2018 (1) TMI 1375 - AT - Income Tax

Disallowance u/s.14A - Held that - Neither the shares were allotted during the year under consideration nor any dividend income had accrued to the assessee against proposed allotment. In our view there is a finding by the Kolkata Tribunal to the effect that the share application money invested by the assessee was merely in the nature of offer to buy the shares by the assessee and it cannot be aid be concluded contract entered by the assessee and the company. Therefore we find no merit in the appeal of the Revenue. Expenditure on issuance of bonds - Held that - In the present case the bonds issued by the assessee were in the nature of a debt instrument and the stamp duty paid to Government of Karnataka by the assessee would be eligible as revenue expenditure as it will not enhance the capital base of the assessee. There is a distinction between the expenditure incurred for raising the loan and the instrument which had an effect of increasing the share capital. - Decided against revenue

Summary

Issues:
1. Disallowance under section 14A of the Act for investment in equity shares.
2. Expenditure on issuance of bonds claimed by the assessee.

Issue 1: Disallowance under section 14A of the Act for investment in equity shares:
The appeal was filed by the Revenue against the CIT (A)'s order for the assessment years 2012-13 and 2013-14 regarding disallowance under section 14A of the Act. The AO observed that the assessee made investments in equity shares and calculated the disallowance under Rule 8D(2)(iii) but not under Rule 8D(2)(i). The AO invoked Rule 8D due to the investment made from borrowed funds. The CIT (A) allowed the ground raised by the assessee based on a previous order of the Bangalore Bench of the Tribunal. The Tribunal, in its order, held that since no shares were allotted or dividend income accrued to the assessee, the disallowance under section 14A was not justified. The Tribunal dismissed the Revenue's appeal based on the findings of a coordinate bench, emphasizing that the case of the assessee was covered by previous judgments.

Issue 2: Expenditure on issuance of bonds claimed by the assessee:
The Revenue raised a ground regarding the expenditure on issuance of bonds claimed by the assessee. The assessee claimed stamp duty expenses under contingencies, clarifying that these were one-time statutory expenses at a fixed percentage of the bond value issued to the public. The expenditure was debited to the P & L account and was argued to be revenue expenditure, citing relevant judgments. The Tribunal considered the issue and held that the expenditure was admissible as revenue expenditure based on the Supreme Court's decision in India Cements case. It was noted that the bonds issued were in the nature of a debt instrument, and the stamp duty paid would not enhance the capital base. Drawing a distinction between raising a loan and increasing share capital, the Tribunal dismissed the Revenue's appeal, emphasizing the eligibility of the expenditure as revenue.

In conclusion, the Tribunal dismissed the appeals filed by the Revenue for both assessment years 2012-13 and 2013-14, based on the detailed analysis and findings related to the disallowance under section 14A of the Act and the expenditure on issuance of bonds claimed by the assessee. The judgments relied upon, the arguments presented, and the legal principles applied were thoroughly examined to reach the decisions in favor of the assessee.