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Income Tax Appellate Tribunal, ‘A’BENCH,
Before: Shri J. Sudharkar Reddy & Shri S.S.Viswanethra Ravi
Shri S.S. Viswanethra Ravi, JM :-
Both the appeals by the Assessee are against the separate orders of the Commissioner of Income Tax (Appeals), Central- II, Kolkata both dated 13-09-2012 for the assessment years 2008-09 and 2009-10 respectively.
It is noticed that both the appeals were filed with the delay of 135 days and to that effect a petition dated 25-03- 2013 was filed praying to condone such delay stating that Sri Sidh Nath Mehra, one of the directors, who was sole in charge to Income-tax cases died on 01-07-2012 and in his place Sri IT( SS) A No. 53/Kol/13 & ITA No. 955/Kol/13 M/s. Kaushalya Infrstructure Dev. Corprn Ltd 1
Prasant Mehra, director of the company assumed charge of income-tax cases and filed these appeals by consulting the advocate on 25-04-2013. On perusal of the contents therein and upon hearing the both parties, we find that the delay caused in filing the appeal was not wilful and intentional. Accordingly, we condone the said delay and proceed to hear the case on merits.
The only effective issue that is to be decided is whether the CIT-A justified in confirming the disallowance of Rs.91,03,353/- for the A.Ys 2008-09 and 2009-10 made u/s. 35D of the Act in the facts and circumstances of the case. For convenience, the facts arrayed in IT(SS)A No.53/Kol/2013 for the A.Y 2008-09 are read and discussed herein below.
Now, we shall take up the appeal in IT(SS)A No.53/Kol/2013 for the A.Y 2008-09 ( by the assessee).
The brief facts relating to the said appeal are that a search and seizure operation was conducted in pursuance to section 132A of the Act in M/s. Kaushalya Infrastructure Group of cases on 26/27-03-2009 and on subsequent dates at certain places. According to AO, M/s KIDCO is the flagship company of the group and a survey u/s. 133A was also conducted at hotel, M/s. Kaushalya Heritage belonging to such group. Accordingly, a notice u/s. 153A of the Act was issued and in response to which, the assessee filed its return on 28-07-2010 showing total income at Rs.2,74,29,165/- and agricultural income at Rs. 4,56,540/-. IT( SS) A No. 53/Kol/13 & ITA No. 955/Kol/13 M/s. Kaushalya Infrstructure Dev. Corprn Ltd 2
During such proceedings the AO found that the assessee made a claim of deduction u/s. 35D of the Act of Rs.91,03,353/- for both the assessment years under consideration, but, did not claim the same in its original return filed u/s. 139(1) of the Act. Notices u/s. 143(2) and 142(1) dated 27-07-2010 were issued. In response to which, the assessee submitted that it incurred preliminary expenses to an extent of Rs.4,55,16,764/- for issuance of initial public offer (1/5th of (IPO) and claimed Rs.91,03,353/- i.e. Rs.4,55,16,764/-) as deduction u/s. 35D of the Act towards amortization of preliminary expenses. According to AO, the business of M/s. KIDCO [M/s. Kaushalya Infrastructure Development Corporation Limited] had commenced well before FY 2007-08 and in response to such query the Assessee submitted that the said public issue/offer was for the purpose of extension and expansion of its existing undertakings as well as for the purpose of setting up new industrial units. The AO denied granting the said deduction u/s. 35D of the Act by observing firstly that as the Assessee could not furnish any evidence that the said projects started generating power and secondly, that there was no extension of industrial undertaking or setting up of a new industrial unit. The relevant finding of the AO is reproduced herein below:-
“I have considered the reply of the assessee and the facts of the case. The assessee may be setting up power projects at different places but for that it cannot claim deduction u/s.35D for either assessment year 2008-09 or 2009-10 because as per the provision of sec.35D(1), the first year of claim under this section can be done only when the newly set up industrial unit commences production or operation. But, the power projects are in the process of being set up, as stated in the letter, and the assessee Company could not furnish any evidence that those projects had started generating power. Then, we are left with the last condition whether the assessee had made extension of his industrial undertaking. In this matter the assessee IT( SS) A No. 53/Kol/13 & ITA No. 955/Kol/13 M/s. Kaushalya Infrstructure Dev. Corprn Ltd 3
argued during hearing that the Company had invested a part of the IPO Fund in purchase of new machineries and also has undertaken new construction jobs [as is its nature of business] of road, bridges etc. at various sites. Here it is necessary to repeat that the assessee's nature of business is to acquire contracts of construction, widening, strengthening of roads, bridges and various infrastructure jobs of like nature. It always works at sites on contract basis and once the job is over it vacates the sites. So, even if after it received the IPO Fund, deployed part of the fund in purchase of new machineries, thus enhanced its working capacity and started to work at new sites - that does not mean it had extended his industrial undertaking. Such developments can be called expansion of business but definitely it is not synonymous with 'extension of his industrial undertaking'. This is because if it had done strengthening / widening of a road, that road does not become a part of his industrial undertaking (i.e. part of his business asset) during the course of work or even on the completion of work. “
In the first appellate proceedings before the CIT-A the assessee reiterated the same submission made before the AO and contended that the each project undertaken by it is a unique project and equipment purchased and working capital invested are in the nature and purpose in terms of new industrial undertaking and claimed eligibility for a deduction. Besides, the assessee also made alternative arguments to allow the said expenditure as revenue expenditure. The CIT-A found that the assessee could not file any details showing that the new undertakings has actually been set up and commenced the business to become eligible deduction u/s. 35D of the Act. The CIT-A also found that the assessee could not produce any details regarding the nature of expenses incurred. Accordingly, he upheld the impugned finding of the AO in not allowing the same as deduction claimed u/s. 35D of the Act
Regarding the alternative argument claiming the same as revenue expenditure, the CIT-A found that the assessee could not produce any details of such expenditure was incurred as
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revenue expenditure. Relevant findings of the CIT-A are reproduced herein below:
During the course of appellate proceedings the appellant company reiterated the submission made before the AO that it came out with IPO for extension and expansion of business of its existing undertaking as well as setting up new industrial undertaking. Therefore, 1/5th of the expenses incurred on IPO are allowable as deduction u/s 35D of the Act. It is contended by the appellant company that its business is such that each project undertaken is a unique project and thus effectively a new industrial undertaking. The equipment purchased and working capital investments for general corporate purposes was to further the business of the company by extending its undertaking. For instance , with the raised net worth the company was able t qualify for new projects which have higher net worth requirements. It is submitted that after raising of funds the company was able to undertake new complex bridge work projects, new industrial infrastructure development projects, enter the National Highway sector in doing operation and management works for NHAI which the company had never undertaken in past. With respect of investment in subsidiaries and joint ventures, the money was deployed in acquisition of land for undertaking healthcare and educational projects along with residential developments. This was extension of civil engineering skills in new areas and thus extension of undertaking. Therefore, the deduction is allowable u/s 35D of the Act. It is also submitted by the appellant that otherwise deduction of entire expenditure should be allowed as revenue expenditure. The reliance is placed on the decision of Hyderabad ITAT in the case of ITW Signode India Pvt. Ltd. vs. DCIT, ITA Nos. 560 & 566/Hyd/2002. In view of above it is submitted by the appellant that its claim should be allowed either u/s 35D or u/s 37 of the Act.
I have considered the submission of the appellant and perused the assessment order. The facts of the case have already been discussed as above. On careful consideration of the facts and in law, I am of the opinion that the AO has rightly disallowed the claim u/s 35D of the Ac t made by the appellant company for the first time in the return of income filed u/s l53A of the Act. I agree with the view of the AO that merely acquisition of some new plant and machineries for executing civil contracts does not mean that there was extension of existing undertaking. I find no force in the submission of the appellant that each civil project awarded to the company is to be treated as new unit. The appellant has also failed to prove that new ventures being set up by him, were actually set up and commences the business to make the appellant eligible for deduction u/s 35D of the Act. Further, in the course of appellate proceedings, the appellant was asked to furnish the details and nature of expenses incurred and claimed u/s 35D. But, no such detail or explanation was submitted by the appellant company. The AO has rightly observed that in the year under consideration there was neither extension of the unit nor any new unit was set up. Therefore, the appellant is not entitled for deduction u/s 35D of the Act. The alternate claim of the appellant u/s 37 is also allowable because it has failed to prove that the expenditure was revenue in nature. No details of expenditure were filed. In the case of CIT vs. Shasun Chemicals and Drugs Ltd. 199 Taxman 107 (Mad), it is held that in the absence of complete details the assessee is not eligible for deduction u/s 35D. In the case of Medreich Ltd. vs. DCIT 15 Taxmann.com 371 (Bangalore), it is held that expenses incurred by assessee company on issue of shares so as to increase its capital base to be used for various purposes did not qualify to be amortised u/s 35D of the Act. In the case of Ansal Housing & Construction Ltd. vs. CIT, 185 Taxman 74 (Delhi), it is held that the assessee engaged in the IT( SS) A No. 53/Kol/13 &
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business of construction would not be held as 'industrial undertaking' within the meaning of section 35D for the purpose of allowing deduction under said section. In the case of appellant company the shares were issued for the purpose of increasing capital base and the fund was utilized for purchase of capital assets etc. and for working capital. The company is also engaged in the business of civil construction. Therefore, in view of above judicial pronouncements, no deduction u/s 35D or 37 is allowable to the appellant. There is one more aspect in the year under consideration due to which claim u/s 35D is not allowable to the appellant company. This aspect is that the company had not claimed deduction u/s 35D in its original return. The claim was made for the first time in the return filed u/s 153A. However, it has judicially been held that all assessee cannot make a new claim u/s 153A if not made originally in the return filed u/s 139(1 ) of the Act. The reliance is placed on the decision in the case of Charchit Agarwal vs. DCIT, 129 TTJ 438 (Delhi) and Sun City Alloys P. Ltd vs. ACIT, 124 TTJ 674 (Jodhpur). In the case of Sun City Alloys, it is held that the proceedings u/s. 153A do not constitute de-novo assessment. The assessee is precluded from raising any fresh claim after expiration of time allowed to file revised return u/s. 139(5). Therefore, no fresh or revised claim can be raised in the assessment made u/s. 153A. Similar finding has been rendered in the case of Charchit Aggarwal where the assessee not allowed to change the method of valuation of closing stock in the course of proceedings u/s. 153A. In the case of appellant, in the year under consideration, the claim was made u/s. 153A and hence not allowable. In view of above, disallowance of Rs.91,03,353/- u/s. 35D made by the AO is confirmed. The ground no.2 is dismissed.
Before us, the Ld.AR reiterated the submissions as made before the both the lower authorities below. The Ld.DR relied on the orders of CIT-A and AO and urged to dismiss the grounds raised in the appeal.
Heard rival submissions and perused the material evidence available on record. It is observed that the Assessee claimed deduction of Rs.91,03,353/- the which amount being 1/5th of preliminary expenditure said to have been incurred for issuance of initial public offer(IPO). The AO found the said amount is being reflected in the balance sheet prepared as on 31-03-2008 and therefore, rejected the claim under (i) subsection 1 of section 35D of the Act by observing that the business of the Assessee had started well before the FY 2007-08 relevant to the year consideration. We find no infirmity in denying the benefit IT( SS) A No. 53/Kol/13 & ITA No. 955/Kol/13 M/s. Kaushalya Infrstructure Dev. Corprn Ltd 6
of deduction (i)(1)35D of the Act by the AO and CIT-A. It is also observed from the record the Assessee submitted a reply for the both the AY’s 2008-09 and 09-10 by stating that it issued an IPO for the purpose of extension and expansion of existing undertakings. According to Assessee, each project is a unique and separate and the funds realised from the IPO were deployed as working capital and to purchase equipment to the said projects and claimed entitlement under (ii)(1) of Section 35D of the Act. The AO opined that the deployment of funds from IPO is only enhanced the working capacity and it is not an extension of existing industrial undertaking. The CIT-A confirmed the disallowance as made by the AO by observing that mere acquisition of some new plant and machinery for executing civil contracts can not be termed as an extension of existing undertaking. For useful reading we may refer to the provision as contemplated U/Sec 35D of the Act of Finance Act 2007 relevant to the year under consideration.
Section - 35D, Income-tax Act, 1961-2007 Amortisation of certain preliminary expenses. 35D. (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 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 industrial undertaking or in connection with his setting up a new industrial 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 industrial undertaking is completed or the new industrial unit commences production or operation:
A plain reading of the above provision explains that an Assessee is entitled to claim the expenditure as incurred before the commencement of the business as a deduction under (i)
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subsection 1 of section 35D of the Act. In the present case the AO found an amount of Rs.91,03,353/- that as reflected in the balance sheet as on 31-03-2008 and admittedly it is not the first FY i.e 2007-08 i.e relevant to the AY under consideration the Assessee commenced its business and therefore, the AO rightly denied the benefit under clause (i) subsection 1 of section 35D of the Act as confirmed by the CIT-A. Thus, the in our opinion, the Assessee does not fall under clause (i) subsection 1 of section 35D of the Act to claim deduction.
Clause (ii) subsection 1 of section 35D of the Act explains that an Assessee is entitled to claim benefit in relation to the expenditure incurred in connection with the extension of its industrial undertaking or in connection with his setting up a new industrial unit after the commencement of its business. Whereas we find from the record that an IPO was issued for the purpose of extension and expansion of existing undertakings and the funds realised from the IPO were deployed as working capital and to purchase equipment to the said projects. Therefore, we are of the view that the Assessee could not put up any evidence to show that the funds realised under IPO were utilised for the extension of existing undertaking or in connection with his setting up a new industrial unit. Thus, we do not see any reason to interfere with the orders of AO and CIT-A and they are justified and accordingly, effective ground as raised by the Assessee fails and dismissed.
This appeal of assessee (ITA No. 53/Kol/2013) is dismissed as stated above.
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Now, we shall take up the appeal in ITA No.955/Kol/2013 for the A.Y 2009-10 (by the assessee).
We find that the issue raised in this appeal is similar and the facts therein are identical to the facts already discussed in the aforementioned paras in this order, except to the variations in calculations. Therefore, in view of the discussion and decision as rendered therein, we uphold the orders of AO and CIT-A and accordingly, effective ground as raised by the Assessee fails and dismissed.
This appeal of assessee is dismissed.
In the result, the appeals of the Assessee are dismissed. ORDER PRONOUNCED IN OPEN COURT ON 28-02-2017
Sd/- Sd/-
J. Sudhakar Reddy S.S. Viswanethra Ravi Accountant Member Judicial Member Dated 28-02-2017 *PP/SPS: Copy of the order forwarded to:
The Appellant/Assessee: M/s. Kaushalya Infrastructure Development Corporation Limited HB-170 Sector III, Salt Lake City, Kolkata-106. 2 The Respondent/Department: The DCIT, CC-XVIII, 110 Shanti Palli, Kolkata-107. 3 The CIT(A)
IT( SS) A No. 53/Kol/13 & ITA No. 955/Kol/13 M/s. Kaushalya Infrstructure Dev. Corprn Ltd 9
The CIT DR, Kolkata Bench 5.
Guard file. By Order, Asstt. Registrar
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