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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A”: HYDERABAD
Before: SHRI SATBEER SINGH GODARA & SHRI LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER S.No. ITA No. AY Appellant Respondent 1 1487/Hyd/2018 2012- Madhucon Toll Asst. 13 Highways Ltd., Commissioner Hyderabad. of Income-tax, Circle – 16(2), PAN – AAFCM 7371J Hyderabad 2 2100/Hyd/2017 2012- Dy. Madhucon Toll 13 Commissioner of Highways Ltd., Income-tax, Hyderabad. Circle – 16(2), Hyderabad PAN – AAFCM 7371J Revenue by: Shri T. Sunil Goutam Assessee by: Shri P. Murali Mohan Rao Date of hearing: 07/04/2022 Date of pronouncement: 13/04/2022
O R D E R PER L.P. SAHU, A.M.: Both these appeals are cross appeals by assessee and revenue directed against the CIT(A) – 4, Hyderabad’s order dated 13/09/2017 passed u/s 143(3) of the Income- tax Act, 1961 (in short ‘the Act’) for the AY 2012-13.
We notice at the outset that assessee’s instant appeal suffers from 202 days delay in filing before the ITAT. In this connection, the assessee has filed a petition for
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condonation of delay along with an affidavit, wherein, it was affirmed that since the Pr. CIT(A)’s order misplaced by one of its staff and tracing out the same caused the impugned delay in filing the appeal belatedly. We rely on Case law Collector Land Acquisition Vs. Mst. Katiji & Ors, 1987 AIR 1353 (SC) and University of Delhi Vs. Union of India, Civil Appeal No. 9488 & 9489/2019 dated 17 December, 2019, hold that such a delay; supported by cogent reasons, deserves to be condoned so as to make way for the cause of substantial justice. We accordingly hold that assessee’s impugned delay in filing this appeal is neither intentional nor deliberate but due to the circumstances beyond its control. The same stands condoned. Case is now taken up for adjudication on merits.
Briefly the facts of the case are that the assessee company is in the business of investments and it filed its return of income for the A.V. 2012-13 on 29/09/2012 declaring loss of Rs. 2,04,76,935/-, which was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and accordingly, statutory notices were issued to the assessee. The AO completed the assessment u/s 143(3) of the Act by adding the following additions: 1. Disallowance of ROC fee paid of Rs. 2,03,52,090/- 2. Disallowance of expenditure u/s 14A of Rs. 8,87,500/-
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When the assessee preferred an appeal before the CIT(A) against the order of AO, the CIT(A) partly allowed the appeal of the assessee.
Aggrieved by the order of CIT(A), both the assessee and the revenue are in appeals before the ITAT.
The assessee has raised the following grounds of appeal: “1) The Ld. Commissioner of Income Tax (Appeals) erred in passing her order without adjudicating ground Nos.2 and 3 of the grounds of appeal. 2) The Ld. Commissioner of Income Tax (Appeals) erred in not allowing appellant's claim of expenditure towards payment of ROC fee amounting to Rs.2,03,53,090, under section 37 of the Income Tax Act, 1961. 3) The Ld. Commissioner of Income Tax (Appeals) erred in not considering the fact that provisions of section 37 of the Income Tax Act, 1961 are applicable to appellant's claim of expenditure towards payment of ROC fee. 4) The Ld. Commissioner of Income Tax (Appeals) erred in not considering the decisions of Hon'ble High Courts and Hon'ble ITAT's on which the appellant relied in support of its claim of expenditure towards payment of ROC fee. 5) The Ld. Commissioner of Income Tax (Appeals) ought to have allowed appellant's claim of expenditure towards payment of ROC fee, under the provisions of section 37 of the Income Tax, 1961 instead of section 35D of the Act.
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5) The Ld. Commissioner of Income Tax (Appeals) erred in not adjudicating ground Nos. 5,6,7,11,12,13,14,15 and 16 of the grounds of appeal ofthe appellant relating to the addition of Rs.8,87,500 made by the Assessing Officer under section 14A of the Income Tax Act, 1961, through she has deleted the above addition. 7) The Ld. Commissioner of Income Tax (Appeals) erred in not cancelling the penalty proceedings ix] s 271 (1 )( c) initiated by the Assessing Officer, when the appel1ant has neither concealed any particulars of income nor resorted to furnishing of inaccurate particulars of income. 8) The appel1ant may add or alter or mend or modify or substitute or delete and/ or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.”
5.1 The revenue has raised the following grounds of appeal: “1. The CIT (A) erred in directing the AO to verify and allow ROC fee paid of Rs.2,03,52,090/- for enhancing capital base u/s. 35D. 2. The CIT (A) erred in deleting the disallowance u/s 14A of Rs.8,87,500/-. 3. The CIT (A) erred in ignoring CBDT’s Circular No.5 of 2014 dated 11.02.2014. 4. The CIT(A) erred in ignoring the Supreme Court decision in the case of CIT VS Walfort Share of Stock Brokers P Ltd [326 ITR 1J. wherein it was held that the mandate of section 14A was to curb the practice of claiming deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of exempt income
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without making any apportionment of expenses incurred in relation to exempt income. 5. Any Other Ground that may be urged at the time of hearing.”
As regards the assessee’s ground Nos. 2 to 5 relating to assessee’s claim of expenditure towards payment of ROC fee amounting to Rs. 2,03,53,090/-, during the course of assessment proceedings, the Assessing Officer noticed that the appellant had paid Rs.2,03,52,090/- toward ROC fee. Since the ROC fee was not allowable expenditure as per provisions of IT Act, the same was disallowed and added to the returned income.
During the course of appellate proceedings before the CIT(A), the appellant submitted that the Assessing Officer had not considered the entire ROC expenditure incurred for the purpose of business and the same was in direct proportion to the business needs of the company. It was submitted that entire expenditure wholly and exclusively for the purpose of business and it was necessary for the smooth functioning of business and therefore should be allowed u/s 37 of the Act and the same was extracted below: "37 (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or
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profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".
7.1 In support of appellant's claim reliance is placed on the following case laws:
(i} CIT Vs. Kisenchand Chellaram (India) P. Ltd. 1981130 ITR 385 Mad. (ii} Hindustan Machine Tools Limited Vs. CIT ILR 1988 KAR 2012, 1989175 ITR 220 KAR, 1989175 ITR 220 Kar, 1988(3) Kar. U 460 (iii} Federal Bank Ltd. Vs. CIT -1989180 ITR 241 Ker.
The CIT(A) after considering the submissions of the assessee, observed as under: “4.3 I have carefully considered the assessment order, facts of the case and case laws relied upon by the appellant. In this case, as per the details in the assessment order I am in agreement with the Assessing Officer and so the submissions of the appellant rejected with regard to the liability of the ROC fee u/s 37 of the Act but alternatively the ground raised by the appellant in ground No. 4 were verified and found that there is a merit of this expenditure to be allowed u/s 35D and therefore the Assessing Officer is directed to verify and allow accordingly.”
Before us, the ld. AR of the assessee filed written submissions in support of assessee’s case which are as under:
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9.1 In addition to the above written submissions, the ld.AR of the assessee submitted that the assessee increased the share capital money to utilize for assisting the subsidiary and associate companies for business purpose and, therefore, there was direct nexus between the increased capital and the utilization of the funds for working capital purpose. He, therefore, submitted that the ROC fee paid after commencement of the business is a revenue expenditure if the amount has been utilized for the business purposes immediately. In this connection, he relied on the judgment of the Hon’ble Bombay High Court in the case of M/s Navi Mumbai SEZ P. Ltd., (supra).
The ld. DR, on the other hand also filed written submissions, which are as under:
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We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The AO disallowed the assessee’s claim of expenditure of Rs. 2,03,52,090/- towards ROC on the ground that it was not allowable expenditure as per the provisions of IT Act. Whereas, the CIT(A) directed the AO to allow the said expenditure u/s 35D of the Act. The ld. AR of the assessee stated that the entire ROC expenditure claimed was actually incurred wholly and exclusively for the working capital purpose of its subsidiaries business activity and such expenses incurred are in nature of revenue expenditure which is liable to be allowed u/s 37 of the Act. For this proposition, he relied on the decision of the ITAT, Mumbai in the case of
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M/s Navi Mumbai SEZ P. Ltd. Vs. ACIT, [2015] 54 Taxmann.com 259. Alternatively, he also stated in written submissions that the ROC expenditure incurred towards increase of share capital as per section 35D of the Act and, therefore, the same may be allowed u/s 35D of the Act. For this proposition, he relied on the decision of the coordinate bench of ITAT, Hyderabad in the case of Ocimum Bio Solutions India Ltd. Vs. DCIT in ITA No. 2178/Hyd/2018.
11.1 On the other hand, the ld. DR in his written submissions stated that the benefit of provisions of section 35D cannot be availed when expenses other than those specified in section 35D are incurred such as legal paid to ROC, professional consultation and share valuation expenses etc. For this proposition, he relied on the decision of the Hon’ble Madras High Court in the case of CIT Vs. Ashok Leyland Ltd. [2012] 349 ITR 663.
11.2 In view of the above observations, it is observed that the assessee has paid ROC fees to the Registrar of companies for raising the authorised share capital of a company which is wholly and exclusively in the nature of revenue expenditure because as per the submissions made by the ld. AR that the increased capital has been invested in its subsidiaries and associated companies for the working capital purpose. On going through the financial statements, as per Schedule – 2.5, under the head “non-current
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investments”, there was a total investment of Rs. 277,95,82,000/- invested in the associated and subsidiaries. The name of the subsidiary companies and associate companies are mentioned at page 29 at para No. 4 & 5 of the paper book. Further, we also find that the assessee has given loans and advances to Chhapra Hajipur Expressways Ltd. of Rs. 18,50,00,000/- and Barasat Krishnagar Expressways Ltd. of Rs. 17,00,00,000/-. These are subsidiary and associate companies also. Therefore, considering the totality of the facts as well as considering the submissions of the ld. AR and respectfully following the decision of the ITAT, Mumbai in the case of M/s Navi Mumbai SEZ P. Ltd. Vs. ACIT, [2015] 54 Taxmann.com 259, on which reliance placed by the assessee, we direct the AO to allow the assessee’s claim of expenditure of Rs. 2,03,52,090/- towards ROC Fee as revenue expenditure u/s 37 of the Act. The case laws relied on by the ld. DR are distinguishable to the facts of the case on hand. Accordingly, ground Nos. 2 to 5 raised by the assessee on this issue are allowed and ground No. 1 raised by the revenue is dismissed.
As regards ground No. 6 relating to 14A of the Act, during the course of assessment proceedings, the Assessing Officer found in the Balance Sheet filed by the appellant company that an amount of Rs.35,50,00,000/- has been shown under the head Loans & Advances as on 31.3.2012.
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The appellant company has not shown any income from the said loans & advances in its accounts. Further, no income has been offered in the computation of income from the said investments apparently for the reason that the same was exempt from tax and paid nil interest. As per section 14A of the Act, where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this, the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed. Rule 8D of the IT Rules lays down the method of calculating the expenditure incurred in relation to income which does not form part of total Income. The assessee has claimed that it has invested out of its own funds and it was having reserves and own funds in the said financial year. However, it has not denied the fact that there was income which does not form part of the total income and expenditure which was incurred In relation to income which does not form part of the said total income. Further, as it can be seen from Rule 8D of the Rules, no evidence was required to be examined to see that the expenditure has been actually incurred in relation to income not includible in total income. In case where no expenditure was said to have been incurred or where the Assessing Officer was not satisfied with the correctness of the claim of expenditure,
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the expenditure was required to be determined following the method laid down under Rule 8D. In view of the same, the expenditure to be disallowed u/s 14A of the Act has been worked out as Rs.8,87,500/- and added to the returned income.
During the course of the appellate proceedings the appellant submitted that the expenditure of Rs.8,87,500/- was done on the presumption that the assessee had incurred certain expenditure towards investment, the income there from which does not or shall not form part of the total Income. The assessee company had made Investments in Subsidiary Companies and no expenses were incurred for maintaining the portfolio of the investments or for holding the same and the assessee has made investments for having the control for the purpose of business of company. The appellant further submitted that the assessee-company during the year under consideration has not received any dividend from the investments made therefore no disallowance u/s 14A of the Act can be made. In support of appellant's claim, it relied upon the following case laws:
(i) Pratista Industries Ltd. secunderabad Vs. DCIT in ITA No. 1302/Hyd/2015. (ii) Madhucon Infra Ltd. Vs. ACIT in ITA No. 410/Hyd/201S dt. 20.05.2016 (iii) phoenix Infrateeh India Pvt. Ltd. Vs. ITO, Wd.16(2), Hyd. in ITA No. 720/Hyd/2016 dt.28.09.2016.
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The CIT(A) after considering the submissions of the assessee and following the decision of ITAT, Hyderabad in the case of Prathista Industries Ltd (supra), on which reliance placed by the assessee, deleted the disallowance made by the AO on the ground that assessee has not earned any exempt income during the year.
The ld. AR of the assessee in his written submissions strongly relied on the order of the CIT(A) and also relied on various cases including the decision of ITAT, Hyderabad in the case of Prathista Industries Ltd. (supra).
The ld. DR, on the other hand, relied on the order of the AO.
We have considered the rival submissions and perused the material on record. In the case under consideration, we find from the financial statements that no exempt income was earned from the investments so made, and, therefore, the provisions of Section 14A will not applicable to the case of assessee. Therefore, following the said decision of the coordinate bench cited supra, we find no infirmity in the order of the CIT(A) and accordingly we uphold the same and dismiss the ground No. 6 raised by the assessee as infructuous and the ground Nos. 2 to 4 raised by the revenue are dismissed.
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In the result, assessee’s appeal is partly allowed and the revenue’s appeal is dismissed in above terms. A copy of this common order be placed in the respective case files. Pronounced in the open court on 13th April, 2022
Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 13th April, 2022. kv Copy to : 1 Madhucon Toll Highways Ltd., C/o P. Murali & Co., CAs, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad – 82 2 ACIT, Circle – 16(2), Hyderabad 3 CIT(A) – 4, Hyderabad. 4 The Pr. CIT – 4, Hyderabad ITAT, DR, Hyderabad. 5 Guard File. 6