2019 (2) TMI 903 - AT - Income Tax

Rectification u/s 154 - rectify the opening WDV of product registration expenditure - Expenditure incurred on issuance of bonus shares - allowable revenue expenditure - Held that - The undisputed position that emerges is the fact that the assessee has moved rectification petition u/s 154 for the first time towards his claim u/s 35D relying upon the decision of Hon ble Apex Court as well as the decision of jurisdictional High Court. The disallowance of original claim to the extent of 1/5th of total expenditure as made in the return of income had already attained finality since the assessee did not preferred any appeal before first appellate authority. The only basis on which the same has been denied by first appellate authority is the fact that there was no mistake apparent from record in any of the orders that require rectification. As held in ACIT Vs. Saurashtra Kutch Stock Exchange Ltd. 2008 (9) TMI 11 - SUPREME COURT non-consideration of a decision of Jurisdictional Court or of the Supreme Court could be termed as mistake apparent from the record . Respectfully following the same we hold that the afore-said claim made by the assessee in terms of decision of jurisdictional High Court as well as the decision of Hon ble Supreme Court could be subject matter of rectification application u/s 154 notwithstanding the fact that the same was not claimed by the assessee during original assessment proceedings as well as during appellate proceedings. So far as the merits of the case is concerned we find that in the cited decision of CIT Vs General Insurance Corporation 2006 (9) TMI 116 - SUPREME COURT after considering various contrary decisions including the decision of Hon ble Gujarat High Court rendered in CIT Vs. Ajit Mills Ltd. 1993 (8) TMI 19 - GUJARAT HIGH COURT held that issue of bonus shares by capitalization of reserves is merely a reallocation of company s funds and there is no inflow of fresh funds or increase in the capital employed. Therefore it could not be said that the company acquired a benefit or advantage of enduring nature. The total funds available with the company will remain the same and the issue of bonus shares would not result in expansion of capital base of the company. Therefore expenditure incurred on issuance of bonus shares would be revenue expenditure. Thus we hold that the expenditure on account of issuance of bonus shares would be revenue in nature and hence fully allowable in the impugned AY. The assessee has placed on record the computations / assessment orders of subsequent years to demonstrate that the deduction of this expenditure has not been claimed / allowed by the assessee in subsequent years and hence there is no double deduction. The material on record supports the same. Accordingly the assessee s appeal stands allowed. Claim of interest u/s 244A on self-assessment tax paid - whether allowability of interest u/s 244A in not appealable before CIT(A) as the same is not part of order u/s 154 - Held that - Upon due consideration we are of the opinion that the assessee was entitled for legitimate interest as per law and the directions given by first appellate authority were merely consequential in nature since Ld. AO was directed to verify the assessee s claim qua interest at the threshold of statutory provisions as contained in Section 244A and ascertain the correct amount of interest due to the assessee. No perversity could be found in the impugned direction. Accordingly the revenue s appeal stands dismissed.

Summary

Issues:
Cross-appeals for Assessment Year 2012-13 challenging the order of Ld. Commissioner of Income Tax (Appeals) on various grounds.

Analysis:

1. The assessee, a resident corporate entity, was assessed for the impugned Assessment Year (AY) with certain disallowances. An expenditure claimed under section 35D was disallowed as capital in nature, following a precedent. The issue was not contested before the first appellate authority, leading to finality on this matter.

2. The assessment was contested on other grounds before the first appellate authority, and subsequent rectification requests were made by both the assessee and the assessing officer regarding different expenditures. The assessing officer declined to allow the expenditure claimed by the assessee.

3. The first appellate authority upheld the assessing officer's decision, stating no apparent mistake in the orders requiring rectification. The assessee appealed this decision.

4. The assessee argued that the claim was allowable based on relevant judicial decisions, citing a mistake apparent from the record. The revenue opposed, referring to contrary judgments.

5. The tribunal analyzed the claim, emphasizing the rectification principle for justice and correcting errors. It held that the claim based on relevant court decisions could be rectified under section 154. Additionally, it discussed the obligation of the assessing officer to apply the law correctly.

6. The tribunal further discussed the merits of the case, citing relevant court decisions to support the allowability of the expenditure on bonus shares as revenue expenditure. It directed the assessing officer to allow the claimed deduction.

7. The revenue's appeal concerned the allowance of interest under section 244A. The first appellate authority directed the assessing officer to verify and allow the interest as per law, based on statutory provisions. The tribunal upheld this decision, stating the assessee was entitled to legitimate interest as per law.

8. The tribunal found no perversity in the directions given by the first appellate authority regarding interest under section 244A and dismissed the revenue's appeal.

9. Ultimately, the tribunal allowed the assessee's appeal and dismissed the revenue's appeal, providing a comprehensive analysis and legal reasoning for each issue.

This judgment highlights the importance of legal precedents, rectification principles, and the correct application of tax laws in assessing and determining claims for deductions and interest under the Income Tax Act.