JK Tyre & Industries Limited, Kolkata V. The DCIT, Cen. Cir-VI, Kolkata, Kolkata

ITA 371/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9550 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 04-03-2014
• Court: TRIBUNAL
• Department Lawyers: BANIBRATA DUTTA
• Assessee Lawyers: D S DAMLE
• Keywords: Share purchase agreement; Difference of opinion; Change of opinion; Capital expenditure
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A NO.371/KOL/2014 ASSESSMENT YEAR: 2004-05 J. K. TYRE & INDUSTRIES LTD. VS. DEPUTY COMMISSI ONER OF INCOME-TAX, (PAN: AAACJ6716F) CENTRAL CIRCLE-VI, KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 02.01.2017 DATE OF PRONOUNCEMENT: 13.01.2017 FOR THE APPELLANT: SHRI D. S. DAMLE, CA FOR THE RESPONDENT: SHRI BANI BRATA DUTTA, JCIT, SR. DR ORDER PER DR. A. L. SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTAINI NG TO ASSESSMENT YEAR 2004-05, IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) , CENTRAL-I, KOLKATA IN APPEAL NO. 20/CC- VI/CIT(A)C-1/11-12, DATED 04.12.2013, WHICH IN TURN ARISES OUT OF ASSESSMENT ORDER PASSED BY THE DCIT, CENTRAL CIRCLE-VI, KOLKATA U/S. 154/14 3(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), DATED 31.03 .2011. 2. THE FACTS OF THE CASE QUA THE ASSESSEE ARE THAT THE ASSESSMENT U/S. 143(3) OF THE ACT OF THE ASSESSEE COMPANY WAS COMPLETED ON 21.12.2006 DE TERMINING TOTAL INCOME AT NIL. LATER ON, THE AO FOUND ON PERUSAL OF RECORDS THAT RS.20,4 0,000/- WAS DEDUCTED IN COMPUTING TOTAL INCOME ON ACCOUNT OF FEES PAID FOR RAISING SHARE CA PITAL. THE SAID CLAIM OF THE ASSESSEE WAS ALLOWED IN THE NORMAL ASSESSMENT ORDER U/S. 143(3) OF THE ACT. THEN LATER ON, THE AO REOPENED THE FILE OF THE ASSESSEE TO RECTIFY THE AS SESSMENT U/S. 154 OF THE ACT. THE AO OBSERVED THAT IT IS A WELL SETTLED ISSUE THAT EXPEN DITURE INCURRED IN CONNECTION WITH THE ISSUE OF ADDITIONAL SHARE IS A CAPITAL EXPENDITURE, AS TH E EXPENDITURE DIRECTLY RELATED TO EXPANSION OF CAPITAL BASE. THEREFORE, THE AO MADE DISALLOWAN CE OF RS.20,40,000/- BY OBSERVING THE FOLLOWING: THE SUBMISSION OF THE ASSESSEE HAS BEEN CONSIDERE D CAREFULLY. IT IS WELL SETTLED EXPENDITURE INCURRED FOR RAISING SHARE CAPITAL IS CAPITAL EXPEN DITURE AND THEREFORE INADMISSIBLE EXPENDITURE. HON'BLE APEX COURT IN THE CASE OF BROOKE BOND INDIA LTD. VS. CIT (SC) 225 ITR 798 HELD THAT EXPENDITURES IN CONNECTION WITH ADDITIONAL ISSUE OF SHARES THE CAPITAL EXPENDITURE AS THE EXPENDITURE IS DIRECTLY RELATED TO EXPANSION OF CAP ITAL BASE. SIMILAR VIEW WAS TAKEN BY THE HON'BLE SUPREME COURT IN THE CASE OF PUNJAB STATE I NDUSTRIAL DEVELOPMENT VS. CIT. HON'BLE CALCUTTA HIGH COURT IN THE CASE OF UNION CARBIDE IN DIA LTD. VS. CIT(CAL) 203 ITR 584 AND HELD THAT EXPENDITURE IS CAPITAL IN NATURE EVEN IF THE ADDITIONAL SHARE WERE ALLOTTED TO MAINTAIN 2 ITA NO. 371/KOL/2014 J.K. TYRE & INDUSTRIES LTD. A.Y. 2004-05 CAPITAL BASE AS PER FERA REQUIREMENT. SIMILAR VIEW WAS EXPRESSED BY CALCUTTA HIGH COURT IN THE CASE OF AVERY INDIA LTD. VS. CIT(CAL) 199 ITR 7 45. THEREFORE, IT IS CLEAR FROM THE ABOVE JUDICIAL PRONOUNCEMENT THAT EXPENDITURE INCURRED FO R RAISING CAPITAL IS CAPITAL EXPENDITURE AND THE SAME DOES NOT QUALIFY FOR DEDUCTION IN COMPUTIN G TOTAL INCOME. AS REGARDS THE ASSESSEE'S SUBMISSION THAT 1/5TH OF EXPENDITURE SHOULD BE ALLOWED U/S.35DD OF I.T. ACT.'61, IT IS TO BE STATED THAT HON'BLE GUJAR AT HIGH COURT IN THE CASE OF CIT VS. OFFICIAL LIQUIDATOR OF AHMEDABAD MFG. & CALICO PRG. CO. LTD. (GUJ) 244 ITR 156 HELD THAT EXPENDITURE ONISSUE OF SHARE CERTIFICATES, BONDS ETC. AS A CON SEQUENCE OF AMALGAMATION OF COMPANY IS A CAPITAL EXPENDITURE. IN VIEW OF THE ABOVE ASSESSEE' S CONTENTION IS HEREBY REJECTED. 3. AGGRIEVED FROM THE ORDER OF THE AO, THE ASSESSE E FILED AN APPEAL BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ADDITION MADE BY THE A O OBSERVING THE FOLLOWING: 4. THE LD. AR APPEARED FOR THE ASSESSEE AND REITE RATED THE ARGUMENTS MADE BEFORE THE AO. I AGREE WITH THE AO THAT THE ISSUE IS COVERED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LTD. VS. CIT (SC) 225 ITR 798 WHEREIN IT WAS HELD THAT THE EXPENDITURE INCURRED IN CONNECTION WITH THE EXPANSI ON OF CAPITAL BASE WAS CAPITAL IN NATURE. THE LD. AR HAS ARGUED THAT THE ASSESSEE COMPANY DID NOT RECEIVE ANY AMOUNT IN CASH TOWARDS INCREASE IN ITS SHARE CAPITAL. I DO NOT FIND MERIT IN THE ARGUMENT AS THE SHARE CAPITAL OF THE AMALGAMATED COMPANY EVENTUALLY MERGED WITH THAT OF THE ASSESSEE COMPANY THEREBY RESULTING IN EXPANSION OF ITS CAPITAL BASE. THE LD. AR HAS A LSO ARGUED THAT THERE WAS NO INTENTION TO INCREASE THE CAPITAL BASE. BUT THEN, THE INTENTION NOTWITHSTANDING THE AMALGAMATION HAS RESULTED IN EXPANSION OF THE CAPITAL BASE. I ALSO FIND THAT THE ISSUE IS COVERED BY THE JUDGMENT OF THE HIGH COURTS AS DISCUSSED BY THE AO IN THE ORDER UNDER APPEAL. IN VIEW OF THE ABOVE, THE DISALLOWANCE OF RS.20,40,000/- IS CONFIRMED. GROUN D NO. 1 & 4 ARE DISMISSED. IN VIEW OF THE CATEGORICAL JUDGMENT OF THE HONBLE SUPREME COURT I N THE CASE OF BROOKE BOND INDIA LTD. VS. CIT (SC) 225 ITR 798, I AM NOT IMPRESSED WITH THE A RGUMENT THAT THE ISSUE IS DEBATABLE AND THEREFORE BEYOND THE PURVIEW OF SECTION 154. GROUN D NO. 1 & 3 ARE DISMISSED. 4. NOT BEING SATISFIED WITH THE ORDER OF THE LD. C IT(A) THE ASSESSEE IS IN FURTHER APPEAL BEFORE US AND HAS TAKEN THE FOLLOWING GROUNDS: 1. FOR THAT THE LD. CIT(A) ERRED IN CONFIRMING TH E DISALLOWANCE OF RS. 20,40,000/- MADE BY ASSESSING OFFICER ON ACCOUNT OF FEES PAID TO REGIST RAR OF COMPANIES TOWARDS INCREASE IN AUTHORIZED SHARE CAPITAL BY TREATING IT AS CAPITAL EXPENDITURE, WITHOUT APPRECIATING THE FACT THAT THE SAID INCREASE IN AUTHORIZED SHARE CAPITAL WAS TO GIVE EFFECT TO THE SCHEME OF ARRANGEMENT AND AMALGAMATION DULY APPROVED BY HON'B LE HIGH COURTS OF KOLKATA & BANGALORE. 2. FOR THAT THE LD. CIT(A) ERRED IN NOT APPRECIATIN G THE FACTS THAT THE PREDECESSOR ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS U/S 143(3 ) OF THE ACT HAD ALLOWED THE SAID EXPENSE AS BUSINESS EXPENSE AFTER DUE APPLICATION OF MIND AND THE RECTIFICATION U/S 154 IS NOTHING BUT A MERE CHANGE OF OPINION WHICH COULD NOT BE RECTIFIED U/S 154 OF THE ACT AS THERE WAS NO MISTAKE APPARENT IN THE ORDER PASSED U/S 143(3) OF THE ACT AND THEREFORE THE LD. CIT (A) FAILED TO APPRECIATE THE FACT THAT IN ANY CASE THE AFORESAID ISSUE IS A DEBATABLE ISSUE WHERE MORE THAN ONE VIEW COULD BE POSSIBLE AND HENCE THIS ISSUE COULD N OT BE RECTIFIED U/S 154 OF THE ACT. 3. FOR THAT WITHOUT PRE-JUDICE TO APPELLANT'S AFORE SAID CONTENTION, THE LD. CIT (A) ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER OF NOT A LLOWING THE APPELLANT'S CLAIM TO AMORTIZE THE SAID EXPENSES OVER A PERIOD OF FIVE YEARS U/S 35DD (L/5TH IN EACH YEAR) OF THE ACT, DISREGARDING 3 ITA NO. 371/KOL/2014 J.K. TYRE & INDUSTRIES LTD. A.Y. 2004-05 THE JUDGMENT OF JURISDICTIONAL TRIBUNAL WHEREIN THE TRIBUNAL ALLOWED SUCH FEES TO BE AMORTIZED OVER A PERIOD OF FIVE YEARS U/S 35 DD OF THE ACTUND ER SIMILAR FACTS AND CIRCUMSTANCES. 5. ALTHOUGH, IN THIS APPEAL, THE ASSESSEE HAS RAISE D THREE GROUNDS OF APPEAL BUT AT THE TIME OF HEARING THE MAIN GRIEVANCE OF THE ASSES SEE HAS BEEN CONFINED TO GROUND NO. 3 ONLY AND OTHER GROUNDS WERE NOT PRESSED. GROUND N O. 3 IS A SOLITARY GRIEVANCE OF THE ASSESSEE WHERE HE HAS REQUESTED TO AMORTIZE THE FEE PAID TO THE REGISTRAR OF COMPANIES TOWARDS INCREASE OF AUTHORIZED SHARE CAPITAL U/S. 3 5D OF THE ACT, AT THE RATE OF ONE- FIFTH IN EACH YEAR. 6. THE LD. AR FOR THE ASSESSEE HAS VEHEMENTLY SUBMI TTED THAT W.E.F. 01.04,2000 THERE WAS AMENDMENT IN THE INCOME-TAX ACT. THE FINANCE A CT, 1999 HAS INTRODUCED SECTION 35DD WHICH ALLOWS THE ASSESSEE TO AMORTIZE FEE PAID TO T HE REGISTRAR OF COMPANIES ONE-FIFTH IN EACH YEAR I.E. IN FIVE INSTALLMENTS. THE AMENDMENT IN SECTION 35DD APPLIES FROM AY 2000- 01. THE ASSESSEES APPEAL UNDER CONSIDERATION PERT AINS TO AY 2004-05, THEREFORE, ASSESSEECOMPANY IS ENTITLED TO TAKE THE BENEFIT OF SECTION 35DD OF THE ACT AND ENTITLED TO AMORTIZE THE FEE PAID TO THE REGISTRAR OF COMPANIES , ONE-FIFTH IN EACH SUBSEQUENT YEAR. THE LD. AR FOR THE ASSESSEE HAS ALSO RELIED ON THE JUDG MENT IN THE CASE OF M/S. J. K. AGRI GENETICS LTD. IN ITA NO. 1746/KOL/2008, AY 2004-05 DATED 27.05.2009 WHEREIN THE COORDINATE BENCH OF THIS TRIBUNAL HAS OBSERVED AS U NDER: 6. AFTER HEARING BOTH THE SIDES AND WITH CAREFUL CONSIDERATION OF THE FACTS WE FIND THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. GENERAL INSURANCE CORPORATION (SUPRA) WAS RELATED TO THE ASSESSMENT YEAR 1991-92. THERE IS AN AMENDMENT IN THE ACT AND THE NEW PROVISIONS HAVE BEEN INSERTED BY THE FINANCE AC T, 1999 WITH EFFECT FROM 1.4.2000 IN RESPECT OF ANY EXPENDITURE INCURRED FOR THE PURPOSE OF AMAL GAMATION OR DEMERGER OF AN UNDERTAKING. AS PER THESE PROVISIONS, THE ASSESSEE IS ENTITLED T O AMORTIZE THESE EXPENDITURES. THESE EXPENSES SHALL BE ALLOWED UPTO 1/5 TH OF EACH OF THE FIVE SUCCESSIVE PREVIOUS YEARS BEGI NNING FROM THE PREVIOUS YEAR IN WHICH THE AMALGAMATION OR DEMERGER TOOK PLACE. KEEPING IN VIEW THE AMENDED PROVISIONS OF THE LAW, WE SET ASIDE THE ORD ER OF THE CIT(A) AND DIRECT THE AO TO ALLOW THE EXPENDITURE UPTO 1/5 TH IN THIS YEAR AS PER THE PROVISIONS OF LAW. THE FI RST GROUND OF THE REVENUE IS PARTLY ALLOWED. 7. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE H AS STRONGLY DEFENDED THE ORDER PASSED BY THE LD. CIT(A). 8. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMISSI ONS OF THE ASSESSEE, AS THE PROPOSITION 4 ITA NO. 371/KOL/2014 J.K. TYRE & INDUSTRIES LTD. A.Y. 2004-05 CANVASSED BY THE LD. AR FOR THE ASSESSEE, ARE SUPPO RTED BY THE JUDGMENT OF THE COORDINATE BENCH OF THIS TRIBUNALIN THE CASE OF M/S. J. K. AGR I GENETICS LTD, AND THE FACTS NARRATED BY HIM. THE LD. AR HAS POINTED OUT BEFORE US THAT THER E WAS AMENDMENT IN THE I. T. ACT AND THE FINANCE ACT, 1999 HAD INTRODUCED A NEW SECTION VIZ. SECTION 35DD, WHICH SAYS THAT ASSESSEE COMPANY CAN CLAIM ONE-FIFTH DEDUCTION IN R ESPECT OF THE FEE PAID TO THE REGISTRAR OF COMPANIES TOWARDS INCREASE IN AUTHORIZED SHARE CAPI TAL. THIS AMENDMENT BECAME APPLICABLE FROM AY 2000-01 AND ALSO APPLICABLE TO T HE ASSESSEE UNDER CONSIDERATION. THEREFORE, CONSIDERING THE FACTUAL POSITION AND THE PRECEDENCE CITED BY THE LD. AR FOR THE ASSESSEE, WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) NEEDS TO BE DELETED. ACCORDINGLY, WE DELETE THE ADDITION. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESS EE, IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.01.2017 SD/- SD/- (A. T. VARKEY) (DR. A. L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH JANUARY, 2017 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1. APPELLANT JK TYRE & INDUSTRIES LIMITED, 7, COUNCI L HOUSE STREET, KOL-700001 2. RESPONDENT DCIT, CENTRAL CIRCLE-VI, KOLKATA 3. CIT(A), KOLKATA 4. CIT, KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .