DCIT, Bangalore V. Ocwen Financial Solutions Pvt. Ltd., Bangalore

ITA 511/BANG/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6145 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-09-2020
• Assessment Year: 2011-2012
• Appeal Filed On: 21-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Business income; Transfer pricing; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3); 10AA; 2(A); 37; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI A K GARODIA, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER IT (TP) A NO. 511/BANG/2016 ASSESSMENT YEAR: 2011 - 12 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(2), BANGALORE. VS. OCWEN FINANCIAL SOLUTIONS PVT. LTD., 6 TH FLOOR OF WING A & 5 TH FLOOR OF WING B, BLOCK NO.12, PRITECH PARK, SURVEY NO.51064/4, BELLANDUR VILLAGE, SARJAPUR MARATHAHALLI RING ROAD, BENGALURU 560 103. PAN: AAACO 3764E A PP ELLANT RESPONDENT IT (TP) A NO. 6 8 6 /BANG/2016 ASSESSMENT YEAR: 2011 - 12 OCWEN FINANCIAL SOLUTIONS PVT. LTD., BENGALURU 560 103. PAN: AAACO 3764E VS. THE JOINT COMMISSIONER OF INCOME TAX, SPECIAL RANGE 5, BAN GALORE. REVENUE BY : SH RI MUZAFFAR HUSSAIN, CIT(DR), ITAT, BENGALURU. RESPONDENT BY : SHRI K.R. VASUDEVAN, ADVOCATE DATE OF HEARING : 21 .0 9 .2020 DATE OF PRONOUNCEMENT : 25 .0 9 .2020 O R D E R PER GEORGE K., JUDICIAL MEMBER THESE ARE CROSS APPEALS AGAINST THE FINAL ORDER O F ASSESSMENT PASSED U/S. 143(3) R.W.S. 144C(13) OF THE INCOME-TA X ACT, 1961 [THE ACT] IT(TP)A NO.511 & 686/BANG/2016 PAGE 2 OF 11 PURSUANT TO THE DRPS DIRECTIONS DATED 21.12.2015. RELEVANT ASSESSMENT YEAR IS 2011-12. 2. WE SHALL FIRST TAKE UP THE REVENUES APPEAL IN IT(TP)A NO.511/BANG/2016. THE SOLITARY EFFECTIVE GROUND RA ISED IN REVENUES APPEAL READS AS FOLLOWS:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD.DRP ERRED IN LAW IN DIRECTING THE ASSESSING OFFI CER TO REDUCE THE EXPENDITURE INCURRED IN TRAVEL, TELECOMMUNICATI ON ETC, BOTH FROM THE EXPORT TURNOVER AS WELL AS THE TOTAL TURNO VER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.10A AND 10A A OF THE IT ACT WITHOUT APPRECIATING THE FACT THAT THE STATUE A LLOWS EXCLUSION OF SUCH EXPENDITURE ONLY FROM THE EXPORT TURNOVER B Y WAY OF SPECIFIC DEFINITION OF EXPORT TURNOVER AS ENVISAGED BY SUB- CLAUSE(4) OF EXPLANATION 2 BELOW SUB-SECTION 8 OF S ECTION 10A. ON THE OTHER HAND, THERE IS NO SPECIFIC PROVISION I N SECTION 10A OR 10AA WARRANTING EXCLUSION OF ABOVE EXPENSES FROM TO TAL TURNOVER ALSO. 2.1 THE AO IN HIS DRAFT ASSESSMENT ORDER HAD RECALC ULATED THE DEDUCTION U/S 10A/10AA OF THE ACT BY REDUCING THE T RAVELLING & CONVEYANCE, LEGAL & PROFESSIONAL AND OTHER EXPENSES INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOVER. 2.2 THE DRP IN ITS ORDER DATED 21.12.2015 DIRECTE D THE AO TO COMPUTE THE DEDUCTION U/S. 10A OF THE ACT AFTER REDUCING TH E IMPUGNED EXPENSES BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE T OTAL TURNOVER. 2.3 THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. DR SUPPORTED THE DRAFT ASSESSMENT ORDER PASSED BY THE AO. 2.4 THE LD. AR SUBMITTED THAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE JUDGMENT OF THE HONBLE APEX COURT IN THE CA SE OF CIT V. HCL TECHNOLOGIES LTD. CIVIL APPEAL NOS. 8489-8490/201 3 DATED 24.4.2018. IT(TP)A NO.511 & 686/BANG/2016 PAGE 3 OF 11 2.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE RAISED IS SQUARELY COVERED IN FA VOUR OF ASSESSEE BY THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT V. HCL TECHNOLOGIES LTD. (SUPRA) . THE HONBLE APEX COURT HAD CATEGORICALLY HELD TH AT WHEN EXPENSES ARE REDUCED FROM EXPORT TURNOVER, THE SAME NEEDS TO BE REDUCED ALSO FROM THE TOTAL TURNOVER, WHILE COMPUTING DEDUC TION U/S. 10A OF THE ACT. THE RELEVANT FINDING OF THE HONBLE APEX COURT READ S AS FOLLOWS:- 19. IN THE INSTANT CASE, IF THE DEDUCTIONS ON FREI GHT, TELECOMMUNICATION AND INSURANCE ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE UNDER SECTION10A OF THE IT ACT AR E ALLOWED ONLY IN EXPORT TURNOVER BUT NOT FROM THE TOTAL TURN OVER THEN, IT WOULD GIVE RISE TO INADVERTENT, UNLAWFUL, MEANINGLE SS AND ILLOGICAL RESULT WHICH WOULD CAUSE GRAVE INJUSTICE TO THE RESPONDENT WHICH COULD HAVE NEVER BEEN THE INTENTIO N OF THE LEGISLATURE. 20. EVEN IN COMMON PARLANCE, WHEN THE OBJECT OF THE FORMULA IS TO ARRIVE AT THE PROFIT FROM EXPORT BUSINESS, EXPEN SES EXCLUDED FROM EXPORT TURNOVER HAVE TO BE EXCLUDED FROM TOTAL TURNOVER ALSO. OTHERWISE, ANY OTHER INTERPRETATION MAKES THE FORMULA UNWORKABLE AND ABSURD. HENCE, WE ARE SATISFIED THAT SUCH DEDUCTION SHALL BE ALLOWED FROM THE TOTAL TURNOVER IN SAME PROPORTION AS WELL. 21. ON THE ISSUE OF EXPENSES ON TECHNICAL SERVICES PROVIDED OUTSIDE, WE HAVE TO FOLLOW THE SAME PRINCIPLE OF IN TERPRETATION AS FOLLOWED IN THE CASE OF EXPENSES OF FREIGHT, TELECO MMUNICATION ETC., OTHERWISE THE FORMULA OF CALCULATION WOULD BE FUTILE. HENCE, IN THE SAME WAY, EXPENSES INCURRED IN FOREIGN EXCHA NGE FOR PROVIDING THE TECHNICAL SERVICES OUTSIDE SHALL BE A LLOWED TO EXCLUDE FROM THE TOTAL TURNOVER. 22. IN VIEW OF ABOVE DISCUSSION, WE ARE OF THE CONS IDERED VIEW THAT THESE INSTANT APPEALS ARE DEVOID OF MERITS AND DESERVE TO BE DISMISSED. ACCORDINGLY, ALL THE CONNECTED MATTERS A ND INTERLOCUTORY APPLICATIONS, IF ANY, ARE DISPOSED OF WITH NO ORDER AS TO COSTS. IT(TP)A NO.511 & 686/BANG/2016 PAGE 4 OF 11 2.6 IN THE LIGHT OF HONBLE APEX COURT JUDGMENT I N THE CASE OF CIT V. HCL TECHNOLOGIES LTD. (SUPRA), WE HOLD THAT THE DRP IS JUSTIFIED IN ITS DIRECTION THAT THE IMPUGNED EXPENDITURE THAT IS RED UCED FROM THE EXPORT TURNOVER NEED TO BE REDUCED ALSO FROM THE TOTAL TUR NOVER, WHILE COMPUTING DEDUCTION U/S. 10A OF THE ACT. IT IS ORDERED ACCOR DINGLY. 3. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ASSESSEES APPEAL (IT(TP)A NO. 686/BANG/2016) 4. THE ASSESSEE IN THE ORIGINAL GROUNDS HAD RAISED TP ISSUES AS WELL AS CORPORATE TAX ISSUES. THE GROUNDS RELATING TO TP ISSUES WERE WITH WITHDRAWN SINCE THE ASSESSEE HAD RECEIVED RESOLUTIO N UNDER THE MUTUAL AGREEMENT PROCEDURE (MAP) AND THE SAME WAS ACCEPTED . CONSEQUENT TO WITHDRAWAL OF GROUNDS RELATING TO TP ISSUES, THE AS SESSEE HAS FILED REVISED GROUNDS AND THE SAME READS AS FOLLOWS:- 1. RE-COMPUTATION OF DEDUCTION UNDER SECTION 10A/1 0AA - SET OFF OF BROUGHT FORWARD LOSSES FROM THE PROFITS OF B ANGALORE UNIT AND MUMBAI UNIT PRIOR TO COMPUTING DEDUCTION UNDER SECTION 10A/10AA A. THE LEARNED ASSESSING OFFICER ('AO') AND DISPUTE RESOLUTION PANEL ('DRP') HAS ERRED IN RE-COMPUTING THE DEDUCTION UNDER SECTION 10A/10AA OF THE ACT BY REDU CING THE BROUGHT FORWARD BUSINESS LOSSES FROM THE PROFITS OF BUSINESS OF MUMBAI UNIT AND BANGALORE UNIT BEFORE COMPUTING DED UCTION UNDER SECTION 10A/10AA OF THE ACT. B. THE LEARNED AO AND DRP HAS ERRED IN NOT PLACING RELIANCE ON VARIOUS JUDICIAL PRECEDENTS INCLUDING THE JURISD ICTIONAL HIGH COURT RULING IN FAVOR OF APPELLANT'S CONTENTION. C. THE LEARNED AO AND DRP ERRED IN OBSERVING THAT JURISDICTIONAL HIGH COURT RULING IS NOT APPLICABLE TO THE CASE OF THE APPELLANT. IT(TP)A NO.511 & 686/BANG/2016 PAGE 5 OF 11 D. THE LEARNED AO OUGHT TO HAVE APPRECIATED THAT DE CISION OF JURISDICTIONAL HIGH COURT IS BINDING ON ALL INCOME TAX OFFICERS (ITO) OPERATING UNDER THE JURISDICTION OF THE SAID HIGH COURT. E. NOTWITHSTANDING AND WITHOUT PREJUDICE TO THE ABO VE, THE LEARNED AO OUGHT TO HAVE REDUCED THE BROUGHT FORWAR D LOSSES FROM THE TRANSFER PRICING ADJUSTMENT FIRST AND THEN SET OFF THE BALANCE, IF ANY, FROM PROFITS FOR COMPUTING DEDUCTI ON UNDER SECTION 10A/10AA. 2. DISALLOWANCE OF EXPENSES INCURRED ON BUY-BACK OF SHARES A. THE LEARNED AO AND DRP HAS ERRED IN DISALLOWING EXPENSES INCURRED ON BUY-BACK OF SHARES. B. THE LEARNED AO OUGHT TO HAVE OBSERVED THAT NO BE NEFIT OF ENDURING NATURE WAS RECEIVED BY THE COMPANY FROM BU Y BACK OF SHARES. C. THE LEARNED AO OUGHT TO HAVE APPRECIATED THAT TH E ALLEGED EXPENDITURE IS ALLOWABLE AS BUSINESS EXPENDITURE UN DER SECTION 37 OF THE ACT AS IT SATISFIES ALL THE PRESCRIBED CONDI TIONS UNDER THE SAID SECTION. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, VARY, OMI T, SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFO RE OR AT, THE TIME OF HEARING, OF THE APPEAL, SO AS TO ENABLE THE INCOME-TAX APPELLATE TRIBUNAL TO DECIDE THE APPEAL ACCORDING T O LAW. THE APPELLANT PRAYS ACCORDINGLY. 4. WE SHALL ADJUDICATE THE ABOVE GROUNDS AS UNDER :- 4.1 SET OFF OF BROUGHT FORWARD LOSSES: FOR THE A Y 2011-12, THE ASSESSEE HAD OPERATION IN 3 UNITS. 2 UNITS IN BANG ALORE (OUT OF WHICH DEDUCTION U/S. 10AA WAS CLAIMED OF ONE UNIT) AND 1 UNIT IN MUMBAI FOR WHICH DEDUCTION U/S. 10A WAS CLAIMED. THE TAXABLE PROFITS FOR THE UNITS FOR THE YEAR UNDER CONSIDERATION WAS AS UNDER:- IT(TP)A NO.511 & 686/BANG/2016 PAGE 6 OF 11 PARTICULARS BANGALORE UNIT (TAXABLE UNIT) BANGALORE UNIT (10AA UNIT) MUMBAI UNIT (10A UNIT) TOTAL PROFITS AND GAINS OF BUSINESS BEFORE 10A/10AA DEDUCTION 9,18,62,166 5,77,47,822 2,93,35,804 17,89,45,792 LESS: DEDUCTION UNDER SECTION 10A/ 10AA - 5,77,47,822 2,93,35,804 8,70,83,626 TAXABLE PROFITS 9,18,62,166 - - 9,18,62,1 66 LESS: SET OFF OF BROUGHT FORWARD LOSSES OF AY 2005- 06, 2006-07 AND AY 2010-11 1,01,40,720 1,01,40,720 TAXABLE BUSINESS INCOME 8,17,21,446 8, 17,21,446 4.1.1 THE AO HAS REDUCED THE BROUGHT FORWARD LOSSE S OF RS.1,01,40,720 FROM BANGALORE (10AA UNIT) AND MUMBAI (10A UNIT) BE FORE COMPUTATION OF DEDUCTION UNDER SECTION 10A/10AA OF THE ACT. 4.1.2 THE DRP IN ITS DIRECTIONS AFFIRMED THE VIEW O F THE AO IN HIS DRAFT ASSESSMENT ORDER. THE RELEVANT FINDING OF THE DRP READS AS FOLLOWS:- 14.2 THUS, THE CIRCULAR HAS CLARIFIED THAT T HE LOSSES, IF ANY, ARE REQUIRED TO BE SET-OFF IN RESPECT OF THE PROFIT S OF THE UNIT ELIGIBLE FOR TAX HOLIDAY BEFORE THE DEDUCTION UNDER SECTION 10A/10AA/1013/1013A OF THE ACT IS ALLOWED. THE CIRC ULAR IS BINDING ON THE AO. SO THERE IS NO INFIRMITY IN THE ACTION OF THE AO. AS REGARDS RELIANCE OF THE ASSESSEE ON THE DECI SION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CLT V YOKO GAWA INDIA (2012) 341 ITR 385 (KAR), THE SAME IS TOTALLY MISPL ACED AS THE SAID DECISION WAS ON DIFFERENT FACTS AS THE AO HAD ADJUSTED LOSSES OF NON ELIGIBLE UNITS FROM THE PROFITS OF THE ELIGI BLE UNIT. CONSIDERING ABOVE THE OBJECTION OF THE ASSESSEE CAN NOT BE ACCEPTED. IT(TP)A NO.511 & 686/BANG/2016 PAGE 7 OF 11 4.1.3 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFO RE THE TRIBUNAL. THE LD. AR RELIED ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF YOKOGAWA INDIA LTD. [2017] 77 TAXMANN.COM 41 (SC) . THE LD. DR SUPPORTED ORDERS OF INCOME-TAX AUTHORITIES AND RELI ED ON THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006-07 IN I T(TP)A NO.64/BANG/2011 (ORDER DATED 09.10.2015). 4.1.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 10 A/10AA OF THE ACT AMOUNTING TO RS.8,70,83,626. THE AO IN HIS FINAL A SSESSMENT ORDER DATED 27.1.2016 HAD RECALCULATED THE DEDUCTION U/S. 10A/1 0AA OF THE ACT BY REDUCING BROUGHT FORWARD LOSSES AMOUNTING TO RS.1,0 1,40,720 . ACCORDINGLY IN THE FINAL ASSESSMENT ORDER, DEDUCTIO N WAS ALLOWED ONLY TO THE EXTENT OF RS.7,69,42,906. THE FINDING OF THE A O IN THIS REGARD READS AS FOLLOWS:- C. FURTHER, IT IS NOTICED THAT THE ASSESSEE HAS CL AIMED DEDUCTIONS U/S 10A AND 10AA IN RESPECT OF BANGALORE UNIT AND MUMBAI UNIT BEFORE REDUCING THE C/F LOSSES OF EARLI ER YEARS AMOUNTING TO RS.1,01,40,720/- . SINCE AS PER THE PR OVISIONS OF THE ACT, B/F LOSSES HAS TO BE SET OFF FIRST BEFORE CALC ULATION OF DEDUCTION U/S.10A/10AA, THE LOSS CARRIED FORWARD IS HEREBY ADJUSTED AGAINST THE PROFITS OF THE 10A AND 10AA UN IT AND THE DEDUCTIONS ARE REWORKED AND RESTRICTED ACCORDINGLY. 4.1.5 FURTHER, THE CONCLUSION OF THE AO READS AS F OLLOWS:- HENCE, THE ELIGIBLE AGGREGATE DEDUCTION U/S.10A ET 10AA IS RS. 7,69,42,906/- AS AGAINST THE CLAIM OF RS.8,70,83,62 6/-, THE EXCESS CLAIM OF RS. 1,01,40,720/- IS HEREBY DISALLOWED AND ADDED TO THE TOTAL INCOME. 4.1.6 IN THIS CONTEXT, THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF YOKOGAWA INDIA LTD., 341 ITR 385 HAS HELD THAT INCOME OF SECTION 10A UNIT HAS TO BE EXCLUDED BEFORE ARRIVING AT THE GROSS TOT AL INCOME OF THE IT(TP)A NO.511 & 686/BANG/2016 PAGE 8 OF 11 ASSESSEE. THE INCOME OF SECTION 10A UNIT HAS TO BE DEDUCTED AT SOURCE ITSELF AND NOT AFTER COMPUTING THE GROSS TOTAL INCO ME. SINCE THE INCOME OF SECTION 10A UNIT HAS TO BE EXCLUDED AT SOURCE ITSEL F BEFORE ARRIVING AT THE GROSS TOTAL INCOME, IT WAS HELD BY THE HONBLE HIGH COURT THAT THE LOSS OF NON-SECTION 10A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF 10A UNIT UNDER SECTION 72. IT WAS FURTHER HELD BY THE HONBLE HIGH COURT THAT WHEN THE PROFITS AND GAINS UNDER SECTION 10A IS NOT INCLUDED IN THE INCOME OF THE ASSESSEE AT ALL, THE QUESTION OF SETTING OFF THE LO SS AGAINST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. 4.1.7 THE JUDGMENT OF THE HONBLE HIGH COURT OF KAR NATAKA WAS CONFIRMED BY THE HONBLE SUPREME COURT (SUPRA) . THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, RELIED ON BY THE LD. DR, IS IN FAVOUR OF ASSESSEE. THE TRIBUNAL DISTINGUISHED THE JUDGMENT OF THE HON BLE HIGH COURT IN THE CASE OF CIT V. HIMATSINGIKE SEIDE LTD. 286 ITR 265 AND RELIED ON THE HONBLE HIGH COURT JUDGMENT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) WHILE HOLDING THAT LOSSES CANNOT BE SET OFF AGAINST PROFITS OF ELIGIBLE UNIT. IN VIEW OF THE JUDGMENT OF THE HONBLE APEX COURT, WE DIRECT THE AO TO CALCULATE THE DEDUCTION U/S.10A/ 10AA OF THE ACT, W ITHOUT SETTING OFF THE BROUGHT FORWARD LOSSES. IT IS ORDERED ACCORDINGLY. 4.1.8 IN THE RESULT, GROUND NOS. 1(A) TO 1(D) ARE ALLOWED. 4.2 BUY-BACK OF SHARES 4.2.1 DURING THE PREVIOUS YEAR RELEVANT TO ASSESS MENT YEAR, THE ASSESSEE HAD SPENT A SUM OF RS.8,90,961 ON BUY-BACK OF SHARE S AND DEBITED THE SAME TO PROFIT & LOSS ACCOUNT. THE EXPENDITURE WAS DISALLOWED BY THE AO IN HIS DRAFT ASSESSMENT ORDER HOLDING THE SAME TO B E CAPITAL EXPENDITURE. IT(TP)A NO.511 & 686/BANG/2016 PAGE 9 OF 11 4.2.2 THE DRP IN ITS DIRECTIONS CONFIRMED THE VIEW OF THE AO. THE RELEVANT FINDING OF THE DRP READS AS FOLLOWS:- 16.1 THE ASSESSEE HAS MADE SUBMISSIONS ON THESE O BJECTIONS AND THE SAME HAVE DULY BEEN CONSIDERED. WHEN A COMP ANY BUYS BACK SHARES, IT IS GENERALLY RETURNING THE VALUE OF THE SHARES IN THE FORM OF FACE VALUE AS ORIGINALLY PAID, ACCUMULATED RESERVES AND VALUE OF ASSETS LIKE GOODWILL, ETC. THAT IS NOT REC OGNIZED IN THE BOOKS. SUCH RETURN CAN HARDLY BE TREATED AS BUSINES S EXPENDITURE. THE ACCOUNTING TREATMENT UNDER ACCOUNTING PRINCIPLE S AND ALSO UNDER SECTION 77A (AND RELATED PROVISIONS) OF THE C OMPANIES ACT, 1956, CLEARLY SUPPORTS THIS. THE FACE VALUE OF SHARES BOUGHT BACK IS REDUCED FROM THE PAID UP CAPITAL AND THE SU RPLUS (PREMIUM) IS DEBITED TO RESERVES SUCH AS SECURITIES PREMIUM ACCOUNT OR OTHER RESERVES (OTHER THAN REVALUATION R ESERVE). THESE PROVISIONS DO NOT PERMIT DEBITING THE AMOUNT PAID T O PROFIT AND LOSS ACCOUNT FOR THE YEAR. SO THERE IS NO INFIRMITY IN THE ORDER OF THE AO AND THE OBJECTION OF THE ASSESSEE IS NOT ACC EPTED. 4.2.3 AGGRIEVED BY THE DIRECTIONS OF THE DRP, TH E ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4.2.4 THE LD. AR SUBMITTED THAT THE ISSUE IN QUE STION IS DECIDED IN FAVOUR OF ASSESSEE BY THE JUDGMENT OF THE HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT V. MOTOR INDUSTRIES CO. LTD. ITA NO.1064/2008 JUDGMENT DATED 31.10.2014 (KARNATAKA HIGH COURT). 4.2.5 THE LD. DR SUPPORTED THE ORDERS OF INCOME-TA X AUTHORITIES. 4.2.6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIAL ON RECORD. THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. MOTOR INDUSTRIES CO. LTD. (SUPRA) HAS HELD AS FOLLOWS:- 26. THE INCREASE IN THE CAPITAL RESULTS IN EXPANSI ON OF THE CAPITAL BASE OF THE COMPANY AND INCIDENTALLY THAT W OULD HELP IN THE BUSINESS OF THE COMPANY AND MAY ALSO HELP IN TH E PROFIT- MAKING. THE EXPENSES INCURRED IN THAT CONNECTION ST ILL RETAIN THE IT(TP)A NO.511 & 686/BANG/2016 PAGE 10 OF 11 CHARACTER OF A CAPITAL EXPENDITURE SINCE THE EXPEND ITURE IS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY. ISSUE OF BONUS SHARES DOES NOT RESULT IN THE EXPANSION OF CAPITAL BASE OF THE COMPANY. IT DOES NOT LEAD TO ANY INFLOW OF FRESH FUNDS INTO THE COMPANY. THE CAPITAL STRUCTURE IS NOT EXPANDED. ON THE CONTR ARY THE CONSEQUENCE OF SUCH BUY-BACK OF SHARES IS THE CAPIT AL BASE OF THE COMPANY GETS REDUCED AND THE CAPITAL STRUCTURE WILL GO DOWN. IT IS NOT OF AN ENDURING EFFECT SO AS TO BRING THE EXPEND ITURE INCURRED IN THIS REGARD AS CAPITAL EXPENDITURE. WHERE THERE IS NO FLOW OF FUNDS OR INCREASE IN THE CAPITAL EMPLOYED, THE EXPE NDITURE INCURRED WOULD BE REVENUE EXPENDITURE. THEREFORE, R IGHTLY THE TRIBUNAL HELD THAT IT IS IN THE NATURE OF REVENUE E XPENDITURE AND ALLOWED THE SAME. 4.2.7 IN VIEW OF THE JUDGMENT OF THE HONBLE HIGH C OURT OF KARNATAKA IN THE CASE OF CIT V. MOTOR INDUSTRIES CO. LTD. (SUPRA) , WE HOLD THAT THE EXPENSES INCURRED BY THE ASSESSEE FOR BUY-BACK OF S HARES AMOUNTING TO RS.8,90,961 IS ALLOWED AS A REVENUE EXPENDITURE. I T IS ORDERED ACCORDINGLY. 4.2.8 THEREFORE, THE GROUNDS 2(A) TO 2(C) ARE ALLOW ED. 5. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. 6. THUS, THE APPEAL BY THE REVENUE IS DISMISSED, WH ILE THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF SEPTEMBER, 2020. SD/- SD/- ( A K GARODIA ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 25 TH SEPTEMBER, 2020. / DESAI S MURTHY / IT(TP)A NO.511 & 686/BANG/2016 PAGE 11 OF 11 COPY TO: 1. REVENUE 2. ASSESSEE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.