2023 (3) TMI 1527 - HC - Income Tax

Nature of expenditure - payment for raising equity funds of approximately 100 Crores from the interested investors - Assessee prayed to remand the matter to the file of AO to examine whether assessee would be entitled for amortization of expenses u/s 35D - HELLD THAT - As per Section 35D of the IT Act, where an assessee incurs any expenditure for extension of his business, he shall be entitled for amortization with certain preliminary expenses. Though Shri. Sanmathi opposed the contention urged by the learned Senior Advocate for the assessee, in our considered view, if the tax payer is entitled for any statutory relief, the same shall not be defeated on technical grounds. However, the Revenue must be given an opportunity to contest assessee s claim. We deem it appropriate to remand the matter to the file of the Assessing Authority to examine assessee s plea with regard to Section 35D of the IT Act.) The matter is remitted to the Assessing Authority for fresh assessment.

Summary

Issues: Appeal against ITAT order on disallowance of expenditure for inflow of equity and legal charges.

Analysis:
The appeal before the Karnataka High Court pertains to the Revenue challenging the ITAT order dated 27.06.2018 in ITA No. 1557/Bang/2016. The court admitted the appeal to consider seven questions of law. The key issue revolves around the disallowance of expenditure for inflow of equity and legal charges. The Standing Counsel for the Revenue and the Senior Advocate for the assessee presented their arguments before the court.

The primary focus of the appeal was on questions No. 5 and 7, which were interlinked. The dispute arose from the payment of Rs. 3.31 Crores made by the assessee to raise equity funds of approximately 100 Crores. The Assessing Officer treated this expenditure as capital expenditure, a decision upheld by the CIT (A). However, the ITAT reversed this finding, leading to the current appeal. The crux of the matter was whether the expenditure should be considered capital or revenue in nature.

During the proceedings, the Senior Advocate for the assessee referred to Section 35D of the Income Tax Act, 1961, which allows for amortization of certain expenses related to the extension of business. He argued that the assessing authorities did not consider this provision and requested a remand to examine the applicability of Section 35D. On the other hand, the Standing Counsel opposed this submission, stating that the assessee had not raised this contention earlier.

After considering the arguments, the High Court found merit in the assessee's claim regarding Section 35D. The court held that if the taxpayer is entitled to statutory relief, it should not be denied on technical grounds. Consequently, the court decided to remand the matter to the Assessing Authority to evaluate the plea concerning Section 35D of the IT Act for amortization of expenses related to business extension.

In the final order, the High Court allowed the appeal, remitted the matter for fresh assessment, and kept all contentions of both parties open. The court emphasized that since the matter was remanded, the questions of law raised in the appeal were not addressed, and no costs were awarded in this instance.