TMI Blog2021 (10) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... lization of interest expenditure on the money borrowed from the bank for investment in post-acquisition of shares. - Decided in favour of assessee. - ITA No.2024/Ahd/2018 - - - Dated:- 30-9-2021 - Shri Rajpal Yadav, Vice-President And Shri Waseem Ahmed, Accountant Member For the Assessee : Shri A.C. Shah, AR For the Revenue : Shri S.S. Shukla, Sr.DR ORDER PER RAJPAL YADAV, VICE-PRESIDENT: Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-1, Ahmedabad dated 20.8.2018 passed for the Asstt.Year 2015-16. 2. The assessee has raised the following two grounds: i) The learned CIT(A) has erred in confirming the preliminary expenses of ₹ 25,59,701 under Section 35D instead of claim of expenditure of ₹ 26,42,282 being l/5th total preliminary expenses of ₹ 1,32,11,408 eligible for deduction under Section 35D(1) in as much as the learned AO has misappreciated the facts and that the assessee is eligible to claim deduction of ₹ 26,42,282 being l/5th total preliminary expenses of ₹ 1,32,11,408. ii) The learned CIT(A) has erred in not treating the interest of ₹ 14,09,68,423 as capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld.AO however, did not accept the submissions of the assessee. He held that expenses for increasing authorized share capital and stamp duty for allotment of shares were incurred after the date of incorporation, which as per provision of section 35D of the Act do not allow, because there was no mention of such expenditure in any provisions of the section 35D. He, accordingly, and after following the order of the CIT(A) for the preceding assessment 2014-15 on similar issue, rejected claim of the assessee for amortization of ₹ 1,27,98,500/-, but allowed only an amount of ₹ 4,12,908/- being the expenses incurred at the time of registration of the assessee-company to be amortized; thus the ld.AO allowed ₹ 82,581/- being 1/5th of ₹ 4,12,908/-. In other words, the ld.AO has rejected the remaining amount of ₹ 25,59,701/- (₹ 26,42,282/- minus ₹ 82,581/-). Dissatisfied with order of the l.AO, the assessee went in appeal before the ld.CIT(A). Before the ld.CIT(A) it was submitted by the assessee that though the AO has accepted in principle that the assessee was eligible for deduction of preliminary expenses incurred at the time of registration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 37 or under the specific provisions of section 35D of the Act. The ld.CIT(A) accordingly confirmed order of the AO. Aggrieved by the action of the Revenue authorities, the assessee is now before the Tribunal. 4. Before us, the ld.counsel for the assessee reiterated the submissions as were made before the ld.Revenue authorities. He further submitted that similar issue has arisen in assessment year 2014-15 and both Revenue authorities rejected the claim of the assessee. When the issue went upto the Tribunal, the Tribunal in ITA No.2053/Ahd/2017 and others by holding that incorporation/registration of a company does not mean that the assessee has commenced business activities, and the business activities of a company seems to be commenced only after doing the transaction for which it was established. In the instant case, expenses incurred for increasing the share capital was before the commencement of the assessee-company, and therefore, they are covered under the provisions of section 35D of the Act. Accordingly, the ITAT allowed the claim of the assessee. Since facts are exactly same with that of preceding assessment year, such of the assessee in this year as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, we are of the view that the activity of the assessee commenced upon the acquisition of the shares of the company as discussed above. Thus the expenses incurred by the assessee as specified under the provisions of section 35D of the Act, before the commencement of the business are eligible for deduction. The relevant provisions of section 35D of the Act reads as under: 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) (ii) after the commencement of his business, in connection with the extension of his 92 [***] undertaking or in connection with his setting up a new 92 [***] 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 92 [***] undertaking is completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here one of us (AM) is author of that order, no inconsistency was pointed out by the ld.DR in that decision so that we can take a contrary view in the case on hand. Therefore, following the judicial precedent, we allow the claim of the assessee in this year as well, and ground no.1 of the assessee s appeal is allowed. 7. Coming to ground no.2, wherein the assessee has aggrieved by the action of the ld.CIT(A) in not treating the interest expenditure as capital expenditure. 8. A brief facts of the case in this regard are that, during the assessment proceedings, the ld.AO noticed that the assessee has deducted interest expenditure of ₹ 14,10,28,423/- in the profit loss account, which assessee has suo moto disallowed under section 37 in the computation of income from business or profession. As per the assessee, investments were made from borrowing from banks and own funds, and these were in nature of capital assets and not business assets. Assessee has accordingly capitalized interest expenditure to the cost of investment. The ld.AO has sought explanation from the assessee as to why interest expenditure has been capitalized with the cost of investments. It was explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal in ITA No.2053/Ahd/2017 and others, the Tribunal vide order dated 1.6.2020 has allowed the claim of the assessee. Therefore, since the facts and circumstances being same, impugned claim of the assessee in this year should also be granted. The ld.counsel has placed on record copy of the Tribunal cited above. On the other hand, the ld.DR supported orders of the Revenue authorities. 10. We have considered rival submissions and gone through the material available on record, as also, order of the Tribunal passed in the assessee s own case for Asstt.Year 2014-15. We find that similar claim made by the assessee in the preceding year was allowed by the Tribunal vide order dated 1.6.2020 (supra), which was not disputed by the ld.DR. The ground raised by the assessee in the A.Y.2014-15 and relevant part of the Tribunal s order read as under: Ground: 1. The learned CIT(A) has erred in holding that the interest of ₹ 1,61,81,506 incurred for the acquisition of shares is not the part of cost of capital asset by placing the reliance on certain decisions in as much as the interest on borrowing utilized for the purpose of acquisition of shares is part of cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT (A) on one hand has not allowed to be treated such expenditure as revenue in nature and on the other hand he has not allowed the same to be capitalized. In our considered view, such finding of the learned CIT (A) is contrary to the provisions of Act. Accordingly we disagree with the finding of the learned CIT (A). 11. In our considered view, once the assessee has been held as Investment Company, then the interest expenses directly attributable to such investments required to be capitalized. In this regard we find support and guidance from the judgement of Hon ble Madras High Court in the case of CIT versus Trishul Investments Ltd reported in 305 ITR 434 wherein it was held as under: As per the memorandum of association of the assessee company, it could be seen that the assessee company was incorporated on 24-1-1995 under the Companies Act, 1956 to engage in the business of investment. The finding given by the Tribunal was that the assessee had no intention to trade in shares. Hence, the purchase of shares could not be business asset in the hands of the assessee. The assessee had rightly offered the same under the head 'Capital gain'. The Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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