9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (7) TMI 1416 - AT - Income TaxAddition invoking the provisions of Section 41 being the amount received for installation of wind energy generators - HELD THAT - If the assessee had declared the amount of ₹ 1 crore as its income, for the assessment year 2014-15 then obviously making addition once again in the hands of the assessee for the relevant assessment year 2010-11 would amount to double taxation. Further due to the various commercial relationships between the assessee and its clients, the assessee had treated the amount of ₹ 1 crore as its liability in the relevant assessment year, by not invoking the penalty clause in the agreement executed between them, thereby providing an opportunity to its client to comply with the terms and conditions of the agreement and hence the assessee had not appropriated the advance. Only during the assessment year 2014-15, the assessee had invoked the penal provisions of the agreement and appropriated the advance received from its clients. This act of the assessee based on commercial prudence cannot be questioned by the Revenue. Therefore, if the assessee had declared the amount of ₹ 1 crore as its income, for the assessment year 2014-15 then there is no scope for the Revenue to make addition for the assessment year 2010-11 once again. Hence we hereby direct the Ld.AO to verify whether assessee had declared the amount of ₹ 1 crore as its income U/s.41(1) of the Act, for the assessment year 2014-15 and if found so, delete the addition made for the relevant assessment year and if found otherwise, reinstate his earlier order on this issue. Addition being the claim of amortization of expenses u/s 35D - assessee had incurred expenditure towards commission for raising private equity share from M/s. Dubai Ventures LLC, Dubai UAE and had claimed the aforesaid amount as miscellaneous expenditure in the balance sheet and written off 1/5th as preliminary and pre-operative expenses in its profit loss account - HELD THAT - Hon ble Apex Court BROOKE BOND INDIA 1997 (2) TMI 11 - SUPREME COURT has held that any expenditure incurred directly related to the expansion of capital base of a company will fall in the capital field and not in the revenue field. In the case of the assessee, the expenditure is incurred for increasing its equity capital base. Therefore, as per the ratio laid down by the Hon ble Apex court such expense will fall under the capital field. Further as per the provisions of Section 35D of the Act, there is no scope for the assessee to amortize such expense. The decisions of the Hon ble Apex Court supra and the provisions of Section 35D of the Act cited herein above was lost sight off by the Tribunal while passing orders in the earlier instance. Since, we are bound to follow the decision of the Hon ble Apex Court, respectfully following the same, we hereby hold that, in the case of the assessee the commission expenses incurred towards increasing its equity capital base, can neither be amortized U/s.35D of the Act, nor it can be claimed as Revenue expenditure as it falls in the Capital field. It has been also categorically held by the Hon ble Apex Court in the case Punjab State Industrial Development Corporation 1996 (12) TMI 6 - SUPREME COURT that expenses incurred in relation to increase in capital base is capital expenditure incurred by the assessee company, even though its certainty helps the company in profit making but yet it retains the characteristics of capital expenditure. In the case CIT vs. Motor Industries Limited 1997 (8) TMI 70 - KARNATAKA HIGH COURT held that the expenses incurred in relation to right issue where of capital in nature and therefore cannot be claimed as revenue expenditure. Hence we find the order of the Ld.AO to be appropriate in the given circumstance. Accordingly, we hereby set aside the order of the Ld.CIT(A) and reinstate the order of the Ld.AO on this issue. Disallowance of additional depreciation U/s. 32(1)(iia) on windmill - AO disallowed the claim of additional depreciation because the business of generation, transmission or distribution of power which was made eligible for additional depreciation U/s.32(1)(iia) of the Act, came in to effect from the assessment year 2013-14 as per Finance Act, 2012 - HELD THAT - From the facts of the case, it is evident that the assessee had claimed additional depreciation on the windmill erected by it for generating and distribution of power in order to earn revenue. In this situation, we do not find any infirmity in the order of the Ld. Revenue Authorities on this issue. As held by the Ld.AO the business of generation, transmission or distribution of power was brought within the ambit of Section 32(1)(iia) of the Act, by the Finance Act, 2012 w.e.f. 01.04.2013 i.e., from the assessment year 2013-14. Since the case of the assessee is for the assessment year 2011-12, obviously the assessee will not be eligible for the benefit of additional depreciation during the relevant assessment year. Further it is not the case of the assessee that the assessee is claiming the additional depreciation with respect to its manufacturing activities.Therefore this issue raised by the assessee does not have any merits. Disallowance of service tax element attributable to the 1/5th portion of preliminary expenses U/s.35D - HELD THAT - Since the expenses was related to assessment year 2009-10, the Ld.AO disallowed the claim of expenditure and even denied the benefit of amortization of expenses U/s. 35D - On appeal, the Ld.CIT(A) confirmed the order of the Ld.AO. Since, we have held hereinabove that the expenses incurred in the form of commission for private placement of the equity shares of the assessee company, is not allowable for deduction U/s.35D of the Act, any expenses connected with it such as service tax also will not be entitled for the benefit of deduction U/s.35D of the Act to the assessee. Therefore, the appeal filed by the assessee does not have any merit. Disallowance of the advance written-off by the assessee as revenue expenditure - HELD THAT - From the facts of the case, it is apparent that the assessee had advanced money for buying cranes which were to be deployed in the manufacturing activity of the assessee. However, the assessee could neither acquire the cranes nor recover the amount advanced from the company who has promised to deliver the cranes. In this situation, it is nothing but a loss which the assessee had incurred during the course of its business. The assessee had no other reason to give advance to M/s. MIC MiddleEast FZE other than for purchase of cranes, which is to be used in the assessee s manufacturing activities. Therefore the reliance placed by the assessee in the decision of the Hon ble Jurisdictional Madras High Court in the case of CIT vs. Indian Biselers 1989 (9) TMI 57 - MADRAS HIGH COURT will hold good and accordingly the assessee deserves the benefit of deduction under the Act because it is a loss incurred during the course of the business of the assessee. - Decided against assessee.
Issues Involved:
1. Addition of ?1 crore invoking the provisions of Section 41(1) of the Act. 2. Deleting the addition of ?1,22,00,000/- being the claim of amortization of expenses U/s.35D of the Act. 3. Disallowance of additional depreciation U/s. 32(1)(iia) of the Act for ?55,33,000/-. 4. Disallowance of service tax element attributable to the 1/5th portion of preliminary expenses U/s.35D of the Act for ?55,23,203/-. 5. Disallowance of the advance written-off as revenue expenditure for ?2,04,26,000/-. 6. Deleting the addition of ?1,27,80,000/- being the claim of amortization of expenses U/s.35D of the Act. Detailed Analysis: 1. Addition of ?1 crore invoking the provisions of Section 41(1) of the Act: The assessee received ?1 crore from M/s. India Globalization Capital Inc, USA for installing 96 wind energy generators. The agreement expired on 31.03.2009, but the amount was kept as a liability. The AO treated this as remission of liability under Section 41(1) of the Act and added it to the income. The CIT(A) confirmed this, stating the assessee had no liability to refund the amount after the contract expired. However, the assessee argued that the amount was declared as income in the assessment year 2014-15 due to non-compliance by the client, and taxing it again would result in double taxation. The tribunal directed the AO to verify if the amount was declared as income in 2014-15 and, if so, delete the addition for 2010-11. 2. Deleting the addition of ?1,22,00,000/- being the claim of amortization of expenses U/s.35D of the Act: The assessee incurred ?6,10,00,000/- as commission for raising private equity and claimed 1/5th of it as preliminary expenses. The AO disallowed this, stating it was capital expenditure. The CIT(A) allowed the appeal based on a previous tribunal decision. However, the tribunal noted that Section 35D does not cover such expenses and cited the Supreme Court's decision in Brokebond India Ltd, which held that expenses for increasing capital base are capital in nature. The tribunal reinstated the AO's order, disallowing the amortization. 3. Disallowance of additional depreciation U/s. 32(1)(iia) of the Act for ?55,33,000/-: The AO disallowed additional depreciation on windmills, stating the relevant provision came into effect from the assessment year 2013-14. The CIT(A) upheld this view. The tribunal agreed, noting the assessee claimed additional depreciation for generating power, which was not eligible in the assessment year 2011-12. 4. Disallowance of service tax element attributable to the 1/5th portion of preliminary expenses U/s.35D of the Act for ?55,23,203/-: The AO disallowed the service tax expense related to private placement of equity shares, stating it was not eligible for input credit. The CIT(A) confirmed this. The tribunal upheld the disallowance, noting that since the commission expenses were not deductible under Section 35D, related service tax expenses also could not be amortized. 5. Disallowance of the advance written-off as revenue expenditure for ?2,04,26,000/-: The assessee wrote off an advance paid for acquiring second-hand cranes as bad debts. The AO disallowed this, treating it as capital expenditure. The CIT(A) upheld the AO's decision. The tribunal, however, noted that the advance was for acquiring cranes for the business, and the loss incurred was during the course of business. Citing the Madras High Court decision in CIT vs. Indian Biselers, the tribunal allowed the deduction as revenue expenditure. 6. Deleting the addition of ?1,27,80,000/- being the claim of amortization of expenses U/s.35D of the Act: This issue was identical to the one in ITA No.319/Mds/2015. The tribunal's decision to disallow the amortization of expenses under Section 35D applied here as well, holding against the assessee. Conclusion: - The assessee's appeal for the addition of ?1 crore was allowed for statistical purposes, pending verification. - The revenue's appeals regarding the amortization of expenses under Section 35D were allowed. - The assessee's appeal for additional depreciation and service tax element disallowance was dismissed. - The assessee's appeal for the advance written-off as revenue expenditure was allowed.
|
