2013 (12) TMI 1412 - AT - Income Tax

Deletion on account of expenditure claimed towards shifting of plant and machinery Held that - The expenditure incurred was towards shifting of plant, machinery, equipments files and records, etc., to the second location at Balanagar consequent upon sale of its industrial land at Kavadiguda where these plants and machineries were earlier located - No new plant or machinery has been set up by the assessee - The Assessing Officer has not given any reason as to why he considers the expenditure as capital in nature - during the remand proceeding though the assessee has produced all evidences with regard to the expenditure incurred towards shifting, the Assessing Officer has not offered any comment why he considers the expenditure as capital in nature - the expenditure incurred was towards shifting existing plant, machinery equipments, records, etc. - The incurring of expenditure did not result in any benefit of enduring nature to the assessee Thus, the expenditure incurred is revenue expenditure and as such is allowable. Relief on account of Computation of book profit by AO u/s 115JB(2)(vii)of the Act Held that - The period for which the assessee becomes entitled for deduction under the aforesaid provision commences from the assessment year in which it becomes a sick industrial company and ends in the assessment year during which the net worth becomes equal to or exceeds the accumulated losses - for the first time the net worth has exceeded the accumulated losses during the impugned assessment year - the provision contained in clause (vii) to Explanation 1 of section 115JB is very much applicable to the assessee - the assessee is entitled to claim deduction under the provision - the AO has not correctly interpreted the provision of the Act the letter relied by AO reveals the fact that nowhere the Board has made any adverse comment with regard to the assessee s claim of deduction under clause (vii) to Explanation 1 of section 115JB(2) for the impugned assessment year Decided against Revenue.

Summary

Issues:
1. Challenge to deletion of expenditure claimed towards shifting of plant and machinery.
2. Relief granted on computation of book profit under section 115JB of the Act.

Issue 1: Challenge to deletion of expenditure claimed towards shifting of plant and machinery

The Department challenged the deletion of an addition made by the Assessing Officer on account of expenditure claimed towards shifting of plant and machinery. The Assessing Officer disallowed the claimed amount as capital expenditure, adding it to the total income. However, the Commissioner of Income-tax (Appeals) deleted the addition after considering the assessee's explanation that the expenditure was solely for relocation purposes and did not result in any enduring benefit. The Commissioner held that the shifting of existing assets was revenue expenditure and thus allowable. The Tribunal concurred with this view, noting that no new assets were added, and the expenditure did not enhance capacity or structure. The Tribunal dismissed the Revenue's ground, upholding the Commissioner's decision.

Issue 2: Relief granted on computation of book profit under section 115JB of the Act

The Assessing Officer computed profit under section 115JB of the Act as the assessee did not declare income under this section. The assessee contended that it qualified for relief under clause (vii) of Explanation 1 of section 115JB(2) due to becoming a sick company and achieving positive net worth for the first time in the relevant assessment year. The Commissioner of Income-tax (Appeals) allowed the deduction under clause (vii) after analyzing the provisions and the assessee's financial status. The Tribunal noted that the assessee had been declared a sick industrial company with negative net worth, turning positive in the relevant year. The Tribunal held that the deduction under clause (vii) was applicable to the assessee, contrary to the Assessing Officer's interpretation. The Tribunal upheld the Commissioner's decision, dismissing the Department's grounds. Consequently, the appeal filed by the Department was dismissed by the Tribunal.

This judgment from the Appellate Tribunal ITAT Hyderabad involved two main issues. Firstly, the Tribunal upheld the deletion of an addition made by the Assessing Officer regarding expenditure claimed for shifting plant and machinery, considering it as revenue expenditure. Secondly, the Tribunal affirmed the relief granted by the Commissioner of Income-tax (Appeals) on the computation of book profit under section 115JB of the Act for a company that had turned from a sick company to positive net worth. The Tribunal provided detailed reasoning for each issue, ultimately dismissing the appeal filed by the Department.