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TMI Blog2010 (3) TMI 1163X X X X Extracts X X X X X X X X Extracts X X X X ..... -8-2008 in ITA No.0281/DCIT Cir.2(2)/CIT(A)-III/07-08 is contrary to the law and facts of the case. 2. The learned CIT(A) III erred in not giving deduction under the provisions of sec.35D(2)(c)(iv) of the Income tax Act, 1961 for the expenditure of ₹ 54.22 lakhs paid as brokerage for the purpose of raising the capital and share premium of about ₹ 51 crores. i) The learned CIT(A) III ought to have noticed that the issue of about ₹ 51 crores to financial institutions was effected in terms of sec. 81(1A) of the Companies Act, 1956 only to comply with the SEBI Guidelines requiring the Promoters holding to be reduced to below 75% of the share capital and the said issue qualifies under the Companies Act, 1956 and SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee submitted that for the purpose of issuing share capital, the company incurred expenditure of ₹ 54.22 lakhs and 1/5th of the same is claimed as deduction under S.35D of the Act in the year under appeal. The expenditure is in the nature of preliminary expenditure eligible for amortization under S.35D and the same is not in the nature of capital expenditure. The assessee company is a listed company and to comply with the SEBI guidelines, according to which the company was supposed to bring down the promoters' holding to less than 75% of the paid up capital, the issue in question was made. The purpose of the issue was for backward and forward expansion and for working capital. As the expenditure was incurred for raising capital, S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption, which alone qualifies the assessee for relief in terms of S.35D. It is also submitted that such expenditure should be in the nature of under-writing commission, brokerage, charges for drafting, typing, printing and advertising of the prospectus. The assessee company did not comply with any one of the conditions laid down under Clause (iv) of S.35D(2) of the Income-tax Act. The assessee company raised the equity by issue of preferential shares and the expenditure incurred was in the nature of fees paid to the concerns for the issue of preferential shares. Hence the lower authorities are right in disallowing the claim of the assessee. As for the alternative contention of the assessee, it is submitted that the assessee's plea for al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institutions placement or an issue of sweat equity shares or depository receipts issued in a country outside India or foreign securities . Further, the so called public issue in the instant case has also been made only to four shareholders on preferential basis. Even as per S.67(3) of the Companies Act, no offer or invitation shall be treated as made to the public, if the offer or invitation can properly be recorded as not being calculated to result, directly or indirectly in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation. That being so, either in terms of the SEBI guidelines noted above or in terms of the provisions of the Companies Act, it cannot be sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zation 16.50 Current account Bank Balance 0.02 Total 51.00 8. Hence, we do not see any merit on the submissions of the learned counsel for the assessee that the shares were issued only for the expansion of its business without any cogent evidence to support his contentions. 9. In view of above discussion, we are of the opinion that the assessee has not complied with any one of the conditions laid down under section 35D of the Act. We also find no merit in the contention of the assessee that fee paid is the nature of brokerage or other issue expenses, as fee, brokerage and other expenses are distinct in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X
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