TMI Blog2016 (1) TMI 1458X X X X Extracts X X X X X X X X Extracts X X X X ..... r a period of so many years. On these findings, the assessing officer has chosen to grant deduction only in respect of one unit, namely, for the unit established in 1995-96 to the extent of ₹ 10,39,812/- and disallowed the deduction in respect of other units. Therefore, we find no reason to differ the findings of the Tribunal. Deduction of bad debts disallowed u/s 36 - contention of the learned counsel for the assessee is that as part of the debt had to be written off, the same should have been allowed as revenue expenditure, and that the Assessing Officer has chosen to treat the same as capital loss, which is not correct in law - HELD THAT:- The claim for deduction on account of bad debt did not satisfy the eligibility creteria as enunciated in the decision reported in Sarangpur v. CIT [ 1982 (6) TMI 23 - GUJARAT HIGH COURT] . Applying the correct legal position, the Assessing Officer has given a finding that the alleged debt was not part of assessee's stock in trade and that as it has not been incurred while purchasing or selling the goods, in which the company was dealing with, and therefore, the expenditure involved cannot be treated as a debt and therefore, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/2001. Brief facts:- 2. M/s. Tube Investments of India Limited, the appellant herein, is a Public Limited Company, engaged in the manufacture and sale of cycles, cycle accessories, steel tubes and strips etc. The company filed its return of income for the Assessment Year 1997-1998, relevant to the year ended on 31.03.1997, admitting the total income of ₹ 3,58,47,750/- under normal method of computation. The return of income was processed under Section 143 (1) (a) of the Income Tax Act (hereinafter referred to as the Act ). Accepting the return of income, a refund of ₹ 1,14,10,224/- was granted to the assessee. 2.1. The case was selected for scrutiny, by issuance of a notice, under Section 143 (2) of the Act, on 28.04.1998. The assessment came to be made under Section 143 (3) of the Act and by the order, dated 27.03.2000, the total income was determined at ₹ 8,98,52,050/-. 2.2. Deductions were claimed by the assessee invoking Sections 35D, 36, 37 (4) and 80 HHC of the Act and they were disallowed by the Assessing Officer. As against the order passed, the Assessee filed an appeal before the Commissioner of Income Tax (Appeals) and the Commissioner, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The appellant claimed amortization of GDR expenses as per Section 35D of the Act only to the extent of ₹ 36967908/- (restricted to 2.5% of capital expenditure-project cost) against the actual GDR expenses of ₹ 5,67,51,709/-. 5. Section 35D of the Act provides for amortization of certain preliminary expenses, which reads as under: Amortisation of certain preliminary expenses. 35D. (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2), - (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his undertaking or in connection with his setting up a new unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous 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 undertaking is completed or the new unit commences p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, 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 five per cent had been substituted.] Explanation. - In this sub-section - (a) cost of the project means - (i) in a case referred to in clause (i) 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 business of the assessee commences; (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this section is claimed, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. (5) Where the undertaking of an Indian company which is entitled to the deduction under sub-section (1) is transferred, before the expiry of the period of ten years specified in sub-section (1), to another Indian company in a scheme of amalgamation, - (i) no deduction shall be admissible under sub-section (1) in the case of the amalgamating company for the previous year in which the amalgamation takes place; and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalga-mating company if the amalgamation had not taken place. 1[(5A) Where the undertaking of an Indian company which is entitled to the deduction under sub-section (1) is transferred, before the expiry of the period specified in sub-section (1), to another company in a scheme of demerger, - (i) no deduction shall be admissible under sub-section (1) in the case of the demerged company for the previous year in which the demerger takes place; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of sources and application of funds that most of the GDR receipts have been utilised for working capital requirements and denied the fact that the funds were utilised for capital purposes. If the claim of the assessee is accepted, the allowance of deduction under Section 35D will be available for more than ten successive years which is not permissible. Accordingly the claim of the assessee, under Section 35D will be allowed to the extent of ₹ 1039812 only and the balance of ₹ 2656979 will be disallowed. 8. The learned counsel for the assessee submitted that when the claim was allowed for one year, i.e. during 1995-96, there is no reason to refuse the deduction for the consecutive year. This contention would be legally correct, provided, the deduction had been claimed for the consecutive year in respect of the same unit. 9. From the discussions, it is evident that the assessee had claimed deduction in respect of successive units over a period of time; one unit during 1995-96, another unit during 1996-97 and yet another unit during 1997-98. There is also a finding that there is no proof to show that Euro Issue had been used for the capital expansio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess which is carried on by the assessee in the relevant accounting year. (ii) The debt should have been taken into account in computing the income of the assessee of the accounting year, or of an earlier accounting year or should represent money lent in the ordinary course of his business of banking or money-lending. (iii) The amount of the debt or loan, or part thereof, which is claimed as a deduction, should have become bad. (iv) The amount should be written off as irrecoverable in the accounts of the assessee for that accounting year in which the claim for a deduction is made for the first time. 14. The contention of the learned counsel for the assessee is that as part of the debt had to be written off, the same should have been allowed as revenue expenditure, and that the Assessing Officer has chosen to treat the same as capital loss, which is not correct in law. 15. A perusal of the order passed by the Income Tax Appellate Tribunal would go to show that rightly, the Tribunal has relied upon the Judgment of this Court in CIT vs. Micromax Systems (P) Ltd., reported in (2005) 277 ITR 409 and chosen to confirm the disallowance. In the reported decision, it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. vs. CIT [(2005) 278 ITR 546, in which, it was held that depreciation rent repairs under Sections 30 and 32 of the Act and maintenance expenses are not allowable in respect of guest house. The relevant observation reads as under: The only question which we are called upon to consider in the instant case is whether the expression 'premises and buildings' referred to in Sections 30 and 32 and used for the purposes of the business or profession would include within its scope and ambit the expression 'residential accommodation including any accommodation in the nature of guest house' used in Sub-sections (3), (4) and (5) of Section 37 of the Act. While the two expressions can be similarly interpreted, a distinction has been sought to be introduced for the purposes of Section 37 by specifying the nature of building to be a guest house. In our view, the intention of the Legislature appears to be clear and unambiguous and was intended to exclude the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purposes of a guest house of the nature indicated in Sub-section (4) of Section 37. When the language of a statue is clear and u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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