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22.07.2016 - Voice of CA presents - Updates
Friday, July 22, 2016

I. Headlines Today    

  1. Companies (Share Capital and Debentures) Third Amendment Rules, 2016  (Click for detail)
  2. 90 lakh high-value deals without PAN under I-T scrutiny  (Click for detail)
  3. Income Tax Department to issue 7 lakh letters seeking Information in respect of High Value Transactions  (Click for detail)
  4. Centre, state tax depts at loggerheads  (Click for detail)
  5. ITR notices to MNCs render PAN relaxation ineffective  (Click for detail)
  6. Income tax returns: July 31 nears, here are risks and penalties if you skip the deadline or avoid filing  (Click for detail)
  7. Income Tax returns filing on job change? How to deal with multiple Form-16  (Click for detail)
II.  Direct Taxes Case Laws: 

1.  M/s. Ucal Machine Tools (P) Ltd. Vs. ITO, I.T.A. No. 797 & 798/Mds./2016, Date of Pronouncement: 15.07.2016, ITAT – Chennai

Whether the expenditure on replacement of emergency tools where the assessee had been maintaining the mercantile system of accounting in accordance with the Accounting Standards 2 & 10, will be allowed as revue expenditure?


Brief Facts:
The assessee company is engaged in manufacture of automobile components and making of dyes & moulds, jigs and fixtures and special purpose tools as per customer’s requirements. The assessment u/s 143(3) of the Income Tax Act, 1961 was completed accepting the return of income filed by the assessee. Subsequently, the AO re-opened the assessment issuing the notice u/s 148 following a discovery that an expenditure on account of Replacement of tools which was claimed under the head ‘Manufacturing and other expenses’ is required to be disallowed and capitalised. Finally, the assessment was completed u/s 143(3) r.w.s 147 of the Income Tax Act making the said disallowance. The CIT(A) upheld the re-opening of the assessment and order of the AO was also upheld. Therefore, the assessee appealed before the Tribunal.

It was held that for re-opening of assessment, it is not necessary that information must be derived from external source of any kind and the same is even permissible if the information is obtained from proper investigation from the materials and records or from any enquiry or research into the facts or law. Therefore, the re-opening of the assessment is upheld. Further, it was held that as per Accounting Standards 2 & 10 issued by the Institute of Chartered Accountants of India, the machinery spares which are not specific to any fixed asset should be treated as part of inventory and charged to Profit & Loss Account and machinery spares which are specific to a particular item of fixed asset and their use is irregular, then they should be capitalised and depreciated on a systematic basis. Since, these Standards are mandatory, the change in the accounting policy of the assessee had been brought about due to the issuance of the revised accounting standards which were applicable for the assessment year under consideration. The reason being the assessee maintaining a mercantile system of accounting and therefore, the treatment of emergency spares is in accordance with Accounting Standards. Hence, the expenditure on replacement of emergency tools is allowed as revenue expenditure.

(Please click here for judgment)


2.  Damodar Valley Corporation Vs. DCIT, I.T.A. No. 1458/Kol/2015, Date of Pronouncement: 15.07.2016, ITAT - Kolkata

Whether the generation or generation and distribution of power amounts to manufacture of any article for claiming additional depreciation on plant and machinery deployed in such manufacture u/s 32(1)(iia) of the Income Tax Act, 1961?


Brief Facts:
The assessee is a public sector undertaking engaged in the business of generation and distribution of electricity. The return of loss was filed by the assessee for the A.Y. 2011-12. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 after making a disallowance u/s 14A. Later, CIT issued a show cause notice seeking to revise the assessment framed u/s 143(3) on the matter that AO had granted the claim of additional depreciation u/s 32(1)(iia) to the assessee company which in his opinion could only be granted with effect from A.Y. 2013-14 as the additional depreciation u/s 32(1)(iia) in respect of business of generation or generation and distribution of power is only applicable w.e.f A.Y. 2013-14 as per Finance Act, 2012. Therefore, CIT passed an order stating the order of AO to be erroneous and prejudicial to the interest of the revenue. Aggrieved by which, the assessee appealed before the ITAT.

It was held that for the purpose of manufacture, transformation is pre-requisite and a particular item should undergo changes in its colour and character and become a separate and a new marketable commodity after the manufacturing process. The assessee had set up hydel power and thermal power plant, wherein the water and coal gets converted into electricity through the manufacturing process.  Hence it is undisputed that transformation from mere coal to electricity and from mere water to electricity happens pursuant to the manufacturing process and the electricity so produced or generated becomes a separate marketable commodity. Therefore, the said process amounts to manufacture of a article or good and the assessee is entitled for claiming additional depreciation u/s 32(1)(iia) of the Income Tax Act even prior to the amendment brought in by Finance Act 2012. Moreover, the order passed by the AO u/s 143(3) is not erroneous and the order passed by CIT u/s 263 of the Income Tax Act, 1961 is quashed.
The appeal was answered in the favour of the assessee.

(Please click here for judgment)

 Golden Rules:

  "The paths which lead to success are never smooth, straight and easy.
But once the success is achieved, they become smooth, straight and easy"


  Thanks & Regards


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