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TMI Blog2012 (4) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... n the meaning of Explanation (b) to Section 115JA – Decided in favor of assessee. Dis-allowance of pre-operative expenses by A.O. treating it to be capital expenditure – Held that:- Tribunal deleted the dis-allowance in view of its earlier decision in relation to AY 85-86 confirmed by this court treating Pre-operative expenses viz salary and wages, staff welfare expenses, power, travelling, legal and professional fees and miscellaneous expenses to be revenue expenditure – No infirmity found in the order – Decided in favor of assessee. - INCOME TAX APPEAL NO.1324 OF 2010 - - - Dated:- 20-3-2012 - DR.D.Y. CHANDRACHUD M.S.SANKLECHA, JJ. Mr.Suresh Kumar for appellant. Mr.Percy J. Pardiwala, Senior Advocate with Mr.Mohan Sali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(b) that, the expression reserve shall not include any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or retained by way of providing for any known liability . 3. The nature of a Debenture Redemption Reserve (DRR) has been considered by the judgment of the Supreme Court in National Rayon Corporation Ltd. Vs. Commissioner of Income Tax (1997) 227 ITR 764. The Supreme Court after adverting to the provisions of Clause 7 of Part III to Schedule VI of the Companies Act, 1956 held that the basic principle is that an amount set apart to meet a known liability cannot be regarded as reserve . Where a company issues debentures, the liability to repay arises the moment the mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the secured loans have to be shown under the heading liabilities . Secured loans include (1) debentures, (2) loans and advances from banks, (3) loans and advances from subsidiaries, and (4) other loans and advances. The secured loans might not be immediately repayable, but the liability to repay these loans is an existing liability and has to be shown in the company s balance-sheet for the relevant year of account as a liability. Amounts set apart to pay these loans cannot be reserve . The interpretation clause of the balance-sheet in Schedule VI of the Companies Act specifically lays down that reserves shall not include any amount written off or retained by way of providing for a known liability. 4. The mere fact that a Debenture ..... X X X X Extracts X X X X X X X X Extracts X X X X
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