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TMI Blog2024 (9) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... d in connection with the IPO, and that although Section 35D permits only the deduction of direct expenses, the indirect expenses must nevertheless be permitted as a deduction under Section 37 of the Income Tax Act. In our view, there is no distinction to be made between direct and indirect expenses that are eligible for deduction under Section 35D. On the facts of the instant case, we find that Section 35D permits only certain capital expenses as deductible and not others. Thus, once it is an admitted fact that the appellant has already been granted the benefit of deduction of direct expenses incurred in connection with the IPO, he cannot claim deduction of the indirect expenses incurred in connection with the same object as revenue expense because his classification of the expense as direct or indirect does not really alter the nature of the expense itself which continues to remain a capital expense. Disallowance of payments towards employees' contribution to PF and ESI before the due date of filing of the Return of Income - HELD THAT:- Issue already covered against the appellant by the decision reported in CIT v. Merchem Ltd. [ 2015 (9) TMI 560 - KERALA HIGH COURT] Taking not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to identify suitable investors. c. Whether on the facts and in the circumstances of the case, and in law the Income Tax Appellate Tribunal was justified in confirming the disallowance of payments towards employees' contribution to PF and ESI before the due date of filing of the Return of Income without considering the provisions of Section 43B of the Income Tax Act which provides that the sum payable by the assessee as an employer by way of contribution to any provident fund or any other fund for the welfare of the employees shall be allowed as deduction if the same is actually paid before the due date of filing of return of income. d. Whether on the facts and in the circumstances of the case, and in law the Income Tax Appellate Tribunal was justified in confirming the disallowance of the amount of revenue expenditure incurred in relation to initial Public Offer of shares amounting to Rs.23,55,499 claimed as deduction during the Financial Year 2007-08 (out of the total amount claimed of Rs.29,57,136) without considering the fact that the amount of Rs.23,55,499 represents expenses which are purely revenue in nature such as advertising, travelling, postage market research etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the disallowance of expenditure incurred in relation to professional and consultancy charges, it was the finding of the assessing authority as also the First Appellate Authority and the Appellate Tribunal that the appellant assessee had entered into an agreement with M/s.Veda Corporate Advisors Pvt. Ltd. for various services provided by the latter. The services include (a) preparation of Executive Summary/presentation for initial circulation among interested investors and coordination amongst investors, (b) preparation of investor presentation and information memorandum, (c) handling negotiations with investors, (d) advising on business valuation, (e) co-ordination of assistance in negotiations with the investors to reach an initial memorandum of understanding, (f) coordinating due diligence with audit firms, and (g) signing of the final definitive shareholder agreements. 4. It was also noticed that as a result of the exercise undertaken by the appellant assessee the investor M/s. Duckworth Limited invested in the appellant company as Equity of Rs.49.83 crores in share capital and convertible warrants of Rs.6.4 crores approximately, thereby enhancing the capital funds of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C)] arising out of the order of the High Court of Rajasthan in case of Principal Commissioner of Income-tax v. Rajasthan State Beverages Corporation Ltd. [(2017) 84 taxmann.com 173 (Rajasthan)], Commissioner of Income-tax v. Ashok Leyland Ltd. [(2012) 23 taxmann.com 50 (Madras)], Commissioner of Income-tax v. Kreon Financial Services Ltd. [(2013) 38 taxmann.com 46 (Madras)], and Commissioner of Income-tax v. Indo Nissin Foods Ltd. [(2013) 35 taxmann.com 637 (Karnataka)], that when it comes to claiming deduction in respect of consultancy fees, we ought to make a distinction between consultancy fees that have a proximate nexus with the acquisition of a capital asset or capital receipt, and those that do not. He points out that in the instant case, there was only a remote connection between the expense incurred for obtaining advice of the consultant, and the actual acquisition of a capital receipt/asset, and hence the claim for expenses had to be allowed by treating the same as revenue expenditure. He further seeks to distinguish the judgment of the Supreme Court in Brooke Bond India Ltd. v. Commissioner of Income-tax [(1997) 225 ITR 798 (SC)] by contending that in the said case the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooke Bond India Ltd. (Supra) and Punjab State Industrial Development Corporation Ltd v. Commissioner of Income-tax [(1997) 225 ITR 792 (SC)], therefore do not require any intervention. Similarly, the claim for deduction of IPO related expenses, also cannot be legally countenanced. We find ourselves unable to accept the submission of the learned counsel for the appellant that an artificial distinction can be made between direct and indirect expenses incurred in connection with the IPO, and that although Section 35D permits only the deduction of direct expenses, the indirect expenses must nevertheless be permitted as a deduction under Section 37 of the Income Tax Act. In our view, there is no distinction to be made between direct and indirect expenses that are eligible for deduction under Section 35 D of the Income Tax Act. As is trite, the taxation of a capital receipt is itself by way of an exception to the general principle that under an income tax legislation what is normally brought to tax is only a revenue receipt. In the same vein, what is permissible as a deduction in any particular year is only a revenue expenditure incurred by an assessee or such capital expenditure as is e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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