TMI Blog2019 (2) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 0.5% of average value of investments. The assessee has filed details of expenses disallowed as per which, the expenses disallowed by the assessee are coming under the purview of rule 8D(2)(iii). Therefore, we are of the considered view that further disallowance of expenses by applying rule 8D(2)(iii) @0.5% amounts to double disallowance which is not permissible under the law. Therefore, we direct the AO to delete addition made u/s 14A r.w.r. 8D(2)(iii) of I.T. Rules, 1962. Disallowance of ROC charges paid for increase in authorised capital - AO has disallowed on the ground that fees paid for increase in authorised capital is capital in nature which cannot be allowed as deduction u/s 37(1) - Held that:- The assessee has filed necessary details to prove that it has paid ROC fees for increase in authorised capital for issuance of bonus shares. But, we are not aware whether the said particulars are part of assessment proceedings before the AO or not. Therefore, we are of the considered view that the issue needs to be re-examined by the AO in the light of the decision in the case of CIT vs General Insurance Corporation Ltd [2006 (9) TMI 116 - SUPREME COURT]. Hence, we set aside t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extracted separately:- ITA No.5098/Mum/2017 1. (a) The Commissioner of Income Tax(Appeals) - 21, Mumbai [hereinafter 'CIT(A)'] erred in confirming disallowance of ₹ 269,162/- u/s 14A of the Act r.w.r 8D of the Income-tax Rules, 1962 ('the Rules') as attributable to investment activity giving rise to the exempt income. The Appellant submits that it has made the strategic investment in shares of its subsidiaries for acquiring controlling interest and not for earning an exempt income. Hence, no disallowance u/s 14A r.w.r 8D is called for. ( b) The CIT(A) erred in confirming disallowance of ₹ 269,162/- (0.5% of average of investments) u/s 14A of the Act made by the AO, without considering the suo moto in the computation of Income; hence resulting into to double addition u/s 14Aof the Act r.w.r 8D of the Rules. ( c) The CIT(A) erred in confirming the action of AO in invoking Rule 8D of the Rules for computing disallowance u/s 14A of the IT Act without recording dis-satisfaction with respect to accounts of the Appellant. 2. The CIT(A) erred in confirming the action of AO in increasing the book profit by ₹ 269,162/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milarly, the AO has disallowed ROC charges paid for increase in authorised share capital of the company for ₹ 4,97,181. 5. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the CIT(A), assessee has filed elaborate written submissions alongwith certain judicial precedents in respect of addition made by the AO towards disallowance of pre-operative expenses to argue that expenditure incurred under the head, pre-operative expenses are purely revenue in nature like salaries and wages, travelling expenses, restaurant rent, repairs and maintenance and like other general administrative expenses which are incurred wholly and exclusively in connection with business. The assessee further argued that it had already commenced its business but the commercial operations were not started. The expenditure incurred under capital expenditure has been capitalised in books of account; however, expenses, which are in the nature of revenue expenditure has been treated as deductible u/s 37(1), even though in books of account the same has been treated as capital work-in-progress. The assessee also filed written submissions on the issue of disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been deducted from securities premium account instead of routing through profit loss account. Thus, the total amount of reserves used up are included in issue of bonus shares, therefore, there is no merit in the contention of the assessee that when bonus shares are issued, expenditure incurred for increase in authorised capital is revenue in nature. Aggrieved by the order of Ld.CIT(A), the assessee as well as the revenue are in appeal before us. 7. The first issue that came up for our consideration from the assessee as well as the revenue appeal is disallowance of preoperative expenses treated as capital in books of account, but claimed as revenue in statement of total income u/s 37(1) of the Act. The Ld.AR for the assessee submitted that the assessee has incurred various revenue expenses like salaries and wages to staff, travelling expenses, repairs and maintenance, restaurant rent and other like expenses in connection with expansion of its existing business by running restaurants in three different places and treated the same as capital expenditure in its books of account under the head work in progress . The Ld.AR further submitted that since all expenses incurred are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard to the commencement of business by the assessee is not disputed by the lower authorities. The assessee is into the business of running restaurants and had commenced its business activities. During the year under consideration the assessee has expanded its existing business by opening three more restaurants at different places. The assessee has treated expenditure incurred in connection with the establishment of restaurants under the head capital work in progress in its books of account. But, when it comes to computation of total income, the expenses in the nature of revenue are treated as revenue expenditure and claimed as such. The AO disallowed pre-operative expenses on the ground that a particular expense cannot have two treatments, i.e. one in the books of account and the other in computation of total income. According to the AO, pre-operative expenses can be deducted as per the provisions of section 35D(1)(ii) to the extent as indicated therein. It is the contention of the assessee that it is in the business of running restaurants and it has commenced its business during the year under consideration. Though, the commercial operations has not been taken place in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said expenditure as capital expenditure merely for the reason that the assessee has given different treatment for such expenditure in its books of account and statement of total income. 11. Coming to the case laws relied upon by the assessee. The assessee has relied upon plethora of judgements, including the decision of Hon ble Bombay High Court in the case of CIT vs Reliance Supply Chain Solutions Ltd (supra). The Hon ble jurisdictional High Court, under similar circumstances held that when assessee has incurred expenditure for expansion of its existing business, expenditure incurred in the nature of revenue expenditure could not be disallowed. The relevant observations of the Hon ble Court are as under:- 6] We have considered the submissions canvassed by the learned counsel for the respective parties. 7] It is not relevant as to how the Assessee shows a particular income or expenditure in the books of account. In the present case, the Commissioner (Appeals) and the Tribunal has specifically on appreciation of factual matrix arrived at a conclusion that the expenditure are directly identifiable with the operations and maintenance of the existing stocks i.e. with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of expansion of existing business is revenue expenditure. The relevant observations of the Court are as under:- Held, dismissing the appeal, that the Commissioner (Appeals) as well as the Tribunal were fully justified in accepting the case of the assessee in respect of the expenses claimed by the assessee as revenue expenditure. The expenses in respect of the B unit were incurred towards salaries, wages, bonus, contribution to provident fund, workmen welfare expenses, power, fuel and water, manufacturing expenses, rent for office buildings, insurance premium, repairs and maintenance for machinery and building, motor vehicle, office equipment, etc., interest on bills cleared, freight and transport, cane development expenses, travelling expenses, other administrative expenses and financial and bank charges. In respect of the D unit, the expenses incurred by way of pre-operative expenses for the year 1991-92 were towards cane development expenses, travelling expenses, administrative and other expenses, legal and professional charges, electricity charges, rates and taxes, insurance premium, repairs and maintenance charges for building and machinery and motor vehicle and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has filed details of expenses disallowed as per which, the expenses disallowed by the assessee are coming under the purview of rule 8D(2)(iii). Therefore, we are of the considered view that further disallowance of expenses by applying rule 8D(2)(iii) @0.5% amounts to double disallowance which is not permissible under the law. Therefore, we direct the AO to delete addition made u/s 14A r.w.r. 8D(2)(iii) of I.T. Rules, 1962. 17. The next issue that came up for our consideration is disallowance of ROC charges paid for increase in authorised capital. The AO has disallowed a sum of ₹ 4,97,181 on the ground that fees paid for increase in authorised capital is capital in nature which cannot be allowed as deduction u/s 37(1) of the Act. The AO has taken support from the decision of Hon ble Supreme Court in the case of Brooke Bond India Ltd vs CIT 225 ITR 798 (SC) where it was clearly held that mount paid for increase in authorised share capital is in the nature of capital expenditure which cannot be allowed as deduction u/s 37(1) of the Act. It is the contention of the assessee that although the Hon ble Supreme Court has considered it as capital in Brooke Bond India ..... X X X X Extracts X X X X X X X X Extracts X X X X
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