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2021 (6) TMI 601 - AT - Income TaxRevision u/s 263 - nature of expenditure - expenditure on foreign exchange fluctuation - revenue or capital expenditure - exchange rate difference on returning share application money is required to be treated as capital expenditure, same was required to be disallowed as per the contents of show cause notice - HELD THAT:- It is settled position in law that issuance of shares is not a trading transaction. On issuance of shares, the assets of the company are increased by the amount so obtained from the share subscribers. The amount of share application money is not profit or gain of trade undertaken by the assessee company and the share application amount are not to be brought in to the accounts for taxation purpose being on the side of capital account. Capital expenditure is allowable deduction if statue expressly so provided. Similarly an item of expenditure, though wholly and exclusively incurred for the purpose of business or profession, is not admissible as an allowance if it is of capital in nature. The criteria which can be invoked in distinguishing between the ‘capital receipt’ and ‘revenue receipt’ will also serve to distinguish between capital disbursement and revenue disbursement. The issue involve in the present case is directly covered by the decision of Jagatjit Industries Ltd. [2009 (9) TMI 62 - DELHI HIGH COURT] held that, once that aspect becomes clear and the entire money raised through issue of equity shares is to be treated as share capital, the gains on account of foreign exchange fluctuations, in the event of such share capital being collected in foreign exchange, the determination as to whether it is to be treated as capital receipt or revenue receipt cannot depend upon the end-use of the share capital. There is no averment in the reply of the assessee that the amount of share application money was received for ‘brand building’ of the assessee company. Again turning to the core issue that the share application money in nothing but a ‘capital receipt’ and its return will not change its character. Even otherwise the assessee has not incurred any other amount except the exchange rate difference, which in our considered view is nothing but a ‘capital expenses’. Thus, in view of the aforesaid legal discussion, we are of the considered view that order passed by Assessing Officer is not sustainable in law and hence not only erroneous but in so far as prejudicial to the interest of the Revenue. Therefore, the twin conditions that orders is erroneous and in so far as prejudicial to the interest of revenue, as prescribed under section 263, are fulfilled in the present case. Thus, the order passed by Ld. PCIT passed under section 263 is upheld. Appeal of the assessee is dismissed.
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