2015 (11) TMI 301 - HC - Income Tax

Entitlement to Issue Management Expenses - Held that - It is not in dispute that in CIT v. Havels India Ltd. 2012 (5) TMI 604 - DELHI HIGH COURT this Court has held that the expenditure incurred in connection with issue of debentures or obtaining loan should be considered as revenue expenditure. In the present case the expenditure incurred is in relation to issuance of convertible bonds. Accordingly, the question framed is answered in the affirmative i.e. in favour of the Assessee and against the Revenue. Additions made on the basis of the show cause notices without the AO conducting any independent enquiry could not be sustained.

Summary

Issues:
1. Deduction of Issue Management Expenses
2. Perverse addition made by Assessing Officer based on show cause notices

Analysis:

Issue 1: Deduction of Issue Management Expenses
The High Court addressed the first issue of whether the Assessee is entitled to a deduction of expenses incurred as Issue Management Expenses. Referring to a previous judgment in CIT v. Havels India Ltd., the Court established that expenses related to the issuance of debentures or obtaining loans should be considered as revenue expenditure. In this case, the expenses were incurred in relation to the issuance of convertible bonds. Consequently, the Court ruled in favor of the Assessee, allowing the deduction of the expenses.

Issue 2: Perverse addition based on show cause notices
The second issue revolved around the addition of a specific amount in the Assessee's income by the Assessing Officer, which was questioned as being perverse. The Court noted that the additions were solely based on show cause notices issued by the Central Excise authorities, which were later dropped. The Income Tax Appellate Tribunal (ITAT) found that the Assessing Officer had not conducted any independent inquiry before making the additions. As a result, the Court agreed with the ITAT's decision that additions made solely on the basis of show cause notices without proper investigation could not be sustained. Therefore, the Court ruled in favor of the Assessee, holding that the additions made by the Assessing Officer were not valid.

In conclusion, the High Court dismissed the appeal, upholding the decisions in favor of the Assessee on both issues regarding the deduction of Issue Management Expenses and the invalid additions made by the Assessing Officer based on show cause notices.