2018 (2) TMI 1959 - HC - Income Tax

Disallowance of depreciation - assets transferred upon amalgamation in the earlier years from the amalgamating company a company amalgamated by virtue of the order of the BIFR - disallowance of expenses which includes placement fees u/s 37 - HELD THAT - Substantial questions of law at Sr. Nos. 2 and 3 are covered against the assessee in 2017 (9) TMI 1867 - BOMBAY HIGH COURT Disallowance of prior period expenses - alternate prayer for allowing the deduction in the years to which the same relate as per Assessing Officer - whether expenses are covered by Section 43(B) ? - HELD THAT - Department has invited our attention to each provision of Section 43(B) of the Income Tax Act which has been relied upon by the Appellate Tribunal to answer the question against the Assessee and has urged that the amount pertaining to the statutory expenses has to be claimed in the year in which such expenses are actually required to be incurred or actually to be paid. According to him the expenses in question are covered by Section 43(B) and should have been therefore claimed in the previous year in which actually paid prior to 1998-1999. We put a specific question to Shri Bhattad to point out any decision holding that if the statutory expenses covered by Section 43(B) are not actually paid during the year in which those are required to be paid then even if such expenses are actually paid in the subsequent year the deduction cannot be claimed. No such decision is brought to our notice. If the expenses are covered by Section 43(B) there cannot be disputed about its claim for deduction and merely because the deduction was not claimed in the previous year it would not prevent the assessee from claiming it in the assessment year during which the payment was actually made. The substantial question of law we therefore answered accordingly. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of prior period expenses and deduction claim for subsequent years.
2. Disallowance of depreciation on assets transferred upon amalgamation.
3. Disallowance of share issue expenses as revenue in nature.

Issue 1 - Disallowance of prior period expenses and deduction claim for subsequent years:
The appeal raised questions regarding the confirmation of disallowance made by the Assessing Officer for prior period expenses and the rejection of an alternate prayer for allowing the deduction in subsequent years. The appellant claimed expenses of &8377; 2,31,71,040 during the assessment year 1998-1999, although the expenses related to an earlier assessment year. The court examined the provisions of Section 43(B) of the Income Tax Act, which the Appellate Tribunal relied on to uphold the disallowance. The court noted that expenses covered by Section 43(B) should be claimed in the year they are required to be paid or incurred. However, the court found that if such expenses were not claimed in the previous year but were actually paid in a subsequent year, the deduction could still be claimed. As no decision was presented to the court contradicting this interpretation, the court ruled in favor of the assessee, allowing the expenses as actually incurred.

Issue 2 - Disallowance of depreciation on assets transferred upon amalgamation:
The second issue pertained to the disallowance made by the Assessing Officer regarding the claim for depreciation amounting to &8377; 5,50,908 on assets transferred upon amalgamation in an earlier year. The court considered the claim in light of the amalgamation of the company and the relevant provisions of the Income Tax Act. However, this issue was not further discussed in the judgment as it was stated that the substantial questions of law related to this issue were already decided against the assessee in a previous case, rendering them irrelevant.

Issue 3 - Disallowance of share issue expenses as revenue in nature:
The final issue addressed the disallowance made by the Assessing Officer at &8377; 66,000 as share issue expenses, including placement fees, considered revenue in nature and allowable under Section 37 of the Income Tax Act. The court did not delve into this issue in detail in the judgment, as it was primarily focused on the disallowance of prior period expenses and the subsequent deduction claim.

In conclusion, the High Court of Bombay ruled in favor of the assessee, partially allowing the appeal and setting aside the disallowance of &8377; 2,31,71,040 as prior period expenses, allowing them as expenditure actually incurred. The judgment provided clarity on the interpretation of Section 43(B) regarding the timing of claiming expenses and deductions, emphasizing that if expenses covered by the section were paid in a subsequent year, they could still be claimed, even if not claimed in the previous year.