NAVI MUMBAI SEZ P. LTD, MUMBAI V. ADDL CIT RG 7(1), MUMBAI

ITA 493/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84617 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-12-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 23-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK BATRA
• Keywords: Depreciation; Source of fund; Question of law; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BE NCH, MUMBAI , !' $ $ $ $ % & ' , !' ( BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I .T.A. NO. 493/MUM/2012 ( ) ) ) ) / ASSESSMENT YEAR : 2008-09 M/S. NAVI MUMBAI SEZ PVT. LTD., 1 ST FLOOR, JAI CENTRE, 34, P.D. MELLO ROAD, OPP. RED GATE, MASJID , MUMBAI-400 009 / VS. THE ACIT, RANGE 7(1), MUMBAI '* ./ +, ./ PAN/GIR NO. : AACCN 0042N ( *- / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / APPELLANT BY: SHRI VIJAY MEHTA ./*- 1 0 / RESPONDENT BY: SHRI VIVEK BATRA 1 %2 / DATE OF HEARING :11.12.2014 34) 1 %2 / DATE OF PRONOUNCEMENT :22.12.2014 !& / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE LD. CIT(A)- 12, MUMBAI DT.20.10.2011 PERTAINING TO A.Y.2008-09. 2. THE ASSESSEE IS AGGRIEVED BY THE DENIAL OF THE C LAIM OF DEDUCTION U/S. 35D OF THE ACT. ITA NO. 493/M/2012 2 3. BEFORE US, THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND STATING THAT THE ADDITIONAL GROUND OF APPEAL RAISES PURELY QUESTION OF LAW AND NO NEW FACTS ARE REQUIRED TO BE BROUGHT ON RECORD. BY ADDITIONAL GR OUND, THE ASSESSEE HAS CLAIMED THE EXPENSES AMOUNTING TO RS. 3,50,00,858/- AS REVE NUE IN NATURE. THESE EXPENSES ARE INCURRED UNDER THE FOLLOWING HEAD: SR. NO. PARTICULARS AMOUNT (RS) 1. REGISTRATION FEES PAID TO REGISTRAR OF COMPANIES 1,66,02,000/- 2. STAMP DUTY 1,50,00,010/- 3. FILING FEES OF FORM 5 FOR INCREASE IN SHARE CAPITAL 33,94,000/- 4. MISCELLANEOUS EXPENSES 4,848/- TOTAL 3,50,00,858/- 4. A PERUSAL OF THE ASSESSMENT SHOWS THAT THESE EX PENSES WERE DEBITED BY THE ASSESSEE UNDER THE HEAD MISCELLANEOUS EXPENDITURE I N ITS PROFIT & LOSS A/C AND ON THE SAME THE ASSESSEE HAS CLAIMED 1/5 TH DEDUCTION U/S. 35D OF THE ACT. HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS CIT 229 ITR 383 HAS HELD THAT THE TRIBUNAL HAS THE DISCRETION TO ALLOW OR NOT A LLOW A NEW GROUND TO BE RAISED. BUT WHERE THE TRIBUNAL IS ONLY REQUI RED TO CONSIDER THE QUESTION OF LAW ARISING FROM FACTS WHICH ARE ON RE CORD IN THE ASSESSMENT PROCEEDINGS, THERE IS NO REASON WHY SUCH A QUESTION SHOULD NOT BE ALLOWED TO BE RAISED WHEN IT IS NECESSARY TO CONSIDER THAT QUESTION IN ORDER TO CORRECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. 5. AS MENTIONED ABOVE, THE ISSUE RAISED VIDE ADDITI ONAL GROUND REQUIRES NO VERIFICATION OF NEW FACTS HENCE RESPECTFULLY FOLLOW ING THE FINDINGS OF THE HONBLE SUPREME COURT (SUPRA), THE ASSESSEE WAS ALLOWED TO RAISE THE ADDITIONAL PLEA. ITA NO. 493/M/2012 3 6. THE LD. COUNSEL FOR THE ASSESSEE PROCEEDED BY SU BMITTING HIS CASE ON THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. IT IS TH E SAY OF THE LD. COUNSEL THAT THE IMPUGNED EXPENDITURE WERE INCURRED BY THE ASSESSEE FOR INCREASE OF THE SHARE CAPITAL SHOULD BE ALLOWED AS REVENUE EXPENDITURE. BEFORE PROCEEDING FURTHER, LET US FIRST UNDERSTAND THE JUDICIAL PRECEDENTS IN THIS MATTER. THE HONBLE SUPREME COURT IN THE CASE OF BROOK BOND INDIA LTD 225 ITR 7 98 HAS HELD THAT EXPENDITURE INCURRED BY A COMPANY IN CONNECTION WI TH ISSUE OF SHARES, WITH A VIEW TO INCREASE THEIR CAPITAL IS DIRECTLY R ELATED TO EXPANSION OF THE CAPITAL BASE OF THE COMPANY, AND IS CAPITAL EXPENDI TURE. 7. THE HONBLE SUPREME COURT HAS FOLLOWED THE DECIS ION IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPN. LTD VS CIT 225 ITR 792. IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPN. LTD (SUP RA), THE HONBLE COURT HAS CONSIDERED THE TEST LAID DOWN BY LORD CAVE L.C. IN ATHERTON VS BRITISH INSULATED AND HELSBY CABLES LTD (1925) 10 TC 155, 192 (HL) WH ERE THE LEARNED LAW LORD STATED AS UNDER: . WHEN AN EXPENDITURE IS MADE, NOT ONLY ONCE AND FOR ALL, BUT WITH A VIEW TO BRINGING INTO EXISTENCE AN ASSET OR AN AD VANTAGE FOR THE ENDURING BENEFIT OF A TRADE, I THINK THAT THERE IS VERY GOOD REASON (IN THE ABSENCE OF SPECIAL CIRCUMSTANCES LEADING TO AN OPPOSITE CONCLUSION) FOR TREATING SUCH AN EXPENDITURE AS PROPERLY ATTRI BUTABLE NOT TO REVENUE BUT TO CAPITAL. (EMPHASIS BY US ) 8. AFTER CONSIDERING THIS, THE HONBLE SUPREME COUR T OBSERVED AS UNDER: THIS TEST, AS THE PARENTHETICAL CLAUSE SHOWS, MUST YIELD WHERE THERE ARE SPECIAL CIRCUMSTANCES LEADING TO A CONTRARY CON CLUSION. BRIEFLY ITA NO. 493/M/2012 4 PUT, IT IS NOT A STRAIT-JACKET FORMULA AND THE QUES TION WILL HAVE TO BE DETERMINED IN THE BACKDROP OF FACTS OF EACH CASE. THE TEST LAID DOWN CAN AT BEST BE A GUIDE FOR DETERMINING WHETHER A PA RTICULAR EXPENDITURE FORMS PART OF REVENUE EXPENDITURE OR CA PITAL EXPENDITURE. 9. THE HONBLE SUPREME COURT IN THE CASE OF BOMBAY STEAM NAVIGATION CO. PVT. LTD. VS CIT 56 ITR 52 HAS MADE THE FOLLOWING O BSERVATION: THE QUESTION THEN IS WHETHER THE EXPENDITURE IS OF A CAPITAL NATURE. IT IS NOT EASY ORDINARILY TO EVOLVE A TEST FOR ASCE RTAINING WHETHER IN A GIVEN CASE EXPENDITURE IS CAPITAL OR REVENUE, FOR T HE DETERMINATION OF THE QUESTION MUST DEPEND UPON THE FACTS AND CIRCUMS TANCES OF EACH CASE. THE COURT HAS TO CONSIDER THE NATURE AND ORD INARY COURSE OF BUSINESS AND THE OBJECTS FOR WHICH THE EXPENDITURE IS INCURRED. 10. THE HONBLE SUPREME COURT FURTHER OBSERVED AS U NDER: WHETHER A PARTICULAR EXPENDITURE IS REVENUE EXPEND ITURE INCURRED FOR THE PURPOSE OF BUSINESS MUST BE DETERMINED ON A CONSIDERATION OF ALL THE FACTS AND CIRCUMSTANCES, AND BY THE APPLICATION OF PRINCIPLES OF COMMERCIAL TRADING. THE QUESTION MUST BE VIEWED IN THE LARGER CONTEXT OF BUSINESS NECESSITY OR EXPEDIENCY. IF THE OUTGOING OR EXPEND ITURE IS SO RELATED TO THE CARRYING ON OR CONDUCT OF THE BUSINESS, THAT IT MAY BE REGARDED AS AN INTEGRAL PART OF THE PROFIT-EARNING PROCESS AND NO T FOR ACQUISITION OF AN ASSET OR A RIGHT OF A PERMANENT CHARACTER, THE POSS ESSION OF WHICH IS A CONDITION OF THE CARRYING ON OF THE BUSINESS, THE E XPENDITURE MAY BE REGARDED AS REVENUE EXPENDITURE. ITA NO. 493/M/2012 5 11. IT WOULD BE PERTINENT TO MENTION HERE THAT THE HONBLE MADRAS HIGH COURT IN THE CASE OF KISENCHAND CHELLARAM (INDIA) (P) LTD13 0 ITR 385 WAS DEALING WITH A CASE IN WHICH THE ASSESSEE HAD PAID FEES FOR RAISIN G THE CAPITAL OF A COMPANY TO THE REGISTRAR OF COMPANIES AND HAD CLAIMED THE AMOUNT P AID AS A REVENUE EXPENDITURE. IT WAS HELD THAT WITHOUT CAPITAL A C OMPANY CANNOT CARRY ON ITS BUSINESS AND HENCE THE EXPENSES INCURRED FOR INCREA SING THE CAPITAL WERE BOUND UP WITH THE FUNCTIONING AND FINANCING OF THE BUSINESS . THEREFORE, THE ASSESSEES CLAIM FOR DEDUCTION WAS ALLOWED. THE VIEW TAKEN WA S THAT SINCE THE AMOUNT WAS WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF THE ASSESSEES BUSINESS, IT WAS ALLOWABLE AS A DEDUCTION U/S. 37(1) OF THE I.T. ACT . THIS DECISION WAS FOLLOWED BY THE HONBLE KARNATAKA HIGH COURT AND ALSO BY THE HO NBLE KERALA HIGH COURT. 11.1 A PERUSAL AND UNDERSTANDING OF THE ABOVE JUDIC IAL ANALYSIS SHOWS THAT THE HONBLE SUPREME COURT IN THE CASE OF BROOKE BOND (I NDIA) LTD VS CIT (SUPRA) HAS HELD THAT SUCH EXPENDITURE ARE OF CAPITAL IN NA TURE. THE CO ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF LAXMI AUTO LTD. VS DCI T 101 ITD 209 HAS OBSERVED THAT THE HONBLE APEX COURT IN THE CASE OF BROOKE B OND (INDIA) (SUPRA) HAS NOT DECIDED THE ISSUE AS REGARDS EXPENDITURE INCURRED BY THE ASSESSEE ON INCREASE IN THE CAPITAL TO MEET NEED FOR WORKING FUNDS TO THE ASSESSEE AS THE TRIBUNAL HAS NOT RECORDED THE FINDING TO THE FACT THAT THE EXPANSION OF THE CAPITAL WAS UNDERTAKEN BY THE ASSESSEE IN ORDER TO MEET THE NEED FOR MORE WOR KING FUNDS TO THE ASSESSEE. THE TRIBUNAL FURTHER HELD AS UNDER: 9. HAVING HEARD BOTH THE PARTIES ON THE POINT AND AFTER PERUSING THE VARIOUS PRECEDENTS RELIED UPON, I FIND THAT THE ISSUE IN QUESTION IS A DEBATABLE ISSUE. IT IS NOT DIRECTLY COVERED BY THE DECISION OF THE APEX COURT RENDERED IN THE CASE OF BROOKE BOND (INDIA) LTD. V. CIT [1997] 225 ITR 7983. IN THIS CASE HONBLE SUPREME COURT HAS HELD T HAT EXPENDITURE INCURRED BY A COMPANY IN CONNECTION WITH ISSUE OF S HARES, WITH A VIEW TO INCREASE ITS SHARE CAPITAL IS DIRECTLY RELATED TO T HE EXPANSION OF THE CAPITAL BASE OF THE COMPANY, AND IS CAPITAL EXPENDITURE, EV EN THOUGH IT MAY INCIDENTALLY HELP IN THE BUSINESS OF THE COMPANY AN D IN THE PROFIT-MAKING. IT ITA NO. 493/M/2012 6 WAS CONTENDED BEFORE THE HONBLE SUPREME COURT THAT WHERE THE ENHANCEMENT WAS TO HAVE MORE WORKING FUNDS FOR THE ASSESSEE TO CARRY ON ITS BUSINESS AND TO EARN MORE PROFIT AND THAT IN SU CH A CASE THE EXPENDITURE THAT IS INCURRED IN CONNECTION WITH ISSUING OF SHAR ES TO INCREASE THE CAPITAL HAS TO BE TREATED AS REVENUE EXPENDITURE. ON THIS T HE HONBLE SUPREME COURT HAS HELD THAT THE STATEMENT OF CASE SENT BY T HE TRIBUNAL DID NOT RECORD THE FINDING TO THE EFFECT THAT THE EXPANSION OF THE CAPITAL WAS UNDERTAKEN BY THE ASSESSEE FOR THE PURPOSE OF MEETING THE NEED FO R MORE WORKING FUNDS FOR THE ASSESSEE TO CARRY ON ITS BUSINESS. 10. FROM THIS IT CAN BE CONCLUDED THAT IF THE EXPAN SION OF CAPITAL IS IN ORDER TO MEET THE NEED FOR MORE WORKING FUNDS, IN T HAT EVENTUALITY THE EXPENDITURE COULD PARTAKE THE NATURE OF REVENUE EXP ENDITURE. DE HORS EXAMINATION IN THIS REGARD, IT IS NOT POSSIBLE TO A PPLY THE RATIO. 11. EACH CASE DEPENDS ON ITS OWN FACTS, AND A CLOSE SIMILARITY BETWEEN ONE CASE AND ANOTHER IS NOT ENOUGH BECAUSE EVEN A SINGLE SIGNIFICANT DETAIL MAY ALTER THE ENTIRE ASPECT. IN DECIDING SUCH CASES, ONE SHOULD AVOID TEMPTATION AS SAID BY CORDOZO BY MATCH ING THE COLOUR OF ONE CASE AGAINST THE COLOUR OF ANOTHER. I AM REMINDED O F HERACLITUS WHO SAID YOU NEVER GO DOWN THE SAME RIVER TWICE. WHAT THE GREAT PHILOSOPHER SAID ABOUT TIME AND FLUX CAN RELATE TO LAW AS WELL. IT I S TRITE THAT A RULING OF SUPERIOR COURT IS BINDING LAW. IT IS NOT OF SCRIPTU RAL SANCTITY BUT IS OF RATIO- WISE LUMINOSITY WITHIN THE EDIFICE OF FACTS WHERE T HE JUDICIAL LAMP PLAYS THE LEGAL FLAME. BEYOND THOSE WALLS AND DE HORS THE MIL IEU WE CANNOT IMPART ETERNAL VERNAL VALUE TO THE DECISION, EXALTING THE DOCTRINE OF PRECEDENTS INTO A PRISON HOUSE OF BIGOTRY, REGARDLESS OF VARYING CI RCUMSTANCES AND MYRIAD DEVELOPMENTS. REALISM DICTATES THAT A JUDGMENT HAS TO BE READ, SUBJECT TO THE FACTS DIRECTLY PRESENTED FOR CONSIDERATION. 12. I HAVE CONSIDERED THE ENTIRE CONSPECTUS OF THE CASE. IN MY OPINION, THE DECISION OF THE APEX COURT IN THE CASE OF BROOKE BOND (INDIA) LTD. (SUPRA) CAN BE APPLIED ONLY AFTER EXAMINING TH E OBJECT OF THE CAPITAL ENHANCEMENT. THIS DECISION IS NOT APPLICABLE IF ENH ANCEMENT OF CAPITAL WAS MADE FOR GEARING UP FUNDS FOR WORKING CAPITAL. THE OBJECT OF GEARING UP OF THE CAPITAL WAS NOT LOOKED INTO. TOTAL AMOUNT WAS D ISALLOWED WITHOUT EXAMINING THE DETAILS. 12. TAKING A LEAF OUT OF THE OBSERVATIONS MADE BY H ONBLE SUPREME COURT IN THE CASE OF BOMBAY STEAM NAVIGATION CO. PVT. LTD. (SUPR A), PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPN. LTD (SUPRA), BROOKE BOND INDIA L TD. (SUPRA) AND THE ITA NO. 493/M/2012 7 OBSERVATIONS OF THE CO-ORDINATE BENCH OF THE TRIBUN AL (SUPRA), LET US NOW SEE THE BALANCE SHEET OF THE ASSESSEE FOR THE YEAR UNDER CO NSIDERATION. BALANCE SHEET AS AT MARCH 31,2008 SCHEDULE AS AT MARCH 31, 2008 (RS.) AS AT MARCH 31 , 2007 (RS.) SOURCE OF FUNDS SHAREHOLDERS FUND SHARE CAPITAL A 722 35 91950 4777718080 RESERVE & SURPLUS B 9,53,65,283 SHARE APPLICATION MONEY 11700053705 1721241011 LOAN FUNDS SECURED LOANS C 37613320000 12492095000 TOTAL 56632330938 18991054091 ============ =========== APPLICATION OF FUNDS FIXED ASSETS D GROSS BLOCK 805637 709 128416312 LESS:DEPRECIATION 5722320 9 24306772 NET BLOCK 78841 4500 104109540 CAPITAL WORK- IN-PRO GRESS 77011801 825426301 12915636822 13019746362 INVESTMENTS E 911660979 2763146121 CURRENT ASSETS, LOANS AND ADVANCES CURRENT ASSETS. INVENTORIES (REFER NOTE 2 OF SCHEDULE F 24724820391 - O) CASH AND BANK BALANCES G 46 494207 27410749 LOANS AND ADVANCES H 30364729537 3230356221 5 5136044135 3257766970 LESS: CURRENT LIABILITIES AND PROVISIONS I CURRENT LIABILITIES 202204 324 60640929 PROVISIONS 3 8596153 18965281 240800477 79606210 NET CURRENT ASSETS. 54895243658 31 78160760 ITA NO. 493/M/2012 8 MISCELLANEOUS EXPENDITURE - 30000848 (TO THE EXTENT NOT WRITTEN OFF OR ADJUSTED) (REFER NOTE 7 SCHEDULE O) TOTAL 56632330938 18991054091 SIGNIFICANT ACCOUNTING POLICIES N NOTES ON ACCOUNTS O 13. A PERUSAL OF THE BALANCE SHEET SHOWS THAT THE S HARE CAPITAL HAS BEEN INCREASED FROM 477.77 CRORES TO 722.35 CRORES AND T HE SHARE APPLICATION MONEY HAS BEEN INCREASED FROM 172.12 CRORES TO 1170 CRORES. THE INVENTORIES WHICH WERE NIL DURING THE PREVIOUS YEAR ENDING ON 31.3.2007 NOW ST AND AT 2472.48. 14. THE AFOREMENTIONED FIGURES CLEARLY SHOW THAT TH E ENTIRE INCREMENTAL SHARE CAPITAL HAS BEEN ABSORBED IN THE INVENTORIES. THE HONBLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPN. LTD (SUPRA) HAS CLEARLY LAID DOWN THAT THE CELEBRATED TEST AS LAID DOWN IN THE C ASE OF LORD CAVE L.C. IN ATHERTON VS BRITISH INSULATED AND HELSBY CABLES LTD . (SUPRA) MUST YIELD WHERE THERE ARE SPECIAL CIRCUMSTANCES LEADING TO A CONTRA RY CONCLUSION. AFTER CONSIDERING THE BALANCESHEET OF THE ASSESSEE AS STATED HEREINAB OVE, WE FIND THAT SPECIAL CIRCUMSTANCES DO EXIST IN THE PRESENT CASE WHICH LE AD TO TAKING A CONTRARY CONCLUSION. THERE IS NOT AN IOTA OF DOUBT THAT THE INCREASE IN THE SHARE CAPITAL HAS BEEN FULLY UTILIZED ONLY IN THE PURCHASE OF TRADING STOCK. 15. IT IS A UNIVERSAL TRUTH THAT THE LAW KEEPS ON C HANGING WITH THE PASSAGE OF TIME. THE LAW CHANGES WITH THE CHANGING NEEDS OF T HE SOCIETY. IN THE EARLIER YEARS A COMPANY WAS NOT ALLOWED TO REDUCE ITS SHARE CAPIT AL. THE WORKING GROUP CONSTITUTED BY THE CENTRAL GOVERNMENT IN ITS REPORT SUBMITTED TO IT ON 12 TH FEBRUARY, 1977 HAS OBSERVED THAT ALMOST ALL OECD CO UNTRIES ALLOW COMPANIES TO BUY BACK SHARES SUBJECT TO CERTAIN REGULATIONS. UN FORTUNATELY, SEC. 77 READ WITH SEC. 100 OF THE COMPANIES ACT PREVENTS BUY BACK. O N THE RECOMMENDATION OF THE ITA NO. 493/M/2012 9 WORKING GROUP, SEC. 77A WAS INSERTED BY THE COMPAN YS AMENDMENT ACT 1999 W.E.F. 31.10.1998 AND THE SAID SECTION READ AS UNDE R: 77A. POWER OF COMPANY TO PURCHASE ITS OWN SECURITIE S. (1) NOTWITHSTANDING ANYTHING CONTAINED IN THIS ACT, BUT SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) OF THIS SECTION AND S ECTION 77B, A COMPANY MAY PURCHASE ITS OWN SHARES OR OTHER SPECIFIED SECU RITIES (HEREINAFTER REFERRED TO AS BUY-BACK) OUT OF (I) ITS FREE RESERVES; OR (II) THE SECURITIES PREMIUM ACCOUNT; OR (III) THE PROCEEDS OF ANY SHARES OR OTHER SPECIFIED SECURITIES: PROVIDED THAT NO BUY-BACK OF ANY KIND OF SHARES OR OTHER SPECIFIED SECURITIES SHALL BE MADE OUT OF THE PROCEEDS OF AN EARLIER ISSUE OF THE SAME KIND OF SHARES OR SAME KIND OF OTHER SPECIFIED SECURITIES. (2) NO COMPANY SHALL PURCHASE ITS OWN SHARES OR OTH ER SPECIFIED SECURITIES UNDER SUB-SECTION (1), UNLESS (A) THE BUY-BACK IS AUTHORISED BY ITS ARTICLES; (B) A SPECIAL RESOLUTION HAS BEEN PASSED IN GENERAL MEETING OF THE COMPANY AUTHORISING THE BUY-BACK: PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHAL L APPLY IN ANY CASE WHERE (A) THE BUY-BACK IS OR LESS THAN TEN PER CENT. OF T HE TOTAL PAID- UP EQUITY CAPITAL AND FREE RESERVES OF THE COMPANY; AND (B) SUCH BUY-BACK HAS BEEN AUTHORISED BY THE BOARD BY MEANS OF A RESOLUTION PASSED AT ITS MEETING: PROVIDED FURTHER THAT NO OFFER OF BUY-BACK SHALL BE MADE WITHIN A PERIOD OF THREE HUNDRED AND SIXTY-FIVE DAYS RECOKNED FROM THE DATE OF THE PRECEDING OFFER OF BUY-BACK, IF ANY. EXPLANATION .FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSION OFFER OF BUY-BACK MEANS THE OFFER OF SUCH BUY- BACK MADE IN PURSUANCE OF THE RESOLUTION OF THE BOARD REFERRED TO IN THE FIRST PR OVISO; (C) THE BUY-BACK IS OR LESS THAN TWENTY-FIVE PER CE NT OF THE TOTAL PAID-UP CAPITAL AND FREE RESERVES OF THE COMPANY: ITA NO. 493/M/2012 10 PROVIDED THAT THE BUY-BACK OF EQUITY SHARES IN ANY FINANCIAL YEAR SHALL NOT EXCEED TWENTY-FIVE PER CENT OF ITS TOTAL PAID-UP EQ UITY CAPITAL IN THAT FINANCIAL YEAR; (D) THE RATIO OF THE DEBT OWED BY THE COMPANY IS NO T MORE THAN TWICE THE CAPITAL AND ITS FREE RESERVES AFTER SUCH BUY-BACK: PROVIDED THAT THE CENTRAL GOVERNMENT MAY PRESCRIBE A HIGHER RATIO OF THE DEBT THAN THAT SPECIFIED UNDER THIS CLAUSE FOR A CL ASS OR CLASSES OF COMPANIES. EXPLANATION .FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSION DEBT INCLUDES ALL AMOUNTS OF UNSECURED AND SECURED DEBTS ; (E) ALL THE SHARES OR OTHER SPECIFIED SECURITIES FO R BUY-BACK ARE FULLY PAID- UP; (F) THE BUY-BACK OF THE SHARES OR OTHER SPECIFIED S ECURITIES LISTED ON ANY RECOGNISED STOCK EXCHANGE IS IN ACCORDANCE WITH THE REGULATIONS MADE BY THE SECURITIES AND EXCHANGE BOARD OF INDIA IN THIS BEHALF; (G) THE BUY-BACK IN RESPECT OF SHARES OR OTHER SPEC IFIED SECURITIES OTHER THAN THOSE SPECIFIED IN CLAUSE (F) IS IN ACCORDANCE WITH THE GUIDELINES AS MAY BE PRESCRIBED. (3) THE NOTICE OF THE MEETING AT WHICH SPECIAL RESO LUTION IS PROPOSED TO BE PASSED SHALL BE ACCOMPANIED BY AN EXPLANATORY STATE MENT STATING (A) A FULL AND COMPLETE DISCLOSURE OF ALL MATERIAL FACTS; (B) THE NECESSITY FOR THE BUY-BACK; (C) THE CLASS OF SECURITY INTENDED TO BE PURCHASED UNDER THE BUY- BACK; (D) THE AMOUNT TO BE INVESTED UNDER THE BUY-BACK; A ND (E) THE TIME LIMIT FOR COMPLETION OF BUY-BACK. (4) EVERY BUY-BACK SHALL BE COMPLETED WITHIN TWELVE MONTHS FROM THE DATE OF PASSING THE SPECIAL RESOLUTION OR A RESOLUTION P ASSED BY THE BOARD UNDER CLAUSE (B) OF SUB-SECTION (2). (5) THE BUY-BACK UNDER SUB-SECTION (1) MAY BE (A) FROM THE EXISTING SECURITY HOLDERS ON A PROPORT IONATE BASIS; OR (B) FROM THE OPEN MARKET; OR ITA NO. 493/M/2012 11 (C) FROM ODD LOTS, THAT IS TO SAY, WHERE THE LOT OF SECURITIES OF A PUBLIC COMPANY, WHOSE SHARES ARE LISTED ON A RECOGNISED ST OCK EXCHANGE, IS SMALLER THAN SUCH MARKETABLE LOT, AS MAY BE SPECIFI ED BY THE STOCK EXCHANGE; OR (D) BY PURCHASING THE SECURITIES ISSUED TO EMPLOYEE S OF THE COMPANY PURSUANT TO A SCHEME OF STOCK OPTION OR SWEAT EQUIT Y. (6) WHERE A COMPANY HAS PASSED A SPECIAL RESOLUTION UNDER CLAUSE (B) OF SUB-SECTION (2) OR THE BOARD HAS PASSED A RESOLUTIO N UNDER THE FIRST PROVISO TO CLAUSE (B) OF THAT SUB-SECTION TO BUY-BACK ITS O WN SHARES OR OTHER SECURITIES UNDER THIS SECTION, IT SHALL, BEFORE MAK ING SUCH BUY-BACK, FILE WITH THE REGISTRAR AND THE SECURITIES AND EXCHANGE BOARD OF INDIA A DECLARATION OF SOLVENCY IN THE FORM AS MAY BE PRESC RIBED AND VERIFIED BY AN AFFIDAVIT TO THE EFFECT THAT THE BOARD HAS MADE A F ULL INQUIRY INTO THE AFFAIRS OF THE COMPANY AS A RESULT OF WHICH THEY HAVE FORME D AN OPINION THAT IT IS CAPABLE OF MEETING ITS LIABILITIES AND WILL NOT BE RENDERED INSOLVENT WITHIN A PERIOD OF ONE YEAR OF THE DATE OF DECLARATION ADOPT ED BY THE BOARD, AND SIGNED BY AT LEAST TWO DIRECTORS OF THE COMPANY, ON E OF WHOM SHALL BE THE MANAGING DIRECTOR, IF ANY: PROVIDED THAT NO DECLARATION OF SOLVENCY SHALL BE F ILED WITH THE SECURITIES AND EXCHANGE BOARD OF INDIA BY A COMPANY WHOSE SHAR ES ARE NOT LISTED ON ANY RECOGNISED STOCK EXCHANGE. (7) WHERE A COMPANY BUY-BACK ITS OWN SECURITIES, IT SHALL EXTINGUISH AND PHYSICALLY DESTROY THE SECURITIES SO BOUGHT-BACK WI THIN SEVEN DAYS OF THE LAST DATE OF COMPLETION OF BUY-BACK. (8) WHERE A COMPANY COMPLETES A BUY-BACK OF ITS SHA RES OR OTHER SPECIFIED SECURITIES UNDER THIS SECTION, IT SHALL N OT MAKE FURTHER ISSUE OF THE SAME KIND OF SHARES (INCLUDING ALLOTMENT OF FURTHER SHARES UNDER CLAUSE (A) OF SUB-SECTION (1) OF SECTION 81) OR OTHER SPECIFIE D SECURITIES WITHIN A PERIOD OF SIX MONTHS EXCEPT BY WAY OF BONUS ISSUE OR IN TH E DISCHARGE OF SUBSISTING OBLIGATIONS SUCH AS CONVERSION OF WARRAN TS, STOCK OPTION SCHEMES, SWEAT EQUITY OR CONVERSION OF PREFERENCE S HARES OR DEBENTURES INTO EQUITY SHARES. (9) WHERE A COMPANY BUY-BACK ITS SECURITIES UNDER T HIS SECTION, IT SHALL MAINTAIN A REGISTER OF THE SECURITIES SO BOUGHT, TH E CONSIDERATION PAID FOR THE SECURITIES BOUGHT-BACK, THE DATE OF CANCELLATIO N OF SECURITIES, THE DATE OF EXTINGUISHING AND PHYSICALLY DESTROYING OF SECUR ITIES AND SUCH OTHER PARTICULARS AS MAY BE PRESCRIBED. (10) A COMPANY SHALL, AFTER THE COMPLETION OF THE B UY-BACK UNDER THIS SECTION, FILE WITH THE REGISTRAR AND THE SECURITIES AND EXCHANGE BOARD OF INDIA, A RETURN CONTAINING SUCH PARTICULARS RELATIN G TO THE BUY-BACK WITHIN THIRTY DAYS OF SUCH COMPLETION, AS MAY BE PRESCRIBE D: ITA NO. 493/M/2012 12 PROVIDED THAT NO RETURN SHALL BE FILED WITH THE SEC URITIES AND EXCHANGE BOARD OF INDIA BY A COMPANY WHOSE SHARES ARE NOT LI STED ON ANY RECOGNISED STOCK EXCHANGE. (11) IF A COMPANY MAKES DEFAULT IN COMPLYING WITH T HE PROVISIONS OF THIS SECTION OR ANY RULES MADE THEREUNDER, OR ANY REGULA TIONS MADE UNDER CLAUSE (F) OF SUB-SECTION (2), THE COMPANY OR ANY O FFICER OF THE COMPANY WHO IS IN DEFAULT SHALL BE PUNISHABLE WITH IMPRISON MENT FOR A TERM WHICH MAY EXTEND TO TWO YEARS, OR WITH FINE WHICH MAY EXT END TO FIFTY THOUSAND RUPEES, OR WITH BOTH. EXPLANATION.FOR THE PURPOSES OF THIS SECTION, (A) SPECIFIED SECURITIES INCLUDES EMPLOYEES STOC K OPTION OR OTHER SECURITIES AS MAY BE NOTIFIED BY THE CENTRAL GOVERN MENT FROM TIME TO TIME; (B) FREE RESERVES SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (B) OF EXPLANATION TO SECTION 372A. THUS IT CAN BE SEEN THAT IN THE PRESENT DAY SCENAR IO, THE AUTHORIZED/PAID UP CAPITAL IS NOT STATIC AND CAN ALSO BE REDUCED AS PE R PROVISIONS OF THE COMPANIES ACT. CONSIDERING THE JUDICIAL ANALYSIS DISCUSSED E LSEWHERE IN THE LIGHT OF THE FACTUAL MATRIX OF THE BALANCE SHEET, IN OUR UNDERST ANDING OF THE LAW AND THE FACTS OF THE CASE IN HAND, WE ALLOW THE ADDITIONAL PLEA RAIS ED BY THE ASSESSEE BEFORE US AND DIRECT THE AO TO TREAT THE EXPENDITURE OF RS. 3,50, 00,858/- AS REVENUE EXPENDITURE. THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALL OWED. THE GROUNDS RAISED VIDE FORM NO. 36 BECOME OTIOSE. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DECEMBER, 2014 SD/- SD/- (AMIT SHUKLA ) (N.K. BILLAIYA) !' /JUDICIAL MEMBER !' / ACCOUNTANT MEMBER MUMBAI; 5! DATED : 22 ND DECEMBER, 2014 . . ./ RJ , SR. PS ITA NO. 493/M/2012 13 !& !& !& !& 1 11 1 .% .% .% .% 6)% 6)% 6)% 6)% / COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 7 ( ) / THE CIT(A)- 4. 7 / CIT 5. 89 .% , , / DR, ITAT, MUMBAI 6. 9: ; / GUARD FILE. !& !& !& !& / BY ORDER, /% .% //TRUE COPY// < << < / = = = = + + + + (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI FIT FOR PUBLICATION JM AM