FIRE ARCOR INFRASTRUCTURES P. LTD., Nagpur V. ACIT, CIRCLE-1, Nagpur

ITA 71/NAG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3096 (ITAT-NAGPUR)
• Duration Of Justice: 3 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 18-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Share purchase agreement; Principle of natural justice; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1)

Judgement Text

1 ITA NO. 71/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO. 71/NAG/2013 ASSESSMENT YEAR : 2008 - 09 M/S FIRE ARCOR INFRASTRUCTURES ASSTT. COMMISSIONER OF INCOME - TAX, P. LTD., NAGPUR. VS CIRCLE - 1, NAGPUR. PAN AABCF 0909M. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.K. GANERIWAL. RESPONDENT : SHRI NARENDRA KANE. DATE OF HEARING : 26 - 02 - 2016 DATE OF PRONOUNCEMENT : 31 ST MARCH , 2016. O R D E R PER MUKUL K. SHRAWAT, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE EMANATING FROM AN ORDER OF LEARNED CIT(APPEALS) - 16, MUMBAI (CAMP AT NAGPUR), ORDER DATED 18 - 12 - 2012. THE ONLY GROUNDS WHICH ARE RAISED BEFORE US ARE GROUND NO. 3 AND 4 REPRODUCED BELOW : 1. THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE AS CAPITAL EXPENDITURE FOR RS.11,60,000/ - IS INCORRECT, ILLEGAL, BAD IN LAW AND IS TO BE DELETED. 2. THE DENIAL OF AMORTIZATION OF CAPITAL EXPENDITURE IS ALSO BAD IN LAW AND WITHOUT NATURAL JUSTICE. 2. AT THE OUTSET IT IS NECESSARY TO MENTION THAT REST OF THE GROUNDS CHALLENGING THE NOTICE ISSUED U/S 142(1) HAVE NOT BEEN PRESSED BEFORE US, THEREFORE DISMISSED. 2 ITA NO. 71/NAG/2013 3. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S 143(3) DATED 24 TH DECEMBER, 2010 WERE THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT. IN A CRYPTIC MANNER THE AO HAD MADE OBSERVATION THAT IN THE PRELIMINARY EXPENSES A PAYMENT WAS MADE TO ROC TO INCREASE THE AUTHORIZED CAPITAL. THE EXPENDITURE WAS FOUND TO BE INCURR ED ON STAMPING OF SHARE CERTIFICATES. ACCORDING TO TH E AO, SUCH EXPENDITURE WAS NOT SPECIFIED U/S 35D OF I.T. ACT. ACCORDINGLY THE TOTAL AMOUNT OF RS.11,60,000/ - WAS ADDED IN THE TAXABLE INCOME. THE BIFURCATION OF THE SAID EXPENDITURE AS NOTED BY THE AO IS REPRODUCED BELOW : ROC TO INCREASE AUTHORIZED SHARE CAPITAL RS. 1,98,000/ - ROC TO INCREASE AUTHORIZED SHARE CAPITAL RS. 5,80,000/ - STAMPING OF SHARE CERTIFICATE RS. 17,000/ - STAMPING OF SHARE CERTIFICATE RS. 1,95,000/ - STAMPING OF SHARE CE RTIFICATE RS. 1,70,000/ - 4. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, LEARNED CIT(APPEALS) HAS HELD AS UNDER : 4.3 THE ASSESSING OFFICERS ORDER, THE CONTENTIONS OF THE APPELLANT AS WELL AS MATERIAL ON RECORD HAVE BEEN CONSIDERE D. THE ISSUE IN QUESTION IS WHETHER PAYMENTS MADE TO ROC AND COST OF STAMPING OF SHARE CERTIFICATES FOR THE PURPOSE OF INCREASING THE SHARE CAPITAL OF A COMPANY IS AN ALLOWABLE EXPENDITURE. THE AO HAS DISALLOWED THE SAME STATING THAT THESE ARE NOT SPECIFIE D EXPENSES U/S.35D. THE APPELLANT ON THE OTHER HAND STATES THESE BEING REVENUE EXPENDITURE ARE ALLOWABLE AND HAS RELIED UPON THE CASE LAWS MENTIONED ABOVE. PERUSAL OF THE JURISDICTIONAL BOMBAY HIGH COURT DECISION IN THE CASE OF BOMBAY BURMA TRADING CO. LTD ., (SUPRA) RELIED UPON BY THE APPELLANT, SHOWS THAT QUESTION NO.3 WHICH WAS BEFORE THE HONBLE HIGH COURT IN REFERENCE, VIZ., WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE SUM OF RS.47,250/ - PAID AS FEES BY THE ASSESSEE TO THE REGISTRAR OF COMPANIES FOR THE ENHANCEMENT OF CAPITAL WAS AN ALLOWABLE REVENUE EXPENDITURE, HAS BEEN ANSWERED IN THE NEGATIVE AND IN FAVOUR OF REVENUE. IT IS ALSO FOUND THAT THE APEX COURT HAS RENDERED ITS VIEW IN THE MATTER IN PUNJAB STATE 3 ITA NO. 71/NAG/2013 INDUSTRIAL DEVELOPMENT C ORPORATION LTD. V CIT (1997) 225 ITR 792 (SC), HOLDING THAT FEE PAID TO REGISTRAR OF COMPANIES FOR EXPANSION OF CAPITAL BASE OF THE COMPANY WAS DIRECTLY RELATED TO THE CAPITAL EXPENDITURE INCURRED THE COMPANY AND ALTHOUGH INCIDENTALLY THAT WOULD CERTAINLY HELP IN THE BUSINESS OF THE COMPANY AND MAY ALSO HELP IN PROFIT MAKING, IT STILL RETAINS THE CHARACTER OF A CAPITAL EXPENDITURE SINCE THE EXPENDITURE WAS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY. THE HONBLE SUPREME COURT HAVE R ENDERED THEIR DECISION AFTER DULY CONSIDERING THE JUDGMENTS MENTIONED AT (A), (B), (C), (D) AND (F) AT PARA 2.2 WHICH HAVE BEEN RELIED UPON BY THE APPELLANT. IN VIEW OF THE AFORESAID JUDGMENT IT IS CLEAR THAT EXPENSES AS HAVE BEEN CLAIMED FOR INCREASING TH E CAPITAL BASE/SHARE CAPITAL OF THE APPELLANT COMPANY ARE CAPITAL EXPENDITURE ANT NOT ALLOWABLE AS REVENUE EXPENDITURE. AS REGARDS THE CLAIM OF AMORTISATION THE AO HAS HELD THAT THE CLAIM IS NOT COVERED U/S. 35D, THE APPELLANT ON THE OTHER HAND HAS RELIED UPON THE ITAT JODHPUR DECISION IN NEETU TEXTILES LTD (SUPRA). HOWEVER IT IS FOUND THAT A DELHI HIGH COURT DECISION IN CIT VS. HINDUSTAN INSECTICIDES LTD, 2001 250 ITR 338 (DEL) HAS HELD THAT FEES PAID FOR INCREASE OF SHARE CAPITAL IS NOT DEDUCTIBLE, THAT FEES PAID FOR INCREASE IN AUTHORISED SHARE CAPITAL IS NOT FEES FOR REGISTRATION OF THE COMPANY AND IS NOT AMORTISABLE U/S. 35D. IN VIEW OF THIS POSITION THE ALTERNATIVE PLEA OF AMORTISATION IS ALSO NOT MAINTAINABLE, AND IS ACCORDINGLY DISMISSED 5. ON THI S SHORT ISSUE WE HAVE HEARD BOTH THE SIDES. AT THE THRESHOLD LEARNED A.R. HAS MENTIONED THAT THE FACTS HAVE NOT BEEN CLEARLY UNDERSTOOD BY THE REVENUE AUTHORITIES. THE EXACT NATURE OF THE EXPENDITURE INCURRED WAS AS UNDER : DURING THE YEAR 2007 - 08 (AY - 200 8 - 09), COMPANY HAS PAID ROC CHARGES TO REGISTRAR OF COMPANIES TOWARDS ITS FEE AND STAMP DUTY FOR INCREASE OF AUTHORIZED SHARE CAPITAL AS UNDER : - 1. ROC CHARGES FOR INCREASE OF SHARE CAPITAL RS.5,80,000/ - ON 07.01.2008 TO INCREASE AUTHORIZED SHARE CAPITAL FROM RS.10,00,00,000/ - (RS.10 LACS TO 10 CR.) 2. ROC CHARGES FOR INCREASES OF SHARE CAPITAL RS.1,98,000/ - ON 01.01.2008 TOWARDS STAMP DUTY CHARGES FOR INCREASE OF SHARE CAPITAL FROM RS.10 LACS TO 10 CR. 3. STAMPING CHARGES FOR SHARE CERTIFICATE ISSUED RS. 17 ,000/ - 4. STAMPING CHARGES FOR SHARE CERTIFICATE ISSUED RS.1,95,000/ - 4 ITA NO. 71/NAG/2013 5. STAMPING CHARGES FOR SHARE CERTIFICATE ISSUED RS.1,70,000/ - TOTAL EXPENSES FOR ISSUE OF SHARE (A) FEE PAID ROC FOR INCREASE OF AUTHORISED SHARE CAPITAL RS.7,78,000/ - (B) STAMPING CHARGES FOR SHARE CERTIFICATE ISSUED RS.3,82,000/ - TOTAL RS.11,60,000/ - 5.1 IT WAS EXPLAINED THAT THEREUPON THE ASSESSEE COMPANY HAD RAISED THE SHARE CAPITAL BY ISSUE OF SHARES TO MEET ITS WORKING CAPITAL REQUIREMENT. THE ASSES SEE HAS ISSUED SHARES OF RS.10 CRORES. THE ASSESSEE COMPANY HAS ALSO COLLECTED SHARE PREMIUM OF RS.36,66,92,000/ - . THE ASSESSEE HAS ALSO FURNISHED A LIST OF THE SHAREHOLDERS TO WHOM THE SHARES WERE ISSUED OF RS.10 CRORES. THE COMPANY HAD UTILIZED THE FUNDS FOR ITS TOWNSHIP PROJECT. THE INVESTMENT WAS MADE TOWARDS CURRENT ASSETS TOTALLING RS.44,33,58,120/ - . THE ARGUMENT OF THE ASSESSEE IS THAT THE EXPENDITURE WAS INCURRED FOR INCREASE OF THE AUTHORIZED CAPITAL FOR THE OPERATION OF THE COMPANY, HENCE NOT CA PITAL IN NATURE. IT HAS ALSO BEEN PLEADED THAT ON PERUSAL OF THE NATURE OF EXPENDITURE IT WAS NOTHING BUT A REVENUE EXPENDITURE. RELIANCE WAS PLACED ON PUNJAB INDUSTRIAL DEVELOPMENT CORPORATION 225 ITR 792, BROOK BOND INDIA LTD. 225 ITR 798 AND A DECISION OF ITAT, CHENNAI BENCH IN THE CASE OF LAXMI AUTO COMPONENTS 303 ITR 0028. 6. WE HAVE EXAMINED THE FACTS OF THE CASE IN THE LIGHT OF THE DECISIONS CITED. OUR FIRST OBSERVATION IS THAT THE REVENUE AUTHORITIES WERE REQUIRED TO GIVE A CLEAR FINDING THAT WHETHE R IT WAS INCURRED BEFORE THE COMMENCEMENT OF HIS BUSINESS AND WHETHER THEY WERE PREOPERATIVE EXPENDITURE TO BE AMORTIZED AS PER THE PROVISIONS OF SECTION 35D OF THE I.T. ACT. THE CASE LAW CITED BY THE ASSESSEE OF RAJ LAXMI STONE CRUSHER [ITA NO. 253(DEL) OF 2009] HAS HELD THAT THE EXPENDITURE INCURRED FOR INCREASE IN SHARE CAPITAL OF COMPANY AFTER COMMENCEMENT OF A BUSINESS, HELD TO BE A REGULAR BUSINESS EXPENDITURE OF REVENUE NATURE. LIKEWISE IN THE CASE OF LOYAL TEXTILE MILLS LTD. [ IT APPEAL NO. 2704(MA D) OF 1996 ] THE EXPENDITURE WAS IN RESPECT OF FILING FEE FOR INCREASING 5 ITA NO. 71/NAG/2013 THE AUTHORIZED CAPITAL OF THE COMPANY PAID TO REGISTRAR OF COMPANIES HELD AS REVENUE EXPENDITURE. IN THE SAID DECISION, A DECISION OF HONBLE SUPREME COURT OF BROOK BOND INDIA LTD. 22 5 ITR 798 (SC) HAS BEEN DISCUSSED. ON THIS ISSUE AN ANOTHER DECISION OF THE HONBLE SUPREME COURT PRONOUNCED IN THE CASE OF PUNJAB INDUSTRIAL DEVELOPMENT CORPORATION 225 ITR 792 HAS ALSO BEEN CITED AND THE QUESTION FOR CONSIDERATION WAS THAT WHETHER EVERY EXPENDITURE RELATABLE TO CAPITAL EXPANSION IS A CAPITAL EXPENDITURE. ACCORDING TO OUR CONSIDERED OPINION THE ISSUE OF ALLOWABILITY OF THE EXPENDITURE DEPENDS UPON THE NATURE OF THE EXPENDITURE AS WELL AS THE TIME WHEN THE EXPENDITURE WAS INCURRED. THE RE VENUE AUTHORITIES HAVE NOT SPECIFICALLY PLACED ON RECORD THAT WHETHER THE ENTIRE EXPENDITURE WAS IN THE NATURE OF PAYMENT TO ROC AS CHARGES OF REGISTRAR OF COMPANIES. WE, THEREFORE, DEEM IT PROPER TO RESTORE THIS ISSUE BACK TO THE FILE OF THE AO SO THAT HE CAN FIRST DETERMINE WHETHER THE EXPENDITURE IN QUESTION WERE PREOPERATIVE EXPENDITURE BEFORE THE COMMENCEMENT OF THE BUSINESS OR NOT. ONLY AFTER RECORDING THIS FINDING OF FACTS THIS ISSUE CAN BE DECIDED IN THE LIGHT OF THE CASE LAWS CITED SUPRA. SINCE THE MATTER HAS BEEN RESTORED BACK, HENCE GROUNDS MAY BE TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSES ONLY. 7 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MARCH , 2016. SD/ - SD/ - (SHAMIM YAHYA) (MUKUL K. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER NAGPUR, DATED: 31 ST MARCH , 2016. 6 ITA NO. 71/NAG/2013 COPY FORWARDED TO : 1. M/S FIRE ARCOR INFRASTRUCTURES P. LTD., SAROJ, 53 RAMDASPETH, NAGPUR - 4400 10. 2. A.C.I.T., CIRCLE - 1. NAGPUR. 3. COMMISSIONER OF INCOME - TAX - ,NAGPUR. 4. CIT(APPEALS) - , NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER WAKODE. ASSISTANT REGISTRAR, ITAT, NAGPUR