Sacmi Engineering (India) Pvt. Ltd, Ahmedabad V. The DCIT, Circle-4(1)(2), Ahmedabad

ITA 247/AHD/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5844 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 19-02-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: R R MAKWANA
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 143(2)

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO.247/AHD/2019 ASSTT.YEAR : 2014-15 SACMI ENGINEERING INDIA P.LTD. PLOT NO.SM-50 SANANAD IND. ESTATE II CHARAL GIDC, SANAND AHMEDABAD 382 110 PAN : AAKCS 8465 L VS DCIT, CIR.4(1)(2) AHMEDABAD. / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI DHIRUBHAI SHAH, AR MS.URVASHI SHODHAN, AR ASSESSEE BY : SHRI R.R. MAKWANA, SR.DR / DATE OF HEARING : 14/09/2021 /DATE OF PRONOUNCEMENT : 17/09/2021 O R D E R PER RAJPAL YADAV, VICE-PRESIDENT: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST ORDER OF THE LD.CIT(A)-8, AHME DABAD DATED 20.12.2018 PASSED FOR THE ASSTT.YEAR 2014-15. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED AS MANY AS SEVEN GROUNDS OF APPEAL, WHICH IN FACT INVOLVE ONLY ONE ISSUE I.E. T HE LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING T HE EXPENDITURE INCURRED IN RESPECT OF DOCUMENTS AND STAMP CHARGES OF RS.39,27,000/- ITA NO.247/AHD/2019 - 2 - ON ACCOUNT OF INCREASE IN AUTHORIZED CAPITAL AND TR EATED THE SAME AS CAPITAL EXPENDITURE. ASSESSEE ALTERNATIVELY PLEADE D THAT CLAIM OF DEDUCTION OF IMPUGNED EXPENDITURE OTHERWISE MAY BE ALLOWED UNDER SECTION 35D OF THE INCOME TAX ACT, 1961. 3. WE TAKE NOTE OF BRIEF FACTS AS EMANATING FROM OR DERS OF THE REVENUE AUTHORITIES. THAT THE ASSESSEE IS MANUFACT URER OF MACHINES AND COMPLETE PLANTS FOR CERAMICS, PACKAGING AND FOOD IN DUSTRIES; THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 29.9.201 4 DECLARING TOTAL LOSS AT RS.(-)5,83,76,539/-. THEREAFTER, CASE OF THE ASSE SSEE SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) OF THE A CT WAS ISSUED AND SERVED UPON THE ASSESSEE. DURING THE ASSESSMENT PR OCEEDINGS, THE LD.AO NOTICED THAT THE ASSESSEE DEBITED A SUM OF RS .39,76,324/- AS DOCUMENT AND STAMP CHARGES IN ITS ACCOUNTS AS REV ENUE EXPENDITURE, WHICH RELATED TO EXPENDITURE INCURRED FOR INCREASIN G AUTHORIZED SHARE CAPITAL. THE ASSESSEE WAS SHOW-CAUSED AS TO WHY TH IS EXPENDITURE BE NOT TREATED AS CAPITAL EXPENDITURE SINCE EXPENDITUR E RELATED TO CAPITAL FORMATION. IN REPLY DATED 8.12.2016 THE ASSESSEE E XPLAINED THAT EXPENSES WERE INCURRED TO INCREASE AUTHORIZED CAPITAL BY CON VERTING COMPULSORY CONVERTIBLE DEBENTURE AND FOR THE PURPOSE OF MEETIN G THE NEED FOR WORKING FUNDS OF THE ASSESSEE-COMPANY; THAT THERE W AS NO FRESH IN FLOW OF FUNDS, AND THE ROC FEES AND OTHER RELATED EXPEND ITURE WAS ADMISSIBLE EXPENDITURE BEING REVENUE EXPENDITURE IN NATURE. BEFORE THE LD.AO THE ASSESSEE RELIED UPON DECISIONS IN THE CASE OF CIT VS. KISENCHAND CHELLARAM (INDIA) P.LTD., 130 ITR 385 (M AD); AND HONBLE SUPREME COURT DECISION IN THE CASE OF BROOKE BOND I NDIA LTD. VS. CIT, 225 ITR 798 AND OTHERS. THE ASSESSEE, ALTERNATIVE LY PLEADED THAT 1/5 TH OF ITA NO.247/AHD/2019 - 3 - THE SAID EXPENSES SHOULD BE ALLOWED UNDER SECTION 3 5D OF THE ACT. HOWEVER, THE LD.AO DID NOT ACCEPT EXPLANATION OF TH E ASSESSEE. HE HELD THAT BY CONVERTING THE DEBENTURES INTO EQUITY SHARE CAPITAL, THE CAPITAL BASE OF THE ASSESSEE-COMPANY HAS BEEN INCREASED, AN D THEREFORE, INCURRENCE OF EXPENDITURE FOR CONVERSION OF THE SAM E WAS IN THE NATURE OF CAPITAL. THE CLAIM OF THE ASSESSEE WAS ACCORDIN GLY DISALLOWED. APPEAL TO THE CIT(A) COULD NOT BRING ANY RELIEF TO THE ASSESSEE, HENCE, ASSESSEE IS BEFORE THE TRIBUNAL. 4. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE REITE RATED SUBMISSIONS AS WERE MADE BEFORE THE REVENUE AUTHORITIES. 5. ON THE OTHER HAND, THE LD.DR SUPPORTED ORDERS OF THE REVENUE AUTHORITIES. HE SUBMITTED THAT BY WAY OF INCREASE IN SHARE CAPITAL, THE ASSESSING COMPANY HAS GOT ENDURING BENEFIT AND THE EXPENDITURE INCURRED BY THE CONVERSION OF EQUITY SHARES HAS TO BE TREATED AS CAPITAL EXPENDITURE. HE RELIED DECISION OF THE ITAT, AHMED ABAD BENCHES IN THE CASE OF GRUH FINANCE LTD. VS. ACIT, 160 ITD 89, DEC ISION IN THE CASE OF VXL INDIA LTD VS. ACIT, TAX APPEAL NO.481 OF 1999. SINCE ASSESSEE HAS INCURRED THE EXPENDITURE ON ISSUE OF CONVERTIBL E DEBENTURE, WHICH IS DIRECTLY RELATED TO THE EXPANSION OF CAPITAL BASE O F THE COMPANY, AS HELD BY THE HON'BLE HIGH COURT SUCH EXPENDITURE IS TO BE TREATED AS CAPITAL EXPENDITURE. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE TH ROUGH THE RECORD CAREFULLY. WE FIND THAT MAIN ISSUE FOR OUR CONSIDERATION IS THAT WHETHER THE EXPENDITURE ON CONVERSION OF DEBENTURE BOND INTO EQUITY SHARE CAPITAL IS REVENUE OR CAPITAL EXPENDITURE. THE CLAIM OF THE ITA NO.247/AHD/2019 - 4 - ASSESSEE IS THAT SINCE CAPITAL BASE HAS BEEN INCREA SED DUE TO CONVERSION OF DEBENTURE FOR MEETING WORKING CAPITAL OF THE ASS ESSEE-COMPANY, THE EXPENDITURE FOR SUCH CONVERSION OUGHT TO BE ALLOWED AS REVENUE EXPENDITURE. AS OBSERVED BY THE LD.CIT(A), FACTS O F THE CASE OF THE ASSESSEE CLEARLY INDICATE THAT PORTION OF CONVERTIB LE DEBENTURE WAS CONVERTED INTO EQUITY SHARES AND ASSESSEE COMPANY H AD GOT ENDURING BENEFITS THEREFROM AND THEREFORE, THE EXPENDITURE I NCURRED BY THE ASSESSEE ON CONVERSION OF CONVERTIBLE DEBENTURES IN TO EQUITY SHARES HAS TO BE TREATED AS CAPITAL EXPENDITURE. FOR WHICH, T HE LD.CIT(A) RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE C ASE OF BROOKE BOND INDIA LTD., 225 ITR 798. THUS, WE ARE OF THE VIEW THAT THE LD.REVENUE AUTHORITIES HAVE TAKEN A CORRECT VIEW OF THE MATTER WHILE DISALLOWING CLAIM OF THE ASSESSEE. 7. SO FAR AS ALTERNATIVE PLEADINGS OF THE ASSESSEE THAT THE CLAIM OF THE ASSESSEE OTHERWISE BE ALLOWED UNDER SECTION 35D OF THE ACT. IN THIS REGARD, WE FIND THE SECTION 35D OF THE ACT DOES NOT CONTEMPLATES ALLOWANCE OF EXPENDITURE INCURRED AFTER THE COMMENC EMENT OF BUSINESS THAT TOO FOR THE EXPENDITURE INCURRED FOR CONVERSIO N OF DEBENTURE INTO EQUITY SHARE CAPITAL. AS PER SECTION 35D, ANY CAPI TAL EXPENDITURE INCURRED BEFORE THE COMMENCEMENT OF OPE RATION OF SPECIFIED BUSINESS THEN SUCH EXPENDITURE IS ALLOWAB LE AS A DEDUCTION UNDER THE INCOME TAX IN 5 EQUAL ANNUAL INSTALLMENTS SUBJECT TO THE FULFILMENT OF DIFFERENT CONDITIONS GIVEN UNDER THE INCOME TAX ACT. THAT WAS NOT THE CASE ON OUR HAND FOR THE REASONS NARRAT ED ABOVE. THE LD.REVENUE AUTHORITIES IS, THEREFORE RIGHTLY REJECT ED THIS ALTERNATIVE CLAIM ITA NO.247/AHD/2019 - 5 - OF THE ASSESSEE. THEREFORE, NO INTERVENTION AT OUR END IS REQUIRED ON THIS ISSUE AS WELL. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 17 TH SEPTEMBER, 2021 SD/- SD/- (WASEEM AHMED) ACCOUNTANT MEMBER (RAJPAL YADAV) VICE-PRESIDENT