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TMI Blog2022 (1) TMI 732X X X X Extracts X X X X X X X X Extracts X X X X ..... es incurred were travelling expenses, legal and professional expenses, salary expenses for employees appointed especially for the project, insurance, electricity charges, and security charges - As per assessee expenses were incurred after the commencement of business but before the commencement of the commercial production. - HELD THAT:- We note that the provisions of section 35D are applicable for the expenditures incurred before the commencement of the business or after the commencement of the business in connection with the extension of the undertaking/setting up of new unit. There is no allegation of the AO whether the expenditure were incurred by the assessee were before the commencement of the business or after the commencement of the business in connection with the extension of undertaking/setting up of a new unit. Thus in the absence of such finding of the AO, we are of the view that the provisions of section 35D cannot be invoked in the given facts and circumstances. As there are certain categories of expenses for which the provisions of section 35D of the Act can be applied. These expenses have been specified under subsection 2 of section 35D of the Act. But in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses can be amortized only after the asset is capitalized and the same is required to be capitalized in five consequtive years starting the year in which the asset is capitalized, as mentioned in the sub section (2) of sec. 35D(1) of the I.T. Act. 3. On the facts and in circumstances of the case and in law, the Ld CIT(A) erred in law and on facts considering expenses claimed of salary expenses, travelling expenses incurred for expanding capacity of unit as revenue expenses without considering provision of residuary clause (d) of section 35D(2) of the I.T. Act. 4. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary. Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside and that of the Assessing Officer be restored. 3. The first issue raised by the Revenue is that the learned CIT (A) erred in deleting the disallowances of excess deprecation on software claimed by the assessee. 4. Brief facts of the case on hand are that the assessee is a public company and engaged in the business of manufacturing of fine chemicals. The assessee during the year under consideration made addition in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the depreciation on the same is allowable at the rate applicable for computer. In this regard we also find support and guidance from the judgment of Hon ble Madras High Court in case of CIT vs. Computer Age Management Services (P.) Ltd. reported in 109 taxmann.com 134 where in similar facts, the Hon ble court held as under: 8. The question would be as to whether the software application, which was acquired by the assessee would fall under Entry 5 of Part A of New Appendix I, which states that computers including computer software are entitled to depreciation at 60%. Note 7 of the Appendix defines the expression 'computer software' to mean any programs recorded on CD or disc, tape, perforated media or other information storage devices. 9. The case of the Revenue is that software are licences and that they are intangible assets and would fall under Part B of New Appendix I, which deals with knowhow, patents, copyrights, trademarks, licenses, francises or any other business or commercial rights of similar nature. 10. We find that Part B of New Appendix I is a general entry whereas Entry 5 of Part A of New Appendix I is a specific entry read with Note 7. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the same, the amount allowable to the assessee and amount disallowed is calculated as under: Particulars Amount Total Amount of Preoperative Expenses (As provided by the assessee) 5,06,40,582/- Amount allowable (as per section 35D) i.e one fifth of the above. 1,01,28,116/- Amount allowed for further four future years 4,05,12,466 (1,01,28,116 per year) Amount Claimed by the assessee on account of preoperative Expenses 2,45,29,582/- Amount Disallowed 1,44,01,466 11. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO by observing as under: 7.2.2. The AO has reached this conclusion without examining as to whether the expenses being claimed by the appellant were in the nature of expenses specified in the clause of sub section (2) of Section 35D'or not. From the details furnished by the appellant, it is seen that such expenses are not in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, the AO treated such connected expenses as preliminary expenses which were to be amortized over a period of 5 years. 14.1 First of all, we note that the provisions of section 35D are applicable for the expenditures incurred before the commencement of the business or after the commencement of the business in connection with the extension of the undertaking/setting up of new unit. There is no allegation of the AO whether the expenditure were incurred by the assessee were before the commencement of the business or after the commencement of the business in connection with the extension of undertaking/setting up of a new unit. Thus in the absence of such finding of the AO, we are of the view that the provisions of section 35D cannot be invoked in the given facts and circumstances. 14.2 Be that as it may be, there are certain categories of expenses for which the provisions of section 35D of the Act can be applied. These expenses have been specified under subsection 2 of section 35D of the Act. But in the present case, we note that none of the expenses claimed by the assessee was in the category of such expenses. Likewise, the AO has also not brought anything on record suggestin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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