TMI Blog2017 (7) TMI 1416X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot be questioned by the Revenue. Therefore, if the assessee had declared the amount of ₹ 1 crore as its income, for the assessment year 2014-15 then there is no scope for the Revenue to make addition for the assessment year 2010-11 once again. Hence we hereby direct the Ld.AO to verify whether assessee had declared the amount of ₹ 1 crore as its income U/s.41(1) of the Act, for the assessment year 2014-15 and if found so, delete the addition made for the relevant assessment year and if found otherwise, reinstate his earlier order on this issue. Addition being the claim of amortization of expenses u/s 35D - assessee had incurred expenditure towards commission for raising private equity share from M/s. Dubai Ventures LLC, Dubai UAE and had claimed the aforesaid amount as miscellaneous expenditure in the balance sheet and written off 1/5th as preliminary and pre-operative expenses in its profit loss account - HELD THAT:- Hon ble Apex Court BROOKE BOND INDIA [ 1997 (2) TMI 11 - SUPREME COURT] has held that any expenditure incurred directly related to the expansion of capital base of a company will fall in the capital field and not in the revenue field. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f generation, transmission or distribution of power was brought within the ambit of Section 32(1)(iia) of the Act, by the Finance Act, 2012 w.e.f. 01.04.2013 i.e., from the assessment year 2013-14. Since the case of the assessee is for the assessment year 2011-12, obviously the assessee will not be eligible for the benefit of additional depreciation during the relevant assessment year. Further it is not the case of the assessee that the assessee is claiming the additional depreciation with respect to its manufacturing activities.Therefore this issue raised by the assessee does not have any merits. Disallowance of service tax element attributable to the 1/5th portion of preliminary expenses U/s.35D - HELD THAT:- Since the expenses was related to assessment year 2009-10, the Ld.AO disallowed the claim of expenditure and even denied the benefit of amortization of expenses U/s. 35D - On appeal, the Ld.CIT(A) confirmed the order of the Ld.AO. Since, we have held hereinabove that the expenses incurred in the form of commission for private placement of the equity shares of the assessee company, is not allowable for deduction U/s.35D of the Act, any expenses connected with it such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41 of the Act, being the amount received for installation of wind energy generators. B) Revenue s Appeal: ITA No.319/Mds/2015:- The Revenue has raised four grounds in its appeal, however the crux of the issue is that the Ld.CIT(A) has erred in deleting the addition made by the Ld.AO for ₹ 1,22,00,000/- being the claim of preliminary and pre-operative expenses U/s. 35D of the Act, without considering the decision of the Hon ble Apex court in the case M/s. Brokebond India Ltd reported in 225 ITR 798 (SC). 3. Assessment Year 2011-12 A) Assessee s Appeal: ITA No.2468/Mds/2016:- The assessee has raised several elaborative grounds in its appeal, however the cruxes of the issue are stated herein below for adjudication:- (i) The Ld.CIT(A) has erred in confirming the addition made by the Ld.AO by disallowing the claim of additional depreciation U/s.32(1)(iia) of the Act for ₹ 55,33,000/-. (ii) The Ld.CIT(A) has erred in confirming the addition made by the Ld.AO for ₹ 55,23,203/- by disallowing service tax element attributable to the 1/5th portion of the preliminary expenses claimed U/s.35D of the Act. (iii) The Ld.CIT(A) has erred in conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked the provisions of Section 41(1) of the Act and treated the amount of ₹ 1 crore as income of the assessee for the relevant assessment year. On appeal, the Ld.CIT(A) confirmed the order of the Ld.AO by observing as under: 13. I have gone through the submissions made by the Appellant and also the order of the Assessing Officer. The assessee company filed Contact Agreement dated 29.04.2007 and Amendment dated 20.08.2007 with M/s. India Globalization Capital Inc. U.S.A. As per this Agreement has received ₹ 1 Crore for installation of 96 Nos. of 250 KV Wind Energy Generators. It is seen from the supplementary agreement that the contract expired on 31.03.2009. The amount of ₹ 1 Crore has been kept as liability for the past 3 financial years i.e. F.Y. 2007-08, 2008-09 and 2009-10. The Authorized Representative submitted that the assessee is not liable to refund the sum of ₹ 1 Crore to M/s. India Globalization Capital Inc. As seen from the details, the assessee has no liability to refund the amount of ₹ 1 Crore after the expiry of the contractual obligation which expired on 31.09,2007. As seen from the details, Clause 11.3 of the Agreement, ₹ 25 L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 1 crore as its income, for the assessment year 2014-15 then there is no scope for the Revenue to make addition for the assessment year 2010-11 once again. Hence we hereby direct the Ld.AO to verify whether assessee had declared the amount of ₹ 1 crore as its income U/s.41(1) of the Act, for the assessment year 2014-15 and if found so, delete the addition made for the relevant assessment year and if found otherwise, reinstate his earlier order on this issue. 6. Revenue s Appeal in ITA No.319/Mds/2015, Assessment Year 2010-11 : Deleting the addition of ₹ 1,22,00,000/- being the claim of amortization of expenses U/s.35D of the Act :- The assessee had incurred expenditure towards commission for ₹ 6,10,00,000/- during the financial year 2008- 09 for raising private equity share to the tune of ₹ 61,95,99,594/- from M/s. Dubai Ventures LLC, Dubai UAE. The assessee had claimed the aforesaid amount as miscellaneous expenditure in the balance sheet and written off 1/5th of ₹ 6,10,00,000/- viz., ₹ 1,22,00,000/- as preliminary and pre-operative expenses in its profit loss account. The Ld.AO disallowed the aforesaid expenses and added to its i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the provisions of Section 35D of the Act. 6.4 We have heard the rival submissions and carefully perused the materials on record. The moot question before us is whether the expenditure incurred as commission for procuring private placement of equity shares is allowable as deduction. The assessee has taken cover U/s.35D of the Act, to amortize such expenditure as preliminary expenses. However, on perusing the provisions of Section 35D(2) of the Act, it is clear that only specific expenditures are provided under the Act which can be amortized viz., (a) expenditure in connection with (i) preparation of feasibility report; (ii) preparation of project report; (iii) conducting market survey or any other survey necessary for the business of the assessee. (iv) engineering service relating to the business of the assessee; Provided that the work in connection with the preparation of the feasibility report or the project report or the conducting of market survey or of any other survey or the engineering services referred to in this clause is carried out by the assessee himself or by a concern which is for the time being approved in this behalf by the Board. (b) legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Court supra and the provisions of Section 35D of the Act cited herein above was lost sight off by the Tribunal while passing orders in the earlier instance. Since, we are bound to follow the decision of the Hon ble Apex Court, respectfully following the same, we hereby hold that, in the case of the assessee the commission expenses incurred towards increasing its equity capital base, can neither be amortized U/s.35D of the Act, nor it can be claimed as Revenue expenditure as it falls in the Capital field. It has been also categorically held by the Hon ble Apex Court in the case Punjab State Industrial Development Corporation vs. CIT that expenses incurred in relation to increase in capital base is capital expenditure incurred by the assessee company, even though its certainty helps the company in profit making but yet it retains the characteristics of capital expenditure. In the case CIT vs. Motor Industries Limited reported in 229 ITR 139, the Hon ble Karnataka High Court held that the expenses incurred in relation to right issue where of capital in nature and therefore cannot be claimed as revenue expenditure. Hence we find the order of the Ld.AO to be appropriate in the given c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed the claim of expenditure and even denied the benefit of amortization of expenses U/s. 35D of the Act. On appeal, the Ld.CIT(A) confirmed the order of the Ld.AO. Since, we have held hereinabove that the expenses incurred in the form of commission of ₹ 6,10,00,000/- for private placement of the equity shares of the assessee company, is not allowable for deduction U/s.35D of the Act, any expenses connected with it such as service tax also will not be entitled for the benefit of deduction U/s.35D of the Act to the assessee. Therefore, the appeal filed by the assessee does not have any merit. C) Ground 3(iii):- Disallowance of the advance written-off by the assessee as revenue expenditure for ₹ 2,04,26,000/-. During the course of scrutiny assessment proceedings, it was observed by the Ld.AO that the assessee had written off ₹ 2,04,26,000/- as revenue expenditure being the advance paid to M/s. MIC MiddleEast FZE in February 2009 for acquiring second hand cranes. Since this amount was not recoverable, the assessee had written off the same in its books of accounts as bad debts. The Ld.AO opined that the assessee had incurred the expenditure / loss towards cost o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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