Commissioner of Income Tax vs Adhikari Brothers Television Networks Ltd.

In these three appeals filed for the assessment years 2002-03, 2003-04 and 2004-05 by the revenue has raised the following common questions of law for our consideration.

Whether the deduction claimed u/s 35D as amortization of share issue expenses, can be held to be allowable only because the claim was allowed erroneously in the assessment for the initial year without verifying whether all necessary conditions were fulfilled.

Whether expenses incurred in connection with the issue of share under private placement and not in a public issue, are eligible for amortization u/s 35D of the Income Tax Act, 1961?

For the assessment year 2000-2001, the assessing officer passed an order on 30-1-2006 u/s 143(3) read with section 147 of the Income Tax Act, 1961 (the Act) allowing a deduction of expenses incurred with regard to share issue u/s 35D of the Act. In terms of the section 35D of the Act these expenses though incurred in assessment year 2000-01 had to be amortized over a period of 5 years. The aforesaid order dt. 30-1-2006 was passed consequent to reopening of the assessment u/s 148 of the Act.

On first appeal, the CIT(A) allowed the assessees appeal inter alia holding that the reopening of the assessment of the year 2000-01 was not justified as the same was only on audit objection. Further, the CIT(A) also records that on the very same issue proceedings initiated u/s 263 of the Act had been dropped. Against the order of the CIT(A), the revenue filed an appeal before the Tribunal for the assessment year 2000-01.

In view of the fact that for the assessment year 2000-01, the share issue expenses were allowed to be amortized, the respondent claimed deduction of share issue expenses in terms of the order passed in respect of the earlier assessment year 2000-01 for the subsequent years. However, for the assessment years 2002-03, 2003-04 and 2004-05, the assessing officer disallowed the claim for deduction u/s 35D of the Act on the ground that on merits the expenses incurred and allowed in assessment year 2000-01 were not entitled to deduction.

In appeals filed for the assessment years 2002-03, 2003-04 and 2004-05, the CIT(A) allowed the respondents appeal on the ground that in the assessment year in which the share issue expenses were incurred viz. assessment year 2000-01 was concluded in favour of the respondent-assessee by the orders of the CIT under 263 of the Act and CIT(A) with regard to reopening u/s 148 of the Act. Thus, the CIT(A) held by his order that the assessee was entitled to deduction u/s 35D of the Act for all the three years under consideration i.e., 2002-03, 2003-04 and 2004-05.

The revenue filed appeals for the assessment years 2002-03, 2003-04 and 2004-05 from the order of CIT(A) before the Tribunal. The Tribunal by its common order dt. 28-4-2012 disposed of appeals for assessment years 2002-03 to 2004-05 and also the appeal for assessment year 2000-01 against the order of the CIT(A) holding that the reopening of the assessment was bad in law. While dealing with the assessment year 2000-01 the Tribunal held that reopening of assessment u/s 147/148 of the Act was bad. Particularly, in view of the fact that on the identical ground the CIT had dropped proceeding for revision u/s 263 of the Act. Further, the Tribunal held that the finding of the CIT(A) that assessment was reopened only in view of audit objection had not been controverted before it. Consequently, the allowance of expenses u/s 35D of the Act for the assessment year 2000-01 was upheld by the Tribunal. So far as, the assessment year relevant to the present appeals are concerned namely assessment years 2002-03, 2003-04 and 2004-05, the Tribunal holds that once the claim u/s 35D of the Act has been allowed, it is not open to the department to withdraw the benefit in later years. This is particularly so as the claim is examined with documents only in the first year when the claim is made. Further, the Tribunal held that in any case the expenditure is a revenue expenditure and thus entitled to deduction.

In these appeals relating to assessment years 2002-03 to 2004-05, Mr. Chandrapal, Advocate for the revenue states that on merits the respondent-assessee is not entitled to the benefit of section 35D of the Act. Consequently, the order passed for the assessment year 2000-01 granting the benefit to the respondent-assessee u/s 35D of the Act is per- incuriam. Therefore, the order for assessment year 2000-01 would not govern the position for the assessment years 2002-03, 2003-04 and 2004-05. On the other hand, Mr. Madhur Agarwal, Advocate for the respondent points out that the revenue has accepted the order of the Tribunal for the assessment year 2000-01 in as much as the revenue has filed no appeal from the order of the Tribunal for that year. This is specifically so stated by the revenue in para 4 of the appeal memo. Therefore, the appeal ought not to be entertained.

The submission of Mr. Chandrapal, the Advocate for the revenue that the order passed for the assessment year 2000-01 allowing the benefit of section 35D of the Act was passed per- incuriam is a submission made for the first time before this court. We find no such submission being made on behalf of the revenue before the Tribunal. Moreover, the concept of per- incuriam would mean passing of an order in ignorance of statute or binding case laws. In this case, for the assessment year 2000-01 not only the assessing officer but also the CIT(A) and the Tribunal were conscious of section 35D of the Act and applied the same to the facts of the respondents case. Therefore, it would not be correct to state that the order for the assessment year 2000-01 is per- incuriam in the absence of the revenue showing that the decision of the Tribunal for assessment year 2000-01 is contrary to any binding decision of the Tribunal or any higher court.

In any event, the department having accepted the order of the Tribunal for the assessment year 2000-01, it is not open to them to contend that the order passed by the Tribunal for the assessment year 2000-01 is not correct in law. Once, the benefit of section 35D of the Act has been granted on examination of the facts then in terms of section 35D of the Act the deduction of the amount spent has to be spread over a period of five succeeding years. The deduction in the subsequent years available to the assessee cannot be withdrawn in the absence of the claim for section 35D of the Act being set aside in the first year i.e. the year when it was examined and granted i.e. assessment year 2000-01. Further, the Tribunal has held that as expenses are of revenue nature, the issue itself becomes academic. In view of the fact that the order allowing amortization of share issue expenses u/s 35D for the first year, that is, the assessment year 2000-01 has been accepted by the department, the deduction for the subsequent years must follow as a matter of course as correctly held by the Tribunal.

In view of the above, according to us, the question as formulated can not be entertained as the reasoning of the Tribunal cannot be found fault with. Accordingly, these three appeals are dismissed on the both proposed question of law as formulated by the revenue. In the result, the appeals are dismissed with no order as to costs.