DLF New Gurgaon Homes Developers Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 3614/DEL/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3629 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 10-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Business expenditure; Competent authority; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B , NEW DELHI BEFORE SH. H.S. SIDHU , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 3614 /DE L/ 2012 ASSESSMENT YEAR: 2008 - 09 M/S. DLF NEW GURGAON HOMES DEVELOPERS PVT. LTD., 1 - E, NAAZ CINEMA COMPLEX, JHANDEWALAN EXTENSION, NEW DELHI VS. ACIT, CIRCLE - 10(1), NEW DELHI PAN : AACCC8505D ( APPELLANT ) (RESPONDENT) APPELLANT BY SH. R.S. SINGHVI, CA RESPONDENT BY MS. ASHIMA NEB, SR.DR DATE OF HEARING 11.01.2018 DATE OF PRONOUNCEMENT 31.01.2018 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST ORDER DATED 22/05/2012 PASSED BY THE LD. COMMISSIONER OF INCOME - TAX ( APPEALS) - XIII, NEW DELHI [ IN SHORT THE LD. CIT - (A) ] FOR ASSESSMENT YEAR 2008 - 09 RAISING FOLLOWING GROUNDS: 1. THAT THE IMPUGNED ORDER DATED 22.05.2012 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XIII, NEW DELHI IS BAD IN LAW AND WRONG ON FACTS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX - (APPEALS) - XIII, NEW DELHI HAS ERRED IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.5,60,835/ - OUT OF LEGAL & PROFESSIONAL EXPENSES BY UPHOLDING THAT TDS PAID TO THE GOVERNMENT ACCOUNT WITHOUT I NCURRING EXPENDITURE CANNOT BE HELD TO BE A BUSINESS EXPENDITURE FOR EARNING INCOME 2 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX - (APPEALS) - XIII, NEW DELHI HAS ERRED IN LAW IN CONFIRMING THE DISALLOWANCE OF RS .67,62,806/ - OUT OF LEGAL AND PROFESSIONAL EXPENSES BY UPHOLDING THAT EXPENSES INCURRED FOR AVAILING PROFESSIONAL SERVICES IN CONNECTION WITH ISSUE OF PREFERENCE SHARES WERE CAPITAL IN NATURE. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, SUBST ITUTE, WITHDRAW AND/OR VARY ANY GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 2. B RIEFLY STATED FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY WAS ENGAGED IN REAL ESTATE BUSINESS. THE ASSESSEE FILED RETURN OF INCOME ON 29/09/200 8 DECLARING TOTAL INCOME OF RS.81, 07,06,846/ - . THE CASE WAS SELECTED FOR SCRUT INY AND NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ) WAS ISSUED AND COMPLIED WITH. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 30/12/2010 AND T OTAL INCOME WAS ASSESSED AT RS. 82,07,00,770/ - AFTER MAKING CE RTAIN DISALLOWANCES. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT - A, WHO PARTLY ALLOWED THE APPEAL. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. THE GROUND NO. 1 OF THE APPEAL IS GENERAL I N NATURE AND WE ARE NOT REQUIRED TO ADJUDICATE UPON SPECIFICALLY , THEREFORE, DISMISSED AS INFRUCTUOUS. 4. THE GROUND NO. 2 OF THE APPEAL RELATES TO DISALLOWANCE OF RS. 5, 60, 835/ - OUT OF THE LEGAL AND PROFESSIONAL EXPENSES. 4.1 THE FACTS QUA THE DISALLOWA NCE ARE THAT THE ASSESSEE DEBITED PROVISION OF RS. 49.50 LACS TO THE PROFIT AND LOSS ACCOUNT AND CLAIMED AS BUSINESS EXPENDITURE. ACCORDING TO THE ASSESSING OFFICER , PROVISION MADE IN THE ACCOUNTS WERE NOT AN ALLOWABLE DEDUCTION BEING UNASCERTAINED LIABILI TY, SO HE CALLED UPON TO THE ASSESSEE TO SHOW CAUSE AS WHY THE SAID PROVISION MAY NOT BE DISALLOWED. IN RESPONSE, THE 3 ASSESSEE SUBMITTED THAT SAID PROVISION OF LEGAL AND PROFESSIONAL CHARGES WERE IN RESPECT OF M/S CB RICHARD ELLIS SOUTH ASIA P LT D. , M/S R & P PARTNERS AND M/S AMARCHAND & MANGAL DAS. THE ASSESSEE FURTHER SUBMITTED THAT ON SAID PROVISION OF RS. 49.50 LACS, IT DEDUCTED TAX AT SOURCE (TDS) OF RS.5,60,835/ - AND BALANCE AMOUNT OF RS. 43,89,165/ - WAS SHOWN AS LIABILITY IN THE BALANCE SHEET AT THE Y EAR END. THE ASSESSEE FURTHER SUBMI TTED THAT SAID LIABILITY OF RS. 43,89,165 / - WAS WRITTEN BACK IN SUBSEQUENT YEAR AND WAS FULLY OFFERED FOR TAX UNDER THE HEAD OTHER INCOME, AND THEREFORE NO DISALLOWANCE IS REQUIRED TO MADE IN THE YEAR UNDER CONSIDERATION. 4.2 THE ASSESSING OFFICER ASKED THE ASSESSEE TO CONFIRM WHETHER THE ASSESSEE ISSUED ANY TDS CERTIFICATES TO THOSE PARTIES OR THOSE PARTIES HAVE CLAIMED CREDIT OF TDS IN THE RETURN OF INCOME FILED. THE ASSESSEE DID NOT FILE ANY REPLY OF THE QUERIES RAISED B Y THE ASSESSING OFFICER. IN VIEW OF THE NO EXPLANATION FROM THE ASSESSEE, THE ASSESSING OFFICER WAS OF THE VIEW THAT IN CASE THAT T DS HAS NOT BEEN DEPOSITED BY THE ASSESSEE COMPANY, THEN THE INCOME THAT HAS TO BE OFFERED BY THE ASSESSEE IN THE SUBSEQUENT A SSESSMENT YEAR SHOULD BE AT RS.49,50,000 / - WHEREAS THE ASSESSEE ONLY OFFERED INCOME OF RS.43,89,165/ - IN ASSESSMENT YEAR 2009 - 10 AND ACCORDINGLY , HE DISALLOWED THE BALANCE AMOUNT OF RS.5,60,835 ( RS. 49,50,000 RS. 43,89,165 / - ) AND ADDED BACK TO THE TOTAL IN COME OF THE ASSESSEE COMPANY. 4.3 BEFORE THE LD. CIT - ( A ) , THE ASSESSEE CONTENDED THAT IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE CL AIMED THAT AMOUNT OF TDS OF RS. 5,60,835/ - AS BUSINESS 4 EXPENSES AND SINCE SAID AMOUNT OF TDS WAS PAID TO THE GOVERNMENT ACCOUNT,, IT WAS A BUSINESS EXPENSE AND IT WAS IMMATERIAL WHETHER THE T DS AMOUNT WAS CLAIMED BY THE PARTY ARE NOT. HOWEVER THE LD. CIT - A WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE AND ACCORDINGLY HE CONFIRMED THE DISALLOWANCE. THE RELEVANT FINDING OF THE LEARNED CIT - A IS REPRODUCED AS UNDER: 5.3 DECISION. I HAVE CONSIDERED THE OBSERVATION OF THE ASSESSING OFFICER AND SUBMISSION OF THE APPELLANT. DURING THE YEAR APPELLANT HAS MADE PROVISIONAL CLAIM FOR LEGAL AND PROFESSIONAL EXPENSES OF RS. 49,50,000/ - . ON THIS CLAIM APPELLANT HAD DEDUCTED TDS OF RS. 5,60,835/ - AND DEPOSITED THE SAME TO THE GOVERNMENT ACCOUNT. THIS PROVISION WAS REVERSED BY THE APPELLANT IN SUBSEQUENT YEAR AND AN AMOUNT OF RS. 43,89,165/ - WAS OFFERED AS INCOME IN A.Y. 2008 - 09. THE APPELLANT CLAIMED THE TDS AMOUNT OF RS. 5,60,835/ - AS EXPENDITURE IN THE P&L ACCOUNT. IN THE ASSESSMENT ORDER ASSESSING OFFICER HAS ACCEPTED THE APPELLANT S CLAIM OF HAVING OFFERED RS. 43,89,165/ - AS INCOME IN A.Y. 2009 - 10. HOWEVER THE CLAIM OF EXPENDITURE ON ACCOUNT OF TDS OF RS. 5,60,835/ - WAS DISALLOWED AS THIS WAS NOT E XPENDITURE INCURRED FOR THE BUSINESS PURPOSES. THE PAYMENT OF TDS IS NOT AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES OF THE APPELLANT COMPANY. IT IS ALSO SEEN THAT APPELLANT HAS NOT ISSUED ANY TDS CERTIFICATE OR HAS NOT CLARIFI ED ON BEHALF OF THE WHICH RECIPIENT THE TDS WAS DEDUCTED AND PAID. SINCE THE TDS HAS BEEN PAID WITHOUT INCURRING EXPENDITURE UNDER ANY HEAD, THE SAME CANNOT BE HELD TO BE A BUSINESS EXPENDITURE FOR EARNING INCOME. IN VIEW OF THE ABOVE THE CLAIM OF TDS PAID OF RS. 5,60,835/ - WAS RIGHTLY DISALLOWED BY THE ASSESSING OFFICER AND THE SAME IS CONFIRMED. 4.4 BEFORE US , THE LEARNED COUNSEL OF THE ASSESSEE FILED A PAPER BOOK CONTAINING PAGES 1 TO 165 AND REFERRED PAGE 111, WHICH IS A COPY OF VOUCHER TOWARDS PROVISION MADE FOR LEGAL AND PROFESSIONAL EXPENSES DURI NG THE YEAR UNDER CONSIDERATION . HE RELIED ON THE SUBMISSION MADE BEFORE THE LD. CIT - A AND ALSO SUBMITTED THAT ACTION OF THE LD. ASSESSING 5 OFFICER IN DISALLOWING ONLY THE TDS AMOUNT OF RS.5,60, 835/ - WAS NOT IN ACCORDANCE WITH LAW. IN SUPPORT OF HIS CONTENTION HE ALSO RELIED ON THE DECISION OF THE TRIBUNAL, KOLKATA BENCH DATED 30/08/20 17 IN THE CASE OF NARAYANI ISPAT PRIVATE LIMITED IN ITA NO. 2127/KOL/2014 FOR ASSESSMENT YEAR 2010 - 11. 4.5 ON THE CONTRARY, LD. SR. DEPARTMENTAL REPRESENTATIVE (SR. DR) SUBMITT ED THAT ENTIRE PROVISION OF RS. 49.50 LACS FOR LEGAL AND PROFESSIONAL EXPENSES W AS DISALLOWABLE BEING IN UNASCERTAINED LIABILITY. THE FACT THAT IT WAS AN UNASCERTAINED LIABILITY GOT ITSELF PROVED FROM THE EVENT THAT THE ASSESSEE ITSELF HAS WRITTEN BACK THE LIABILITY LEAVING THE AMOUNT OF TAX DEDUCTED AT SO URCE (TDS). ACCORDING TO HER, ONCE THE PROVISION HAS BEEN WRITTEN BACK , THE ASSESSEE WAS REQUIRED TO WRITE BACK THE ENTIRE AMOUNT OF RS. 49.50 LACS, BUT SINCE THE ASSESSEE ONLY WRITTEN BACK THE AMOUNT OF RS. 43,89,165/ - IN THE SUBSEQUENT YEAR AND THEREFORE THE ACTION OF THE ASSESSING OFFICER IN DISALL OWING THE BALANCE AMOUNT OF RS. 5,60,835 / - IN THE YEAR UNDER CONSIDERATION IS JUSTIFIED. 4.6 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE YEAR UNDER CONSIDERATION THE ASSESSEE CLAIMED THE EXPENDITU RE OF RS. 49.50 LACS AS PROVISIONS TOWARDS LEGAL AND PROFESSIONAL EXPENSES. THE ASSESSEE IT SELF WRITTEN BACK AMOUNT OF RS. 43,89,165/ - IN THE SUBSEQUENT YEAR. THIS MEANS THE ASSESSEE HAS CLAIMED THE AMOUNT OF RS.5,60,835/ - AS BUSINESS EXPEN DITURE OUT OF THE AMOUNT OF RS. 49,50,000/ - IN THE YEAR UNDER CONSIDERATION . NOW THE QUESTION BEFORE US IS WHETHER THIS AMOUNT OF RS.5,60,835/ - IS AN ALLOWABLE EXPENDITURE IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE CLA IMED THAT SAID AMOUNT OF RS. 5, 60,835 / - HAS BEEN PAID TO THE GOVERNMENT ACCOUNT AS TDS, AND THEREFORE IT IS A BUSINESS EXPENDITURE ALLOWABLE TO THE ASSESSEE. IN OUR OPINION , THIS CONTENTION OF THE ASSESSEE 6 IS NOT TENABLE. THE TAX HAS BEEN DEDUCTED AS TAX LIABILITY OF THE DEDUCTEE AND IT IS NOT THE TAX LIABILITY OF THE ASSESSEE. IN OTHER WORDS THE TAX DEDUCTED AT SOURCE IS THE AMOUNT PAID TO THE GOVERNMENT ON BEHALF OF THOSE PARTIES , WHICH MEANS THE SAID AMOUNT HAS BEEN PAID TO THOSE PARTIES. NOW THE QUESTION ARISES WHETHER THIS AMOUNT PAID TO T HOSE PARTIES IS ALLOWABLE TO THE ASSESSEE, WHEN THOSE PARTIES HAVE NOT RENDERED ANY SERVICES AND THE BALANCE LIABILITY OF RS. 43, 89, 165/ - HAS ALREADY BEEN WRITTEN BACK BY THE ASSESSEE IN SUBSEQUENT ASSESSMENT YEAR. IN OUR VIEW, THE AMOUNT OF RS. 5, 60, 83 5/ - DEPOSITED AS TDS, IS AN EXPENDITURE, WHICH THE ASSESSEE HAS FAILED TO EXPLAIN AS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. WE ALSO NOTE THAT THE ASSESSEE HAS FAILED TO EXPLAIN BEFORE THE ASSESSING OFFICER WHETHER THIS AMOUNT OF TAX DE DUC TED AT SOURCE WAS DEPOSITED IN G OVERNMENT ACCOUNT. 4.7 THE DECISION IN THE CASE OF NARAYANI ISPAT P . LTD. (SUPRA) IS OF NO ASSISTANT TO THE ASSESSEE AS IN THE SAID CASE THE ISSUE BEFORE THE TRIBUNAL WAS THAT INTEREST EXPENSES ON DELAYED PAYMENT OF SER VICE TAX WAS AN ALLOWABLE DEDUCTION OR NOT. THE ISSUE INVOLVED IN THE INSTANT CASE IS DIFFERENT FROM THE ISSUE BEFORE THE TRIBUNAL IN SAID CASE. 4.8 ACCORDING TO THE ASSESSING OFFICER, THE PROVISION OF RS. 49.5 LAKHS WAS AN UNASCERTAINED LIABILITY , HOWEVE R THE ASSESSEE CLAIMED THAT IT WAS A ASCERTAINED LIABILITY . BUT THIS CONTROVERSY IS NOT BEFORE US AS THE LD. CIT - A HAS DISALLOWED THE AMOUNT AS NOT INCURRED FOR THE PURPOSE OF BUSINESS . IN OUR OPINION, THE FINDING OF THE LD. CIT - (A) ON THE ISSUE IN DISPUT E IS WELL REASONED AND WE DO NOT FIND ANY ERROR IN THE SAME, ACCORDINGLY WE UPHOLD THE SAME. THE GROUND NO. 2 OF THE APPEAL OF THE ASSESSEE IS ACCORDINGLY DISMISSED. 7 5. THE GROUND NO. 3 OF THE APPEAL RELATES TO DISALLOWANCE OF RS. 67, 62, 806/ - OUT OF THE LE GAL AND PROFESSIONAL EXPENSES ON THE GROUND THAT SAME WAS INCURRED IN CONNECTION WITH ISSUE OF PREFERENCE SHARES AND THUS IT WAS IN THE NATURE OF CAPITAL EXPENDITURE. 5.1 ACCORDING TO THE ASSESSING OFFICER SAID AMOUNT WAS INCURRED AS PROFESSIONAL FEE IN RE LATION WITH RAISING PREFERENTIAL SHARES, WHICH BEING CAPITAL IN NATURE, IT WAS NOT ALLOWABLE TO THE ASSESSEE. THE CONTENTION OF THE ASSESSEE THAT DURING THE YEAR THERE IS NO INCREASE IN THE SHARE CAPITAL AND INCREASE WAS ONLY IN THE PRECEDING YEAR AND THER EFORE SAID AMOUNT OF PROFESSIONAL FEE PAID CANNOT BE DISALLOWED IN THE YEAR UNDER CONSIDERATION. THE LD. CIT - A HAS ANALYZED THE FACTS OF THE CASE AND HELD THAT THE BILL OF PROFESSIONAL FEE WAS RAISED IN THE PRECEDING YEAR IN RELATION TO INCREASE IN PREFERE NCE SHARE CAPITAL BUT THE BILL WAS REVISED AND RECEIVED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION, THUS, THE LIABILITY TO PAY THE EXPENSES WAS CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION AND THEREFORE IT WAS PAID IN THE YEAR UNDER CONSIDERATION. ACC ORDING TO HIM , THE EXPENSES ARE IN RELATION TO RAISING SHARE CAPITAL AND ACCORDINGLY HE CONFIRMED THE DISALLOWANCE. THE RELEVANT FINDING OF THE LD. CIT - A ON THE ISSUE IN DISPUTE IS REPRODUCED AS UNDER: 6.3 DECISION. I HAVE CONSIDERED THE OBSERVATION OF THE ASSESSING OFFICER AND SUBMISSION OF THE APPELLANT. IT IS OBSERVED THAT APPELLANT HAS INCURRED AN AMOUNT OF RS. 67,62,806/ - TOWARDS PAYMENT TO M/S ALLEN & OVERY SHOOK LIN & BOK FOR PROVIDING LEGAL AND PROFESSIONAL SE RVICES FOR ISSUE OF REDEEMABLE PREFERENCE SHARES DURING THE FINANCIAL YEAR 2006 - 07 TO M/S KIDSON PTE. LTD. THIS ISSUE OF REDEEMABLE PREFERENCE SHARES TRANSACTION HAD TAKEN PLACE DURING THE PERIOD 12TH SEPTEMBER 2006 TO 11TH JANUARY 2007. M/S ALLEN & OVERY SHOOK LIN & BOK RAISED THEIR BILL DATED 16.01.2007 IN FAVOUR OF DEUTSCHE BANK AG, HONKONG BRANCH. THIS BILL WAS IN TURN RECEIVED BY THE APPELLANT COMPANY IN THE MONTH OF NOVEMBER, 2007 FOR PAYMENT TO M/S ALLEN & OVERY SHOOK LIN & BOK TOWARDS THE PROFESSION AL SERVICES RENDERED DURING THE PERIOD 12TH SEPTEMBER 8 2006 TO 11TH JANUARY 2007 FOR ISSUE OF PREFERENTIAL SHARES. AFTER RECEIPT OF THE BILL, THE APPROVAL OF THE COMPETENT AUTHORITY AND CERTIFICATE FORM CA IN ANNEXURE B WAS OBTAINED FOR REMITTANCE AFTER DED UCTING TDS, TIN: TDS ON SUCH PAYMENTS WAS DEDUCTED @11.33% ON 05.01.2008 AND ACTUAL AMOUNT OF RS. 59,84,405/ - WAS REMITTED TO M/S ALLEN & OVERY SHOOK LIN & BOK ON 07.01.2008 THROUGH ICICI BANK, NEW DELHI. THE TDS OF RS. 7,64,670/ - WAS DEPOSITED TO THE GOVT , ACCOUNT. THOUGH THE EXPENDITURE PERTAINS TO ISSUE OF REDEEMABLE PREFERENCE SHARES BY THE APPELLANT COMPANY TO M/S KIDSON PTE. LTD. FOR F.Y. 2006 - 07 BUT THE LIABILITY TO PAY THESE EXPENSES WERE CRYSTALLIZED DURING THE YEAR AS THE REVISED BILL FOR PAYMENT OF SERVICES WAS RECEIVED BY THE APPELLANT IN NOVEMBER 2007 THROUGH DEUTSCHE BANK AG, HONKONG BRANCH. SINCE THE LIABILITY WAS CRYSTALLIZED DURING THE F.Y. 2007 - 08, THE SAME IS CLAIMED AS EXPENDITURE DURING THE YEAR. AS REGARDS THE ASSESSING OFFICER S OBSER VATION THAT THIS AMOUNT WAS INCURRED FOR RAISING AUTHORIZED CAPITAL, THEREFORE, THE SAME IS CAPITAL IN EXPENDITURE. I HAVE EXAMINED THE BALANCE SHEET OF THE APPELLANT WHICH IS FILED AT PAGE 53 TO 63 OF THE PAPER BOOK SUBMITTED BEFORE ME. ON GOING THROUGH T HE SAME, IT IS SEEN THAT APPELLANT S AUTHORIZED SHARE CAPITAL AS ON 31.03.2008 IS AT RS. 446,41,00,000/ - , WHICH IS SAME AS SHOWN AS ON 31.03.2007. IN THE F.Y. 2006 - 07, THE APPELLANT HAD ISSUED 22,32,000/ - COMMUTATIVE REDEEMABLE PREFERENCE SHARES OF RS. 100 EACH AND 4,24,08,000/ - CUMULATIVE REDEEMABLE B PREFERENCE SHARES OF RS. 100 EACH. THROUGH ISSUE OF THESE REDEEMABLE SHARES APPELLANT HAS RAISED ITS ISSUED CAPITAL BY RS. 446,40,00,000/ - DURING THE F.Y. 2006 - 07. THEREFORE, THERE IS A CHANGE IN THE AUTHORIZ ED AND ISSUED CAPITAL WITH REFERENCE TO 31.03.2006. IT IS CLAIMED BY THE APPELLANT THESE EXPENSES HAVE NOT BEEN INCURRED FOR INCREASE IN THE AUTHORIZED SHARE CAPITAL OF THE APPELLANT COMPANY BUT THE SAME HAVE BEEN INCURRED FOR ISSUE OF REDEEMABLE PREFERENT IAL SHARES TO M/S KIDSON PTE. LTD. HOWEVER IT IS SEEN THAT CONTENTION OF THE APPELLANT IS NOT BASED ON THE FACTS AVAILABLE ON RECORD. THE APPELLANT HAS CLAIMED THAT THE PAID UP CAPITAL WAS RAISED IN F.Y. 2006 - 07 AND SAME WAS CLAIMED THERE. HOWEVER, IT IS S EEN THAT EXPENSES RELATING TO ISSUE OF PREFERENTIAL SHARES DURING F.Y. 2006 - 07 HAVE BEEN CLAIMED DURING THE YEAR AS LIABILITY TO PAY THESE EXPENSES WAS CRYSTALLIZED DURING THE YEAR. THEREFORE, THE EXPENDITURE PERTAINING TO RAISING OF PAID UP CAPITAL HAS BE EN CLAIMED DURING THE YEAR AND SAME ARE IN THE NATURE OF CAPITAL EXPENDITURE. THE EXPENSES RELATING TO RAISING THE BASE 9 CAPITAL ARE OF CAPITAL IN NATURE AND SAME ARE NOT ALLOWABLE. IN THIS REGARD RELIANCE IS PLACED ON FOLLOWING JUDICIAL PRONOUNCEMENTS: - H INDUSTAN GAS & INDUSTRIES LTD. V. COMMISSIONER OF INCOME - TAX 117 ITR 549 (CAL.) SECTION 37(1) OF THE INCOME - TAX ACT, 1961 BUSINESS EXPENDITURE WHETHER EXPENDITURE INCURRED FOR PREPARING PROSPECTUS AND PAYMENT OF UNDERWRITING COMMISSION AND BROKERAGE FOR I SSUE OF REDEEMABLE PREFERENCE SHARES WAS DECUCTIBLE AS REVENUE EXPENDITURE HELD, NO, EXPENDITURE IN QUESTION WAS CAPITAL IN NATURE FACTS THE ASSESSEE - COMPANY INCURRED EXPENDITURE OF RS. 10,080 AND RS. 50,687 RESPECTIVELY FOR PAYMENT OF SOLICITORS' FEES FOR PREPARING A PROSPECTUS FOR ISSUE OF REDEEMABLE PREFERENCE SHARES AND FOR PAYMENT OF UNDERWRITING COMMISSION AND BROKERAGE FOR THE ISSUE OF THESE SHARES AND CLAIMED DEDUCTION OF THE EXPENDITURE IN ITS ASSESSMENT. THE ITO DISALLOWED THE CLAIM ON THE GROUND THAT THE EXPENDITURE WAS NOT OF A REVENUE NATURE. THE AAC CONFIRMED THE ITO'S ORDER. IT WAS CONTENDED BEFORE THE TRIBUNAL THAT, AS THERE WAS HARDLY ANY DIFFERENCE BETWEEN REDEEMABLE PREFERENCE SHARES AND DEBENTURES AND AS IT WAS HELD BY THE SUPREME COURT IN THE CASE OF INDIA CEMENTS LTD. V. CIT [1966] 60 ITR 52 , THAT A LOAN WAS NOT AN ASSET OR ADVANTAGE OF AN ENDURING NATURE AND THAT THERE WAS NO DISTINCTION BETWEEN INTEREST PAID ON LOAN AND AN EXPENDITURE INCURRED FOR OBTAINING A LOAN, THE EXPENSES FOR ISSUE OF REDEEMABLE PREFERENCE SHARES WERE ALLOWABLE AS DEDUCTION. THE TRIBUNAL, HOWEVER, HELD THAT THE AMOUNTS SPENT WERE CAPITAL IN NATUR E. ON REFERENCE: HELD SHARE CAPITAL INCLUDING REDEEMABLE PREFERENCE SHARE CAPITAL COULD NOT BE EQUATED WITH LOAN OR DEBENTURES INASMUCH AS A DEBENTURE - HOLDER COULD SUE A COMPANY WHEREAS THE SHAREHOLDER COULD NOT. THE ASSESSEE - COMPANY FAILED TO DISCHARGE I TS ONUS OF PROVING THAT THE EXPENDITURE INCURRED WAS NOT OF A CAPITAL NATURE. THEREFORE, THE EXPENDITURE WAS NOT ALLOWABLE AS DEDUCTION. PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPN. LTD. V. COMMISSIONER OF INCOME - TAX 225 ITR 792 (SC) SECTION 37(1) OF THE INCOME - TAX ACT, 1961 - BUSINESS EXPENDITURE - ALLOWABLE AS - WHETHER AMOUNT PAID BY COMPANY TO ROC, AS FILING FEE FOR ENHANCEMENT OF CAPITAL BASE OF COMPANY CAN BE ALLOWED AS REVENUE EXPENDITURE - HELD, NO FACTS 10 THE ASSESSEE - COMPANY C LAIMED CERTAIN AMOUNT PAID TO THE REGISTRAR OF COMPANIES AS FILING FEE FOR ENHANCEMENT OF CAPITAL BASE, AS THE REVENUE EXPENDITURE. THE ASSESSEE'S CLAIM WAS ALLOWED BY THE ASSESSING OFFICER BUT THE COMMISSIONER EXERCISING POWER UNDER SECTION 263 DISALLOWED THE SAME. ON APPEAL, THE TRIBUNAL UPHELD THE COMMISSIONER'S ORDER. IN VIEW OF THE CONFLICT OF OPINION AMONGST THE HIGH COURTS THE QUESTION HAD BEEN DIRECTLY REFERRED TO THE SUPREME COURT FOR DETERMINATION. ON REFERENCE UNDER SECTION 257: HELD THE FEE PAI D TO THE REGISTRAR FOR EXPANSION OF THE CAPITAL BASE OF THE COMPANY WAS DIRECTLY RELATED TO THE CAPITAL EXPENDITURE INCURRED BY THE COMPANY AND ALTHOUGH INCIDENTLY THAT WOULD CERTAINLY HELP IN THE BUSINESS OF THE COMPANY AND MAY ALSO HELP IN PROFIT - MAKING, IT STILL RETAINED THE CHARACTER OF A CAPITAL EXPENDITURE SINCE THE EXPENDITURE WAS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY. THEREFORE, THE AMOUNT PAID TO THE ROC, AS FILING FEE FOR ENHANCEMENT OF CAPITAL, WAS NOT A REVENUE EXP ENDITURE. THE FACTS OF THE ABOVE CITED JUDICIAL PRONOUNCEMENTS ARE IDENTICAL WITH THE FACTS OF THE APPELLANT S CASE. THEREFORE, THE RATIO OF THE ABOVE CITED JUDICIAL PRONOUNCEMENT IS SQUARELY APPLICABLE TO THE APPELLANT S CASE. THE EXPENSES INCURRED FOR P AYMENT TO M/S ALLEN & OVERY SHOOK LIN & BOK FOR PROVIDING PROFESSIONAL SERVICES FOR ISSUE OF PREFERENCE SHARES WERE CAPITAL IN NATURE. THEREFORE, THE SAME ARE HELD AS CAPITAL EXPENDITURE. THE CASE LAWS RELIED UPON BY THE APPELLANT ARE RELEVANT TO ISSUE OF BONUS SHARES AND DEBENTURES AND NOT RELATED TO EXPANSION OF PREFERENCE SHARE CAPITAL AND RAISING OF THE ISSUED CAPITAL. THEREFORE, THE SAME ARE NOT APPLICABLE TO THE APPELLANT S CASE. HENCE, THE SUBMISSION OF THE APPELLANT IS REJECTED AND DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFIRMED. 5.2 B EFORE US, THE LEARNED COUNSEL OF THE ASSESSEE RELIED ON THE SUBMISSION MADE BEFORE THE LD. CIT - A AND SUBMITTED THAT ISSUE IN DISPUTE MAY BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION OF THE FACTS. 5.3 ON THE CONTRARY, THE LD. SR. DR SUPPORTED THE FINDING OF THE LD. CIT - ( A ) AND REQUESTED TO UPHOLD THE SAME. 5.4 WE HAVE HEARD THE R IVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ISSUE IN DISPUTE IN THE PRESENT GROUND BEFORE US 11 IS WHETHER THE LEGAL AND PROFESSIONAL EXPENDITURE OF RS. 67,62,860/ - IS IN RELATION TO RAISING OF SHARE CAPITAL. IF IT IS RELATED TO RAISING SH ARE CAPITAL, THEN IN VIEW OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL ALLOTMENT CORPORATION LTD . VS. COMMISSIONER OF INCOME T AX , 2 25 ITR 792 (SC) IS NOT ALLOWABLE. THE LD. CIT - ( A ) HAS GIVEN THE FINDING THAT SAID EXPE NDITURE WAS INCURRED FOR ISSUE OF REDEEMABLE PREFERENTIAL SHARES TO M/S KITSON PTE LTD AND THOUGH THE SAID EXPRESS WAS INCURRED DURING FINANCIAL YEAR 2006 - 07 BUT HAS BEEN CLAIMED DURING THE YEAR AS LIABILITY TO PAY THESE EXPENSES CRYSTALLISED DURING THE YE AR. THIS FACTUAL FINDING OF THE LD. CIT - ( A ) HAS NOT BEEN REBUTTED BY THE LD. COUNSEL OF THE ASSESSEE. THUS , IN VIEW OF THE FINDING OF THE LD. CIT - ( A ) THAT EXPENSES ARE IN RELATION TO ISSUE OF SHARE CAPITAL, SAME ARE NOT ALLOWABLE. IN OUR OPINION FINDING OF THE LD. CIT - ( A ) ON THE ISSUE IN DISPUTE IS WELL REASONED AND WE DO NOT FIND ANY ERROR IN THE SAME . A CCORDINGLY , WE UPHOLD THE SAME. THE GROUND NO. 3 OF THE APPEAL OF THE ASSESSEE IS DISMISSED. 5.5 THE GROUND NO. 4 OF THE APPEAL BEING GENERAL IN NATURE, IT IS DISMISSED AS INFRUCTUOUS. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 3 1 S T JAN . , 201 8 . S D / - S D / - ( H.S. SIDHU ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 3 1 S T JANUARY , 201 8 . RK / - (D.T.D) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI