Thiru Arooran Sugars Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1346/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96534 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-11-2015
• Assessment Year: 1999-2000
• Appeal Filed On: 02-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A B KOLI IRS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Reopening of assessment; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , ! ' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NOS.1346, 1347, 1348 /MDS/2015 ! # $# / ASSESSMENT YEAR : 1999-00, 2000-01, 2005-06 M/S. THIRU AROORAN SUGARS LTD, ELDORADO, V FLOOR, 112,MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI 600 034. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(2) CHENNAI. ./ I.T.A.NO.1559/MDS/2015 ! # $# / ASSESSMENT YEAR : 1999-2000. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(2) CHENNAI. VS. M/S. THIRU AROORAN SUGARS LTD, ELDORADO, V FLOOR, 112,MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI 600 034. [PAN AAACT 2382B] ( / APPELLANT) ( /RESPONDENT) %& ' ( / APPELLANT BY : SHRI. R. VIJAYARAGHAVAN, ADVOCATE )*%& ' ( /RESPONDENT BY : SHRI. A.B. KOLI, IRS, JCIT. ' + / DATE OF HEARING : 05-11-2015 ,-$ ' + / DATE OF PRONOUNCEMENT : 18-12-2015 ITA NO.1346, 1347, 1348 & 1559/MDS/2015 :- 2 -: / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : FOR THE ASSESSMENT YEAR 1999-2000 CROSS APPEAL FI LED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-11, CHENNAI, I N ITA NO.265/07-08 (NEW ITA NO.19/CIT(A)-11/2013-14), DAT ED 12.03.2015 PASSED U/S.143(3) R.W.S 147 OF THE INCOM E TAX ACT, 1961 AND THE ASSESSEE FILED APPEALD AGAINST ORDER O F COMMISSIONER OF INCOME TAX (APPEALS)-11, CHENNAI, DATED 11.03.20 15 IN ITA NO.693 & 1098/2013-14( NEW ITA NO.23 & 389/CIT(A)-1 1/2013- 14) FOR THE ASSESSMENT YEARS 2000-01 AND 2005-2006. 2. ASSESSEE RAISED TWO GROUNDS IN APPEAL. FIRST GROU ND 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 ASSESSMEN T AND ENDORSED ON THE GROUNDS OF APPEAL. ACCORDINGLY, THE TRIBUNA L CONSIDERED THE SECOND GROUND FOR ADJUDICATION. SINCE THE GROUNDS I S COMMON COMMON IN ALL THE APPEALS, WE TAKE UP ITA NO.1346/M DS/2015 FOR HEARING. ITA NO.1346, 1347, 1348 & 1559/MDS/2015 :- 3 -: 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURE AND SALE OF SUGA R AND ALSO INVOLVED IN PRODUCTION OF SPIRITS AND COGENERATION OF POWER. THE ASSESSING OFFICER HAS DISALLOWED SHARE ISSUE EXPENS ES ON THE GROUND THAT SHARE ISSUE EXPENDITURE IS CAPITAL EXPE NDITURE AND RELIED ON THE DECISIONS OF THE BROOKE BOND INDIA LIMITED VS. CIT, 225 ITR 798 (SC) AND PUNJAB STATE INDUSTRIAL CORPOR ATION VS. CIT 225 ITR 792 (SC) . THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE SHARE ISSUE EXPENSES ARE INCURRED IN CONN ECTION WITH THE EXTENSION OF ITS INDUSTRIAL UNDERTAKING IN EARLIER YEARS AND THE SAME TO BE ALLOWED AS REVENUE EXPENDITURE OR ALTERN ATIVELY SHARE ISSUE EXPENDITURE TO BE TREATED AS DEFERRED REVENUE EXPENDITURE OVER A PERIOD OF TEN YEARS U/S.35D OF THE ACT AND T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN THE ASSESSE E OWN CASE FOR THE ASSESSMENT YEAR 1991-92 ALLOWED THE CLAIM. THE ASSESSING OFFICER CONSIDERED THE INFORMATION BUT DISALLOWED S HARE ISSUE EXPENSES ALONGWITH OTHER DISALLOWANCES. AGGRIEVED B Y THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE HAS ASSAILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). ITA NO.1346, 1347, 1348 & 1559/MDS/2015 :- 4 -: 4. IN THE APPELLATE PROCEEDINGS, LD. AUTHORISED REPRESENTATIVE EMPHASIZED THAT SUCH DEDUCTION IS AL LOWABLE 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 CO MMISSIONER OF INCOME TAX (APPEALS) HAS FILED AN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. AUTHORISED REPRESENTATIVE FOR ASSESSEE RAIS ED GROUND AGAINST FOR DISALLOWANCE OF SHARE ISSUE EXPE NSES AND SUBMITTED THAT ASSESSING OFFICER RELIED ON THE DECI SION OF ASSESSMENT YEAR 1969-70 ON QUESTION OF SHARE ISSUE EXPENSES TO BE TREATED AS CAPITAL OR REVENUE EXPENDITURE. BUT THE ASSESSEES DEDUCTION IS ON DIFFERENT FOOTING ON AMORTIZATION O F CERTAIN PRELIMINARY EXPENSES U/S.35D. SHARE ISSUE EXPENDIT URE CLAIMED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 1999-2000 PERT AINS TO THE 10 TH INSTALLMENT OF THE FIRST RIGHTS SHARE ISSUE EXPEND ITURE INCURRED IN THE YEAR 1990 AND SUCH EXPENDITURE WAS CLAIMED I N TEN EQUAL INSTALLMENTS FROM THE ASSESSMENT YEAR 1991-92 ONWAR DS AND THE BALANCE SHARE ISSUE EXPENDITURE INCURRED IN 4 TH INSTALLMENT OF ITA NO.1346, 1347, 1348 & 1559/MDS/2015 :- 5 -: 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 OFFIC ER. SHARE ISSUE EXPENDITURE IS ALLOWED AS DEDUCTION U/S.35D (2)(C) READ AS UNDER:- (C) WHERE THE ASSESSEE IS A COMPANY, ALSO EXPENDIT URE- (I) BY WAY OF LEGAL CHARGES FOR DRAFTING THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY; (II) ON PRINTING OF THE MEMORANDUM AND ARTICLE S 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 SUBSCRIPTIO N 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 P AGE NO.41 & 42 OF PAPER BOOK AND SUCH EXPENSES COMPLY WITH THE NAT URE OF EXPENDITURE ENVISAGED UNDER THE PROVISIONS OF SEC. 35D OF THE ACT. THE LD.AR FURTHER EMPHASIZED THAT RIGHT ISSUE EXPEN DITURE HAS BEEN ALLOWED FROM ASSESSMENT YEAR 1991-1992 AND 10 TH AND LAST INSTALLMENT FOR ASSESSMENT 1999-2000. THE LD. AUTHO RISED REPRESENTATIVE RELIED ON THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN ITA NOS.62/94-95, 51/1995-96, 186/96-9 7, DATED ITA NO.1346, 1347, 1348 & 1559/MDS/2015 :- 6 -: 17.03.1997 REFERRED AT PAGE 23 OF PAPER BOOK RELEVA NT TO ASSESSMENT YEAR 1991-92 HAS ALLOWED THE DEDUCTION O F SHARE ISSUE EXPENDITURE AT PAGE NO.13 OF THE CIT ORDER AS UNDE R:- HOWEVER, THE MAIN GROUND OF THE APPELLANT WITH REG ARD TO ITS CLAIMS OF DEDUCTION /AMORTIZATION OF 1/10 TH OF THE SHARE ISSUE EXPENDITURE MERITS ATTENTION. ADMITTEDLY, THE APPE LLANT WENT FOR A PUBLIC ISSUE OF EQUITY SHARES PURSUANT TO A P ROSPECTUS FOR RAISING CAPITAL TO FINANCE SETTING UPTOF NEW PROJEC TS. THUS, THE EXPENDITURE ON THE PUBLIC ISSUE WAS ONLY IN CONNECT ION WITH THE EXTENSION OF ITS INDUSTRIAL UNDERTAKING OR IN C ONNECTION 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 COMP ANY, BEING UNDERWRITING COMMISSION, BROKERAGE AND CHARGES FOR PRINTING, TYPING, ADVERTISEMENT OF THE PROSPECTUS ETC., SINC E THE APPELLANT HAS GONE FOR A PUBLIC ISSUE DURING THE RE LEVANT ACCOUNTING PERIOD, THE ASSESSING OFFICER WILL NOT B E 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 REFERE NCE TO 10% OF THE TOTAL EXPENDITURE, COMPRISING OF ONLY THE IT EMS OF EXPENDITURE IN CONNECTION WITH THE ISSUE AS MENTION ED IN SECTION 35D(2)(C)(IV). FURTHER TO SUBSTANTIATE THE CLAIM, SUPPORTED HIS AR GUMENT WITH JUDICIAL DECISIONS AND CLAIMED SUPPORT FROM THE FAC TS OF THE CASE OF SHARE ISSUE EXPENSES AS HELD IN THE FOLLOWING CASES . (I) CIT VS. SHREE SYNTHETICS LTD (1986) 162 ITR 0 819. (II) CIT VS. MULTI METALS LTD (1991) 188 ITR 0151. AND REQUESTED THE TRIBUNAL TO CONSIDER THE LEGAL AN D FACTUAL POSITION OF EXPENDITURE WHICH WAS ALLOWED FROM EARL IER ASSESSMENT YEARS TO THE ASSESSEE BY THE REVENUE. ITA NO.1346, 1347, 1348 & 1559/MDS/2015 :- 7 -: 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTAT IVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND P RAYED FOR DISMISSAL OF APPEAL. FOR THE ASSESSMENT YEAR 1999-2 000 THE REVENUE HAS RAISED THE GROUND AGAINST THE ORDER OF THE CIT(A) WERE THE EXPENDITURE ON INTEREST ON BORROWED CAPITA L INCURRED ON SHIFTING PLANT AND MACHINERY WAS CAPITALIZED IN THE BOOKS OF ACCOUNT AND SAME CLAIMED AS REVENUE EXPENDITURE. T HE LD.CIT(A) DELETED THE ADDITION IN HIS ORDER AT PARA 14 OF PA GE NO.7 OF THE ORDER IN PAPER BOOK. WE HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW AN D HEARD THE RIVAL CONTENTIONS. UNDISPUTEDLY FACTS AR E THAT THE ASSESSEE WAS CARRYING ONLY MANUFACTURE AND SALE OF SUGAR. IT IS ALSO NOT DISPUTED THAT INTEREST EXPEN SE WERE INCURRED ON LOANS TAKEN FOR THE PURPOSE OF SHIFTING OR FOR THE PURPOSE OF WORKING CAPITAL. THERE WAS NO NEW L INE OF BUSINESS. ASSESSEE WAS ALREADY DOING BUSINESS OF S UGAR MANUFACTURE. WE FULLY AGREE WITH THE LINE OF ARGUM ENT TAKEN BY THE LD.AR THAT INTEREST ON LOANS BEING TAK EN BY AN EXISTING BUSINESS EVEN IF THE SHIFTING WAS CONSI DERED AS AN EXPANSION WOULD BE ELIGIBLE FOR DEDUCTION U/S .36(1) (III) OF THE ACT. THIS POSITION OF THE LAW LAID DO WN BY THE HONBLE APEX COURT IN THE CASE OF CORE HEALTH CARE LTD(SUPRA) HAS BEEN REITERATED IN THE CASE OF L.K.T RUST (SUPRA). REVENUE HAS NO CASE THAT THERE WAS ANY NE W LINE OF BUSINESS OF SUGAR MANUFACTURE. THIS BEING SO, LD. CIT(A) WAS WELL JUSTIFIED IN DELETING THE DISALLOWA NCE. THERE BEING NO NEED FOR INTERFERENCE, WE DISMISS GR OUND NO.3 RAISED BY THE REVENUE. FURTHER THE LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT REVENUE HAS FILED AN APPEAL U/S.260A OF THE ACT AGA INST ORDER OF ITA NO.1346, 1347, 1348 & 1559/MDS/2015 :- 8 -: THE TRIBUNAL IN ITA NO.1191/MDS/2009 FOR THE ASSESS MENT YEAR 2003-2004 IN THE ASSESSEES OWN CASE AND THE MATTER IS PENDING BEFORE THE HONBLE HIGH COURT AND PLEADED FOR SET A SIDE THE ORDER OF THE LD.CIT(A) ON THIS GROUND. 7. THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE R ELIED ON THE ORDERS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FOR INTEREST ON BORROWED CAPITAL FOR ASSESSMENT YEAR 19 99-2000. 8. WE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES , PERUSED THE MATERIAL ON RECORD AND ALSO JUDICIAL CI TATIONS QUOTED. THE ASSESSEE FOR THE ASSESSMENT YEAR 1999-2000, 200 0-2001 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 P ROCEEDINGS, THE ASSESSING OFFICER HAS NOT DISPUTED THE GENUINESS A ND VERIFIED THE EXPENDITURE AND SATISFIED WITH THE NATURE OF EXPEND ITURE BUT DISALLOWED THE CLAIM WHICH WAS ALLOWED FROM EARLIER YEARS RELYING ON THE DECISIONS WITHOUT MAKING DISTINCTION OF DEFERRE D REVENUE EXPENDITURE AND CAPITAL EXPENDITURE. THE ASSESSEE COMPANY HAS INCURRED EXPENDITURE ON RIGHTS ISSUE FOR THE EXPANS ION OF BUSINESS OPERATIONS AND SUCH EXPENDITURE COMPLY THE ITA NO.1346, 1347, 1348 & 1559/MDS/2015 :- 9 -: TEST OF BUSINESS EXPEDIENCY AND INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE LD. COMMISSIONER OF I NCOME TAX (APPEALS) HAS OVERLOOKED THE EARLIER ORDERS AND REL IED ONLY ON THE PRECEDENT, WITHOUT CONSIDERING THE SUBMISSIONS AND CURRENT STATUS OF CLAIM OF EXPENDITURE AND THE JUDICIAL DECISIONS REL IED 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 DECISI ON 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 MEAN ING OF THE PHRASE 'BEING', WE HAVE NO HESITATION IN HOLDIN G THAT THE EXPENDITURE THAT QUALIFIED FOR CONSIDERATION UN DER SECTION 35D IS RESTRICTED BY REASON OF USE OF THE P HRASE 'BEING'. THUS, EXPENDITURE INCURRED IN CONNECTION W ITH THE ISSUE OF SHARES AND DEBENTURES OF THE COMPANY T O PUBLIC SUBSCRIPTION, WHICH QUALIFY FOR CONSIDERATIO N UNDER SECTION 35D, ARE UNDERWRITING COMMISSION, BROKERAGE AND CHARGES FOR DRAFTING, TYPING, PRINTING AND ADVERTIS EMENT OF THE PROSPECTUS AND NOTHING MORE. THERE IS A RESI DUAL CLAUSE TO CLAUSE (D), WHICH SHOWS SUCH OTHER ITEMS OF EXPENDITURE NOT BEING EXPENDITURE ELIGIBLE FOR ANY ALLOWANCE OR DEDUCTION UNDER ANY OTHER PROVISIONS O F THE ACT AS MAY BE PRESCRIBED. THUS, OTHER THAN WHAT IS ITA NO.1346, 1347, 1348 & 1559/MDS/2015 :- 10 -: CONTEMPLATED UNDER CLAUSE (D), IF THERE ARE STILL O THER EXPENDITURE IN CONNECTION WITH THE COMMENCEMENT OF BUSINESS OR IN CONNECTION WITH THE EXPANSION OF THE INDUSTRIAL UNDERTAKING AFTER THE COMMENCEMENT OF TH E 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 W HICH WOULD GO FOR AMORTISATION UNDER SECTION 35D, PARTIC ULARLY 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 OFFI CER TO DELETE THE ADDITIONS MADE IN THE ASSESSMENT AND ALLOW THE SHAR E ISSUE EXPENDITURE FOR ASSESSMENT YEARS 1999-2000, 2000-20 01 AND 2005- 06 AND REVENUE APPEAL FOR THE ASSESSMENT YEAR 1999- 2000 IS CONCERNED, THE REVENUE HAS NOT ACCEPTED THE DECISIO N 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 CO URT OF MADRAS ITA NO.1346, 1347, 1348 & 1559/MDS/2015 :- 11 -: CANNOT BE A REASON TO TAKE A DIFFERENT VIEW. ACCOR DINGLY, THE REVENUE APPEAL IS DISMISSED. 9. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PAR TLY ALLOWED AND THE REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 18TH DAY OF DECEMB ER, 2015, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI . / DATED:18.12.2015 KV / ' )!+12 32$+ / COPY TO: 1 . %& / APPELLANT 4. 4+ / CIT 2. )*%& / RESPONDENT 5. 256 )!+! / DR 3. 4+ () / CIT(A) 6. 69# : / GF