DCIT, Bangalore V. M/s Avasarala Technologies Ltd., Bangalore

ITA 815/BANG/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95211 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 18-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard; Revenue expenditure; Capital expenditure

Judgement Text

ITA.815/BANG/2014 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A NO.815/BANG/2014 (ASSESSMENT YEAR : 2010-11) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -11(1), BANGALORE .. APPELLANT V. AVASARALA TECHNOLOGIES LTD., NO.47, 36TH MAIN, BRM IST STAGE, DOLLARS SCHEME, BANGALORE 560 068 .. RESPONDENT PAN : AABCA 2381E ASSESSEE BY : NONE REVENUE BY : SHRI. L. V. BHASKAR REDDY, JCIT HEARD ON : 26.08.2015 PRONOUNCED ON : 31.08.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE IT HAS ALTOGETH ER RAISED FOUR GROUNDS OF WHICH GROUNDS 1, 3 AND 4 ARE GENERAL NEEDING NO ADJ UDICATION. EFFECTIVE GROUND AS IT APPEAR AS GROUND NO 2 IS REPRODUCED HEREUNDER : 2. THE CIT (A) ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S.35D ON THE GROUND THAT THE EXPENDITUR E WAS DISALLOWED IN THE A. Y. 2008-09 WITHOUT APPRECIATING THAT ON A N APPEAL BY THE ASSESSEE FOR THE A. YRS. 2008-09 & 2009-10, THE ITA T SET ASIDE THE ISSUE TO THE AO, WHO AFTER EXAMINING THE RELEVANT E XPENDITURE VIS-- VIS THE PROVISIONS OF SECTION 35D DISALLOWED THE CL AIM AND THE ITA.815/BANG/2014 PAGE - 2 ASSESSEE ALSO ADMITTED THE SAME DURING THE REASSESS MENT PROCEEDINGS. 02. WHEN THE CASE WAS CALLED UP, NOBODY WAS PRESENT FOR THE ASSESSEE DESPITE SERVICE OF NOTICE. 03. LD. DR SUBMITTED THAT THE ISSUE INVOLVED WAS CO VERED ITS FAVOUR, BY VIRTUE OF THIS TRIBUNALS DECISION IN ASSESSEES OWN CASE FOR A. Y. 2008-09. COPY OF THE ORDER WAS PLACED ON RECORD. 04. WHAT WE FIND IS THAT ASSESSEE HAD CLAIMED AMORT ISATION OF AN EXPENDITURE OF RS.1,01,59,162/- INCURRED DURING FINANCIAL YEAR RELEVANT TO A. Y. 2008-09, RELYING ON SECTION 35D OF THE ACT. THE EXPENDITURE INCURRED WAS IN CONNECTION WITH PREPARATION OF FEASIBILITY REPORT, MARKET SURV EY, PROJECT REPORT ETC., THE CLAIM WHICH WAS FIRST MADE FOR A. Y. 2008-09 WAS DI SALLOWED BY THE AO, HOLDING THE OUTGO AS CAPITAL IN NATURE. ASSESSEES APPEAL BEFORE CIT (A) FOR THAT YEAR WAS SUCCESSFUL. REVENUE HAD CARRIED THE MATTE R TO THIS TRIBUNAL AND THIS TRIBUNAL AT PARAS 32 TO 35 OF ITS ORDER DT.08.03.20 13 IN ITA.954/BANG/2011, HELD AS UNDER : 32. THE ONLY GRIEVANCE PROJECTED BY THE ASSESSEE IN THIS APPEAL IS THE ACTION OF THE REVENUE AUTHORITIES IN NOT ALLOWING 2 0% OF THE EXPENDITURE OF RS.1,01,59,162 I.E., A SUM OF RS.20, 31,832 WHICH WAS THE EXPENDITURE INCURRED IN CONNECTION WITH PREPARA TION OF FEASIBILITY REPORT, MARKET SURVEY, PROJECT REPORT PREPARATION, STAMP DUTY, ETC. CLAIMED BY THE ASSESSEE U/S. 35D OF THE ACT. 33. THE AO REJECTED THE CLAIM OF THE ASSESSEE FOR D EDUCTION U/S. 35D OF THE ACT HOLDING THAT THE EXPENDITURE IS CAPITAL IN NATURE. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ORDER OF THE AO FOR THE FOLLOWING REASONS:- 11.2 I HAVE CONSIDERED THE ABOVE. THE PROVISIONS O F SEC 35D IS APPLICABLE WHEN THE EXPENDITURE IS INCURRED AFTE R THE ITA.815/BANG/2014 PAGE - 3 COMMENCEMENT OF BUSINESS FOR EXTENSION OF THE INDUS TRIAL UNDERTAKING OR SETTING UP A NEW INDUSTRIAL UNIT AND SUCH EXPENDITURE MAY BE INCURRED ON PREPARATION OF A FEA SIBILITY REPORT/PROJECT REPORT/CONDUCTING MARKET SURVEY. THE A.R. PLEADED THAT THE EXPENDITURE OF RS.1,01,59,162/- HA D BEEN INCURRED TOWARDS COST OF FEASIBILITY AND PREPARATIO N OF PROJECT REPORT AND THE TOTAL EXPENDITURE HAD BEEN AMORTISED AND THEREFORE THE CLAIM HAS BEEN LIMITED TO 1/5TH I.E. RS.20,31,832/-. HOWEVER, I FIND THE EXPENDITURE HAS BEEN INCURRED ON INCREASING THE AUTHORISED SHARE CAPITAL FROM 6 CRORES FROM A.Y.2005-06 TO RS.12 CRORES IN A.Y.2006 -07. THEREFORE, THE A.O. HAS RIGHTLY HELD THE SAME AS CA PITAL EXPENDITURE. THE ADDITION IS CONFIRMED. APPEAL ON T HIS ISSUE IS DECIDED AGAINST THE APPELLANT. 34. A PERUSAL OF THE ORDER OF THE CIT(A) CLEARLY RE VEALS THAT HE HAS PROCEEDED ON THE ASSUMPTION THAT THE EXPENDITURE IN QUESTION IS FOR ISSUE OF SHARE CAPITAL. IN THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE THE AO, WHICH ARE AT PAGES 72 TO 88 OF THE ASSESSEE S PAPERBOOK, THE BREAK-UP OF THESE EXPENSES IS GIVEN, WHICH IS AS FO LLOWS:- THE FEASIBILITY REPORT EXPENSES : 31,46,080 MARKET SURVEY : 7,00,000 PROJECT REPORT : 56,12,000 STAMP DUTY EXPENSES : 6,00,000 LEGAL CHARGES : 11,28,274 TOTAL : 1,11,86,354 LESS : SERVICE TAX 10,27,192 NET EXPENSES : 1,01,59,162 35. IT IS THUS CLEAR THAT THE CIT(A) HAS PROCEEDED ON AN ERRONEOUS BASIS WITH REGARD TO THE NATURE OF EXPENSES. THE AO HAS PROCEEDED UNDER THE ASSUMPTION THAT CAPITAL EXPENDITURE CANNO T BE ALLOWED U/S. 35D OF THE ACT. THE PROVISIONS OF SECTION 35D DOES NOT MAKE ANY DISTINCTION BETWEEN CAPITAL AND REVENUE EXPENDITURE . ANY EXPENDITURE INCURRED AFTER COMMENCEMENT OF BUSINESS IN CONNECTI ON WITH EXPANSION OF THE UNDERTAKING OR IN CONNECTION WITH THE SET UP OF A NEW UNIT HAS TO BE ALLOWED AS A DEDUCTION OVER A PERIOD OF FIVE YEARS FROM THE PREVIOUS YEAR IN WHICH THE EXPANSION OF THE UND ERTAKING IS COMPLETED OR THE NEW UNIT COMMENCES PRODUCTION OR O PERATION IS TO BE ALLOWED AS DEDUCTION U/S.35D OF THE ACT. THE NATURE OF EXPENSES THAT WILL BE ALLOWED IS SET OUT IN SEC.35D(2) OF THE ACT . SINCE THE ISSUE HAS NOT BEEN CONSIDERED IN ITS PROPER PERSPECTIVE WITH REFERENCE TO PROVISIONS OF SECTION 35D OF THE ACT, WE DEEM IT AP PROPRIATE TO SET ASIDE THE ORDER OF THE CIT(A) AND REMAND THE ISSUE TO THE ASSESSING ITA.815/BANG/2014 PAGE - 4 OFFICER FOR FRESH CONSIDERATION. THE AO WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE FOR DECIDING THE ISSUE IN ACCORDANCE WITH THE LAW. SINCE THE CLAIM OF THE IMPUGNED ASSESSMENT YEAR, WH ICH HAS BEEN ALLOWED BY CIT (A) IS ALSO THE AMORTISATION OF THE VERY SAME A MOUNT, THE DIRECTIONS GIVEN BY THE TRIBUNAL, REPRODUCED SUPRA WILL SQUARELY APP LY. ACCORDINGLY WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE A ND REMIT IT BACK TO THE AO FOR FRESH CONSIDERATION IN ACCORDANCE WITH LAW. 05. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 31ST DAY OF AUGUS T, 2015. SD/- SD/- (SMT. ASHA VIJAYARAGHAVAN) (ABRAHAM P GEORG E) JUDICIAL MEMBER ACCOUNTANT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR