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2017 (1) TMI 1214 - AT - Income TaxMAT computation - Contribution under U.P. Sheera Niyantran Adhiniyam - whether is required to be added for the purposes of computing Book Profit under section 115JB ? - Held that - Disallowance on account of Molasses Reserve Fund-the contribution to the Molasses reserve fund can be viewed as a provision in nature and it is not an actual liability and the provision created for additional storage facility is obviously in the nature of provision for contingent liability, therefore, the impugned amount being contingent in nature deserves to be added back while computing income u/s 115JB of the Act. See Rai Bahadur Narain Singh Sugar Mills Ltd. Versus Addl. CIT 2015 (3) TMI 926 - ITAT DELHI Addition to capital subsidy to the book profits while computing income under the section 115JB - Held that - As already been accepted by the Hon ble High Court in assessee s own case for AY 1990-91 that the subsidy received by the assessee is in the nature of capital subsidy, hence, the same cannot be treated as revenue and thus, the income approach of accounting for capital subsidy received as government grant is not applicable in this case as per AS-12 where in para 5.2 it has been made clear that the capital approach is to be followed in respect of government grants and it is inappropriate to recognize government grants in profit and loss statements because they are not earned to represent an incentive provided by the government. Accordingly, conclusion of the CIT(A) on this issue is not found to be sustainable and we demolish the same by directing the AO that the amount of capital subsidy to the book profits while computing the income u/s 115JB of the Act is not an appropriation of profits and there is no such debit to the profit and loss account for the alleged appropriation and, therefore, the same cannot be added while computing the income u/s 115JB of the Act. Accordingly, ground of the assessee are allowed. Consultancy fee incurred in relation to plant and machinery - revenue v/s capital expenditure - Held that - 70% of the payment was towards purchase of a new plant and machinery, which forms part of block of plant and machinery for the purpose of depreciation. It is evident from the above that payment for consultancy was not only for examining the old turbine, but it was consultancy for purchase of a substitute turbine, which forms part of block of the plant and machinery. In such facts and circumstances, we are of the opinion, that at least 70% of the payment of consultancy fee paid by the assessee is expenditure in the nature of capital expenditure and the balance expenditure falls in the nature of revenue expenditure. However, we agreed with the contention of the learned counsel that if this expenditure is held as capital in nature, then depreciation should be allowed to the assessee. We, therefore, direct the Assessing Officer to consider the 70% of the payment on consultancy fee as capital expenditure for inclusion under the block of asset of plant and machinery and allow the depreciation accordingly. This ground of the appeal is partly allowed.
Issues Involved:
1. Addition of ?1,45,985/- under 'U.P. Sheera Niyantran Adhiniyam' for computing 'Book Profit' under section 115JB. 2. Addition of ?17,84,404/- for capital subsidy to book profits under section 115JB. 3. Addition of ?1 Lakh on account of forfeiture of security deposit under section 28(iv). 4. Disallowance of Molasses Reserve Fund. 5. Treatment of capital subsidy received from Central Government. 6. Addition on account of repair to plant & machinery. Issue-wise Detailed Analysis: 1. Addition of ?1,45,985/- under 'U.P. Sheera Niyantran Adhiniyam' for computing 'Book Profit' under section 115JB: The Tribunal noted that the assessee transferred the amount to a reserve not specified under section 33AC, and as per Explanation 1 to section 115JB, the book profit must be increased by the amount carried to any reserve account. The Tribunal referenced the Apex Court decision in State Bank of Patiala, emphasizing that reserves set aside from profits cannot be claimed as deductions. Consequently, the Tribunal upheld the addition, rejecting the assessee's appeal on this ground. 2. Addition of ?17,84,404/- for capital subsidy to book profits under section 115JB: The Tribunal found that the capital subsidy received was not an appropriation of profits and thus should not be added back while computing income under section 115JB. The Tribunal referenced previous decisions, including the Hon’ble High Court’s ruling that the subsidy received was capital in nature. Following these precedents, the Tribunal allowed the assessee's appeal on this ground, directing that the subsidy should not be added to the book profits. 3. Addition of ?1 Lakh on account of forfeiture of security deposit under section 28(iv): This ground was not pressed by the assessee’s counsel and was therefore dismissed as infructuous. 4. Disallowance of Molasses Reserve Fund: The Tribunal referenced its previous decision for the assessment year 2011-12, where it was held that the Molasses Reserve Fund is a provision in nature and not an actual liability. Following this precedent, the Tribunal dismissed the Revenue’s appeal on this ground. 5. Treatment of capital subsidy received from Central Government: The Tribunal upheld the CIT(A)’s decision, which followed earlier rulings that the capital subsidy received by the assessee was not taxable as revenue receipt. The Tribunal referenced multiple past decisions, including those of the Hon’ble High Court, which consistently held that such subsidies are capital in nature. Consequently, the Tribunal dismissed the Revenue’s appeal on this ground. 6. Addition on account of repair to plant & machinery: The Tribunal examined the nature of the consultancy fee paid by the assessee for an old turbine. It was found that part of the consultancy was towards finding a suitable substitute for the turbine, making it partly capital in nature. The Tribunal directed that 70% of the consultancy fee be treated as capital expenditure and included in the block of assets for depreciation purposes, while the remaining 30% was to be treated as revenue expenditure. The Tribunal thus partly allowed the Revenue’s appeal on this ground. Conclusion: Both appeals by the assessee and the Revenue were partly allowed. The Tribunal's decision was pronounced in the open court on 20th January 2017.
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