2005 (2) TMI 765 - AT - Income Tax

Summary

Issues: Disallowance of Euro Issue expenditure under section 37 of the Income-tax Act, 1961 and alternative claim under section 35D.

The first issue in the judgment revolves around the disallowance of Euro Issue expenditure claimed by the assessee under section 37 of the Income-tax Act, 1961, for the assessment year 1995-96. The Assessing Officer rejected the deduction, stating that there was no extension or setting up of a new unit, hence not satisfying the requirement of section 35D(1)(ii). The assessee contended that the expenditure was in connection with the extension of its industrial undertaking, citing the Issue Document indicating investments for expanding production capacity at its plants. The term "extension" was deliberated upon, emphasizing the intent to finance capital expenditure for capacity expansion and modernization. The expenditure breakdown included various categories such as stay, travel, audit fees, management fees, and underwriting commission, totaling the claimed Euro Issue expenditure. The Tribunal concluded that the expenses were incurred for industrial undertaking extension, falling within the ambit of section 35D.

The second issue addressed the allowability of expenditure under section 35D(2)(c)(iv) concerning the issue, for public subscription, of shares or debentures by a company. The assessee relied on judicial precedents like CIT v. Shree Synthetics Ltd., CIT v. Multi Metals Ltd., and CIT v. Mahindra Ugine & Steel Co. Ltd. to support the deduction of expenses related to share issues. Notably, the decision in CIT v. Ennar Steel & Alloy (P.) Ltd. clarified that the scope of section 35D cannot be expanded beyond its specified limits, emphasizing that only expenses explicitly mentioned in the statute can be allowed. Consequently, the Tribunal directed the Assessing Officer to recalculate the deduction in adherence to statutory provisions. As a result, the appeal filed by the assessee was partially allowed, while the departmental appeal on the same issue was decided in favor of the assessee, leading to the dismissal of the Revenue's appeal.