2005 (6) TMI 481 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of depreciation claimed for plant & machinery.
2. Disallowance of depreciation claimed for building.
3. Allowability of pre-operative expenses under section 35D of the Income-tax Act.
4. Disallowance of share transfer expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation Claimed for Plant & Machinery:
The assessee claimed depreciation on the capitalized amount of expenses on public issues, which was used for procuring plant and machinery. The Assessing Officer (AO) disallowed this claim, stating that the expenses were incurred for raising equity capital and not for acquiring plant and machinery. The CIT(A) upheld the AO's decision, emphasizing that the expenses were related to raising equity capital and not directly to the acquisition of assets. The Tribunal agreed, noting that there must be a direct and proximate nexus between the expenditure and the acquisition of the asset. Since the impugned expenses were for raising equity capital, they did not qualify for depreciation under section 32.

2. Disallowance of Depreciation Claimed for Building:
Similar to the first issue, the assessee claimed depreciation on the capitalized expenses for the building. The AO and CIT(A) disallowed the claim on the same grounds that the expenses were related to raising equity capital and not directly to the acquisition of the building. The Tribunal upheld this decision, reiterating that the expenses did not have a direct nexus with the cost of acquiring the building.

3. Allowability of Pre-operative Expenses under Section 35D:
The assessee alternatively claimed that the capitalized expenses should be amortized and allowed under section 35D of the Income-tax Act. The AO rejected this claim, stating that the assessee did not make the claim in the first year, i.e., the preceding year. The CIT(A) confirmed this decision, noting that the public issue was relevant to the assessment year 1995-96, and the claim should have been made in that year. The Tribunal set aside the order of the CIT(A) on this issue and restored the matter for fresh decision in accordance with the provisions of section 35D, allowing the alternative ground for statistical purposes.

4. Disallowance of Share Transfer Expenses:
The assessee claimed share transfer expenses incurred after the public issue was closed. The AO and CIT(A) disallowed these expenses, questioning whether they related to the assessment year under consideration. The Tribunal found that the assessee provided details of the expenses, certifying that they pertained to the relevant assessment year and were incurred for share transfers post-public issue. The Tribunal allowed this claim, noting no evidence to support the CIT(A)'s order that the expenses did not pertain to the share transfer or the year under consideration.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the disallowance of depreciation claims for plant & machinery and building but allowed the alternative claim for amortization under section 35D for fresh consideration. The Tribunal also allowed the claim for share transfer expenses.