TMI Blog2003 (10) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... ch helped in the growth of company's product as well as its name. The CIT(A) was of the view that the expenditure was revenue expenditure and allowable as deduction in view o(jurisdictional High Court judgment in the case of Addl. CIT v. Delhi Cloth General Mills Co. Ltd. [1983] 144 ITR 275 (Delhi). Aggrieved by the same, the revenue is in appeal before the Tribunal for all the years. 3. After hearing both the parties, we find that this issue is covered by the decision of the Tribunal in assessee's own case for assessment year 1984-85 in ITA No. 2623/Delhi/92, dated 20-4-1998 wherein vide para 10, it was held as under: "10. The next issue relevant for the assessment years 1984-85 and 1985-86 relates to the expenditure on rural development. CIT(A) directed the Assessing Officer to treat this expenditure as sales promotion and advertisement expenses. We find that the disallowance was made under section 37(3A) by treating this expenditure as of sales promotion and advertisement. We have perused the reasonings given by the CIT(A). The disallowance was made just because approval was obtained for claiming deduction under section 35CC of the Act. Its allowability should, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure as revenue expenditure. Alternatively, it was contended that deduction under section 35D be allowed. The Assessing Officer held that the entire expenditure could not be held to be revenue expenditure. According to him, it was partly capital and partly revenue in nature. Accordingly, he considered 1/3rd expenditure as revenue expenditure and the balance amount was held to be capital expenditure for which assessee was eligible for deduction under section 35D. 6. The matter was carried in appeal before the CIT(A), who following the order of the Tribunal for assessment year 1983-84 held the expenditure as revenue expenditure and accordingly, deleted the addition made by Assessing Officer. 7. Regarding assessment year 1994-95, the facts are slightly different in the sense that the company had offered 15 per cent secured non-convertible debentures of Rs. 200 each aggregating Rs. 8,581 lakhs and 12% fully convertible debentures of Rs. 300 each aggregating to Rs. 7,978 lakhs on Rights basis and thus had incurred total expenditure of Rs. 96,90,659. Non-convertible debentures of Rs. 200 each were redeemable in three instalments of Rs. 66, Rs. 67 and Rs. 67 each at the end of 6th, 7th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear the veil and go behind the transaction to ascertain the real intention of the parties. Reference can be made to the judgment of Hon'ble Supreme Court in the case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 wherein at page 523 their Lordships observed as under: "...If the transfer of the personal asset by the assessee to a partnership in which he is or becomes a partner is merely a device or ruse for converting the asset into money which would substantially remain available for his benefit without liability to income-tax on a capital gain, it will be open to income-tax authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine or a sham transaction and, even where the partnership is genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a device or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on a capital gain. The Income-tax Officer will be entitled to consider all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by passing the Supreme Court judgment in the case of Brooke Bond India Ltd. Even in the present case in assessment year 1994-95, the assessee had issued fully convertible debentures after sometime and ultimately the entire amount was converted into equity share capital. In our considered opinion, such an approach cannot be allowed to prevail. The veil has to be teared and real intention of the transaction has to be ascertained by the authorities/Tribunal. At this stage, it would be appropriate to refer that similar issue had arisen and considered recently by the Tribunal, Delhi Bench in the case of Sona Steering Systems Ltd. v. Dy. CIT [2003] 129 Taxman 152 (Mag.) to which one of us (JM) was party. In that case, it was held as under: "It is well settled that if the expenditure is incurred for obtaining loan, the same is allowable as revenue expenditure in view of the judgment of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52; On the same analogy, the expenditure on public issue of debentures is a mode for obtaining loan. On the other hand, if the expenditure is incurred on the public issue of shares, it is capital expenditure not allowable under section 37. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of CIT v. Sudarshan Chemicals Industries Ltd. [2000] 245 ITR 769, decision of Calcutta High Court in CIT v. Chloride India Ltd. [2002] 256 ITR 625 and the decision of Special Bench of the Tribunal in the case of IFB Agro Industries Ltd. v. Dy. CIT [2002] 83 ITD 96 (Cal) wherein it has been held that the total turnover would not include the element of excise duty and sales tax. It has been further argued that Assessing Officer should have also deducted the clement of cash discount and commission on sales from the total turnover. However, we find that Assessing Officer had not applied his mind to this issue since auditors had not deducted the element of cash discount and commission. We further find that issue regarding the element of excise duty and sales tax was never raised before the Assessing Officer in assessment years 1992-93 and 1994-95 though this issue was raised in assessment year 1995-96. It is the settled legal position that assessee can raised the legal issue at the appellate stage even though it was not raised before the lower authorities. Therefore, the assessee is justified in raising such issue before us. As far as the component of excise duty and taxes is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the expenditure was neither incurred in connection with the extension of its industrial undertaking nor for setting up of a new industrial undertaking. Further, provisions of sub-section (2) were not attracted. Aggrieved by the same, the assessee is in appeal before the Tribunal. 12. The assessee has raised contentions challenging the order of CIT(A) on both the aspects as is apparent from the grounds of appeal. However, in the course of hearing, the learned counsel for the assessee has not pressed the claim of assessee under section 37 and restricted his arguments in respect of the claim under section 35D. It was argued by him that claim under section 35D can be allowed if it is incurred even after the commencement of the business with reference to extension of existing business. For this purpose, he drew our attention to the objects for which such proceed to be utilized. On the other hand, the learned DR has relied on the order of CIT(A) and contended that there is no material on record to show that the expenditure was incurred for extension of its industrial undertaking or for setting up a new industrial undertaking. 13. After hearing both the parties, we are unable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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