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2015 (9) TMI 556 - ITAT BANGALORE

2015 (9) TMI 556 - ITAT BANGALORE - TMI - Revision u/s 263 - as per CIT(A) AO did not verify the claim of the Assessee for deduction u/s.35D of the Act, by taking note of the definition of capital employed and as to whether share premium can be considered as part of the capital employed and whether FCCBs can be considered as debentures and taken as part of capital employed for the purpose of allowing deduction u/s.35D of the Act - Held that:- In the present case, the 1st year in which relief was .....

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ground that the 1st year a claim had been allowed. We are of the view in such circumstances, the exercise of jurisdiction cannot be attacked on the ground that it is only in the 1st year of allowance of a claim which is to be allowed over a period of time that jurisdiction u/s.263 can be exercised. We therefore reject this argument of the learned counsel for the Assessee. - Decided against assessee.

Relief on the basis of "Cost of Project" u/s.35D(3)(a) - Held that:- It is only the f .....

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anies and thereby gain control of the two foreign companies. Therefore there were no fixed assets that were acquired or developed in connection with the extension of the industrial undertaking or setting up of the new industrial unit of the Assessee. The argument of the learned counsel for the Assessee cannot therefore be sustained and shares acquired cannot be treated by any stretch of imagination as land or building, plant or machinery etc., and treated as "cost of project" for the purpose of .....

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f Sec.78 of the Companies Act, 1956 on which the decision of Sirhind Steel Ltd. (2005 (9) TMI 218 - ITAT AHMEDABAD-D) proceeded provides for a limited fiction of treating share premium as part of paid up capital for the purpose of reduction of the same. Sec.78(2) of the Companies Act, 1956 prohibits use of share premium for any purpose other than the purposes set out therein. Can it be said that share premium could be employed in the business of the Assessee as share capital? In our view therefo .....

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ompanies Act, 1956 to include Bonds and in the light of the fact that the FCCBs in question are in the nature of bonds as defined in the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 wherein the meaning FCCBs is given as "bonds issued in accordance with the said scheme and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis .....

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MADRAS HIGH COURT ), is identical to the facts of the case of the Assessee in this appeal. FCCBs are instruments issued to investors for raising funds which is repayable after certain period. It is a debt instrument. The increase or decrease in liability on account of fluctuation in foreign exchange as on the date of the Balance sheet would increase or decrease the liability of the Assessee and such liability would be on capital account. Therefore the gain or loss would be on capital account and .....

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any engaged in the business of development and export of various software products for the telecommunication industry. The Assessee filed its return of income on 29.9.2008. In the return of income the Assessee declared loss of ₹ 63,51,65,765/-. The provisions of Minimum Alternate Tax u/s.115JB of the Act were applicable to the case of the Assessee and therefore the book profit of ₹ 1,71,29,916 was declared by the Assessee. The same was revised to ₹ 8,12,01,900 in a revised retu .....

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ems of deducted from the profit as per profit and loss account viz.,(i) Exchange gain on FCCB reinstatement of ₹ 60,75,80,000/- (ii) Deduction u/s.35D of the Act of ₹ 11,36,59,330/-. 3. The provisions of Sec.35D of the Act, in so far as it is relevant for the purpose of deciding the issue in this appeal read thus:- Sec.35D : Amortisation of certain preliminary expenses. (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, .....

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years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the Industrial undertaking is completed or the new Industrial unit commences production or operation: Provided that where an assessee incurs after the 31st day of March, 1998, any expenditure specified in sub-section (2), the provisions of this sub-section shall have effect as if for the words "an amount equal to one-tenth of such expenditure for each of .....

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or (b) where the assessee is an Indian company, at the option of the company, of the capital employed in the business of the company, the excess shall be ignored for the purpose of computing the deduction allowable under sub-section (1) : Provided that where the aggregate amount of expenditure referred to in sub-section (2) is incurred after the 31st day of March, 1998, the provisions of this sub-section shall have effect as if for the words "two and one-half per cent", the words " .....

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mences; (ii) in a case referred to in clause (ii) of sub-section (1), the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings), which are shown in the books of the assessee as on the last day of the previous year in which the extension of the Industrial undertaking is completed or, as the case may be, the new Industrial unit commences production or operation, in s .....

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erred to in clause (ii) 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 extension of the Industrial undertaking is completed, or, as the case may be, the new Industrial unit commences production or operation, in so far as such capital, debentures and long-term borrowings have been issued or obtained in connection with the extension of the Industrial undertaking or setting up of the new Industr .....

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country in respect of the purchase outside India of capital plant and machinery, where the terms under which such moneys are borrowed or the debt is incurred provide for the repayment thereof during a period of not less than seven years. (4) ……. (5) .…… (6) ……." 4. In the audit report u/s.44AB of the Act filed in Form No.3CD, the auditors has in column 15(b) highlighted amount claimed as deduction u/s.35D of the Act but not debited in the profit an .....

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he Act in AY 07-08 and in AY 08-09. This may not be very material because the dispute not on the variation in the quantum. 5. It is not in dispute that the Assessee after commencement of his business incurred expenditure set out in Sec.35D(2) of the Act in connection with setting up of a new industrial unit and was entitled to claim deduction of 1/5th of such expenditure by amortizing the said expenditure over a period of 5 years in accordance with proviso to sec.35D(1) of the Act. It is also no .....

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ns Ltd. (later known as Subex Azure (UK) Ltd., and M/s. Syndesis Ltd. (Later known as M/s. Subex Americas Inc.). The controlling interest in these two companies was acquired by the Assessee consequent to acquisition of shares of the aforesaid two companies. The claim of the Assessee was therefore u/s.35D(1)(ii) of the Act viz., "incurring of expenditure after the commencement of business in connection with setting up a new Industrial unit. 7. The capital employed by the Assessee for the pur .....

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1.11.2011 in which he called for details of deduction claimed u/s.35D-Claimed on what expenses? It is very important to notice that the AO did not call for any explanation with regard to the basis on which the Assessee opted for deduction u/s.35D of the Act, viz., 5% of capital employed in the business of the company as provided in Sec.35(3)(b) of the Act. The AO also did not enquire as to what is the Exchange gain on FCCB reinstatement of ₹ 60,75,80,000/-. We have already seen that the As .....

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5D of the Act is claimed, pointed out that it is on expenditure for issue of GDR's and FCCBs incurred by the company during the financial year ending 31.3.2007. The AO by another letter dated 30.11.2011 called upon the Assessee to clarify and furnish the following information:- "The company has claimed a sum of ₹ 11,36,59,330/- as deduction u/s.35D. Please clarify whether your company is an "industrial undertaking" for the purpose of claiming deduction u/s.35D as it stoo .....

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n the manufacture of computer software. 11. The AO passed an order of assessment for AY 08-09 u/s.143(3) of the Act dated 28.12.2011. In the said order there is no discussion whatsoever on the claim of the Assessee for deduction u/s.35D of the Act nor regarding the Exchange gain on FCCB reinstatement of ₹ 60,75,80,000/-. There is no disallowance of the aforesaid two claims made by the Assessee. By implication both the aforesaid claims were accepted by the AO. 12. The CIT in exercise of his .....

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T on 26.9.2013, the CIT expressed the view that deduction u/s.35D has been allowed in excess as follows:- "A) Total amount eligible for deduction under section 35D would be the actual expenditure of INR 577,890,354 incurred by the assessee, as restricted to the higher of: a. 5% of the cost of project, or b. 5% of the capital employed in the business. B) The cost of project has been considered as NIL, as the assessee has shown the amount so invested as 'Investments' and not as fixed .....

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ating to INR 7,807,500,000 has been ignored in totality. D) Thus, the amount eligible for deduction under section 35D is being computed as under: Actual expenditure of INR 577.890,354. restricted to higher of: - 5% of the Cost of Project being NIL or - 5% of Capital employed, in this case, the amount being 5% of the face value of GDRs (i.e., 5% x 117,287,280 = INR 5,864,364) Thus the excess deduction allowed under section 35D would amount to INR 112,486,457, as computed below: Particulars Amount .....

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Assessee in its books of accounts therefore "cost of project" was irrelevant consideration. For Sec.35D(3)(a) to apply the expenditure should be for acquiring land buildings etc., which are essentially fixed assets. Therefore only provisions of Sec.35D(3)(b) is applicable; and (2) for computing "Capital Employed" share premium ought to be ignored as it is not "Issued share capital". FCCBs are not in the nature of Debentures or long term borrowings. 15. The CIT also .....

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red the said expenditure towards issue of GDRs and FCCBs and was related to the extension of the industrial undertaking of the assessee. 1.8. There is no definition of the word "extension" under the Act. The assessee wishes to draw reference to P. Ramanatha Aiyar's Law Lexicon Second Edition which shows that although the word "expansion" was considered as related to different fields, yet, the one in relation to industrial activity gives the meaning as "extension" .....

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evident from the very fact that the assessee's gross revenue through these subsidiaries over the last two years has increased from 3,710 million to 5,408 million, being 46% increase in sales. 1.10 Further, with reference to the computation of the cost of project', it would not be appropriate to hold in a narrow manner that the assessee has not shown any investment in fixed asset/land and building in order to opt for 'cost of project'. It ought to he appreciated that the assessee .....

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f the term thus not restricted only to land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings). 1.11 The assessee wishes to place reliance on the decision of Madhya Pradesh High court in the case of Commissioner of Income tax v. Shree Synthetics Ltd [1986] 162 ITR 819 (Copy of the decision enclosed as Annexure 2) which was rendered in the context of section 35D (2) of the Act wherein it has been held that .....

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above, the 'cost of project' for the purposes of computing the deduction under section 35D ought to be INR 14,223,443,668. (2) With regard to computation of "Capital Employed", the Assessee took a stand Share premium should also be treated as part of "issued Share capital" as per Sec.78 of the Companies Act, 1956. The Assessee also relied on a decision of the ITAT Ahmedabad Bench in the case of JCIT Vs. Sirhind Steel Ltd. 97 ITD 502(Ahd.) wherein in the context of Sec .....

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u/s.35D. The Assessee also pointed out that FCCBs were issued under the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 wherein the meaning of FCCBs is given as "bonds issued in accordance with the said scheme and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any equity related warrants attached to debt instrum .....

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re 5), mentioned that the unrealized foreign exchange gain amounting to INR 607,500,000 should be treated as income for the year under consideration. 2.2 In this context, we submit that the Hon'ble Supreme Court in the instant case has analyzed the tax treatment of unrealized foreign exchange gain/loss arising out of restatement of liabilities, incurred for revenue purposes/purchase of capital assets, denominated in foreign currency. The implications have been analyzed in two baskets: - In t .....

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ign exchange gain/loss arising on liabilities incurred for the purposes of acquiring capital assets, the same would have to be adjusted as per the provisions of Section 43A of the Act. 2.5 In the present case, the foreign exchange gains arising on account of the restatement of liability with respect to funds sourced are for the purposes of making investments outside India and related to expansion of business of the assessee. The details of investments as appearing in the audited annual report fo .....

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ng on account of restatement of foreign exchange liabilities with respect to the investments made outside India ought to be adjusted only against the "Cost of Investment" in the year of payment. 2.9 Furthermore, the assessee has suo-motu added back an amount of ₹ 1.929,600,000 being foreign exchange loss on restatement of such liability arising in connection with investments made outside India in its return of income for ÀY 09-10. A copy of relevant extract of computation .....

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diction by the Commissioner of Income-tax ('CIT') is that the order of the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The CIT has to satisfy the twin conditions, namely, - the order of the AO sought to be revised is erroneous; and - it is prejudicial to the interest of the revenue. 2.12 It is only when an order satisfies both the above conditions, that section 263 would get attracted. 2.13 The expressions 'erroneous', 'erron .....

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ovember 22, 2011 and December 9, 2011. Copies of relevant extracts of these submissions are enclosed herewith as Annexure 8. 2.15 In light of above, it can be said that the explanations/clarifications offered by the assessee has been accepted by the AO and hence, the AO has applied his mind and allowed deduction under section 35D after considering the same and therefore, the order cannot be said to be erroneous in any manner on the said issue. 2.16 As regards, gains on restatement of liabilities .....

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er does not feel satisfied with the conclusion. 2.18 Reliance can be placed in the case of CIT v Ganpat Rain Bishnoi (2008) 296 ITR 292 (Raj), wherein it was held that where it is found that the assessing officer has made the assessment after making relevant enquiries and considering all aspects of the matter, then invoking of any proceedings under section 263 is unsustainable. (A copy of the decision is enclosed herewith as Annexure 9). 17. The Assessee gave computation of deduction u/s.35D of .....

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ether FCCBs can be considered as debentures and taken as part of capital employed for the purpose of allowing deduction u/s.35D of the Act. Though the claim for deduction u/s.35D of the Act was subject to scrutiny by the AO while concluding the assessment, there are several perspectives to allowing deduction u/s.35D of the Act and the perspective pointed out in the show cause notice u/s.263 of the Act were not verified by the AO and therefore his order was erroneous and prejudicial to the intere .....

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as claimed by the assessee. The CIT revised the said order u/s.263 of the Act and directed the AO to examine the terms of the DTAAs with Canada and Thailand and ascertain the exact relief that the assessee can claim under art. 23(2) of the DTAA with Canada and art. 23(3) of the DTAA with Thailand. The assessee being aggrieved with the revisional orders passed by the CIT, preferred appeals to the Tribunal. Assessee urged, among other grounds, that the CIT could not have exercised jurisdiction und .....

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quot;20. Though it is either vaguely or loosely described by the authorities, even including the Tribunal that the CIT lacked jurisdiction to exercise revisional powers in a situation of the present nature, as it was virtually in the nature of change of opinion on the part of the CIT, taking a different view from the view taken by the assessee to the effect that the authority taking the view that the assessee was entitled for deduction in full, but the CIT doubting that, that in itself does not .....

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sion either in the assessment order or in the computation claim, particularly as the extent of relief that can be claimed under these two articles is only after a specific exercise and though Sri Sarangan has very vehemently urged that it is not necessary for the assessing authority to make all these things explicit, so long as he is satisfied, on the strength of the authority of the Supreme Court not only in the case of Electro House (supra) and more so on the basis of the observations and law .....

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consider the order as erroneous and prejudicial and the CIT having remanded the matter to the assessing authority, we are of the clear opinion that it cannot be characterized as a situation beyond the realm of s. 263 of the Act, as the order being erroneous and prejudicial is a clear possibility particularly the assessing authority not disclosing the basis. 22. To test this proposition, if an order which is explicit is passed by the assessing authority and indicating that the assessee is entitl .....

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ial to the interest of the Revenue, just because the assessing authority does not spell out the reasons and therefore can avoid scrutiny under s. 268 of the Act, is an argument which is not logical or rational and not acceptable and at any rate on the authority of the Supreme Court in the case of Malabar Industries Co. (supra) is not an acceptable submission. 23. Though learned counsel for the assessee have placed strong reliance on two judgments of the Bombay High Court and the Delhi High Court .....

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the situation, no further need to discuss with any greater elaboration on the view expressed by the Bombay and the Delhi High Courts." Issue No.2 18.2 On the question whether the Assessee can be allowed relief on the basis of "Cost of Project" u/s.35D(3)(a) of the Act, the CIT held that the definition of cost of project in Explanation (a) below Sec.35D(3) of the Act referred to "actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, .....

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are capital and treating FCCBs as Debentures while computing "Capital Employed", the CIT held that share premium cannot be regarded as part of capital employed. In coming to the aforesaid conclusion, the CIT placed reliance on the decision of the Hon'ble Delhi High Court in the case of Berger Paints India Ltd. Vs. CIT 292 ITR 658 (Del.). In the aforesaid decision the Hon'ble Delhi High Court was concerned with a question as to whether share premium can be considered as part of .....

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l employed in the business of the company for the purpose of quantification of deduction under s. 35D. Issue No.4 18.4 With regard to the question whether FCCBs can be considered as "Debentures" and taken as part of capital employed for allowing deduction u/s.35D of the act, the CIT held as follows:- "4.5. The Assessee also contended that the Foreign Currency Convertible Bonds are documents which creates or acknowledges a debt and should be equated with debentures but not produced .....

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43A of the Act. On the other hand states that it has suo-motto added back an amount of ₹ 192,96,00,000 being foreign currency loss on restatement of such liability arising in connection with the investments made outside India in its return of income for AY 2009-10. The Assessee statement appears contradictory. In the absence of full evidences, the assessee claim could not be verified. The Assessing Officer is directed to examine the same and to bring the gain to tax accordingly." 19. .....

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sue to be considered is as to whether exercise of jurisdiction u/s.263 of the Act, in the facts and circumstances of the present case was justified? On this issue the main argument of the learned counsel for the Assessee was that the AO did make enquiry regarding deduction u/s.35D of the Act before completing the Assessment. Though the aspect with regard to "capital employed" or "foreign exchange gain on restatement of the FCCB liability" was not specifically gone into by the .....

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". If there is an enquiry, even inadequate, that would not by itself give occasion to the CIT to pass order under s. 263, merely because he has a different opinion in the matter. Such a course of action is open only in cases of "lack of enquiry". Contention of the Revenue that the AO did not consider as to whether the expenditure in question was capital or revenue expenditure cannot be accepted. Although apparently the assessment does not give any reasons for allowing the entire e .....

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i High Court in the case of CIT Vs. Anil Kumar Sharma 335 ITR 83 (Del) wherein the facts were that the CIT came to the conclusion that the issue relating to taxability of compensation received by the assessee was not examined by the AO and held that the order of the AO is erroneous and prejudicial to the interest of the Revenue. The Tribunal has arrived at a conclusive finding that though the assessment order does not patently indicate that issue of the taxability of the compensation has been co .....

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iry made by the AO was only with regard to the details of expenditure incurred on which deduction u/s.35D of the Act was claimed. The computation of deduction u/s.35D(3) of the Act did involve looking into the definition of "capital employed" and coming to a conclusion whether "Share Premium" or "FCCBs" can be considered as "Issued share capital" or "debentures" respectively, for the purpose of inclusion as part of capital employed. There are dif .....

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hich is the jurisdictional High court, therefore supports the plea of the Assessee. The view expressed by the Hon'ble Delhi High Court, in the decisions referred to by the learned counsel for the Assessee, is therefore, held to be not binding. 23. The learned counsel for the Assessee, however, pointed out that the ITAT Bangalore Benches in the case of Vanashree Builders & Developers (P) Ltd. Vs. CIT (2013) 40 taxmann.com 75 after considering the decision of the Hon'ble Karnataka High .....

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Assessee on the first issue was that the deduction u/s.35D is to be allowed over a period of 5 years. The first year in which the Assessee was entitled to claim deduction u/s.35D of the Act was AY 07-08. In that year in proceedings u/s.143(3) of the Act, the AO had allowed the claim of the Assessee. In the subsequent 4 years, the claim has to be allowed as the investigation of eligibility of claim can be examined in such cases only in the 1st year of eligibility. In the subsequent years the ded .....

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er is impugned in this appeal. The learned counsel for the Assessee submitted that the said order u/s.154 of the Act is also under challenge by the Assessee before the 1st appellate authority. His submission was that as on the date when the order u/s.263 of the Act was passed, the position was that the 1st year in which the claim u/s.35D could have been varied or disallowed i.e., in AY 07-08 stood allowed. He relied on the following decisions for the proposition that once deduction u/s.35D is al .....

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f the Act has since been modified. Though such modification happened after the order u/s.263 of the Act, which order is impugned in this appeal, it cannot be said that the 1st year of allowance of deduction u/s.35D of the Act stands allowed as claimed by the Assessee. In none of the decisions relied upon by the Assessee, it has been held that even if the 1st year of allowance of a claim is withdrawn at a later point of time, still the revisional order would be bad in law on the ground that the 1 .....

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f on the basis of "Cost of Project" u/s.35D(3)(a) of the Act? 28. On the above issue, the CIT held that the definition of cost of project in Expln. (a) below Sec.35D(3) of the Act referred to "actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings), which are shown in the books of the Assessee"….. The CIT held that the cost of acquisition o .....

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ble. The Assessee chose the option of claiming deduction of 5% of capital employed in the business of the company as provided in Sec.35D(3)(b) of the Act and never opted to claim 5% of the "cost of the project u/s.35D(3)(a) of the Act. Cost of Project has been defined in Expln. (a) (ii) as :- (ii) in a case referred to in clause (ii) of sub-section (1), the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (includin .....

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e shows that it is only the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings), which are acquired or developed in connection with the extension of the industrial undertaking or the setting up of the new industrial unit of the Assessee that should be considered. The Assessee issued GDRS and FCCBs and incurred expenditure in this regard. The proceeds of the issue were used to acqui .....

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st of project" for the purpose of allowing deduction u/s.35D of the Act. This issue is accordingly decided against the Assessee. 31. The third issue that arises for consideration is the issue as to whether Share Premium can be regarded as part of the Issued Share capital while computing "Capital Employed"? The CIT held that share premium cannot be regarded as part of capital employed. In coming to the aforesaid conclusion, the CIT placed reliance on the decision of the Hon'ble .....

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share capital, debentures and long-term borrowings. It does not include reserves and surplus of the company. Therefore, premium, if any, collected by the company on the issue of its share capital does not constitute a part of capital employed in the business of the company for the purpose of quantification of deduction under s. 35D. 32. The contention of the learned counsel for the Assessee was that the ITAT Ahmedabad in the case of JCIT Vs. Sirhind Steel Ltd. 97 ITD 502(Ahd.) in the context of .....

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oint of time and on the date when jurisdiction u/s.263 of the Act was exercised cannot obliterate the existence of debate on the date when order of assessment was passed. The issue was debatable. In this regard he relied on the following decision: Kishanchand J. Bhavnani (HUF) Vs. WTO 29 ITD 383 (Bom.) wherein it was held that subsequent decision of jurisdiction High Court cannot give raise to a mistake apparent on the face of the record warranting rectification u/s.254(2) of the Act. He also re .....

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case of Sirhind Steel Ltd. (supra) had considered those provisions to arrive at a conclusion that Share premium has to be considered as part of "Issued Share capital" while allowing deduction u/s.35D of the Act. 33. We are of the view that the aforesaid decision rendered in the context of Sec.254(2) and the regular assessment proceedings, cannot be applied in the context of provisions of Sec.263 of the Act. The power u/s.263 of the Act is a supervisory power and protection of the inte .....

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employed in the business of the Assessee as share capital? In our view therefore there is no merit in the contention of the learned counsel for the Assessee that share premium should be regarded as part of the "issued share capital" for allowing deduction u/s.35D of the Act. 34. We are of the view that the plea of the learned counsel for the Assessee cannot be accepted. Thus issue No.3 is also decided against the Assessee. 35. The fourth issue that arises for consideration is as to wh .....

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under the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 wherein the meaning FCCBs is given as "bonds issued in accordance with the said scheme and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments. On the above issue, the CIT held the Assessee has not produ .....

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s "bonds issued in accordance with the said scheme and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the issuing company in any manner, either in whole, or in part, on the basis of any equity related warrants attached to debt instruments, we are of the view that FCCBs are to be regarded as debentures and consequently be considered as part of "capital Employed" for allowing deduction u/s.35D of the Act. We hold and direct accordingly and d .....

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consequent liability on account of FCCBs and in that year the Assessee did not claim the loss as it was on capital account. The Assessee has therefore been consistent and not inconsistent as has been observed by the CIT in the impugned order u/s.263 of the Act. The learned counsel for the Assessee has before us placed reliance on the decision of the Hon'ble Supreme Court in the case of Woodward Governors 312 ITR 254 and the decision of the decision of the Hon'ble Madras High Court in th .....

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- "At the outset, for the sake of convenience, we may state that in this batch of civil appeals broadly we have before us two categories. In the first category, we are concerned with exchange differences arising in foreign currency transaction on revenue items. In such category, we are concerned with the assessee(s) incurring loss on revenue account. In that category, we are concerned with the provisions of ss. 28, 29, 37(1) and 145 of the IT Act, 1961 ("1961 Act"). In the second .....

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s on account of capital items as follows:- "Facts in M/s Honda Siel Power Products Ltd. (Civil Appeal arising out of SLP(C) No. 7632/08) Capital account case : 22. The main issue which arises for determination in this batch of civil appeals is : whether the assessee was entitled to adjust the actual cost of imported assets acquired in foreign currency on account of fluctuation in the rate of exchange at each balance sheet date pending actual payment of the varied liability. In this batch of .....

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d in foreign currency specifically for the purpose of acquiring the asset. 43A(1) has no application unless the asset is acquired and the liability existed, before the change in the rate of exchange takes effect. Increase or decrease in liability for repayment of foreign loan should be taken into account to modify the figure of actual cost in the year in which the increase or decrease in liability arises on account of fluctuation in the rate of exchange, irrespective of the date of actual paymen .....

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y the assessee contended the same was a capital receipt. The Commissioner of Income Tax pointed out that there was no dispute with regard to the fact that the exchange fluctuation income related to the deposit of money raised by the assessee from the GDS issue. Pointing out the printed prospectus to the issue of GDS, the Commissioner viewed that the aggregate net proceeds received were used principally to fund the establishment of offshore software development and the balance was used for workin .....

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