2023 (7) TMI 1302 - AT - Income Tax

Disallowance u/s 35AD being capital expenditure incurred for the purpose of specified business - HELD THAT - The issue is squarely covered by the decision of the Coordinate Bench of the Tribunal in the Haryana State Warehousing Corporation 2019 (10) TMI 1573 - ITAT CHANDIGARH held that the lower authorities have wrongly interpreted the relevant provisions of the Act. There are two parts of the above said provisions. In the first part, it has been mentioned that an assessee is eligible to claim deduction of the capital expenditure if such an expenditure has been incurred wholly and exclusively in a specified business. There is no condition of any date or year of commencement of specified business. However, in the second part, it has been provided that if such an expenditure has been incurred prior to the commencement of business and has been duly capitalized in the books of account, the claim will be allowed in the year in which the assessee commences operations of his specified business. There is neither any overlapping nor any contradiction in the aforesaid provision. The assessee is covered in the first part i.e. the assessee has incurred the expenditure on the specified business during the year in which operations of his business of warehousing were already going on. No justification on the part of the lower authorities in denying the deduction to the assessee u/s 35AD - This ground is allowed in favour of the assessee.

Summary

Issues Involved:
The judgment involves the disallowance of capital expenditure under section 35AD of the Income Tax Act.

ITA No. 237/Kol/2023:
The sole issue raised by the assessee in this appeal pertains to the disallowance of Rs. 7,73,14,356/- u/s 35AD being capital expenditure incurred for the purpose of specified business.

The assessee company filed its return of income for the assessment year 2014-15, declaring a total loss. The assessment order passed later was revised under section 263 of the Act due to an erroneous claim of deduction under section 35AD. The Principal Commissioner of Income Tax set aside the issue, directing a fresh assessment order. The Assessing Officer observed that the expenditure was not incurred prior to the commencement of the business and hence disallowed the deduction under section 35AD.

The counsel for the assessee cited a decision by the Coordinate Bench of the Tribunal in a similar case, where the deduction was allowed in favor of the assessee. The Tribunal found that the lower authorities wrongly interpreted the provisions of Section 35AD. It was clarified that the assessee is eligible for deduction if the expenditure is incurred wholly and exclusively for the specified business, without any condition regarding the commencement of the business. The Tribunal allowed the deduction in favor of the assessee, remanding the case back to the Assessing Officer for further proceedings.

The Tribunal agreed with the decision of the Chandigarh Bench and ordered the disallowance made by the lower authorities to be deleted. Since the facts and issues in both appeals were identical, the findings for ITA No. 237/Kol/2023 were applied to ITA No.238/Kol/2023.

In conclusion, both appeals of the assessee were allowed by the Appellate Tribunal in Kolkata on 5th July 2023.