Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(2) of the I.T. Act, 1961, as directed by this court, the following question has been referred to this court : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in sustaining the disallowance of Rs. 13,99,305 being expenses incurred in connection with the issue of fresh lot of shares in 1967?"
(2.) The question relates to the assessment year 1969-70 and the relevant accounting year ended on 30th June, 1968. The assessee issued 16,75,000 ordinary shares of Rs. 10 each at a premium and on that account incurred an expenditure of Rs. 13,99,305 and claimed the same as deductible expenses. The ITO disallowed the claim for deduction of Rs. 13,99,305 as he was of the view that the expenditure incurred by the assessee was on capital account.
(3.) Being aggrieved by the aforesaid order of the ITO, the assessee went up in appeal before the AAC. The AAC referred to the order of the ITO and observed that the assessee had submitted that the expenditure was in respect of business already being carried on by the assessee-company whose profits had been subject to assessment for tax purposes and, therefore, the expenditure incurred long after the incorporation of the company was in no way an expenditure for the formation of the company and as such was an allowable deduction. The AAC was unable to accept this view and he had accordingly upheld the order of the ITO.;