(IV):
Regarding the reduction under Section 115 JB(IV) due to the absence of eligible profit, the Department argued that as there were no eligible profits, the deduction under Section 80 HHC could not be computed. The respondent's Counsel relied on a judgment of the Hon'ble Apex Court to support their position. The Court analyzed the provisions of Section 115 JB and Section 80 HHC, noting that the conditions for invoking Section 80 HHC were eligibility conditions and not related to the deductibility of profits. The Court clarified the computation of book profits under Section 115 JB and upheld the judgment of the Hon'ble Apex Court in a similar case. The Court found no substantial questions of law in this regard and dismissed the appeals.

In conclusion, the High Court dismissed all three appeals, emphasizing the factual nature of the findings and the lack of substantial legal questions in the matters presented before the Court.