2022 (1) TMI 648 - AT - Income Tax

Nature of expenditure - fee paid to ROC - revenue or capital expenditure - HELD THAT - In the present case, the assessee incurred by way of expenditure towards payment of fee to Registrar of the companies in expansion of authorized share capital which incidentally would help in the business of the company resulting into profit-making, in our opinion is in the character of a capital expenditure. Expenditure incurred towards ROC is disallowed and to this effect the order of CIT(A) is justified. Appeal of assessee dismissed.

Summary

Issues involved:
1. Whether the addition made by the AO on account of fee paid to ROC is capital expenditure.
2. Whether the expenditure incurred for payment of charges to ROC represents revenue account or capital account.

Issue 1:
The judgment pertains to three appeals by the assessee against the common order passed by the Commissioner of Income Tax (Appeals) for assessment years 2009-10, 2010-11, and 2011-12. The primary issue under consideration is whether the CIT(A) was justified in confirming the addition made by the AO on account of fee paid to the Registrar of Companies (ROC) as capital expenditure. The AO disallowed a specific amount treating the payment made to ROC as capital expenditure. The assessee contended that the expenditure incurred for increasing the authorized capital was for operational purposes and should be considered as revenue expenditure. The AO, however, relied on a Supreme Court decision stating that such expenses retain the character of capital expenditure. The tribunal observed that the expenditure incurred for payment of charges to ROC, even if incidentally beneficial for business, is in the nature of capital expenditure. The tribunal upheld the order of the CIT(A) disallowing the expenditure towards ROC.

Issue 2:
Regarding the second issue, the tribunal examined the nature of the expenditure incurred by the assessee for payment of charges to the ROC. The assessee argued that the expenditure was for the operation of the company and should be treated as revenue expenditure. However, the tribunal, referring to a Supreme Court decision, reiterated that expenses related to the expansion of the capital base of the company, even if beneficial for business and profit-making, retain the character of capital expenditure. The tribunal upheld the disallowance of a specific amount incurred towards ROC and directed the AO to verify certain other entries. Ultimately, the tribunal dismissed all three appeals of the assessee, emphasizing that the expenses related to the ROC payments were in the nature of capital expenditure.

In conclusion, the tribunal's judgment focused on the classification of expenses incurred for payments to the ROC as capital or revenue expenditure. The tribunal upheld the disallowance of the expenses related to the ROC payments, considering them to be in the nature of capital expenditure based on legal precedents and the specific circumstances of the case.