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TMI Blog2021 (10) TMI 1209X X X X Extracts X X X X X X X X Extracts X X X X ..... during the first year relating to the assessment year 2007-08, Section 154 proceedings were initiated, subsequent to initiation of revisional proceedings under Section 263, the same would not pass the test of law as enunciated by the Hon'ble Apex Court in Shasun Chemicals and Drugs Ltd.[ 2016 (9) TMI 1199 - SUPREME COURT] since the same being post revision proceedings and has resulted in giving relief to the assessee on some other ground. Even in terms of Gujarat Narmada Valley Fertilizers Co. Ltd. [ 2013 (8) TMI 300 - GUJARAT HIGH COURT] , the claim which has been granted by the Assessing Officer could not be disallowed subsequently, without disturbing the decision in the initial year. Post action of the Assessing Officer in modifying the original order would not cure the flaw pointed out in Shasun Chemicals and Drugs Ltd. [ 2016 (9) TMI 1199 - SUPREME COURT] - We answer this issue in favour of the assessee and against the Revenue. Whether share premium collected on the issue of Share Capital by the Appellant cannot be taken as part of the Capital Employed for allowing deduction under Section 35D? - HELD THAT: This question of law has been considered by the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Honourable ITAT was right in law in upholding jurisdiction of the Learned Commissioner in exercising revisionary powers under Section 263 of the IT Act? 2. Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in holding that the share premium collected on the issue of Share Capital by the Appellant cannot be taken as part of the Capital Employed for allowing deduction under Section 35D of the IT Act? 3. Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in holding that the cost of acquisition of companies cannot be treated as asset for allowing deduction under Section 35D of the IT Act? Re. Substantial Question of Law No.1: 3. Learned counsel for the assessee argued that no revision proceedings were initiated relating to the assessment year 2007-08, the first year of the five successive previous years as provided under Section 35D for amortization of certain preliminary expenses. It was submitted that as per Section 35D and the proviso thereof, the assesse shall be entitled for deduction of an amount equal to 1/5th of such expenditure each of the five successive previou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee could be acquired by two methods. Firstly, by acquiring the assets individually; secondly, acquiring 100% subsidiary shares. Acquiring of 100% subsidiary shares is an extension of undertaking. It was argued that the assessee company is entitled to deduction of an amount equal to 1/5th of expenditure for each of the five successive previous years beginning with the previous years in which the business commences, or as the case may be, the previous year in which the extension of the industrial undertaking is completed. 6. On the contrary, learned counsel for the Revenue, argued that the Commissioner exercised the revisonal powers under Section 263 of the Act to revise the order of the Assessing Officer relating to the Assessment year 2008-09 since Section 154 proceedings were initiated for the first year of the five years block period, i.e., 2007-08, which has culminated in the order of the Tribunal allowing the alternative benefits. Since the assessment order relating to the assessment year 2007-08 was disturbed as per the order passed under Section 154 of the Act, the assessee cannot contend, initiation of revisional proceedings under Section 263 of the Act for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; (b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.- For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction or operation : Provided that where an assessee incurs after the 31st day of March, 1998, any expenditure specified in sub-section (2), the provisions of this sub-section shall have effect as if for the words an amount equal to one tenth of such expenditure for each of the ten successive previous years , the words an amount equal to one-fifth of such expenditure for each of the five successive previous years had been substituted. (2) The expenditure referred to in subsection (1) shall be the expenditure specified in any one or more of the following clauses, namely :- (a) expenditure in connection with- (i) xxxxx (ii) xxxxx (iii) xxxxx (iv) xxxxx (b) xxxxx (c) xxxxx (d) xxxxxx (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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame provisions benefit is allowed for the first two Assessment Years and, therefore, it could not have been denied in the subsequent block period. We, thus, answer question No. 1 in favour of the assessee holding that the assessee was entitled to the benefit of Section 35D for the Assessments Years in question. 11. In the case of Principal Commissioner of Income-tax-1 V/s. Deep Industries Ltd., [(2016) 67 taxmann.com 6 (Gujarat)], the High Court of Gujarat, while considering the correctness of the order of the Commissioner of Income tax under Section 263 of the Act read with Section 35D of the Act relating to the assessment year 2007-08 observed that, the Tribunal, has recorded that the first year of the claim under Section 35D of the Act was for the assessment year 2007-08 and in that year, the claim of the assessee had been accepted under Section 143[1] and no action under Section 147 or 263 of the Act had been taken in relation to the said assessment year. The benefit claimed relating to the assessment year 2007-08 which was allowed was not disturbed. Subsequently in the year 2009-10, the Commissioner of Income Tax has taken the matter in revision under Section 35D, ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without disturbing the decision in the initial year. Post action of the Assessing Officer in modifying the original order would not cure the flaw pointed out in Shasun Chemicals and Drugs Ltd., supra. We answer this issue in favour of the assessee and against the Revenue. Re. Substantial Question of Law No.2: 13. Learned counsel for both sides submit ad idem that this question of law has been considered by the Hon'ble Apex Court and answered in favour of the Revenue in Berger Paints India Ltd., V/s. Commissioner of Income-tax, Delhi-V, [(2017) 79 taxmann.com 450 (SC)]. Accordingly, this substantial question of law is answered in favour of the Revenue and against the Assessee. Re. Substantial Question of Law No.3: 14. Section 35D[3] provides that where the aggregate amount of the expenditure referred to in subsection [2] exceeds an amount calculated at two and one-half per cent of the cost of the project, the excess shall be ignored for the purpose of computing the deduction allowable under Sub-section[1] which is relevant herein. As per the explanation to Section 35D[3], (a) cost of the project means- (i) in a case referred to in clause (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re borrowed or the debt is incurred provide for the repayment thereof during a period of not less than seven years. 15. A conjoint reading of these provisions would indicate that the phrase being employed in explaining the cost of project plays a significant role in answering this question. In the case of CIT V/s. Shree Synthetics Ltd., [(1986) 162 ITR 819 (MP)], the Hon ble Madhya Pradesh High Court has held thus: It was not disputed before us that there are the following stages in connection with the issue of shares for public subscription : (1) issue of prospectus and invitation to the public to subscribe, (2) making of calls, that is, entertainment of applications by subscribers, (3) acceptance by the company represented by allotment of shares, (4) actual issue of share scrip and entering the names of the shareholders in the register of members ; and (5) expenses incurred after issue, i.e., payment of brokerage and underwriting commission, as also refund of excess amount oversubscribed. The dictionary meaning of the word being is such as, especially, also, etc. Therefore, it is illustrative and must be read with reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs may require examination of the assessment order or queries raised by the Assessing Officer and answers given by the assessee but in others cases, a deeper scrutiny or examination may be necessary. The stand of the Revenue and the assessee would be relevant. Several aspects including papers filed and submitted with the return and during the original proceedings are relevant and material. Sometimes application of mind and formation of opinion can be ascertained and gathered even when no specific question or query in writing had been raised by the Assessing Officer. The aspects and questions examined during the course of assessment proceedings itself may indicate that the Assessing Officer must have applied his mind on the entry, claim or deduction etc. It may be apparent and obvious to hold that the Assessing Officer would not have gone into the said question or applied his mind. However, this would depend upon the facts and circumstances of each case. 17. The assessee claims that it has acquired two companies viz., M/s. Azure Solutions Ltd., and M/s. Syndesis Ltd. Learned counsel referring to Circular No.56 dated 19.03.1971 regarding the taxation laws [Amendment] Act, 1970 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accord with such object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted. Consequently, for the reasons given by us, we agree with the conclusions reached by the impugned judgments of the Division Bench and the Full Bench. 19. Placing reliance on the aforesaid judgment, learned counsel for the assessee submitted that the acquisition of 100% subsidiary shares of the two companies has to be construed as cost of project. On the contrary, learned counsel for the Revenue submitted that the shareholder is not the owner of the fixed asset. The phrase being has to be interpreted as exhaustive i.e., which are in the nature of fixed assets namely, 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 commences as specified in Explanation [a][ii] to Section 35D[3] of the Act. As such, no fixed assets were acquired by the assessee. 20. The phrase being in collinsdictionary.com reads thus: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of Global Depository Receipt and Foreign Currency Convertible Bonds was related to extension of industrial undertaking of the assessee; there being no definition of the word extension under the Act, the word expansion has to be considered as extension . Thus, going by meaning assigned to the word extension , quite apart from the horizontal expansion in the industrial undertaking, vertical expansion also stands included within the meaning of the term extension of the industrial undertaking. It was further stated that the assessee has incurred expenditure for the purpose of acquisition of Subex Americas Inc., and Subex UK Limited and the same was incurred for the purpose of expansion of the business. As aforementioned, there being vast difference between expansion and extension , the arguments of the learned counsel for the assessee, placing reliance on the consolidation procedures as per the Accounting Standard [AS-21], cannot be countenanced. Hence, the substantial question of law No.3 is answered against the assessee and in favour of the Revenue. Substantial questions of law No.1 is answered in favour of the assessee and against the Revenue. Substantial que ..... X X X X Extracts X X X X X X X X Extracts X X X X
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