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TMI Blog2022 (11) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... e. In this case, the assessee has incurred certain expenditure which are Revenue in nature. However, the proposal of share issue has been abandoned for the reasons best known to the assessee. Therefore, in our considered view when the nature of expenditure incurred by the assessee are Revenue in nature and further, said expenses has been incurred wholly and exclusively for the purpose of business, then said expenditure needs to be allowed as Revenue expenditure and deductible u/s.37(1) - CIT(A) without appreciating the above facts simply sustained the additions made by the AO - we set aside the order of the Ld.CIT(A) and direct the AO to delete the additions made towards disallowance of share issue expenses u/s.37(1) - Appeal filed by the assessee is allowed. - ITA No. 116/Chny/2022 - - - Dated:- 14-10-2022 - SHRI V. DURGA RAO , HON BLE JUDICIAL MEMBER AND SHRI G. MANJUNATHA , HON BLE ACCOUNTANT MEMBER Appellant by : Mr. R. Sathyanarayanan , CA Respondent by : Mr. K. N. Dhandapani , Addl. CIT ORDER PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djustment of Rs.3.10 Crs. u/s.37 of the Act, towards share issue expenses. The assessee challenged the assessment order passed u/s.143(1)(a) of the Act, before the First Appellate Authority and contended that adjustment made by the AO towards total income while processing return of income u/s.143(1)(a) of the Act, is incorrect, because, the issue of deduction towards share issue expenses is highly debatable which can be decided after considering relevant details. The assessee had also challenged the additions made towards disallowance of share issue expenses on the ground that the share issue expenses incurred by the assessee is Revenue in nature, which has been incurred wholly and exclusively for the purpose of business. The assessee further claimed that although the share issue expenses are not allowable deduction by virtue of ratio laid down by the Hon ble Supreme Court in the case of Brooke Bond India Ltd. v. CIT reported in [1983] 140 ITR 272 (Cal.), but facts of present case are entirely different and are covered by subsequent decision of the Hon ble Supreme Court in the case of CIT v. General Insurance Corporation in Civil Appeal No.4422 of 2001, judgment dated 25.09.2006, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Ld.CIT(A) to uphold additions made by the AO is ratio laid down by the Hon ble Supreme Court in the case of Brooke Bond India Ltd. (supra), where the Hon ble Supreme Court held that share issue expenses cannot be allowed as deduction u/s.37(1) of the Act, because, it goes to expand capital base of the assessee. But in the present case, although the assessee has incurred expenditure towards rising fresh capital through IPO, but the assessee has abandoned the proposal and thus, the ratio laid down by the Hon ble Supreme Court in the case of Brooke Bond India Ltd. v. CIT (supra), has no application. Further, the case of the assessee is squarely covered by the decision of the Hon ble Supreme Court in the case of CIT v. General Insurance Corporation in Civil Appeal No.4422 of 2001, where the Hon ble Supreme Court after considering its earlier decision in the case of Brooke Bond India Ltd. v. CIT (supra) held that in case, there is no inflow of fresh funds or increase in the capital employed, expenditure incurred towards share issue expenses, cannot be treated as capital in nature. The Ld.AR for the assessee further referring to the decision of ITAT Bangalore Bench in the case of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. However, the assessee could not go for public issue to raise capital and thus, abandoned the proposal due to various reasons best known to the assessee, but the assessee has incurred various expenses to prepare its case for public issue to raise fresh capital and claimed said expenses as Revenue in nature. The AO disallowed share issue expenses u/s.37(1) of the Act, while processing return of income u/s.143(1)(a) of the Act, on the ground that said expenditure is capital in nature and which is squarely covered by the decision of the Hon ble Supreme Court in the case of Brooke Bond India Ltd. v. CIT (supra), where it has been clearly held that share issue expenses is capital in nature which cannot be allowed as deduction u/s.37(1) of the Act. 8. The assessee has filed details of expenses incurred towards share issue and as per the details filed by the assessee, the assessee has incurred expenditure towards Legal Fees, Exchange Filing Fee, Lead Book Running Manager Expenses, Advertisement and Audit Certification charges. The expenditure incurred by the assessee are definitely in nature of Revenue expenditure and none of the expenditure can be classified as capital expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh IPO, then the question of increasing capital base of the assessee does not arise. In other words, the assessee has not created any asset which gives enduring benefit and also it does not help in the business of the company and in profit making, because, there is no increase in capital employed in the business of the assessee. Therefore, under these facts and circumstances, it is very difficult to accept the arguments of the Ld.CIT(A) that expenditure incurred by the assessee is capital in nature which gives enduring benefit to the assessee. This legal principle is supported by the decision of the ITAT Bangalore Benches in the case of M/s.Adadyn Technologies Pvt. Ltd., (supra) where the Tribunal held that if expenditure incurred by the assessee for development new project is Revenue in nature, then if said project is abandoned and not put to use, the expenditure incurred by the assessee should be allowed as Revenue in nature. In this case, the assessee has incurred certain expenditure which are Revenue in nature. However, the proposal of share issue has been abandoned for the reasons best known to the assessee. Therefore, in our considered view when the nature of expenditure inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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