Itr/4/2001 Of Commissioner Of Income Tax v. M/S Malabar Industries Co.ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN WEDNESDAY, THE 25TH JUNE 2008 / 4TH ASHADHA 1930 ITR.No. 4 of 2001() ------------------- (ARISING OUT OF ITA NOS.1073/COCH/86 - ASSESSMENT YEARS 1984-85 & 1985-86) APPLICANT: ----------- THE COMMISSIONER OF INCOME TAX, TRIVANDRUM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) RESPONDENTS: ------------- M/S.MALABAR INDUSTRIAL CO. LTD.,SHERTHALAI. BY ADV. SRI.P.BALAKRISHNAN (E) FOR R SHRI.JOHN RAMESH THIS TAX REFERENCE HAVING BEEN FINALLY HEARD ON 25/06/2008, ALONG WITH ITR NO. 5 OF 2001 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. ------------------------- I.T.R. Nos.4 & 5 of 2001 --------------------------------- Dated, this the 25[th] day of June, 2008 J U D G M E N T Ramachandran Nair, J. Heard learned standing counsel for the Income TaxDepartment and learned counsel appearing for the respondent. 2.The question raised is whether assessee is entitled todeduction of preliminary expenditures incurred in the assessmentyears 1984-85 and 1985-86. The claim for the year 1984-85 isRs.3,27,148/- and for the next year it is Rs.4,55,000/-. TheAssessing Officer declined deduction because he was of the viewthat the preliminary expenditures can be amortised in the hands ofthe company, which has set up the industry as provided underSection 35B of the Income Tax Act. However, the Commissioner ofIncome Tax (Appeals) reversed the findings and allowed the appeal,which is upheld by the Tribunal. It is against this order, referencesare made to this Court at the instance of the Revenue. 3.We find that the Tribunal decided the issue without evencaring to verify what are the break up details of the preliminaryexpenditures claimed by the assessee. Admittedly, the assessee ITR Nos.4 & 5/2001 -2- was not engaged in the business. It was carrying on as a plantationindustry. However, learned counsel for the assessee refereed toamendment of the memorandum, which authorised the company totake up business for setting up of other industries. If assessee isengaged in the business of assisting setting up of industry foranother party, then certainly the expenditure incurred for thebusiness activities are allowable as revenue expenditure. However,it is seen from the Commissioner of Income Tax(Appeal)'s orderthat the assessee's effort led to setting up of industry, in which theassessee has an equity participation. It is not known whetherassessee has received any consultancy fees or service charges forthe services rendered. This should have been the first question tobe considered in the enquiry as to whether business expenditureincurred is allowable or not. Strangely, the authorities have notconsidered the relevant aspects. Even though assessee's counselrelied on the details mentioned in the first appellate order, we feel itis only peripheral consideration of the general issue. There isnothing that stopped the assessee from furnishing details of workundertaken or nature of the work assigned to it by other companiesor parties in regard to project work for setting up of industries. The ITR Nos.4 & 5/2001 issue should have been considered with reference to the detail factson receipts and expenditures in the new line of business undertakenby the assessee based on the amended memorandum and objectsof the company. We, therefore, decline to answer the question andset aside the orders of the Tribunal and CIT (Appeals) and also theorder of the Assessing Officer on this issue and remand the matterto the Assessing Officer for the assessee to produce details basedon which the Assessing Officer will decide the matter afresh in thelight of the observations as above, after hearing the assessee. (C.N.RAMACHANDRAN NAIR, JUDGE) (V.K.MOHANAN, JUDGE)