TMI Blog2010 (7) TMI 623X X X X Extracts X X X X X X X X Extracts X X X X ..... . Nos. 211 & 823/Del/2010 - - - Dated:- 29-7-2010 - SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER Appellant by : Mrs. Pratima Kaushik, Sr. DR. Respondent by : None. ORDER PER C.L. SETHI, JUDICIAL MEMBER xxxx xxxx xxxx xxxx 2. We shall first take the appeal pertaining to the Assessment Year 2002- 03. The only ground raised in this appeal is as under:- In the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts by deleting disallowance of Rs.29,72,000/- made by the Assessing Officer u/s 35D of the Act, on account of exclusion of share premium, by ignoring the fact that the provisions of Explanation (b) of Section 35D(3) of the Act clearly states that only `issued share capital is to be considered 3. In the year under consideration, the assessee claimed Rs.31.67 lakh as deduction under sec. 35D of the Act being 1/5th of 5% of public issue of 39,10,000 shares of Rs.5/- each at a premium of Rs.76/-. During the assessment proceedings the AO asked the assessee to explain why deduction should not be restricted to Rs.1.95 lakhs being worked out after excluding the premium amount realized on shares. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any is a going concern, the same monies can never be returned to 4 the shareholders except through the medium of reduction petition or, in other words, except under exactly the same conditions as those under which any other capital asset can a reach the shareholder s hand. The Hon ble ITAT therefore held that the issued share capital of the assessee can only be considered to be share capital plus amount outstanding as share premium amount. Hence the department is in appeal before us. 4. We have heard the learned DR. None for the assessee was present. The notice of hearing was sent to the assessee through department. The departmental authorities i.e. Dy. Commissioner of Income-tax, Circle 2(1), Room No.398D, CR Building, New Delhi, has reported that the notice of hearing fixing the date of hearing on 29.07.2010 had been served upon the Authorized Representative of the assessee company. However, none for the assessee was present, when the matter was called on for hearing nor did any application for adjournment filed. We therefore, proceeded to hear the learned DR and accordingly, she was heard. 5. The learned DR submitted that the issue involved in this appeal is now fully cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n allowable under sub-section (1): Provided that where the aggregate amount of expenditure referred to in sub-section (2) is incurred afte rthe 31st day of March, 1998, the provisions of this sub-section shall have effect as if for the words `two and on-half per cent. , the words `five per cent. had been substituted. 6.3 A careful reading of the above would show that in the case of an Indian company, the aggregate amount of expenditure incurred after the 31st day of March, 1998 allowable under sub-section (1) of section 35D cannot exceed 5 per cent of the capital employed in the business of the company. The crucial question, therefore, is as to what is meant by capital employed in 7 the business of the company. The expression capital employed in the business of the company has been given a clear and exhaustive definition in the Explanation to sub-section (3) of section 35D. It reads: (b) `capital employed in the business of the company means (i) in a case referred to in clause (i) of sub-section (1), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the previous year in which the business of the company commences; (ii) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of clause (c) to the Explanation, either on fact or by a fiction of law. It is also not the case of the assessee that the premium 9 collected by the assessee company on the issue of shares is in any where near or akin to the debentures. The assessee has made out a case only that premium collected by the assessee company on the issue of shares is a part of share capital issued and in support thereof, they relied upon the decision of ITAT, Ahmedabad Bench in the case of Sirhind Steel Ltd. (supra). In other words, what was reviewed by the assessee before the authorities below was that the premium collected by the company on the issue of shares was a part of the share capital and is therefore, to be reckoned as capital employed in the business of the company . 6.5 This aspect of the matter as to whether the premium collected by the company on the issue of shares is a part of the share capital and is therefore, to be reckoned as Capital employed in the business of the company has been considered by the Hon ble Delhi High Court in the case of Berger Paints India (supra) where the Hon ble Delhi High Court after analyzing the provisions of sec. 35D, has held that the Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned CIT(A) is set aside. Therefore, the disallowance of claim under sec. 35D made by the AO by excluding the share premium from the capital employed in the business of the company is justified. 8. Ground No.2 is directed against the CIT(A) s order in deleting the disallowance of Rs.2,95,616/- on account of foreign travelling expenses. It has been stated by the AO that the assessee company incurred expenditure of Rs.14,78,078/- on foreign travelling. The assessee company was asked to give proof of the business purpose for which the foreign travelling was undertaken. The assessee had filed details of expenses on the foreign travelling. However, the AO stated that the assessee has failed to file evidences about the business purposes for which the foreign travelling was 12 undertaken. He therefore, disallowed 20% of the total expenses which was worked out to Rs.2,95,616/-. 9. On an appeal, the learned CIT(A) deleted the addition merely by just observing that the AO has made the disallowance purely on ad hoc basis without realizing the fact that the director and employees had to travel UK and USA as they were earning their income in these countries and without citing any inst ..... 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