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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI KULDIP SINGH & SHRI OM PRAKASH KANT
Present for: Assessee by : Shri Alpesh Dharod, A.R. & Ms. Mansi Shah, A.R. Revenue by : Ms. Shailaja Rai, D.R. Date of Hearing : 11 . 08 . 2022 Date of Pronouncement : 25 . 08 . 2022 O R D E R
Per : Kuldip Singh, Judicial Member:
The appellant, M/s. L & T Access Distribution Services Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 14.11.2017 passed by Commissioner of Income Tax (Appeals)-8, Chennai [hereinafter referred to as the CIT(A)] qua the assessment year 2013-14 on the grounds inter alia that :- “1. The order of the Id. CIT(A) is contrary to law and facts of the case.
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2. The Id CIT(A) erred in allowing the sum of Rs. 13.30 crores to be amortized u/s 350 over a period of 10 years starting from the current AY 2013-14. 2.1 The Id. CIT(A) erred in allowing the sum of Rs. 13.30 crores to be amortized when the twin conditions stipulated u/s 35D that the expenditure should have been incurred either in connection with the extension of the under taking or in connection with the setting up of a new unit have not been fulfilled. 2.2 The Id. CIT(A) failed to note that the company has only changed the business model to closed architecture with business verticals divided into General Insurance Health & Won Health, Loans, Investments in in-house products, private wealth, worksite and contract centre. Thus the company supports the offerings of L&T Financial Services entities. 2.3 The Id. CIT(A) failed to note the fact that the company has entered into a professional services contract with M/s. Boston Consulting Group only for providing the phase-wise implementation of the business plan of the company. 2.4 The Id. CIT(A) ought to have appreciated the fact that during the FY 2012-13 the company has changed the business model and there is no material on record to show that the expenses have resulted in extension of his business. 2.5 The Id. CIT(A) ought to have appreciated that the change in the business model is normally required in course of time to accommodate new technology or new business opportunities and that such changes do not result in the extension of the business.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.”
Briefly stated facts necessary for adjudication of the controversy at hand are : the assessee is a domestic company engaged in the business of financing. During the scrutiny proceedings the Assessing Officer (AO) noticed from the profit & loss account that the assessee company has debited a sum of Rs.13.30 crore to P&L account towards professional fee qua which the assessee was required to furnish the breakup for the expenditure and explain the nature of expenditure. Finding the explanation filed
3 M/s. L & T Access Distribution Services Ltd. by the assessee not tenable AO proceeded to disallow the expenditure of Rs.13.30 crore and thereby assessed the income @ Rs.12,95,655/- under section 143(3) of the Income Tax Act, 1961 (for short ‘the Act’).
Assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has partly allowed the same. Feeling aggrieved the Revenue has come up before the Tribunal by way of filing present appeal.
When we examine para 3 of the assessment order, AO proceeded to disallow the expenditure claimed by the assessee on the ground that it has enduring benefit to the assessee. AO also brought on record a fact that “the assessee has changed the business model during the year under assessment with business verticals divided into various categories like General insurance-Health & Non-Health, Loans, Investments in In-house products, private wealth, private wealth etc. which is not only for the year under assessment but also of a permanent nature to be continued for the years to come”.
However, the Ld. CIT(A) while deciding the issue in favour of the assessee returned the cryptic finding by returning following findings: “5. The objections of the assessee are considered. The issues are discussed with the AR for the assessee during the course of hearing. The fact remains that expenditure incurred is a legitimate and genuine business expenditure incurred for the purpose of setting up and expanding the business Expenditures of this nature are covered u/s 35D as under:
Amortisation of certain preliminary expenses
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'35D (1) Where an assessee, "being an Indian company or a person (other than a company) who is resident in India, incurs, after 31st day of March, 1970, any expenditure specified in sub-section (2)- i) before the commencement of his business, or ii)after the commencement of his business, in connection with the extension of his"[“”] undertaking or in connection with his setting up a new unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the undertaking is completed or the new unit commences production or operation.
As above, the expenditure of Rs. 13.30 crores is for the purpose of setting up the business of the assessee. This expenditure qualifies for amortisation u/s 35D of the IT Act. During the course of hearing on 10.11.2017, the AR for the assessee also agreed for considering this amount of Rs.13.30 crores u/s 35D towards extension of business and in connection with the setting up of new business. In view of the same, the amount Rs.13.30 crores is allowed to be amortised u/s 35D. Assessee gets a deduction of Rs. 1,33,00,000/- for Assessment Year 2013-14. Assessee is eligible to claim equal amount of Rsw.1,33,00,000/- for next nine assessment years starting from Assessment Year 2022-23.”
6. On the one hand, it is argued by the Ld. A.R. for the assessee before the Ld. CIT(A) that the expenditure of Rs.13.30 crores is for the purpose of setting up of the business of the assessee, but at the same time argued that the expenditure qualifies for amortization under section 35D of the Act, to which the Ld. CIT(A) has agreed and allowed the amount of Rs.13.30 crores to be amortized under section 35D of the Act. How the expenditures are to be amortized when assessee has come up with a specific plea before the AO that the deductions claimed are allowable under section 37 of the Act. The Ld. CIT(A) has not decided the issue in entirety as to how the expenditures are not allowable under section 37 of the Act and 5 M/s. L & T Access Distribution Services Ltd.
where is the detail on the basis of which expenditures are held to be allowable for amortization under section 35D of the Act.
In these circumstances, we are of the considered view that the issue is required to be remitted back to the AO to decide afresh keeping in view both the pleas raised by the assessee one before the AO and another before the Ld. CIT(A) as to allowability of expenditure under section 37 of the Act or allowability of amortization of the expenses under section 35D of the Act.
Consequently, appeal filed by the Revenue is hereby allowed for statistical purposes. Order pronounced in the open court on 25.08.2022.