AGS TRANSACT TECHNOLOGIES LIMITED,MUMBAI vs. DCIT CIRCLE 6(1)(1), AAYAKAR BHAVAN MUMBAI

4.2.3 It is further notable that, as per the decision of Hon'ble High 4.2.3 It is further notable that, as per the decision of Hon'ble High 4.2.3 It is further notable that, as per the decision of Hon'ble High Court of Delhi in the case of Triveni Engineering Works Limi Court of Delhi in the case of Triveni Engineering Works Limi Court of Delhi in the case of Triveni Engineering Works Limited (vs) CIT 237 ITR 639, wherein, it has been held that, legal and CIT 237 ITR 639, wherein, it has been held that, legal and CIT 237 ITR 639, wherein, it has been held that, legal and professional charges incurred in connection with the merger of the professional charges incurred in connection with the merger of the professional charges incurred in connection with the merger of the company is not deductible as revenue expenditure. company is not deductible as revenue expenditure. 4.2.4. It has been held in the following decisions of various judicial 4.2.4. It has been held in the following decisions of various judicial 4.2.4. It has been held in the following decisions of various judicial forums that, the expenditure incurred to maintain the capital base forums that, the expenditure incurred to maintain the capital base forums that, the expenditure incurred to maintain the capital base as per the FERA requirements can be construed to be a capital as per the FERA requirements can be construed to be a capital as per the FERA requirements can be construed to be a capital expenditure due to the fact that, the end result expenditure due to the fact that, the end result is restructure of the is restructure of the capital base: a) Eskayef Limited (vs) DCIT, 71 ITD 419 ( Eskayef Limited (vs) DCIT, 71 ITD 419 (ITAT, Bombay) ITAT, Bombay) b) Union Carbide India Limited (vs) CIT, 203 ITR 584 (Cal.) Union Carbide India Limited (vs) CIT, 203 ITR 584 (Cal.) Union Carbide India Limited (vs) CIT, 203 ITR 584 (Cal.) c) CIT (vs) Kotak India Limited 253 /TR 445 (SC) CIT (vs) Kotak India Limited 253 /TR 445 (SC) In view of the above, I am of the considered view that, the In view of the above, I am of the considered view that, the In view of the above, I am of the considered view that, the expenditure expenditure expenditure incurred incurred incurred by by by the the the appellant appellant appellant to to to the the the tune tune tune of of of Rs.10,22,10,000/ Rs.10,22,10,000/- being expenses of certification fees and other ing expenses of certification fees and other services in connection with the issuance of IPO are capital in services in connection with the issuance of IPO are capital in services in connection with the issuance of IPO are capital in nature and the same is not allowable as deduction u/s 37 of the nature and the same is not allowable as deduction u/s 37 of the nature and the same is not allowable as deduction u/s 37 of the Act as revenue expenditure as per the above stated decisions of Act as revenue expenditure as per the above stated decisions of Act as revenue expenditure as per the above stated decisions of the Hon'ble Supreme the Hon'ble Supreme Court. Accordingly, the action of the Court. Accordingly, the action of the Assessing Officer on this issue is sustainable and hereby upheld. Assessing Officer on this issue is sustainable and hereby upheld. Assessing Officer on this issue is sustainable and hereby upheld. Thus, the ground of appeal filed by the appellant on this is Thus, the ground of appeal filed by the appellant on this is Thus, the ground of appeal filed by the appellant on this is dismissed.

3. The Ld. counsel for the assessee filed a Paper Book containing The Ld. counsel for the assessee filed a Paper Book containing The Ld. counsel for the assessee filed a Paper Book containing pages 1 to 181.

AGS Transact Technologies Ltd AGS Transact Technologies Ltd 5 ITA No. 4653/MUM/2024

4.2 Before us, the Ld. counsel for the assessee relied on the Before us, the Ld. counsel for the assessee relied on the Before us, the Ld. counsel for the assessee relied on the decision of the Hon’ble Bombay High Court in the case of CIT v. decision of the Hon’ble Bombay High Court in the case of CIT v. decision of the Hon’ble Bombay High Court in the case of CIT v. Nimbus Communication Ltd. (supra). T bus Communication Ltd. (supra). The Ld. counsel submitted d. counsel submitted that the Assessing Officer erred in holding that the that the Assessing Officer erred in holding that the IPO expenditure IPO expenditure incurred till 31.03.2019 was capitalize incurred till 31.03.2019 was capitalized ignoring the fact that same ignoring the fact that same was shown “other current assets. He further submitted that the was shown “other current assets. He further submitted that the was shown “other current assets. He further submitted that the lower authorities had ignored the lower authorities had ignored the fact that IPO during AY 2022 fact that IPO during AY 2022-23 was ‘OFS’ by the promoter by the promoters only and the whole proceedings of the only and the whole proceedings of the OFS IPO was received by the p OFS IPO was received by the promoter and not by the assessee, romoter and not by the assessee, whereas the lower authorities have completely ignored the said fact. hereas the lower authorities have completely ignored the said fact. hereas the lower authorities have completely ignored the said fact. With reference to the decisi With reference to the decision of the Hon’ble Supreme Court relied on of the Hon’ble Supreme Court relied upon by the Ld. CIT(A). The Ld. counsel submitted that said upon by the Ld. CIT(A). The Ld. counsel submitted that said upon by the Ld. CIT(A). The Ld. counsel submitted that said decisions are on expenditure incurred increase in the authorized decisions are on expenditure incurred increase in the authorize decisions are on expenditure incurred increase in the authorize share capital and therefore are not applicable to the case of the share capital and therefore are not applicable to the case of the share capital and therefore are not applicable to the case of the assessee.

AGS Transact Technologies Ltd AGS Transact Technologies Ltd 7 in dispute before us is, firstly firstly, whether the 4.3 Thus issue in dispute before us is expenditure incurred by the assessee for raising fresh capital of expenditure incurred by the assessee for raising fresh capital expenditure incurred by the assessee for raising fresh capital Rs.1000/- crores pertained completely to the proposed equity share crores pertained completely to the proposed equity share crores pertained completely to the proposed equity share capital of Rs. 400 crores for Rs. 400 crores for the assessee or was partly was partly related to offer for sale by promoters of Rs.600 crores sale by promoters of Rs.600 crores also. The assessee has The assessee has claimed entire expenditure of Rs.10.22 crores pertaining to the IPO claimed entire expenditure of Rs.10.22 crores pertaining to the IPO claimed entire expenditure of Rs.10.22 crores pertaining to the IPO in its hand whereas the share of the expenditure related to OFS by in its hand whereas the share of the expenditure related to OFS by in its hand whereas the share of the expenditure related to OFS by the promoter was to be transferred/debited in the hands of the the promoter was to be transferred/debited in the hands of the the promoter was to be transferred/debited in the hands of the promoters which has apparently not been done promoters which has apparently not been done for the year under for the year under consideration. Secondly Secondly, the issue in dispute is whether the portion , the issue in dispute is whether the portion of the expenses related to the aborted IPO are in the nature of the of the expenses related to the aborted IPO are in the nature of the of the expenses related to the aborted IPO are in the nature of the revenue expenditure in the hands of the assessee. The Ld. CIT(A) revenue expenditure in the hands of the assessee. The revenue expenditure in the hands of the assessee. The has relied on the decision of the Hon’ble Supreme Court in the case has relied on the decision of the Hon’ble Supreme Court in the case has relied on the decision of the Hon’ble Supreme Court in the case of Brook Bond India Ltd. (supra) and Punjab State Industrial of Brook Bond India Ltd. (supra) and Punjab State Industrial of Brook Bond India Ltd. (supra) and Punjab State Industrial Development Corporation Ltd. (supra) wherein the registration fee Development Corporation Ltd. (supra) wherein the registration fee Development Corporation Ltd. (supra) wherein the registration fee paid for increase in share capital paid for increase in share capital/ share issue expenses penses were held to be in nature of the capital expenditure being connected with the to be in nature of the capital expenditure being connected with the to be in nature of the capital expenditure being connected with the capital base of the assessee. capital base of the assessee. The relevant finding of Hon’ble The relevant finding of Hon’ble Supreme Court in the case of Brook Bond India Ltd. (supra Brook Bond India Ltd. (supra) is Supreme Court in the case reproduced as under: reproduced as under: The question relates to the assessment year 1969 The question relates to the assessment year 1969-70 and the The question relates to the assessment year 1969 relevant account year ended on June 30,1968. The assessee is relevant account year ended on June 30,1968. The assessee is relevant account year ended on June 30,1968. The assessee is a public limited company. It issued ordinary shares of Rs a public limited company. It issued ordinary shares of Rs a public limited company. It issued ordinary shares of Rs 16,75,000/- of Rs 10/ of Rs 10/- each at a premium with a view to each at a premium with a view to increase its share capital and, in that connection, it incurred an increase its share ca pital and, in that connection, it incurred an expenditure of Rs. 13,99,305/- which amount was claimed by expenditure of Rs. 13,99,305/ which amount was claimed by AGS Transact Technologies Ltd AGS Transact Technologies Ltd 8 ITA No. 4653/MUM/2024 it as deductible expenses. The said deduction was disallowed it as deductible expenses. The said deduction was disallowed it as deductible expenses. The said deduction was disallowed by the Income Tax Officer on the view that the expenditure by the Income Tax Officer on the view that the expenditure by the Income Tax Officer on the view that the expenditure incurred by the assessee was on the capital account. The said incurred by the assessee was on the capital account. The said view of the Income Tax Officer was affirmed by the Appellate view of the Income Tax Officer was affirmed by the Appellate view of the Income Tax Officer was affirmed by the Appellate Assistant Commissioner and the Tribunal. The High Court, Assistant Commissioner and the Tribunal. The High Court, Assistant Commissioner and the Tribunal. The High Court, while upholding the view of the Tribunal, has held that the while upholding the view of the Tribunal, has held that the while upholding the view of the Tribunal, has held that the expenditure and would fall under capital expend expenditure and would fall under capital expenditure. The expenditure and would fall under capital expend High Court has placed reliance on the observations of this High Court has placed reliance on the observations of this High Court has placed reliance on the observations of this Court in India Cements Ltd. v. Commissioner of Income Tax, India Cements Ltd. v. Commissioner of Income Tax, India Cements Ltd. v. Commissioner of Income Tax, Madras, 60 ITR 52, and it did not agree with the view taken by , 60 ITR 52, and it did not agree with the view taken by , 60 ITR 52, and it did not agree with the view taken by the Madras High Court h Court Commissioner of Income Tax, Tamil Commissioner of Income Tax, Tamil Nadu-I v. Kisenchand Chellaram (India) P. Ltd. I v. Kisenchand Chellaram (India) P. Ltd., 130 ITR 385. , 130 ITR 385. Dr. Debi Pal, the learned senior counsel appearing for the Dr. Debi Pal, the learned senior counsel appearing for the Dr. Debi Pal, the learned senior counsel appearing for the appellant-assessee, has submitted that the assessee, has submitted that the High Court was in High Court was in error in holding that the expenses incurred by the assessee In error in holding that the expenses incurred by the assessee In error in holding that the expenses incurred by the assessee In issuing the shares with a view to increase its capital did not issuing the shares with a view to increase its capital did not issuing the shares with a view to increase its capital did not constitute revenue expenditure. According to the learned constitute revenue expenditure. According to the learned constitute revenue expenditure. According to the learned counsel, the said view of the High Court is not in cons counsel, the said view of the High Court is not in consonance counsel, the said view of the High Court is not in cons with the law laid by the this Court in Empire Jute Company with the law laid by the this Court in Empire Jute Company Ltd. v. Commissioner of Income Tax, 124 ITR 1; Commissioner Ltd. v. Commissioner of Income Tax , 124 ITR 1; Commissioner of Income Tax. Bombay Bombay-II v. Associated Cements Co. Ltd. . Associated Cements Co. Ltd., 172 ITR ITR 257 257 and and Alembic Alembic Chemical Chemical works Co. works Co. Ltd. Ltd. v. v. Commissioner of Income Tax. Gujarat, 177 ITR 377. Commissioner of Income Tax . Gujarat, 177 ITR 377. The learned counsel has also invited our attention to the decisions learned counsel has also invited our attention to the decisions learned counsel has also invited our attention to the decisions of the High Courts of Andhra Pradesh, Kerala and Madras e High Courts of Andhra Pradesh, Kerala and Madras e High Courts of Andhra Pradesh, Kerala and Madras High High Court Court in in Kisenchand Kisenchand Chellaram Chellaram (India) (India) P. P. Ltd. (supra). [See: [See: Warner Hindustan Ltd. v. Commissioner of Commissioner of Income Tax (A.P.), 171 ITR 224; Hindustan Machine Tools Ltd. ), 171 ITR 224; Hindustan Machine Tools Ltd. ), 171 ITR 224; Hindustan Machine Tools Ltd. (No. 3) v. Commissioner of Income Tax, Karnataka (No. 3) v. Commissioner of Income Tax, Karnataka-II, 175 ITR (No. 3) v. Commissioner of Income Tax, Karnataka 220 and Federal Bank Ltd. v. Commissioner of Income Tax, 220 and Federal Bank Ltd. v. Commissioner of Income Tax, 220 and Federal Bank Ltd. v. Commissioner of Income Tax, Kerala. 180 ITR 241]. 80 ITR 241]. We find that this matter has come up for consideration before We find that this matter has come up for consideration before We find that this matter has come up for consideration before this Court in m/s Punjab State Industrial Development this Court in m/s Punjab State Industrial Development Corporation Ltd., Chandigarh v. Commissioner of Income Tax Corporation Ltd., Chandigarh v. Commissioner of Income Tax. Corporation Ltd., Chandigarh v. Commissioner of Income Tax Patiala. (Tax Reference No. 1 of 1990 decided on December 4, ference No. 1 of 1990 decided on December 4, ference No. 1 of 1990 decided on December 4, AGS Transact Technologies Ltd AGS Transact Technologies Ltd 9 ITA No. 4653/MUM/2024 1996). In that case, the question under consideration was 1996). In that case, the question under consideration was 1996). In that case, the question under consideration was whether an amount of Rs. 1,50,000/- paid to the Registrar of whether an amount of Rs. 1,50,000/ paid to the Registrar of Companies as filing fee for enhancement of capital was not Companies as filing fee for enhancement of capital was not Companies as filing fee for enhancement of capital was not revenue expenditure. The Court has taken note of the decisions revenue expenditure. The Court ha s taken note of the decisions of the Madras, Andhra Pradesh, Karnataka and kerala High of the Madras, Andhra Pradesh, Karnataka and kerala High of the Madras, Andhra Pradesh, Karnataka and kerala High Courts to which reference has been made by Dr. Pal as well as Courts to which reference has been made by Dr. Pal as well as Courts to which reference has been made by Dr. Pal as well as the judgment under challenge in this appeal and the judgment the judgment under challenge in this appeal and the judgment the judgment under challenge in this appeal and the judgment under challenge in this appeal and the judgmen under challenge in this appeal and the judgment of the High under challenge in this appeal and the judgmen Courts taking the same view s that taken in the impugned Courts taking the same view s that taken in the impugned Courts taking the same view s that taken in the impugned judgment. This Court has also taken note of the decisions This Court has also taken note of the decisions This Court has also taken note of the decisions in Empire Jute Company Ltd. Empire Jute Company Ltd. (supra) as well as (supra) as well as India Cements Ltd. (supra). While holding that the amount of Rs. (supra). While holding that the amount of Rs. (supra). While holding that the amount of Rs. 1,50,000/- paid to the Registrar of Companies as filing fee for paid to the Registrar of Companies as filing fee for paid to the Registrar of Companies as filing fee for enhancement of the capital was not revenue expenditure, this enhancement of the capital was not revenue expenditure, this enhancement of the capital was not revenue expenditure, this Court has said:- "We do not consider it necessary to examine all the decisions in "We do not consider it nece ssary to examine all the decisions in extenso because we are of the opinion that fee paid to the extenso because we are of the opinion that fee paid to the extenso because we are of the opinion that fee paid to the Registrar for expansion of the capital base of the company was Registrar for expansion of the capital base of the company was Registrar for expansion of the capital base of the company was directly related to the capital incidentally that would certainly directly related to the capital incidentally that would certainly directly related to the capital incidentally that would certainly help in the business of the company and may also help in help in the business of the co mpany and may also help in profit making, it still retains the character of a capital profit making, it still retains the character of a capital profit making, it still retains the character of a capital expenditure since the expenditure was directly related to the expenditure since the expenditure was directly related to the expenditure since the expenditure was directly related to the expansion of the capital base of the company. we are, expansion of the capital base of the company. we are, expansion of the capital base of the company. we are, therefore, of the opinion that the view taken by the d therefore, of the opinion that the view taken by the different therefore, of the opinion that the view taken by the d High Courts in favour of the Revenue in this behalf is the High Courts in favour of the Revenue in this behalf is the High Courts in favour of the Revenue in this behalf is the preferable view as compared to the view based on the decision preferable view as compared to the view based on the decision preferable view as compared to the view based on the decision of the Madras High Court in Kisenchand Chellaram of the Madras High Court in Kisenchand Chellaram's case." This decision thus covers the question that falls for This decision thu s covers the question that falls for consideration in this appeal. consideration in this appeal. Dr. pal has, however, submitted that this decision does not Dr. pal has, however, submitted that this decision does not Dr. pal has, however, submitted that this decision does not cover a case. like the present case, where the object of cover a case. like the present case, where the object of cover a case. like the present case, where the object of enhancement of the capital was to have more working funds enhancement of the capital was to have more working funds enhancement of the capital was to have more working funds for the assessee to carry on its business and to earn more ee to carry on its business and to earn more ee to carry on its business and to earn more profit and that in such a case the expenditure that is incurred profit and that in such a case the expenditure that is incurred profit and that in such a case the expenditure that is incurred AGS Transact Technologies Ltd AGS Transact Technologies Ltd 10 ITA No. 4653/MUM/2024 in connection with issuing of shares to increase the capital has in connection with issuing of shares to increase the capital has in connection with issuing of shares to increase the capital has to be treated as revenue expenditure. In this connection, Dr. to be treated as revenue expenditure. In this connection, Dr. to be treated as revenue expenditure. In this connection, Dr. pal has invited our attention to the submissions that were pal has invited our attention to the submissions that were urged by the learned counsel for the assessee before the urged by the learned counsel for the assessee before the urged by the learned counsel for the assessee before the Appellate Assistant Commissioner as well as before the Appellate Assistant Commissioner as well as before the Appellate Assistant Commissioner as well as before the Tribunal it was submitted on behalf of the assessee that Tribunal it was submitted on behalf of the assessee that Tribunal it was submitted on behalf of the assessee that increase in the capital was to meet the need for working funds increase in the capital was to meet the need for working funds for us the assessee-company. But the statement of case sent for us the assessee company. But the statement of case sent by the Tribunal does not indicate that a finding was recorded by the Tribunal does not indicate that a finding was recorded by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of the capital was undertaken to the effect that the expansion of the capital was undertaken to the effect that the expansion of the capital was undertaken by the assessee in order to meet the need for more worki by the assessee in order to meet the need for more working by the assessee in order to meet the need for more worki funds for the assessee. We, therefore, cannot proceed on the funds for the assessee. We, therefore, cannot proceed on the funds for the assessee. We, therefore, cannot proceed on the basis that the expansion of the capital was undertaken by the basis that the expansion of the capital was undertaken by the basis that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for working assessee for the purpose of meeting the need for working assessee for the purpose of meeting the need for working funds for the assessee to carry on its business, In any event, funds for the assessee to carry on its business, In any event, funds for the assessee to carry on its business, In any event, the above quoted observations of this Court in m/s quoted observations of this Court in m/s Punjab quoted observations of this Court in m/s State State State Industrial Industrial Industrial Development Development Development Corporation Corporation Corporation Ltd. Ltd. Ltd. Chandigarh (supra) clearly indicate that though the increase (supra) clearly indicate that though the increase (supra) clearly indicate that though the increase in the capital results in expansion of the capital in the capital results in expansion of the capital base of the in the capital results in expansion of the capital company and incidentally that would help in the business of company and incidentally that would help in the business of company and incidentally that would help in the business of the company and incidentally that would help in the business the company and incidentally that would help in the business the company and incidentally that would help in the business of the company and may also help in the profit making, the of the company and may also help in the profit making, the of the company and may also help in the profit making, the expenses incurred in that connection still retain the character expenses incurred in that connection still retain the character expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly of a capital expenditure since the expenditure is directly of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. related to the expansion of the capital base of the company. related to the expansion of the capital base of the company. In these circumstances, we do not find any merit in the appeal In these circumstances, we do not find any merit in the appeal In these circumstances, we do not find any merit in the appeal and it is accordingly dismissed. No order as to costs. and it is accordingly dismissed. No order as to costs. and it is accordingly dismissed. No order as to costs. 4.4 The Hon’ble Supreme Supreme Court(supra) has held Court(supra) has held that expenses incurred in connection with the issuance of shares, whether for an incurred in connection with the issuance of shares, whether for an incurred in connection with the issuance of shares, whether for an increase in authorized share capital or otherwise, constitute capital increase in authorized share capital or otherwise, constitute capital increase in authorized share capital or otherwise, constitute capital expenditure. The underlying underlying rationale behind this determination determination is that such expenditure is directed towards augmenting the capital h expenditure is directed towards augmenting the capital h expenditure is directed towards augmenting the capital base of the company. Share capital inherently confers specific rights base of the company. Share capital inherently confers specific rights base of the company. Share capital inherently confers specific rights upon shareholders, including but not limited to ownership upon shareholders, including but not limited to ownership upon shareholders, including but not limited to ownership AGS Transact Technologies Ltd AGS Transact Technologies Ltd 11 ITA No. 4653/MUM/2024 interests, entitlements to dividends, or fixed returns. Consequently, interests, entitlements to dividends, or fixed returns. Consequently, interests, entitlements to dividends, or fixed returns. Consequently, any expenditure incurred for the purpose of raising or expanding ny expenditure incurred for the purpose of raising or expanding ny expenditure incurred for the purpose of raising or expanding share capital serves to create rights in favor of the shareholders, share capital serves to create rights in favor of the shareholders, share capital serves to create rights in favor of the shareholders, while the benefit accruing to the company remains indirect in while the benefit accruing to the company remains indirect in while the benefit accruing to the company remains indirect in nature. It is imperative to recognize that the expenses incurr t is imperative to recognize that the expenses incurr t is imperative to recognize that the expenses incurred result in the creation of a capital asset in the hands of the result in the creation of a capital asset in the hands of the result in the creation of a capital asset in the hands of the shareholders. For the company, however, such capital remains a shareholders. For the company, however, such capital remains a shareholders. For the company, however, such capital remains a liability. The Section 37 of the Section 37 of the Act explicitly excludes capital explicitly excludes capital expenditure from the ambit of deductible business expenditure. expenditure from the ambit of deductible business expenditure. expenditure from the ambit of deductible business expenditure. Therefore, as a general principle, share issue expenses, being in the Therefore, as a general principle, share issue expenses, being in the Therefore, as a general principle, share issue expenses, being in the nature of capital expenditure, are not admissible for deduction nature of capital expenditure, are not admissible for deduction nature of capital expenditure, are not admissible for deduction under section 37 of the Act. under section 37 of the Act. The legislature has carved out a has carved out a specific provision under section 35D of the Act, permitting the specific provision under section 35D of the Act, permitting specific provision under section 35D of the Act, permitting deduction of share issue expenses in a proportionate manner over a deduction of share issue expenses in a proportionate manner over a deduction of share issue expenses in a proportionate manner over a period of five years, subject to the fulfillment of stipulated period of five years, subject to the fulfillment of stipulated period of five years, subject to the fulfillment of stipulated conditions. Similarly, in the case of expenditure incurred for raising conditions. Similarly, in the case of expenditure incurred for raising conditions. Similarly, in the case of expenditure incurred for raising loan capital, the statutory framework provides an e loan capital, the statutory framework provides an express allowance xpress allowance under section 36(1)(iii) of the Act. under section 36(1)(iii) of the Act. It is also pertinent to distinguish It is also pertinent to distinguish between capital expenditure incurred between capital expenditure incurred for creation of a capital asset creation of a capital asset or project of enduring benefit to the company and expenditure on or project of enduring benefit to the company and expenditure on or project of enduring benefit to the company and expenditure on an abandoned project. In the lat an abandoned project. In the latter scenario, provided such ter scenario, provided such expenditure is directly linked to the business of the assessee, it may expenditure is directly linked to the business of the assessee, it may expenditure is directly linked to the business of the assessee, it may qualify for deduction under section 37 of the Act. However, in the qualify for deduction under section 37 of the Act. However, in the qualify for deduction under section 37 of the Act. However, in the case of share issue expenses, which serve the primary purpose of case of share issue expenses, which serve the primary purpose of case of share issue expenses, which serve the primary purpose of capital augmentation, the capital augmentation, the statutory scheme expressly treats them statutory scheme expressly treats them as capital in nature, thereby precluding their deduction under as capital in nature, thereby precluding their deduction under as capital in nature, thereby precluding their deduction under section 37, save as permitted under section 35D. section 37, save as permitted under section 35D. We find that in the instant case also the part of the expenses out of Rs.10.22 crores the instant case also the part of the expenses out of Rs.10.22 crores the instant case also the part of the expenses out of Rs.10.22 crores pertains for raising share capital ng share capital, although the plan of the assessee though the plan of the assessee for raising such capital could not go through and the assessee for raising such capital could not go through and the assessee for raising such capital could not go through and the assessee aborted the entire process aborted the entire process, still the intended application of the still the intended application of the expenses was toward increase in share capital. expenses was toward increase in share capital.

AGS Transact Technologies Ltd AGS Transact Technologies Ltd 12 4.5 But we note that Hon’bl But we note that Hon’ble Bombay High Court in the case of e Bombay High Court in the case of Nimbus Communication Ltd. Nimbus Communication Ltd.(supra) has categorically held that has categorically held that expenses incurred towards aborted share issue expenditure falls expenses incurred towards aborted share issue expenditure falls expenses incurred towards aborted share issue expenditure falls u/s 37 of the Act. The relevant finding of the Hon’ble Bombay High u/s 37 of the Act. The relevant finding of the Hon’ble Bombay High u/s 37 of the Act. The relevant finding of the Hon’ble Bombay High Court is reproduced as under: Court is reproduced as under:

2. The finding of fact recorded by the Income Tax Appellate Tribunal is The finding of fact recorded by the Income Tax Appellate Tribunal is The finding of fact recorded by the Income Tax Appellate Tribunal is that there is dispute that the assessee has in fact incurred the that there is dispute that the assessee has in fact incurred the that there is dispute that the assessee has in fact incurred the expenditure and that on account of the aborted public issue offer, no new expenditure and that on account of the aborted public issue offer, no new expenditure and that on account of the aborted public issue offer, no new asset has come into existence and consequen asset has come into existence and consequently there is no question of tly there is no question of the assessee getting any enduring benefit. With the approval of SEBI, the the assessee getting any enduring benefit. With the approval of SEBI, the the assessee getting any enduring benefit. With the approval of SEBI, the assessee was to increase the share capital and thereby promote its assessee was to increase the share capital and thereby promote its assessee was to increase the share capital and thereby promote its business activity. However, the same got aborted due to reasons beyond business activity. However, the same got aborted due to reasons beyond business activity. However, the same got aborted due to reasons beyond its control. In these circumstances, in view of the decision of this Court in its control. In these circumstances, in view of the decision of this Court in its control. In these circumstances, in view of the decision of this Court in the case of Commissioner of Income Tax the case of Commissioner of Income Tax V/s. M/s.Essar Oil Limited, V/s. M/s.Essar Oil Limited, Income Tax Appeal (L) No.921 of 2006 decided on 16*h October 2008, in Income Tax Appeal (L) No.921 of 2006 decided on 16*h October 2008, in Income Tax Appeal (L) No.921 of 2006 decided on 16*h October 2008, in our opinion, no fault can be found with the decision of the Income Tax our opinion, no fault can be found with the decision of the Income Tax our opinion, no fault can be found with the decision of the Income Tax Appellate Tribunal in allowing the aborted share issue expenditure under Appellate Tribunal in allowing the aborted share issue expenditure under Appellate Tribunal in allowing the aborted share issue expenditure under Section 37 of the Income Tax Act, 1961. the Income Tax Act, 1961.” 4.6 In view of clear and specific finding of the Hon’ble In view of clear and specific finding of the Hon’ble In view of clear and specific finding of the Hon’ble Jurisdictional High Court Jurisdictional High Court, which is binding on us, we set aside the which is binding on us, we set aside the finding of the Ld. CIT(A) on the issue in dispute and direct the finding of the Ld. CIT(A) on the issue in dispute and direct the finding of the Ld. CIT(A) on the issue in dispute and direct the Assessing Officer to delete the additio Assessing Officer to delete the addition, subject to quantum related to ubject to quantum related to increase of equity base of assessee, other than expenses pertaining to ‘OFS’ related to increase of equity base of assessee, other than expenses pertaining to ‘OFS’ related to increase of equity base of assessee, other than expenses pertaining to ‘OFS’ related to promoters.

Order pronounced in the open Court on 17 nounced in the open Court on 17/02/2025. /02/2025.