AGS TRANSACT TECHNOLOGIES LIMITED,MUMBAI V. DCIT CIRCLE 6(1)(1), AAYAKAR BHAVAN MUMBAI

ITA 4653/MUM/2024

AI Insights

The case involves AGS Transact Technologies Ltd., which appealed against the order of the Commissioner of Income-tax (Appeals) confirming the disallowance of IPO expenditure amounting to Rs.10,22,08,242. The primary contention was that the expenditure was revenue in nature and should be allowed under Section 37 of the Income Tax Act, 1961, as no enduring benefit was accrued from the aborted IPO. The Tribunal considered various precedents, including the Supreme Court's decisions and the Bombay High Court's ruling in Nimbus Communication Ltd., which supported the assessee's position that such expenses do not lead to the creation of a capital asset and thus should be treated as revenue expenditure.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 31961 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2020-2021
• Other Referred Cases: Brooke Bond India Ltd. v. CIT, CIT v. Idea Cellular Ltd., Nimbus Communication Ltd. v. CIT, Triveni Engineering Works Ltd. v. CIT, Eskayef Limited v. DCIT, Union Carbide India Limited v. CIT, Kotak India Limited v. CIT, Punjab State Industrial Development Corporation Ltd. v. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K.R. SUBHASH
• Assessee Lawyers: DALPAT SHAH
• Keywords: Set aside; Capital asset; Revenue expenditure; Business expenditure; Capital expenditure
• Section: 143(3); 37; 244A; 37(1)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAHUL CHAUDHARY (JUDICIAL MEMBER) ITA No. 4653/MUM/2024 Assessment Year: 2020-21 AGS Transact Technologies Ltd., 601-602, Trade World, B Wing S.B. Marg, Lower Parel, Mumbai-400013. Vs. DCIT Circle 6(1)(1), Aayakar Bhavan, Mumbai-400020. PAN NO. AAECA 0901 H Appellant Respondent Assessee by : Mr. Dalpat Shah Revenue by : Dr. K.R. Subhash, CIT-DR Date of Hearing : 04/12/2024 Date of pronouncement : 17/02/2025 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 01.08.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2020-21, raising following grounds: 1. Disallowance of Aborted IPO Expenditure of Rs.10,22,08,242/ 1.1. On the facts and circumstances of the case and in Law, The Commissioner of Income tax Centre (NFAC), erred in confirming the disallowance of IPO expenditure of Rs. Rs.10,22,08,242/ ground that the same is capital in nature but ignoring the fact that the proposed IPO by the SEBI approved the due date of 04.10.2019 and hence the Legal and Filing Cost was allowable U/sec 37 no enduring benefit has accrued to the assessee as no new 1.2. The said C.I there was a Offer for Sale (OFS) by existing shareholders to Public and it was not an IPO during considering the fact that the expenditure on OFS were incurred by th said shareholders and not by the A be the ground to disallow aborted IPO expenditure U/sec 37 of the 1.3. The said C.I.T.(Appeals) erred in following the decision of Supreme Court in the case of Brooke Bond India Ltd. 2 fact that the said expenditure was towards Legal & Professional Fees, SEBI Fees, Stock Exchange Fees and not for increase in Autho Share Capital. 2. No Interest granted U/sec 244A on Tax Refund On the facts and circumstances of erred in not granting any interest U/sec 244A on the due income tax refund since the date of filing of income tax return. 2. Briefly stated, facts of the case are that consideration the assessee com providing end to end cash and digital payments solutions and automation technology income on 29.06.2021 declaring total income at Rs.111,94,45,140/ .The return of income fil assessment and statutory notices under the Income (in short ‘the Act’) were issued and complied with. In the AGS Transact Technologies Ltd ITA No. 4653/MUM/2024 1. Disallowance of Aborted IPO Expenditure of Rs.10,22,08,242/- U/sec 37. 1.1. On the facts and circumstances of the case and in Law, The Commissioner of Income tax (Appeals), National Faceless Appeal Centre (NFAC), erred in confirming the disallowance of IPO expenditure of Rs. Rs.10,22,08,242/- U/sec 37 of the Income tax Act, on the ground that the same is capital in nature but ignoring the fact that the proposed IPO was aborted as the appellant could not open the same by the SEBI approved the due date of 04.10.2019 and hence the Legal and Filing Cost was allowable U/sec 37 no enduring benefit has accrued to the assessee as no new asset was acquired. 1.2. The said C.I.T.(Appeals) also erred in not considering the fact that there was a Offer for Sale (OFS) by existing shareholders to Public and it was not an IPO during A.Y.2021-22 and also erred in not considering the fact that the expenditure on OFS were incurred by th said shareholders and not by the Appellant and therefore that can be the ground to disallow aborted IPO expenditure U/sec 37 of the 1.3. The said C.I.T.(Appeals) erred in following the decision of Supreme Court in the case of Brooke Bond India Ltd. 225 ITR 798 ignoring the fact that the said expenditure was towards Legal & Professional Fees, SEBI Fees, Stock Exchange Fees and not for increase in Autho Share Capital. 2. No Interest granted U/sec 244A on Tax Refund On the facts and circumstances of the case and in Law, the said A.O. erred in not granting any interest U/sec 244A on the due income tax refund since the date of filing of income tax return. Briefly stated, facts of the case are that during the year under the assessee company was engaged in the business of providing end to end cash and digital payments solutions and automation technology to its customers. The assessee filed return of income on 29.06.2021 declaring total income at Rs.111,94,45,140/ The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income (in short ‘the Act’) were issued and complied with. In the AGS Transact Technologies Ltd 2 ITA No. 4653/MUM/2024 1. Disallowance of Aborted IPO Expenditure of 1.1. On the facts and circumstances of the case and in Law, The (Appeals), National Faceless Appeal Centre (NFAC), erred in confirming the disallowance of IPO expenditure U/sec 37 of the Income tax Act, on the ground that the same is capital in nature but ignoring the fact that the was aborted as the appellant could not open the same by the SEBI approved the due date of 04.10.2019 and hence the Legal and Filing Cost was allowable U/sec 37 no enduring benefit has asset was acquired. .T.(Appeals) also erred in not considering the fact that there was a Offer for Sale (OFS) by existing shareholders to Public and 22 and also erred in not considering the fact that the expenditure on OFS were incurred by the ppellant and therefore that cannot be the ground to disallow aborted IPO expenditure U/sec 37 of the. 1.3. The said C.I.T.(Appeals) erred in following the decision of Supreme 25 ITR 798 ignoring the fact that the said expenditure was towards Legal & Professional Fees, SEBI Fees, Stock Exchange Fees and not for increase in Authorized the case and in Law, the said A.O. erred in not granting any interest U/sec 244A on the due income tax during the year under engaged in the business of providing end to end cash and digital payments solutions and . The assessee filed return of income on 29.06.2021 declaring total income at Rs.111,94,45,140/- ed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment order passed u/s 143(3) of the Act, the Assessing Officer disallowed expenses relation to initial public offer (IPO) for raising equity share capital. During the assessment the IPO was aborted and hence created by way of those nature of the revenue expenditure the Act. But the Ld. Assessing Officer held that expenses incurred for raising equity share capital were in the nature of enduring benefit spread over the future for long period of time. The Assessing Officer also rejected the claim of th Instead, the Assessing Of successfully raised equity share capital of Rs.501.81 crores through IPO in the subsequent financial year. On further appeal, the assessee relied on the decision of Hon’ble Supreme Court in the case of CIT v. Idea Cellular Ltd. 76 taxmann.com 77 Nimbus Communication Ltd. (ITA No. 4244 of 2010) dated 08.12.2011 and submi asset come into existence any enduring benefit and hence said expenses incurred on the aborted IPO was allowable u/s 37 of the Act referred to the decision of the Hon’ble of Brook Bond India Ltd. v. CIT reported in 225 ITR and in the case of Corporation Ltd. v. CIT 225 ITR 792 AGS Transact Technologies Ltd ITA No. 4653/MUM/2024 assessment order passed u/s 143(3) of the Act, the Assessing Officer disallowed expenses of Rs.10,22,10,000/ relation to initial public offer (IPO) for raising equity share capital. During the assessment proceedings, the assessee contend the IPO was aborted and hence no asset of enduring created by way of those expenses, thus, expenses being in the nature of the revenue expenditure, same were allowable u/s 37(1) of the Act. But the Ld. Assessing Officer held that expenses incurred for raising equity share capital were in the nature of enduring the future for long period of time. The Assessing Officer also rejected the claim of the assessee that IPO was aborted. Assessing Officer observed that assessee had successfully raised equity share capital of Rs.501.81 crores through the subsequent financial year. On further appeal, the assessee relied on the decision of Hon’ble Supreme Court in the CIT v. Idea Cellular Ltd. 76 taxmann.com 77 Nimbus Communication Ltd. (ITA No. 4244 of 2010) dated and submitted that when the IPO is aborted asset come into existence and there is no question of assessee getting any enduring benefit and hence said expenses incurred on the aborted IPO was allowable u/s 37 of the Act. But the Ld. CIT(A) cision of the Hon’ble Supreme Court in the case of Brook Bond India Ltd. v. CIT reported in 225 ITR and in the case of Punjab State Industrial Development Corporation Ltd. v. CIT 225 ITR 792(SC) and submitted that AGS Transact Technologies Ltd 3 ITA No. 4653/MUM/2024 assessment order passed u/s 143(3) of the Act, the Assessing of Rs.10,22,10,000/- incurred in relation to initial public offer (IPO) for raising equity share capital. proceedings, the assessee contended that no asset of enduring nature was expenses being in the same were allowable u/s 37(1) of the Act. But the Ld. Assessing Officer held that expenses incurred for raising equity share capital were in the nature of enduring the future for long period of time. The Assessing e assessee that IPO was aborted. ficer observed that assessee had successfully raised equity share capital of Rs.501.81 crores through the subsequent financial year. On further appeal, the assessee relied on the decision of Hon’ble Supreme Court in the CIT v. Idea Cellular Ltd. 76 taxmann.com 77 and CIT v. Nimbus Communication Ltd. (ITA No. 4244 of 2010) dated aborted, no new re is no question of assessee getting any enduring benefit and hence said expenses incurred on the . But the Ld. CIT(A) Supreme Court in the case of Brook Bond India Ltd. v. CIT reported in 225 ITR 798 (SC) Punjab State Industrial Development and submitted that expenditure incurred in connection with the issuance of shares is directly related to the expansion of the capital base and, hence, the same falls under the purview of capital expenditure. The Ld. CIT(A) further referred to the decision of the the case of Triveni Engineering Works Ltd. v. CIT 237 ITR 639 sustained the disallowance observing as under: “4.2.3 It is further notable that, as per the decision of Hon'ble High Court of Delhi in the case of Triveni Engineering Works Limi CIT 237 ITR 639, wherein, it has been held that, legal and professional charges incurred in connection with the merger of the company is not deductible as revenue expenditure. 4.2.4. It has been held in the following decisions of various judicial forums that, the expenditure incurred to maintain the capital base as per the FERA requirements can be construed to be a capital expenditure due to the fact that, the end result capital base: a) Eskayef Limited (vs) DCIT, 71 ITD 419 ( b) Union Carbide India Limited (vs) CIT, 203 ITR 584 (Cal.) c) CIT (vs) Kotak India Limited 253 /TR 445 (SC) In view of the above, I am of the considered view that, the expenditure incurred by the appellant to the tune of Rs.10,22,10,000/ services in connection with the issuance of IPO are capital in nature and the same is not allowable as deduction u/s 37 of the Act as revenue expenditure as per the above stated decisions of the Hon'ble Supreme Assessing Officer on this issue is sustainable and hereby upheld. Thus, the ground of appeal filed by the appellant on this is dismissed.” 3. The Ld. counsel for the assessee filed a Paper Book containing pages 1 to 181. AGS Transact Technologies Ltd ITA No. 4653/MUM/2024 expenditure incurred in connection with the issuance of shares is directly related to the expansion of the capital base and, hence, the same falls under the purview of capital expenditure. The Ld. CIT(A) further referred to the decision of the Hon’ble Delhi High Court in the case of Triveni Engineering Works Ltd. v. CIT 237 ITR 639 sustained the disallowance observing as under: 4.2.3 It is further notable that, as per the decision of Hon'ble High Court of Delhi in the case of Triveni Engineering Works Limi CIT 237 ITR 639, wherein, it has been held that, legal and professional charges incurred in connection with the merger of the company is not deductible as revenue expenditure. 4.2.4. It has been held in the following decisions of various judicial forums that, the expenditure incurred to maintain the capital base as per the FERA requirements can be construed to be a capital expenditure due to the fact that, the end result is restructure of the Eskayef Limited (vs) DCIT, 71 ITD 419 (ITAT, Bombay) Union Carbide India Limited (vs) CIT, 203 ITR 584 (Cal.) CIT (vs) Kotak India Limited 253 /TR 445 (SC) In view of the above, I am of the considered view that, the expenditure incurred by the appellant to the tune of Rs.10,22,10,000/- being expenses of certification fees and other services in connection with the issuance of IPO are capital in nature and the same is not allowable as deduction u/s 37 of the Act as revenue expenditure as per the above stated decisions of the Hon'ble Supreme Court. Accordingly, the action of the Assessing Officer on this issue is sustainable and hereby upheld. Thus, the ground of appeal filed by the appellant on this is The Ld. counsel for the assessee filed a Paper Book containing AGS Transact Technologies Ltd 4 ITA No. 4653/MUM/2024 expenditure incurred in connection with the issuance of shares is directly related to the expansion of the capital base and, hence, the same falls under the purview of capital expenditure. The Ld. CIT(A) i High Court in the case of Triveni Engineering Works Ltd. v. CIT 237 ITR 639 4.2.3 It is further notable that, as per the decision of Hon'ble High Court of Delhi in the case of Triveni Engineering Works Limited (vs) CIT 237 ITR 639, wherein, it has been held that, legal and professional charges incurred in connection with the merger of the 4.2.4. It has been held in the following decisions of various judicial forums that, the expenditure incurred to maintain the capital base as per the FERA requirements can be construed to be a capital is restructure of the ITAT, Bombay) Union Carbide India Limited (vs) CIT, 203 ITR 584 (Cal.) In view of the above, I am of the considered view that, the expenditure incurred by the appellant to the tune of ing expenses of certification fees and other services in connection with the issuance of IPO are capital in nature and the same is not allowable as deduction u/s 37 of the Act as revenue expenditure as per the above stated decisions of Court. Accordingly, the action of the Assessing Officer on this issue is sustainable and hereby upheld. Thus, the ground of appeal filed by the appellant on this is The Ld. counsel for the assessee filed a Paper Book containing 4. We have heard rival submissions of the parties and perused the relevant materials on record that for inviting additio engaged certain legal draft read hearing prospectus (DRHP) with S Board of India (SEBI crores comprising of fresh issue of Rs.400 crores and offer for sale (OFS) by promoters Rs.600 crores. The vide letter dated 26.10.2018 with a time line to open the IPO within 12 months. The assessee incurred IPO related Rs.10,2208,242/- toward fees and SEBI filing fees, legal and pro fees etc. in two years having details as under: Particulars F.Y. 2018-19 (A.Y. 2019-20) F.Y. 2019-20 (A.Y. 2020-21) Total 4.1 However, the assessee during the assessment year under consideration vide Board Resolution dated 16.12.2019 Book page 82. The assessee claimed proposed IPO during the year under considerati AGS Transact Technologies Ltd ITA No. 4653/MUM/2024 We have heard rival submissions of the parties and perused the relevant materials on record. Briefly stated facts of the case are that for inviting additional share capital by way of IPO, t engaged certain legal consultants and experts. The assessee filed draft read hearing prospectus (DRHP) with Securities and Exchange EBI) on 20.08.2018 for IPO aggregating Rs.1 crores comprising of fresh issue of Rs.400 crores and offer for sale (OFS) by promoters Rs.600 crores. The SEBI approved the said IPO vide letter dated 26.10.2018 with a time line to open the IPO within he assessee incurred IPO related toward fees to merchant bankers, stock exchange and SEBI filing fees, legal and professional fees and advertisement fees etc. in two years having details as under: Rupees Rs.7.38 crores Shown under other current assets (Refer Note 16 of Balance Sheet for FY 2018 19) Rs.2.84 crores Rs.10.22 Crores Claimed as Revenue Expenditure (Fef. Note 33 of Bal Sheet However, the assessee abandoned the said proposed IPO during the assessment year under consideration vide Board Resolution dated 16.12.2019, a copy which is available on Paper The assessee claimed that expenses during the year under consideration were AGS Transact Technologies Ltd 5 ITA No. 4653/MUM/2024 We have heard rival submissions of the parties and perused . Briefly stated facts of the case are al share capital by way of IPO, the assessee The assessee filed ecurities and Exchange aggregating Rs.1000 crores comprising of fresh issue of Rs.400 crores and offer for sale approved the said IPO vide letter dated 26.10.2018 with a time line to open the IPO within expenditure of merchant bankers, stock exchange fessional fees and advertisement Remarks Shown under other current assets (Refer Note 16 of Balance Sheet for FY 2018- Claimed as Revenue Expenditure (Fef. Note 33 of Bal Sheet – FY2019-20) the said proposed IPO during the assessment year under consideration vide Board a copy which is available on Paper expenses incurred on the on were the revenue expenditure u/s 37 of the Act. in subsequent year, the assessee again filed a DHRP with the SEBI on 18.08.2021 for IPO aggregating Rs.800 crores through offer for sale (OFS) by promoters which was app dated 24.11.2021. The assessee has mentioned that banker/stock exchange and SEBI filing fees, legal fees, advertisement was incurred and born capacity and not by the assess promoter against the sale of the shares under the OFS. 4.2 Before us, the Ld. counsel for the assessee relied on the decision of the Hon’ble Bombay High Court in the case of CIT v. Nimbus Communication Ltd. (supra). T that the Assessing Officer erred in holding that the incurred till 31.03.2019 was capitalize was shown “other current assets. He further submitted that the lower authorities had ignored the was ‘OFS’ by the promoter OFS IPO was received by the p whereas the lower authorities have completely ignored the said fact. With reference to the decisi upon by the Ld. CIT(A). The Ld. counsel submitted that said decisions are on expenditure incurred increase in the authorize share capital and therefore are not applicable to the case of the assessee. AGS Transact Technologies Ltd ITA No. 4653/MUM/2024 expenditure u/s 37 of the Act. The assessee further submitted that the assessee again filed a DHRP with the SEBI 18.08.2021 for IPO aggregating Rs.800 crores through offer for sale (OFS) by promoters which was approved by the SEBI vide letter dated 24.11.2021. The assessee has mentioned that banker/stock exchange and SEBI filing fees, legal fees, advertisement was incurred and born by the selling promoter in their capacity and not by the assessee and the same was claimed by the promoter against the sale of the shares under the OFS. Before us, the Ld. counsel for the assessee relied on the decision of the Hon’ble Bombay High Court in the case of CIT v. bus Communication Ltd. (supra). The Ld. counsel submitted that the Assessing Officer erred in holding that the IPO expenditure incurred till 31.03.2019 was capitalized ignoring the fact that same was shown “other current assets. He further submitted that the lower authorities had ignored the fact that IPO during AY 2022 by the promoters only and the whole proceedings of the OFS IPO was received by the promoter and not by the assessee, hereas the lower authorities have completely ignored the said fact. With reference to the decision of the Hon’ble Supreme Court relied upon by the Ld. CIT(A). The Ld. counsel submitted that said decisions are on expenditure incurred increase in the authorize share capital and therefore are not applicable to the case of the AGS Transact Technologies Ltd 6 ITA No. 4653/MUM/2024 The assessee further submitted that the assessee again filed a DHRP with the SEBI 18.08.2021 for IPO aggregating Rs.800 crores through offer for roved by the SEBI vide letter dated 24.11.2021. The assessee has mentioned that banker/stock exchange and SEBI filing fees, legal fees, advertisement fees etc. by the selling promoter in their individual ee and the same was claimed by the promoter against the sale of the shares under the OFS. Before us, the Ld. counsel for the assessee relied on the decision of the Hon’ble Bombay High Court in the case of CIT v. d. counsel submitted IPO expenditure ignoring the fact that same was shown “other current assets. He further submitted that the fact that IPO during AY 2022-23 only and the whole proceedings of the romoter and not by the assessee, hereas the lower authorities have completely ignored the said fact. on of the Hon’ble Supreme Court relied upon by the Ld. CIT(A). The Ld. counsel submitted that said decisions are on expenditure incurred increase in the authorized share capital and therefore are not applicable to the case of the 4.3 Thus issue in dispute before us is expenditure incurred by the assessee for raising fresh capital Rs.1000/- crores pertained completely to the proposed equity share capital of Rs. 400 crores for offer for sale by promoters of Rs.600 crores claimed entire expenditure of Rs.10.22 crores pertaining to the IPO in its hand whereas the share of the expenditure related to OFS by the promoter was to be transferred/debited in the hands of the promoters which has apparently not been done consideration. Secondly of the expenses related to the aborted IPO are in the nature of the revenue expenditure in the hands of the assessee. The has relied on the decision of the Hon’ble Supreme Court in the case of Brook Bond India Ltd. (supra) and Punjab State Industrial Development Corporation Ltd. (supra) wherein the registration fee paid for increase in share capital to be in nature of the capital expenditure being connected with the capital base of the assessee. Supreme Court in the case reproduced as under: The question relates to the assessment year 1969 relevant account year ended on June 30,1968. The assessee is a public limited company. It issued ordinary shares of Rs 16,75,000/- of Rs 10/ increase its share ca expenditure of Rs. 13,99,305/ AGS Transact Technologies Ltd ITA No. 4653/MUM/2024 in dispute before us is, firstly expenditure incurred by the assessee for raising fresh capital crores pertained completely to the proposed equity share Rs. 400 crores for the assessee or was partly sale by promoters of Rs.600 crores also. The assessee has claimed entire expenditure of Rs.10.22 crores pertaining to the IPO in its hand whereas the share of the expenditure related to OFS by the promoter was to be transferred/debited in the hands of the promoters which has apparently not been done for the year under Secondly, the issue in dispute is whether the portion of the expenses related to the aborted IPO are in the nature of the revenue expenditure in the hands of the assessee. The has relied on the decision of the Hon’ble Supreme Court in the case of Brook Bond India Ltd. (supra) and Punjab State Industrial Development Corporation Ltd. (supra) wherein the registration fee paid for increase in share capital/ share issue expenses to be in nature of the capital expenditure being connected with the capital base of the assessee. The relevant finding of Hon’ble Supreme Court in the case of Brook Bond India Ltd. (supra reproduced as under: The question relates to the assessment year 1969 relevant account year ended on June 30,1968. The assessee is a public limited company. It issued ordinary shares of Rs of Rs 10/- each at a premium with a view to increase its share capital and, in that connection, it incurred an expenditure of Rs. 13,99,305/- which amount was claimed by AGS Transact Technologies Ltd 7 ITA No. 4653/MUM/2024 firstly, whether the expenditure incurred by the assessee for raising fresh capital of crores pertained completely to the proposed equity share was partly related to The assessee has claimed entire expenditure of Rs.10.22 crores pertaining to the IPO in its hand whereas the share of the expenditure related to OFS by the promoter was to be transferred/debited in the hands of the for the year under , the issue in dispute is whether the portion of the expenses related to the aborted IPO are in the nature of the revenue expenditure in the hands of the assessee. The Ld. CIT(A) has relied on the decision of the Hon’ble Supreme Court in the case of Brook Bond India Ltd. (supra) and Punjab State Industrial Development Corporation Ltd. (supra) wherein the registration fee penses were held to be in nature of the capital expenditure being connected with the The relevant finding of Hon’ble Brook Bond India Ltd. (supra) is The question relates to the assessment year 1969-70 and the relevant account year ended on June 30,1968. The assessee is a public limited company. It issued ordinary shares of Rs each at a premium with a view to pital and, in that connection, it incurred an which amount was claimed by it as deductible expenses. The said deduction was disallowed by the Income Tax Officer on the view that the expenditure incurred by the assessee was on view of the Income Tax Officer was affirmed by the Appellate Assistant Commissioner and the Tribunal. The High Court, while upholding the view of the Tribunal, has held that the expenditure and would fall under capital expend High Court has placed reliance on the observations of this Court in India Cements Ltd. v. Commissioner of Income Tax, Madras, 60 ITR 52, and it did not agree with the view taken by the Madras High Court Nadu-I v. Kisenchand Chellaram (India) P. Ltd. Dr. Debi Pal, the learned senior counsel appearing for the appellant-assessee, has submitted that the error in holding that the expenses incurred by the assessee In issuing the shares with a view to increase its capital did not constitute revenue expenditure. According to the learned counsel, the said view of the High Court is not in cons with the law laid by the this Court in Ltd. v. Commissioner of Income Tax of Income Tax. Bombay ITR 257 and Alembic Chemical works Commissioner of Income Tax learned counsel has also invited our attention to the decisions of the High Courts of Andhra Pradesh, Kerala and Madras High Court in Ltd. (supra). [See: Income Tax (A.P.), 171 ITR 224; Hindustan Machine Tools Ltd. (No. 3) v. Commissioner of Income Tax, Karnataka 220 and Federal Bank Ltd. v. Commissioner of Income Tax, Kerala. 180 ITR 241]. We find that this matter has come up for consideration before this Court in m/s Corporation Ltd., Chandigarh v. Commissioner of Income Tax Patiala. (Tax Reference No. 1 of 1990 decided on December 4, AGS Transact Technologies Ltd ITA No. 4653/MUM/2024 it as deductible expenses. The said deduction was disallowed by the Income Tax Officer on the view that the expenditure incurred by the assessee was on the capital account. The said view of the Income Tax Officer was affirmed by the Appellate Assistant Commissioner and the Tribunal. The High Court, while upholding the view of the Tribunal, has held that the expenditure and would fall under capital expend High Court has placed reliance on the observations of this India Cements Ltd. v. Commissioner of Income Tax, , 60 ITR 52, and it did not agree with the view taken by h Court Commissioner of Income Tax, Tamil I v. Kisenchand Chellaram (India) P. Ltd., 130 ITR 385. Dr. Debi Pal, the learned senior counsel appearing for the assessee, has submitted that the High Court was in error in holding that the expenses incurred by the assessee In issuing the shares with a view to increase its capital did not constitute revenue expenditure. According to the learned counsel, the said view of the High Court is not in cons with the law laid by the this Court in Empire Jute Company Ltd. v. Commissioner of Income Tax, 124 ITR 1; Commissioner Bombay-II v. Associated Cements Co. Ltd. ITR 257 and Alembic Chemical works Co. Ltd. v. Commissioner of Income Tax. Gujarat, 177 ITR 377. learned counsel has also invited our attention to the decisions e High Courts of Andhra Pradesh, Kerala and Madras High Court in Kisenchand Chellaram (India) P. [See: Warner Hindustan Ltd. v. Commissioner of ), 171 ITR 224; Hindustan Machine Tools Ltd. (No. 3) v. Commissioner of Income Tax, Karnataka 220 and Federal Bank Ltd. v. Commissioner of Income Tax, 80 ITR 241]. We find that this matter has come up for consideration before this Court in m/s Punjab State Industrial Development Corporation Ltd., Chandigarh v. Commissioner of Income Tax ference No. 1 of 1990 decided on December 4, AGS Transact Technologies Ltd 8 ITA No. 4653/MUM/2024 it as deductible expenses. The said deduction was disallowed by the Income Tax Officer on the view that the expenditure the capital account. The said view of the Income Tax Officer was affirmed by the Appellate Assistant Commissioner and the Tribunal. The High Court, while upholding the view of the Tribunal, has held that the expenditure and would fall under capital expenditure. The High Court has placed reliance on the observations of this India Cements Ltd. v. Commissioner of Income Tax, , 60 ITR 52, and it did not agree with the view taken by Commissioner of Income Tax, Tamil , 130 ITR 385. Dr. Debi Pal, the learned senior counsel appearing for the High Court was in error in holding that the expenses incurred by the assessee In issuing the shares with a view to increase its capital did not constitute revenue expenditure. According to the learned counsel, the said view of the High Court is not in consonance Empire Jute Company , 124 ITR 1; Commissioner . Associated Cements Co. Ltd., 172 Co. Ltd. v. . Gujarat, 177 ITR 377. The learned counsel has also invited our attention to the decisions e High Courts of Andhra Pradesh, Kerala and Madras Kisenchand Chellaram (India) P. Commissioner of ), 171 ITR 224; Hindustan Machine Tools Ltd. (No. 3) v. Commissioner of Income Tax, Karnataka-II, 175 ITR 220 and Federal Bank Ltd. v. Commissioner of Income Tax, We find that this matter has come up for consideration before Punjab State Industrial Development Corporation Ltd., Chandigarh v. Commissioner of Income Tax. ference No. 1 of 1990 decided on December 4, 1996). In that case, the question under consideration was whether an amount of Rs. 1,50,000/ Companies as filing fee for enhancement of capital was not revenue expenditure. The Court ha of the Madras, Andhra Pradesh, Karnataka and kerala High Courts to which reference has been made by Dr. Pal as well as the judgment under challenge in this appeal and the judgment under challenge in this appeal and the judgmen Courts taking the same view s that taken in the impugned judgment. This Court has also taken note of the decisions in Empire Jute Company Ltd. Cements Ltd. (supra). While holding that the amount of Rs. 1,50,000/- paid to the Registrar of Companies as filing fee for enhancement of the capital was not revenue expenditure, this Court has said:- \"We do not consider it nece extenso because we are of the opinion that fee paid to the Registrar for expansion of the capital base of the company was directly related to the capital incidentally that would certainly help in the business of the co profit making, it still retains the character of a capital expenditure since the expenditure was directly related to the expansion of the capital base of the company. we are, therefore, of the opinion that the view taken by the d High Courts in favour of the Revenue in this behalf is the preferable view as compared to the view based on the decision of the Madras High Court in This decision thu consideration in this appeal. Dr. pal has, however, submitted that this decision does not cover a case. like the present case, where the object of enhancement of the capital was to have more working funds for the assessee to carry on its business and to earn more profit and that in such a case the expenditure that is incurred AGS Transact Technologies Ltd ITA No. 4653/MUM/2024 1996). In that case, the question under consideration was whether an amount of Rs. 1,50,000/- paid to the Registrar of Companies as filing fee for enhancement of capital was not revenue expenditure. The Court has taken note of the decisions of the Madras, Andhra Pradesh, Karnataka and kerala High Courts to which reference has been made by Dr. Pal as well as the judgment under challenge in this appeal and the judgment under challenge in this appeal and the judgmen Courts taking the same view s that taken in the impugned This Court has also taken note of the decisions Empire Jute Company Ltd. (supra) as well as (supra). While holding that the amount of Rs. paid to the Registrar of Companies as filing fee for enhancement of the capital was not revenue expenditure, this \"We do not consider it necessary to examine all the decisions in extenso because we are of the opinion that fee paid to the Registrar for expansion of the capital base of the company was directly related to the capital incidentally that would certainly help in the business of the company and may also help in profit making, it still retains the character of a capital expenditure since the expenditure was directly related to the expansion of the capital base of the company. we are, therefore, of the opinion that the view taken by the d High Courts in favour of the Revenue in this behalf is the preferable view as compared to the view based on the decision of the Madras High Court in Kisenchand Chellaram This decision thus covers the question that falls for consideration in this appeal. Dr. pal has, however, submitted that this decision does not cover a case. like the present case, where the object of enhancement of the capital was to have more working funds ee to carry on its business and to earn more profit and that in such a case the expenditure that is incurred AGS Transact Technologies Ltd 9 ITA No. 4653/MUM/2024 1996). In that case, the question under consideration was paid to the Registrar of Companies as filing fee for enhancement of capital was not s taken note of the decisions of the Madras, Andhra Pradesh, Karnataka and kerala High Courts to which reference has been made by Dr. Pal as well as the judgment under challenge in this appeal and the judgment under challenge in this appeal and the judgment of the High Courts taking the same view s that taken in the impugned This Court has also taken note of the decisions (supra) as well as India (supra). While holding that the amount of Rs. paid to the Registrar of Companies as filing fee for enhancement of the capital was not revenue expenditure, this ssary to examine all the decisions in extenso because we are of the opinion that fee paid to the Registrar for expansion of the capital base of the company was directly related to the capital incidentally that would certainly mpany and may also help in profit making, it still retains the character of a capital expenditure since the expenditure was directly related to the expansion of the capital base of the company. we are, therefore, of the opinion that the view taken by the different High Courts in favour of the Revenue in this behalf is the preferable view as compared to the view based on the decision Kisenchand Chellaram's case.\" s covers the question that falls for Dr. pal has, however, submitted that this decision does not cover a case. like the present case, where the object of enhancement of the capital was to have more working funds ee to carry on its business and to earn more profit and that in such a case the expenditure that is incurred in connection with issuing of shares to increase the capital has to be treated as revenue expenditure. In this connection, Dr. pal has invited our urged by the learned counsel for the assessee before the Appellate Assistant Commissioner as well as before the Tribunal it was submitted on behalf of the assessee that increase in the capital was to meet the need for for us the assessee by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of the capital was undertaken by the assessee in order to meet the need for more worki funds for the assessee. We, therefore, cannot proceed on the basis that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for working funds for the assessee to carry on its business, In any event, the above quoted observations of this Court in m/s State Industrial Development Corporation Ltd. Chandigarh (supra) clearly indicate that though the increase in the capital results in expansion of the capital company and incidentally that would help in the business of the company and incidentally that would help in the business of the company and may also help in the profit making, the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. In these circumstances, we do not find any merit in the appeal and it is accordingly dismissed. No order as to costs. 4.4 The Hon’ble Supreme incurred in connection with the issuance of shares, whether for an increase in authorized share capital or otherwise, constitute capital expenditure. The underlying that such expenditure is directed towards augmenting the capital base of the company. Share capital inherently confers specific rights upon shareholders, including but not limited to ownership AGS Transact Technologies Ltd ITA No. 4653/MUM/2024 in connection with issuing of shares to increase the capital has to be treated as revenue expenditure. In this connection, Dr. pal has invited our attention to the submissions that were urged by the learned counsel for the assessee before the Appellate Assistant Commissioner as well as before the Tribunal it was submitted on behalf of the assessee that increase in the capital was to meet the need for working funds for us the assessee-company. But the statement of case sent by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of the capital was undertaken by the assessee in order to meet the need for more worki funds for the assessee. We, therefore, cannot proceed on the basis that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for working funds for the assessee to carry on its business, In any event, quoted observations of this Court in m/s State Industrial Development Corporation Ltd. (supra) clearly indicate that though the increase in the capital results in expansion of the capital company and incidentally that would help in the business of the company and incidentally that would help in the business of the company and may also help in the profit making, the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. In these circumstances, we do not find any merit in the appeal and it is accordingly dismissed. No order as to costs. Supreme Court(supra) has held incurred in connection with the issuance of shares, whether for an increase in authorized share capital or otherwise, constitute capital underlying rationale behind this determination h expenditure is directed towards augmenting the capital base of the company. Share capital inherently confers specific rights upon shareholders, including but not limited to ownership AGS Transact Technologies Ltd 10 ITA No. 4653/MUM/2024 in connection with issuing of shares to increase the capital has to be treated as revenue expenditure. In this connection, Dr. attention to the submissions that were urged by the learned counsel for the assessee before the Appellate Assistant Commissioner as well as before the Tribunal it was submitted on behalf of the assessee that working funds company. But the statement of case sent by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of the capital was undertaken by the assessee in order to meet the need for more working funds for the assessee. We, therefore, cannot proceed on the basis that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for working funds for the assessee to carry on its business, In any event, quoted observations of this Court in m/s Punjab State Industrial Development Corporation Ltd. (supra) clearly indicate that though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and incidentally that would help in the business of the company and may also help in the profit making, the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. In these circumstances, we do not find any merit in the appeal and it is accordingly dismissed. No order as to costs. Court(supra) has held that expenses incurred in connection with the issuance of shares, whether for an increase in authorized share capital or otherwise, constitute capital determination is h expenditure is directed towards augmenting the capital base of the company. Share capital inherently confers specific rights upon shareholders, including but not limited to ownership interests, entitlements to dividends, or fixed returns. Consequently, any expenditure incurred for the purpose of raising or expanding share capital serves to create rights in favor of the shareholders, while the benefit accruing to the company remains indirect in nature. It is imperative to recognize that the expenses incurr result in the creation of a capital asset in the hands of the shareholders. For the company, however, such capital remains a liability. The Section 37 of the expenditure from the ambit of deductible business expenditure. Therefore, as a general principle, share issue expenses, being in the nature of capital expenditure, are not admissible for deduction under section 37 of the Act. specific provision under section 35D of the Act, permitting deduction of share issue expenses in a proportionate manner over a period of five years, subject to the fulfillment of stipulated conditions. Similarly, in the case of expenditure incurred for raising loan capital, the statutory framework provides an e under section 36(1)(iii) of the Act. between capital expenditure incurred or project of enduring benefit to the company and expenditure on an abandoned project. In the lat expenditure is directly linked to the business of the assessee, it may qualify for deduction under section 37 of the Act. However, in the case of share issue expenses, which serve the primary purpose of capital augmentation, the as capital in nature, thereby precluding their deduction under section 37, save as permitted under section 35D. the instant case also the part of the expenses out of Rs.10.22 crores pertains for raising share capital for raising such capital could not go through and the assessee aborted the entire process expenses was toward increase in share capital. AGS Transact Technologies Ltd ITA No. 4653/MUM/2024 interests, entitlements to dividends, or fixed returns. Consequently, ny expenditure incurred for the purpose of raising or expanding share capital serves to create rights in favor of the shareholders, while the benefit accruing to the company remains indirect in t is imperative to recognize that the expenses incurr result in the creation of a capital asset in the hands of the shareholders. For the company, however, such capital remains a Section 37 of the Act explicitly excludes capital expenditure from the ambit of deductible business expenditure. Therefore, as a general principle, share issue expenses, being in the nature of capital expenditure, are not admissible for deduction under section 37 of the Act. The legislature has carved out a specific provision under section 35D of the Act, permitting deduction of share issue expenses in a proportionate manner over a period of five years, subject to the fulfillment of stipulated conditions. Similarly, in the case of expenditure incurred for raising loan capital, the statutory framework provides an express allowance under section 36(1)(iii) of the Act. It is also pertinent to distinguish between capital expenditure incurred for creation of a capital asset or project of enduring benefit to the company and expenditure on an abandoned project. In the latter scenario, provided such expenditure is directly linked to the business of the assessee, it may qualify for deduction under section 37 of the Act. However, in the case of share issue expenses, which serve the primary purpose of capital augmentation, the statutory scheme expressly treats them as capital in nature, thereby precluding their deduction under section 37, save as permitted under section 35D. the instant case also the part of the expenses out of Rs.10.22 crores ng share capital, although the plan of the assessee for raising such capital could not go through and the assessee aborted the entire process, still the intended application of the expenses was toward increase in share capital. AGS Transact Technologies Ltd 11 ITA No. 4653/MUM/2024 interests, entitlements to dividends, or fixed returns. Consequently, ny expenditure incurred for the purpose of raising or expanding share capital serves to create rights in favor of the shareholders, while the benefit accruing to the company remains indirect in t is imperative to recognize that the expenses incurred result in the creation of a capital asset in the hands of the shareholders. For the company, however, such capital remains a explicitly excludes capital expenditure from the ambit of deductible business expenditure. Therefore, as a general principle, share issue expenses, being in the nature of capital expenditure, are not admissible for deduction has carved out a specific provision under section 35D of the Act, permitting the deduction of share issue expenses in a proportionate manner over a period of five years, subject to the fulfillment of stipulated conditions. Similarly, in the case of expenditure incurred for raising xpress allowance It is also pertinent to distinguish creation of a capital asset or project of enduring benefit to the company and expenditure on ter scenario, provided such expenditure is directly linked to the business of the assessee, it may qualify for deduction under section 37 of the Act. However, in the case of share issue expenses, which serve the primary purpose of statutory scheme expressly treats them as capital in nature, thereby precluding their deduction under We find that in the instant case also the part of the expenses out of Rs.10.22 crores though the plan of the assessee for raising such capital could not go through and the assessee still the intended application of the 4.5 But we note that Hon’bl Nimbus Communication Ltd. expenses incurred towards aborted share issue expenditure falls u/s 37 of the Act. The relevant finding of the Hon’ble Bombay High Court is reproduced as under: “2. The finding of fact recorded by the Income Tax Appellate Tribunal is that there is dispute that the assessee has in fact incurred the expenditure and that on account of the aborted public issue offer, no new asset has come into existence and consequen the assessee getting any enduring benefit. With the approval of SEBI, the assessee was to increase the share capital and thereby promote its business activity. However, the same got aborted due to reasons beyond its control. In these circumstances, in view of the decision of this Court in the case of Commissioner of Income Tax Income Tax Appeal (L) No.921 of 2006 decided on 16*h October 2008, in our opinion, no fault can be found with the decision of the Income Tax Appellate Tribunal in allowing the aborted share issue expenditure under Section 37 of the Income Tax Act, 1961.” 4.6 In view of clear and specific finding of the Hon’ble Jurisdictional High Court finding of the Ld. CIT(A) on the issue in dispute and direct the Assessing Officer to delete the additio increase of equity base of assessee, other than expenses pertaining to ‘OFS’ related to promoters. 5. In the result, the Order pronounced in the open Court on 17 Sd/ (RAHUL CHAUDHARY JUDICIAL MEMBER Mumbai; Dated: 17/02/2025 AGS Transact Technologies Ltd ITA No. 4653/MUM/2024 But we note that Hon’ble Bombay High Court in the case of Nimbus Communication Ltd.(supra) has categorically held that expenses incurred towards aborted share issue expenditure falls u/s 37 of the Act. The relevant finding of the Hon’ble Bombay High Court is reproduced as under: The finding of fact recorded by the Income Tax Appellate Tribunal is that there is dispute that the assessee has in fact incurred the expenditure and that on account of the aborted public issue offer, no new asset has come into existence and consequently there is no question of the assessee getting any enduring benefit. With the approval of SEBI, the assessee was to increase the share capital and thereby promote its business activity. However, the same got aborted due to reasons beyond its control. In these circumstances, in view of the decision of this Court in the case of Commissioner of Income Tax V/s. M/s.Essar Oil Limited, Income Tax Appeal (L) No.921 of 2006 decided on 16*h October 2008, in our opinion, no fault can be found with the decision of the Income Tax Appellate Tribunal in allowing the aborted share issue expenditure under the Income Tax Act, 1961.” In view of clear and specific finding of the Hon’ble Jurisdictional High Court, which is binding on us, we set aside the finding of the Ld. CIT(A) on the issue in dispute and direct the Assessing Officer to delete the addition, subject to quantum related to increase of equity base of assessee, other than expenses pertaining to ‘OFS’ related to In the result, the appeal of the assessee is stands allowed. nounced in the open Court on 17/02/2025. Sd/- Sd/ (RAHUL CHAUDHARY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER AGS Transact Technologies Ltd 12 ITA No. 4653/MUM/2024 e Bombay High Court in the case of has categorically held that expenses incurred towards aborted share issue expenditure falls u/s 37 of the Act. The relevant finding of the Hon’ble Bombay High The finding of fact recorded by the Income Tax Appellate Tribunal is that there is dispute that the assessee has in fact incurred the expenditure and that on account of the aborted public issue offer, no new tly there is no question of the assessee getting any enduring benefit. With the approval of SEBI, the assessee was to increase the share capital and thereby promote its business activity. However, the same got aborted due to reasons beyond its control. In these circumstances, in view of the decision of this Court in V/s. M/s.Essar Oil Limited, Income Tax Appeal (L) No.921 of 2006 decided on 16*h October 2008, in our opinion, no fault can be found with the decision of the Income Tax Appellate Tribunal in allowing the aborted share issue expenditure under In view of clear and specific finding of the Hon’ble which is binding on us, we set aside the finding of the Ld. CIT(A) on the issue in dispute and direct the ubject to quantum related to increase of equity base of assessee, other than expenses pertaining to ‘OFS’ related to appeal of the assessee is stands allowed. /02/2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// AGS Transact Technologies Ltd ITA No. 4653/MUM/2024 Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai AGS Transact Technologies Ltd 13 ITA No. 4653/MUM/2024 BY ORDER, (Assistant Registrar) ITAT, Mumbai "