M/s Carbon Clean Solutions Pvt Ltd , Bangalore V. Deputy Commissioner of Income Tax Circle-2(1)(1), Bangalore

ITA 3306/BANG/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8893 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-08-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 13-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset
• Section: 37

Judgement Text

ITA NO.3306/BANG/2018 M/S. CARBON CLEAN SOLUTIONS PVT. LTD., WEST MUMBAI IN THE INCOME TAX APPELLATE TRIBUNAL ABENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.3306/BANG/2018 ASSESSMENT YEAR: 2015-16 M/S. CARBON CLEAN SOLUTIONS PVT. LTD. 102, PINAKIN CHSL, SEVEN BUNGALOWS GORAI ROAD BORIVILI WEST MUMBAI PAN NO :AADCC8017F VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-2(1)(1) BANGALORE APPELLANT RESPONDENT APPELLANT BY : N O N E RESPONDENT BY : SHRI KANNAN NARAYANAN, D.R. DATE OF HEARING : 03.08.2021 DATE OF PRONOUNCEMENT : 03.08.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 30.10.2018 PASSED BY LD. CIT(A), BENGALURU AN D IT RELATES TO THE ASSESSMENT YEAR 2015-16. NONE APPEARED ON BEHA LF OF THE ASSESSEE. HOWEVER, THE AUTHORIZED REPRESENTATIVE O F THE ASSESSEE M/S. BVS RAO & CO., CHARTERED ACCOUNTANT HAVE FILED AN APPLICATION FOR ADJOURNMENT OF THE MATTER. CONSIDE RING THE FACT THAT THE ISSUE IS A COVERED BY THE JUDICIAL DECISIO NS, WE REJECTED THE ADJOURNMENT REQUEST AND PROCEEDED TO DISPOSE OF THE APPEAL. ITA NO.3306/BANG/2018 M/S. CARBON CLEAN SOLUTIONS PVT. LTD., WEST MUMBAI PAGE 2 OF 4 2. THE ISSUE URGED IN THIS APPEAL RELATES TO DISA LLOWANCE OF RS.7.36 LAKHS TREATING THE SAME AS CAPITAL IN NATUR E. 3. WE HEARD LD. D.R. AND PERUSED THE RECORD. THE A SSESSEE COMPANY IS ENGAGED IN PROVIDING TECHNOLOGICAL SOLUT IONS TO CAPTURE CARBONDIOXIDE FROM INDUSTRIAL UNITS. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE A SSESSEE HAS PAID A SUM OF RS.1.36 LAKHS TO SRI CHENNA RANGANATH A FOR OBTAINING DIGITAL SIGNATURES FOR THE DIRECTOR AND A LSO FOR DRAFTING CALL OPTION AND SHARE SUBSCRIPTION AGREEMENT IN PUR SUANCE OF A PROPOSAL FOR BUSINESS RESTRUCTURING. FURTHER, THE ASSESSEE HAS ALSO PAID A SUM OF RS.6,00,500/- TO M/S. INVESTEC CAPITA L SERVICES, INC. FOR GETTING ADVISORY SERVICES IN CONNECTION WITH RA ISING OF EQUITY CAPITAL FROM POTENTIAL INVESTORS. THE A.O. PROPOSE D TO DISALLOW BOTH THE PAYMENTS AGGREGATING TO RS.7,36,500/- TREA TING THEM AS CAPITAL IN NATURE. 4. THE ASSESSEE SUBMITTED THAT DIGITAL SIGNATURE WA S OBTAINED FOR DIRECTORS IN ORDER TO ENABLE THEM TO SIGN DIGIT ALLY ON BEHALF OF THE COMPANY AND HENCE, THE SAID EXPENDITURE HAS BEE N INCURRED IN THE ORDINARY COURSE OF ITS BUSINESS. WITH REGARD T O THE OTHER PAYMENTS, THE ASSESSEE SUBMITTED THAT IT DID NOT RA ISE ANY FRESH CAPITAL, SINCE THEIR PLAN TO RAISE FUNDS DID NOT SU CCEED. ACCORDINGLY, IT WAS SUBMITTED THAT THE ABOVE EXPENS ES DID NOT GIVE RISE TO ANY CAPITAL ASSET. SINCE THESE EXPENSES HA VE BEEN INCURRED IN THE ORDINARY COURSE OF BUSINESS, IT WAS SUBMITTE D THAT THEY ARE ALLOWABLE AS DEDUCTION. THE ASSESSEE PLACED ITS RE LIANCE ON THE DECISION RENDERED BY AHMADABAD BENCH OF TRIBUNAL IN THE CASE OF VIMAL OIL FOODS LTD. VS. JCIT (ITA NO.2515/AHD/2010 DATED 5.7.2013), WHEREIN EXPENSES INCURRED ON AN ABORTED SHARE ISSUE ITA NO.3306/BANG/2018 M/S. CARBON CLEAN SOLUTIONS PVT. LTD., WEST MUMBAI PAGE 3 OF 4 WAS HELD TO BE ALLOWABLE AS DEDUCTION. THE ASSESSE E ALSO RELIED ON OTHER CASE LAWS AND CONTENDED THAT THE ENTIRE EXPEN DITURE INCURRED IN RESPECT OF ABORTED SHARE ISSUE IS ALLOWABLE AS D EDUCTION. THE A.O. DID NOT AGREE WITH THE CONTENTION OF THE ASSES SEE AND ACCORDINGLY DISALLOWED RS.7,36,500/- HOLDING IT AS CAPITAL IN NATURE. THE LD. CIT(A) ALSO CONFIRMED THE SAME. 5. THE UNDISPUTED FACT IS THAT THE ASSESSEE DID NO T RAISE ANY MONEY BY WAY OF ISSUING SHARE CAPITAL, AS PLANNED B Y IT ORIGINALLY, WHEN THE IMPUGNED EXPENSES WERE INCURRED. HENCE, TH ESE EXPENDITURE PERTAIN AN ABORTED SHARE ISSUE. THE QU ESTION WHETHER SUCH KIND OF EXPENSES CAN BE ALLOWED AS DEDUCTION H AS BEEN EXAMINED BY AHMEDABAD BENCH OF ITAT IN THE CASE OF VIMAL OIL LTD. (SUPRA), WHEREIN THE TRIBUNAL FOLLOWED THE DECISION RENDERED BY HONBLE GUJARAT HIGH COURT IN THE CASE OF NIMBUS CO MMUNICATIONS LTD. (TAX APPEAL NO.4244 OF 2010 DATED 8.2.2011). THE HONBLE GUJARAT HIGH COURT HAS HELD 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 OFF ER, NO NEW ASSET HAS COME INTO EXISTENCE AND CONSEQUENTLY THERE IS NO QU ESTION OF THE ASSESSEE GETTING ANY ENDURING BENEFIT. WITH THE APPROVAL OF SEBI, THE ASSESSEE WAS TO INCREASE THE SHARE CAPITAL AND THEREBY PROMOTE I TS BUSINESS ACTIVITY. HOWEVER, THE SAME GOT ABORTED DUE TO REASONS BEYOND ITS CONTROL. IN THESE CIRCUMSTANCES, IN VIEW OF THE DECISION OF THIS COUR T IN THE CASE OF COMMISSIONER OF INCOME TAX VS. M/S. ESSAR OIL LIMIT ED, INCOME TAX APPEAL (L) NO. 921 OF 2006 DECIDED ON 16TH OCTOBER 2008, IN OUR OPINION, NO FAULT CAN BE FOUND WITH THE DECISION OF THE INCO ME TAX APPELLATE TRIBUNAL IN ALLOWING THE ABORTED SHARE ISSUE EXPEND ITURE UNDER SECTION 37 OF THE INCOME TAX ACT, 1961.' ITA NO.3306/BANG/2018 M/S. CARBON CLEAN SOLUTIONS PVT. LTD., WEST MUMBAI PAGE 4 OF 4 6. IN OUR VIEW, THE DECISION RENDERED BY HONBLE GU JARAT HIGH COURT SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE. ACCORDINGLY, FOLLOWING THE ABOVE SAID DECISION, WE HOLD THAT THE EXPENSES INCURRED IN RESPECT OF AN ABORTED SHARE ISSUE IS AL LOWABLE AS DEDUCTION U/S 37 OF THE ACT. ACCORDINGLY, WE SET A SIDE THE ORDER PASSED BY LD. CIT(A) AND DIRECT THE A.O. TO DELETE THE IMPUGNED DISALLOWANCE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD AUG, 2021. SD/- (N.V. VASUDEVAN) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 3 RD AUG, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.