Chemcel Biotech Ltd., Vijayawada V. THE Addl.CIT, Vijayawada

ITA 434/VIZ/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6598 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 10-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S RAVI SHANKAR NARAYAN
• Section: 143(3); 37(1)

Judgement Text

ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.434/VIZAG/2014 ( / ASSESSMENT YEAR: 2009-10) CHEMCEL BIOTECH LTD., VIJAYAWADA VS. ADDL. CIT, RANGE - 1, VIJAYAWADA [PAN:] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI S. RAVI SHANKAR NARAYAN, DR / DATE OF HEARING : 22.12.2016 / DATE OF PRONOUNCEMENT : 12.01.2017 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A), VIJAYAWADA DATED 25.3.2014 AND IT PERTAINS TO THE ASSESSMENT YEAR 2009-10. ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF PESTICIDES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 30.9.2009 DECLARING TOTAL INCOME AT ` 1,22,63,990/-. THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY, NOTICES U/S 143(2) & 142( 1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') WERE IS SUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSES SEE APPEARED FROM TIME TO TIME AND PRODUCED BOOKS OF ACCOUNTS AND OTH ER DETAILS CALLED FOR. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF TH E ACT ON 27.12.11 DETERMINING THE TOTAL INCOME OF ` 1,85,61,770/- INTER-ALIA BY MAKING CERTAIN DISALLOWANCES INCLUDING DISALLOWANCE OF PRE LIMINARY EXPENDITURE U/S 35D OF THE ACT. 2. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS. THE ASSESSEE CONTEN DED THAT IT HAD INCURRED PRELIMINARY EXPENDITURE BEING PUBLIC ISSUE EXPENDITURE TO RAISE ADDITIONAL CAPITAL BY WAY OF ALLOTMENT OF EQUITY SH ARES TO PUBLIC FOR WHICH IT HAS INCURRED EXPENDITURE OF ` 1,56,24,524/-, WHICH INCLUDES ADVERTISEMENT, LEGAL CHARGES, BROKERAGE PAID TO BRO KERS AND SUB-BROKERS AND FEES PAID TO ROC FOR INCREASING AUTHORIZED SHAR E CAPITAL OF THE ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 3 COMPANY. THE ASSESSEE HAS GONE FOR INCREASE IN CAP ITAL FOR THE PURPOSE OF EXPANSION OF ITS EXISTING BUSINESS AND ALSO TO S ET UP NEW BIO-DIESEL UNIT FOR WHICH IT REQUIRES INVESTMENT. THE ASSESSE E FURTHER SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 35D OF THE AC T, WHERE AN ASSESSEE BEING AN INDIAN COMPANY OR A PERSON INCURS ANY EXPE NDITURE SPECIFIED IN SUB-SECTION (2), BEFORE THE COMMENCEMENT OF HIS BUS INESS OR AFTER THE COMMENCEMENT OF HIS BUSINESS, IN CONNECTION WITH TH E EXTENSION OF HIS UNDERTAKING OR IN CONNECTION WITH HIS SETTING UP OF NEW UNIT, THE ASSESSEE SHALL IN ACCORDANCE WITH AND SUBJECT TO TH E PROVISIONS OF THIS SECTION, SHALL BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO 1/5 TH OF SUCH EXPENDITURE FOR EACH OF THE 5 SUCCESSIVE PREVIOUS Y EARS. THE ASSESSEE BEING AN EXISTING UNIT ALREADY COMMENCED ITS MANUFA CTURING ACTIVITIES GONE FOR EXPANSION OF ITS EXISTING BUSINESS AND ALS O TO SET UP NEW BIO- DIESEL UNIT FOR WHICH IT HAS INCURRED PRELIMINARY E XPENDITURE BEING PUBLIC ISSUE EXPENDITURE, WHICH IS ELIGIBLE FOR DEDUCTION U/S 35D OF THE ACT. 3. THE CIT(A) AFTER CONSIDERING THE EXPLANATIONS OF THE ASSESSEE AND ALSO ANALYSIS OF THE PROVISIONS OF SECTION 35D OF T HE ACT, HAS HELD THAT FROM A MERE READING OF THE PROVISIONS OF SECTION 35 D OF THE ACT, IT IS CLEAR THAT DEDUCTION U/S 35D OF THE ACT IS ALLOWABL E ONLY WHEN THE EXPENDITURE MET AFTER COMMENCEMENT OF THE BUSINESS MUST BE IN ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 4 CONNECTION WITH THE EXPANSION OF THE UNDERTAKING OR SETTING UP OF A NEW UNIT. IN THE CASE OF SETTING UP OF A NEW UNIT, THE PRELIMINARY EXPENSES CAN BE ALLOWED ONLY IN THE YEAR IN WHICH THE UNIT C OMMENCES THE PRODUCTION/OPERATION. THE CIT(A) FURTHER HELD THAT FIRSTLY THE ASSESSEE COMPANY WAS INCORPORATED ON 23.9.1995 AND HENCE, TH E EXPENDITURE MET FOR ISSUE OF SHARES FOR PUBLIC SUBSCRIPTION DUR ING THE FINANCIAL YEAR 2008-09 AND THE AMOUNT SPENT THEREON FOR THE PURPOS E OF IPO CANNOT BE SAID AS THE EXPENDITURE MET BEFORE THE COMMENCEM ENT OF BUSINESS. ON THE OTHER HAND, THE BIO-DIESEL UNIT FOR WHICH TH E IPO EXPENSES WERE CLAIMED TO HAVE BEEN SPENT BY THE ASSESSEE HAS NOT COMMENCED ITS OPERATIONS DURING THE FINANCIAL YEAR AND ACCORDINGL Y, THE CLAIM OF THE ASSESSEE THAT THE EXPENDITURE INCURRED FOR A NEW UN IT IS NOT ALLOWABLE FOR DEDUCTION U/S 35D OF THE ACT. IN SO FAR AS ALT ERNATIVE PLEA OF THE ASSESSEE THAT THE EXPENDITURE INCURRED UNDER THE HE AD PUBLIC ISSUE EXPENDITURE CAN BE ALLOWED U/S 37(1) OF THE ACT, TH E CIT(A) HELD THAT IPO EXPENSES ARE IN THE NATURE OF CAPITAL EXPENDITU RE AND HENCE CANNOT BE ALLOWED AS DEDUCTION U/S 37(1) OF THE ACT. AGGR IEVED BY THE CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) OUGHT TO HAVE DELETED ADDITIONS MADE BY THE A.O. TOWARDS DISALLOWANCE OF ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 5 PRELIMINARY EXPENDITURE U/S 35D, IN VIEW OF THE DOC UMENTARY EVIDENCES FILED BY THE ASSESSEE IN THE FORM OF AGREEMENTS ENT ERED BETWEEN THE BROKERS AND ALSO COPY OF PROSPECTUS. THE CIT(A) OUG HT NOT TO HAVE CONFIRMED ADDITIONS MADE BY THE A.O. TOWARDS PRELIM INARY EXPENDITURE, AS THE EXPENDITURE INCURRED BY THE ASSESSEE ARE IN THE NATURE OF PUBLIC ISSUE EXPENDITURE BEING ADVERTISEMENT, LEGAL EXPEND ITURE, BROKERAGE AND SUB-BROKER CHARGES AND ALSO FEES PAID FOR ROC F OR ENHANCING AUTHORIZED CAPITAL OF THE COMPANY IS ALLOWABLE AS D EDUCTION U/S 35D OF THE ACT. THE ASSESSEE HAS GONE FOR RISING ADDITIONA L CAPITAL FOR THE PURPOSE OF EXPANSION OF ITS EXISTING BUSINESS AND A LSO TO SET UP A NEW BIO-DIESEL UNIT AND SPENT PROCEEDS OF PUBLIC ISSUE FOR EXPANSION OF ITS BUSINESS AND FOR SET UP NEW BIO-DIESEL PLANT. THOUG H, BIO-DIESEL PLANT DID NOT COMMENCE ITS OPERATIONS INSPITE OF BEST EFF ORTS, THE FACT IS THAT THERE WAS EXPANSION OF EXISTING BUSINESS. THEREFOR E, THE A.O. WAS ERRED IN DISALLOWING PRELIMINARY EXPENDITURE BY HOLDING T HAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT ALLOWABLE AS DEDUCT ION U/S 35D OF THE ACT. 5. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ING THE ORDER OF THE LD. CIT(A), SUBMITTED THAT THE ASSESSEE HAS FAI LED TO SUBSTANTIATE EXPENDITURE WITH NECESSARY DOCUMENTARY EVIDENCE AND HENCE, THE A.O. ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 6 WAS RIGHT IN DISALLOWING THE EXPENDITURE. THE D.R. FURTHER SUBMITTED THAT TO BE QUALIFIED FOR PRELIMINARY EXPENDITURE DE DUCTIBLE U/S 35D OF THE ACT, THE ASSESSEE NEEDS TO PROVE THAT IT HAS INCURR ED EXPENDITURE BEFORE COMMENCEMENT OF HIS BUSINESS OR AFTER COMMENCEMENT OF BUSINESS IN CONNECTION WITH EXPANSION OF HIS UNDERTAKING OR IN CONNECTION WITH HIS SETTING UP OF THE NEW UNIT. BU T ANY EXPENDITURE INCURRED TO RAISE ADDITIONAL CAPITAL FOR INCREASING THE WORKING CAPITAL BASE OF THE COMPANY AND ALSO FOR REPAYMENT OF EXIST ING UNSECURED LOAN CANNOT BE ALLOWED AS DEDUCTION. IN THIS CASE, THE ASSESSEE HAS RAISED CAPITAL WHICH WAS USED FOR INCREASING THE WORKING C APITAL BASE OF THE COMPANY AND ALSO PART AMOUNT HAS BEEN UTILIZED FOR REPAYMENT OF EXISTING LOAN. THEREFORE, THE EXPENDITURE INCURRED TOWARDS RAISING ADDITIONAL CAPITAL CANNOT BE ALLOWED AS DEDUCTION U /S 35D OF THE ACT. THOUGH, THE ASSESSEE CLAIMS THAT IT HAS UTILIZED PA RT OF THE AMOUNT FOR SETTING UP NEW BIO-DIESEL UNIT, THE UNIT HAS NOT CO MMENCED ITS ACTIVITIES DURING THE YEAR UNDER CONSIDERATION AND HENCE, AS P ER THE PROVISIONS OF SECTION 35D OF THE ACT, ANY EXPENDITURE INCURRED TO WARDS SETTING UP OF NEW UNIT CANNOT BE ALLOWED, UNLESS THE NEW UNIT STA RTS FUNCTIONING. IN THIS CASE, THE A.O. BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT THE NEW UNIT HAS NOT COMMENCED ITS ACTIVITIES AND HENCE, THE EXP ENDITURE INCURRED BY THE ASSESSEE IS NOT ALLOWABLE AS DEDUCTION U/S 35D OF THE ACT. ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 7 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ONLY ISSUE CAME UP FOR OUR CONSIDERATION IS ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WHETHER PUBLIC ISSUE EXP ENDITURE INCURRED BY THE ASSESSEE TOWARDS RAISING SHARE CAPITAL QUALIFIE S FOR DEDUCTION U/S 35D OF THE ACT. THE A.O. WAS OF THE OPINION THAT AN Y EXPENDITURE INCURRED AFTER COMMENCEMENT OF THE BUSINESS MUST BE IN CONNECTION WITH EXTENSION OF THE UNDERTAKING OR SETTING UP NEW UNIT ONLY QUALIFIES FOR DEDUCTION U/S 35D OF THE ACT. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS INCURRED PUBLIC ISSUE EXPENDITURE TOWA RDS RAISING ADDITIONAL CAPITAL WHICH WAS USED FOR ENHANCING WORKING CAPITA L REQUIREMENT, REPAYMENT OF SHORT TERM LOAN AND WORKING CAPITAL LO AN AND ALSO UTLISED PART OF PROCEEDS FOR SETTING UP NEW BIO-DIESEL UNIT WHICH IS NOT FUNCTIONAL DURING THE YEAR UNDER CONSIDERATION. TH E A.O. FURTHER WAS OF THE OPINION THAT THOUGH THE ASSESSEE HAS STATED THA T IT HAS GONE FOR EXPANSION OF ITS EXISTING AGRO CHEMICAL BUSINESS, F AILED TO PROVE ANY EXPANSION, EXCEPT INCREASING WORKING CAPITAL BASE O F THE COMPANY THEREFORE, IT CANNOT BE CONSIDERED AS EXTENSION OF BUSINESS TO SAY THAT EXPENDITURE INCURRED TOWARDS RAISING CAPITAL QUALIF IES FOR DEDUCTION U/S 35D OF THE ACT. THE A.O. FURTHER OBSERVED THAT ALTH OUGH, THE ASSESSEE CLAIMS THAT IT HAS INVESTED PART OF PUBLIC ISSUE PR OCEEDS FOR SETTING UP ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 8 NEW BIO-DIESEL UNIT, THE ASSESSEE ITSELF ACCEPTED T HAT NEW UNIT DID NOT MATERIALIZED DESPITE ITS BEST EFFORTS. THEREFORE, O PINED THAT PUBLIC ISSUE EXPENDITURE DOES NOT QUALIFY FOR DEDUCTION U/S 35D OF THE ACT. ACCORDING TO THE A.O., AS PER THE PROVISIONS OF SECTION 35D O F THE ACT, ONLY EXPENDITURE INCURRED BEFORE THE COMMENCEMENT OF THE BUSINESS OR AFTER THE COMMENCEMENT OF BUSINESS, IN CONNECTION WITH TH E EXTENSION OF HIS UNDERTAKING OR IN CONNECTION WITH HIS SETTING UP OF A NEW UNIT ONLY QUALIFIES FOR DEDUCTION U/S 35D OF THE ACT. THE A. O. RELIED UPON CERTAIN JUDICIAL PRECEDENTS TO COME TO THE CONCLUSION THAT PUBLIC ISSUE EXPENDITURE DO NOT QUALIFIES FOR DEDUCTION U/S 35D OF THE ACT. 7. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAD INCURRED EXPENDITURE TOWARDS PUBLIC ISSUE OF SHARES AND THE PROCEEDS OF PUBLIC ISSUE HAS BEEN UTILIZED FOR THE PURPOSE OF EXPANSIO N OF ITS EXISTING AGRO CHEMICAL BUSINESS AND ALSO TO SET UP NEW BIO DIESEL UNIT. THE ASSESSEE FURTHER CONTENDED THAT AS PER THE PROVISIONS OF SEC TION 35D(2)(C)(IV) OF THE ACT, WHERE THE ASSESSEE IS A COMPANY, ANY EXPEN DITURE INCURRED IN CONNECTION WITH THE ISSUE FOR PUBLIC SUBSCRIPTION O F SHARES OR DEBENTURES, BEING UNDERWRITING COMMISSION, BROKERAG E AND CHARGES FOR DRAFTING, TYPING, PRINTING AND ADVERTISEMENT OF THE PROSPECTUS, QUALIFIES FOR DEDUCTION U/S 35D OF THE ACT. THE ASSESSEE HAS INCURRED EXPENDITURE ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 9 LIKE ADVERTISEMENT, LEGAL CHARGES, BROKERAGE AND CO MMISSION AND FEES PAID FOR ROC TO INCREASE THE SHARE CAPITAL OF THE C OMPANY WHICH ARE IN THE NATURE OF PRELIMINARY EXPENDITURE AS DEFINED UN DER SUB CLAUSE (IV) OF SUB SECTION (2) OF SECTION 35D OF THE ACT, THEREFOR E, THE A.O. WAS ERRED IN DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE . 8. THE PROVISIONS OF SECTION 35D OF THE ACT, PROVID ES FOR DEDUCTION OF 1/5 TH OF SUCH EXPENDITURE FOR EACH OF THE 5 SUCCESSIVE P REVIOUS YEARS, WHERE AN ASSESSEE BEING A COMPANY INCURRED ANY EXPE NDITURE SPECIFIED IN SUB SECTION (2), BEFORE THE COMMENCEMENT OF HIS BUSINESS OR AFTER THE COMMENCEMENT OF HIS BUSINESS IN CONNECTION WITH THE EXTENSION OF HIS UNDERTAKING OR IN CONNECTION WITH THE SETTING U P OF A NEW UNIT. IF ANY EXPENDITURE INCURRED BEFORE COMMENCEMENT OF BUSINES S, NATURALLY THE SAME WILL QUALIFY FOR DEDUCTION U/S 35D. IN CASE, E XPENDITURE IS INCURRED AFTER COMMENCEMENT OF BUSINESS, THEN IT MUST BE FOR EXTENSION OF EXISTING BUSINESS OR SETTING UP NEW UNIT ONLY QUALI FIES FOR DEDUCTION. THEREFORE, TO GET THE BENEFIT OF DEDUCTION U/S 35D, THE ASSESSEE MUST SATISFY ANY ONE OF THE CONDITIONS SPECIFIED IN THE SECTION. 9. IN THIS CASE, THE ASSESSEE HAS INCURRED VARIOUS EXPENDITURE, SUCH AS ADVERTISEMENT, BROKERAGE AND COMMISSION, PRINTIN G CHARGES, ROC FEES FOR INCREASE IN SHARE CAPITAL AND OTHER RELATE D EXPENSES BEING IN THE ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 10 NATURE OF PRELIMINARY EXPENDITURE AS DEFINED U/S 35 D(2)(C)(IV) OF THE ACT, FOR PUBLIC ISSUE OF SHARES. THE ASSESSEE CLAIM S TO HAVE INCURRED PUBLIC ISSUE EXPENDITURE TO RAISE ADDITIONAL CAPITA L FOR THE PURPOSE OF EXPANSION OF ITS EXISTING AGRO CHEMICAL BUSINESS AN D ALSO TO SET UP A NEW BIO-DIESEL UNIT. ON PERUSAL OF THE DETAILS FIL ED BY THE ASSESSEE, WE FIND THAT THE ASSESSEE HAS INCURRED EXPENDITURE TOW ARDS ADVERTISING EXPENSES, PROFESSIONAL FEES PAID TO BROKERS AND SUB -BROKERS, FEES PAID TO ROC FOR INCREASE IN AUTHORIZED SHARE CAPITAL, AN D PRINTING CHARGES PAID FOR PRINTING PROSPECTUS OF PUBLIC ISSUE. THE A SSESSEE HAS FILED THE DETAILS OF AGREEMENT ENTERED WITH THE BROKERS FOR T HE PURPOSE OF ISSUE OF SHARES AND ALSO COPY OF PROSPECTUS IN SUPPORT OF THE EXPENDITURE LIKE ADVERTISEMENT AND PRINTING CHARGES. ON FURTHER VERI FICATION OF THE DETAILS FILED BY THE ASSESSEE, WE FIND THAT THE ASSESSEE HA S RAISED AN AMOUNT OF ` 24.64 CRORES WHICH WAS MAINLY DEPLOYED FOR ENHANCI NG WORKING CAPITAL OF ITS EXISTING BUSINESS AND REPAYMENT OF SHORT TER M LOAN. THE ASSESSEE CLAIMS TO HAVE USED PART OF THE AMOUNT FOR SETTING UP NEW BIO DIESEL PLANT, BUT AS STATED BY THE ASSESSEE ITSELF IT DID NOT MATERIALIZED. THOUGH, THE EXPENDITURE INCURRED BY THE ASSESSEE AR E IN THE NATURE OF EXPENDITURE REFERRED TO SUB CLAUSE (C)(IV) OF SUB S ECTION (2) OF SECTION 35D, THE ASSESSEE FAILS TO PROVE THAT ENTIRE EXPEND ITURE HAS BEEN INCURRED IN CONNECTION WITH EXPANSION OF ITS EXISTI NG BUSINESS. THEREFORE, ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 11 WE ARE OF THE VIEW THAT THE ASSESSEE FAILS TO PROVE ITS ELIGIBILITY FOR TOTAL EXPENDITURE TO BE QUALIFIES FOR DEDUCTION U/S 35D O F THE ACT TOWARDS PUBLIC ISSUE EXPENDITURE. 10. HAVING SAID, LET US EXAMINE WHAT ALL EXPENDITUR ES QUALIFY FOR DEDUCTION U/S 35D OF THE ACT. THE ASSESSEE INCURRED VARIOUS EXPENDITURES, I.E. ADVERTISING EXPENSES, PROFESSION AL FEES PAID TO BROKERS AND SUB-BROKERS, FEES PAID TO ROC FOR INCREASE IN A UTHORIZED SHARE CAPITAL, AND PRINTING CHARGES PAID FOR PRINTING PRO SPECTUS ETC,. NO DOUBT, FEES PAID FOR ROC FOR INCREASING AUTHORIZED SHARE C APITAL IS NOT QUALIFIES FOR DEDUCTION U/S 35D, IN VIEW THE DECISION OF HON BLE SUPREME COURT, IN THE CASE OF BROOKE BOND INDIA LTD. VS. CIT (1997) 2 25 ITR 798. IN CASE OF OTHER EXPENDITURES BEING ADVERTISEMENT EXPENDITU RE, UNDERWRITING COMMISSION, BROKERAGE, PRINTING CHARGES AND OTHER L IKE EXPENDITURE, THOUGH EXPENDITURE IS IN THE NATURE OF PRELIMINARY EXPENSES AS DEFINED U/S 35D, THE ASSESSEE WOULD GET BENEFIT OF DEDUCTIO N FOR TOTAL EXPENDITURE, IF IT SATISFIES THE CONDITIONS STIPULA TED IN SECTION 35D OF THE ACT. IN THE PRESENT CASE ON HAND, ON PERUSAL OF TH E DETAILS AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS INCURRED PUBL IC ISSUE EXPENDITURE TOWARDS RAISING ADDITIONAL CAPITAL FOR THE PURPOSE OF EXPANSION OF ITS EXISTING BUSINESS AND ALSO TO SET UP NEW BIO-DIESEL PLANT. IN OUR ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 12 CONSIDERED VIEW, ANY EXPENDITURE INCURRED BY THE AS SESSEE ARE IN THE NATURE OF PUBLIC ISSUE EXPENDITURE BEING UNDER WRIT ING COMMISSION, BROKERAGE AND CHARGES FOR DRAFTING, TYPING, PRINTIN G AND ADVERTISEMENT OF THE PROSPECTUS IS ELIGIBLE FOR DEDUCTION U/S 35D OF THE ACT, EVEN THOUGH, SAID EXPENDITURE HAS BEEN INCURRED AFTER TH E COMMENCEMENT OF THE BUSINESS, PROVIDED THE PROCEEDS OF ISSUE OF SHA RES HAS TO BE USED FOR THE PURPOSE OF EXPANSION OF ITS EXISTING BUSINE SS OR SETTING UP OF NEW UNIT. 11. THE ASSESSEE CLAIMS TO HAVE UTILIZED FUNDS FOR EXPANSION OF ITS EXISTING BUSINESS BY DEPLOYMENT OF MORE WORKING CAP ITAL. THE ASSESSEE HAS FILED DETAILS OF UTILIZATION OF FUNDS RAISED FR OM PUBLIC ISSUE OF SHARES. ON PERUSAL OF DETAILS, WE FIND THAT MAJOR PORTION O F THE AMOUNT HAD BEEN DEPLOYED FOR ENHANCING WORKING CAPITAL BASE OF THE COMPANY AND RESTRUCTURING OF DEBT BY REPAYING PART SHORT TERM L OAN. WHETHER DEPLOYMENT OF FUND FOR ENHANCING WORKING CAPITAL OF THE COMPANY AMOUNTS TO EXTENSION OF EXISTING BUSINESS AS DEFINE D U/S 35D OR NOT IS THE QUESTION TO BE ANSWERED. NO DOUBT, THE PROVISIO NS OF SECTION 35D SPEAKS ABOUT EXTENSION OF EXISTING BUSINESS. WHAT IS EXTENSION OF EXISTING BUSINESS? WHETHER IT IS EXPANSION OF BUSIN ESS BY CREATION OF ADDITIONAL CAPACITY OR DEPLOYMENT OF MORE WORKING C APITAL, THEREBY ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 13 INCREASE THE PROFITABILITY OF THE BUSINESS. IN OUR CONSIDERED VIEW, DEPLOYMENT OF FUNDS FOR ENHANCING WORKING CAPITAL, THEREBY INCREASING THE PROFITABILITY OF THE COMPANY ALSO WOULD COME UN DER THE AMBIT OF EXTENSION OF EXISTING BUSINESS, BECAUSE EMPLOYMENT OF MORE WORKING CAPITAL INCREASES THE CAPITAL BASE AND HELPS PROFIT ABILITY OF THE COMPANY. THEREFORE, WE ARE OF THE VIEW THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 35D, TOWARDS PUBLIC ISSUE EXPENDITURE PROPORTIO NATELY TO THE EXTENT OF FUNDS USED FOR EXPANSION OF ITS EXISTING BUSINES S. 12. THIS IS NOT SO, IN THE CASE OF SETTING UP OF NE W UNIT. THE ASSESSEE CLAIMS TO HAVE UTILIZED PART OF THE AMOUNT FOR THE PURPOSE OF SETTING UP OF NEW BIO-DIESEL PLANT, BUT CLAIMS THAT NEW UNIT D ID NOT MATERIALIZED DESPITE ITS BEST EFFORTS. THE PROVISIONS OF SECTION 35D PROVIDES FOR DEDUCTION TOWARDS PRELIMINARY EXPENSES IN THE NATUR E REFERRED TO IN SUB CLAUSE (IV) OF CLAUSE (C) OF SUB SECTION (2), IF EX PENDITURE IS INCURRED FOR SETTING UP OF NEW UNIT, BUT, DEDUCTION CAN BE CLAIM ED ONLY WHEN NEW UNIT COMMENCES ITS OPERATIONS. IN THIS CASE, THE AS SESSEE ITSELF ACCEPTED THAT NEW UNIT IS NOT MATERIALIZED. THEREFORE, WE AR E OF THE VIEW THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION TOWARDS PUBL IC ISSUE EXPENDITURE U/S 35D OF THE ACT, TO THE EXTENT THE FUNDS USED FO R SETTING UP NEW BIO- DIESEL UNIT. ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 14 13. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE ISSUE NEEDS TO BE EXAMINED BY THE A.O . IN THE LIGHT OF OUR DISCUSSIONS IN THE PREVIOUS PARAGRAPHS. THEREFORE, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER AND DIRE CT THE A.O. TO DETERMINE AMOUNT SPENT FOR EXPANSION OF EXISTING BUSINESS AND AMOUNT SPENT FOR SETTING UP NEW BIO-DIESEL UNIT. WE FURTHER DIRECT TH E A.O. TO ALLOW PUBLIC ISSUE EXPENDITURE U/S 35D, PROPORTIONATELY TO THE E XTENT OF FUNDS UTILIZED FOR EXPANSION OF EXISTING BUSINESS. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 12 TH JAN17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 12.01.2017 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT M/S. CHEMCEL BIOTECH LIMITED, 16 -130/12, JRD TATA INDUSTRIAL ESTATE, KANURU, VIJAYAWADA 2. / THE RESPONDENT ADDL. CIT, RANGE-1, VIJAYAWADA 3. + / THE CIT, VIJAYAWADA ITA NO.434/VIZAG/2014 M/S. CHEMCEL BIOTECH LTD., VIJAYAWADA 15 4. + ( ) / THE CIT (A), VIJAYAWADA 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM