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2006 (1) TMI 210 - AT - Income TaxClaimed expenditure on the issuance of right shares - Prima Facie Adjustment - Assessment completed u/s 143(1)(a) - applicability of section 35D - difference of opinion between the Judicial Member and the Accountant Member - Third Member Order - Whether in view of the decision of the Hon'ble Supreme Court in the case of Brooke Bond (India) Ltd. v. CIT[1997 (2) TMI 11 - SUPREME COURT], adjustment u/s 143(1)(a) in respect of expenditure on right issue can be sustained? - HELD THAT:- Judicial Member - Assessing Officer has made prima facie adjustment holding the expenditure as capital in nature as no facts were available on record as to whether the assessee required the funds to increase the capital to meet the need for working funds or not. In the totality of circumstances we have no hesitation in holding that the Assessing Officer is not correct in making the prima facie adjustment. Accordingly, we set aside the orders of the lower authorities. In the result, the appeal of the assessee is allowed. Accountant Member - My ld. colleague has also referred that CIT (Appeals) has given a finding that deduction u/s 35D may be allowed, but no such claim was made before the Assessing Officer and in that view of the matter, no fresh debate can be unnecessarily brought into picture. Therefore, the question, whether Assessing Officer was within his jurisdiction to make such adjustment when no claim u/s 35D was made, has to be answered in favour of the Revenue because there is no debate involved after the c pronouncement of the decision of the Hon'ble Supreme Court in the case of Brooke Bond (India) Ltd. Thus, the assessee's appeal is dismissed. Third member - In the case of Brooke Bond (India) Ltd. case Hon'ble Supreme Court has held that expenditure incurred by a company in connection with issue of shares, with a view to increase its share capital is directly related to the expansion of the capital base of the company, and is capital expenditure, even though it may incidentally help in the business of the company and in the profit-making. It was contended before the Hon'ble Supreme Court that where the enhancement was to have more working funds for the assessee to carry on its business and to earn more profit and that in such a case the expenditure that is incurred in connection with issuing of shares to increase the capital has to be treated as revenue expenditure. On this the Hon'ble Supreme Court has held that the statement of case sent by the Tribunal did not record the finding to the effect that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for more working funds for the assessee to carry on its business. From this it can be concluded that if the expansion of capital is in order to meet the need for more working funds, in that eventuality the expenditure could partake the nature of revenue expenditure. De hors examination in this regard, it is not possible to apply the ratio. In my opinion, the decision of the Apex Court in the case of Brooke Bond (India) Ltd. can be applied only after examining the object of the capital enhancement. This decision is not applicable it enhancement of capital was made for gearing up funds for working capital. The object of gearing up of the capital was not looked into. Total amount was disallowed without examining the details. Even applicability of section 35D was not considered. In my opinion, this is not correct, I have gone through the reasoning adduced by the ld. Judicial Member. In my opinion he took a correct view in the matter. I concur with his decision on this issue. The matter will now go back to the regular Bench for deciding the appeal in accordance with the majority. Therefore, in accordance with the majority view, the issue is decided in favour of the assessee and the appeal of the assessee is allowed.
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