1 REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.2315/2007 DY. COMMISSIONER OF INCOME TAX Appellant(s) VERSUS M/S. RAGHUVIR SYNTHETICS LTD.,AHMEDABAD Respondent(s) JUDGMENT R.K. AGRAWAL, J. 1. present appeal arises out of judgment and order dated 14.06.2005 passed by High Court of Gujarat at Ahmedabad in Tax Appeal No.333/2004. 2. respondent-assessee is public limited company and for assessment year 1994-95, it had filed its return wherein it had claimed revenue expenditure of Rs.65,47,448/- on advertisement and public issue. However, in Return of Income, Company made claim that if aforesaid claim cannot be considered as revenue expenditure then alternatively then said expenditure may be allowed under Section 35D of Income Tax Act, 1961 (hereinafter referred to as 'the Act') by way of capitalizing in plant and machinery obtained. 3. Assessing Officer issued intimation under Section 143(1)(a) of Act on 23.02.1995 disallowing Signature Not Verified sum of Rs.58,92,700/- out of preliminary expenditure Digitally signed by SONALI SAUND Date: 2017.04.11 17:04:09 IST Reason: incurred on public issue. He, however, allowed 1/10th of total expenses and raised demand on balance amount. 4. intimation was challenged before First 2 Appellate Authority which vide order dated 01.10.1996, allowed appeal by holding that concept of 'prima facie adjustment' under Section 143(1)(a) of Act cannot be invoked as there could be more than one opinion on whether public issue expenses were covered by Section 35D or Section 37 of Act. 5. Feeling aggrieved by order passed by First Appellate Authority, Revenue preferred appeal before Income Tax Appellate Tribunal. Tribunal vide order dated 04.09.2003 upheld order of Income Tax Commissioner (Appeals) and dismissed Appeal filed by Revenue. 6. appellant preferred appeal under Section 260-A of Act before High Court of Gujarat at Ahmedabad. Division Bench of High Court by impugned order dismissed appeal on ground that debatable issue cannot be disallowed while processing return of income under Section 143(1)(a) of Act. 7. We have heard Mr. K. Radhakrishnan, learned Senior Counsel appearing for appellant. Nobody has put in appearance on behalf of respondent. 8. Mr. K. Radhakrishnan, learned Senior Counsel relied upon decisions of this Court in Brooke Bond India Ltd. v. Commissioner of Income Tax, W.B.III, Calcutta - (1997) 10 SCC 362 and Punjab State Industrial Development Corporation Ltd., Chandigarh v. Commissioner of Income Tax, Patiala - 1997 (10) SCC 184 to contend that preliminary 3 expenses incurred for public issue or for raising additional capital is only capital expenditure and not revenue expense and, therefore, law being settled by this Court, it would relate back and would be held to be operative from very inception. 9. We find that there was divergence of opinion between various High Courts; one view being taken by Madras High Court in CIT v. Kisenchand Chellaram (India) (P) Ltd. - (1981) 130 ITR 385(Mad), Andhra Pradesh High Court in Warner Hindustan Ltd. v. CIT (1988) 171 ITR 224, Kerala High Court in Federal Bank Ltd. v. CIT (1989) 180 ITR 241 (Ker) and Karnataka High Court in Hindustan Machine Tools Ltd.(No.3) v. CIT - (1989) 175 ITR 220 that preliminary expenses incurred on raising share capital is revenue expenditure. 10. On other hand, contrary view was expressed by Allahabad High Court in CIT v. Modi Spg. & Wvg. Mills Co. Ltd.-(1973) 89 ITR 304 (All), Himachal Pradesh High Court in Mohan Meakin Breweries Ltd. v. CIT (1979) 117 ITR 505 (HP), Delhi High Court in Bharat Carbon and Ribbon Mfg. Co. Ltd. v. CIT (1981) 127 ITR 239 (Del), Calcutta High Court in Brook Bond India Ltd. v. CIT (1983) 140 ITR 272 and Kesoram Industries & Cotton Mills Ltd. - (1992) 196 ITR 845, Bombay High Court in Bombay Burmah Trading Corpn. Ltd. v. CIT (1984) 145 ITR 793, Punjab & Haryana High Court in Groz Beckert Saboo Ltd. v. CIT (1986) 160 ITR 743 (P&H), Gujarat High Court in Ahmedabad Mfg. & Calico 4 (P) Ltd. v. CIT -(1986) 162 ITR 800 (Guj) and Alembic Glass Industries Ltd. v. CIT (1993) 202 ITR 214 (Guj), Andhra Pradesh High Court in Vazir Sultan Tobacco c. Ltd. v. CIT (1988) 174 ITR 689 (AP) and Rajasthan High Court in CIT v. Aditya Mills (1990) 181 ITR 195 (Raj) and CIT v. Multi Metals Ltd. - (1991) 188 ITR 151 (Raj), that said expenses are capital expenditure and cannot be allowed as revenue expenditure. 11. Even though it is debatable issue but as Gujarat High Court in case of Ahmedabad Mfg. & Calico (P) Ltd. (supra) had taken view that it is capital expenditure which was subsequently followed by Alembic Glass Industries Ltd. V. CIT (supra) and registered office of respondent assessee being in State of Gujarat, law laid down by Gujarat High Court was binding. (See Taylor Instrument Com.(India) Ltd. v. Commissioner of Income Tax (1998) 232 ITR 771, Commissioner of Gift Tax v. J.K. Jain (1998) 230 ITR 839, Commissioner of Income Tax v. Sunil Kumar (1995) 212 ITR 238, Commissioner of Income Tax v. Thana Electricity Supply Ltd. - (1994) 206 ITR 727, Indian Tube Company Ltd. v. Commissioner of Income Tax & Ors. (1993) 203 ITR 54, Commissioner of Income Tax v. P.C. Joshi & B.C. Joshi (1993) 202 ITR 1017 and Commissioner of Income Tax, West Bengal, Calcutta v. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466). Therefore, so far as present case is concerned, it cannot be said that issue was debatable one. 5 12. In view of above submissions, in our considered view order passed by CIT (Appeals), Income Tax Appellate Tribunal and also order of Gujarat High Court impugned herein cannot sustain and are set aside as they have wrongly held that issue was debatable and could not be considered in proceedings under section 143 (1) of Act. 13. With aforesaid observations, Appeal succeeds and same is allowed. impugned order dated 14.06 2005 passed by High Court is set aside. J. [R.K. AGRAWAL] J. [MOHAN M. SHANTANAGOUDAR] NEW DELHI; MARCH 28, 2017. 6 ITEM NO.105 COURT NO.10 SECTION IIIA SUPREME COURT OF INDIA RECORD OF PROCEEDINGS Civil Appeal No(s). 2315/2007 DY. COMMISSIONER OF INCOME TAX Appellant(s) VERSUS M/S. RAGHUVIR SYNTHETICS LTD.,AHMEDABAD Respondent(s) (With office report) Date : 28/03/2017 This appeal was called on for hearing today. CORAM : HON'BLE MR. JUSTICE R.K. AGRAWAL HON'BLE MR. JUSTICE MOHAN M. SHANTANAGOUDAR For Appellant(s) Mr. K.Radhakrishnan,Sr.Adv. Ms. Niranjana Singh,Adv. Ms. Gargi Khanna,Adv. Mr. Ram Bhaj,Adv. For Mrs. Anil Katiyar,Adv. For Respondent(s) UPON hearing counsel Court made following ORDER appeal is allowed in terms of signed reportable judgment. (ASHA SUNDRIYAL) (CHANDER BALA) COURT MASTER COURT MASTER (Signed reportable judgment is placed on file.) Dy. Commissioner of Income-tax v. Raghuvir Synthetics Ltd