No addition allowed under MAT

The Gujarat High Court, in a recent ruling, has held that the assessing officer (AO) cannot make addition to the income while working out the book profits for the purpose of Minimum Alternate Tax���under section 115J of the Income Tax Act��� with regard to the difference arising due to change in the method of depreciation adopted by the assessee.

The assessee had changed its method of providing for depreciation from straight line method (SLM) to written-down value (WDV) method during the year. The AO was of the view that the assessee was required to provide depreciation in its books as per rates provided in schedule of the Companies Act and could not adopt the WDV method as per the I-T Act.

The Gujarat High Court held that the AO has limited power of making changes in the net profit while working out the book profit in terms of section 115J, as provided for in explanation to the said section and has limited jurisdiction to the specific extent provided in the explanation. Accordingly, the court rejected the contention of the AO.

Hence, the book profit was held to be increased on account of the difference to the method of providing for depreciation, namely SLM and WDV, when the assessee altered its method of providing for depreciation from SLM to WDV.

Settlement expense

The Delhi High Court has held that where expenditure is incurred on account of commercial expediency, it would be an allowable business expense though it has not arisen explicitly based on terms of contract.

The assessee incurred settlement expenditure so as to avoid the possibility of the litigation ensuing, in respect of its early exit from the premises it had obtained on lease. The non-payment of the same could have resulted in suit for damages for breach of contract and/or specific performance.

The assessee claimed the same as business expenditure under section 37. The assessee paid the said amount considering various factors like avoiding higher user charges for the unexpired lease period, getting back immediate payment of the interest free security deposit, etc.

The AO was of the view that under the contract there was no legal obligation of the assessee to pay the settlement expense and hence, the same was not wholly and exclusively laid out for the purpose of the business.

The Court observed that the settlement expense paid in relation to early exit from the premises falls squarely within the meaning of the expression 'commercial expediency' when seen from the perspective from an assessee���s business. Accordingly, the same is an allowable expense under section 37.