TaxTMI 
TaxTMI 
2016 (5) TMI 99
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.... expenditure of Rs. 9,65,903 towards prior period expenses. Since these expenses do not relate to the assessment year 2006-07, the same was disallowed by the Assessing Officer. On appeal, the Commissioner of Income-tax (Appeals) observed that this was originally disallowed by the Assessing Officer while passing the original assessment order under section 143(3) dated December 12, 2008. This assessment year was subject matter of revision under section 263 and, vide order dated October 27, 2009, the Assessing Officer is directed to consider the allowability of depreciation on the improvement made towards leasehold properties. Consequent to the revision order passed under section 263, the Assessing Officer passed impugned assessment order under section 143(3) read with section 263, vide order dated October 26, 2010. Since the present appeal is emanating from the order passed under section 143(3) read with section 263 of the Act, the addition was not emanating in consequential order and it is emanating from the original assessment order passed under section 143(3) of the Act dated December 12, 2008. Being so, the contention of the learned authorised representative is that once the asse....
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.... picture with effect from March 24, 2008, and by relying on the decisions in the case of ITO v. Daga Capital Management P. Ltd. (I. T. A. No. 1372/Delhi/2005) [2009] 312 ITR (AT) 1 (Mumbai) [SB], Maxopp Investments Ltd. (I. T. A. No. 183/Del/2005) and Cheminvest Ltd. (I. T. A. No. 2048/Del/2005), he has made the disallowance since the provisions of section 14A(2) and (3) are procedural in nature and effective retrospectively. Aggrieved, the assessee went in appeal before the Commissioner of Income-tax (Appeals), who confirmed the disallowance at 5 per cent. of the gross dividend received by the assessee. 9. For the assessment years 2008-09, 2009-10, the Commissioner of Income-tax (Appeals) dismissed this ground observing that indirect management and administration expenses qualify for disallowance under section 14A read with rule 8D. Against this, the assessee is in appeal before us. 10. We have heard both the parties and perused the materials on record. In respect of the assessment year 2007-08, in our opinion, rule 8D has no application, since this was inserted with effect from March 24, 2008. Since rule 8D has no retrospective effect, it cannot be applied for the assessment ye....
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....s been passed by the learned first appellate authority as apportionment of expend iture for earning the dividend income was done as per the provisions of the Act. It was pleaded that section 14A read with rule 8D of the Rules is clearly applicable to the facts of the present appeal. 4. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is a limited company, engaged in trading of bulk and fine, chemicals, solvent and pharmaceutical raw materials declared its income at Rs. 74,40,000 on September 26, 2009. The assessee credited dividend income of Rs. 1,82,262 in its profit and loss account. The Assessing Officer while framing the assessment invoked section 14A read with rule 8D by contending that the assessee claimed various expenses which are related to exempt income in its profit and loss account and disallowed Rs. 14,58,412. On appeal, before the learned Commis sioner of Income tax (Appeals) broadly the stand taken in the assess ment order was affirmed against which the assessee is in further appeal before this Tribunal. The totality of facts clearly indicates, as claimed by the assessee that no borrow....
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.... by following the directions given by the Additional Commissioner of Income-tax in his order under section 144A. The Additional Commissioner of Income-tax in his order under section 144A has directed the Assessing Officer to disallow the expenditure claimed by the assessee, since the expenditure is not related to the "extension" of its own undertaking or for "setting up of a new unit" as stated under section 35D(1)(ii). It was observed that the amount utilised was for acquisition of an already existing undertaking M/s. Telesys Global Solutions Ltd. (TGSL). The Additional Commissioner of Income-tax has also observed that the expansion of the industrial unit was not complete, since more than 50 per cent. of the proceeds were not utilised during the relevant year. According to the Additional Commissioner of Income-tax, the claim was not within the meaning of section 35D. Against this, the assessee went in appeal before the Commissioner of Income-tax (Appeals). 15. On appeal, the Commissioner of Income-tax (Appeals) observed that for amortisation of expenditure under section 35D certain conditions are to be fulfilled. The provisions of section 35D(1)(ii) stipulate that the expenditure....
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....similar issue came up for consideration before the jurisdictional High Court in the case of CIT v. Ashok Leyland Ltd. [2012] 349 ITR 663 (Mad) (T. C. (Appeals) Nos. 1253, 1254 and 1256 of 2005, dated June 20, 2012), where the meaning of the "expansion" and "extension" was answered in favour of the assessee. The question raised before the High Court in the above case is as under (page 665) : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in equating a proposal to 'expand' the capacity of production with 'extension' of industrial undertaking under section 35D of the Income-tax Act ?" 18. The High Court has decided that expansion and extension mean the same. According to the Commissioner of Income-tax (Appeals), in the instant case, taking of business activity of TGSL is considered as extension of business by the assessee within the meaning of section 35D(1)(ii). 19. With regard to the provisions of section 35D(2)(c)(iv), the Commissioner of Income-tax (Appeals) observed that the expenses permissible for amortisation are as under : (i) underwriting commission. (ii) brokerage ; and (iii) charges for drafting, typing, printi....
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....5 per cent. of the total issue size is to be paid as selling and marketing commission. Since the facts reveal that the company has gone to public issue, underwriting commission will be payable and will become an allowable deduction under section 35D(2)(c)(iv). However, out of 3.25 per cent. payable to the lead bankers, only 1.25 per cent. is fitting into the provisions of section 35D(2)(c)(iv) in the form of underwriting commission. 23. Following the above decision of the jurisdictional High Court, the Commissioner of Income-tax (Appeals) directed the Assessing Officer to consider the following expenses be eligible for working of amortisation under section 35D(2)(c)(iv) : (Rs.) (i) Advertisement expenses 2,35,16,432 (ii) Printing charges 1,97,46,544 (iii) Underwriting commission 48,52,500 24. Against this, the assessee as well as the Revenue is in appeal. 25. We have heard both the parties and perused the material on record. Before us, the learned authorised representative submitted that the expenditure to be allowed under section 35D of the Act and placed detailed argument as made before the Commissioner of Income-tax (Appeals), which is kept on record....
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....ting up of a new unit. 27. The argument of the assessee-company is that the expenses were incurred in raising the capital money for the expansion of its existing business carried on by the assessee-company and, therefore, it amounted to the extension of its existing business and as such, the assessee is entitled for benefit available under section 35D. 28. We considered this issue very carefully. There is no doubt that expenses were not incurred before the commencement of the business. Therefore, the first condition is not complied with. The second condition is that the expenses incurred after commencement of the business, should be incurred in connection with extension of its business or in connection with setting up of a new unit. There is no case of setting up of a new unit. The question is whether there was an extension of its existing undertaking ? A great emphasis has to be given on the expression "undertaking". Business expansion and market expansion of an existing business will not amount to extension of the "undertaking". The expression "undertaking" denotes a visible expenditure on the physical facilities for manufacture and production. An undertaking is always having a....
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.... to and raise share capital for working capital requirements need to be allowed as revenue expenditure cannot be accepted. Accordingly, this ground of appeal of the assessee is rejected and the ground of appeal of the Revenue is allowed. 31. The next ground in the assessee's appeal for the assessment years 2007- 08, 2008-09, 2009-10 and 2010-11 is with regard to disallowance of depreciation on application of software at lower rate and also with regard to disallowance of depreciation on behalf of the entire purchase value of application of software and reducing the rate. 32. The facts of the issue as narrated in I. T. A. No. 2790/Mds/14 for the assessment year 2007-08 are that the Assessing Officer observed that the assessee has claimed an amount of Rs. 16,19,58,990 as depreciation at the rate of 100 per cent. on application software. The assessee, during the year has acquired a unit from M/s. Telesis Global Solutions Ltd. According to the Assessing Officer, as part of this acquisition, the application of software amounting to Rs. 16,19,58,990 has come to the possession of the assessee- company. The Additional Commissioner of Income-tax, after hearing the assessee and elaborat....
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....t depreciation to an extent of 100 per cent. in respect of this asset was already claimed by TGSL and in view of Explanation 3 placed under section 43(1), the actual cost of this asset, in the hands of the assessee, has to be reckoned as "nil" only. This conclusion of the Additional Commissioner of Income-tax was based on the financial statement of TGSL. The contention of the assessee is that the treatment given by TGSL in its account cannot be a reason to deny the depreciation on the cost incurred by the assessee. In our opinion, this argument of the assessee's counsel cannot be upheld. The actual cost of assets acquired from TGSL to be considered in terms of Explanation 3 to section 43(1) of the Act. Being so, the lower authorities are justified in observing that the assessee is not entitled for depreciation which was already claimed by TGSL and thereby restricting the depreciation at 25 per cent. on IPR and 60 per cent. on other software. Accordingly, this ground of appeal is rejected in all these appeals. 35. The next ground in the assessee's appeals for the assessment years 2006-07 to 2010-11 is with regard to the disallowance of depreciation on temporary wooden struc....
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..... In the case of CIT v. Indian Metal and Metallurgical Corporation [1983] 141 ITR 40 (Mad), even the partition works and false ceilings were considered as capital assets. 40. Further, the Commissioner of Income-tax (Appeals) observed that while dealing with the improvements on leasehold building, the following points have to be taken into consideration : (i) to see whether the said expenditure is on a capital asset which is eligible for claiming depreciation. (ii) for the purpose of depreciation whether it is a leasehold building or own building, they are equally eligible for depreciation. It cannot be mistaken that the expenditure incurred is revenue because it is a leasehold building and the appellant will be quitting after some time. (iii) either the owner of the building can do the modifications as per the specifications of the tenant before leasing it out and charge more rent or the tenant before occupying the premises may make improvements for better ambiance and attracting customers but the nature of the asset or the nature of expenditure cannot change. Since it is an improvement of the building, it will partake of the character of capital expenditure. (iv) to see w....
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.... 29, 2015), wherein it was observed as under (page 77) : "10. We have heard the parties and perused the record. In the present case, the assessee has taken the building on leasehold on which the assessee carried on interior work and claimed as revenue expenditure. The same was rejected by the Commissioner of Income- tax (Appeals). The learned Departmental representative contended that the assessee made new addition in the leased building and it is not the case of renovation of the leased building or improvement of the leased building as in the case of Joy Alukkas India Pvt. Ltd. v. Asst. CIT [2015] 5 ITR-OL 340 (Ker) ; 88 CCH 147, cited supra as held by the Kerala High Court. For settling the controversy, we have to go through Explanation 1 to section 32(1) of the Act which was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from April 1, 1988, which deals with the situation where the expenditure has been incurred by the assessee on construction of any structure on leasehold premises. Explanation 1 is reproduced herewith below : 'Explanation 1.-Where the business or profession of the asses see is carried on in a building not own....
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....d profession of the assessee, but not in a case of construction of any structure or doing any work or relation to where such building is put up/constructed for the purpose of business or the profession of the assessee in a land taken on lease by the assessee.' 13. Thus, it is clear that the ratio laid down by the Madras High Court in the said judgment does not support the case of the assessee 14. In the present case, the assessee has taken building on lease and made certain interior decoration. It is the case that the assessee has beautified the leased building. The High Court has further held in the aforesaid case that the language employed in a statute is the determinative factor of the legislative intent and even assuming there is a defect or any omission in the words used in the Legislature, the court cannot correct or make up the deficiency, especially when a literal reading thereof produces an intelligible result and any depar ture from the literal rule would really be amending the law in the garb of interpretation, which is not permissible and which would be destructive of judicial discipline. 15. The Supreme Court of India in the case of CIT v. Madras Auto Service....
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....al that the expenditure incurred on the construction of any structure on the leased premises should result in enduring benefit. That any expenditure incurred for civil work by a lessee in respect of the leased premises, without any further proof cannot be said to be capital expenditure or revenue expenditure. In order to find out the nature of expenditure, it is necessary to find out the nature of construction put up, the purpose of construction/renovation and the use to which the construction put up and also if it is a case of repair, replacement, addition or improvement has to be gone into. It is only on the afore said material, keeping in mind the principles enunciated in the judgments by the Supreme Court and keeping in mind section 37 and section 32 of the Act, that one has to determine whether the expend iture is revenue expenditure or capital expenditure. What would apply to civil work equally applies to electrical work or interior decoration. The assessee had not stated the nature of civil works constructed, the nature of interior decoration made to the leasehold premises and also the nature of electrical work undertaken. In the absence of that material and without proper a....