TMI Blog2006 (6) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant - Sooraj Automobiles Limited (hereinafter referred to as SAL). 3.1 Ld. counsel for the assessee, Shri Anil Jain explaining the fact submitted that the appellant is a public limited company engaged in the manufacturing of Diesel Two Wheelers and Three Wheeler Bikes operating from rented and leased premises at Ambala Road, Saharanpur. The company made public issue of shares in the year 1985 and from 1985 to assessment year 1992-93, preliminary expenses under section 35D has been claimed and allowed and in assessment years 1993-94 and 1994-95, preliminary expenses have not been claimed. Thereafter, it has again been claimed in the assessment year 1995-96. A group company of the appellant in the name of Sooraj Generators Ltd. (SGL) with the object of manufacturing of generators made public issue of shares in the year 1986. This company could build only factory building in own property at Delhi Road, Saharanpur for the purpose of installation of proposed project of manufacturing of generators. The appellant company was facing space problem due to increase in production and requirement for workshop, stores, administrative block, open space for stocking the ready vehicles a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83,59,068 ( c ) ( i ) Liquidation Exp. Rs. 90,000 ( ii ) Loss on sale of car Rs. 1,29,842 ( iii ) Loss on sale of shares Rs. 3,21,525 Rs. 5,41,367 Rs. 98,99,3 76 Less : Pre. Ex. Written off (on Rs. 9,98,941) Rs. 2,42,547 Rs. 96,56,829 In the assessment years 1993-94 and 1994-95, no preliminary expenses have been claimed and the balance of misc. expenses is same as on 31-3-1994 as no activity was carried out on in the premises of SGL after the amalgamation from 1991 to 1994-95, when the amalgamated company used the building and other premises. In assessment year 1995-96, the appellant-company claimed Rs. 9,65,693 under preliminary and preoperative expenses under section 35D i.e. 1/10th of Rs. 96,56,829. The details of Rs. 96,56,829 are as under : ( a ) Liquidation Expenses 90,000 Loss on sale of car 1,29,842 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the assets of the company being losses having been generated during the construction of building and eligible for depreciation. The claim under section 35D in respect of Rs. 5,41,367 and Rs. 7,56,394 has been withdrawn before the CIT(A). It is not a dispute that the above expenses are neither non-genuine or not proved i.e. the authenticity of these expenses have been accepted by the Assessing Officer. Further, it is also established that these expenses have nowhere been claimed as revenue expenses and these are expenses, which are to be capitalized on which no deduction is to be given under the preliminary expenses. So, keeping in view the nature of expenses, the depreciation on these expenses is to be allowed. 3.3 Ld. Departmental Representative, on the other hand, strongly relied upon the appellate order. He submitted that the claim of depreciation could be allowed under the provisions of section 32 of the Act. As per section 32, the depreciation is to be allowed on the written down value of assets. The written down value is defined in section 43(6) of the Act. As per Explanation 2 to section 43(6), where any block of asset is transferred by the amalgamating compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company shall be the written down value of the block of assets as in the case of the amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year. On verification of the balance sheet of SGL filed on 31-3-1990 before us by ld. counsel for the assessee which is appearing at pages 56 to 60 of the paper book, the cost of building is stated to be Rs. 31,85,729. The Assessing Officer has allowed depreciation on such cost. The accumulated losses to the extent of Rs. 12,28,583 are in the course of regular activities. The same were not in relation to the building of SGL. Similarly, the amount of goodwill is determined based on the value of SGL as compared with the value of SAL. The share of SGL was valued during the scheme of amalgamation at a sum of Rs. 7.92 whereas share of SAL (appellant) were valued at Rs. 5.55. Thus, against the 100 shares of SGL, 140 shares of SAL were issued to the shareholders of SAL. The assets of SGL acquired in the scheme of amalgamation relates not only to the fixed assets but also other current assets, investment and other misc. expenses to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence regarding ownership of car in the name of the company, depreciation cannot be allowed. 5.2 Ld. counsel, Shri A.K. Jain submitted that as per the balance sheet, an addition of Rs. 45,000 is shown under the head motor car . The amount of Rs. 45,000 was paid to Mr. Surender by account payee cheque on 22-4-1994. Since the amount was for purchase of car, depreciation is allowable. 5.3 Ld. Departmental Representative, on the other hand, relied upon the order of CIT(A). He submitted that in absence of any evidence, which suggests that the amount was paid towards purchase of motor car, mere entry in books of account is not sufficient for entertaining claim of depreciation under section 32 of the Act. 5.4 We find sufficient force in the submission of the ld. Departmental Representative. It is settled that the primary responsibility to justify claim of depreciation lies on the assessee. Except the self-signed voucher, there is no evidence, which suggests that the assessee has purchased a motor car which has been used for the purpose of business. In absence of any such evidence, claim of assessee was rightly rejected. 6. The next ground of appeal for assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been any need to raise credit from bank. However, such presumption is without any supporting evidence. Even the advancing on imprest account is also in the course of business. We accordingly delete the disallowance of Rs. 45,000. 7. The next ground of appeal for assessment year 1998-99 is against rejection of application for adjournment and request for consolidation of pending appeal. At the time of hearing, the ground was not pressed before us. For want of prosecution, this ground is dismissed. 8. The next ground of appeal for assessment year 1998-99 is against levy of additional tax of Rs. 7,118. At the time of hearing, this ground was not pressed before us. For want of prosecution, this ground is dismissed. 9. An additional ground was raised for assessment year 1997-98 against charging of interest under section 234B while computing income under the provisions of section 115JA of the Income-tax Act. 9.1 Ld. counsel for the assessee submitted that interest was not levied in the assessment order by passing a speaking order but the same is charged only in the computation sheet. He submitted that since the income is computed under section 115JA, the assessee is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90. The said company was amalgamated with the assessee-company with effect from 1-4-1990. The assessee claimed amortisation of such preliminary expenses under the provisions of section 35D of the Act. The Assessing Officer in this regard observed as under : "The claim of the assessee has been examined very carefully. It is observed that the whole of such expenditure amortised by the assessee does not fulfil the conditions prescribed under section 35D. Assessee has claimed deduction under section 35D in the assessment years 1991-92 and 1992-93 and also in prior years, but not such deduction was claimed in the assessment years 1993-94 and 1994-95. Again in the year under assessment, assessee has made a claim of such deduction. Since section 35D clearly enumerates that such expenses are allowable for each of the 120 successive previous years, beginning with the previous year in which the business commences ....., but assessee has not made a claim of such deduction in assessment years 1993-94 and 1994-95, hence it has forfeited its right to claim deduction in the year under consideration. Further the financial year from which assessee has been claiming deduction under section 35D is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to claim amortisation under section 35D of the Act. Such amortisation can be only on such sum, which has been incurred by the assessee. As per section 35D(5), the provision of section 35D shall apply through the amalgamated company as they would have applied to the amalgamated company if the amalgamation had not taken place. Thus, on conjoin reading of sub-section (1), sub-section (3) and sub-section (5) of section 35D, we hold that the preliminary expenses incurred by erstwhile SGL can be claimed as deduction under section 35D subject to the overall ceiling of 2 per cent of the capital employed of the erstwhile SGL. Thus, the percentage should be applied to the share capital of SGL and not that of the assessee-company. We accordingly hold that a sum of 2 and per cent of the capital of Rs. 1,28,00,500 can be amortised under section 35D in the hands of the assessee before us. The order of the ld. CIT(A) is modified to the above extent. 11. The next ground of appeal for assessment year 1995-96 is against deletion of disallowance of Rs. 7,970 made under section 43B of the Act. We have perused the appellate order and also considered the rival submissions. We do not find any rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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