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Department's Appeal - ITA No. 1420/Mum/2007 (A.Y. 2003-04)

62. Ground No. 1 - Allowing deduction under section 35D of the Act in respect of GDR issue expenses: Rs. 1, 17, 19,960

63. Ground no. 1 raised by the revenue pertains to allowing deduction under section 35D of the Act in respect of one-tenth of the expenses incurred in connection with the issue of Global Depository Receipts (GDR) in the previous year relevant to assessment year 1995-96. The Assessee had incurred an expenditure of Rs. 11, 71, 99,600/- in previous year relevant to AY 1995-96 in connection with issue of GDR which were utilized for business expansion of the Assessee. The Assessee claimed expenditure under section 37(1) of the Act in AY 1995-96 which was disallowed relying on the decision of the Hon'ble Supreme Court in the case of Brooke Bond India Ltd. (225 ITR 795). The Assessee alternatively requested to ITA Nos.1496 & 1420/Mum/2007 M/s. Bajaj Auto Limited allow deduction under section 35D of the Act which was not considered in AY 1995-96 since expansion of industrial undertaking was not completed.

64. The expansion of the business industrial undertaking completed in AY 1997- 98 wherefrom the Assessee has claimed deduction under section 35D of the Act of Rs. 1, 17, 19,960/- being 1/10th of the expenses incurred on issue of GDR.

65. This issue is recurring in nature and has been decided in favour of assessee in A.Y. 1997-98 to 2002-03. We observe that the deduction claimed is only in continuation of the claim under section 35D in the earlier years. The facts of this year are similar to the other years decided in favour of assessee. For reference, we are reproducing the decision of Coordinate Bench in assessee's own case for AY 2002-03 as under:-

"6. Considered the rival submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee in the A.Y. 1997-98. While deciding the issue, the Coordinate Bench of the Tribunal in ITA No. 5030/Mum/2001 dated 13.04.2023 held as under:-
"48.With regard to Ground No.(k) which is in respect of allowing expenses on GDR issue as covered in section 35D, Ld. AR of the assessee submitted that Expenses amounting to ₹.11,71,99,600/- incurred in connection with issue of GDR of USD 109,999,983/- in the previous year relevant to A.Y.1995-96. Expenditure claimed u/s. 37(1) in A.Y. 1995-96 was disallowed relying on the decision of the Supreme Court in the case of Brooke Bond India Ltd. (225ITR795)-Alternative claim for deduction u/s. 35D not considered in A.Y. 1995-96 since expansion of industrial undertaking was not completed. Copy of Assessment Order for A.Y. 1995-96 is placed on record, Letter dated 11 February 2000 submitted before the Assessing Officer.

DCIT (supra), the same reproduced below:

"24.As regards Ground no. 10 of the assessee's appeal; the assessee has claimed deduction u/s. 35D amounting to Rs. 87,73,000/-which was restricted to Rs.13,50,000/- by the AO. The brief facts are that during the previous year relevant to AY 1995-96 the company made a Euro Issue of the Global Depository Receipts ITA Nos.1496 & 1420/Mum/2007 M/s. Bajaj Auto Limited (GDRs) for its Acetic Acid Expansion Project and collected Rs.191.72 crores inclusive of premium. The company incurred expenditure of Rs.8.77 crores for this issue. It was submitted by the assessee in assessment proceedings that subscribed and paid up capital of the company increased to Rs.146.48 crores and that coupled with debenture and long term borrowings of Rs.583.77crores the total capital employed was Rs.730.25 crores and 2.5 % of such capital employed is Rs.18.26 crores. It was further stated that the cost of project of Ascetic Acid Expansion project was Rs.188.31 crores and that the said project was commissioned on 30.5.1995. It was stated that the expenditure of Rs. 8.77 crores was less than 2.5 % of the cost of the project and capital employed and thus the assessee was entitled to deduction of Rs.87.7 lakhs as claimed u/s. 35D. The Assessing Officer was of the view that GDR issue was admittedly in connection with the extension of industrial undertaking and only the incremental capital employed which is attributable to the new project should be considered as capital employed. The increase in share capital and debenture between 31.3.1994 and 31.3.1995 wasRs.37.53 crores and thus 2.5% of such capital employed was Rs.93.82 lacs. Further it was stated that cost of Acetic Acid Expansion Project was Rs.188.31 crores whereas the net proceeds of GDR issue was Rs.182.95 crores (191.72 crores being gross proceeds - 8.77 crores being expenses). Further from the proceedings forA.Y.2001-02itwasnoticedthatRs.128.93crores was invested in UTI Unit 65 scheme out of the GDR issueproceedsandsincethisinvestmentwas70%oftheGDRissueprocess, 70% of the expenses of Rs.87.73 lacs written off in thatyearbytheassesseeamountingtoRs.62lacswasdisallowedu/s.14Aasthedividendinc omeinrespectofUTIwasexemptundertheAct.ItismentionedbytheAssessingOfficerthate xcluding the investment in UTI the amount invested towards thecostofprojectisRs.54.02crores(182.95crores-