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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI & SHRI G. PAVAN KUMAR
आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:
For the assessment year 1999-2000 cross appeal filed by the assessee and Revenue against the order of the Commissioner of Income Tax (Appeals)-11, Chennai, in (New ITA No.19/CIT(A)-11/2013-14), Dated 12.03.2015 passed u/s.143(3) r.w.s 147 of the Income Tax Act, 1961 and the assessee filed appeald against order of Commissioner of Income Tax (Appeals)-11, Chennai, dated 11.03.2015 in ITA No.693 & 1098/2013-14( New ITA No.23 & 389/CIT(A)-11/2013- 14) for the assessment years 2000-01 and 2005-2006.
Assessee raised two grounds in appeal. First ground challenging reopening of assessment u/s.147 of the Act and next ground on disallowance of share issue expenditure. The ld. Authorised Representative for assessee at the time of hearing has not pressed first ground of re-opening of assessment and endorsed on the grounds of appeal. Accordingly, the Tribunal considered the second ground for adjudication. Since the grounds is common common in all the appeals, we take up for hearing. , 1347, 1348 :- 3 -: & 1559/Mds/2015
The Brief facts of the case are that the assessee 3. company is engaged in manufacture and sale of sugar and also involved in production of spirits and cogeneration of power. The Assessing Officer has disallowed share issue expenses on the ground that share issue expenditure is capital expenditure and relied on the decisions of the Brooke Bond India Limited vs. CIT, 225 ITR 798 (SC) and Punjab State Industrial Corporation vs. CIT 225 ITR 792 (SC). The ld. Authorised Representative submitted that the share issue expenses are incurred in connection with the extension of its industrial undertaking in earlier years and the same to be allowed as Revenue expenditure or alternatively share issue expenditure to be treated as deferred revenue expenditure over a period of ten years u/s.35D of the Act and the ld. Commissioner of Income Tax (Appeals) in the assessee own case for the assessment year 1991-92 allowed the claim. The Assessing Officer considered the information but disallowed share issue expenses alongwith other disallowances. Aggrieved by the order of the Assessing Officer, the assessee has assailed an appeal before the Commissioner of Income Tax (Appeals). , 1347, 1348 :- 4 -: & 1559/Mds/2015
In the appellate proceedings, ld. Authorised 4.
Representative emphasized that such deduction is allowable to the assessee and accepted by the Revenue. The ld.CIT(A) in the assessment year 1991-92 has allowed similar claim. But the ld. Commissioner of Income Tax (Appeals) relied on the assessment order and decision of the Apex Court in the case of Brooke Bond India Ltd (supra) confirmed the disallowance on share issue expenses. Assessee aggrieved by the order of the Commissioner of Income Tax (Appeals) has filed an appeal before the Tribunal.
The ld. Authorised Representative for assessee raised ground against for disallowance of share issue expenses and submitted that Assessing Officer relied on the decision of assessment year 1969-70 on question of share issue expenses to be treated as capital or revenue expenditure. But the assessee’s deduction is on different footing on Amortization of certain preliminary expenses u/s.35D. Share issue expenditure claimed by the assessee for the assessment year 1999-2000 pertains to the 10th installment of the first rights share issue expenditure incurred in the year 1990 and such expenditure was claimed in ten equal installments from the assessment year 1991-92 onwards and the balance share issue expenditure incurred in 4th installment of , 1347, 1348 :- 5 -: & 1559/Mds/2015 Second right share issue in 1996 and claimed in ten installments from assessment year 1997-98 onwards and details of share issue expenditure are not disputed by the Assessing Officer. Share issue expenditure is allowed as deduction u/s.35D (2)(c) read as under:-
(c) where the assessee is a company, also expenditure- (i) by way of legal charges for drafting the Memorandum and Articles of Association of the company;
(ii) On printing of the Memorandum and Articles of Association ;
(iii) By way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956) ; (iv) In connection with the issue ,for pubic subscription of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus; Assessee filed share issue expenditure stated at Page No.41 & 42 of paper book and such expenses comply with the nature of expenditure envisaged under the provisions of Sec. 35D of the Act.
The ld.AR further emphasized that right issue expenditure has been allowed from assessment year 1991-1992 and 10th and last installment for assessment 1999-2000. The ld. Authorised Representative relied on the order of Commissioner of Income Tax (Appeals) in 51/1995-96, 186/96-97, dated , 1347, 1348 :- 6 -: & 1559/Mds/2015 17.03.1997 referred at page 23 of paper book relevant to assessment year 1991-92 has allowed the deduction of share issue expenditure at page No.13 of the CIT order as under:-
However, the main ground of the appellant with regard to its claims of deduction /amortization of 1/10th of the share issue expenditure merits attention. Admittedly, the appellant went for a public issue of equity shares pursuant to a prospectus for raising capital to finance setting uptof new projects. Thus, the expenditure on the public issue was only in connection with the extension of its industrial undertaking or in connection with setting up of new projects, which would qualify for deduction u/s.35D(1)(2) r.w.s. 35D(2) (c)(iv). Section 35D(2) (c)(iv) envisages expenditure in connection with the issue for public subscription of shares in or debentures of the company, being underwriting commission, brokerage and charges for printing, typing, advertisement of the prospectus etc., Since the appellant has gone for a public issue during the relevant accounting period, the Assessing Officer will not be justified in refusing its claim of deduction u/s.35D. I would, therefore direct the Assessing Officer to allow the appellant’s claim of deduction u/s.35D for the relevant year with reference to 10% of the total expenditure, comprising of only the items of expenditure in connection with the issue as mentioned in Section 35D(2)(c)(iv).
Further to substantiate the claim, supported his argument with judicial decisions and claimed support from the facts of the case of share issue expenses as held in the following cases.
(i) CIT vs. Shree Synthetics Ltd (1986) 162 ITR 0819. (ii) CIT vs. Multi Metals Ltd (1991) 188 ITR 0151. and requested the Tribunal to consider the legal and factual position of expenditure which was allowed from earlier assessment years to the assessee by the Revenue. , 1347, 1348 :- 7 -: & 1559/Mds/2015
On the other hand, the ld. Departmental Representative 6. relied on the orders of the lower authorities and prayed for dismissal of appeal. For the assessment year 1999-2000 the Revenue has raised the ground against the order of the CIT(A) were the expenditure on interest on borrowed capital incurred on shifting plant and machinery was capitalized in the books of account and same claimed as revenue expenditure. The ld.CIT(A) deleted the addition in his order at para 14 of page No.7 of the order in paper book.
‘’We have perused the orders of authorities below and heard the rival contentions. Undisputedly facts are that the assessee was carrying only manufacture and sale of sugar. It is also not disputed that interest expense were incurred on loans taken for the purpose of shifting or for the purpose of working capital. There was no new line of business. Assessee was already doing business of sugar manufacture. We fully agree with the line of argument taken by the ld.AR that interest on loans being taken by an existing business even if the shifting was considered as an expansion would be eligible for deduction u/s.36(1) (iii) of the Act. This position of the law laid down by the Hon’ble Apex Court in the case of Core Health Care Ltd(supra) has been reiterated in the case of L.K.Trust (supra). Revenue has no case that there was any new line of business of sugar manufacture. This being so, ld. CIT(A) was well justified in deleting the disallowance. There being no need for interference, we dismiss ground No.3 raised by the Revenue.’’ Further the ld. Departmental Representative submitted that Revenue has filed an appeal u/s.260A of the Act against order of , 1347, 1348 :- 8 -: & 1559/Mds/2015 the Tribunal in for the assessment year 2003-2004 in the assessees own case and the matter is pending before the Hon’ble High Court and pleaded for set aside the order of the ld.CIT(A) on this ground.
The ld. Authorised Representative of the assessee relied on the orders of the ld. Commissioner of Income Tax (Appeals) for interest on borrowed capital for assessment year 1999-2000.
We heard the rival submissions of both the parties, perused the material on record and also judicial citations quoted.
The assessee for the assessment year 1999-2000, 2000-2001 and 2005-2006 has claimed right share issue expenditure u/s.35D of the Act amortized for 10 years and installment falling in the respective assessment year successively. In the assessment proceedings, the Assessing Officer has not disputed the genuiness and verified the expenditure and satisfied with the nature of expenditure but disallowed the claim which was allowed from earlier years relying on the decisions without making distinction of deferred revenue expenditure and capital expenditure. The assessee company has incurred expenditure on rights issue for the expansion of business operations and such expenditure comply the , 1347, 1348 :- 9 -: & 1559/Mds/2015 test of business expediency and incurred wholly and exclusively for the purpose of business. The ld. Commissioner of Income Tax (Appeals) has overlooked the earlier orders and relied only on the precedent, without considering the submissions and current status of claim of expenditure and the judicial decisions relied by the assessee and confirmed the order of the Assessing Officer. It is apparent on the facts of the case and type of expenditure being Revenue in nature and rely on jurisdictional High Court decision in the case of CIT vs. Ashok Leyland Ltd 349 ITR 663(Mad) where the lordship observed at page 671 as under:-
‘’In the light of the law thus declared as the meaning of the phrase "being", we have no hesitation in holding that the expenditure that qualified for consideration under section 35D is restricted by reason of use of the phrase "being". Thus, expenditure incurred in connection with the issue of shares and debentures of the company to public subscription, which qualify for consideration under section 35D, are underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus and nothing more. There is a residual clause to clause (d), which shows such other items of expenditure not being expenditure eligible for any allowance or deduction under any other provisions of the Act as may be prescribed. Thus, other than what is , 1347, 1348 :- 10 -: & 1559/Mds/2015 contemplated under clause (d), if there are still other expenditure in connection with the commencement of business or in connection with the expansion of the industrial undertaking after the commencement of the business or in connection with the set up of a new industrial unit, the same would also qualify for amortisation under section 35D. In the light of the above discussion, we hold that the rates of expenditure which would go for amortisation under section 35D, particularly with reference to clause (c)(iv) of sub-section (2) of section 35D, would be only those expenditure which are specifically mentioned therein and nothing beyond’’.
In the light of the above decision, the share issue expenditure incurred by the assessee falls within the clause of Sec.35D of the Income Act. Therefore, we direct the Assessing Officer to delete the additions made in the assessment and allow the share issue expenditure for assessment years 1999-2000, 2000-2001 and 2005- 06 and Revenue appeal for the assessment year 1999-2000 is concerned, the Revenue has not accepted the decision of the Tribunal and has filed an appeal u/s.260A of the Act before the High Court for the assessment year 2003-2004 and same is pending. We are of the opinion that mere pendency of appeal before High Court of Madras , 1347, 1348 :- 11 -: & 1559/Mds/2015 cannot be a reason to take a different view. Accordingly, the Revenue appeal is dismissed.
In the result, the appeals of the assessee are partly 9. allowed and the Revenue appeal is dismissed.
Order pronounced on Friday, the 18th day of December, 2015, at Chennai.