2020 (2) TMI 446 - AT - Income Tax

Rectification u/s 154 - whether fees paid to ROC on expansion of share capital is capital or revenue? - HELD THAT - The decision of the Hon ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd., 1996 (12) TMI 6 - SUPREME COURT clearly settles the law on the question whether fees paid to ROC on expansion of share capital is capital or revenue and has laid down that the expenditure is capital expenditure. While concluding the assessment, the AO overlooked the aspect of disallowance of fees paid to ROC which was evident from the record. Therefore the AO initiated proceedings u/s.154. No infirmity in the action of the AO. It is no doubt true that the proceedings u/s154 of the IT Act, cannot be initiated on debatable issue, but it is equally true that if the ultimate answer to the question which is subject matter of the proceedings u/s 154 of the Act, can only be one, then the proceedings u/s 154 of the Act can be initiated and cannot be cancelled on the ground that the issue that was subject matter of proceeding u/s 154 of the Act were debatable involving long drawn process of reasoning. With the decision of the Hon ble Supreme Court in the case of Punjab Industrial Development Corporation Ltd., (supra), which decision was available when the AO passed the order of Assessment, it cannot be said that there can be different views on the question whether fees paid to ROC on expansion of capital base is capital expenditure or revenue expenditure. We are therefore, of the view that there is no merit in this appeal and accordingly, the same is dismissed.

Summary

Issues:
Assessment of fees paid to Registrar of Companies (ROC) for increase in share capital as capital expenditure and disallowance under section 154 of the Income Tax Act, 1961.

Analysis:
The appeal was filed by the assessee against the order passed by the Ld. CIT(A), Bangalore pertaining to the assessment year 2014-15. The assessee, a company, had paid fees to the ROC for an amount of ?5,03,000 towards an increase in share capital during the relevant previous year. Initially, in the assessment completed under section 143(3) of the Income Tax Act, 1961, the Assessing Officer (AO) did not disallow the claim for deduction on account of fees paid to the ROC. However, based on the decision of the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. vs CIT, it was established that fees paid to the ROC for an increase in share capital should be treated as capital expenditure and not allowed as a deduction.

Subsequently, the AO, realizing the oversight in not disallowing the ROC filing fees in the initial assessment, initiated proceedings under section 154 of the Act. By an order dated 26-10-2018, the AO disallowed the ROC filing fees and added the disallowed sum to the income assessed under section 143(3) of the IT Act, 1961. Upon appeal by the assessee, the Ld. CIT(A) upheld the decision of the Assessing Officer.

During the proceedings before the Appellate Tribunal, the counsel for the assessee did not contest the capital nature of the expenditure but argued that the issue was debatable, questioning the appropriateness of proceedings under section 154 of the Act. However, the Tribunal found the submissions lacking merit. It was emphasized that the decision of the Hon'ble Supreme Court in the Punjab State Industrial Development Corporation Ltd. case had definitively established the nature of fees paid to ROC for share capital expansion as capital expenditure. The Tribunal noted that the AO had overlooked the disallowance of these fees during the initial assessment, justifying the initiation of proceedings under section 154. The Tribunal clarified that if the ultimate answer to a question is unequivocal, even if the issue is debatable, proceedings under section 154 can be initiated. Given the settled legal position by the Supreme Court, the Tribunal concluded that there was no merit in the appeal and accordingly dismissed it.

In conclusion, the appeal by the Assessee was dismissed, affirming the disallowance of fees paid to the ROC for the increase in share capital as capital expenditure in accordance with the decision of the Hon'ble Supreme Court.