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of <h1>ITAT Mumbai: Share Issue Expenses Disallowed, Work-in-Progress Undervaluation Deleted</h1> <h3>Horizon Country Wide Logistics Ltd. (Now Succeeded on amalgamation by SKIL Infrastructure Ltd.) SKIL Infrastructure Ltd. Versus ACIT-1 (2) Mumbai</h3> Horizon Country Wide Logistics Ltd. (Now Succeeded on amalgamation by SKIL Infrastructure Ltd.) SKIL Infrastructure Ltd. Versus ACIT-1 (2) Mumbai - TMI Issues:1. Disallowance made under section 35D of the Act for share issue expenses.2. Double addition of interest income in the assessment.Issue 1: Disallowance under section 35D of the Act for share issue expensesThe assessee's appeal was against the order passed by the CIT(A)-2, Mumbai related to A.Y. 2009-10. The Assessing Officer disallowed a claim made by the assessee for share issue expenses under section 35D of the Act. The CIT(A) upheld this disallowance. The assessee contended that the claim was allowable under section 35D, but failed to convincingly explain how the expenditure qualified. The tribunal noted that the expenditure incurred to increase share capital is capital in nature, as per the Supreme Court's decision in Brooke Bond India Ltd. case. Therefore, the tribunal upheld the CIT(A)'s decision on this issue.Issue 2: Double addition of interest income in the assessmentThe Assessing Officer observed that the assessee had deducted interest income earned from fixed deposits from pre-operative expenses. The AO assessed this interest income as the assessee's income from other sources. The CIT(A) confirmed this addition. However, the assessee accepted the CIT(A)'s decision. The AO also increased the work-in-progress value, leading to an increase in business profit. The tribunal found a fallacy in the AO's approach, stating that entries in the balance sheet do not determine total income. The tribunal highlighted that an increase in the asset side of the balance sheet should correspond to an increase in capital liability or income. Since the interest income was already assessed, any increase in work-in-progress value would not increase business profit. Therefore, the tribunal directed the AO to delete the addition made towards the undervaluation of work-in-progress. As a result, the appeal filed by the assessee was partly allowed.The judgment was delivered by the Appellate Tribunal ITAT Mumbai, with detailed analysis and reasoning provided for each issue involved in the case.
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