2013 (12) TMI 905 - AT - Income Tax

Pre-operative expenses - Expenses on business expansion activities - Held that - The increase in capital base after issue of additional equity shares by private placement, the assessee-company intends to expand its existing project - The assessee has invested substantial amount in purchase of Machineries etc., Further, with the increase in number of Windmills, the sales turnover of the assessee has increased almost three fold from Financial Year 2008-09 to Financial Year 2010-11 - The expenditure incurred towards raising of additional equity shares by private placement can be attributed to extension of undertaking and is thus eligible for amortization under the provisions of section 35D - Following EID Parry (India) Ltd., Vs. DCIT 2012 (7) TMI 698 - MADRAS HIGH COURT - where expenditure has been incurred in connection with issue of shares which are directly relatable to expansion to capital base of the company for raising of new projects, it would be allowable u/s. 35D - Decided in favour of assessee. Deduction u/s 80IB - Held that - The assessee for the first time raised the issue of additional/higher deduction amounting to ₹ 50,61,142/- u/s.80IB before the CIT(Appeals) - This claim was never made before Assessing Officer - Decided against assessee.

Summary

Issues Involved:
1. Disallowance of preliminary and pre-operative expenses written off.
2. Restriction of disallowance under section 80IB.

Issue 1: Disallowance of Preliminary and Pre-operative Expenses Written Off:
The appeal was filed by the assessee challenging the order of the Commissioner of Income Tax(Appeals) regarding the disallowance of preliminary and pre-operative expenses written off under section 35D and the restriction of the claim under section 80IB for the Assessment Year 2009-10. The Assessing Officer added back the expenses as they were considered capital in nature and not allowable as revenue expenditure. The CIT(Appeals) upheld the disallowance stating that the expenditure was for arranging funds for working capital and did not involve starting a new unit or extending an existing one. The assessee argued that the expenses were incurred for expanding the existing project by raising funds through private placement of equity shares. The Tribunal analyzed the details provided by the assessee, showing an increase in business activities and sales turnover, indicating expansion. Referring to relevant case laws, the Tribunal concluded that the expenses were eligible for amortization under section 35D as they were directly related to the extension of the undertaking. Therefore, the appeal on this ground was allowed.

Issue 2: Restriction of Disallowance under Section 80IB:
The second issue involved the restriction of disallowance under section 80IB. The assessee claimed a higher deduction under section 80IB before the CIT(Appeals, which was not raised before the Assessing Officer. The Tribunal noted that the additional deduction claim was made for the first time at the appellate stage. The Tribunal found no merit in allowing the higher deduction under section 80IB as it was not raised earlier and dismissed this ground of appeal. Consequently, the appeal of the assessee was partly allowed in relation to the disallowance of preliminary and pre-operative expenses but dismissed concerning the restriction of disallowance under section 80IB.

In conclusion, the Tribunal allowed the appeal on the disallowance of preliminary and pre-operative expenses written off under section 35D, considering them eligible for amortization due to their direct relation to the extension of the undertaking. However, the claim for a higher deduction under section 80IB was dismissed as it was raised for the first time at the appellate stage and not before the Assessing Officer.