2009 (1) TMI 309 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of set off of unabsorbed depreciation from assessment years 1993-94, 1994-95, and 1995-96 against the income of assessment year 2003-04.
2. Treatment of Rs. 1,34,93,000 paid to IDBI as capital expenditure.

Issue-wise Detailed Analysis:

1. Disallowance of Set Off of Unabsorbed Depreciation:
The assessee disputed the order of the CIT(A) confirming the AO's action to disallow the set off of unabsorbed depreciation from the assessment years 1993-94, 1994-95, and 1995-96 against the income of the assessment year 2003-04. The assessee, a company incorporated in 1991, began production in 1993 and claimed deduction under Section 10A of the IT Act until the assessment year 2002-03. Initially, the assessee filed a return showing income of Rs. 11,19,69,789 but later revised it to claim unabsorbed depreciation brought forward from the aforementioned years.

The AO, referencing Section 10A(6) as amended from 1st April 2001, stated that brought forward depreciation could not be set off for computing the total income of the assessment year succeeding the last of the relevant assessment years. The AO also referred to Department Circulars No. 794 and No. 7 of 2003, concluding that only unabsorbed depreciation from years subsequent to 1st April 2001 could be carried forward. The CIT(A) upheld the AO's decision, leading the assessee to appeal to the Tribunal.

The Tribunal examined the provisions of Section 10A and the amendments effective from 1st April 2001. It noted that the ten consecutive assessment years for the assessee spanned from 1993-94 to 2002-03. The Tribunal emphasized that Section 10A(6) overrides other provisions of the IT Act, hence brought forward depreciation from the relevant assessment years could not be set off against income for the assessment year 2003-04. The Tribunal upheld the CIT(A)'s order, rejecting the assessee's claim.

2. Treatment of Rs. 1,34,93,000 Paid to IDBI:
The assessee contended that the sum of Rs. 1,34,93,000 paid to IDBI by allotting 13,49,300 equity shares was a revenue expenditure. This payment was part of a restructuring agreement where IDBI granted reliefs such as reduced interest rates and deferred payment schedules. The AO treated this expenditure as capital in nature, arguing that the company received an enduring benefit from the reduced interest rates over future years. The CIT(A) agreed with the AO, leading the assessee to appeal to the Tribunal.

The Tribunal assessed the nature of the payment, noting that the equity shares were issued not just for the current year's liability but also for past and future benefits. The Tribunal concluded that the expenditure provided an enduring benefit and was not solely related to the assessment year's liability. Therefore, it could not be classified as revenue expenditure for the assessment year under consideration. The Tribunal upheld the CIT(A)'s order, rejecting the assessee's claim.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s decisions on both issues. The unabsorbed depreciation from assessment years 1993-94 to 1995-96 could not be set off against the income for the assessment year 2003-04, and the payment of Rs. 1,34,93,000 to IDBI was treated as capital expenditure.