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TMI Blog2008 (2) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of three years in its Infotech Division - It is correct to hold that an alternate claim can be made before the learned CIT(A) for the first time and in disposing of the appeal under section 251 of the Act, the Commissioner (Appeals) have power to pass such orders as he thinks fit. His powers include powers to reduce, enhance or annul the assessment. Having power to reduce the assessment, the learned CIT(A) was justified in entertaining claim as to whether the expenses can be allowed as revenue expenditure. We find that the expenses in a leased premises on partition, false ceiling, painting, white-washing, renovation of toilets etc. are revenue expenditure and do not bring into existence any capital asset as such. Accordingly, the claim of the assessee was rightly allowed by the learned CIT(A). Disallowance being 50 per cent of the expenditure for recruitment and training of its staff personnel - Enduring benefit is one of the tests to determine whether the expenditure is capital or revenue. However, it is not a foolproof test and even in some occasion such test will fail if the circumstances so demand. This was so precisely laid in the case of Alembic Chemicals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Addition on being provision for bad and doubtful debts while computing book profit u/s 115JB of the Act - The Hon ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [ 2002 (5) TMI 5 - SUPREME COURT] , held that the AO cannot recast the profit and loss account if the same is prepared in accordance with Parts II III of Schedule VI of the Companies Act for the purpose of computing book profit under section 115J. Accordingly, the amount of provision for bad and doubtful debts cannot be considered as amount credited to reserve and hence cannot be added while computing book profit under section 115JB. The amount is not a provision for making liability as by making provision the assessee merely restates the assets. Thus even under clause ( c ) of Explanation to section 115JB the same cannot be added while computing book profit. In the result, the appeal is dismissed. - R.V. EASWAR AND DEEPAK R. SHAH, JJ. Adarsh Kumar Modi for the Appellant. Ajay Vohra and Ms. Amisha Singhal for the Respondent. ORDER Deepak R. Shah, Accountant Member. - This appeal by the revenue is directed against the order of the learned Commissioner of Income-tax (App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of block of assets. Use of asset would be relevant only in the first year of claim of depreciation. Once the asset enters the block, depreciation cannot be determined or allowed on a piecemeal basis but is allowable on the entire block. He accordingly deleted the disallowance. 5. The learned DR Shri Adarsh Kumar Modi submitted that for the depreciation to be allowable under section 32, the pre-condition is that the asset not only be owned by the assessee but should also be used for the purpose of business. Admittedly in the present case the assets were not put to use during the year and hence claim of deprecation is not allowable. The depreciation claimed on such asset is separately identifiable and hence to that extent even if the depreciation is allowable on block of assets, since there was a separate identifiable asset for international division business, depreciation can be disallowed. 6. Learned counsel for the assessee Shri Ajay Vohra on the other hand, supported the appellate order. He submitted that once the assets form part of block of assets, it looses its individual identity and hence user concept looses its relevance. Under the block concept depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t thereof. The Assessing Officer noted that entire expenditure should be classified under the head Furniture and Fixture and on which depreciation is allowable at appropriate rate of 10 per cent only and since the assets are put to use for less than 180 days, the claim is further restricted to 50 per cent thereof. This resulted into net addition of Rs. 16,39,293. 9. Before the learned CIT(A) it was submitted that the assessee had taken premises on lease for a period of three years in its Infotech Division. The expenses of Rs. 36,42,871 was in respect of partition, floor tiles, false ceiling, plaster of paris work, paint and whitewash, lamination of doors, renovation of toilets etc. It was submitted that these were expenses of revenue nature and allowable as such. The assessee had made erroneous claim of depreciation @ 100 per cent but in fact whether the claim is allowed as revenue expenditure or as depreciation @ 100 per cent does not make any difference. The learned CIT(A) held that the impugned expenditure is for purpose of making the premises fit for business. If the expenses are incurred on leased premises for making the same suitable for assessee s business, such expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions. It is correct to hold that an alternate claim can be made before the learned CIT(A) for the first time and in disposing of the appeal under section 251 of the Act, the Commissioner (Appeals) have power to pass such orders as he thinks fit. His powers include powers to reduce, enhance or annul the assessment. Having power to reduce the assessment, the learned CIT(A) was justified in entertaining claim as to whether the expenses can be allowed as revenue expenditure. We find that the expenses in a leased premises on partition, false ceiling, painting, white-washing, renovation of toilets etc. are revenue expenditure and do not bring into existence any capital asset as such. Accordingly, the claim of the assessee was rightly allowed by the learned CIT(A). 13. Ground No. 4 is against deletion of disallowance of Rs. 77,12,847 made by the Assessing Officer being 50 per cent of the expenditure for recruitment and training of its staff personnel. 14. The assessee spent an amount of Rs. 154.25 lakhs on recruitment and training of its employees working in various divisions and at head office. The Assessing Officer held that since the assessee was to derive long la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on more efficiently and smoothly. It only facilitates proper functioning keeping in view the new technology advances. Thus, expenditure being inclined wholly and exclusively for the purpose of business which cannot be categorized as capital expenditure, cannot be spread over number of years. The decision of Hon ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. ( supra ) will not apply as in the said case benefit of premium payable on redemption of debentures was available throughout the life of the debentures issued. Same is not the case in this appeal. Accordingly, ground No. 4 fails. 17. Next ground of appeal is against deletion of disallowance of Rs. 16,39,293 being loss due to exchange fluctuation on the amount borrowed on foreign currency for the purpose of working capital. 18. At the time of hearing both the counsels agreed that the issue is covered in favour of the assessee by the decision of Hon ble Delhi High Court in the case of CIT v. Woodward Governor India (P.) Ltd. [2007] 294 ITR 451. 19. There is no dispute to the fact that the loan in foreign currency was taken on revenue account and in relation to working of the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urrent year and not in respect of future years. When the deferred tax liability is written back, it would be added to the book profit in the same year. Thus, the provision for deferred tax liability is not in relation to tax liability of the book profit of the current year and hence not to be added while computing book profit. The revenue now challenges the action of the learned CIT(A). 22. The learned DR submitted that whether amount debited to the profit and loss account in respect of deferred income-tax liability should be added in clause ( a ) of Explanation to section 115JB needs to be decided. What is to be added under clause ( a ) is amount of income-tax paid or payable and the provision therefor. Whether the provision is for current year s tax or future year s tax will all fall within the parameter of provision for income-tax and hence to be added to the book profit. 23. The learned counsel for the assessee on the other hand, relied upon appellate order. He submitted that identical issue has been decided by ITAT, Calcutta in the case of Asstt. CIT v. Balrampur Chini Mills Ltd. [2007] 109 ITD 146 and by ITAT, Jaipur in the case of Maharaja Shree Umaid Mills Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 12 apply]." The question to be decided is whether provision for deferred tax liability can be considered as the amount of income-tax paid or payable and the provision therefor . As per section 115JB in the case of the assessee being a company, if the income-tax payable on the total income computed under the Act is less than 7 per cent of its book profit, such book profit shall be deemed to be the total income and the tax payable by the assessee on such total income shall be the amount of income-tax @ 7 per cent. The book profit is to be computed as per Explanation extracted hereinabove. Under section 115JB(2) the profit loss account for the relevant previous year is to be computed in accordance with Parts II III of Schedule VI to the Companies Act, 1956. The profit and loss account shall confirm to the Accounting Standards adopted for preparing accounts and cannot be different in respect of accounts presented for income-tax purposes than that produced before the shareholders at the annual general meeting in accordance with the provisions of section 210 of the Companies Act. Thus, the assessee is also required to prepare accounts in accordance with mandatory Accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for bad and doubtful debts in the statement of profit and loss are allowed as deduction for tax purposes only when written-off. ( e )Amounts charged to the statement of profit and loss in respect of voluntary retirement scheme in one accounting period but allowed as a deduction for tax purpose over a period of time. ( ii )Machinery purchased for scientific research related to business is fully allowed as deduction in the first year for tax purposes whereas the same would be changed to the statement of profit and loss statement as depreciation over its useful life. ( iii )Where book and tax depreciation differs. This could arise due to : ( a )Differences in depreciation rates; ( b )Differences in method of depreciation e.g., SLM and WDV; ( c )Differences in method of calculation e.g., calculation of depreciation with reference to individual assets in the books but on block basis for tax purpose and calculation with reference to time in the books but on the basis of full or half depreciation under the block basis for tax purposes. ( d )Differences in composition of actual cost of assets. ( iv )Income credited to the statement of profit and loss but taxed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Act. The provision for deferred tax is not tax payable under the Act. The deferred tax liability is created where the assessee gains tax advantage of temporary nature which are payable in subsequent years. When tax liability of subsequent years are determined, the amount is decreased from deferred tax liability and actual provision is made for the current tax liability. What can be added under clause ( a ) of Explanation to section 115JB is the income paid or payable on the current income computed under the provisions of the Act and not the liability which is deferred or becomes payable in subsequent years. Thus, the deferred tax liability provided not being falling in clause ( a ) of Explanation to section 115JB cannot be added to book profit for purpose of section 115JB of the Act. Similar view has been adopted by ITAT, Calcutta in the case of Balrampur Chini Mills Ltd. ( supra ) wherein it was held as under : "The first limb of objection raised by the revenue was that the deferred tax charge to profit and loss account was identical to the amount of income-tax paid or payable and, therefore, the same was to be treated at par with Explanation ( a ) to section 115J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd reserve created for the purpose of deferred tax charge. A reserve within the meaning of Explanation ( b ) can unilaterally be transferred back to the profit and loss account, whereas a deferred tax charge cannot be so transferred to the profit and loss account. Furthermore, the reserve mentioned in Explanation ( b ) can be utilized for issuing bonus shares or for declaration of dividend, whereas deferred tax charge cannot be utilized for such purposes. As per AS-22, deferred tax charge is treated as an expense of the period in which it is charged, and such expenses cannot be treated as a reserve within the meaning of Explanation ( b ) to section 115JB(2). Therefore, the second limb of objection raised by the revenue was also liable to be dismissed. The third limb of objection raised by the revenue was on account of considering such deferred tax liability to be covered under Explanation ( c ) to section 115JB(2) contending that such amounts were unascertained liabilities. However, a close perusal of clauses as mentioned in paras 20 to 23 in AS-22 make it clear that such deferred tax charges are measured scientifically and as per restrict guidelines of the ICAI issued fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gone into the matter in detail and come to the correct conclusion. The order of the Hon ble Calcutta High Court is render in ITA No. 594 of 2007, dated 11-12-2007 and its copy is on record. 25. Similar view has also been adopted by ITAT, Jaipur Bench in the case of Maharaja Shree Umaid Mills Ltd. ( supra ). 26. Next ground of appeal is against deletion of addition of Rs. 1,51,73,289 being provision for bad and doubtful debts while computing profit under section 115JB of the Act. The Assessing Officer while computing book profit under section 115JB held that the provision for bad and doubtful debts is excess amount of provision to be treated as reserve and not provision. Under clause ( b ) of Explanation below sub-section (2) of section 115JB, the book profit has to be increased by any amount carried to any reserves, by whatever name called and hence to be added by crediting book profit. The learned CIT(A) held that the provision is only to the extent of diminution in the value of assets. No excess provision has been made but has been solely provided to cover diminution in value of assets known to exist at the date of balance sheet. Accordingly, the same cannot be adde ..... 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