NARAINGARH SUGAR MILLS LTD. Vs. CIT

JUDGEMENT

(1.) THOUGH the Assessing Officer while framing the assessment for the assessment year 2003 -04, had made three additions we are concerned in these appeals with only one item namely disallowance of claim of deferred revenue expenditure which arises in these four appeals and pertains to assessment year 2003 -04 to 2006 -07. The question has initially arisen in the assessment year 2003 -04 [out of which ITA 57/2011 arises] and in other years it is spill over of that very issue and, therefore, we would like to take note of the facts appearing of ITA 57/2011. We may also clarify that the facts pertaining to the aforesaid issue only are recapitulated by us. The appellant is a public limited company which was incorporated under the Companies Act in the year 1991. The appellant is engaged in producing sugar, molasses and bagasse. For the instant assessment year 2003 -04, the appellant company filed its return of income declaring total loss of Rs. 9,58,51,076. The return of income was processed on 3 -2 -2004 under section 143(1)(a) of the Act at the returned loss. Thereafter, the case was selected for scrutiny and notice under section 143(2) of the Act was issued. The Assessing Officer framed an assessment under section 143(3) of the Act determining the loss at Rs. 6,81,51,750. The Assessing Officer, inter alia made the following disallowance : -

(2.) AS per the assessee that interest transferred to deferred revenue expenditure was to be amortized for a period of five years starting from the assessment year 2003 -04 itself and, therefore, 1/5th of the aforesaid figure which came to Rs. 1,08,43,872 was debited to profit and loss account in this very year and the calculations submitted in this behalf has submitted by the assessee were as under : <FRM>JUDGEMENT_490_LAWS(DLH)9_20111.html</FRM> Balance was taken to the capital account and on that amount the assessee claimed depreciation.

(3.) THE assessee further submitted that the aforesaid amount was treated as deferred revenue expenditure and written off over a period of five years i.e. 1/5th in each year on the basis of decision of the company which have been approved by the Directors as it was an act of business prudence, in order to avail credit facility from the banks. According to the assessee, thus, it was done for the commercial of the business. The course of action taken for amortising the said expenditure over a period of five years sought to be justified on the ground that in the case of sugar industry the work capital funds are used in building of stock, benefit whereof accrues in future. Judgment of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT : (1997) 225 ITR 802 (SC) : (1997) 91 Taxman 340 (SC) was relied upon in support of the contention that concept of deferred revenue expenditure has been duly approved by the Apex Court. The contention of the assessee found favour with the CIT(A) who allowed the claim as deferred revenue expenditure thereby deleting the addition of Rs. 1,08,43,872.