TaxTMI 
TaxTMI 
2012 (12) TMI 88
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....laim for deduction u/s 35 in respect of amortization of expenditure incurred on initial public offer of Equity shares amounting to Rs. 3.27 crore (being one-f if th of the total expenditure of Rs. 16.39 crore) on the ground that the appellant is not an industrial undertaking. 2. The appellant prays that it be held that on the fats and circumstances, invoking section 263 for directing such disallowance is not in accordance with law and that disallowance of the claim for deduction u/s 35D is not called for". 2. Briefly the facts of the case are that the assessee company is carrying on banking business in India. The CIT noted that a perusal of the assessment record for the AY 2006-07 revealed that the assessment order u/s 143(3) was passed by the DCIT is deficient in the following respects:- "i) It is seen that the relevant year an expenditure of Rs. 16.39 crore was incurred on IPO of Equity shares and a deduction @ 1/5th amounting to Rs. 3.27 crores was claimed u/s 35D. The same was not debited to the profit & loss account but adjusted in the share premium but for income tax purposes was claimed u/s 35D. Section 35D allows authorization of certain preliminary expenses only to an ....
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....ion 35D based on the following legal cases: i) CIT Vs. Emirates Commercial Bank ltd., [262 ITR 55] where the Bombay High Court, which is also the jurisdictional High Court, has held that Banks are ' industrial undertakings' and eligible for the deduction u/s 32A of the Ac. ii) HSBC Securities and Capital Markets(India) Pvt. Ltd. [1384/M/2000] where the Hon'ble Mumbai ITAT has held that even a share broking entity is an ' industrial undertaking' for the purpose of section 35D. *Therefore, the claim of the assessee for deduction u/s 35D is in accordance with law and is allowable. c) We submit, in the course of the assessment proceedings u/s 143(3), the AO examined our claim and asked us to provide the computation of threshold limit u/s 35D and increase in advances and investments made by our Bank. We submitted these details by our letter dated December 17, 2008. Annexure 1 is a copy of that letter. The AO examined the details disclosure made in the return of income and the foregoing letter dated December 17, 2008 and after due application of mind allowed our claim for deduction of Rs. 3.27 crores in the order. d) In view of the fact that the assessment was framed u/s 143....
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....ndrashekar, 196 ITR 277 (Kar.) v) CIT Vs. Mohanlal Bhagwati Prasad, 204 ITR 234 (Cal.), etc." 4. The CIT has considered the explanation of the assessee and rejected the same for the reasons that the assessee is a bank and not an industrial undertaking for the purpose of section 35D of the Act. The CIT held that the decision of the Bombay High Court in the case of Emirates Commercial Bank (supra) has no application to the facts of the case under consideration. He further held that the Finance Act, 2008 has omitted the word 'industrial', the omission of the word, not a procedural and substantive provision and it applies prospectively. He also held that the AO has not discussed a word about the issue and not examined whether the assessee bank is an industrial undertaking for the purpose of section 35 D and allowed the claim of the assessee. He, therefore, directed the AO to withdraw the benefit allowed u/s 35D of the Act. 5. Aggrieved by the order of CIT passed u/s 263 of the Act, the assessee is in appeal before us. 6. The learned counsel for the assessee has submitted that the assessee is a bank incurred expenses on IPO of equity shares, which is eligible for section 35....
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....n 32A(2)(b)(iii) and not in the context of section 35D and, therefore, the aforesaid decision of the Hon'ble Bombay High Court is not applicable to the facts of the case of the assessee. 9. The learned DR further submitted that section 35D was considered by the Hon'ble Delhi High Court in the case of Ansal Housing & Construction Ltd. (supra) wherein the Hon'ble Delhi High Court has considered the decision of the Hon'ble Bombay High Court in the case of Emirates Commercial Bank (supra). He, therefore, submitted that the decision of the Hon'ble Delhi High Court squarely applies to the facts of the present case under consideration. The word 'industrial' omitted by the Finance Act, 2008 is related to substantive and only applies prospectively. 10. We have heard both the sides, peruse the record and gone through the orders of the authorities below. The assessee is a company carrying on banking business in India. During the relevant year an expenditure of Rs.16.39 crore was incurred on IPO of equity shares and a deduction of 1/5th amounting to Rs. 3.27 crore was claimed u/s 35D. The claim of the assessee was allowed by the Assessing Officer. Subsequently, after perusal of the a....
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....undertaking' engaged in manufacture or production of an article or a thing. The assessee's submission in that case was that as long as the assessee used these computers for production of articles and things it could be regarded as an 'industrial undertaking' and this submission of the assessee was accepted by the Court. From the discussion up to now, it follows that:- a) Industrial undertaking is to be given the meaning which is understood in common parlance, and b) Which should be interpreted widely, At the same, we have to bear in mind that the expression is to be construed in the context of section 35D of the Act and it is to be further discerned as to whether the business of construction activity would be treated as an 'industrial undertaking' or not." 13. The Hon'ble Delhi High Court after considering the decision of the Emirates Commercial Bank (supra) and other case laws, ha s held that "commonsense approach will have to be adopted and those undertakings would qualify as industrial undertaking which are involved in manufacturing activity". 14. In the present case, the assessee is a bank incurred expense on issue of IPO equity shares, claimed deduction u/s 35D. I....