2015 (11) TMI 1277 - AT - Income Tax

Disallowance of deduction under section 35D - amortization of expenditure incurred on Initial Public Offer of Equity Shares - revision u/s 263 - Held that - Tibunal has already held, on merits as well, that the assessee is not eligible to claim deduction u/s 35D. After this order from the Tribunal in assessee s own case, for this very assessment year, the issue under consideration i.e. allowability of claim u/s 35D, has attained fait accompli . In our considered view, this issue is no more open before us for our consideration. Ld. CIT had directed the AO in his order passed u/s 263, to make disallowance of deduction u/s 35D claimed by the assessee. The action of passing the impugned assessment order, by the AO u/s 143(3), in pursuance to revision order passed by the Ld CIT u/s 263, was merely a ministerial task, to give effect to the said revision order of Ld CIT. In fact, Ld CIT(A) has rightly upheld the impugned assessment order, without even going deep into merits. Even before us, in our considered opinion, this issue is no more open for our adjudication, especially after it has been sealed by the Tribunal in its order. The assessee may have had some legal grievances against the order passed u/s 263, but, once the same was confirmed by the Tribunal, the right forum for hearing of these grievances would be before Hon ble High Court. The law does not permit us to go into this issue, at this stage. - Decided against assessee.

Summary

Issues Involved:

1. Disallowance of deduction under Section 35D of the Income Tax Act for amortization of expenditure incurred on the Initial Public Offer (IPO) of equity shares.

Issue-wise Detailed Analysis:

Disallowance of Deduction Under Section 35D:

The primary issue in this appeal is the disallowance of a deduction claimed by the assessee under Section 35D of the Income Tax Act, amounting to Rs. 3,27,82,000, which represents one-fifth of the total expenditure incurred on the IPO of equity shares.

Background:

The assessee, in its return of income, claimed a deduction under Section 35D for the amortization of expenditure incurred on the IPO of equity shares. The Assessing Officer (AO) initially allowed this deduction in the assessment order dated 31.12.2008. However, the Commissioner of Income Tax (CIT) later passed a revision order under Section 263, holding that the assessment order was erroneous and prejudicial to the interest of the revenue because the assessee was not entitled to the deduction under Section 35D. The CIT noted that the deduction under Section 35D was allowable only if the company was an "Industrial Undertaking," a term that was deleted by the Finance Act, 2008, effective from 01-04-2009. Since the assessment year in question was 2006-07, the company needed to be an "Industrial Undertaking" to claim the deduction, which the assessee, being a bank, was not.

Appeal to CIT(A) and ITAT:

The assessee appealed to the CIT(A) against the disallowance made by the AO in the fresh assessment order passed under Section 143(3) read with Section 263. Simultaneously, the assessee also appealed to the ITAT against the CIT's order under Section 263. The ITAT, in its order dated 25-01-2012, confirmed the CIT's order, holding that the assessee, being a bank, was not an "Industrial Undertaking."

Arguments by the Assessee:

During the appellate proceedings before the CIT(A), the assessee made detailed submissions, arguing that it was eligible for the deduction under Section 35D. The assessee's counsel presented various arguments, including references to several judicial precedents:
- The decision of the Bombay High Court in CIT vs. Emirates Commercial Bank Ltd, which, although related to Section 32A(2)(b)(iii), was argued to be applicable to Section 35D as both sections mention "industrial undertaking."
- The Delhi High Court's decision in Ansal Housing and Construction Ltd. v. CIT, which was distinguished as it pertained to construction activity, not banking.
- The Supreme Court's decision in CIT v. Peerless Consultancy & Service (P.) Ltd.
- The argument that the ITAT's order in the assessee's own case was per incuriam as it did not consider the Supreme Court's decision in Peerless Finance.
- The assertion that the Bombay High Court's judgment should prevail over the Delhi High Court's judgment within the jurisdiction.
- The principle that, in case of differing High Court views, the one more favorable to the assessee should be followed.

Tribunal's Findings:

The Tribunal reviewed the arguments and found that the issue had already been decided in the assessee's own case for the same assessment year. The Tribunal had previously held that the assessee, being a bank, was not an "Industrial Undertaking" for the purpose of Section 35D. The Tribunal reiterated that the assessee did not carry out any manufacturing activity, which is a requirement for being considered an "Industrial Undertaking."

The Tribunal also addressed the procedural aspect, noting that the AO had not examined the issue in detail in the original assessment order, making it erroneous and prejudicial to the revenue's interest. The Tribunal upheld the CIT's order under Section 263, which directed the AO to disallow the deduction.

Conclusion:

The Tribunal concluded that the issue of the allowability of the deduction under Section 35D had attained "fait accompli" and was no longer open for reconsideration. The Tribunal upheld the disallowance made by the AO in compliance with the CIT's revision order. The appeal by the assessee was dismissed, and the disallowance under Section 35D was confirmed.

Final Order:

The appeal of the assessee was dismissed, and the disallowance under Section 35D was confirmed. The order was pronounced in the open court on 30th September 2015.