2019 (11) TMI 1633 - AT - Income Tax

Addition u/s.35D by treating the amount as pre-operative expenses - HELD THAT - DR was required to submit a report on the granting or otherwise of deduction of such expenses in the earlier years. A copy of the report from the AO has been placed on record by the ld. DR. As per this report, a deduction was claimed for the first time in the return for the A.Y. 2009-10 which was not granted, but the ld. CIT(A) accepted the assessee s claim and the Revenue s appeal has been dismissed, albeit on low tax effect. No assessment was taken up u/s. 143(3) of the Act for the A.Y. 2010-11, meaning thereby that the deduction got allowed. From the above report of the AO, it is ostensible that the assessee has been consistently allowed deduction of ₹ 9.00 lakh in the assessments for the A.Ys 2009-10 and 2010-11. The assessment year 2011-12, under consideration, is a consecutive 3rd year in line. In view of the fact that the deduction for similar amounts has been allowed in the immediately two preceding assessment years, following the principle of consistency, hold the assessee to be entitled to deduction in the year under consideration as well. The impugned order is overturned on this score and the deduction is granted. - Decided in favour of assessee.

Summary

Issues:
Confirmation of addition of ?9.00 lakh as pre-operative expenses under section 35D of the Income-tax Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT Pune arose from the order of the Commissioner of Income-tax (Appeals)-6, Pune pertaining to the assessment year 2011-12. The sole issue challenged in the appeal was the confirmation of the addition of ?9.00 lakh by the Assessing Officer under section 35D of the Income-tax Act, treating it as pre-operative expenses. The Assessing Officer had disallowed this amount after examining the details of expenses claimed by the assessee. The assessee had claimed deduction of ?9.00 lakh towards pre-operative expenses, which was a part of the total expenditure incurred. The AO found that only a portion of the total amount qualified for deduction, and hence, disallowed the remaining sum. This disallowance was upheld in the first appeal, leading to the assessee's grievance against the addition.

During the proceedings, it was revealed that the assessee had consistently claimed and been allowed a deduction of ?9.00 lakh in the assessments for the assessment years 2009-10 and 2010-11. The AO's report indicated that the deduction was initially not granted for the A.Y. 2009-10 but was later accepted by the ld. CIT(A). Subsequently, the deduction was allowed for the A.Y. 2010-11. Given this consistent allowance over the preceding years, the Tribunal held that the assessee was entitled to the deduction of ?9.00 lakh for the year under consideration as well. Relying on the principle of consistency, the Tribunal overturned the impugned order and granted the deduction of ?9.00 lakh to the assessee for the assessment year 2011-12.

In conclusion, the Appellate Tribunal ITAT Pune allowed the appeal, thereby setting aside the addition of ?9.00 lakh as pre-operative expenses under section 35D of the Income-tax Act for the assessment year 2011-12. The decision was based on the consistent allowance of the deduction in the preceding assessment years, emphasizing the importance of maintaining uniformity in treatment across consecutive years.