2012 (4) TMI 127

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..... mstances of the case and in law, the ITAT was right in deleting the adjustment made by the AO relating to Redemption of Debentures Reserve amounting to Rs. 18.80 crores;   (b) Whether on the facts and in the circumstances and in law, the ITAT was right in deleting the disallowance in respect of capital expenditure incurred in respect of Steel Division at Nashik as revenue expenditure?   2. Re question (a): Section 115JA of the Income Tax Act, 1961 provides in subsection (2) that every assessee, being a company shall for the purpose of the section prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. The explanation to th .....

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..... have to be shown in the balance sheet of a company as a liability. Being monies set apart to meet a known liability, a Debenture Redemption Reserve cannot be regarded as a reserve for the purpose of Schedule VI to the Companies Act, 1956. In National Rayon Corporation, the Supreme Court followed its earlier decision in Vazir Sultan Tobacco Co. Ltd. Vs. CIT [1981] 132 ITR 559, in holding that since the concept of reserve and of a provision is well known in commercial accountancy and is used in the Companies Act, 1956, while dealing with the preparation of balance sheets and profit and loss accounts the meaning of that concept would have to be gathered from the meaning attached in the Companies Act itself. The following observations of the Su .....

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..... lanation (b) to Section 115JA of the Income Tax Act, 1961. No substantial question of law would, therefore, arise.   5. Re question (b): As regards question (b) the Tribunal has relied upon its order in the case of the assessee for Assessment year 1996-97 which in turn relies upon an order for AY 1990-91. That order in turn relied upon the order of the Tribunal for Assessment year 1985-86 which had been confirmed by this Court, treating pre-operative expenses as revenue expenditure. The order passed by the Assessing Officer notes in paragraph 9.1 that the pre-operative expenses related to the following items viz. salary and wages, staff welfare expenses, power, travelling, legal and professional fees and miscellaneous expenses. Eviden .....

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