TaxTMI 
TaxTMI 
2010 (7) TMI 623
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.... the assessment proceedings the AO asked the assessee to explain why deduction should not be restricted to Rs.1.95 lakhs being worked out after excluding the premium amount realized on shares. In reply, the assessee submitted that the assessee came out with public issue of its shares in Assessment Year 2001-02 wherein total 39,10,000 shares of Rs.5/- each were offered for subscription on a price of Rs.81/-, and a total cost amortized over a period of 5 years. It was further explained that as per sec. 35D of the Act, the assessee claimed 1/5th of 5% of capital employed on cost of the project, whichever is higher. It was thus explained that the assessee claimed deduction to the extent of 5% on total capital of Rs.34,39,54,150/- as on 31.3.2001 and submitted that said premium is to be treated as issued share capital and as per Explanation (b) to section 35D(3), share premium account was a part of issued share capital. However, the explanation was not accepted by the AO 3 and he allowed the deduction u/s 35D only to the extent of Rs.1.95 lakh as against Rs.31.67 lakh and disallowed the balance amount of Rs.29,72,000/-. On an appeal, the learned CIT(A) deleted the addition by following ....
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....ation for adjournment filed. We therefore, proceeded to hear the learned DR and accordingly, she was heard. 5. The learned DR submitted that the issue involved in this appeal is now fully covered in favour of the revenue by the decision of Hon'ble jurisdictional High Court of Delhi in the case of Berger Paints India vs. CIT, 292 ITR 658 (Del.). She submitted that in the light of the decision of High Court, the decision of Tribunal relied upon by the learned CIT(A) would not be applicable. 6. Section 35D of the Income-tax Act regulates amortization of certain preliminary expenses. The provision, inter alia, says that if an assessee being an Indian company or a person (other than a company), who is resident in India, incurs after March 31, 1970, any expenditure 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 industrial undertaking or in connection with the setting up of a new industrial unit, the assessee shall, in accordance with and subject to the provisions of section 35D, be allowed a deduction of an amount equal to 1/10th of such expenditure for each of the ten success....
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.... (i) of sub-section (1), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the previous year in which the business of the company commences; (ii) in a case referred to in clause (ii) of sub-section (1), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the previous year in which the extension of the industrial undertaking is completed, or as the case may be, the new industrial unit commences production or operation, in so far as such capital, debentures and long-term borrowings have been issued or obtained in connection with the extension of industrial undertaking or the setting up of the new industrial unit of the company." 6.4 The above clearly shows that in the case of any specified expenditure is incurred before the commencement of the business of the company, the capital employed in the business of the company would be the aggregate of three components, namely, share capital, debentures and long-term borrowings as on the last day of the previous year in which the business of the company commences, and in the case of where specified expenditure is incurred after the commence....
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...." has been considered by the Hon'ble Delhi High Court in the case of Berger Paints India (supra) where the Hon'ble Delhi High Court after analyzing the provisions of sec. 35D, has held that the Explanation to section 35D of the Act does not include the reserve and surplus of the company as a part of the capital employed in the business of the company. They held that they did not find any merit in the contention of the assessee that the premium collected on issue of shares is a part of share capital and, is therefore, to be reckoned as capital employed in the business of the company. The Hon'ble High Court further observed that if the intention was that any amount other than the share capital, debentures and long-term borrowings of the company ought to be treated as part of the capital employed in the business of the company, Parliament would have suitably provided for the same and so long as that has not been done and so long as the capital employed in the business of the company is restricted to the issued share capital, debentures and longterm borrowings, there was no room for holding that the premium, if any, collected by the company on the issue of its share capital would....
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....AO has made the disallowance purely on ad hoc basis without realizing the fact that the director and employees had to travel UK and USA as they were earning their income in these countries and without citing any instance wherein personal element was involved. Hence the department is in appeal before us. 10. We have heard the learned DR and perused the material on record. We have also gone through the details of foreign travelling expenses placed in the Paper Book filed by the assessee. From the details it appears to us that the assessee had incurred sum of Rs.14,78,078/- towards foreign travelling as well as domestic travelling expenses. The total expenses of Rs.14,78,078/- includes expenses on domestic travelling amounting to Rs.95,076/- and the balance amount of Rs.13,83,002/- is towards the foreign travelling undertaken by the assessee's employee and director. Therefore, the amount incurred on foreign traveling expenses is only of Rs.13,83,002/- and not Rs.14,78,078/- as stated by the AO. We have gone through the details of foreign travelling and found that the assessee's employees had undertaken journey to USA and on that account a sum of Rs.4,58,488.19 13 was incurred. The ....