M/s. ATS Estate (P) Ltd., New Delhi V. ACIT, New Delhi

CO 421/DEL/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7964 (ITAT-DELHI)
• Duration Of Justice: 1 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 23-10-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BHIM SINGH SENIOR
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.4903/DEL./2012 (ASSESSMENT YEAR : 2008-09) ACIT, CIRCLE 2 (1), VS. M/S. ATS ESTATES (P) LIM ITED, NEW DELHI. 711 / 92, DEEPALI BUILDING, NEHRU PLACE, NEW DELHI 110 019. (PAN : AAGCA3054K) CO NO.421/DEL/2012 (IN ITA NO.4903/DEL./2012) (ASSESSMENT YEAR : 2008-09) M/S. ATS ESTATES (P) LIMITED, VS. ACIT, CIRCLE 2 (1), 711 / 92, DEEPALI BUILDING, NEW DELHI. NEHRU PLACE, NEW DELHI 110 019. (PAN : AAGCA3054K) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DEEPAK KAPOOR, CA REVENUE BY : SHRI BHIM SINGH, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJE CTION FILED BY THE ASSESSEE EMANATE FROM THE ORDER OF LD. CIT (APPEAL S)-V, NEW DELHI DATED 06.07.2012. ITA NO.4903/DEL./2012 CO NO.421/DEL/2012 2 2. THE ASSESSEE COMPANY WAS INCORPORATED ON 21.03.2 007. THE RETURN OF INCOME FOR ASSESSMENT YEAR 2008-09 FILED ON 30.09.2 008 WHICH WAS REVISED ON 28.05.2010. THE COMPANY IS ENGAGED IN THE BUSIN ESS OF CONSTRUCTION AND DEVELOPMENT OF RESIDENTIAL/ COMMERCIAL COMPLEX/ TOW NSHIP. DURING THE RELEVANT FINANCIAL YEAR, THE ASSESSEE COMPANY HAS A CQUIRED DEVELOPMENT RIGHTS IN THE LAND AT DERA BASSI, PUNJAB. DURING T HE YEAR, THE ASSESSEE COMPANY HAS PAID RS.92,20,500/- AS FEES TO THE ROC FOR INCREASE IN THE AUTHORIZED CAPITAL. ASSESSEE CLAIMED 1/5 TH OF THIS AMOUNT AS REVENUE EXPENDITURE BY CLAIMING THAT IT IS COVERED AS PER C LAUSE (C) OF SECTION 35D(2) OF THE INCOME-TAX ACT, 1961. ASSESSING OFFICER DID NOT ALLOW IT IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BR OOKE BOND INDIA LTD. VS. CIT 225 ITR 798 (SC), BHARAT CARBON & RIBBON MFG. CO.LTD. VS. CIT 127 ITR 239 (DELHI) AND ALSO PUNJAB STATE INDUSTRIA L DEVELOPMENT CORPORATION LTD. VS. CIT (1997) TAXMAN 5 (SC). THE AMOUNT WAS ADDED TO THE INCOME OF THE ASSESSEE. IN THE APPEAL BEFORE T HE CIT (A), THE RELIEF WAS GRANTED TO ASSESSEE BY HOLDING AS UNDER :- (I) FROM THE ASST. ORDER IT MAY BE SEEN THAT THE C OMPANY WAS INCORPORATED ON 21.3.2007 AND IT IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF RESIDENTIAL/COMMERC IAL COMPLEXES AND TOWNSHIPS; DURING THE YEAR IT HAD ACQ UIRED DEVELOPMENT RIGHTS ON LAND AT DERA BASSI(PUNJAB) AN D SHOWN INTEREST AND MUTUAL FUNDS ETC. THE AO HAS HIMSELF A CCEPTED THAT THIS IS THE FIRST YEAR OF THE APPELLANT'S BUSINESS. THE AUDITED BALANCE SHEET ALSO SHOWS THAT THIS IS THE FIRST YEA R OF THE APPELLANT'S BUSINESS. THEREFORE, THE EXPENDITURE UN DER CONSIDERATION WAS MADE BEFORE THE COMMENCEMENT OF T HE ITA NO.4903/DEL./2012 CO NO.421/DEL/2012 3 BUSINESS AND IT IS NOT FOR EXPENDING THE CAPITAL BA SE OF THE APPELLANT; RATHER IT IS FOR RAISING THE CAPITAL. TH EREFORE, PROVISION OF SEC.35D(2)ARE APPLICABLE. (II) THE APPELLANT'S VERSION THAT THE JUDGEMENT REF ERRED TO BY THE AO ARE NOT APPLICABLE KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES APPEARS TO BE IN ORDER BECAUSE THESE JUDGEMENTS DO NOT DEAL WITH THE EXPENDITURE OF INCORPORATING T HE COMPANY AND FEES PAID TO THE ROC IN THE FIRST YEAR OF ITS B USINESS. (III) THE CLAIM MADE BY THE APPELLANT IS COVERED UN DER SUB- SECTION (2)(C)(III) & (IV) OF SECTION 35D. IN VIEW OF THE ABOVE DISCUSSION, THE ADDITION MADE BY THE AO IS DELETED AND THE GROUNDS OF APPEAL ARE ALLOWED . 3. THE REVENUE HAS FILED THE APPEAL BEFORE US BY TA KING FOLLOWING GROUNDS OF APPEAL :- 1. THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN DEL ETING THE ADDITION MADE ON ACCOUNT OF ROC FEES AMOUNTING TO RS.18,44,100/-. 2. THE LD. CIT(A) ERRED ON FACTS AND IN LAW WITHOUT APPRECIATING THE FACT THAT THE SAID EXPENDITURE IS A CAPITAL EXPENDITURE AS IT IS CLEARLY RELATING TO INCREASE I N AUTHORIZED SHARE CAPITAL IGNORING THE DECISION OF HON'BLE SUPR EME COURT IN THE CASE OF BROOKE BOND INDIA LTD. VS. CIT 225 ITR 798 (SC). THE AMOUNT IS NOT REGISTRATION FEE OF COMPANY ONLY. 3. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) O F APPEAL AT ANY TIME BEFORE OR DURING THE HEARING. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUND IN THE CROSS OBJECTION :- THE ALLOWANCE OF PRELIMINARY EXPENDITURE UNDER SEC TION 35D OF THE ACT, BY THE LEARNED CIT (APPEALS) DESERVES TO B E UPHELD ON THE FOLLOWING, INTER ALIA, GROUNDS. ITA NO.4903/DEL./2012 CO NO.421/DEL/2012 4 1. BECAUSE ASSESSMENT YEAR 2008-09 IS THE FIRST ASS ESSMENT YEAR OF THE ASSESSEE COMPANY AS THE COMPANY WAS INCORPORATED ON 21-03-2007. IT IS NOT A CASE WHERE THE ASSESSEE COMPANY EXPANDED ITS BUSINESS IN SUBSEQUEN T YEARS BY RAISING ITS SHARE CAPITAL. 2. BECAUSE FEES FOR REGISTERING THE COMPANY UNDER T HE PROVISIONS OF THE COMPANIES ACT, 1956 DULY QUALIFIE S FOR DEDUCTION UNDER SECTION 35D. 3. BECAUSE EXPLANATION TO SUB-SECTION 3 OF SECTION 35D DULY PROVIDES THAT THE COST OF THE PROJECT AND/OR CAPITA L EMPLOYED IN THE BUSINESS OF THE COMPANY HAS TO BE WORKED OUT ON THE LAST DAY OF THE PREVIOUS YEAR IN WHICH THE BUSINESS OF THE COMPANY COMMENCES. 4. BECAUSE THE FACTS IN THE CASE OF BROOKE BOND IND IA LTD. VS. CIT 225 ITR 798(SC) ARE DISTINGUISHABLE AND THE RATIO OF JUDGEMENT IN THE SAID CASE IS NOT APPLICABLE TO THE CASE OF ASSESSEE COMPANY. 5. THE ASSESSEE CRAVES LEAVE FOR RESERVING THE RIGH T TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEA L AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 4. WE HAVE HEARD BOTH THE SIDES IN THE APPEAL AS WE LL AS IN THE CROSS OBJECTION. THE ONLY ISSUE INVOLVED IN THE APPEAL F ILED BY THE REVENUE IS DELETING THE ADDITION OF 1/5 TH OF THE ROC FEES OF RS.18,44,100/- WHEREAS THE ASSESSEE HAS SUPPORTED THE ORDER OF THE CIT (A) IN THE CROSS OBJECTION. THE ASSESSEE COMPANY WAS INCORPORATED ON 21.03.2007. T HUS, THE INCORPORATION OF THE COMPANY WAS NOT DURING THE FINANCIAL YEAR RE LEVANT TO ASSESSMENT YEAR 2008-09. SECONDLY, THIS AMOUNT WAS NOT SPENT TOWAR DS THE REGISTRATION FEE OF THE COMPANY. IT WAS PAID FOR INCREASE IN THE AUTHO RIZED SHARE CAPITAL. SUCH ITA NO.4903/DEL./2012 CO NO.421/DEL/2012 5 ISSUE HAS BEEN DECIDED BY HON'BLE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LTD., CITED SUPRA, WHERE THE HON'BLE SUPREME COURT HAS HELD AS UNDER :- EXPENDITURE INCURRED BY A COMPANY IN CORRECTION W ITH ISSUE OF SHARES, WITH A VIEW TO INCREASE ITS SHARE CAPITAL, IS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BA SE OF THE COMPANY, AND IS CAPITAL EXPENDITURE, EVEN THOUGH IT MAY INCIDENTALLY HELP IN THE BUSINESS OF THE COMPANY AN D IN THE PROFIT-MAKING. IN OUR CONSIDERED VIEW, THIS ISSUE IS SQUARELY COVE RED BY THE AFORESAID DECISION OF HON'BLE SUPREME COURT. THE ASSESSEES RELIANCE ON THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. MULTI METALS LTD. REPORTED IN 188 ITR 151 (RAJASTHAN) IS ALSO OF NO H ELP. THIS ORDER OF HON'BLE RAJASTHAN HIGH COURT IS DATED 27.10.1990 WHICH IS P RIOR TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BROOKE BOND IN DIA LTD. WHICH IS DATED 27.02.1997. FURTHER, THE FACTS OF THE CASE SHOW TH AT THE AMOUNT SO SPENT IS NOT COVERED BY ANY PROVISION OF SECTION 35(2) OF THE AC T. IN VIEW OF THESE FACTS, WE HOLD THAT THE CIT (A) WAS NOT JUSTIFIED IN GRANT ING THE RELIEF. RATHER THE FACTS RECORDED BY THE CIT (A) IN ITS ORDER ARE CONT RADICTORY TO SOME EXTENT. AT THE ONE HAND, HE HAS RECORDED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF RESIDENTIAL/ COMMER CIAL COMPLEX/ TOWNSHIP AND DURING THE YEAR HAS ACQUIRED DEVELOPMENT RIGHTS ON LAND AT DERA BASSI, PUNJAB, ON THE OTHER HAND, HE HAD ALSO RECORDED THAT THE EXPENDITURE WAS MADE BEFORE THE COMMENCEMENT OF BUSINESS AND IT IS NOT FOR THE CAPITAL BASE OF THE ASSESSEE, RATHER IT IS FOR RAISING THE CAPITAL. IN OUR CONSIDERED VIEW, THIS FINDING ITA NO.4903/DEL./2012 CO NO.421/DEL/2012 6 OF THE CIT (A) IS NOT CORRECT. IN OUR CONSIDERED V IEW, THE CIT (A) WAS NOT JUSTIFIED IN GRANTING THE RELIEF, THEREFORE, WE SET ASIDE THE ORDER OF THE CIT (A) AND RESTORE THE ORDER OF THE ASSESSING OFFICER. AS WE REVERSED THE ORDER OF THE CIT (A), THE CROSS OBJECTION FILED BY THE ASSES SEE IS ACCORDINGLY DISMISSED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 23 RD DAY OF NOVEMBER, 2012. SD/- SD/- (U.B.S. BEDI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 23 RD NOVEMBER, 2012 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-V, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.