2016 (5) TMI 523 - AT - Income Tax

Allowability of payment to ROC as charges of Registrar of Companies - Held that - Issue of allowability of the expenditure depends upon the nature of the expenditure as well as the time when the expenditure was incurred. The Revenue authorities have not specifically placed on record that whether the entire expenditure was in the nature of payment to ROC as charges of Registrar of Companies. We, therefore, deem it proper to restore this issue back to the file of the AO so that he can first determine whether the expenditure in question were preoperative expenditure before the commencement of the business or not.

Summary

Issues Involved:
Appeal against disallowance of expenditure as capital expenditure and denial of amortization of capital expenditure.

Analysis:
1. The appeal challenged the addition made on account of disallowance of expenditure as capital expenditure for a specific amount. The Assessing Officer (AO) had added the amount to the taxable income as it was related to increasing the authorized share capital and stamping of share certificates. The appellant contended that these were revenue expenditures and should be allowed. The first appellate authority referred to relevant case laws and held that expenses for increasing the capital base/share capital of the company are capital expenditures and not allowable as revenue expenditures. The claim for amortization was also dismissed based on legal precedents.

2. The appellant argued that the expenditure incurred for increasing the authorized capital was for operational purposes and not capital in nature. They highlighted the utilization of funds for a Township project and the issuance of shares to meet working capital requirements. The appellant relied on various legal decisions to support their claim that the expenditure should be treated as revenue expenditure. However, the Revenue authorities were directed to determine if the expenditure was incurred before the commencement of the business and if it was preoperative expenditure to be amortized under section 35D of the Income Tax Act. The case was remanded back to the AO for further examination on the nature and timing of the expenditure before a final decision could be made.

3. The Tribunal observed that the allowability of the expenditure depended on the nature of the expenditure and the timing of its incurrence. They cited legal precedents where expenditure related to capital expansion was treated as revenue expenditure based on specific circumstances. The Tribunal directed the AO to clarify whether the expenditure was preoperative and to make a factual determination before deciding on the allowability of the expenditure. The matter was partially allowed in favor of the assessee, with the case being remanded back for further assessment by the AO.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the arguments presented by the parties, the legal precedents cited, and the final decision of the Tribunal.