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TMI Blog2017 (10) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... wards income tax before leaving port or to make satisfactory arrangements for payment of taxes as are contained in Section 172 and Section 44B. The circular no. 723 issued by the CBDT on 19.09.1995 also supports the stand of the assessee that with respect to the ocean freight, demurrage charge, handling charges or other amount of similar nature which are paid to the Indian agents or authorized representative of non-resident shipping company who carry passengers, livestock, mail or goods shipped at port in India are not covered for deduction of tax at source under provision of 194C and 195 . Thus, keeping in view ratio of decision in the case of V.S Dempo & Company Ltd.( 2016 (2) TMI 308 - BOMBAY HIGH COURT) and in the light of the provision of section 172(8), explanation 2 to sub-section 2 to Section 44B read with afore stated circular no. 723 dated 19.09.1995, we hold that the issue is covered in favour of the assessee and we order deletion of the disallowance - Decided in favour of assessee TDS u/s 194C - TDS on clearing and forwarding charges paid to C&F Agents for clearing the consignments of import of goods - Held that:- No doubt these C & F Agents are independent contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with provisions of Section 35D before its claim is allowed and the onus squarely lays on the assessee.These claims and contention of the assessee as to that there was a extension of undertaking and the said expenses are allowable u/s. 35D need verification by the A.O and hence the matter is set aside and restored to the file of the A.O for necessary de-novo determination of the issue on merits in accordance with law. Needless to say that proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law.The assessee shall be allowed to submit the evidences and explanations which shall be admitted by the AO and adjudicated thereafter on merits in accordance with law. - I.T.A. No. 3300/Mum/2013 And I.T.A. No. 2423/Mum/2014 - - - Dated:- 29-9-2017 - SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri. M. Subramanian For The Revenue : Shri Rajesh Kumar Yadav,DR ORDER PER RAMIT KOCHAR, Accountant Member These two appeals, filed by the assessee, being ITA No. 3300/Mum/2013 I.T.A. No. 2423/Mum/2014 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee claimed that it deducted income-tax at source on local freight paid by it but has not deducted income-tax at source on export freight as the same is paid for movement of goods through ocean to carry export consignments which was paid to non-resident shipping companies directly or through their resident agents or representatives. The assessee relied upon CBDT circular no. 723 dated 19.09.1995 and contended that by virtue of above circular no taxes are required to be deducted at source under section 194C or u/s 195 by virtue of Section 172(1) for payment made to non-resident shipping companies or their resident agents or representative on export freight as provision of section 172 applies in these cases and provision of 194C and 195 will not apply. The A.O rejected the contention of the assessee as the assessee failed to prove that the payment of export freights have been actually paid to non-resident shipping companies or its shipping agents in India. Hence, the A.O held that the circular quoted by assessee is not applicable. It was also observed by the AO that the assessee has not submitted an exemption certificate from deduction of income-tax at source issued by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m freight certificate issued by Non-Resident shipping companies . It was submitted that the agent has raised an bill for reimbursement of expenses which are ultimately paid by these agents to non-resident shipping companies and the payments are covered by provisions of Section 172. The assessee made an application u/r 46A of the Income-tax Rules, 1962 for admission of additional evidences. The learned CIT(A) forwarded additional evidences filed by the assessee to the A.O for submitting remand report. The A.O objected to the admission of the additional evidences as the AO submitted in remand report that adequate opportunity of being heard was given to the assessee during the assessment proceedings. The AO also objected to the contention of the assessee that these are reimbursement of expenses as in the opinion of the AO no evidences has been brought on record by the assessee to substantiate the same. It was also objected by the A.O in remand report that assessee have not made payment directly to the shipping companies but to clearing and forwarding agents who have made payments to the agents of ship liners, which payments may include profit element for clearing and forwarding agents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 15 of the appellate order dated 26-03-2013 passed by learned CIT(A). With respect to other service charges of ₹ 9,60,431/- (excluding service tax of ₹ 99,989/-) included in the figure of freight, the assessee submitted that there is no requirement of deduction of income-tax at source u/s 194C even on these payments relying upon the provision of section 172(8) . The learned CIT(A) admitted additional evidences and accepted the contentions of the assessee so far as export freight of ₹ 49,38,689/- is concerned . The learned CIT(A) observed that the assessee has now produced entire bills pertaining to export freight expenses as additional evidences which goes to the root of the matter and remand report was called from A.O. The learned CIT(A) observed that the expenses incurred by the assessee are paid to an Indian agent who in turn has paid the same amount to the non-resident shipping company or its representative in India. It was observed that bill amount raised by the agent and the bill of non-resident shipping company are the same . It was observed that the agent has also mentioned on the bill that it is the amount paid by it on behalf of the assessee. So fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges such as demurrage charges, handling charges paid to the Indian agents of non-resident shipping companies. He drew our attention to provisions of Section 172(8) . He also drew our attention to the case laws as contain in the case law paper book specifically the case of Hon‟ble Bombay High Court in the case of CIT v. V.S Dempo Company P. Ltd. (2016) 131 DTR 217( Bombay). While on the other hand, the Ld. D.R relied on the appellate order of learned CIT(A). 7. We have considered rival contentions and perused the material on record. We have observed that the assessee has paid export freight and other charges to Indian agents of the non-resident shipping companies to the tune of ₹ 59,99,109/- out of which. ₹ 49,38,689/- was paid towards ocean freight and the rest of ₹ 9,60,431/- was paid towards various other service charges such as demurrage, terminal handling charges, documentation charges etc. which are included in the debit notes raised by Shri Balaji Shipping Corporation and other agents.The assessee has filed paper book which contains various debit notes issued by shipping agents and freight certificates by non-resident shipping companies. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or deduction of tax at source. As discussed above, the non resident shipping companies have given two freight certificates w.r.t. each bill raised by Balaji Shipping Corporation, the first pertain to ocean freight which is already accepted by learned CIT(A) while granting relief to the assessee and Revenue is not in appeal against relief granted by learned CIT(A), and the second freight certificate is w.r.t. THC charges and documentation charges which are acknowledged to be received by non resident shipping companies, thus it leaves no doubt that these are merely reimbursement of expenses as also claimed by Shri Balaji Corporation vide debit note and are in the nature of payment referred to in Section 172(8) and hence are covered by provision of Section 172(2) and no income-tax was required to be deducted at source u/s 194C keeping in view special provisions relating to taxability of non resident shipping companies who have to discharge their liabilities towards income tax before leaving port or to make satisfactory arrangements for payment of taxes as are contained in Section 172 and Section 44B. The circular no. 723 issued by the CBDT on 19.09.1995 also supports the stand of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to ₹ 35,38,692/ -, which Your Honour is requested to delete. 5. On the Facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) - 17, Mumbai erred in upholding the disallowance of the Share Issue expenses amounting to ₹ 17,500/-, which Your Honour is requested to delete. 11. Ground No. 3 - It was observed by the A.O that under the head Raw Materials Consumed‟, the assessee debited clearing and forwarding expenses(Import) of ₹ 55,94,324/- which were incurred towards clearing and forwarding of the imported goods. The assessee did not deducted income-tax at source while making these payment as the assessee claimed that these are reimbursements of expenses made to agents, which does not attract provisions of the Act relating to deduction of income-tax at source. The assessee submitted sample copy of invoice raised by these C F agents before the AO. It was also submitted that separate invoices were raised for reimbursement of expenses and for agency commissions. It was submitted that income-tax has been deducted at source on agency commissions. The A.O. observed that merely making a claim that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des the expenses on account of packing charges, etc.. The fact that the expenses solely reimbursed are not included of any profit element is not ruled out. The appellant on its own has not made any averment. The fact that the agency charges does not include any element of profits embedded therein, under the circumstances it is difficult to accept the principle of law that reimbursement of expenses are not subjected to TDS. Further, the case laws relied upon by the Ld. AR of the appellant deals with the situation were the assessee was not able to give the clear cut evidence to indicate that it is a case of pure reimbursement expenses and no personal element is involved. However, I find that neither before me nor before the Ld. AO, the appellant was able to give evidence to that effect except stating in general that it is a reimbursement expenses and not subjected to tax. In view of the foregoing, I do not find any merit in the argument of the Ld. AO. This ground of appeal is thus dismissed. 13. Aggrieved by the appellate order dated 14-02-2014 passed by learned CIT(A), the assessee filed an appeal with the tribunal on this issue vide ground no.3 . 14. The Ld. Counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No Description 1. Pri. CIT v. Consumer Marketing (India) P. Ltd. [2015] 64 Taxmann.com 16 (Gujarat) 2. CIT v. Opera Global P. Ltd [2014] 52 Taxmann.com 299 (Delhi) 3. ITO v. Dr. Willmar Schwabe India P. Ltd. [2005] 3 SOT 71 (DELHI) 4. Om Satya Exim P. Ltd v. ITO ITA no. 1335/Ahd/2010 5. ACIT v. P.P overseas ITA no. 733/Mum/2010 15. The Ld. D.R on the other hand submitted on this issue that assessee has not deducted income-tax at source on clearing and forwarding charges paid to the shipping agency on import of the goods and even the parties to whom payments were made have not deducted income-tax at source on these payments and hence the said payments were made paid by the assessee as well as the shipping agent in a clear defiance of the provisions concerning deduction of income-tax at source.Thus, learned DR strongly supported the orders of the authorities below and prayed that the additions as were made u/s 40(a)(ia) be upheld. 16.We have heard both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee but there is no evidence that they are in-fact actual expenses in the nature of reimbursements and there is no element of profit retained by C F Agent as the receipts/supporting bills issued by various third party service providers to the assessee through C F Agents are not furnished . Secondly, it is a matter of record that the said C F Agent had also not deducted any tax at source while making payments to various third party service providers who have provided services to the assessee through its C F Agents. On perusal of invoices of these C F Agents especially Sureways Shipping Solutions who have handled maximum import consignments for the assessee, we have observed that major payments were towards transport charges, port charges, terminal handling charges, consolidated charges, other charges which in our considered view are subject to provision of applicability of income-tax deduction at source under the provisions of Chapter XVII-B . The said C F agent no doubt are independent contractors but when they execute the contracted work on behalf of principal by dealing with outside parties such as shipping companies, airlines, port authorities, custom authorities, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... II-B as the said expenses would have been ab-initio not within ambit of Chapter XVII-B, but here in the instant appeal before us most of these expenses which are covered by invoices raised by C F agents are within purview and ambit of Chapter XVII-B but non-compliance has taken place as neither assessee nor C F agents have deducted income-tax at source. It is important to mention that it is the assessee who has debited these expenses in its Profit and Loss account and claimed the benefit of these expenses against income before the Revenue, while C F agent has merely acted as an intermediary. The principal is responsible for the action of agents done in the normal course of agency business and the assessee cannot absolve itself from its liability of non-deduction of income-tax at source by claiming that it is merely reimbursement of expenses paid to C F agents or to claim that it was solely the responsibility of C F agents to have deducted income tax at source on the grounds that ultimate payments were made to theird party service providers by the C F agents acting as an agent of the principal (i.e. assessee) albeit on behalf of assessee. Thus, when an agent acts on beha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be deducted at source on reimbursement of expenses where separate bills were raised, in this case the C F agent has sought reimbursement of expenses by raising debit note along with necessary bills/receipts/supporting evidences issued by third party service providers, while in the instant case there are no supporting bills/receipt/evidences from third party service provider which are enclosed by C F agents in its invoice for reimbursement of expenses as to come to the conclusion that there is no element of profit embedded in these expenses claimed by C F agent.It was also brought to the notice of the Court that part of expenses are not subject to provisions of deductibility of tax at source under Chapter XVII-B. The Hon‟ble High Court came to the conclusion that no question of law much less a substantial question of law arises in that case and the appeal of the Revenue stood dismissed. Thus, this case is distinguishable. (b) In the case of CIT v. Opera Global Private Limited(supra) relied upon by the assessee, the tax-payer has paid ₹ 48.61 lacs to C F Agent towards air freight for export of goods for which separate invoices were raised by C F Agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings, the assessee has furnished every necessary details in respect of payment of ₹ 3,28,88,794 made to CFS/ICD operating under JNPT/BPT. On a perusal of the relevant details/documentary evidences, it is found that before the Assessing Officer, the assessee has not only produced the bills raised by the CFS/ICD on the assessee but also the bills raised by the assessee on the importers towards expenditure incurred on behalf of them. It is also noticed, in the final invoice drawn by the CFS/ICD submitted before the Assessing Officer all particulars of transactions were noted such as importer's address, liner code, vessels particulars of transaction, vessels' name and item code, description, rate charged, etc. These facts prove that the payment made by the assessee to the CFS/ICD were for/on behalf of importer of goods to whom the assessee rendered services as custom house agent. In fact, on a perusal of the observations made in the assessment order would reveal that the Assessing Officer has also accepted the fact that the assessee has made the payments to CFS/ICDs on behalf of its clients/importers as a custom house agent. The only reason for which the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal, Mumbai Bench, in Rank Shipping Agency (P.) Ltd., (supra), while deciding identical issue of applicability of TDS provisions to payments made by a custom house agent on behalf of importers held as under:- 9. We have considered submissions of ld representatives of parties and orders of authorities below. 10. During the course of hearing, ld D.R. has not disputed the fact that assessee received the said payment aggregating to ₹ 18,79,38,741 on account of reimbursement of expenses from its clients apart from agency commission and the agency commission has been considered as assessee's income and the same is reflected in its profit and loss account. Assessee has adjusted reimbursement of the expenses received on behalf of its clients and, therefore, we agree that the same do not constitute part of assessee's income. We observe that similar issue was considered by the Delhi Tribunal by its order dated 1.8.2012 in the case of Jay Kay Freighters Pvt Ltd (supra) and it was held that the amount mentioned in the bill raised by shipping companies on ultimate consumer were initially paid by the assessee and, thereafter assessee got reimbursed the said a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause he is acting merely as an intermediary between the airlines/shipping lines as also custodians of goods on one hand and the importers/exporters on the other. The contract is between the parties and not with the agent. The invoices and other shipping documents are in the names of importer/exporter and the assessee merely receives funds and disburses to the airline/shipping lines till clearance by the customs. The statutory warehousing charges is also the sole liability of the clients and the assessee merely defrays the expenses on behalf of the clients, thus, the assessee/agents are not liable to deduct tax u/s 194C of the Act. Thus, it is unjustified on the part of the Assessing Officer to hold the assessee as assessee in default . The privity of contract is between the clients and not with the assessee. There was no contract between the assessee and the authorities rather the assessee is working as a facilitator/agent between the parties and the authorities. It is well understood that TDS is deductable u/s 194C on the payments made to the contractors/sub-contractors thus the basic premise for deducting tax is on the contracting parties. In the absence of any contractual rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r operating within the customs notified premises to seal/unseal the cargo/container, thus, such payments are paid on behalf of the client and the assessee is merely acting as intermediator for the smooth clearance on behalf of the clients. Identical is the situation for crane/fork lift charges. Reliance can be placed upon the decision in ACIT v. Accenture Services (P) Ltd. (Mumbai Bench of the Tribunal) and GIRDCO Ltd. v. ACIT (Cuttack Bench of the Tribunal). Respectfully following the decisions discussed hereinabove and also discussed in the impugned order, we find no infirmity in the conclusion drawn by the ld. Commissioner of Income tax (Appeals). The impugned orders are upheld.' 10. The other decisions of the Tribunal also express similar view. Thus, applying the ratio laid down in the decision referred to above, we hold that the assessee having made the payments on behalf of its clients, there is no liability to deduct tax at source on the assessee. Consequently, no disallowance under section 40(a)(ia) can be made for alleged failure of the assessee to deduct tax at source on the payment made on behalf of the importers/clients. Therefore, finding no infirmity in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings which shall be admitted by the AO in the interest of justice and thereafter adjudicated on merits in accordance with law. It is also to be put on record that SLP has been filed by Revenue with Hon‟ble Supreme Court against decision of Hon‟ble Delhi High Court in the case of CIT v. Ansal Landmark Township Private Limited ( 2016 ) 234 taxman 825(Delhi) wherein Leave has been granted by Hon‟ble Supreme Court ( (2016) 242 taxman 5(SC). This disposes of ground no. 3 raised by the assessee. We order accordingly. 17. Ground no. 4-Further it was observed by the A.O. from P L A/c that the assessee has debited financial charges of ₹ 80,21,871/- being interest paid on bank and unsecured loans. It was observed that assessee has raised interest bearing capital which was invested in the capital work in progress of ₹ 1,00,30,557/- and Loans and Advances of ₹ 2,47,65,136/-. it was also observed that sundry debtors includes debts of sister concern to the tune of ₹ 58,49,788/- out of which debts of ₹ 33,29,618/- is owed by Kuloday convertor for more than six months . Thus it was observed by the AO that assessee is using interest bearing advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Utilities and Power Ltd., 313 ITR 340 (Bom) iii. DCIT vs. Core Health Care Ltd. 289 ITR 194 (SC) 4.4 In the above cases, it is pertinent to note the decision given by the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd., wherein the Hon'ble High Court has held that, if there are interest free funds available an assessee is sufficient to meet its investment and at the same time, the assessee has raised loans then it can be presumed that the investments were from the interest free funds available. 4.5 In the instant case, the AO has not proved that the interest free funds were actually utilized for the purpose of capital work-in-progress. It is also important to note that the appellant has reserves which are more than the capital work-in-progress. Further, the AO has also not checked with the banks for what purposes the loan was sanctioned and whether such amount was used for the capital work-in-progress. In the absence of such evidence, the stand taken by the AO cannot be upheld and the ground of appeal of the appellant is allowed. 4.3.2 In view of the above decision of my Ld. Predecessor and the facts remaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is nothing on record to suggest that amounts were advanced to sister-concern. to advance some - business object. Rather, the same is in the nature of funds being provided to sister- concern which are closely-held to earn) on business and earn income thereon without incurring any cost of fund or without even investing anything. If the assessee had to transfer the money in the form of interest-free loan from one company to another close company, the same could very well be in the manner by introducing less capital in one company and by investing the balance amount in the other company as capital because according to the assessee, it had share capital funds of its own which could be given to other. sister-concern. It is not, at all, possible to accept such a plea raised by the assessee. As far as the issue of establishment of nexus of the funds borrowed vis-a-vis the funds diverted towards sister-concern on interest-free basis is concerned, the stand of the assessee that the onus of proving the nexus of funds available with the assessee with the funds advanced to the sister-concerns unthout interest is on the Revenue is not correct. Sec. 36(1)(iii) provides for deduction of interest o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest were required by the assessee for the purpose of its business and loans to that extent were required to be raised. We do not subscribe to the theory of direct nexus of the funds between borrowings of the funds and diversion thereof for non business purposes. Rather, there should be nexus of use of borrowed funds for the purpose of business to claim deduction under Section 36(1)(iii). If the plea of the assessee is accepted that the interest free advances made to the sister concerns for non-business purposes was out of its own funds in the form of capital introduced in business, that again will show a camouflage by the assessee as at the time of raising of loan, the assessee will show the figures of capital introduced by it as a margin for loans being raised and after the loans are raised, when substantial amount is diverted to sister concerns for non-business purposes without interest, a plea is sought to be raised that the amount advanced was out of its capital, which in fact stood exhausted in setting up of the unit. Such a plea may be acceptable at a stage when no loans had been raised by the assessee at the time of disbursement of funds. This would depend on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. CIT (1995) 127 CTR (Bom) 359 : (1994) 208 ITR 989 (Bom), Phaltan Sugar Works Ltd. vs. CIT (1994) 122 CTR (Bom) 344: (1995) 215 ITR 582 (Bom), Elmer Havell Electrics Ors. vs. CIT Anr. (2005) 197 CTR (Del) 316 : (2005) 277 ITR 549 (Del) and C1T vs. Sujanni Textiles (P) Ltd. (1998) 147 CTR (Mad) 417: (1997) 225 ITR 560 (Mad) relied on; Veecumsees vs. CIT (1996) 133 CTR (SC) 500 : (1996) 9 SCC 25 distinguished; CIT vs. Orissa Cement Ltd. (2001) 252 ITR 878 (Del), CIT vs. Tin Box Co. (2003) 182 CTR (Del) 171 : (2003) 260 ITR 637 (Del), CIT vs. Radico Khaitan Ltd. (2005) 194 CTR (All) 451 : (2005) 274 ITR 354 (All), CIT vs. Prem Heavy Engineering Works (P) Ltd. (2006) 150 Taxman 90 (All), CIT vs. Britannia Industries Ltd. (2005) 198 CTR (Cal) 426 ': (2006) 280 ITR 525 (Cal) and R.D. Joshi Co. vs. CIT (2001) 171 CTR (MP) 33: (2001) 251 ITR 332 (MP) dissented from. Therefore, once appellant has borrowed certain funds on which liability to pay tax is being incurred and on the other hand, certain amounts have been advanced to sister-concerns without carrying any interest and without any business purpose, the interest to the extent the advance had been made without carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of assessee and he relied upon the decision of the Hon‟ble Supreme Court in the case of S.A Builders Ltd. (2007) 288 ITR 1(SC). Thus, it was fairly submitted by both the parties that this issue can be restored to AO for verification of contention of the assessee on merits in accordance with law. 20. We have considered rival contentions and perused the material on record including case laws. The authorities below have disallowed interest expenses to the tune of ₹ 35,38,692/- on the grounds interest bearing funds have been diverted for granting interest free loans and advances. . The claim of the assessee is that the amounts were advanced to the said parties out of the interest free funds which were available with the assessee which were to the tune of ₹ 3.59 crores as detailed hereunder(page 43/pb) : DETAILS OF INTEREST FREE OWN FUNDS PARTICULARS AMOUNT Share Capital 1,50,00,000.00 Reserves 77,41,839.13 Interest free unsecured loans 1,32,13,684.15 TOTAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r increasing capital has to be capital expenditure, by relying upon following decisions :- i) Brook Bond India Ltd. v. CIT(1997) 91 Taxman 26(SC) ii) Bombay Burmah Trading Corporation Ltd v. ITO (1983) 12 Taxman 178 (Bom) iii) Punjab State Industrial Development Carp Ltd v. CIT(1997) 93 Taxman 5 (SC) iv) Shree Digvijay Cement Co. Ltd. v. CIT (1982) 138 ITR 45 (Guj) v) Bharat Carban Ribbon Mfg Co. Ltd v. CIT (1981) 127 ITR 239 (Delhi) vi) Vazir Sultan Tabacco Co. Ltd. v. CIT(1988) 41 Taxman 7 (AP) vii) Metro General Credits Ltd. v. CIT(1996) 221 ITR 99 (Mad) 22 . Aggrieved, the assessee filed an appeal with learned CIT(A) who dismissed the appeal of the assessee by holding as under:- 6.3.1. I have carefully considered the submissions and contention of the Ld. AR of the appellant and also carefully gone through the facts and explanation given by the Ld. AR of the appellant as well as the Ld. AO. I find that the issue is clearly covered by the decision of Hon'ble Supreme Court in the case of Brook Bond India Ltd. vs. CIT (1997) 91 Taxman 26 (SC) that any amount incurred by the appellant for increase in its share capital, that this is not the domain o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e head capital work in progress.Thus, it is claimed that increased capital base is used for setting up new undertaking at Daman which is by way of expansion of capacity . Our attention was also drawn to the schedule of fixed assets which is placed in paper book page no. 7 wherein capital WIP was shown at ₹ 1.65 crores as at 31-03-2010 and addition to land has been shown to be ₹ 17.04 lacs during previous year relevant to the impugned assessment year. Reference is drawn to Provisions of Section 35D which stipulates as under: [Amortisation of certain preliminary expenses. 35D. (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2),- (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his [***] undertaking or in connection with his setting up a new [***] unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be prescribed. (3) Where the aggregate amount of the expenditure referred to in sub-section (2) exceeds an amount calculated at two and one-half per cent- (a) of the cost of the project, or (b) where the assessee is an Indian company, at the option of the company, of the capital employed in the business of the company, the excess shall be ignored for the purpose of computing the deduction allowable under sub-section (1) : [Provided that where the aggregate amount of expenditure referred to in sub-section (2) is incurred after the 31st day of March, 1998, the provisions of this sub-section shall have effect as if for the words two and one-half per cent , the words five per cent had been substituted.] Explanation.-In this sub-section- (a) cost of the project means- (i) in a case referred to in clause (i) of sub-section (1), the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings), which are shown in the books of the assessee as on the last day of the previous year in which the business of the assessee commenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the year or years in which the expenditure specified in sub-section (2) is incurred have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288, and the assessee furnishes, along with his return of income for the first year in which the deduction under this section is claimed, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. (5) Where the undertaking of an Indian company which is entitled to the deduction under sub-section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of amalgamation,- (i) no deduction shall be admissible under sub-section (1) in the case of the amalgamating company for the previous year in which the amalgamation takes place; and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the amalgamation had not taken place. [(5A) Where the undertaking of an Indian company which is entitled to the deduction under sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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