9911796707
TMI Blog1996 (10) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1966, and the first accounting period relevant to this date ended on March 31, 1967, and the first relevant assessment year for the purposes of relief under section 80J of the Act for this business was assessment year 1968-69. Assessment year 1970-71 wherein the dispute now under reference had arisen is the third year of relief under section 80J. In the original assessment, the Income-tax Officer had construed an amount of Rs. 1,05,573 appearing in the balance-sheet as miscellaneous expenditure as part of the capital employed for purposes of working out the relief. This sum of Rs. 1,05,573 comprised preliminary expenses amounting to Rs. 14,549; share issue expenses amounting to Rs. 78,011 and deficit in profit and loss account, amounting to Rs. 13,013. However, the Income-tax Officer rectified the assessment under section 154 of the Act stating that consequent on the change of depreciation of earlier years, as per reassessment of even date, the assessment required to be modified. Further, development rebate has been allowed in preference to unabsorbed depreciation. Though he purportedly sought to rectify the assessment on these two grounds, he also modified the relief under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representing preliminary expenses and share issue expenses, it was found that the disallowance relating to these amounts could be made only after consideration of several arguments. It was, therefore, concluded that the withdrawal of relief with reference to these amounts would not be within the scope of section 154 and hence the appeal on this point was allowed in part relating to these two amounts. Learned standing counsel appearing for the Department submitted that section 80J relief has got to be calculated from the assessment year 1968-69. The assessment year under consideration, viz., 1970-71, is the third year in the matter of granting relief under section 80J of the Act. In the earlier two years, the Income-tax Officer did not consider the preliminary expenses and share issue expenses as assets and, therefore, they were excluded while computing the capital base for relief under section 80J. But in the assessment year under consideration, viz., 1970-71, considering that a mistake has occurred in including the preliminary expenses and share issue expenses in the capital base for the purpose of relief under section 80J, the Income-tax Officer invoked his jurisdiction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee. The point for consideration is whether the Tribunal was correct in holding that there is no jurisdiction for the Income-tax Officer to invoke the provisions of section 154 of the Act to exclude the preliminary expenses and share issue expenses, while ascertaining the capital base, which was originally included by the Income-tax Officer in his original assessment, even though on the merits, the Income-tax Officer was correct in excluding the abovesaid two expenses while ascertaining the capital base for the assessment year under consideration. The first year of assessment in the case of the assessee for granting relief under section 80J of the Act is 1968-69. The assessment year under consideration is 1970-71, which is the third year. In the first two years, the Income-tax Officer has not included the preliminary expenses amounting to Rs. 14,549 and the share issue expenses amounting to Rs. 78,011, while ascertaining the capital base for relief under section 80J of the Act. In the third year, viz., the assessment year 1970-71, in the original assessment, the Income-tax Officer included the abovesaid two expenses while determining the capital base for relief under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the capital base in the assessment year under consideration for granting relief under section 80J of the Act, that would itself amount to an error apparent on the face of the record, warranting jurisdiction under section 154 of the Act. Only to show that these two expenses are in the nature of assets, a long drawn process of reasoning is required. The long drawn process of reasoning required to show that these two kinds of expenses are really in the nature of assets, would not go to show that there is an (no ?) error apparent on the face of the record, warranting jurisdiction under section 154 of the Act. It is also significant to note that the Bombay High Court in Modella Woollens Ltd. v. CIT [1979] 120 ITR 726, held "that although, according to the accountancy practice, preliminary expenses and share capital issue expenses are shown on the assets side of the balance-sheet of a company, such assets will have to be regarded as nominal or theoretical expenses. It has to be on the assets side for the purpose of drawing a proper balancesheet, but it is common knowledge that when the company starts earning profits, these expenses which are shown on the assets side are written off ..... X X X X Extracts X X X X X X X X Extracts X X X X
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