2020 (8) TMI 818 - AT - Income Tax

Expenditure on replacement of Jigs and fixtures - Revenue or capital expenditure - current repairs - HELD THAT - We find that the issue in dispute is squarely covered in favour of the assessee as decided in TVS MOTORS LIMITED 2019 (7) TMI 750 - MADRAS HIGH COURT claim being considered as current repairs, the same would fall under Section 31 of the Act as current repairs. Also see SUNBEAM AUTO LTD. 2012 (6) TMI 59 - DELHI HIGH COURT - Decided against revenue. Computing deduction u/s.80HHC - whether the ld. CIT(A) was justified in treating certain receipts as not forming part of the total turnover - HELD THAT - Receipts from Dividends, Income from Units, Interests and Profit on sale of investments are merely income from other sources and not business income of the assessee and hence, cannot form part of profits and gains of business of the assessee. We also find that the aforesaid four receipts do not have any link in any manner whatsoever with the export activities of the assessee. We find that the deduction u/s.80HHC of the Act is given in respect of export sale proceeds that were brought into India in convertible foreign exchange and the profit derived attributable thereon alone would be eligible for deduction u/s.80HHC of the Act. We also find that the CBDT vide its Circular in Para 32.10 explaining the amendments to the Finance (No.2) Act, 1991 had categorically clarified that the receipts like interest, commission etc., do not have any element of turnover. Accordingly, the amendment was made to remove the said items from the profits of the business w.e.f. 01/04/1992 pertaining to A.Y.1992-93 onwards. Hence, the intention of the legislature is very clear and it is without any ambiguity and it could be safely concluded that the aforesaid four receipts do not form part of total turnover. We also find that the ld. CIT(A) had placed reliance on the decision of the Hon ble Jurisdictional High Court to support its contention in the case of Kantilal Chhotalal 2000 (7) TMI 41 - BOMBAY HIGH COURT - no infirmity in the order of the ld. CIT(A) granting relief to the assessee. - Decided against revenue.

Summary

Issues Involved:
1. Whether the expenditure on replacement of jigs and fixtures should be treated as revenue expenditure.
2. Whether certain receipts should be included in the total turnover while computing deduction under Section 80HHC of the Income Tax Act.

Issue-wise Analysis:

1. Treatment of Expenditure on Replacement of Jigs and Fixtures:
The primary issue addressed was whether the expenditure on the replacement of jigs and fixtures could be classified as revenue expenditure. The assessee incurred an expenditure of ?1,06,11,064/- on jigs and fixtures, including capital work in progress amounting to ?11,18,955/-. The assessee argued that these were replacements in the main plant and machinery and should be eligible for deduction as revenue expenditure. The Assessing Officer (AO) initially treated this expenditure as capital expenditure, granting depreciation accordingly.

The Tribunal noted that the expenditure on jigs and fixtures was essential due to constant wear and tear and changes in design, and historically, the assessee had capitalized the initial purchase cost but claimed replacements as revenue expenditure. The CIT(A) had previously granted relief to the assessee, treating the expenditure as revenue in nature, following judicial precedents in the assessee's own cases for earlier years.

The Tribunal referenced the Hon’ble Madras High Court's decision in CIT vs. TVS Motors Ltd., which held that expenditure on replacement of dies and moulds qualifies as current repairs under Section 31 of the Act. Similar views were echoed by the Hon’ble Delhi High Court in CIT vs. Sunbeam Auto Ltd. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground.

2. Inclusion of Certain Receipts in Total Turnover for Section 80HHC Deduction:
The second issue was whether certain receipts, specifically dividends, income from units, interest, and profit on the sale of investments, should be included in the total turnover for computing the deduction under Section 80HHC. The AO included these receipts in the total turnover, reducing the assessee's deduction claim. However, the CIT(A) disagreed, treating these receipts as income from other sources, not linked to the export activities, and thus not forming part of the total turnover.

The Tribunal supported the CIT(A)'s view, emphasizing that the nature of these receipts indicated no connection with the export business. It referenced the CBDT Circular explaining amendments to the Finance (No.2) Act, 1991, which clarified that such receipts do not have any element of turnover. The Tribunal also cited the Hon’ble Jurisdictional High Court's decision in Kantilal Chhotalal vs. DCIT, which supported excluding such receipts from the total turnover for Section 80HHC purposes. Thus, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground as well.

Other Grounds:
For the assessment years 1991-92, 1993-94, and 1994-95, the only issue raised was the treatment of expenditure on replacement of jigs and fixtures. The Tribunal's decision on this matter for the assessment year 1990-91 applied equally to these years, leading to the dismissal of the revenue's appeals for these years as well.

Conclusion:
In conclusion, the Tribunal dismissed all the appeals filed by the revenue, upholding the CIT(A)'s decisions regarding the treatment of expenditure on jigs and fixtures as revenue expenditure and excluding certain receipts from the total turnover for Section 80HHC deduction computation.