2016 (6) TMI 495 - AT - Income Tax

Disallowance of professional and consultancy fees paid to PWC towards equity expansion - Held that - The nature of service rendered by M/s. PWC to the assessee company such as preparation of information memorandum, identification of potential investors, assistance in value analysis, assistance in structuring the consideration and the transaction, assistance in negotiations and coordinating the completion of the transaction would eventually be attributable for capital expansion and the assessee has incurred the expenses towards the same. It does not matter whether the expenditure incurred has resulted in the expansion of capital. What matters is the nature of expenditure incurred and not the benefit that is derived out of the expenditure. Considering the nature of expenses, it is apparent that the expenditure is incurred for the purpose of expansion of capital and therefore cannot be treated as revenue expenditure. Hence, we do not find it necessary to interfere with the orders of the Revenue. Consequently, this issue is decided against the assessee. Disallowance U/s.14A r.w.r 8D - Held that - Assessing Officer had invoked the provisions of section14A r.w.r 8D because the assessee had invested in shares, the dividend income of which, is exempt from tax and thereby computed the disallowance by adopting 0.5% of the average of the opening and closing balance of investment in the relevant assessment year which works out to ₹ 29,189/-. Since the disallowance made by the learned Assessing Officer is in accordance with the provisions of the Act, we do not find it necessary to interfere with the orders of the Revenue - Decided against the assessee.

Summary

Issues involved:
- Disallowance of professional and consultancy fees for equity expansion
- Disallowance under section 14A r.w.r 8D
- Taxability of interest income under "income from other sources"
- Disallowance of depreciation on rented building

Analysis:

Issue 1: Disallowance of professional and consultancy fees for equity expansion
- The appellant contested the disallowance of Rs. 6,83,000 paid to PWC for "equity expansion," arguing that no actual expansion occurred. The Revenue held the expenditure as capital in nature. The Tribunal upheld the Revenue's decision, emphasizing that the nature of the services provided by PWC was for capital expansion, regardless of the actual outcome. The Tribunal cited relevant case law and ruled against the appellant, stating that the expenditure was for capital expansion and not revenue, thus not eligible for deduction.

Issue 2: Disallowance under section 14A r.w.r 8D
- The Assessing Officer disallowed 0.5% of average investments under section 14A r.w.r 8D due to exempt dividend income. The Tribunal upheld this disallowance, as it was in line with the Act's provisions. The decision was made against the appellant.

Issue 3: Taxability of interest income under "income from other sources"
- The appellant earned interest income on ICD, FD, discounting charges, and IT refund, totaling Rs. 38,89,413. The Assessing Officer excluded this income from the deduction under section 36(1)(viii), citing judicial precedents. The Tribunal, following previous decisions and the Assessing Officer's analysis, ruled against the appellant, upholding the exclusion of interest income from the deduction.

Issue 4: Disallowance of depreciation on rented building
- The Assessing Officer denied depreciation claimed on a rented building, as it was not used for the appellant's business. The Commissioner upheld this decision based on a previous Tribunal ruling. The Tribunal concurred, deciding against the appellant for both the disallowance of depreciation and interest income under "income from other sources."

In conclusion, all four appeals filed by the appellant were dismissed by the Tribunal on April 28, 2016.