2025 (2) TMI 862 - AT - Income Tax

Disallowance in relation to the IPO expenditure for abandoned / aborted project u/s 37 - CPC made disallowance due to variation between the value reported by the tax auditor in Form No.3CD to that of entry in ITR - HELD THAT - As per observations of the Ld. Addl./JCIT(A) that when there is mismatch of corresponding item as per column 21(a)(2) of Form No.3CD and Schedule BP of e-filed ITR the corresponding difference has to be necessarily added to the total income as adjustment u/s 143(1) of the Act is concerned we find in the case of Kalpesh Synthetics (P.) Ltd. 2022 (5) TMI 461 - ITAT MUMBAI has held that the Assessing Officer could not make disallowance based on observations made in tax audit report that payments were made after due date specified under respective Acts. Thus direct the AO to delete the disallowance on account of IPO cost u/s 37(1). Grant of credit of DDT u/s 115-O - assessee at the outset submitted that since no credit was given a direction may be given to the Assessing Officer to follow the due procedure - HELD THAT - DR has no objection. Accordingly we restore this issue to the file of the Assessing Officer with a direction to verify the record and give appropriate credit of the DDT as per fact and law. Needless to say the Assessing Officer shall give due opportunity of being heard to the assessee and decide the issue as per fact and law.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the adjustment made by the Centralized Processing Center (CPC) under Section 143(1) of the Income Tax Act, 1961, regarding the disallowance of IPO expenses related to an aborted project, was justified.
Whether the IPO expenses for an abandoned project should be treated as revenue expenditure under Section 37(1) of the Act.
Whether the assessee is entitled to credit for Dividend Distribution Tax (DDT) under Section 115-O of the Act.
Whether the levy of interest under Section 115P of the Act is valid.

ISSUE-WISE DETAILED ANALYSIS

1. Adjustment under Section 143(1) and Disallowance of IPO Expenses

Relevant Legal Framework and Precedents: The adjustment under Section 143(1) was based on the mismatch between the tax auditor's report in Form No. 3CD and the Income Tax Return (ITR). The legal question was whether IPO expenses for an aborted project should be treated as capital or revenue expenditure. The precedent relied upon was the Bombay High Court's decision in CIT vs. Nimbus Communication Ltd., which held that aborted IPO expenses should be treated as revenue expenditure.
Court's Interpretation and Reasoning: The Tribunal found that the CPC's adjustment was based on the tax auditor's classification of IPO expenses as capital in nature. However, the Tribunal emphasized that the legal issue was whether such expenses should be considered revenue expenditure, as supported by the Bombay High Court's decision in Nimbus Communication Ltd.
Key Evidence and Findings: The Tribunal noted that the assessee had incurred IPO expenses for an aborted project, and no new asset or enduring benefit resulted from these expenses.
Application of Law to Facts: The Tribunal applied the legal principles from the Nimbus Communication Ltd. case, concluding that the IPO expenses should be treated as revenue expenditure since no enduring benefit or new asset resulted from the aborted project.
Treatment of Competing Arguments: The Tribunal dismissed the argument that the CPC's adjustment was justified solely based on the tax auditor's report, emphasizing the legal precedent favoring the assessee's position.
Conclusions: The Tribunal directed the Assessing Officer to delete the disallowance of IPO expenses, treating them as revenue expenditure under Section 37(1).

2. Credit for Dividend Distribution Tax (DDT)

Relevant Legal Framework: The issue concerned the assessee's entitlement to credit for DDT under Section 115-O of the Income Tax Act.
Court's Interpretation and Reasoning: The Tribunal acknowledged the assessee's claim for DDT credit, noting that the necessary details were reflected in Form 26AS.
Conclusions: The Tribunal restored the issue to the Assessing Officer for verification and directed that appropriate credit for DDT be given as per the law.

3. Levy of Interest under Section 115P

Relevant Legal Framework: The issue involved the levy of interest under Section 115P of the Income Tax Act.
Court's Interpretation and Reasoning: The Tribunal considered this issue to be consequential in nature, dependent on the resolution of the DDT credit issue.
Conclusions: The Tribunal dismissed the ground related to the levy of interest under Section 115P, considering it a consequential matter.

SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: The Tribunal cited the Bombay High Court's decision in Nimbus Communication Ltd., emphasizing that "no new asset has come into existence and consequently there is no question of the assessee getting any enduring benefit," supporting the treatment of IPO expenses as revenue expenditure.
Core Principles Established: The judgment reinforced the principle that IPO expenses for an aborted project, which do not result in an enduring benefit or new asset, should be treated as revenue expenditure under Section 37(1).
Final Determinations on Each Issue: The Tribunal allowed the appeal regarding the disallowance of IPO expenses, directed the Assessing Officer to verify and grant DDT credit, and dismissed the ground related to the levy of interest as consequential.

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