2015 (6) TMI 446 - AT - Income Tax

Disallowance of the deduction under section 10B by not allowing the assessee to reduce the expenditure on account of repairs and maintenance which was already debited to the profit and loss account - CIT(A) has allowed the claim of the assessee by accepting the explanation of the assessee that the said amount was not reduced from the profits of the A.Y. 2007-08 and accordingly in the year under consideration it was a rectification - Held that - An error was committed by the assessee in the books of accounts relevant to the A.Y. 2007-08 by debiting the capital expenditure to the profit & loss account. However, the assessee offered correct income to tax for A.Y. 2007-08. For the year under consideration the assessee has carried out the necessary entries to rectify the said mistake occurred in the financial year 2006-07 by crediting the said amount of ₹ 1,26,46,787/- to the respective expenditures ledger accounts and correspondingly debiting the fixed capital account. Thus, as a result of the said rectification adjustment made in the books of accounts for the year under consideration the profit of the assessee was increased by the said amount in comparison to the real profit of the year. Therefore, the assessee in computation of income for the assessment year under consideration has deducted the said amount to bring the income at the correct amount. We find that if the income for the year under consideration is not correctly computed in the statement of income it would have resulted in double taxation because the assessee has already added back a sum of ₹ 1,26,46,787/- in the profit & loss account in order to rectify the mistake occurred in the accounts in the earlier year. In view of the above facts and circumstances of the case, we do not find any error or illegality in the impugned order of the Ld. CIT(A) qua this issue. - Decided against revenue.

Summary

Issues:
1. Restriction of claim of resolution under section 10B by setting off loss of non-eligible undertaking against profits of eligible undertaking.
2. Disallowance of deduction under section 10B due to not allowing reduction of expenditure on repairs and maintenance.

Issue 1 - Restriction of Claim under Section 10B:
The appeal by the Revenue challenged the order of the CIT(A) for the assessment year 2008-09. The main contention was the setting off of the loss of a non-eligible undertaking against the profits of an eligible undertaking before allowing exemption under section 10B of the Income Tax Act. The ITAT Mumbai, comprising R C Sharma, AM, and Vijay Pal Rao, JM, JJ, noted that this issue had been previously decided in favor of the assessee by the Tribunal and the Hon'ble Bombay High Court in earlier years. The Tribunal upheld the CIT(A)'s order directing the AO to allow deduction under section 10B before setting off brought forward business losses, citing judicial precedents. The Tribunal found no error or illegality in the CIT(A)'s decision based on previous rulings and dismissed the Revenue's appeal.

Issue 2 - Disallowance of Deduction for Repairs and Maintenance:
The second ground of appeal concerned disallowance of the deduction under section 10B due to the AO's refusal to reduce the expenditure on repairs and maintenance that had been debited to the profit and loss account. The assessee explained that a capital expenditure from the previous year was mistakenly considered as revenue in nature in the accounts for the year ending 31.03.07. The mistake was rectified in the subsequent year's accounts, and the expenditure was reduced while computing the income for the year under consideration. The CIT(A) accepted the assessee's explanation, leading to the disallowed deduction being allowed. The ITAT, after considering the arguments from both sides, found that the assessee rectified the error in the books of accounts for the relevant year and adjusted the income appropriately for the assessment year under consideration. The Tribunal concluded that failing to correct the income computation would result in double taxation, as the amount had already been adjusted in the profit and loss account. Therefore, the ITAT upheld the CIT(A)'s decision on this issue and dismissed the Revenue's appeal.

In conclusion, the ITAT Mumbai upheld the CIT(A)'s decision on both issues, ruling in favor of the assessee and dismissing the Revenue's appeal in its entirety.