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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
Issue:
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?
Held_Yes
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.
Held:
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
Issue:
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?
Held_Yes
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.
Held:
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)
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