2021 (5) TMI 216 - AT - Income Tax

Addition towards ROC expenses - HELD THAT - On perusal of the financial statements submitted by the assessee we find that there is no doubt that the assessee has increased share capital. On perusal of the provisions of section 35D we find substance in the written synopsis submitted by the ld. AR of the assessee relying on the judgements quoted supra that section 35D provides amortization of certain expenses which are in the nature of capital/intangibles/preliminary expenses which have been incurred by the assessee in the preliminary stage of the company or in the normal course of business and the assessee is entitled to amortize of expenses over a period of time as per section 35D. Therefore the AO is directed to allow the ROC expenditure incurred towards increase of share capital as per section 35D - Decided in favour of assessee. Addition towards expenses for acquisition of subsidiary companies - HELD THAT - As assessee has filed bills and vouchers in paper book at pages 63 to 80 and the same were placed before the CIT(A) AO. On considering the totality of the facts of the case also remit this back to the file of the AO for verification of bills and vouchers and the same are found in order the AO is directed to allow these expenses as revenue expenditure for the impugned AY. Accordingly this ground is allowed for statistical purposes. Addition towards carry forward loss - HELD THAT - We find that the assessee has not pressed this ground before the CIT(A) but the same has been pressed before us. Therefore we restore this ground back to the AO for his factual verification. Thus this ground of appeal is treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Addition of ?13,00,000/- towards ROC expenses.
2. Addition of ?66,17,681/- towards expenses for acquisition of subsidiary companies.
3. Addition of ?16,43,939/- towards carry forward loss.

Detailed Analysis:

1. Addition of ?13,00,000/- towards ROC expenses:
During the assessment proceedings, the AO noticed that the assessee had paid ROC fees of ?13,00,000/- for an increase in authorized share capital and treated it as revenue expenditure. The AO rejected this contention, treating it as capital expenditure based on the decision of the Hon'ble Apex Court in Punjab State Industrial Development Corporation Ltd. Vs. CIT, 220 ITR 792. The CIT(A) confirmed the AO's addition. The assessee argued that the expenditure was for bettering an established business and did not result in any tangible or intangible asset. They cited various judgments supporting the amortization of such expenses under section 35D of the IT Act, 1961. The Tribunal observed that the ROC expenses towards increasing share capital are capital in nature but allowed the expenditure to be amortized over a period as per section 35D. Thus, the AO was directed to allow the ROC expenditure under section 35D. The grounds raised on this issue were allowed.

2. Addition of ?66,17,681/- towards expenses for acquisition of subsidiary companies:
The assessee claimed the expenses for the acquisition of subsidiary companies as revenue expenditure, but the AO treated it as capital expenditure due to non-compliance from the assessee. The CIT(A) directed the AO to verify the bills and evidences and allow the expenditure accordingly. The Tribunal, considering the totality of the facts, remitted the issue back to the AO for verification of the bills and vouchers. If found in order, the AO was directed to allow these expenses as revenue expenditure. This ground was allowed for statistical purposes.

3. Addition of ?16,43,939/- towards carry forward loss:
The assessee did not press this ground before the CIT(A) but pressed it before the Tribunal. The Tribunal restored this ground back to the AO for factual verification. This ground of appeal was treated as allowed for statistical purposes.

Conclusion:
The appeal of the assessee was treated as allowed for statistical purposes. The Tribunal directed the AO to allow the ROC expenditure under section 35D, verify the expenses for the acquisition of subsidiary companies, and verify the carry forward losses. The judgment was pronounced in the open court on 5th May 2021.