- (1.) The above Tax Case Appeal is filed at the instance of the assessee as against the order of Sales Tax Appellate Tribunal dated 7.6.2006 in ITA.No. 39/Mds/2002 in respect of assessment year 1996-97. The above Tax Case Appeal was admitted on the following substantial questions of law:- "1. Whether the Tribunal is right in law in holding that in a case in which expansion of capital was undertaken to meet the need for working funds, expenditure incurred for the said purpose is capital expenditure and is not allowable in computing business income? 2. Whether the Tribunal is right in law in holding that even when the purpose for which expenditure was incurred did not result in creation of an asset or benefit and became abortive, due to intervention by an external agency, the expenditure is not allowable? and 3. Whether the Tribunal is right in law in holding that in considering whether expenditure incurred is capital or revenue in nature, the purpose is relevant and not the end result?."
(2.) The assessee herein claimed a sum of Rs.35,39,164/- as deduction under the caption 'share issue expenses paid during the year deferred in books'. The Assessing Officer rejected the claim of the assessee by following the decision of the Apex court reported in BROOKE BOND INDIA LIMITED v. CIT. The assessee contended that the assessee wanted to augment its working capital. However, on account of non clearance by SEBI, the assessee could not achieve the purpose. In the circumstances, the expenditure could only be treated as revenue in nature. Thus, aggrieved by the assessment, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who disagreed with the assessee by following the above cited decision viz. BROOKE BOND INDIA LIMITED v. CIT. Thereupon, the assessee went on further appeal before the Income Tax Appellate Tribunal. The assessee contended that the expenditure incurred was only for the purpose of bettering the cash availability and the working capital of the company. In the circumstances, by placing reliance on the decision reported in DEPUTY CIT v. ASSAM ASBESTOS LIMITED, 2003 263 ITR 357 the assessee contended that the expenditure be allowed as revenue expenditure. Quite apart, since incurring of share issue expenses did not result in the increase in the share capital of the company on account of the reasons beyond its control, the claim be allowed as revenue expenditure. The Tribunal rejected the said contention by following the decision reported in BROOKE BOND INDIA LIMITED v. CIT. Considering the purposes for which the company incurred this expenditure, the fact that the efforts had got frustrated later on, would not alter the nature of the expenditure. Consequently, the Tribunal confirmed the view of the Assessing Officer. Aggrieved by this, present appeal by the assessee.
(3.) Learned counsel for the assessee reiterating the points taken before the Tribunal submitted that the decision of the Supreme Court relied on by the Tribunal as well as by the authorities below have no relevance to the case on hand, since the Apex Court did not go into the question as to whether the steps taken were to meet the need for more working capital. When the expenditure did not result in the desired benefit on account of SEBI's non approval for share issue, the claim of the assessee could not be rejected. Thus placing reliance on the decision reported in - C.I.T. v. TAMIL NADU CHEMICAL PRODUCTS LIMITED, 2003 259 ITR 582 and DEPUTY CIT v. ASSAM ASBESTOS LIMITED, 2003 263 ITR 357 the assessee submitted that the claim merited to be considered in favour of the assessee.;