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Facts
The assessee filed its return declaring NIL income. The CPC made an addition of Rs. 38,02,910/- on account of an amount paid towards an increase in authorized share capital, which was debited to retained earnings. The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal held that since the amount was debited to retained earnings and not to the Profit and Loss Account, and no deduction was claimed in the return of income, the disallowance made by the CPC was incorrect and deserved to be deleted.
Key Issues
Whether the disallowance of an amount debited to retained earnings, and not claimed as a deduction, is justified.
Sections Cited
250, 143(1)
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Income Tax Appellate Tribunal, DELHI “C” BENCH: NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL
Year : 2019-20] Escorts Heart & Super vs Asst. DIT Speicality Hospital Ltd., CPC C/o-Escorts Heart and Super Income Tax Specialty Hospital Centra, Department Okhla Road, Delhi-110025. Bengaluru PAN-AABCE6721G APPELLANT RESPONDENT Appellant by Shri R.M.Mehta, CA Respondent by Shri Om Parkash, Sr.DR Date of Hearing 30.09.2025 Date of Pronouncement 19.12.2025 ORDER
PER MANISH AGARWAL, AM :
The present appeal is filed by assessee against the order dated 17.12.2024 by Ld. Commissioner of Income Tax (A)/ADDL/JCIT(A)- 1, Nashik [“Ld.CIT(A)”] in Appeal No. NFAC/2018-19/10019921 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] against the intimation order dated 25.10.2020 passed u/s 143(1) of the Act pertaining to Assessment Year 2019-20.
Brief facts of the case are that assessee filed its return of income on 15.06.2020, declaring total income at NIL. The return was processed by CPC on 25.10.2020 wherein CPC has made addition of INR 38,02,910/- on account of amount paid towards increase in authorized share capital and directly debited in the retained earnings in the order passed u/s 143(1) of the Act.
Against the said order, assessee filed an appeal before Ld. CIT(A) who vide impugned order dated 17.12.2024, dismissed the appeal of the assessee.
Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before the Tribunal by taking following grounds of appeal:- 1. “That Ld. CIT(A) erred both on facts and in law in upholding the disallowance made by the Ld. Assessing Officer for an amount of Rs.38,02,910/- on account of fees for stamp duty paid for increase in authorized share capital, despite the fact that the same has been booked in retained earnings.
2. That learned CIT(A) has erred both on facts and in law in disallowing Rs.38,02,910 without appreciating the fact that the amount has not been debited to Profit and Loss Account and hence, has not been claimed as deduction in the ITR filed.
3. That learned CIT(A) failed to appreciate that the Tax Auditor has wrongly reported this amount in the Tax Audit Report as amount debited to Profit and Loss Account being Capital in Nature grossly ignoring that the same has been booked in retained earnings in the balance sheet and that tax auditor has stated that "paid towards increase in authorized share capital and directly debited in the retained earnings.
4. The Appellant craves leave to add, alter, amend or vary any of the above grounds either before or at the time of hearing as may be advised.”
5. Before us, Ld.AR for the assessee submits that increase in authorized share capital of INR 38,03,980/- was directly added to Miscellaneous Expenditure appearing in the assets side of Balance Sheet under the head “retained earnings” the same is appearing as negative figure and no expenditure on this count was claimed in the P&L Account therefore, the same was wrongly disallowed by the CPC. Ld.AR submits that Auditor in Point No.21A at Serial No.1 in Form 3CD appended with Tax Audit Report under Form 3CB has clearly observed as under:- “paid towards increase in authorized share capital and directly debited in the retained earnings”
6. Ld.AR thus submits that when this amount has not been claimed in P&L Account nor has been claimed as expenses in the return of income filed under any head of P&L Account, no disallowance could be made and the action of ld. CIT(A) in confirming the same is incorrect and thus the same deserves to be deleted.
7. On the other hand, Ld. Sr. DR vehemently supported the orders of the lower authorities and submits that CPC has made the adjustment solely on the basis of the tax audit report issued by the tax auditor where this amount was shown under the head amounts debited to P&L Account being nature of capital, personal, advertisement expenses etc. He, therefore, prayed for the confirmations of the same.
Heard the contentions of both the parties and perused the material available on record. From the perusal of the Note No. 15 to the Balance Sheet it is seen that under the title “other equity”, the assessee has shown this amount under the head “retained earnings- as share issue expenses”. The relevant extracts of the Balance Sheet are available at page 4 of the Paper Book filed by the assessee. It is further seen that in the Tax Audit Report, it is clearly observed by Auditor that the amount was directly debited in the retained earnings therefore, it is not the case where assessee has claimed the expenses on account of the fee paid to ROC for increase in share capital as revenue expenditure in P&L Account and accordingly, we find no reason for making disallowance on this amount therefore, the same is hereby, deleted. Accordingly, all the grounds of appeal raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 19.12.2025.