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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
Date of hearing: 02.01.2017 Date of pronouncement: 13.01.2017 For the Appellant: Shri D. S. Damle, CA For the Respondent: Shri Bani Brata Dutta, JCIT, Sr. DR ORDER
Per Dr. A. L. Saini, AM:
The captioned appeal filed by the assessee pertaining to Assessment Year 2004-05, is directed against the order passed by the Ld. CIT(A), Central-I, Kolkata in appeal no. 20/CC- VI/CIT(A)C-1/11-12, dated 04.12.2013, which in turn arises out of assessment order passed by the DCIT, Central Circle-VI, Kolkata u/s. 154/143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 31.03.2011.
The facts of the case qua the assessee are that the assessment u/s. 143(3) of the Act of the assessee company was completed on 21.12.2006 determining total income at ‘nil’. Later on, the AO found on perusal of records that Rs.20,40,000/- was deducted in computing total income on account of fees paid for raising share capital. The said claim of the assessee was allowed in the normal assessment order u/s. 143(3) of the Act. Then later on, the AO reopened the file of the assessee to rectify the assessment u/s. 154 of the Act. The AO observed that it is a well settled issue that expenditure incurred in connection with the issue of additional share is a capital expenditure, as the expenditure directly related to expansion of capital base. Therefore, the AO made disallowance of Rs.20,40,000/- by observing the following:
“The submission of the assessee has been considered carefully. It is well settled expenditure incurred for raising share capital is capital expenditure and therefore inadmissible expenditure. Hon'ble Apex Court in the case of Brooke Bond India Ltd. Vs. CIT (SC) 225 ITR 798 held that expenditures in connection with additional issue of shares the capital expenditure as the expenditure is directly related to expansion of capital base. Similar view was taken by the Hon'ble Supreme Court in the case of Punjab State Industrial Development Vs. CIT. Hon'ble Calcutta High Court in the case of Union Carbide India Ltd. Vs. CIT(Cal) 203 ITR 584 and held that expenditure is capital in nature even if the additional share were allotted to maintain
J.K. Tyre & Industries Ltd. A.Y. 2004-05 capital base as per FERA requirement. Similar view was expressed by Calcutta High Court in the case of Avery India Ltd. Vs. CIT(Cal) 199 ITR 745. Therefore, it is clear from the above judicial pronouncement that expenditure incurred for raising capital is capital expenditure and the same does not qualify for deduction in computing total income. As regards the assessee's submission that 1/5th of expenditure should be allowed u/s.35DD of I.T. Act.'61, it is to be stated that Hon'ble Gujarat High Court in the case of CIT Vs. Official Liquidator of Ahmedabad Mfg. & Calico Prg. Co. Ltd. (Guj) 244 ITR 156 held that expenditure on·issue of share certificates, bonds etc. as a consequence of amalgamation of company is a capital expenditure. In view of the above assessee's contention is hereby rejected.”
Aggrieved from the order of the AO, the assessee filed an appeal before the Ld. CIT(A) who has confirmed the addition made by the AO observing the following: “4. The Ld. AR appeared for the assessee and reiterated the arguments made before the AO. I agree with the AO that the issue is covered by the judgment of the Hon’ble Supreme Court in the case of Brooke Bond India Ltd. Vs. CIT (SC) 225 ITR 798 wherein it was held that the expenditure incurred in connection with the expansion of capital base was capital in nature. The Ld. AR has argued that the assessee company did not receive any amount in cash towards increase in its share capital. I do not find merit in the argument as the share capital of the amalgamated company eventually merged with that of the assessee company thereby resulting in expansion of its capital base. The Ld. AR has also argued that there was no intention to increase the capital base. But then, the intention notwithstanding the amalgamation has resulted in expansion of the capital base. I also find that the issue is covered by the judgment of the High Courts as discussed by the AO in the order under appeal. In view of the above, the disallowance of Rs.20,40,000/- is confirmed. Ground no. 1 & 4 are dismissed. In view of the categorical judgment of the Hon’ble Supreme Court in the case of Brooke Bond India Ltd. vs. CIT (SC) 225 ITR 798, I am not impressed with the argument that the issue is debatable and therefore beyond the purview of section 154. Ground no. 1 & 3 are dismissed.”
Not being satisfied with the order of the Ld. CIT(A) the Assessee is in further appeal before us and has taken the following grounds: “
1. For that the Ld. CIT(A) erred in confirming the disallowance of Rs. 20,40,000/- made by Assessing Officer on account of fees paid to Registrar of Companies towards increase in Authorized Share Capital by treating it as capital expenditure, without appreciating the fact that the said increase in authorized share capital was to give effect to the Scheme of Arrangement and Amalgamation duly approved by Hon'ble High Courts of Kolkata & Bangalore.
2. For that the Ld. CIT(A) erred in not appreciating the facts that the predecessor Assessing Officer during the assessment proceedings u/s 143(3) of the Act had allowed the said expense as business expense after due application of mind and the rectification u/s 154 is nothing but a mere change of opinion which could not be rectified u/s 154 of the Act as there was no mistake apparent in the order passed u/s 143(3) of the Act and therefore the Ld. CIT (A) failed to appreciate the fact that in any case the aforesaid issue is a debatable issue where more than one view could be possible and hence this issue could not be rectified u/s 154 of the Act.
3. For that without pre-judice to appellant's aforesaid contention, the Ld. CIT (A) erred in confirming the action of Assessing Officer of not allowing the appellant's claim to amortize the said expenses over a period of five years u/s 35DD (l/5th in each year) of the Act, disregarding
J.K. Tyre & Industries Ltd. A.Y. 2004-05 the judgment of Jurisdictional Tribunal wherein the Tribunal allowed such fees to be amortized over a period of five years u/s 35 DD of the Actunder similar facts and circumstances.”
Although, in this appeal, the assessee has raised three grounds of appeal but at the time of hearing the main grievance of the assessee has been confined to ground no. 3 only and other grounds were not pressed. Ground no. 3 is a solitary grievance of the assessee where he has requested to amortize the fee paid to the Registrar of Companies towards increase of authorized share capital u/s. 35D of the Act, at the rate of one- fifth in each year.
The Ld. AR for the assessee has vehemently submitted that w.e.f. 01.04,2000 there was amendment in the Income-tax act. The Finance Act, 1999 has introduced section 35DD which allows the assessee to amortize fee paid to the Registrar of Companies one-fifth in each year i.e. in five installments. The amendment in section 35DD applies from AY 2000- 01. The assessee’s appeal under consideration pertains to AY 2004-05, therefore, assesseecompany is entitled to take the benefit of section 35DD of the Act and entitled to amortize the fee paid to the Registrar of Companies, one-fifth in each subsequent year. The Ld. AR for the assessee has also relied on the judgment in the case of M/s. J. K. Agri Genetics Ltd. in AY 2004-05 dated 27.05.2009 wherein the coordinate bench of this Tribunal has observed as under: “6. After hearing both the sides and with careful consideration of the facts we find that the decision of the Hon’ble Supreme Court in the case of CIT Vs. General Insurance Corporation (supra) was related to the assessment year 1991-92. There is an amendment in the Act and the new provisions have been inserted by the Finance Act, 1999 with effect from 1.4.2000 in respect of any expenditure incurred for the purpose of amalgamation or demerger of an undertaking. As per these provisions, the assessee is entitled to amortize these expenditures. These expenses shall be allowed upto 1/5th of each of the five successive previous years beginning from the previous year in which the amalgamation or demerger took place. Keeping in view the amended provisions of the law, we set aside the order of the CIT(A) and direct the AO to allow the expenditure upto 1/5th in this year as per the provisions of law. The first ground of the revenue is partly allowed.”
On the other hand, the Ld. DR for the revenue has strongly defended the order passed by the Ld. CIT(A).
8. Having heard the rival submissions and perused the material available on record, we are of the view that there is merit in the submissions of the assessee, as the proposition
J.K. Tyre & Industries Ltd. A.Y. 2004-05 canvassed by the Ld. AR for the assessee, are supported by the judgment of the coordinate bench of this Tribunalin the case of M/s. J. K. Agri Genetics Ltd, and the facts narrated by him. The Ld. AR has pointed out before us that there was amendment in the I. T. Act and the Finance Act, 1999 had introduced a new section viz. section 35DD, which says that assessee company can claim one-fifth deduction in respect of the fee paid to the Registrar of Companies towards increase in authorized share capital. This amendment became applicable from AY 2000-01 and also applicable to the assessee under consideration. Therefore, considering the factual position and the precedence cited by the ld. AR for the assessee, we are of the view that the addition made by the AO and confirmed by the ld. CIT(A) needs to be deleted. Accordingly, we delete the addition.
In the result, the appeal filed by the assessee, is allowed.
Order pronounced in the open court on 13.01.2017