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TMI Blog2006 (6) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to as SGL) with the appellant - Sooraj Automobiles Limited (hereinafter referred to as SAL). 3.1 Ld. counsel for the assessee, Shri Anil Jain explaining the fact submitted that the appellant is a public limited company engaged in the manufacturing of Diesel Two Wheelers and Three Wheeler Bikes operating from rented and leased premises at Ambala Road, Saharanpur. The company made public issue of shares in the year 1985 and from 1985 to assessment year 1992-93, preliminary expenses under section 35D has been claimed and allowed and in assessment years 1993-94 and 1994-95, preliminary expenses have not been claimed. Thereafter, it has again been claimed in the assessment year 1995-96. A group company of the appellant in the name of Sooraj Generators Ltd. (SGL) with the object of manufacturing of generators made public issue of shares in the year 1986. This company could build only factory building in own property at Delhi Road, Saharanpur for the purpose of installation of proposed project of manufacturing of generators. The appellant company was facing space problem due to increase in production and requirement for workshop, stores, administrative block, open space for sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es is same as on 31-3-1994 as no activity was carried out on in the premises of SGL after the amalgamation from 1991 to 1994-95, when the amalgamated company used the building and other premises. In assessment year 1995-96, the appellant-company claimed Rs. 9,65,693 under preliminary and preoperative expenses under section 35D i.e. 1/10th of Rs. 96,56,829. The details of Rs. 96,56,829 are as under : (a) Liquidation Expenses 90,000 Loss on sale of car 1,29,842 Loss on sale of share 3,21,525 Rs. 5,41,367 (b) Preliminary expenses of Amalgamating company under section 35D(5) Rs. 20,11,815 (c) Profit & loss account (Losses) of SGL at the time of merger Rs. 12,28,583 (d) Amount of goodwill for issue of shares of SAL to the shareholders of SGL Rs. 51,18,670 Rs. 83,59,068 (e) The balance of preliminary expenses of SAL Rs. 7,56,394 Rs. 96,56,829 Before the Assessing Officer, submissions are made, which are placed at pages 78 and 79 of the paper book, in which the appellant prays for the allowability of depreciation on the following amounts instead of the claim of the said amount made under section 35D i.e. preliminary and preoperative expenses. The amount claimed to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value is defined in section 43(6) of the Act. As per Explanation 2 to section 43(6), where any block of asset is transferred by the amalgamating company to the amalgamated company in a scheme of amalgamation, the actual cost of block of assets in the case of amalgamated company shall be written down value of the block of asset as in the case of amalgamating company for the immediately preceding previous year. Thus, whatever is the written down value of such block of asset is to be added to the block of asset of such amalgamated company and depreciation is to be allowed accordingly. The losses of the erstwhile amalgamating company cannot be considered as cost of building. The losses are incurred by SGL in the course of its regular activities. Similarly, the difference paid which is named as goodwill in the course of amalgamation cannot be considered as cost of building for the purpose of claim of depreciation. The guidelines of the Institute of Chartered Accountants of India for amortization of goodwill is good for accounting purpose but when the provision in the Income-tax Act is to the contrary such guidelines do not override the provision of the Income-tax Act. He accordingly sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scheme of amalgamation relates not only to the fixed assets but also other current assets, investment and other misc. expenses to the extent not written off. Thus, as per the accounting principle, if any goodwill is debited having been paid the same cannot be treated as cost of building or written down value of building acquired on amalgamation. We accordingly hold that such amount of losses of SGL and goodwill on account of issue of shares as per amalgamation scheme cannot be added to the written down value of building for purpose of claim of depreciation under section 32 of the Act. 3.6 Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT 227 ITR 172 held that when the question is whether a receipt of money is taxable or not or whether certain deduction from that receipts are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with the accountancy practice. The accounting practice cannot override any other provision of the Income-tax Act. Applying the above principle, even if the losses and other intangible assets acquired during the course of amalgamation are amortized based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of any such evidence, claim of assessee was rightly rejected. 6. The next ground of appeal for assessment year 1997-98 is against disallowance of a sum of Rs. 40,000 being interest paid to the bank. 6.1 The Assessing Officer found that large sums are paid to the Managing Director of the company. The same are reflected in imprest account in the name of Managing Director. The Assessing Officer held that many times, the Managing Director has given back the advance in cash. Assessee has claimed the interest expenses including interest on overdraft account. He concluded that if the Managing Director was not given such sum, there would not have been any need to raise overdraft from the bank. Taking the average balance and applying the rate of 17 per cent, disallowance of Rs. 40,000 was worked out. Ld. CIT(A) concurred with the reasoning given by the Assessing Officer. 6.2 Ld. counsel for the assessee submitted that the advances were given to the Managing Director in the course of its business. Since the Managing Director is required to undertake various visits and incur expenses on behalf of the company, such advances were given. The nomenclature is given as imprest account. This s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet. He submitted that since the income is computed under section 115JA, the assessee is not under obligation to pay advance tax. Hence, interest under section 234B is not chargeable. For this proposition, he relied on the decisions of Delhi High Court in the case of CIT v. Kishan Lal (HUF) reported in 258 ITR 359, Kwality Biscuits v. CIT reported in 243 ITR 519 (Kar.) and decision of ITAT, Lucknow in the case of Shadi Ram & Sons v. DCIT reported in 92 ITD 22. 9.2 Ld. Departmental Representative, on the other hand, submitted that the decision of Karnataka High Court was with reference to sections 115J and not 115JA. Sub-section (4) of section 115JA provides that all other provision of Income-tax Act shall apply. He accordingly submitted that even the provision relating to liability to pay advance tax and for failure to pay such advance tax, liability to pay interest under section 234B arises. He relied upon the following decisions for the proposition that interest under section 234B is leviable even when income is computed under sections 115J and 115JA: (i)250 ITR 686 (ii) 239 ITR 862 (iii)263 ITR 307 He further submitted that Hon'ble Supreme Court in Anjum Ghaswala 252 ITR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been claiming deduction under section 35D is not verifiable, since the deduction under section 35D is allowable for 10 successive years beginning with the previous year in which the business commences or the previous year in which the extension of the Industrial Undertaking is completed or new Industrial Undertaking commences production. The assessee had not claimed deduction under section 35D since assessment year 1993-94 onwards, hence there is reason to believe that the said period of 10 years in which it was eligible to claim this deduction had expired. Hence claim of the same this year cannot be allowed." Ld. CIT(A), considering the claim of the assessee, held as under : "As far as the claim of the appellant of preliminary expenses of SGL of Rs. 20,11,815 are concerned, it has been stated by the learned counsel that the same are allowable under section 35D(5). After examining the facts of the case, I am in agreement with the learned counsel that the preliminary expenses of the amalgamating company have to be allowed in the amalgamating company as per provisions of section 35D(5). The appellant is accordingly allowed relief of Rs. 1,81,000 in both the years as claimed." 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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