During the year, assessee had claimed expenditure u/s. 35D of the Act being one-fifth of expenditure incurred on account of issue of bonus shares. The Ld. AO following decision of Hon’ble Supreme Court in the case of Brooke Bond India Ltd. v. CIT (1997) 225 ITR 798 (SC) disallowed the said expenditure by treating it as capital expenditure. The assessee contested other additions/disallowance before the appellate authority and accepted the disallowance of expenditure u/s. 35D made by the. AO. While the Ld. AO was giving effect to the order of Ld. CIT(A), the assessee moved rectification application u/s. 154 of the Act by submitting that the expenditure on bonus shares was fully allowable as revenue expenditure in view of decision of Hon’ble Bombay High Court in CIT v. WMI Cranes Ltd. (2010) 326 ITR 523 (Bom) (HC) as well as decision of Hon’ble Supreme Court in CIT v. General Insurance Corporation (2006) 286 ITR 232 (SC). The AO as well as the first appellate authority denied the assessee claim by stating that assessee had accepted the said disallowance by not raising any ground of appeal before the appellate authority and therefore there was no mistake apparent from record either in original assessment order or in order giving appeal effect. On appeal, Tribunal relying on the decision of Hon’ble Supreme Court in ACIT v. Saurashtra Kutch Stock Exchange Ltd. (2008) 305 ITR 227 (SC) held that non-consideration of a decision of the jurisdictional court or the Supreme Court could be termed as ‘mistake apparent from the record’ and can be subject matter of rectification application u/s. 154 of the Act notwithstanding the fact that the same was not claimed by the assessee during the original assessment as well as appellate proceedings. It further held that, it is trite law that true income was to be assessed and the Revenue cannot derive the benefit out of the assessee’s ignorance or procedural defect. Further, on merits, Tribunal held that the expenditure incurred on account of issuance of bonus shares would be revenue in nature and hence fully allowable u/s. 37(1) of the Act. (AY. 2012-13)
Sharda Cropchem Ltd. v. DCIT (2019) 71 ITR 141 / 178 DTR 83/ 199 TTJ 960 (Mum.)(Trib.)
S. 154 : Rectification of mistake–Expenditure incurred on issue of bonus shares–Allowable as revenue expenditure-Non-consideration of a decision of jurisdictional court or of the Supreme Court was a mistake apparent from the record and therefore liable to be rectified. [S. 35D, 37(1)]