TMI Blog2012 (5) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... S. Salva for the Appellant V.V. Shastri for the Respondent ORDER P.M. Jagtap: This appeal filed by the assessee is directed against the order of learned CIT(Appeals)-IX, Mumbai dated 08-06-2009 and the solitary issue arising out of the same relates to the disallowance of Rs.51,71,013/- made by the AO and confirmed by the learned CIT(Appeals) on account of expenses incurred by the assessee for acquiring the shares of other company treating the same as capital in nature. 2. The relevant facts of the case as mentioned by the AO in his order are as follows: The assessee is a company which was incorporated in India in July, 1996 as a joint venture company of M/s Monga Electronics P. Ltd. and M/s Strayfield Ltd., U.K. with each having 50% shareholding. It is engaged in the business of manufacture and sale of Radio Frequency Textile Yarn Dryer. There was a change in the owner of M/s Strayfield Ltd., U.K. and the new owners M/s Inductoheat offered the stake in M/s Strayfield Ltd., U.K. to M/s Monga Electronics P. Ltd. After the due diligence, M/s Monga Strayfield India bought the shares of M/s Strayfield Ltd., U.K. According to the AO, the assessee company th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant however is repeated. The Hon. Supreme Court in the case of Deputy Commissioner of Income Tax vs. Gujarat Alkalies and Chemicals Ltd. [2008] 299 ITR 85 (SC) held that the commitment charges paid by the assessee in respect of project for extension of existing business is allowable as business expenditure (kindly refer to letter dated 3/11/2008). The said letter also refers to another relevant judgment of Gileete group India 173 taxman 52 (Delhi) on allowability of consultancy fees for business extension. (f) The interest on capital borrowed for the purpose of business is fully allowable irrespective of whether it is for revenue expenditure or capital expenditure except in the case of new business or prior period interest/before use of the fixed asset. The bank mortgage expenses and bank processing charges also for in the same category as they are required for bank borrowing and hence part take the nature of interest expenses. (g) The break-up of bank charges and interest as required in para five and six of your letter is enclosed. The interest as well as bank charges are incurred in the normal course of existing business of the company. The above explanation offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Strayfield Ltd. U.K., whose in turn holding was then taken over by other group of company. Since the new management was not interested to hold the stake in appellant's company they decided to be offload the same. It is under these circumstances the appellant company had decided to form a subsidiary to more particularly acquired the stake of the appellant company which was decided to be offloaded by the management of UK counterpart. It is therefore not in doubt that what the company has acquired is nothing but a stake of foreign partner through a subsidiary formed for the purpose. The formation of subsidiary was nothing but a step towards acquisition of the foreign partner's stake in the company as against expansion of existing business as has been claimed by the appellant company. It is merely a step for acquisition of company's own shares as against indirectly as against any expansion of the business as has been vehemently claimed by the appellant company. Further it is also true that the company is snot in the business of acquisition of shares and therefore the expenses could not be treated as for the purpose of the existing business and since entire exercise is nothing but acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee company was involved and interested. It was, therefore, necessary for the assessee company to take over the business of R.F. Dryers from Strayfield Ltd. U.K. Accordingly the assessee company formed a subsidiary company, namely, M/s Monga Strayfield Ltd. U.K. in Oct., 2005 which purchased the R.F. Dryers Unit i.e. business assets from Strayfield Ltd. U.K. in December, 2005. The assessee company thus made investment in the shares of its subsidiary company M/s Monga Strayfield Ltd. U.K. and the impugned expenses were incurred in connection with the said acquisition of shares. 5. After explaining the relevant factual position as above, the learned counsel for the assessee has made the following submissions before us: i) The AO and the learned CIT(Appeals) has misunderstood the facts. The assessee has not acquired shares of M/s Strayfield U.K. ii) The assessee formed a new subsidiary i.e. M/s Monga Strayfield Ltd. U.K. who purchases the business division relating to R.F. Dryers. iii) The shares are reflected as investment in the balance sheet. iv) The expenses which are claimed were incurred during planning stage. The assessee had to plan the strategy to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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