M/s. Rohit Ferro Tech Limited, Kolkata V. DCIT, Circle - 1, Kolkata, Kolkata

ITA 1052/KOL/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0510 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 29-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASS ESSMENT YEAR HAS T
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 115JB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOLKATA [ BEFORE SHRI P.K.BANSAL , A . M . & SHRI MAHAVIR SINGH , J.M. ] I.T. A . NO. 1 05 2 /KOL/20 1 1 : ASSESSMENT YEAR : 20 0 7 - 08 M/S. ROHIT FERRO TECH LIMITED VS - DCIT , CIRCLE - 1, KOLKATA ( APPELLANT) (PAN: A ACCR 1593A ) ( RESPONDENT ) DATE OF CONCLUDING THE HEA RING : 2 9 . 05 .201 5 DATE OF PRONOUNCING THE ORDER : 10 .06. 201 5 APPEARANCES : F OR THE DEPARTMENT : SHRI PINAKI MUKHERJEE, SR. DR : FOR THE AS SESSEE : SHRI MANISH TIWARI, FCA O R D E R PER SHRI P.K.BANSAL, A .M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) - I , KOLKATA DATED 16 . 05 .20 1 1 FOR THE ASS ESSMENT YEAR 20 0 7 - 08. 2. THE ASSESSEE HAS TAKEN AS MANY AS FOUR GROUNDS OF APPEAL BUT SINCE GROUND NOS. 2 AND 3 WERE NOT PRESSED, THEREFORE, THE SAME STAND DISMISSED, AS NOT PRESSED. NOW THERE SURVIVE ONLY FOLLOWING TWO GROUNDS FOR OUR ADJUDICATION. 1. THAT ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS WRONG AND UNJUSTIFIED IN NOT APPRECIATING THE FACTS FOR ALLOWABILITY OF RS.39,67,262/ - U/S.35D OF I.T. ACT, 1961. 4. THAT ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS PROCEEDED ON ERRONEOUS BELIEF AND MISCONCEPTION OF LAW IN CONFIRMING THE ORDER OF ASSESSING OFFICER WHO ENHANCED THE BOOK PROFIT BY RS.15,00,095/ - IN RESPECT OF FD INTEREST AND 2 IT A NO. 1 05 2 /KOL/201 1 M/S. ROHIT FERRO TECH LIMITED : A. Y R: 20 0 7 - 08 R S.7,10,093/ - IN RESPECT OF PROVISIONS FOR GRATUITY, CONTRARY TO EXPLANATION 1 OF SECTION 115JB OF I.T. ACT, 1961. 3 . GROUND NO.1 RELA TES TO THE DISALLOWANCE OF RS.39,67,262/ - UNDER SECTION 35D OF THE INCOME - TAX ACT. BRIEF FACTS RELATING TO THIS GROUND ARE THAT THE ASSESSEE HAS INCURRED A SUM OF RS.39,67,262/ - AS SHARE ISSUE EXPENSES IN RESPECT OF INCREASE IN THE SHARE CAPITAL FOR SETTIN G UP OF A NEW UNIT AT JAJPUR, ORISSA. THE AO TOOK THE VIEW THAT THE EXPENSES RETAIN THE CHARA CTER OF A CAPITAL EXPENDITURE S INCE THE EXPENDITURE IS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL B ASE OF THE COMPANY, FOLLOWING THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL CORPORATION LTD. VS - CIT 225 ITR 792 (SC). WHEN THE MATTER WENT BEFORE THE CIT(A), BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT HE CLAIMED THAT THE COMPANY DECIDED TO RAISE CAPITAL BY PUBLIC ISSUE FOR JAJPUR FACTORY UNIT IN THE IMMEDIATE PRECEDING YEAR. THE PROCESS WAS COMPLETED IN THE PRESENT YEAR AND AS PER SCHEDULE 13 OF THE BALANCE - SHEET, THE ASSESSEE HAS INCURRED UPTO THE SHARE AMOUNTING TO RS.1,98,36,310/ - AND DURING THE YEAR, THE ASSESSEE HAS A MORTIZED 1/5 TH OF THE EXPENDITURE AMOUNTING TO RS.39,67,262/ - , WHICH WAS CLAIMED UNDER SECTION 35D OF T HE INCOME - TAX ACT , A S THE EXPENDITURE HAS BEEN INCURRED FOR THE EXPANSION OF THE UNDERTAKING . T HE CIT(A) CONFIRMED THE ORDER OF THE AO MERELY OBSERVING THAT THE ASSESSEE FAILED TO DISTINGUISH THE CASE RELIED UPON BY THE AO IN THE ASSESSMENT ORDER. 4 . WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW . WE NOTED THAT THE DECISION OF THE HON B LE SUPREME COURT IN THE CASE OF 3 IT A NO. 1 05 2 /KOL/201 1 M/S. ROHIT FERRO TECH LIMITED : A. Y R: 20 0 7 - 08 PUNJAB STATE INDUSTRIAL CORPORATION LTD. VS - CIT ( SUPRA ) RELATES TO THE PAYMENT OF FEES TO THE REGISTRAR OF COMPANIES FOR THE ISSUE OF THE SHARE CAPITAL. THE SAID DECISION HAS BEEN FOLLOWED BY THE HON BLE SUPREME COURT IN T HE CASE OF BROOK BOND INDIA LTD. VS - CIT 225 ITR 798. THE DECISION IN THE CASE OF PUNJAB STATE INDUSTRIAL CORPORATION LTD. VS - CIT ( SUPRA ) DOES NOT RELATE TO THE OTHER EXPENSES RELATED TO THE ISSUE OF SHARE CAPITAL. WE HAVE PERUSED THE PROVISIONS OF SECT ION 35D(2)(C)(IV). WE NOTED THAT THIS PROVISO MAKE THE FOLLOWING EXPENDITURE TO BE ELIGIBLE FOR DEDUCTION , AS PER THE PROVISION OF SECTION 35D(2)(C)(IV) IN CONNECTION WITH THE ISSUE, FOR PUBLIC SUBSCRIPTION, OF SHARES IN OR DEBENTURES OF THE COMPANY, BEIN G UNDERWRITING COMMISSION, BROKERAGE AND CHARGES FOR DRAFTING, TYPING, PRINTING AND ADVERTISEMENT OF THE PROSPECTUS . IN VIEW OF THIS SPECIFIC PROVISION OF THE EXPENSES RELATING TO THE ISSUE OF THE SHARES FOR PUBLIC SUBSCRIPTION ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 35D, EXCEPT THE FEES PAID TO THE REGISTRAR OF COMPANIES AS THAT HAS NOT BEEN SPECIFICALLY INCLUDED UNDER SECTION 35D(2)(C)(IV). SECTION 35D(1) ALLOWS AN ASSESSEE A DEDUCTION OF AN AMOUNT EQUAL TO 1/5 TH OF THE EXPENDITURE OF EACH OF THE FIVE SUCCESSIVE PREVIOUS YEARS, IF THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE, AFTER THE COMMENCEMENT OF HIS BUSINESS IN CONNECTION WITH EXTENSION OF HIS UNDERTAKING OR IN CONNECTION WITH HIS SETTING UP A NEW UNIT. IT IS NOT DENIED THAT THE ASSESSEE HAS INCURRED THE SAID EXPENDITURE FOR THE PURPOSE OF SETTING UP A NEW UNIT AT JAJPUR, ORISSA. THEREFORE, IF THE DECISION OF THE HON BLE SUPREME COURT IS READ ALONG WITH THE PROVISIONS OF SECTION 35D WHERE THE ASSESSEE HAS INCURRED THE EXPENDITURE FOR THE ISSUE OF SHARE CAPITAL BUT BY WAY OF PAYMENT OF FEES TO THE REGISTRAR OF COMPANIES, THE FEES PAID TO THE REGISTRAR OF 4 IT A NO. 1 05 2 /KOL/201 1 M/S. ROHIT FERRO TECH LIMITED : A. Y R: 20 0 7 - 08 COMPANIES SHALL NOT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 35D AND IT IS A CAPITAL EXPENDITURE AND CANNOT BE ALLOWED . PROVISIONS OF SECTION 35 D, IN OUR OPINION, ARE APPLICABLE ONLY TO THOSE EXPENDITURE, WHICH CANNOT BE REGARDED TO BE THE REVENUE EXPENDITURE BUT SINCE THE FEES PAID TO THE REGISTRAR OF COMPANIES HAS NOT BEEN INCLUDED UNDER SECTION 35D(2)(C)(IV), THEREFORE, THE ASSESSEE CANNOT GET DEDUCTION FOR THE SAME, FROM THE DETAILS FILED BY THE ASSESSEE , WHICH ARE AVAILABLE B EFORE US, IT IS NOT CLEAR HOW MUCH AMOUNT HAS BEEN PAID BY THE ASSESSEE BY WAY OF FEES TO THE REGISTRAR OF COMPANIES. IF THIS EXPENDITURE IS INCURRED AS FEE S PAID TO THE REGISTRAR OF COMPANIES, IT CANNOT BE ALLOWED EVEN UNDER SECTION 35D. THE REST OF THE EXPENDITURE, IN OUR OPINION, CAN BE ALLOWED UNDER SECTION 35D. WE, THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY TO BOTH THE PARTIES, SET ASIDE THIS IS SUE TO THE FILE OF THE AO WITH THE DIRECTION THAT THE AO SHALL VERIFY, AFTER GIVING THE OPPORTUNITY TO THE ASSESSEE WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE AND CLAIMED AS AMORTIZATION UNDER SECTION 35D COMPLY WITH THE CONDITION THAT IN CASE THE AO FINDS THAT THESE EXPENSES COMPLY WITH THE CONDITION UNDER SECTION 35D AND TO THE EXTENT THIS EXPENDITURE DOES NOT INCLUDE THE FEES PAID TO THE REGISTRAR OF COMPANIES, THE AO IS DIRECTED TO ALLOW 1/5 TH OF SUCH EXPENDITURE TO THE ASSESSEE UNDER SECTION 35D OF THE INCOME - TAX ACT. THUS, THIS GROUND IS STATISTICALLY ALLOWED. 5. GROUND NO.5 RELATES TO THE ADDITION OF RS.15,00,095/ - IN RESPECT OF FD INTEREST AND RS.7,10,093/ - IN RESPECT OF PROVISIONS FOR GRATUITY, WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115 JB. BRIEF FACTS RELATING TO THIS GROUND ARE THAT THE AO, WHILE DETERMINING THE BOOK PROFIT, ADDED THE SAID AMOUNT. THE ASSESSEE 5 IT A NO. 1 05 2 /KOL/201 1 M/S. ROHIT FERRO TECH LIMITED : A. Y R: 20 0 7 - 08 WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE ORDER OF THE AO. 6. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CON SIDERED THE SAME ALONG WITH THE ORDERS OF TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE PROVISIONS OF SECTION 115JB. WE FIND SUBSTANCE IN THE SUBMISSIONS OF THE LD. AR THAT THE DISALLOWANCE MADE UNDER SECTION 40A(7) BY WAY OF PROVISION OF GRATUITY A S WELL AS INTEREST INCOME ADDED BY THE AO ON FD AMOUNTING TO RS.15,00,095/ - DOES NOT FALL UNDER EXPLANATION 1 TO SECTION 115JB. EXPLANATION 1 DEFINES THAT BOOK PROFIT MEANS THE PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR P REPARED UNDER SUB - SECTION (2) AND AS INCREASED BY THE AMOUNT OF INCOME - TAX AS ARE ENUMERATED UNDER CLAUSES (A) TO (G) AND HAS TO BE REDUCED BY THE ITEM AS GIVEN UNDER CLAUSES (I) TO 7(I). THE DISALLOWANCE MADE IN RESPECT OF PROVISION FOR GRATUITY DOES NOT FALL UNDER CLAUSES (A) TO (J), EVEN THE INTEREST ON FD, WHICH HAS BEEN ADDED, ALSO DOES NOT FALL IN ANY OF THE CLAUSES AS GIVEN UNDER CLAUSES (A) TO (J) TO EXPLANATION 1. SUB - SECTION (2) OF SECTION 115JB REQUIRES THAT EVERY COMPANY , SHALL, FOR THE PURPOSES OF THIS SECTION, PREPARE ITS PROFIT & LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH PROVISION OF PART II OF SCHEDULE VI TO THE COMPANIES ACT, 1956. IT ALSO REQUIRES THAT BY PREPARING THE ANNUAL ACCOUNTS INCLUDING PROFIT AND LOSS ACCOUNT, THE ACCOUNTING POLICIES, ACCOUNTING STANDARDS ADOPTED FOR PREPARING SUCH ACCOUNTS INCLUDING THE PROFIT AND LOSS ACCOUNT, THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION, SHALL BE THE SAME AS HAVE BEEN ADOPTED FOR THE PURPOSE OF PREPARING SUCH ACCOUNTS INCLUDED IN THE PROFIT & LOSS ACCOUNT AND LAID BEFORE THE COMPANY AT ITS ANNUAL GENERAL MEETING, 6 IT A NO. 1 05 2 /KOL/201 1 M/S. ROHIT FERRO TECH LIMITED : A. Y R: 20 0 7 - 08 IN ACCORDANCE WITH THE PROVISIONS OF SECTION 210 OF THE COMPANIES ACT, 1956. IT IS NOT THE CASE OF THE REVENUE THAT THE ACCOUNTS HAS NOT BEEN PREPARE D BY THE ASSESSEE IN ACCORDANCE WITH PART - II OF SCHEDULE - VI TO THE COMPANIES ACT OR THE ASSESSEE HAS NOT ADOPTED THE ACCOUNTING POLICIES, ACCOUNTING STANDARDS AND THE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPRECIATION AS LAID BEFORE THE COMPANY IN I TS ANNUAL GENERAL MEETING. IN VIEW OF THIS FACT, WE DELETE THE ADDITION MADE BY THE AO. THEREFORE, THIS GROUND TAKEN BY THE ASSESSEE IS ALLOWED. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDE R PRON OUNCED IN THE OPEN C OURT ON 10.06. 2015 . SD/ - SD/ - ( MAHAVIR SINGH ) (P.K.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 10.06. 2015 TALUKDAR(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . M/S. ROHIT FERRO TECH LIMITED , 35 , C.R. AVENUE, KOLKATA 700 0 1 2 . 2 D CIT , C IRCLE - 1 , KOLKATA 3 . THE CIT(A), 4. CIT, 5 . DR, TRUE COPY, BY ORDER, ASSTT. REGISTRAR , ITAT, KOLKATA 7 IT A NO. 1 05 2 /KOL/201 1 M/S. ROHIT FERRO TECH LIMITED : A. Y R: 20 0 7 - 08