THE PR. COMMISSIONER OF INCOME TAX, CIT (A) vs. M/S MANIPAL HEALTH ENTERPRISES PVT LTD

THE PR. COMMISSIONER OF INCOME TAX, CIT (A) 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095 2. THE ADDL. COMMISSIONER OF INCOME-TAX RANGE-5, PRESENT ADDRESS CIRCLE-2(3)(1) 2ND FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095 …APPELLANTS

Heard Shri. E.I. Sanmathi, learned Standing Counsel for the Revenue and Shri. R.V. Easwar, learned Senior Advocate for the assessee.

Shri. Sanmathi submitted that questions No. 1 and 4 have been considered in ITA No.817/2018. He seeks leave to address arguments on only questions No.5 and 7 and seeks leave to argue remaining questions in appropriate cases.

Shri. R.V. Easwar, learned Senior Advocate for the assessee has no objection.

Questions No.5 and 7 read as follows: 1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance of expenditure for inflow of equity to the extent of Rs.100 Crores by holding that the same is in the nature of Revenue expenditure even though the assessing authority rightly held it as capital expenditure considering that the assessee had failed to provide break-up of expenditure and the assessee had failed to substantiate its claims that it pertains to issue of bonus share/debentures?

Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance of legal and professional charges by holding that the same is in the nature of capital expenditure even though the assessing authority rightly treated the same as revenue expenditure since the same was related to raising of fresh equity and to study feasibility of expansion and, as such, it gave enduring benefit to the assessee?

Both questions of law are interlinked. In substance, the assessee has made payment of Rs.3.31 Crores to M/s. Allegro Corporate Finance Advisors Pvt. Ltd., for raising equity funds of approximately 100 Crores from the interested investors. Assessing Officer has disallowed the expenditure holding the same as a capital expenditure. The CIT(A)2 has upheld AO’s order. The ITAT reversed the said finding and granted relief to the assessee. Hence, this appeal.

Shri. Sanmathi, placing reliance on Brooke Bond India Ltd., Vs. Commissioner of Income Tax3 submitted that the expenditure is capital in nature.

Shri. Easwar, learned Senior Advocate adverting to Section 35D of the Income Tax Act4, 1961 submitted that assessee must be allowed deduction of an amount equal to one-tenth of such expenditure for each of ten successive previous years where the assessee makes expenditure in connection with extension of undertaking. He submitted that the Assessing Officer, the CIT(A) and the ITAT have not adverted to this aspect. Accordingly, he prayed to remand the matter to the file of Assessing Officer to examine whether assessee would be entitled for amortization of expenses under Section 35D of the IT Act. :

Shri. Sanmathi, argued opposing the said submission on the ground that assessee has not urged this

We have carefully considered rival contentions and perused the records.

As per Section 35D of the IT Act, where an assessee incurs any expenditure for extension of his business, he shall be entitled for amortization with certain preliminary expenses. Though Shri. Sanmathi opposed the contention urged by the learned Senior Advocate for the assessee, in our considered view, if the tax payer is entitled for any statutory relief, the same shall not be defeated on technical grounds. However, the Revenue must be given an opportunity to contest assessee’s claim.

In that view of the matter, we deem it appropriate to remand the matter to the file of the Assessing Authority to examine assessee’s plea with regard to Section 35D of the IT Act.

Hence, the following: ORDER (a) Appeal is allowed. (b) The matter is remitted to the Assessing Authority for fresh assessment. (c) Since the matter has been remanded, questions of law have not been answered. (d) All contentions of both parties are kept open.