TMI Blog2016 (12) TMI 1489X X X X Extracts X X X X X X X X Extracts X X X X ..... shares are revenue expenses because there is no permanent change in the capital structure of the company, nor a benefit of enduring nature and the purchases are effected for company’s free reserves which are otherwise capable of being freely distributed to the shareholders. It was further submitted that reduction in share capital and buy back are essentially the same and neither result in a benefit of enduring nature as well as Section 77 of the Companies Act, 1956 prescribes the same procedure for buy back and reduction in the case of limited companies. For these reasons, the decision of the ITAT Kolkata would be applicable to the assessee’s case as there is no permanent change in capital expenditure. - Decided in favour of assessee for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(c) of the Act. 2. The facts of the case are - assessee company is engaged in the business of clinical research and conducts research experimental workshop for medical, pharmaceutical, molecular biology, Biotechnology, life science technology, scientific technical research, experiments tests of all kinds. 3. It was noticed by the AO that upon going through the details furnished by assessee it was noticed that the assessee has earned dividend income of ₹ 2,00,951/- which is exempt under the Act. The assessee was asked to show cause vide order sheet entry dated 12-10-12 as to why disallowance u/s.14A r.w.r. 8D should not be made. The assessee vide letter dated 25-10-2012 furnished its reply which is reproduced as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Parliament enacted section 14A and also to overcame the decision of Hon ble Supreme Court in the case of Rajasthan State Warehousing Corpn. Vs. CIT [20001 242 ITR 450, wherein it was held that if the exempted income and the taxable income are earned from one and indivisible business then the apportionment of expenditure could not be sustained. The intention of the Legislature, is clearly evident from the Memorandum explaining the provisions contained in the finance Bill wherein it was explained that only those expenses could he claimed as deduction which are incurred in relation to earning the taxable income. The use of the expression 'only to the extent' in the memorandum is clear indicator that only that part of expenses can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed u/s. 14A r.w. Rule 8D. Reliance in this regard is placed upon the following decisions: 1. ITO Vis. Daga Capital Management Pvt Ltd. 1107 ITD 169 (Mum)(SB) 2. Southern Petrol Chemical Industries V/s. DC IT, 93 7TJ 161. 3. Godrej Boyce Mf g. Co. Ltd. V/s. DC1T (ITA No. 626 of 20l0)(Mumbai High Court) Disallowance u/s 14Aof ₹ 13,564 a. The Assessee had surplus funds which were invested in SBI Mutual Fund- Retail Weekly Dividend (Rs. 16,91,665) and SBI Mutual Fund-Institutional Weekly Dividend (Rs. 73,07,085). The Assessee had derived an income of Rs, 2,00,951 as dividend from the same, which are exempt. b. The Assessee had, at the time of computing Taxable Income, disallowed an amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied. h. In the instant case, the AO has not looked into the merits of the amount to be disallowed and applied the provision of Rule 8SD. i. Considering the facts of the case the amount disallowed by the Assesses is reasonable. j. In view of this, you are requested to delete the addition made on this count. 4. During the assessment preceding, it was noticed by the AO that the details filed by the assessee, it was noticed from the computation of income that assessee has claimed expenses of ₹ 1,47,153/- which was incurred in connection with reduction of authorized share capital of the company. Accordingly, a show cause notice was given to the assessee filed its contention but not found acceptable. Admittedly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. 7. Ld. AO relied on decision holding that expenditure on increase in share capital is a capital expenditure and applying the same conversely and AO disallowed the expense. 8. Thereafter, CIT(A) upheld the disallowance on the basis that change in share capital only affects capital of the company and does not affect revenue. 9. Ld.CIT(A) also relied on a judgment in the context of increase in share capital to disallow the expense and expense incurred in reduction of share capital is a revenue expense as it does not give the company a benefit of enduring nature. As held in the matter of CIT Vs. Akme Electronics Control (P.) Ltd. [2004] 137 Taxman 263 (Guj.) it is held by the Hon ble High Court, the legal expenses claimed by a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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