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TMI Blog2014 (3) TMI 1228X X X X Extracts X X X X X X X X Extracts X X X X ..... est of the general public for the subscription to the shares. Similarly market research expenses, as well as postal expenses for dispatch of various documents related to IPO are also directly linked to the public issue of shares. Similarly, journeys undertaken by the promoters and employees for the purpose of IPO are also related to IPO. Thus all the activities are directly and intricately linked with the initial public offer of shares, and, therefore, they are part and parcel of expenses pertaining to public issue of shares. AO was justified in treating the entire expenditure as capital expenditure. A.R. alternatively contended that the Initial Public Offer expenses are considered as Preliminary expenses u/s 35D - As we notice that the alternative contention of the assessee for deduction u/s. 35D was not examined by the AO. Accordingly, in our view, the same requires to be considered at the end of the assessing officer. Accordingly, we restore this alternative contention to the file of the AO with the direction to examine the same and take appropriate decision in accordance with the law, after affording necessary opportunity of being heard to the assessee. Correctness of computati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increasing the share capital and hence they are directly related to the expansion of the Capital base of the company, in which case they fall in the category of Capital Expenditure. Accordingly, he disallowed the claim of the assessee. The Ld. CIT(A), by placing reliance on the decision of Hon'ble Supreme Court in the case of Brooke Bond (India) Ltd. Vs. CIT (225 ITR 798), also confirmed the addition made by the Assessing officer. The assessee contended before the Ld. CIT(A) that the amount of interest computed u/s. 234C is not correct. However, the first appellate authority did not adjudicate the said issue. Hence the assessee has filed this appeal before us. 3. The first issue relates to the claim for deduction of Initial Public Offer expenses. During the year under consideration, the assessee raised additional capital by making public issue of its shares. In that regard, the assessee incurred a sum of Rs. 1,47,85,680/- as expenses. The assessee has decided to write off the above said expenditure in five instalments and accordingly claimed 1/5th of the same, i.e., Rs. 29,57,136/- as deduction during the year under consideration. The details of the expenses incurred by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related to the Initial Public Offer expenses. In the case of Bombay Burmah Trading Corporation Ltd. (supra) and also in the case of Warner Hindustan Ltd. (supra), the issue related to the expenses incurred in connection with the issue of Bonus shares and not Initial Public offer. The decision rendered in the case of Metro Shoes (P) Ltd. does not relate to expenses incurred on Initial Public Offer. The decision rendered in the case of Nimbus Communication Ltd. relate to the expenses incurred on the proposed public issue, which was aborted later. Thus, in our view, all the case law relied upon by the assessee are not applicable to the facts of the instant case. 5. On the contrary, in our view, the decision rendered by Hon'ble Supreme Court in the case of Brooke Bond (India) Ltd. (supra) is squarely applicable to the facts of the instant case. We have already noticed that the Ld. CIT(A) has rendered his decision by following the same. For the sake of convenience, we extract below the relevant observations made by Ld. CIT(A):- 15. In Ground No. 4, the appellant challenges the disallowance of Rs. 29,57,136/- claimed as revenue expenditure stated to have been incurred by it in conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the AAC as well as before the Tribunal it was submitted on behalf of the assessee that increase in the capital was to meet the need for working funds for the assessee company. But the statement of case sent by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for working funds for the assessee to carry on its business. Though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in the profit-making, the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company. On the facts and in the circumstances of the case, the Tribunal was right in sustaining the disallowance of Rs. 13,99,305 being expenses incurred in connection with the issue of fresh lot of shares. 15.4 On a perusal of the above judgment of the Hon'ble Court, it can be said that nowhere the Hon'ble court has made any distinction between direct and indirect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prospectus are covered under sec. 35D(2) of the Act. He further submitted that the preliminary expenses are allowed as deduction in five annual instalments u/s. 35D of the Act. Accordingly he submitted that the deduction claimed by the assessee is in terms of sec. 35D of the Act. 7. However, we notice that the alternative contention of the assessee for deduction u/s. 35D of the Act was not examined by the AO. Accordingly, in our view, the same requires to be considered at the end of the assessing officer. Accordingly, we restore this alternative contention to the file of the AO with the direction to examine the same and take appropriate decision in accordance with the law, after affording necessary opportunity of being heard to the assessee. 8. The next issue relates to the computation of interest chargeable u/s. 234C of the Act. According to the assessee the interest u/s. 234C is required to be computed after deducting the amount of tax deductible at source instead of actual amount of tax deducted at source. According to the assessee, the AO has computed the interest u/s. 234C after deducting actual amount of tax deducted at source instead of deducting the tax deductible at source ..... X X X X Extracts X X X X X X X X Extracts X X X X
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