M/S. SATI EXPORTS INDIA PRIVATE LIMITED,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 6(1)(1), BANGALORE

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ITA 2012/BANG/2019Status: DisposedITAT Bangalore17 January 2020AY 2014-154 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the appeal filed by the assessee was devoid of merit and accordingly dismissed it. The Tribunal reasoned that the Hon'ble Supreme Court's decision in Punjab State Industrial Development Corporation Ltd. vs. CIT clearly establishes that fees paid to the ROC for an increase in share capital are capital expenditure and not deductible. The Tribunal found that the AO had overlooked this aspect during the original assessment, which was evident from the records. Therefore, initiating proceedings under section 154 to rectify this mistake was justified. The Tribunal clarified that while section 154 proceedings cannot be initiated on debatable issues, they can be initiated if the ultimate answer to the question is unequivocally one way. Given the Supreme Court's clear pronouncement, the issue of whether ROC fees for capital expansion are capital or revenue expenditure was not debatable. The AO's action was therefore found to be without infirmity. No issue was left undecided.

What were the facts?

The assessee, M/s Sati Exports India Pvt. Ltd., is challenging an order dated 20-06-2019 passed by the CIT(A), Bangalore, for the assessment year 2014-15. During the relevant period, the assessee paid Rs. 5,03,000/- to the Registrar of Companies (ROC) for an increase in share capital. The Assessing Officer (AO) initially completed the assessment under section 143(3) on 27-10-2016 without disallowing this expenditure. However, the AO later initiated proceedings under section 154 of the Income Tax Act, 1961, and by an order dated 26-10-2018, disallowed the ROC filing fees, adding the amount back to the assessed income. The CIT(A) upheld the AO's order.

What were the issues?

1. Whether proceedings under section 154 of the Income Tax Act, 1961, were validly initiated to disallow fees paid to the ROC for an increase in share capital, when the original assessment order under section 143(3) did not make such a disallowance. Assessee's contention: The assessee argued that while the legal position regarding the expenditure being capital in nature was not disputed, the issue was debatable. Therefore, proceedings under section 154 were not appropriate. Revenue's contention: The revenue contended that the expenditure was clearly capital in nature, as settled by the Hon'ble Supreme Court, and the AO's omission in the original assessment was a rectifiable mistake.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 154

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCHES : “B”, BANGALORE

Before: SHRI N.V.VASUDEVAN & SHRI A.K.GARODIA

For Appellant: Shri S.Ramasubramanian, CA
For Respondent: Shri S. Tamil Selvam, JCIT

PER SHRI N.V.VASUDEVAN, VICE PRESIDENT :

1.

This is an appeal filed by assessee against order dated 20-06-2019 passed by Ld. CIT(A), Bangalore relating to assessment year 2014-15.

2.

The assessee is a company. During the relevant previous year the assessee paid fees to the Registrar of Company (ROC) of an amount of Rs.5,03,000/- towards increase in share capital. In the assessment completed u/s 143(3) of the Income Tax Act, 1961 (Act), on 27-10-2016, the AO did not disallow the claim of assessee for deduction on account of 2 fees paid to ROC for increase in share capital. It is not in dispute that in the light of the decision of the Hon’ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd.. Vs CIT, 225 ITR 792(SC) fees paid to ROC towards increase in share capital has to be treated as capital expenditure and cannot be allowed as deduction.

3.

The AO realizing that the ROC filing fees had not been disallowed in the assessment concluded u/s.143(3) of the Act, initiated proceedings u/s 154 of Act and by an order dated 26-10-2018 disallowed the ROC filing fees and accordingly added the sum disallowed to the income assessed u/s 143(3) of the IT Act, 1961.

4.

On appeal by the assessee the ld.CIT(A) confirmed the order of Assessing Officer.

5.

Before us, the ld.Counsel for the assessee did not dispute the legal position that the expenditure in question was capital in nature, but only submitted that the issue was debatable and therefore, proceedings u/s 154 of the Act was not appropriate.

6.

We have considered submissions of the ld.Counsel for the assessee and are of the view that the submissions made are devoid of any merit. The decision of the Hon’ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd., (supra) clearly settles the law on the question whether fees paid to ROC on expansion of share capital is capital or revenue and has laid down that the expenditure is capital expenditure. While concluding the assessment, the AO overlooked the aspect of disallowance of fees paid to ROC which was evident from the record. Therefore the AO initiated proceedings u/s.154 of the Act. We do not find any infirmity in the action of the AO. It is no doubt true that the proceedings u/s154 of the IT Act, cannot be initiated on debatable issue, but it is equally true that if the ultimate answer to the question which is subject matter of the proceedings u/s 154 of the Act, can only be one, then the proceedings u/s 154 of the Act can be initiated and 3 cannot be cancelled on the ground that the issue that was subject matter of proceeding u/s 154 of the Act were debatable involving long drawn process of reasoning. With the decision of the Hon’ble Supreme Ciourt in the case of Punjab Industrial Development Corporation Ltd., (supra), which decision was available when the AO passed the order of Assessment, it cannot be said that there can be different views on the question whether fees paid to ROC on expansion of capital base is capital expenditure or revenue expenditure. We are therefore, of the view that there is no merit in this appeal and accordingly, the same is dismissed.

7.

In the result, the appeal by the Assessee is dismissed.

Order pronounced on 17th day of January, 2020.

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