Facts of the Case

The present appeal was filed by the Revenue challenging the order of the Income Tax Appellate Tribunal dated 16.07.2021 for Assessment Year 2011-12.

The Respondent/Assessee, M/s Ansal Properties and Infrastructure Limited, had incurred an expenditure of Rs. 9,46,22,358/- in connection with the issuance of equity shares to Qualified Institutional Buyers (QIBs).

The assessee amortized this expenditure over five years under Section 35D(2)(c)(iv) and claimed 1/5th of the total expenditure (Rs. 1,89,24,471/-) as deduction during AY 2011-12.

The Revenue disputed this claim and denied the deduction on the ground that the issue of shares to QIBs does not qualify as “public subscription.”

 

Issues Involved

  1. Whether expenditure incurred on issuance of shares to Qualified Institutional Buyers qualifies for deduction under Section 35D(2)(c)(iv).
  2. Whether such issuance can be considered as “public subscription” within the meaning of the provision.
  3. Whether the appeal is maintainable considering the prescribed monetary threshold for tax effect.

 

Petitioner’s (Revenue’s) Arguments

  • The Revenue contended that the expenditure incurred for issuing shares to QIBs cannot be treated as expenses related to “public subscription.”
  • It was argued that deduction under Section 35D is allowable only for expenses incurred in connection with public issue and not for private placements or institutional allotments.
  • Accordingly, the deduction claimed by the assessee was disallowed.

 

Respondent’s (Assessee’s) Arguments

  • The assessee submitted that the expenditure incurred in connection with issuance of shares to QIBs falls within the ambit of Section 35D(2)(c)(iv).
  • It was argued that such expenditure is eligible for amortization and deduction over five years as per the statutory provisions.
  • The assessee maintained that the claim was correctly made and allowed by the Tribunal.

 

Court Order / Findings

The Hon’ble Delhi High Court did not go into the merits of the issue in detail.

The Court observed that:

  • The deduction claimed in AY 2011-12 amounted to Rs. 1,89,24,472/-, and
  • The resulting tax effect was below the prescribed threshold of Rs. 1 crore for filing appeals by the Revenue.

Accordingly:

  • The appeal was closed on the ground of low tax effect.
  • Liberty was granted to the Revenue to seek revival of the appeal if contrary instructions are received.

 

Important Clarification

  • The Court did not adjudicate on the substantive legal issue regarding allowability of deduction under Section 35D for QIB-related share issuance expenses.
  • The dismissal was purely procedural, based on the CBDT monetary limit for tax appeals.
  • Therefore, the legal question remains open for adjudication in an appropriate case.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS07122023ITA1852023_115407.pdf

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