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2013 (9) TMI 560 - AT - Income TaxMAT- Minimum alternate tax - Disallowance of Deductions out of Book Profits as per Explanation 1 to section u/s 115JB(2) - Adjustment on account of FBT - Held that - There was no merit in the order of the Assessing Officer in not deducting the amount of expenditure relatable to fringe benefit tax from the profits of business, while computing the book profits of the assessee for the relevant assessment year - The said expenditure debited to the Profit & Loss Account was to be allowed as an expenditure and there was no merit in adding back the same while computing book profits under section 115JB of the Act The circular provided that however this prohibition does not apply to the computation of book profits for the purpose of section 115JB and the same is to be allowed as a deduction. In view of the clarification issued by the CBDT vide Circular No.8/2005. Adjustment on account of agricultural income - Held that - The assessee had declared agricultural income in its Profit & Loss Account and the said agricultural income in view of the definition of book profits is to the reduced from the profits of the business in order to work out book profits of the company under the provisions of section 115JB of the Act. Adjustment on account of prior period items - Held that - where the assessee had shown receipts on account of prior period adjustment on account of income tax refund and reversal of provision of income tax, the said items of receipts are not income in the hands of the assessee and the same have to be excluded from the profits reflected in the Profit & Loss Account while computing books profits under section 115JB of the Act. Allowability of Expenditure of Die Tooling Charges Held that - Following DCIT vs Metalman Auto Private Ltd 2000 (6) TMI 123 - ITAT CHANDIGARH-A - To be revenue in nature since the expenditure were incurred for modernization of existing projects, which was already manufacturing the same products, and simply to increase the business more efficiently and more profitability, especially when the expenses were incurred for making technological changes - It was not the case of the revenue that new machinery was installed rather the assessee incurred expenses for the improvement of product and quality with an object of achieving maximum output by improving the already existing machinery, therefore, it cannot be said that it is setting up of altogether new business - The assessee company by incurring such expenditure had only improved the efficiency in manufacturing of existing products more economically for the purposes of getting maximum business advantage. Allowability of Technical Know-How Expenditure Held that - Following CIT vs Mihir Textiles Ltd 2006 (3) TMI 108 - GUJARAT High Court and CIT vs Ashoka Mills Ltd. 1995 (10) TMI 35 - GUJARAT High Court - Technical service fee was deductible - the amount so paid under the agreement was revenue expenditure - composite payment for supply of technical know how and services for setting up plant and manufacture of product was held that the expenditure was of enduring benefit to the assessee, therefore, was of capital nature - the assessee was allowed and the appeal of the Revenue was dismissed.
Issues Involved:
1. Deduction of Fringe Benefit Tax, Agricultural Income, and Prior Period Adjustments from Book Profits under Section 115JB. 2. Classification of Die Tooling Charges as Capital or Revenue Expenditure. 3. Classification of Technical Know-how Expenditure as Capital or Revenue Expenditure. Issue-wise Detailed Analysis: 1. Deduction of Fringe Benefit Tax, Agricultural Income, and Prior Period Adjustments from Book Profits under Section 115JB: The assessee contested the exclusion of fringe benefit tax (Rs. 16,49,531), agricultural income (Rs. 78,000), and prior period adjustments (Rs. 21,36,824) from book profits under Section 115JB. The CBDT Circular No. 8/2005 clarified that fringe benefit tax is deductible when computing book profits under Section 115JB. The Tribunal found merit in this argument and allowed the deduction of fringe benefit tax. Regarding agricultural income, the Tribunal referred to Explanation-1 under Section 115JB, which allows the exclusion of income to which Section 10 applies from book profits. The Tribunal directed the exclusion of agricultural income from book profits. For prior period adjustments, the Tribunal noted that income tax refunds and reversals of excess provisions for income tax are not income and should be excluded from book profits. The Tribunal directed the Assessing Officer to recompute book profits by excluding these items. 2. Classification of Die Tooling Charges as Capital or Revenue Expenditure: The Revenue challenged the CIT(A)'s decision to treat die tooling charges as revenue expenditure. The Tribunal referred to its earlier decision in the assessee's case for the assessment year 2008-09, where similar expenses were treated as revenue expenditure. The Tribunal reiterated that the expenses were incurred for modernizing existing machinery to improve efficiency and were not for setting up a new business. Thus, the Tribunal upheld the CIT(A)'s order, treating die tooling charges as revenue expenditure. 3. Classification of Technical Know-how Expenditure as Capital or Revenue Expenditure: The Revenue also contested the CIT(A)'s decision to treat technical know-how expenditure as revenue expenditure. The Tribunal referred to its previous decision for the assessment year 2008-09, where it was held that technical know-how fees paid to improve productivity and reduce rejections were revenue in nature. The Tribunal emphasized that no capital asset of enduring nature was acquired, and the expenditure aimed to enhance operational efficiency. Therefore, the Tribunal upheld the CIT(A)'s decision, treating technical know-how expenditure as revenue expenditure. Conclusion: The Tribunal allowed the appeal of the assessee, directing the recomputation of book profits by excluding fringe benefit tax, agricultural income, and prior period adjustments. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions to treat die tooling charges and technical know-how expenditure as revenue expenditures. The order was pronounced on 6.2.2013.
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