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2021 (10) TMI 163 - AT - Income TaxDeduction u/s 35D - Increase of towards increase of authorized share capital - HELD THAT - Tribunal vide order 2020 (6) TMI 240 - ITAT AHMEDABAD allowed claim of the assessee. The ground raised by the assessee in that appeal exactly the same as that of the year under consideration A perusal of the ground and finding of the Tribunal reproduced above, where one of us (AM) is author of that order, no inconsistency was pointed out by the ld.DR in that decision so that we can take a contrary view in the case on hand. Therefore, following the judicial precedent, we allow the claim of the assessee in this year as well, and ground no.1 of the assessee s appeal is allowed. Interest expenditure as capital expenditure - HELD THAT - Tribunal passed in the assessee s own case for Asstt.Year 2014-15. We find that similar claim made by the assessee in the preceding year was allowed by the Tribunal vide order 2020 (6) TMI 240 - ITAT AHMEDABAD which was not disputed by the ld.DR - therefore following the decision of the Tribunal, we allow claim of the assessee for capitalization of interest expenditure on the money borrowed from the bank for investment in post-acquisition of shares. - Decided in favour of assessee.
Issues Involved:
1. Deduction of preliminary expenses under Section 35D. 2. Treatment of interest expenditure as capital expenditure. Issue-wise Detailed Analysis: Issue 1: Deduction of Preliminary Expenses under Section 35D Facts: The assessee, an investment company, filed its return of income for the Assessment Year 2015-16, claiming a deduction of ?26,42,282 under Section 35D of the Income Tax Act, 1961. This amount represented 1/5th of the total preliminary expenses of ?1,32,11,408. The Assessing Officer (AO) disallowed the deduction, allowing only ?82,581, which is 1/5th of ?4,12,908, the expenses incurred at the time of the company's registration. The remaining amount of ?25,59,701 was disallowed on the grounds that expenses incurred for increasing authorized share capital were capital in nature and not covered under Section 35D. Arguments: The assessee argued that the expenses for increasing authorized share capital were part of the initial registration activity and should be eligible for deduction under Section 35D. The assessee cited a previous Tribunal decision for the Assessment Year 2014-15, which allowed similar claims. Findings: The Tribunal reviewed the previous decision and found that the expenses incurred for increasing authorized share capital before the commencement of business are covered under Section 35D. The Tribunal reiterated that the business activities of a company commence only after doing the transaction for which it was established. Therefore, the expenses for increasing authorized share capital incurred before the commencement of the business are eligible for deduction under Section 35D. Conclusion: Following the judicial precedent, the Tribunal allowed the claim of the assessee for the deduction of ?26,42,282 under Section 35D. Ground No.1 of the assessee's appeal was allowed. Issue 2: Treatment of Interest Expenditure as Capital Expenditure Facts: The assessee claimed interest expenditure of ?14,09,68,423 as capital expenditure, arguing that the interest paid on loans taken for acquiring shares should be capitalized. The AO disallowed the claim, stating that the interest expenses incurred post-acquisition should be treated as revenue expenditure. The CIT(A) upheld the AO's decision, neither allowing the interest as capital expenditure nor as revenue expenditure. Arguments: The assessee argued that similar claims were allowed by the Tribunal for the Assessment Year 2014-15. The assessee contended that the interest expenses incurred on loans used for acquiring shares should be capitalized as part of the cost of acquisition under Section 48. Findings: The Tribunal reviewed the previous decision and found that the interest expenses directly attributable to the investments should be capitalized. The Tribunal cited the case of CIT vs. Trishul Investments Ltd., where it was held that the interest paid for the acquisition of shares should be capitalized along with the cost of acquisition of shares. Conclusion: Following the judicial precedent, the Tribunal allowed the claim of the assessee for the capitalization of interest expenditure on the money borrowed for investment in shares. Ground No.2 of the assessee's appeal was allowed. Final Judgment: The appeal of the assessee was allowed in full, with both grounds regarding the deduction of preliminary expenses under Section 35D and the treatment of interest expenditure as capital expenditure being upheld by the Tribunal. The order was pronounced in the Open Court on 30th September 2021.
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