DCIT, Coimbatore V. Chiranjjeevi Wind Energy Ltd., Coimbatore

ITA 319/CHNY/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4067 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 05-02-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R VIJAYARAGHAVAN
• Assessee Lawyers: A V SREEKANTH
• Keywords: Business income; Depreciation; Additional depreciation; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! ' . #$ , % & BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.319 /MDS/2015 & 2324/MDS/2016 ( / ASSESSMENT YEARS: 2010-11 & 2011-12) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -1, COIMBATORE VS M/S. CHIRANJEEVI WIND ENERGY LTD., NO.45/3A, ARTS COLLEGE RAOD LANE, OPP. BALA LODGE, COIMBATORE 641 018. PAN: AAACC8761H ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NO.442/MDS/2015 & 2468/MDS/2016 ( / ASSESSMENT YEARS: 2010-11 & 2011-12) M/S. CHIRANJEEVI WIND ENERGY LTD., NO.45/3A, ARTS COLLEGE RAOD LANE, OPP. BALA LODGE, COIMBATORE 641 018. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -1, COIMBATORE PAN: AAACC8761H ( /APPELLANT) ( /RESPONDENT) / ASSESSEE BY : SHRI A.V. SREEKANTH, JCIT / REVENUE BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE /DATE OF HEARING : 28.04.2017 /DATE OF PRONOUNCEMENT : 10.07.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE APPEALS BY THE ASSESSEE & REVENUE ARE DIRECTE D AGAINST THE ORDERS PASSED BY THE LEARNED COMMISSION ER OF 2 ITA NOS.319 & 442/MD S/2015 ITA NOS.2324 & 2468/MDS/2016 INCOME TAX (APPEALS)-I, COIMBATORE DATED 07.11.2014 IN APPEAL NO. 172/13-14 FOR THE ASSESSMENT YEAR 2010-11 AND O RDER DATED 29.04.2016 IN APPEAL NO.146/14-15 FOR THE ASSESSMEN T YEAR 2011-12 BOTH PASSED U/S. 143(3) OF THE ACT. 2. ASSESSMENT YEAR 2010-11 A) ASSESSEES APPEAL: ITA NO.442/MDS/2015:- THE ASSESSEE HAS RAISED SIX GROUNDS IN ITS APPEAL, HOWEVER THE CRUX OF THE LONE ISSUE IS STATED HEREIN BELOW FOR ADJUDICATION:- THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE LD.AO, WHO HAD ADDED RS.1 CRORE TO THE INCOME OF TH E ASSESSEE INVOKING THE PROVISIONS OF SECTION 41 OF THE ACT, B EING THE AMOUNT RECEIVED FOR INSTALLATION OF WIND ENERGY GEN ERATORS. B) REVENUES APPEAL: ITA NO.319/MDS/2015:- THE REVENUE HAS RAISED FOUR GROUNDS IN ITS APPEAL, HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE LD.AO FOR RS.1,22 ,00,000/- BEING THE CLAIM OF PRELIMINARY AND PRE-OPERATIVE EX PENSES U/S. 35D OF THE ACT, WITHOUT CONSIDERING THE DECISION OF THE HONBLE 3 ITA NOS.319 & 442/MD S/2015 ITA NOS.2324 & 2468/MDS/2016 APEX COURT IN THE CASE M/S. BROKEBOND INDIA LTD REP ORTED IN 225 ITR 798 (SC). 3. ASSESSMENT YEAR 2011-12 A) ASSESSEES APPEAL: ITA NO.2468/MDS/2016:- THE ASSESSEE HAS RAISED SEVERAL ELABORATIVE GROUNDS IN ITS APPEAL, HOWEVER THE CRUXES OF THE ISSUE ARE STATED HEREIN BELOW FOR ADJUDICATION:- (I) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDIT ION MADE BY THE LD.AO BY DISALLOWING THE CLAIM OF ADDITIONAL DEPRECIATION U/S.32(1)(IIA) OF THE ACT F OR RS.55,33,000/-. (II) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDI TION MADE BY THE LD.AO FOR RS.55,23,203/- BY DISALLOWING SERVICE TAX ELEMENT ATTRIBUTABLE TO THE 1/5 TH PORTION OF THE PRELIMINARY EXPENSES CLAIMED U/S.35D OF THE ACT . (III) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADD ITION MADE BY THE LD.AO BY DISALLOWING THE ADVANCE WRITTEN-OFF AS BAD DEBTS FOR RS.2,04,26,000/- AND CLAIMED AS REVENUE EXPENDITURE. B) REVENUES APPEAL: ITA NO.2324/MDS/2016:- 4 ITA NOS.319 & 442/MD S/2015 ITA NOS.2324 & 2468/MDS/2016 THE REVENUE HAS RAISED FIVE GROUNDS IN ITS APPEAL, HOWEVER THE CRUX OF THE ISSUE ARE THAT THE LD.CIT(A ) HAS ERRED IN DELETING THE ADDITION MADE BY THE LD.AO FOR RS.1,27 ,80,000/- WHICH WAS CLAIMED AS PRELIMINARY AND PRE-OPERATIVE EXPENSES U/S. 35D OF THE ACT, WITHOUT CONSIDERING THE DECISI ON OF THE HONBLE APEX COURT IN THE CASE M/S. BROKEBOND INDIA LTD REPORTED IN 225 ITR 798 (SC) AND THE DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE CIT VS. SAKTH I FINANCE LTD CITED IN 130 TAXMANN 304. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A DOMESTIC COMPANY WHERE PUBLIC IS SUBSTANTIALLY INTE RESTED, ENGAGED IN THE BUSINESS OF ASSEMBLING AND SELLING O F WINDMILLS, FILED ITS RETURN FOR THE ASSESSMENT YEAR 2010-11 & 2011-12 ON 13.10.2010 & 27.11.2011 RESPECTIVELY. THEREAFTER F OR BOTH THE YEARS THE CASE WAS TAKEN UP FOR SCRUTINY UNDER CASS AND ASSESSMENT WAS COMPLETED FOR THE ASSESSMENT YEAR 20 10-11 ON 28.03.2013 AND FOR ASSESSMENT YEAR 2011-12 ON 31.03 .2014, WHEREIN THE LD.AO MADE SEVERAL ADDITIONS AMONGST WH ICH SOME OF THEM WERE DELETED BY THE LD.CIT(A). AGGRIEVED B Y THE ORDER 5 ITA NOS.319 & 442/MD S/2015 ITA NOS.2324 & 2468/MDS/2016 OF THE LD.CIT(A) BOTH THE PARTIES ARE IN APPEAL BEF ORE US FOR BOTH THE ASSESSMENT YEARS. 5. ASSESSEES APPEAL IN ITA NO.442/MDS/2015, ASSESSMEN T YEAR 2010-11 : ADDITION OF RS.1 CRORE INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT:- THE ASSESSEE HAD RECEIVED RS.1 CRORE FROM M/S. IN DIA GLOBALIZATION CAPITAL INC, USA FOR INSTALLATION OF 96 NOS. 250KV WIND ENERGY GENERATORS VIDE AGREEMENT DATED 29.04.2 007. IT WAS FURTHER NOTICED THAT THIS AGREEMENT HAD EXPIRED ON 31.03.2009. HOWEVER, THE AMOUNT OF RS.1 CRORE ADVAN CE RECEIVED BY THE ASSESSEE WAS KEPT AS LIABILITY IN I TS BOOKS OF ACCOUNT. THE LD.AO OPINED THAT IT IS A CASE OF REM ISSION OF LIABILITY U/S.41(1) OF THE ACT. THE ASSESSEE HAD E XPLAINED BEFORE THE LD.AO THAT THERE WAS SOME DISPUTE WITH RESPECT TO THE CONTRACT AGREEMENT, THEREFORE THE AMOUNT WAS KEPT P ENDING AS ADVANCE, HENCE IT CANNOT BE TREATED AS REMISSION OF LIABILITY BECAUSE THE MATTER HAS NOT BECOME FINAL. HOWEVER, THE LD.AO TAKING CUE FROM THE AGREEMENTS EXECUTED BETWEEN BOT H THE PARTIES WHICH IS ELABORATED IN HIS ORDER INVOKED TH E PROVISIONS OF SECTION 41(1) OF THE ACT AND TREATED THE AMOUNT OF RS.1 CRORE AS 6 ITA NOS.319 & 442/MD S/2015 ITA NOS.2324 & 2468/MDS/2016 INCOME OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ORDER OF THE LD .AO BY OBSERVING AS UNDER: 13. I HAVE GONE THROUGH THE SUBMISSIONS MADE BY TH E APPELLANT AND ALSO THE ORDER OF THE ASSESSING OFFI CER. THE ASSESSEE COMPANY FILED CONTACT AGREEMENT DATED 29.0 4.2007 AND AMENDMENT DATED 20.08.2007 WITH M/S. INDIA GLOB ALIZATION CAPITAL INC. U.S.A. AS PER THIS AGREEMENT HAS RECEI VED RS.1CRORE FOR INSTALLATION OF 96 NOS. OF 250 KV WIN D ENERGY GENERATORS. IT IS SEEN FROM THE SUPPLEMENTARY AGREE MENT THAT THE CONTRACT EXPIRED ON 31.03.2009. THE AMOUNT OF R S.1 CRORE HAS BEEN KEPT AS LIABILITY FOR THE PAST 3 FINANCIAL YEARS I.E. F.Y. 2007-08, 2008-09 AND 2009-10. THE AUTHORIZED REPRES ENTATIVE SUBMITTED THAT THE ASSESSEE IS NOT LIABLE TO REFUND THE SUM OF RS.1 CRORE TO M/S. INDIA GLOBALIZATION CAPITAL INC. AS SEEN FROM THE DETAILS, THE ASSESSEE HAS NO LIABILITY TO REFUND THE AMOUNT OF RS.1 CRORE AFTER THE EXPIRY OF THE CONTRA CTUAL OBLIGATION WHICH EXPIRED ON 31.09,2007. AS SEEN FRO M THE DETAILS, CLAUSE 11.3 OF THE AGREEMENT, RS.25 LAKHS IS NON- REFUNDABLE AMOUNT WHICH IS CRYSTAL CLEAR IN THE CON TRACT AGREEMENT. DURING THE COURSE OF APPELLATE PROCEEDIN GS, THE AUTHORIZED REPRESENTATIVE WAS ASKED TO PRODUCE THE DETAILS REGARDING THE CONTRACTUAL OBLIGATION TO PAY THE AMO UNT OF RS.75 LAKHS WHICH IS REFUNDABLE, HOWEVER, THE AUTHORIZED REPRESENTATIVE COULD NOT FURNISH ANY DETAILS REGARD ING THE LIABILITY FOR RS.75 LAKHS. HENCE THE ENTIRE AMOUNT OF RS.1 CRORE IS TO BE TREATED AS THE BUSINESS INCOME OF TH E ASSESSEE. THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFI RMED. THESE GROUNDS OF APPEAL ARE DISMISSED 5.1 AT THE OUTSET, THE LD.AR SUBMITTED BEFORE US TH AT THE AMOUNT OF RS.1 CRORE RECEIVED AS ADVANCE BY THE ASS ESSEE HAD 7 ITA NOS.319 & 442/MD S/2015 ITA NOS.2324 & 2468/MDS/2016 CRYSTALIZED AS ITS INCOME DURING THE ASSESSMENT YEA R 2014-15, BECAUSE OF NON-COMPLIANCE OF THE AGREEMENTS BY THE CLIENTS OF THE ASSESSEE. ACCORDINGLY, THE ASSESSEE HAD DECLAR ED THE AMOUNT OF RS.1 CRORE AS ITS INCOME IN ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014-15 AND DULY PAID TAX. IT WAS THEREFORE PLEADED THAT TREATING THE AMOUNT OF RS.1 CRORE AS I TS INCOME FOR THE RELEVANT ASSESSMENT YEAR WOULD AMOUNT TO DOUBLE TAXATION; HENCE THE ADDITION IS NOT WARRANTED. THE LD.DR STR ONGLY OBJECTED TO THE SUBMISSION OF THE LD.AR AND PLEADED IN SUPPORT OF THE ORDERS OF THE REVENUE AUTHORITIES. 5.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. IF THE ASSESSEE HAD DECLA RED THE AMOUNT OF RS.1 CRORE AS ITS INCOME, FOR THE ASSESSM ENT YEAR 2014-15 THEN OBVIOUSLY MAKING ADDITION ONCE AGAIN I N THE HANDS OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR 20 10-11 WOULD AMOUNT TO DOUBLE TAXATION. FURTHER DUE TO THE VARIO US COMMERCIAL RELATIONSHIPS BETWEEN THE ASSESSEE AND I TS CLIENTS, THE ASSESSEE HAD TREATED THE AMOUNT OF RS.1 CRORE A S ITS LIABILITY IN THE RELEVANT ASSESSMENT YEAR, BY NOT INVOKING TH E PENALTY CLAUSE IN THE AGREEMENT EXECUTED BETWEEN THEM, THER EBY 8 ITA NOS.319 & 442/MD S/2015 ITA NOS.2324 & 2468/MDS/2016 PROVIDING AN OPPORTUNITY TO ITS CLIENT TO COMPLY WI TH THE TERMS AND CONDITIONS OF THE AGREEMENT AND HENCE THE ASSESSEE HAD NOT APPROPRIATED THE ADVANCE. ONLY DURING THE ASSESSMEN T YEAR 2014-15, THE ASSESSEE HAD INVOKED THE PENAL PROVISI ONS OF THE AGREEMENT AND APPROPRIATED THE ADVANCE RECEIVED FRO M ITS CLIENTS. THIS ACT OF THE ASSESSEE BASED ON COMMERCI AL PRUDENCE CANNOT BE QUESTIONED BY THE REVENUE. THEREFORE, IF THE ASSESSEE HAD DECLARED THE AMOUNT OF RS.1 CRORE AS ITS INCOME, FOR THE ASSESSMENT YEAR 2014-15 THEN THERE IS NO SC OPE FOR THE REVENUE TO MAKE ADDITION FOR THE ASSESSMENT YEAR 20 10-11 ONCE AGAIN. HENCE WE HEREBY DIRECT THE LD.AO TO VE RIFY WHETHER ASSESSEE HAD DECLARED THE AMOUNT OF RS.1 CRORE AS I TS INCOME U/S.41(1) OF THE ACT, FOR THE ASSESSMENT YEAR 2014- 15 AND IF FOUND SO, DELETE THE ADDITION MADE FOR THE RELEVANT ASSESSMENT YEAR AND IF FOUND OTHERWISE, REINSTATE HIS EARLIER ORDER ON THIS ISSUE. 6. REVENUES APPEAL IN ITA NO.319/MDS/2015, ASSESSME NT YEAR 2010-11 : DELETING THE ADDITION OF RS.1,22,00, 000/- BEING THE CLAIM OF AMORTIZATION OF EXPENSES U/S.35D OF TH E ACT :- 9 ITA NOS.319 & 442/MD S/2015 ITA NOS.2324 & 2468/MDS/2016 THE ASSESSEE HAD INCURRED EXPENDITURE TOWARDS COMMISSION FOR RS.6,10,00,000/- DURING THE FINANCIA L YEAR 2008- 09 FOR RAISING PRIVATE EQUITY SHARE TO THE TUNE OF RS.61,95,99,594/- FROM M/S. DUBAI VENTURES LLC, DUB AI UAE. THE ASSESSEE HAD CLAIMED THE AFORESAID AMOUNT AS MISCELLANEOUS EXPENDITURE IN THE BALANCE SHEET AND WRITTEN OFF 1/5 TH OF RS.6,10,00,000/- VIZ., RS.1,22,00,000/- AS PREL IMINARY AND PRE-OPERATIVE EXPENSES IN ITS PROFIT & LOSS ACC OUNT. THE LD.AO DISALLOWED THE AFORESAID EXPENSES AND ADDED T O ITS INCOME BY OBSERVING AS FOLLOWS:- 3.6 FROM THE ABOVE, IT IS CLEAR THAT THOUGH THE I NCREASE IN THE CAPITAL RESULTS IN EXPANSION OF THE CAPITAL BAS E OF THE COMPANY AND INCIDENTALLY THAT WOULD HELP IN THE EXP ANSION OF ITS BUSINESS ACTIVITIES AND MAY ALSO HELP IN THE PR OFIT MAKING, THE EXPENSES INCURRED IN THAT CONNECTION STILL RETA IN THE CHARACTER OF A CAPITAL EXPENDITURE SINCE THE EXPEND ITURE IS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BA SE OF THE COMPANY. 3.7 FURTHER, IT IS A SETTLED LAW THAT THE EXPENSES INCURRED BY THE ASSESSEE IN ISSUING THE SHARES WITH A VIEW T O INCREASE ITS CAPITAL DID NOT CONSTITUTE REVENUE EXPENDITURE AND IT IS NOTHING BUT CAPITAL EXPENDITURE ONLY. HENCE, THE IMPUGNED EXPENDITURE IS NEITHER PRELIMINARY EXPENSE AS PER SECTION 35D N OR REVENUE EXPENDITURE AS PER SECTION 37. 3.8 IN VIEW OF THE ABOVE DISCUSSION, THE EXPENDITUR E CLAIMED AS PRELIMINARY AND PRE-OPERATIVE EXPENSES W RITTEN OFF WHICH RELATES TO ARRANGEMENT OF PRIVATE EQUITY AMOU NTING TO 10 ITA NOS.319 & 442/M DS/2015 ITA NOS.2324 & 2468/MDS/2016 RS.1,22,00,000/- IS DISALLOWED AND ADDED TO THE TOT AL INCOME RETURNED. 6.1 ON APPEAL, THE LD.CIT(A) FOLLOWING THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL ON THE IDENTICAL ISSU E IN ITA NO.342/MDS/2013 DATED 21.10.2013 ALLOWED THE APPEAL OF THE ASSESSEE. 6.2 BEFORE US THE LD.DR REFERRING TO THE DECISION O F THE HONBLE APEX COURT IN THE CASE M/S. BROKEBOND INDIA LTD REP ORTED IN 225 ITR 798 (SC) AND THE DECISION OF THE HONBLE JURISD ICTIONAL HIGH COURT IN THE CASE CIT VS. SAKTHI FINANCE LTD CITED IN 130 TAXMANN 304 VEHEMENTLY PLEADED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE DOES NOT FALL UNDER THE REVENUE FIE LD BECAUSE IT IS CAPITAL IN NATURE. HE FURTHER POINTED OUT THAT PROVISION OF SECTION 35D OF THE ACT DOES NOT PROVIDE FOR DEDUCTI ON OF EXPENDITURE INCURRED IN THE NATURE OF COMMISSION FO R PRIVATE PLACEMENT OF SHARES. HE THEREFORE REQUESTED THAT T HE ORDER OF THE LD.AO MAY BE REINSTATED. 6.3 THE LD.AR ON THE OTHER HAND RELIED ON THE ORDER OF THE LD.CIT(A) AND DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT 11 ITA NOS.319 & 442/M DS/2015 ITA NOS.2324 & 2468/MDS/2016 IN THE CASE EIP INDIA LTD VS. DCIT REPORTED IN 209 TAXMANN 214 AND THE DECISION RENDERED IN THE CASE CIT VS. ASHOK LEYLAND LTD REPORTED IN 349 ITR 663, WHEREIN IT WAS HELD THAT T HE EXPENDITURE INCURRED TOWARDS RAISING OF ADDITIONAL EQUITY SHARE S BY PRIVATE PLACEMENT CAN BE ATTRIBUTABLE TO EXTENSION OF UNDER TAKING AND IS THUS ELIGIBLE FOR AMORTIZATION UNDER THE PROVISIONS OF SECTION 35D OF THE ACT. 6.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. THE MOOT QUESTION BEFORE US IS WHETHER THE EXPENDITURE INCURRED AS COMMISSION FOR PROCURIN G PRIVATE PLACEMENT OF EQUITY SHARES IS ALLOWABLE AS DEDUCTIO N. THE ASSESSEE HAS TAKEN COVER U/S.35D OF THE ACT, TO AMO RTIZE SUCH EXPENDITURE AS PRELIMINARY EXPENSES. HOWEVER, ON P ERUSING THE PROVISIONS OF SECTION 35D(2) OF THE ACT, IT IS CLEA R THAT ONLY SPECIFIC EXPENDITURES ARE PROVIDED UNDER THE ACT WH ICH CAN BE AMORTIZED VIZ., (A) EXPENDITURE IN CONNECTION WITH (I) PREPARATION OF FEASIBILITY REPORT; (II) PREPARATION OF PROJECT REPORT; (III) CONDUCTING MARKET SURVEY OR ANY OTHER SURVEY NECESSARY FOR THE BUSINESS OF THE ASSESSEE. (IV) ENGINEERING SERVICE RELATING TO THE BUSINESS OF THE ASSESSEE; 12 ITA NOS.319 & 442/M DS/2015 ITA NOS.2324 & 2468/MDS/2016 PROVIDED THAT THE WORK IN CONNECTION WITH THE PREPARATION OF THE FEASIBILITY REPORT OR THE PROJEC T REPORT OR THE CONDUCTING OF MARKET SURVEY OR OF ANY OTHER SURVEY OR THE ENGINEERING SERVICES REFERRED TO IN THIS CLA USE IS CARRIED OUT BY THE ASSESSEE HIMSELF OR BY A CONCERN WHICH IS FOR THE TIME BEING APPROVED IN THIS BEHALF BY TH E BOARD. (B) LEGAL CHARGES FOR DRAFTING ANY AGREEMENT BETWE EN THE ASSESSEE AND ANY OTHER PERSON FOR ANY PURPOSE RELAT ING TO THE SETTING UP OR CONDUCT OF THE BUSINESS OF THE ASSESS EE. (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 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 PUBLIC SUBSCRIPTION, OF SHARES IN OR DEBENTURES OF THE COMPANY, BEING UNDERWRITING COMMISSION, BROKERAGE AND CHARGES FOR DRAFTING, TYPING, PRINTING AND ADVERTISEMENT OF THE PROSPECTUS; (D) SUCH OTHER ITEMS OF EXPENDITURE (NOT BEING EXP ENDITURE ELIGIBLE FOR ANY ALLOWANCE OR DEDUCTION UNDER ANY O THER PROVISION OF THIS ACT) AS MAY BE PRESCRIBED. 6.5 FROM THE ABOVE, IT IS CLEAR THAT TOWARDS ANY CO MMISSION EXPENDITURE INCURRED FOR PRIVATE PLACEMENT OF EQUIT Y SHARES, BENEFIT U/S. 35D OF THE ACT CANNOT BE CLAIMED. SECT ION 13 ITA NOS.319 & 442/M DS/2015 ITA NOS.2324 & 2468/MDS/2016 35D(2)(C)(IV) OF THE ACT SPECIFICALLY PROVIDES FOR EXPENDITURE INCURRED IN CONNECTION WITH ISSUE FOR PUBLIC SUBSCR IPTION AND NOT FOR PRIVATE PLACEMENT. FURTHER, THE HONBLE APEX C OURT IN THE CASE BROKE BOND INDIA LTD VS. CIT (SUPRA) IT HAS BEEN CATEGORICALLY HELD THAT EXPENDITURE INCURRED BY A COMPANY IN CONNECTION WITH ISSUE OF SHARES, WITH A VIEW TO INC REASE ITS SHARE CAPITAL, IS DIRECTLY RELATED TO THE EXPANSION OF TH E CAPITAL BASE OF THE COMPANY, AND IS CAPITAL EXPENDITURE, EVEN THOUGH IT MAY INCIDENTALLY HELP IN THE BUSINESS OF THE COMPANY AND IN THE PROF IT-MAKING. FURTHER, THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE CIT VS. SAKTHI FINANCE (SUPRA) ALSO SUCH CLAIM OF DEDUCTION U/S.35D OF THE ACT WAS DENIED. FROM THE ABOVE, IT I S APPARENT THAT THE HONBLE APEX COURT HAS HELD THAT ANY EXPEN DITURE INCURRED DIRECTLY RELATED TO THE EXPANSION OF CAPIT AL BASE OF A COMPANY WILL FALL IN THE CAPITAL FIELD AND NOT IN THE REVENUE FIELD. IN THE CASE OF THE ASSESSEE, THE EXPENDITURE IS INC URRED FOR INCREASING ITS EQUITY CAPITAL BASE. THEREFORE, AS P ER THE RATIO LAID DOWN BY THE HONBLE APEX COURT SUCH EXPENSE WILL FA LL UNDER THE CAPITAL FIELD . FURTHER AS PER THE PROVISIONS OF SECTION 35D OF THE ACT, THERE IS NO SCOPE FOR THE ASSESSEE TO AMORTIZE SUCH EXPENSE. THE DECISIONS OF THE HONBLE APEX COURT SUPRA AND THE 14 ITA NOS.319 & 442/M DS/2015 ITA NOS.2324 & 2468/MDS/2016 PROVISIONS OF SECTION 35D OF THE ACT CITED HEREIN A BOVE WAS LOST SIGHT OFF BY THE TRIBUNAL WHILE PASSING ORDERS IN T HE EARLIER INSTANCE. SINCE, WE ARE BOUND TO FOLLOW THE DECISI ON OF THE HONBLE APEX COURT, RESPECTFULLY FOLLOWING THE SAME , WE HEREBY HOLD THAT, IN THE CASE OF THE ASSESSEE THE COMMISSI ON EXPENSES INCURRED TOWARDS INCREASING ITS EQUITY CAPITAL BASE , CAN NEITHER BE AMORTIZED U/S.35D OF THE ACT, NOR IT CAN BE CLAI MED AS REVENUE EXPENDITURE AS IT FALLS IN THE CAPITAL FIEL D. IT HAS BEEN ALSO CATEGORICALLY HELD BY THE HONBLE APEX COURT I N THE CASE PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION VS. CIT THAT EXPENSES INCURRED IN RELATION TO INCREASE IN CAPITA L BASE IS CAPITAL EXPENDITURE INCURRED BY THE ASSESSEE COMPANY, EVEN THOUGH ITS CERTAINTY HELPS THE COMPANY IN PROFIT MAKING BUT YE T IT RETAINS THE CHARACTERISTICS OF CAPITAL EXPENDITURE. IN THE CAS E CIT VS. MOTOR INDUSTRIES LIMITED REPORTED IN 229 ITR 139, THE HON BLE KARNATAKA HIGH COURT HELD THAT THE EXPENSES INCURRE D IN RELATION TO RIGHT ISSUE WHERE OF CAPITAL IN NATURE AND THERE FORE CANNOT BE CLAIMED AS REVENUE EXPENDITURE. HENCE WE FIND THE O RDER OF THE LD.AO TO BE APPROPRIATE IN THE GIVEN CIRCUMSTANCE. ACCORDINGLY, WE HEREBY SET ASIDE THE ORDER OF THE LD.CIT(A) AND REINSTATE THE ORDER OF THE LD.AO ON THIS ISSUE. 15 ITA NOS.319 & 442/M DS/2015 ITA NOS.2324 & 2468/MDS/2016 7. ASSESSEES APPEAL IN ITA NO.2468/MDS/2016, ASSESSM ENT YEAR 2011-12 A) GROUND-3(I) :- DISALLOWANCE OF ADDITIONAL DEPREC IATION U/S. 32(1)(IIA) OF THE ACT FOR RS.55,33,000/-:- DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDI NGS, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD CLA IMED ADDITIONAL DEPRECIATION ON WINDMILL. THE LD.AO DIS ALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION BECAUSE THE BUSINE SS OF GENERATION, TRANSMISSION OR DISTRIBUTION OF POWER W HICH WAS MADE ELIGIBLE FOR ADDITIONAL DEPRECIATION U/S.32(1) (IIA) OF THE ACT, CAME IN TO EFFECT FROM THE ASSESSMENT YEAR 2013-14 AS PER FINANCE ACT, 2012. ON APPEAL, THE LD.CIT(A) ALSO A GREED TO THE VIEW OF THE LD.AO AND UPHELD THE ORDER BY DISTINGUI SHING THE DECISION IN THE CASE VTM LIMITED REPORTED IN 319 IT R 336. FROM THE FACTS OF THE CASE, IT IS EVIDENT THAT THE ASSESSEE HAD CLAIMED ADDITIONAL DEPRECIATION ON THE WINDMILL ERE CTED BY IT FOR GENERATING AND DISTRIBUTION OF POWER IN ORDER TO EA RN REVENUE. IN THIS SITUATION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. REVENUE AUTHORITIES ON THIS ISSUE. AS HELD BY THE LD.AO THE BUSINESS OF GENERATION, TRANSMISSION OR DISTRIBUTIO N OF POWER WAS 16 ITA NOS.319 & 442/M DS/2015 ITA NOS.2324 & 2468/MDS/2016 BROUGHT WITHIN THE AMBIT OF SECTION 32(1)(IIA) OF T HE ACT, BY THE FINANCE ACT, 2012 W.E.F. 01.04.2013 I.E., FROM THE ASSESSMENT YEAR 2013-14. SINCE THE CASE OF THE ASSESSEE IS FOR THE ASSESSMENT YEAR 2011-12, OBVIOUSLY THE ASSESSEE WIL L NOT BE ELIGIBLE FOR THE BENEFIT OF ADDITIONAL DEPRECIATION DURING THE RELEVANT ASSESSMENT YEAR. FURTHER IT IS NOT THE CAS E OF THE ASSESSEE THAT THE ASSESSEE IS CLAIMING THE ADDITION AL DEPRECIATION WITH RESPECT TO ITS MANUFACTURING ACTI VITIES. THEREFORE THIS ISSUE RAISED BY THE ASSESSEE DOES NO T HAVE ANY MERITS. B) GROUND 3(II) DISALLOWANCE OF SERVICE TAX ELEMENT ATTRIBUTABLE TO THE 1/5 TH PORTION OF PRELIMINARY EXPENSES U/S.35D OF THE ACT FOR RS.55,23,203/-:- DURING THE PREVIOUS YEAR THE ASSESSEE COMPANY HAD DEBITED RS.55,23,203/- IN ITS P&L ACCOUNT BEING THE DEMAND RAISED BY THE SERVICE TAX COMMISSIONER BY HOLDING T HAT THE ASSESSEE IS NOT ENTITLED TO INPUT CREDIT IN RESPECT OF LEGAL AND CONSULTANCY CHARGES PAID FOR PRIVATE PLACEMENT OF E QUITY SHARES. SINCE THE EXPENSES WAS RELATED TO ASSESSMENT YEAR 2 009-10, THE LD.AO DISALLOWED THE CLAIM OF EXPENDITURE AND E VEN DENIED 17 ITA NOS.319 & 442/M DS/2015 ITA NOS.2324 & 2468/MDS/2016 THE BENEFIT OF AMORTIZATION OF EXPENSES U/S. 35D OF THE ACT. ON APPEAL, THE LD.CIT(A) CONFIRMED THE ORDER OF THE LD .AO. SINCE, WE HAVE HELD HEREINABOVE THAT THE EXPENSES INCURRED IN THE FORM OF COMMISSION OF RS.6,10,00,000/- FOR PRIVATE PLACE MENT OF THE EQUITY SHARES OF THE ASSESSEE COMPANY, IS NOT ALLOW ABLE FOR DEDUCTION U/S.35D OF THE ACT, ANY EXPENSES CONNECTE D WITH IT SUCH AS SERVICE TAX ALSO WILL NOT BE ENTITLED FOR T HE BENEFIT OF DEDUCTION U/S.35D OF THE ACT TO THE ASSESSEE. THER EFORE, THE APPEAL FILED BY THE ASSESSEE DOES NOT HAVE ANY MERI T. C) GROUND 3(III):- DISALLOWANCE OF THE ADVANCE WRIT TEN-OFF BY THE ASSESSEE AS REVENUE EXPENDITURE FOR RS.2,04,26, 000/-. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING S, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE HAD WRI TTEN OFF RS.2,04,26,000/- AS REVENUE EXPENDITURE BEING THE A DVANCE PAID TO M/S. MIC MIDDLEEAST FZE IN FEBRUARY 2009 FOR ACQ UIRING SECOND HAND CRANES. SINCE THIS AMOUNT WAS NOT RECO VERABLE, THE ASSESSEE HAD WRITTEN OFF THE SAME IN ITS BOOKS OF ACCOUNTS AS BAD DEBTS. THE LD.AO OPINED THAT THE ASSESSEE HAD I NCURRED THE EXPENDITURE / LOSS TOWARDS COST OF ACQUIRING THE PR OFIT EARNING APPARATUS AND THEREFORE IT WOULD FALL IN THE CAPITA L FEILD AND NOT IN 18 ITA NOS.319 & 442/M DS/2015 ITA NOS.2324 & 2468/MDS/2016 THE REVENUE FIELD. THEREAFTER CITING THE DECISION IN THE CASE CIT VS. BRILA BROS REPORTED IN 77 ITR 75 (SC), KWALITY FUND FOODS & RESTAURANT (P) LTD VS. DCIT REPORTED IN 356 ITR 170 (MADRAS HIGH COURT) AND THE DECISION OF THE CASE EMPIRE JUT E CO. LTD. VS. CIT REPORTED IN 124 ITR 1 (SC), THE LD.AO DISALLOWE D THE CLAIM OF BAD DEBTS TO THE ASSESSEE. ON APPEAL, THE LD.CIT (A) AGREEING WITH THE VIEW OF THE LD.AO UPHELD THE ORDER. BEFOR E US THE LD.AR SUBMITTED THAT THE ADVANCE PAID BY THE ASSESS EE IS NOT RECOVERABLE AND HENCE IT IS A LOSS SUFFERED BY THE ASSESSEE DURING THE COURSE OF ITS BUSINESS AND THEREFORE IT SHOULD BE ALLOWED AS DEDUCTION. WHILE AS THE LD.DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE, IT IS APPARENT THAT THE ASSESSEE HAD ADVANCED MONEY FO R BUYING CRANES WHICH WERE TO BE DEPLOYED IN THE MANUFACTURI NG ACTIVITY OF THE ASSESSEE. HOWEVER, THE ASSESSEE COULD NEITH ER ACQUIRE THE CRANES NOR RECOVER THE AMOUNT ADVANCED FROM THE COMPANY WHO HAS PROMISED TO DELIVER THE CRANES. IN THIS SI TUATION, IT IS NOTHING BUT A LOSS WHICH THE ASSESSEE HAD INCURRED DURING THE 19 ITA NOS.319 & 442/M DS/2015 ITA NOS.2324 & 2468/MDS/2016 COURSE OF ITS BUSINESS. THE ASSESSEE HAD NO OTHER REASON TO GIVE ADVANCE TO M/S. MIC MIDDLEEAST FZE OTHER THAN FOR PURCHASE OF CRANES, WHICH IS TO BE USED IN THE ASSE SSEES MANUFACTURING ACTIVITIES. THEREFORE THE RELIANCE PL ACED BY THE ASSESSEE IN THE DECISION OF THE HONBLE JURISDICTIO NAL MADRAS HIGH COURT IN THE CASE OF CIT VS. INDIAN BISELERS R EPORTED IN 181 ITR 69 WILL HOLD GOOD AND ACCORDINGLY THE ASSESSEE DESERVES THE BENEFIT OF DEDUCTION UNDER THE ACT BECAUSE IT IS A LOSS INCURRED DURING THE COURSE OF THE BUSINESS OF THE ASSESSEE. 8. REVENUES APPEAL IN ITA NO.2324/MDS/2016, ASSESSME NT YEAR 2011-12 : DELETING THE ADDITION OF RS.1,27,80, 000/- BEING THE CLAIM OF AMORTIZATION OF EXPENSES U/S.35D OF TH E ACT :- ON THIS IDENTICAL ISSUE, IN ITA NO.319 OF 2015 HERE IN ABOVE, THE MATTER HAS BEEN HELD AGAINST THE ASSESSE E. THEREFORE, FOR THE RELEVANT ASSESSMENT YEAR ALSO TH E SAME DECISION HOLDS GOOD AND ACCORDINGLY THE ISSUE IS HE LD AGAINST THE ASSESSEE. 20 ITA NOS.319 & 442/M DS/2015 ITA NOS.2324 & 2468/MDS/2016 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO. 442 OF 2015 IS ALLOWED FOR STATISTICAL PURPOSES AS INDICAT ED HEREIN ABOVE AND THE APPEAL OF THE REVENUE IN ITA NO.319 OF 2015 & ITA NO.2324 OF 2016 ARE ALLOWED IN ITS FAVOUR. THE APPE AL OF THE ASSESSEE IN ITA NO.2468 OF 2016 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE ON THE 10 TH JULY, 2017 AT CHENNAI. SD/- SD/- ( ! ' . #$ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) !' /JUDICIAL MEMBER !' / ACCOUNTANT MEMBER $ /CHENNAI, %! /DATED 10 TH JULY, 2017 JR ! '( )( /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. , ( )/CIT(A) 4. , /CIT 5. (-. / /DR 6. .0 /GF