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TMI Blog2013 (4) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... stitutional Buyers claimed in accordance with the provisions of Sec. 35D - Held that:- Admittedly, the assessee's claim u/s. 35D was in the A.Y. 2006-07 held that it would not be proper to debit the entire amount in one year as it would violate the matching principle. On the other hand, it is clear that the benefits of the expense will accrue to the appellant over many financial years. But. it cannot be quantified accurately as to how much would be the benefit in a particular financial year. unlike in bonds, where quantifications are simple and accurate, in this case, it is ultimately the judgement of the business head based on realities of the industry and economy which will determine the amount by which or the percentage of benefit available in a particular year. In the present case, the management has decided that the benefits of the expense will accrue to the company over a period of 12 years. The Assessing Officer does not have any contrary information to indicate a shorter or longer period. Thus the expense in question is to be treated as deferred revenue expenditure and allowed as claimed by the appellant. This issue is decided in favour of assessee. - ITA No. 1505/Hyd/2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the provisions of section 14A of the Act on ₹ 200 crores worked out the disallowance at ₹ 12 crores. On appeal, the CIT(A) though principally agreed with the proposition of the Assessing Officer, however, he directed the Assessing Officer to disallow interest for the period for which the borrowed funds are used for earning exempted income and not for the entirety i.e., from the date of investment up to 31.3.2006. Against this, the assessee is in appeal before us. 4. We have heard both the parties and perused material on record. We have carefully gone through the Balance Sheet of the assessee-company. According to AR, the assessee made investment in mutual fund out of foreign currency convertible bonds (FCCB) (zero coupon) which is received as follows: Date Vr. No. Particulars Credit (Rs.) 13.10.2005 BR H/05-06/000869 Being amount received on issue of foreign currency convertible bonds 34,42,65,753.00 13.10.2005 BR H/05-06/000869 -do- 50,00,00,000.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 356 23.01.2006 BR H/05-06/001307 Being amount received from Prudential ICICI from: 1159395/41 now Cr by Bank on dt. 23.1.2006 150,000,000 119 2,934,247 7,282,192 13.10.2005 BP H/05-06/004541 Paid towards investment in mutual fund 500,000,000 07.02.2006 BR H/05-06/001376 Being amount received from Pru- ICICI Liquid Plan vide chq No. 1159395/41 Cr by Bank on 6.2.2006 350,000,000 117 6,731,507 09.03.2006 BR H/05-06/001525 Being amount received from Prudential ICICI Liquid Plan vide chq No. 1132250/93 Cr by Bank on 9.3.2006 150,000,000 147 3,624,658 10,356,164 13.10.2005 BP H/05-06/004552 Paid towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make investment in mutual fund and there is no question of disallowance of interest. On the other hand, if the assessee used the interest bearing funds to make investment in mutual funds then proportionate interest has to be disallowed. The assessee is duty bound to establish the nexus between availability of interest free funds to make investment in mutual funds at the time of making such investment. In other words at the point of time of making investment there should be sufficient interest free funds available with the assessee. Being so, we remit the issue to the file of the Assessing Officer for such consideration in the light of above observations. In the result, ITA No. 1505/Hyd/2011 is partly allowed for statistical purposes. ITA No. 1844/Hyd/2011 (A.Y. 2008-09) (by assessee): 9. The ground raised by the assessee is as follows: The learned CIT(A) erred in confirming the addition made by the Assessing Officer of 2,07,00,112/- being the expenses for issue of shares to Qualified Institutional Buyers claimed in accordance with the provisions of Sec. 35D of the IT Act. The learned CIT(A) ought to have accepted the plea of the appellant that the said expenses represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se is squarely covered by CIT vs. Sakthi Finance ltd. (256 ITR 488) (Mad) where it was held that provisions of section 35D would inapplicable to increase in share capital subsequent to establishment of business. No new industrial unit was established and no expansion of existing industrial unit took place. The assessee was not entitled to benefit under section 35D of the Act. Further in the case of Shree Synthetics Limited vs CIT (2008) 303 ITR 451 (MP), the Hon'ble High Court held that when the Income Tax Act', 1961 makes a special provision for claiming deduction in respect of specified category of expenditure incurred by the assessee in its business activity, it excludes the applicability of general provisions dealing with the subject. In other words, in such eventuality what prevails is the special provision over the general provision. Section 35D of the Income Tax Act, 1961, being special and applicable only to certain types of expenditure incurred by the assessee in its business activity, it will prevail over the section which applies to the general category of expenditure thereby excluding its applicability. 14. We have heard both the parties and perused the mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he benefits arising therefrom are expected to be derived over a period of time, stretching sometimes over several accounting periods, the business world has been prone to treat such expenditure as a Deferred Revenue Expenditure and consequently, has been amortizing the same over the expected time period over which the benefits are likely to accrue there from. Accordingly only a proportion of the same is amortized in the Profit and Loss Account but an appropriate adjustment is made in the Computation of Income whereby the entire expenditure is claimed as allowable revenue expenditure. 5.2.3 However, coming to the Income Tax Act, fundamentally, only two kinds of expenses are explicitly recognized i.e., capital and revenue. The former is not debited to the P L A/c and is inexplicably linked to an asset, for which depreciation is allowed every year. On the other hand, revenue expenditure is allowed in one financial year. 5.2.4 The Supreme Court in the case of Alembic Chemical Works Co. Ltd. vs. CIT (1989) 177 ITR 377 has itself observed that the idea of 'once for all' payment and 'enduring benefit' are not to be treated as something akin to statutory conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same is incorrect. 5.2.7 The appellant has not shown this expense as an asset in the balance sheet. Therefore, depreciation cannot be allowable on it. With regard to the nature of expense, it is to be seen that the appellant acquired the brand The Asian age and rights over past editorial contest for a consideration of ₹ 9.80 Crore. There is no doubt about the fact that the brand as well as the past editorial contest will have benefits pertaining to the appellant for more than one financial year. 5.3 In view of the aforementioned judgements of the various courts, it would not be proper to debit the entire amount in one year as it would violate the matching principle. On the other hand, it is clear that the benefits of the expense will accrue to the appellant over many financial years. But. it cannot be quantified accurately as to how much would be the benefit in a particular financial year. unlike in bonds, where quantifications are simple and accurate, in this case, it is ultimately the judgement of the business head based on realities of the industry and economy which will determine the amount by which or the percentage of benefit available in a particular year. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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