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2016 (1) TMI 1458 - HC - Income TaxDeduction u/s 35D - Amortisation of certain preliminary expenses - Appellant claimed amortization of GDR expenses as per Section 35D of the Act only to the extent of 2.5% of capital expenditure-project cost against the actual GDR expenses - HELD THAT - Section 35D enables amortization of specified preliminary expenses which are otherwise not admissible deductions. Expenditure on issue of shares for public subscription is one such expenditure. Section 35D of the Act applies in two circumstances; (i) pre-business expenses i.e. expenses incurred before the commencement of business and (ii) expenses incurred in connection with the extension of industrial undertaking or in connection with setting up a new industrial unit by an establishment which is already in business. The assessee had claimed deduction in respect of successive units over a period of time; one unit during 1995-96 another unit during 1996-97 and yet another unit during 1997-98. There is also a finding that there is no proof to show that Euro Issue had been used for the capital expansion over a period of so many years. On these findings the assessing officer has chosen to grant deduction only in respect of one unit namely for the unit established in 1995-96 to the extent of 10, 39, 812/- and disallowed the deduction in respect of other units. Therefore we find no reason to differ the findings of the Tribunal. Deduction of bad debts disallowed u/s 36 - contention of the learned counsel for the assessee is that as part of the debt had to be written off the same should have been allowed as revenue expenditure and that the Assessing Officer has chosen to treat the same as capital loss which is not correct in law - HELD THAT - The claim for deduction on account of bad debt did not satisfy the eligibility creteria as enunciated in the decision reported in Sarangpur v. CIT 1982 (6) TMI 23 - GUJARAT HIGH COURT . Applying the correct legal position the Assessing Officer has given a finding that the alleged debt was not part of assessee s stock in trade and that as it has not been incurred while purchasing or selling the goods in which the company was dealing with and therefore the expenditure involved cannot be treated as a debt and therefore it is not an admissible deduction. Therefore there is no reason to interefere with the findings of the Tribunal. Deduction disallowed as claimed u/s 37(4) - assessee claimed deduction in respect of expenditure on maintenance of guest house rent paid on guest house and depreciation on assets in the guest house building - AO disallowed the deduction - HELD THAT - This finding was confirmed by the Income Tax Appellate Tribunal relying upon the decision of the Supreme Court reported in Britania Industries Ltd. vs. CIT 2005 (10) TMI 30 - SUPREME COURT in which it was held that depreciation rent repairs under Sections 30 and 32 of the Act and maintenance expenses are not allowable in respect of guest house. Deduction disallowed as claimed under Section 80HHC - HELD THAT - Tribunal felt that a) with regard to interest income insurance claim and other income there is no discussion about the nature of this income; b) whether these are operational income arising out of manufacturing activity on account of which the assessee is doing business or not; and c) with regard to other head of claim also there is no discussion. This omission by Assessing Officer as well as Commissioner of Income Tax (Appeals) has been specifically pointed out by the Tribunal and the Tribunal has remitted the issue back to the file of the Assessing Officer with a direction to find out the nature of the income and if the income is found to be operational income then 90% is to be excluded while computing deduction under Clause (baa) to Explanation to Section 80HHC and this 90% will be excluded out of the gross receipts while computing the export profit for the purpose of deduction under this provision. Therefore the order of the Tribunal in remanding this issue for consideration on issues pointed out does not suffer from any infirmity and therefore there is no ground to interfere with the same. Assessee appeal dismissed.
Issues Involved:
1. Disallowance of deductions claimed under Section 35D of the Income Tax Act. 2. Disallowance of deductions claimed under Section 36 of the Income Tax Act. 3. Disallowance of deductions claimed under Section 37(4) of the Income Tax Act. 4. Disallowance of deductions claimed under Section 80HHC of the Income Tax Act. Detailed Analysis: 1. Deduction Disallowed as Claimed Under Section 35D of the Act: The appellant, M/s. Tube Investments of India Limited, claimed a deduction under Section 35D for a sum of Rs. 26,56,979/-, being 1/10th of the allowable expenditure for each assessment year, related to expenses incurred for a Global Depository Receipts (GDR) issue. The Income Tax Appellate Tribunal upheld the Assessing Officer's decision to disallow this deduction. The Tribunal noted that Section 35D allows amortization of preliminary expenses over ten years, but the appellant had claimed deductions for successive units over multiple years without proof that the GDR funds were used for capital expansion over those years. The Tribunal found no reason to differ from the Assessing Officer's findings that the deduction should be limited to Rs. 10,39,812/- for the unit established in 1995-96, disallowing the balance for other units. 2. Deduction Disallowed as Claimed Under Section 36 of the Act: The appellant advanced Rs. 100 lakhs to M/s. Sccals Ltd., which later defaulted. The appellant wrote off Rs. 50 lakhs as a bad debt and claimed it as an admissible expenditure under Section 36(2). The Tribunal confirmed the disallowance, relying on the precedent set by CIT vs. Micromax Systems (P) Ltd., which requires debts to be written off as irrecoverable in the accounts for the relevant year. The Tribunal agreed with the Assessing Officer that the debt did not meet the criteria for bad debt deduction as it was not part of the appellant's stock in trade nor incurred during the purchase or sale of goods. 3. Deduction Disallowed as Claimed Under Section 37(4) of the Act: The appellant claimed deductions for guest house expenses, including maintenance, rent, and depreciation. The Tribunal, following the Supreme Court's ruling in Britania Industries Ltd. vs. CIT, upheld the disallowance. The Supreme Court held that expenses related to guest houses are not allowable under Sections 30 and 32 of the Act. The Tribunal found no grounds to interfere with the Assessing Officer's findings based on this precedent. 4. Deduction Disallowed as Claimed Under Section 80HHC: The appellant claimed deductions under Section 80HHC for various incomes, including exim grant, duty drawback, special import licence premium, other income, interest income, insurance claim, and consideration for power purchase agreements. The Tribunal noted the lack of discussion by the Assessing Officer and Commissioner of Income Tax (Appeals) on the nature of these incomes and whether they were operational income arising from the appellant's manufacturing activities. The Tribunal remitted the issue back to the Assessing Officer to determine the nature of the income and apply the 90% exclusion rule for operational income under Clause (baa) to Explanation to Section 80HHC. The Tribunal's order to remand the issue for further consideration was found to be without infirmity. Conclusion: The High Court found no reason to disagree with the findings of the Income Tax Appellate Tribunal, which were based on materials and reasons. The appeal was dismissed, upholding the disallowances made by the Assessing Officer and confirmed by the Tribunal.
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