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TMI Blog2019 (11) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act, 1961 with effect from 01.04.1971 and was applicable from assessment year 1971-72 onwards and therefore had rightly been applied by the AO in the present case which pertained to assessment year 1995-96. Revenue further argued that the expenses which come under the ambit of specific provisions of section 35D cannot be allowed under the residuary provisions of section 37 of the Act. But the counsel for the revenue was unable to point out any perversity in the Central Board of Direct Taxes s Circular No.56 dated 19.03.1971, ( date inadvertently mentioned as 19.03.1997 by the CIT(A) and ITAT ) which was relied upon by the CIT(A) and the ITAT, and contains Explanatory Notes on various sections of Income Tax Act, 1961, incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1995-96, the Revenue raised the following substantial questions of law :- (i) Whether on the facts and in the circumstances of the case, the Hon ble Income Tax Appellate Tribunal was justified in deleting the addition of ₹ 3,70,98,415/- on account of interest on borrowed funds paid for pre-operative period used for purchase of machinery by ignoring explanation 8 of section 43(1) ? (ii) Whether on the facts and in the circumstances of the case, the Hon ble Income Tax Appellate Tribunal was justified in allowing expenditure relating to the public issue of debentures u/s 37(1) of the I.T.Act by ignoring the fact that such expenditure is covered u/s 35D of the I.T.Act ? 3. In ITA No.301 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nture issue in proportion of the value. While the expenses in proportion to the equity capital were charged u/s 35D of the Income Tax Act, 1961 and only 10% of such expenditure was claimed during the year, the entire expenses of ₹ 78.88 lacs, relating to debenture issue, were claimed as revenue expenditure during the year. The Assessing Officer held that the expenses relating to the issue of debentures will also be governed by the provisions of section 35D of the Income Tax Act, 1961 (in short the Act ) and only 10% of such expenses would be allowed during the year. Therefore out of the expenditure of ₹ 78,88,250/- relating to the debenture issue , 10% amounting to ₹ 7,88,825/- was allowed under the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the assessee s claim of expenses relating to the debentures issue, was set aside by the ITAT holding that there was no dispute regarding the quantum of expenditure pertaining to nonconvertible debentures and the issue was only with regard to the allowability of the expenditure under section 37 of the I.T.Act, 1961 against under section 35 of the Act as allowed by the AO. 8. As regards the finding of the CIT(A) that the expenditure relatable to public issue of non-convertible debentures is to be allowed as deduction u/s 37 of the Act, the said finding was upheld by the ITAT. While affirming the finding of the CIT(A), the ITAT, in Para 5 of its order, has recorded as under :- 5. We have given our careful thoughts to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e., 1995-96 and 1996-97 in this regard and reject the same. 9. We have heard counsel for the revenue, whose contention is that the judgments of the Hon ble Supreme Court in India Cements Ltd. Vs. Commissioner of Income Tax, [ (1966) 60 ITR 0052 ] and of Commissioner of Income Tax Vs. Modi Industries, [ (1993) 200 ITR 0341 ] pertain to the assessment years 1950-51 and 1965-66, respectively whereas section 35D was inserted in the Income Tax Act, 1961 with effect from 01.04.1971 and was applicable from assessment year 1971-72 onwards and therefore had rightly been applied by the AO in the present case which pertained to assessment year 1995-96. The Ld. Counsel for the revenue further argued that the expenses which come under the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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