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2023 (7) TMI 1147 - AT - Income TaxNature of expenditure - replacement of Membrane Cells - revenue or capital expenditure - HELD THAT - We unhesistantingly hold that the ld.CIT(A) has grossly and unjustly erred in confirming the order for treating the expenses incurred of replacement of Membrane Cell as capital in nature despite the assessee demonstrating before him that the issue had been decided in its favour by various judicial authorities in the preceding years. MAT u/s 115JB - addition on account of Prior Period Expenses under the provision of Section 115JB - Whether the said liability was crystallized and quantified during the year? - HELD THAT - If the impugned expenses do not qualify as prior period expenses, we fail to understand how the same could be eligible for adjustment to the book profits of the assessee as being in the nature of prior period expenses. The findings of the ld.CIT(A) holding the impugned expenses to be not in the nature of prior period expenses, but confirming the adjustment made to the book profits of the assessee as being in the nature of prior period expenses, is nothing but contrary findings. Once the ld.CIT(A) has appreciated the nature of the expenses, categorized by the assessee as prior period expenses, to be not so and categorically held so, the expenses clearly as per the findings of the Ld.CIT(A) do not qualify as prior period expenses. Therefore, there is no question for making any adjustment of the same to the book profits of the assessee by treating them as period expenses.
Issues involved:
The judgment involves two main issues: 1. Treatment of expenditure incurred on replacement of Membrane Cells as revenue or capital in nature. 2. Adjustment of prior period expenses in the computation of book profits under Section 115JB of the Income Tax Act. Issue 1: Treatment of Expenditure on Membrane Cells: The appeal by the Assessee challenges the disallowance of Rs. 2,28,91,059 for replacement of Membrane Cells, treated as capital expenditure. The Assessee argued that the replacement was part of ordinary business and should be considered revenue expenditure. The Assessee relied on past decisions by ITAT, High Court, and Supreme Court where similar expenses were allowed as revenue. Despite the Assessee's contentions, the CIT(A) upheld the disallowance. The Tribunal found in favor of the Assessee, noting that the issue was previously decided in the Assessee's favor by various judicial authorities, hence allowing the appeal. Issue 2: Adjustment of Prior Period Expenses: The second issue pertains to the addition of Rs. 4,63,88,745 as prior period expenses in the computation of book profits under Section 115JB. The Assessing Officer disallowed the expenses, but the CIT(A) disagreed, stating that the expenses were crystallized during the year and should be considered as prior period expenses. However, the Tribunal found that the CIT(A) confirmed the adjustment despite acknowledging that the expenses did not qualify as prior period expenses. Consequently, the adjustment made by the CIT(A) was set aside, and the Assessee's appeal was allowed. Separate Judgement: The Revenue's appeal challenged the deletion of adjustment for prior period expenses. However, the Tribunal noted that the CIT(A) had actually confirmed this adjustment, contradicting the grounds raised by the Revenue. As a result, the Revenue's appeal was dismissed. In conclusion, the Tribunal allowed the Assessee's appeal regarding the treatment of expenditure on Membrane Cells and the adjustment of prior period expenses, while dismissing the Revenue's appeal.
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