2011 (10) TMI 723 - AT - Income Tax

Appeal on Share Issue Expenses & Assessment Disallowances under IT Act

The appeal challenged the disallowance of share issue expenses under section 35D of the I.T. Act. The ITAT directed the Assessing Officer to bifurcate the ... Deductibility of share issue expenses - treatment of deferred revenue expenditure - remand to Assessing Officer for bifurcation and verification - allowability of employees' contribution to provident fund and ESI paid before due date of return - set-off of interest on share application money against public issue expenses - removal/confirmation of reassessment (reopening of assessment) - deduction under Section 80IA - deduction under Section 80HHC - disallowance under Section 35D and its phase-wise allowanceDeductibility of share issue expenses - treatment of deferred revenue expenditure - remand to Assessing Officer for bifurcation and verification - Deletion of disallowance of share issue expenses and deferred revenue expenditure was set aside and matter remitted to the Assessing Officer for bifurcation and verification in light of the Tribunal's earlier order. - HELD THAT: - The Tribunal observed that expenses relating to share issue are not allowable as such but the record did not contain a proper bifurcation between share-issue expenses, debenture-issue expenses and deferred revenue expenditure. Following its earlier decision in the assessee's own case, the Tribunal directed that the Assessing Officer should verify the record, bifurcate the expenses between share issue and other categories, and decide the allowability in accordance with the Tribunal's prior order. Because the facts were identical to those earlier adjudicated, the Tribunal followed its prior reasoning and remitted the matter to the Assessing Officer for appropriate verification and decision. [Paras 4]Issue remitted to Assessing Officer with direction to bifurcate and verify share issue, debenture issue and deferred revenue expenses and decide in accordance with Tribunal's earlier order.Allowability of employees' contribution to provident fund and ESI paid before due date of return - Employees' contribution to Provident Fund and ESI is allowable if paid before the due date for filing the return; Assessing Officer to verify payment and allow accordingly. - HELD THAT: - Relying upon the principle affirmed by the apex court and the parties' submissions, the Tribunal accepted that when the employee's share of PF and ESI is remitted before the return's due date, it qualifies for allowance. The Assessing Officer was directed to verify whether such payments were made within the statutory grace period and to permit the deduction if so established. [Paras 5, 6]Assessing Officer to verify payment of employees' PF and ESI and allow the claim if paid before the due date of filing the return.Set-off of interest on share application money against public issue expenses - Claim to set off interest earned on share application money against public issue expenses allowed subject to verification in accordance with the jurisdictional High Court's decision; Assessing Officer to verify facts and allow the claim accordingly. - HELD THAT: - The Tribunal followed the view of the jurisdictional High Court which held that interest earned on share application monies kept in a separate account until allotment was inextricably linked to the raising of share capital and therefore adjustable against share-issue expenditures. The Tribunal directed the Assessing Officer to verify relevant facts and to allow the claim in conformity with the High Court's decision. [Paras 11]Assessing Officer to verify facts and allow set-off of interest on share application money against public issue expenses in accordance with the jurisdictional High Court's ruling.Disallowance under Section 35D and its phase-wise allowance - remand to Assessing Officer for bifurcation and verification - Disallowance under Section 35D (portion claimed as one-fifth) was not finally upheld by the Tribunal but remitted to the Assessing Officer for determination in light of the Tribunal's earlier orders in the assessee's cases. - HELD THAT: - The Tribunal noted that identical questions on the phase-wise allowance under the statutory provision had been addressed in the assessee's own earlier assessments and Tribunal orders. Given the identical factual matrix, the Tribunal followed its prior decisions and directed that the issue be sent back to the Assessing Officer with identical directions to examine and decide the claim consistent with those earlier orders. [Paras 12, 19]Matter remitted to Assessing Officer with directions to decide the claim under Section 35D in accordance with Tribunal's earlier orders in the assessee's own cases.Deduction under Section 80IA - deduction under Section 80HHC - Deduction under section 80IA on 'other income' was partially remitted for verification (interest income nexus) while certain other items of 'other income' were held to be business receipts qualifying for deduction under section 80HHC and allowed. - HELD THAT: - The assessee did not press several items of other income. As to interest income, the Tribunal sent the issue back to the Assessing Officer with directions to verify nexus between the interest and the qualifying business for the purpose of allowance. Exchange rate differences, excess provision written back and related items were held to arise from business operations and therefore eligible for the relevant export-linked deduction; the Assessing Officer was directed to act accordingly. [Paras 13, 14]Interest income issue remitted to Assessing Officer for verification of nexus; exchange rate fluctuation and similar business-derived items allowed for deduction under the export/business deduction provision.Final Conclusion: Both Revenue's and assessee's appeals were partly allowed for statistical purposes; several issues were remitted to the Assessing Officer for verification and bifurcation in accordance with the Tribunal's and the jurisdictional High Court's earlier decisions, and specific deductions were directed to be allowed where payments or nexus were verified. Issues involved: Appeal against order of CIT(A)-XIV, Ahmedabad for assessment year 1999-00 and 2000-01.Issue 1: Disallowance of share issue expenses under section 35D- The appeal challenged the deletion of disallowance of share issue expenses of Rs. 23,23,312 under section 35D of the I.T. Act.- The ITAT directed the Assessing Officer to bifurcate the expenses related to shares and debenture expenses, and deferred revenue expenses for proper evaluation, following a similar decision in a previous case.- The AO was instructed to verify the payment of employees' contribution to PF and ESI before the due date of filing the return for allowance.Issue 2: Reopening of assessment proceedings and various disallowances for assessment year 2000-01- The appeal contested the reopening of assessment proceedings u/s.147 of the I.T. Act and various disallowances made by the AO.- Grounds related to depreciation, set off of interest income against public issue expenses, disallowance under section 35D, and deduction u/s.80IA on 'other income' were discussed.- The ITAT directed the AO to verify relevant facts and allow the claims based on previous judgments and specific directions.Issue 3: Disallowance of deduction u/s.80IA on 'other income'- The Ld. AR presented details of 'other income' including interest income, exchange rate difference, excise credit, and export incentives.- Certain items were not pressed for want of details, leading to their dismissal.- The ITAT directed the AO to verify the nexus of interest income and allowed deductions on certain items related to industrial undertakings and business income.Issue 4: Disallowance of deduction u/s.80HHC- The Ld. AR did not press this ground, resulting in its dismissal.- General grounds and those not pressed by the Ld. AR were dismissed as not pressed.- The ITAT allowed the appeal for statistical purposes based on the discussions and directions provided in the judgment.This summary provides a detailed overview of the issues involved in the legal judgment, highlighting the key arguments and decisions made by the ITAT for each issue raised in the appeal.