2006 (2) TMI 102 - HC - Income Tax

Appeal to tribunal - Whether Tribunal was right in law in not condoning the delay for submission of the cross-objection and in further holding that such a ground cannot be raised for the first time before the Tribunal in the form of a belated cross-objection in respect of a point which was admittedly not the subject-matter of assessment order passed by the Assessing Officer nor it was the subject-matter of appeal decided by the Commissioner of Income-tax (Appeals)? - The first part of the aforesaid question requires to be answered in the affirmative i.e. the Tribunal was right in law in not condoning the delay in filing the cross-objection i.e. in favour of the Revenue and against the assessee. Second part of the question is left unanswered - Tribunal was right in holding that share issue expenses is capital expenditure - Tribunal was right holding that the fees paid to the Registrar of Companies for increasing the share capital of the company is capital expenditure - Tribunal was right in holding that the prospectus report fee for new issue of shares is capital expenditure - amalgamation expenses and liquidation expenses of winding up are capital expenditure

Summary

Issues:
1. Capital vs. Business Expenditure - Share issue expenses, fees paid to Registrar of Companies, prospectus report fee, amalgamation expenses, and liquidation expenses.
2. Condonation of Delay for Cross-objections.

Capital vs. Business Expenditure:
The High Court addressed four questions raised by the Income-tax Appellate Tribunal regarding the nature of various expenses incurred by the assessee. The Tribunal held that share issue expenses, fees paid to the Registrar of Companies, and prospectus report fee were capital expenditures, not allowable as business expenditures under section 37(1) of the Income-tax Act, 1961. These decisions were based on the apex court's judgment in Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798. However, the High Court ruled in favor of the assessee regarding amalgamation expenses and liquidation expenses, citing the apex court's judgment in CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521.

Condonation of Delay for Cross-objections:
The Tribunal considered a question regarding the delay in filing cross-objections by the assessee. The Tribunal found that the cross-objections were filed almost two years beyond the statutory period and declined to condone the delay. The assessee sought condonation based on a subsequent apex court decision and submitted an affidavit explaining the delay. The High Court analyzed the grounds of cross-objection and found that the assessee failed to establish a prima facie case justifying the delay. The Court emphasized the need for cogent evidence to support a claim for condonation of delay and upheld the Tribunal's decision not to condone the delay. The High Court ruled in favor of the Revenue on this issue, as the delay was not adequately justified.