2018 (10) TMI 1671 - AT - Income Tax

ROC fees for increasing authorized capital - Disallowance of expenditure u/s 37 - assessee has not commenced its business operation - nature of expenditure - CIT(A) has observed that the ROC fees paid for increase in authorized share capital of a company is a capital expenditure in nature and hence cannot be allowed as an allowable deduction - HELD THAT - In the case of Punjab State Industrial Development Corporation Ltd. v. CIT 1996 (12) TMI 6 - SUPREME COURT as well as Brooke Bond India Ltd. v. CIT 1997 (2) TMI 11 - SUPREME COURT has categorically held that the expenditure incurred by a company in connection with issue of shares with a view to increase its share capital, is directly related to the expansion of the capital base of the company, and is capital expenditure, even though it may incidentally help in the business of the company and in the profit-making. CIT(A) has rightly held that the ROC fees paid for increase in authorized share capital of a company is a capital expenditure in nature and hence cannot be allowed as an allowable deduction. Thus, we find no reason to interfere with the order passed by the CIT(A) on this issue and accordingly, the ground raised by the assessee stands dismissed.

Summary

Issues: Disallowance of expenditure on the ground of business operation not commenced.

Analysis:
1. The appeal was against the order of the Commissioner of Income Tax (Appeals) relevant to the assessment year 2009-10. The main ground raised was the disallowance of expenditure on the basis that the business operation had not commenced.

2. The assessee filed the return of income admitting total income under normal provisions. During scrutiny, the Assessing Officer disallowed the expenditure claimed for ROC fees, stating that it cannot be allowed as a deduction since the business operation had not started. Consequently, the total income assessed was higher.

3. The matter was taken to the CIT(A) by the assessee, who confirmed the disallowance of expenditure and dismissed the appeal.

4. The assessee then appealed to the Tribunal, arguing that the expenditure incurred during setting up a business should be an allowable deduction, citing a relevant case law.

5. The Departmental Representative contended that no capital expenditure during the business setup phase was allowed, distinguishing the case law relied upon by the assessee.

6. After reviewing the arguments and orders of the lower authorities, it was observed that the ROC fees paid for increasing authorized share capital was considered a capital expenditure and not allowed as a deduction. The Tribunal referenced Supreme Court cases supporting this view.

7. The Tribunal held that the expenditure in question was capital in nature and not allowable as a deduction. Therefore, the appeal was dismissed, upholding the decision of the CIT(A).

This detailed analysis outlines the progression of the case, the arguments presented by both parties, and the legal principles applied in arriving at the final decision to dismiss the appeal.