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2010 (7) TMI 623 - AT - Income TaxDisallowance u/s 35D - In the year under consideration the assessee claimed31.67 lakh as deduction under sec. 35D of the Act being 1/5th of 5% of public issue of 39, 10, 000 shares of Rs.5/- each at a premium of76 - High Court of Delhi in the case of Berger Paints India vs. CIT 292 ITR 658 (Del.) Held that the premium amount collected it is excluded for determining the amount of capital employed for calculating the amount of deduction u/s 35D(3) - In other words this issue raised by the revenue is decided in favour of the revenue and against the assessee Ground No.2 is directed against the CIT(A) s order in deleting the disallowance of2, 95, 616/- on account of foreign travelling expenses for the AY 2005-06 - The assessee company was asked to give proof of the business purpose for which the foreign travelling was undertaken AO disallowed 20% of the total expenses which was worked out to2, 95, 616 - The assessee has not given the details of expenses incurred out of foreign exchange amounting to2, 72, 500 Held that the disallowance the amount of150000 Appeal is partly allowed
Issues Involved:
1. Deletion of disallowance made under Section 35D of the Income-tax Act. 2. Deletion of disallowance on account of foreign traveling expenses. Detailed Analysis: Issue 1: Deletion of Disallowance under Section 35D Facts and Circumstances: The assessee claimed Rs.31.67 lakh as a deduction under Section 35D of the Income-tax Act, being 1/5th of 5% of the public issue of 39,10,000 shares at a premium of Rs.76/-. The Assessing Officer (AO) restricted the deduction to Rs.1.95 lakh after excluding the premium amount realized on shares. The AO disallowed Rs.29,72,000/-. CIT(A) Decision: The CIT(A) deleted the addition by following the decision of the Income-tax Appellate Tribunal, Ahmedabad Bench in JCIT vs. Sirhind Steel Ltd., which held that share premium should be treated as issued share capital. Tribunal's Analysis: The Tribunal noted that the issue is covered by the decision of the Hon'ble Delhi High Court in Berger Paints India vs. CIT, which held that the premium collected on the issue of shares is not part of the capital employed in the business of the company for the purpose of Section 35D. The Tribunal emphasized that the Explanation to Section 35D does not include reserves and surplus of the company as part of the capital employed. Conclusion: The Tribunal upheld the AO's order, excluding the premium collected by the assessee on the issue of its share capital for determining the amount of capital employed in the business of the company while computing the deduction under Section 35D(3). The CIT(A)'s order was set aside, and the AO's order was restored, deciding the issue in favor of the revenue. Issue 2: Deletion of Disallowance on Foreign Traveling Expenses Facts and Circumstances: The AO disallowed 20% of the foreign traveling expenses amounting to Rs.2,95,616/- on the ground that the assessee failed to provide evidence of the business purpose for the foreign travels. CIT(A) Decision: The CIT(A) deleted the addition, observing that the AO made the disallowance on an ad hoc basis without citing any instance of personal expenditure. Tribunal's Analysis: The Tribunal reviewed the details of foreign traveling expenses and noted that the assessee incurred Rs.13,83,002/- on foreign traveling. The Tribunal found that the visit to Vienna/Prague/Copenhagen was not substantiated with details of prospective customers contacted. The assessee failed to establish that the journey was exclusively for business purposes. Conclusion: The Tribunal disallowed Rs.1,50,000/- out of the total expenses claimed for the journey to Vienna/Prague/Copenhagen, as the assessee did not provide sufficient evidence. The AO's order was modified accordingly, and the addition was sustained to the extent of Rs.1,50,000/-. Final Decision: - The appeal for the Assessment Year 2002-03 was allowed in favor of the revenue. - The appeal for the Assessment Year 2005-06 was partly allowed, with a partial disallowance of foreign traveling expenses. Pronouncement: This decision was pronounced in the open court immediately after the hearing on 29th July 2010.
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