TMI Blog2014 (9) TMI 1072X X X X Extracts X X X X X X X X Extracts X X X X ..... e as it was only incurred wholly and exclusively for the purpose of carrying on its business as enunciated u/s 37 (1) of the Act and has to be treated as business expenditure - ITA.No.219/Hyd/2014, ITA.No.517/Hyd/2014 - - - Dated:- 16-9-2014 - SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICAL MEMBER For Assessee : Mr. S. Rama Rao For Revenue : Mr. P. Somasekhar Reddy ORDER PER B. RAMAKOTAIAH, A.M. These are cross-appeals by Assessee and Revenue against the order of Ld. CIT(A)-V, Hyderabad dated 11.11.2013. 2. We have heard Ld. Counsel and Ld. D.R. in this regard. The one common issue raised by the assessee in Ground No.2 and Revenue in its appeal ground no 2 is about allowance of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re as there was neither permanent change in capital structure of the company nor benefit of enduring nature was received by the appellant. 7.3 In the case of ACIT Vs. Britannia Industries Limited, Circle-7, Kolkata, ITAT No.1789/KOL/2008 dated 31-8-2010, the important portions of the order are reproduced hereunder : 6. We have heard the rival submissions and perused the material available on record. We find that the Ld. CIT(A) while deleting the addition of ₹ 28,21,3211 had passed a very well reasoned order and for the sake of brevity, we reproduce the relevant portion of his order as under: 13. I have considered the submissions of the AR, perused the relevant provisions of the Companies Act and the decision on which the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company can use its free reserves and share premium. In both the cases the company utilizes its existing reserves for enhancing the share holder's investment value. The decisions regarding issue of bonus share or buyback of shares are taken by the directors on business consideration. No benefit of enduring nature is derived by the company. In buyback of shares there is temporary reduction in the capital base because prohibition on issue of shares of that kind is for temporary period of 24 months. The Supreme Court in the case of CIT Vs. General Insurance Corporation (286 ITR 232) has held that expenditure on bonus share is not a capital expenditure as there is no increase in the capital base of the company because existing free reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... item of expenditure was rightly disallowed by the revenue authorities on capital account. In this context, we are of the opinion that the purpose of the expenditure for which it was incurred is determinative of the issue. The second limb of the issue is how the said expenditure was incurred. However, the first limb of the controversy, viz. whether the expenditure was incurred for the purpose of the business, is determinative and secondly if the said expenditure was incurred for the purpose of the business, whether such expenditure brought into existence any benefit or advantage which could be treated as an advantage on capital account. The facts in this case are not in dispute, viz. there were serious disputes between the two warring group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned, the Hon'ble Supreme Court, in the case of Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 1 (SC) has observed that There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, none-the-less, be an revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principles laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital filed that the expenditure would be disallowable on the application of this test. If the advantage consists merely in facilitating the assessee's trading opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respectfully following the above decisions which are squarely applicable to the facts of the case of the appellant, I hold that in the appellant's case, the expenditure incurred on buy back of shares was not capital expenditure as it was only incurred wholly and exclusively for the purpose of carrying on its business as enunciated u/s 37 (1) of the Act and has to be treated as business expenditure. Hence, I delete the addition of ₹ 77,07,600. . 4. We do not see any reason to interfere with the order of Ld. CIT(A) which is based on the Coordinate Bench decisions on similar issue. Therefore, there is no merit in Revenue ground. Accordingly, this ground is dismissed. 5. In the result, appeal of the Assessee is allowed for stat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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