INDO GREEN PROJECTS LTD, MUMBAI V. ITO 4(2)(3), MUMBAI

ITA 917/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7180 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 17-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 11-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAMMED USMAN
• Keywords: Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI. BEFORE SMT. P.MADHAVI DEVI, JM SHRI RAJENDRA SIN GH, AM I.T.A. NOS.916 & 917/MUM/2009 (ASSESSMENT YEARS: 2004-05 & 2005-0 6) INDI GREEN PROJECTS LTD., RAJA BAHADUR MANSION, 2 ND FLOOR, 28 BOMBAY SAMACHAR MARG, MUMBAI-400 001. PAN:AAACI1156N VS. THE INCOME TAX OFFICER,4(2)(3), 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-20. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. NARESH JAIN RESPONDENT BY : MR. MOHAMMED USMAN, DR O R D E R PER RAJENDRA SINGH: THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER DATED 15.12.2008 OF CIT(A) FOR THE ASSESSMENT YEARS 2004-05 & 2005-06. AS THE DISPUTE RAISED IN BOTH THE APPEALS IS IDENTICAL, THESE ARE BEING DISPOSED OF BY A SINGLE CONSOLIDATED ORDER FOR THE SAKE OF C ONVENIENCE. THE DISPUTE RAISED IS IN RELATION TO ALLOWABILITY O F EXPENDITURE UNDER SECTION 35D OF THE INCOME TAX ACT. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE WHICH IS A COMPANY STARTED COMMERCIAL PRODUCTION DU RING THE ASSESSMENT YEAR 1997-98. UNDER THE PROVISIONS OF SE CTION 35D CERTAIN EXPENSES INCURRED BEFORE THE COMMENCEMENT O F BUSINESS AS SPECIFIED UNDER SECTION 35D(2) ARE TO B E AMORTIZED OVER A PERIOD OF TEN YEARS AND ONE-TENTH OF SUCH EX PENDITURE IS ALLOWABLE IN EACH OF THE NEXT TEN ASSESSMENT YEARS STARTING WITH THE ASSESSMENT YEAR DURING WHICH THE COMPANY COMMEN CED THE BUSINESS. THE ASSESSEE CLAIMED THAT IT HAD INCURRE D EXPENDITURE OF RS.43,630/- AS PRELIMINARY EXPENSES; RS.6,27,190/- AS PRE-OPERATIVE EXPENSES AND RS.14,6 7,270/- AS ITA NOS.916 & 917/M/09 2 PUBLIC ISSUE EXPENSES TOTALLING RS.21,38,090/-. THE ASSESSEE HAD ACCORDINGLY CLAIMED 1/10 TH OF THE EXPENDITURE I.E. RS.2,13,809/- IN EACH OF THE ASSESSMENT YEARS UNDER REFERENCE. THE ASSESSING OFFICER DISALLOWED THE CLAIM AFTER OB SERVING THAT THE EXPENSES HAD BEEN INCURRED IN CONNECTION WITH R AISING OF SHARE CAPITAL WHICH WERE NOT ALLOWABLE IN VIEW OF T HE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF BROOK B OND INDIA LTD., (225 ITR 798). THE ASSESSEE DISPUTED THE ORDE R OF THE ASSESSING OFFICER AND SUBMITTED BEFORE THE CIT(A) T HAT THESE EXPENSES WERE INCURRED PRIOR TO THE COMMENCEMENT OF BUSINESS IN THE ASSESSMENT YEAR 1997-98 AND THEREFORE 1/10 TH OF SUCH EXPENDITURE IS ALLOWABLE UNDER SECTION 35D. THE ASS ESSEE ALSO POINTED OUT THAT THE EXPENDITURE ALLOWABLE UNDER SE CTION 35D IS REQUIRED TO BE LIMITED AS PER SECTION 35D(3) TO 2.5 % OF CAPITAL EMPLOYED WHICH IN THE CASE OF THE ASSESSEE WAS RS.5 .05 CRORES AND THEREFORE THE EXPENDITURE INCURRED IN EXCESS OF RS.1,26,250/- BEING 2.5% OF CAPITAL EMPLOYED HAS TO BE IGNORED AND THEREFORE, THE ASSESSEE WILL BE ENTITLED FOR DE DUCTION OF ONLY RS.1,26,250/- IN EACH OF THE YEARS UNDER REFERENCE. 3. THE CIT(A) AFTER EXAMINATION OF THE DETAILS OF P UBLIC ISSUE EXPENSES WHICH HAVE BEEN REPRODUCED AT PAGE 7 OF T HE APPELLATE ORDER OBSERVED THAT ONLY THE FOLLOWING EX PENSES OUT OF THE PUBLIC ISSUE EXPENSES CLAIMED WOULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 35D(2)(C)(IV):- I) FEE FOR REGISTERING THE COMPANY RS. 45,000 II) UNDERWRITING COMMISSION RS.2,40,000 III) PUBLIC ISSUE BROKERAGE RS.1,13,385 IV) PRINTING & STATIONERY RS. 34,171 V) ADVERTISEMENT RS.2,55,229 TOTAL RS. 6,87,855 ITA NOS.916 & 917/M/09 3 4. THE CIT(A) THEREFORE HELD THAT THE TOTAL EXPENS ES QUALIFYING FOR DEDUCTION UNDER SECTION 35D WERE : PRELIMINARY EXPENSES RS.43,630; PRE-OPERATIVE EXPE NSES RS.6,27,190; & PUBLIC ISSUE EXPENSES RS.6,87,860/- AGGREGATING TO RS.13,58,680/-. AS AGAINST THIS, THE CIT(A) FURT HER OBSERVED, THAT THE ASSESSEE HAD ALREADY CLAIMED DEDUCTION UND ER SECTION 35D AMOUNTING TO RS.15,05,389/- FROM THE ASSESSMENT YEARS 1995-96 TO 2003-04. THE ASSESSEE HAD THUS ALREADY B EEN ALLOWED MORE THAN ITS ENTITLEMENT AND THEREFORE HE DISALLOWED THE CLAIM, AGGRIEVED BY WHICH, THE ASSESSEE IS IN A PPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, THE LEARNED A.R. FOR THE ASSESSEE REI TERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES, WHER EAS THE LEARNED D.R. PLACED RELIANCE ON THE FINDINGS GIVEN IN THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. THE DISPUTE IS REGARDING THE ALLOWABILIT Y OF EXPENDITURE UNDER SECTION 35D OF THE ACT. UNDER SEC TION 35D EXPENSES INCURRED PRIOR TO THE COMMENCEMENT OF THE BUSINESS ARE REQUIRED TO BE AMORTISED AND 1/10 TH OF SUCH EXPENDITURE IS ALLOWABLE IN EACH OF THE SUBSEQUENT YEAR STARTING F ROM THE YEAR IN WHICH THE BUSINESS WAS COMMENCED. IN THIS CASE, THE ASSESSEE HAD COMMENCED THE BUSINESS IN THE ASSESSME NT YEAR 1997-98. THE EXPENDITURE CLAIMED BY THE ASSESSEE AS INCURRED PRIOR TO THE COMMENCEMENT OF BUSINESS IS AS UNDER:- PRELIMINARY EXPENSES RS. 43,630/- PRE-OPERATIVE EXPENSES RS. 6,27,190/- PUBLIC ISSUE EXPENSES RS.14,67,270/- TOTAL RS.21,38,090/- 6.1 THE ASSESSEE ACCORDINGLY CLAIMED 1/10 TH OF THE ABOVE EXPENDITURE I.E. RS.2,13,809/- IN EACH OF THE YEARS STARTING FROM ITA NOS.916 & 917/M/09 4 THE ASSESSMENT YEAR 1997-98. HOWEVER, AS PER THE PR OVISIONS OF SECTION 35D, EXPENDITURE INCURRED IN EXCESS OF 2.5% OF CAPITAL EMPLOYED HAS TO BE IGNORED. IN THIS CASE ADMITTEDLY THE CAPITAL EMPLOYED WAS RS.5.05 CRORES AND THEREFORE AS PER AS SESSEES OWN ADMISSION TOTAL EXPENDITURE WHICH COULD BE CONS IDERED UNDER SECTION 35D IS RS.12,62,500/- AND THUS ONLY A SUM OF RS.1,26,250/- CAN BE ALLOWED IN EACH OF THE YEARS S TARTING FROM THE YEAR IN WHICH THE BUSINESS COMMENCED. THE CIT(A ) HAS HELD THAT OUT OF THE PUBLIC ISSUE EXPENSES OF RS.14,67,2 72/- CLAIMED BY THE ASSESSEE, ONLY A SUM OF RS.6,87,855/- CAN QU ALIFY FOR DEDUCTION AND THEREFORE INCLUDING THE PRELIMINARY E XPENSES AND PRE-OPERATIVE EXPENSES, THE TOTAL QUALIFYING AMOUNT FOR DEDUCTION AS PER CIT(A) IS RS.13,58,680/-. EVEN TH IS AMOUNT IS MORE THAN THE ADMISSIBLE EXPENSES OF RS.12,62,500/- AND THEREFORE, EVEN GOING BY THE VIEW TAKEN BY THE CIT( A) REGARDING THE EXPENDITURE QUALIFYING FOR DEDUCTION, THE CLAIM OF THE ASSESSEE WHICH IS ALLOWABLE IS RS.1,26,250/-. THE CIT(A) HAS HOWEVER DISALLOWED THE CLAIM ON THE GROUND THAT IN THE EARLIER YEARS THE ASSESSEE HAD BEEN ALREADY ALLOWED TOTAL EXPENDITURE AGGREGATING TO RS.15,05,389/- WHICH IS MORE THAN TH E ENTITLEMENT. ON CAREFUL CONSIDERATION, WE ARE UNAB LE TO SUSTAIN THE VIEW TAKEN BY THE CIT(A). SECTION 35D(3) ONLY P ROVIDES THAT THE AGGREGATE EXPENDITURE INCURRED IN EXCESS OF 2.5 % OF CAPITAL EMPLOYED HAS TO BE IGNORED AND THE BALANCE EXPENDIT URE HAS TO BE CONSIDERED FOR ALLOWANCE UNDER SECTION 35D AT T HE RATE OF 1/10 TH OF SUCH EXPENDITURE IN EACH OF THE YEAR BEGINNING WITH THE YEAR IN WHICH THE BUSINESS COMMENCED. THUS, IN THE CASE OF THE ASSESSEE A SUM OF RS.1,26,250/- IS ALLOWABLE AS DEDUCTION IN EACH OF THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEARS 2004-05 AND 2005-06. MERELY BECAUS E THE ASSESSEE HAS BEEN ALLOWED MORE EXPENDITURE IN THE E ARLIER YEAR DOES NOT DEBAR THE ASSESSEE TO CLAIM THE EXPENDITUR E IN THESE YEARS WHICH IT IS LEGALLY ENTITLED TO. IN CASE TH ERE ARE SOME ITA NOS.916 & 917/M/09 5 MISTAKES IN ALLOWING THE CLAIM IN EARLIER YEARS, C ORRECTIVE MEASURES CAN BE TAKEN FOR THOSE YEARS BUT THE CLAIM OF THE ASSESSEE IN THESE YEARS WHICH IS LEGALLY ALLOWABLE CANNOT BE DENIED. THEREFORE, IN OUR VIEW, THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION OF RS.1,26,250/- IN EACH OF THE YEARS UND ER REFERENCE. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND ALLOW THE CLAIM OF THE ASSESSEE. 7. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF MARCH, 2010. SD/- (SMT. P.MADHAVI DEVI ) SD/- ( RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 30 TH MARCH , 2010. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-4, MUMBAI. 4. THE CIT(A)-IV, MUMBAI 5. THE DR I BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI