MAFATLAL DENIM LTD,MUMBAI vs. DCIT RG 9(2), MUMBAI

The assessee has taken following grounds of appeal: “1:1)The ld. CIT(A) has erred in confirming the action of AO of disallowing the deduction claimed by the appellant u/s 35D of the IT Act, 1961 Rs.1,77,176/-; 2 1:2) The appellant submits that considering facts and circumstances of the case and in law prevailing on the subject the sum of Rs.1,77,176/- is allowable as a deduction u/s 35D of the IT Act, 1961 and the ld. CIT(A) ought to have held as such; (1:3)The appellants submits that the AO be directed to delete the disallowance so made by him and to recompute its total income accordingly.

Brief facts of the issue are that the assessee claimed deduction of Rs.1,77,176/- on account of amortization of preliminary expenses under section 35D of the Act. During the course of assessment proceedings, the AO noted on the basis of perusal of the tax audit report clause 15(a) and (b) that due to non-availability of supporting documents, the deduction actually admissible under section 35D of the Act could not be ascertained and therefore disallowed and added the same to the total income of the assessee by framing assessment under section 143(3) of the Act vide order dated 18.12.2009 assessing the total income of the assessee at Rs.3,07,91,835/- as against returned income of Rs.3,06,14,656/- for the reason that the assessee did not produce any material or evidence to contradict the observations of the tax auditor. Aggrieved by the order of AO, the assessee preferred appeal before the FAA who also dismissed the appeal of the assessee by observing and holding as under : “4. I have considered the issue. I find that the matter was decided by me infavour of the appellant in its appeal for A.Y. 2004-05. However, it is seen that the appellant had claimed deduction in that year being the 9th year of amortization of expenses under section 35D. The present appeal is for the A.Y. 2007-08. The deduction under 3 section 35D is permissible by way of amortization of expenses over a period of 10 years. The 10th year fell in the A.Y. 2005-06. It is not understood as to how the appellant has made the claim in the current year which happens to be 12th year. In the circumstances, I decline to intervene and confirm the disallowance made o f Rs.1,77,178/-“

The ld. AR vehemently submitted before us that the assessee claimed 1/10th of the amortization expenses as per the provisions of section 35D of the Act and the first year of such claim started from assessment year 1998- 99 and finding as given by the FAA were contrary to the facts on record that the 10th year of availing of the said deduction was from assessment year 2005-06 and current assessment year beyond 10th year. The ld. AR drew our attention to the decision of co-ordinate bench of the Tribunal in the case of Mafatlal Denim Ltd V/s Addl.CIT in (AY-2005-06) dated 30.8.2011, wherein it has been mentioned that the preliminary expenses have been ascertained for the first time in the assessment year 1998-99 and therefore it was first year of claim of deduction u/s 35D of the Act and was accordingly allowed by the Tribunal vide para 8 of the order.

On the contrary, the ld. DR objected to the plea put forth by the ld.AR and submitted that the issue be restored to the file of the AO for verification of the facts whether the current year is the 10th year or otherwise.