2009 (5) TMI 27 - SC - Income Tax

Whether on the facts and in the circumstances of the case, the I.T.A.T. was justified in deleting the addition of Rs.2,77,887/- being made treating the expenditure incurred in purchase of new transformer as capital expenditure even when the old transformer still exists in the blocks of asset and not sold, discarded or demolished or destroyed? - Since neither the Tribunal nor the High Court dealt with the factual aspect in detail, we remit the matter to the Assessing Officer to consider the respective stands in the background of what has been stated by this Court in Saravana 2007 TMI - 1775 and Ramaraju 2007 TMI - 2064 cases

Summary

Issues:
1. Applicability of Section 43B of the Income Tax Act, 1961.
2. Allowance of depreciation on research & development assets.
3. Treatment of expenditure in purchase of new transformer as capital expenditure.

Analysis:

Issue 1: Applicability of Section 43B of the Income Tax Act, 1961
The main contention in this case revolved around the applicability of Section 43B of the Income Tax Act, 1961. The High Court concluded that this provision was not applicable to the situation at hand. The dispute specifically focused on whether the unpaid amount of bottling fee, upon furnishing a bank guarantee, should be treated as actual payment for the purpose of deduction under Section 43B, even if the sum was not paid before the due date of filing the return under Section 139(1) of the Act. The Supreme Court referred to a previous judgment related to the assessment year 1991-92 to provide clarity on this issue for the current assessment year.

Issue 2: Allowance of Depreciation on Research & Development Assets
Another question raised was regarding the allowance of depreciation on research & development assets associated with a closed business division of the assessee-company that were not utilized during the previous year. The Supreme Court did not delve into this issue separately but indicated that the decision on this matter from the previous assessment year would be applicable for the current year as well.

Issue 3: Treatment of Expenditure in Purchase of New Transformer as Capital Expenditure
The final issue centered around the treatment of expenditure incurred in purchasing a new transformer as capital expenditure, despite the old transformer still being a part of the asset block and not disposed of. The revenue argued that the expenditure should be classified as capital expenditure based on precedents, emphasizing the actual usage of the asset. However, the assessee contended that the nature of the expenditure and transaction, rather than mere nomenclature, should determine its treatment. Citing relevant case laws, the Supreme Court remitted the matter to the Assessing Officer for detailed consideration, highlighting the need to analyze the factual aspects in light of the precedents mentioned.

In conclusion, the Supreme Court disposed of the appeal, addressing the various issues raised and providing guidance on the interpretation and application of relevant provisions of the Income Tax Act, 1961, based on previous judgments and legal principles.