TMI Blog2020 (8) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... and against the Revenue. In the result, the ground of appeal is allowed. Disallowance u/s 14A - HELD THAT:- Undisputedly, no exempt income has been earned by the assessee during the year under consideration. Further, there is no fresh investment which has been made by the assessee company during the year and the assessee has contended that the investment so made in the earlier year has also been made out of its own funds and not out of the borrowed funds. Given that no borrowed funds have been utilized for making investment and the fact that no income has been earned during the under consideration, the disallowance U/s 14A r.w.r. 8D is not justified and the same is directed to be deleted. - Decided in favour of assessee. Disallowance of share issue expenses - not allowing the alternative contention of allowing the said expenditure U/s 35D - HELD THAT:- Firstly, we are unable to agree to the contention of the assessee company that the aforesaid expenditure incurred in connection with increase in the capital base of the company by way of increase in the authorized capital as well as increase in paid capital be allowed as revenue expenditure as it is a settled proposition th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The alternate contention regarding amortization u/s 35D has thus becomes infructious and is not adjudicated upon. The matter is thus decided in favour of the assessee and against the Revenue. Lower grant of interest u/s 244A - HELD THAT:- We deem it appropriate that the claim so made by the assessee company is verified as the same is a matter of record. The matter is accordingly set-aside to the file of the Assessing officer to verify and examine the claim of the assessee regarding short grant of interest u/s 244A and decide as per law. In the result, the ground is allowed for statistical purposes. Depreciation on account of Toll Buildings under the block of Building - HELD THAT:- In light of the fact that such Toll building is part of the building block of the assets and in the earlier years, the depreciation on such building block including Toll building has been allowed by the Revenue, the Assessing officer is hereby directed to allow the depreciation on Toll building after due verification. In the result, the ground of appeal is allowed. Disallowance of socio-economic expense u/s 37 - assessee company has undertaken HIV-AIDS awareness and prevention programme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities including decision of Hon'ble Supreme Court in the case of CIT Vs. Bokaro Steels Ltd. 336 ITR Page 315, as this amount pertains to prior to commercial operation of the road for which the amount was borrowed. 3. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in making disallowance of ₹ 1,00,000/- under Section 14A of Income Tax Act, 1961. The appellant prays that considering the facts and that no exempt income has been earned, the determination of the amount at ₹ 1,00,000/-u/s 14A read with rule 8D(2) is not justified and be deleted. 4. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in considering ₹ 1,50,35,287/- as Share Issue Expenses instead of ₹ 1,30,88,710/- and accordingly further erred in considering ₹ 97,95,483/- as Professional and Legal fees for IPO instead of ₹ 1,17,42,030/- 5. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in disallowing Share Issue Expenses of ₹ 1,50,35,287/- and adding back to the income, considering the same as capital expenditure and has also erred in not considering the plea of the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following the position taken in the earlier assessment years, an amount of ₹ 1,05,246/- was brought to tax under the head income from other sources . On appeal, the same has been confirmed by the ld. CIT(A) and against the said finding, the assessee is in appeal before us. 6. During the course of hearing, the ld. AR submitted that the assessee had entered into a concessionaire agreement for development of different road stretches popularly known as Mega Highway connecting various national highways. Earlier seven road stretches were completed and the assessee is in the process of completing the remaining seven stretches during the year. It is submitted that once the appellant commenced commercial operations of a partial road stretch, the interest expenses on relatable borrowings and interest income on linked STR were taken to the Profit Loss account and offered under the head income from business and profession. In respect of remaining road stretches which were under construction and upto the date of commercial operations, the total expenditure including the interest paid on borrowed funds net of interest income earned on STR inextricable linked to project cost is capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31-Aug-08 (b) The details of remaining Seven (7) Road Stretches under progress during the year were as under: Project Name (i) Alwar To Bhiwadi (AB) (ii) Hanumangarh To Sangaria (HS) (iii) Jhalawar to Jhalawar Road (JJ) (iv) Arjunsar To Pallu (AP) (v) Kapren To Mangrol (KM) (vi) Jhalawar to Ujjain (JU) (vii) Khushkheda To KasoulaChowk (KK) 9. Per contra, the ld. DR has relied on the findings of the lower authorities and submitted that the matter is squarely covered by the decision of the Hon ble Supreme Court in case of Tuticorin Alkali Chemicals fertilizers Ltd. vs. CIT and further in absence of any evidence to show that interest was pertaining to the period prior to the period during which commercial production has commenced, the same has rightly been brought to tax by the AO. He accordingly supported the order of the lower authorities. 10. We have considered the rival submissions and perused the material available on record. During the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company the total income of the company is chargeable to tax under section 4. The Total income has to be computed in accordance with the provisions of the Act. Section 14 lays down that for the purpose of computation, income of an assessee has to be classified under six heads. In the instant case, the company had chosen not to keep its surplus capital idle, but had decided to invest it fruitfully. The fruits of such investment will clearly be of the revenue nature. If the capital of a company is fruitfully utilised instead of keeping it idle, the income thus generated will be of the revenue nature and not accretion of capital Whether the company raised the capital by issue of shares or debentures or by borrowing will not make any difference to this principle. If borrowed capital is used for the purpose of earning income, that income will have to be taxed in accordance with law. Income is something which flows from the property. Something received in place of the property will be capital receipt. The amount of interest received by the company flows from its investments and is its income and is clearly taxable even though the interest amount is earned by utilising bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra), held as under:- The activities of the assessee in connection with first three receipts were directly connected with or were incidental to the work of construction of its plant undertaken by the assessee. Broadly speaking, these pertained to the arrangements made by the assessee with its contractors pertaining to the work of construction. To facilitate the work of the contractor, the assessee permitted the contractor to use the premises of the assessee for housing its staff and workers engaged in the construction activity of the assessee's plant. This was clearly to facilitate the work of construction. Had this facility not been provided by the assessee, the contractors would have had to make their own arrangements and this would have been reflected in the charges of the contractors for the construction work. Instead, the assessee had provided these facilities. The same was true of the hire charges for plant and machinery which was given by the assessee to the contractor for the assessee's construction work. The receipts in this connection also went to compensate the assessee for the wear and tear on the machinery. The advances which the assessee made to the contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a plant and if the funds are 'surplus' and then by virtue of that circumstance they are invested in fixed deposits the income earned in the form of interest will be taxable under the head 'income from other sources'. On the other hand the ratio of the Supreme Court judgment in Bokaro Steel Ltd.'s case (supra) to our mind is that if income is earned, whether by way of interest or in any other manner on funds which are otherwise 'inextricably linked' to the setting up of the plant, such income is required to be capitalized to be set off against pre-operative expenses. 5.1 The test, therefore, to our mind is whether the activity which is taken up for setting up of the business and the funds which are garnered are inextricably connected to the setting up of the plant. The clue is perhaps available in section 3 of the Act which states that for newly set-up business the previous year shall be the period beginning with the date of setting up of the business. Therefore, as per the provision of section 4 of the Act which is the charging section income which arises to an assessee from the date of setting of the business but prior to commencement is charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs Ltd. (supra) it was found by the authorities that the funds available with the assessee in that case were 'surplus' and, therefore, the Supreme Court held that the interest earned on surplus funds would have to be treated as 'income from other sources' . On the other hand in Bokaro Steel Ltd.'s case (supra) where the assessee had earned interest on advance paid to contractors during pre-commencement period was found to be 'inextricably linked' to the setting up of the plant of the assessee and hence was held to be a capital receipt which was permitted to be set off against pre-operative expenses. 6. There is another perspective from which the present issue can be examined. Under section 208 of the Companies Act, 1956 a company can pay interest on share capital which is issued for a specific purpose to defray expenses for construction of any work and which cannot be made profitable for a long period subject to certain restrictions contained in subsections (2) to (7) of section 208. This section was specifically noted by the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. 6.1 In our view the situation in the instant case is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... linked and have a commonality about their nature and character. The appellant cannot treat them differently. Commitment Advances and interest paid and received had reference to bidding process and linked to the project/purpose for which the respondent was set up. In view of the factual matrix, interest received on unutilized commitment advances cannot be taxed as revenue income and interest paid on commitment advance treated as a capital expense. This will be contradictory. The entire expenditure for inviting bids etc. and even documentation was paid to PFC. The amounts received from the prospective bidders on account of sale of tender documents was also transferred to PFC. As noticed above, Revenue has not challenged and has accepted the order of the tribunal deleting addition of ₹ 1,35,81,234/-paid by the respondent-assessee to PFC for preparation of tender documents. In view of the factual matrix, the tribunal has rightly followed the ratio in Indian Oil Panipat power Consortium Ltd.'s case (supra). 11. Thereafter, the aforesaid decision of the Coordinate Bench was followed in subsequent decision in assessee s own case by the Coordinate Bench in ITA No. 963/JP/12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses . 2.19 The facts in the instant case are pari materia with the facts of the Indian Oil Panipat (supra) and the ratio decidendi of Hon ble Delhi High Court in that case will squarely apply to the facts of the assessee. In the instant case, undisputedly, the funds have been borrowed for the specific purpose of execution of the mega road projects and as per the loan agreement executed between the consortium of bankers and the assessee dated 23.11.2005, all the disbursements shall be deposited in the trust and retention account which shall be subject to strict control and verification by the Senior lenders and all disbursements shall be utilised solely for the purposes of implementation of the project and no other purpose. The funds are thus inextricably linked to the setting up of the mega road projects and interest earned on such borrowed funds infused in the business could not be classified as income from other sources. We also note a distinguishing feature in the instant case that the assessee is not at liberty to use the interest so earned as per its will and discretion unlike the case in Tuticorin Alkali Chemicals Fertilizers (supra) and the interest has to be use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atment of the interest received prior to commencement of commercial operations of the specified mega road projects. As per the Revenue, the same is to be brought to tax under the head income from other sources. As per the assessee, it is in the nature of capital receipt and will be required to be set off against the pre-operative expenditure capitalized under the head Capital work in progress and the same cannot be brought to tax under the head income from other sources. The said issue has been examined at great length by the Coordinate Bench in its decision referred supra and therein the decision of the Hon ble Supreme Court in case of Tuticorin Alkali Chemicals and Fertilizers (227 ITR 172) as well as decision in case of Bokaro steel Ltd (236 ITR 316) has been duly considered. The relevant findings of the Coordinate Bench in assessee s own case in ITA No. 628/JP/2014 for A.Y. 2009-10 dated 11.08.2016 are reproduced as under: 2.18 From the above, it is evident that there are two sets of judgements of Hon ble Supreme Court, proceedings on different lines of reasonings. The Hon ble Delhi High court in case of Indian Oil Panipat Consortium Ltd. (supra) has considered and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the completed road projects/stretches upto the date of commencement of commercial operations. Therefore, the interest received prior to commencement of commercial operations of the specified mega road projects will be in the nature of capital receipt and will be required to be set off against the pre-operative expenditure capitalized under the head Capital work in progress and the same cannot be brought to tax under the head income from other sources . Hence, ground no. 1 of the assessee is allowed. 5. Undisputedly, there are no changes in the facts and circumstances of the case. No contrary authority has been brought to our notice subsequent to above decision of the Coordinate Bench or the fact that said decision of the Coordinate Bench has been stayed by the Hon ble High Court. In view of the similar facts and circumstances of the case and respectfully following the decision of Coordinate Bench in assessee s own case (supra), we hold that the interest received prior to commencement of commercial operations of the specified mega road projects will be in the nature of capital receipt and will be required to be set off against the pre-operative expenditure capitalized under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee did not make any fresh investments during the instant year and also did not earn any exempt income during the assessment year however, in light of the CBDT clarificatory Circular No. 5 dated 11.02.2014, it is subject to disallowance U/s 14A of the Act and he accordingly made a disallowance of ₹ 1,00,000/- U/s 14A of the Act r.w. Rule 8D, which on appeal has been confirmed by the ld. CIT(A). 16. During the course of hearing, the ld. AR submitted that the assessee has made investment in its subsidiary out of its own share capital, there is no borrowed funds which has been invested while subscribing to the share capital of the subsidiary company. Further, referring to the provisions of Section 14A of the Act which talks about disallowance in relation to income which does not part of the total income, it was submitted that the assessee has not earned any tax free income during the year and therefore, the question of disallowance of any expenditure U/s 14A of the Act. In support reliance was placed on the decision of Hon ble Delhi High Court in case of CIT vs. Holcim India Pvt. Limited and also the decision of Coordinate Bench in case of M/s Rajasthan land Holding Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Hon ble Supreme Court in the case of Maxopp Investment Ltd. vs ld. LD. CIT, 402 ITR 640. Considering the settled proposition of law, we are of the view that interest of justice would be met if this issue is restored back to the file of AO with a direction to verify as to whether the assessee has earned exempt income during the year under consideration or not and in the case, AO comes to the conclusion that no exempt income was earned by the assessee during the year under consideration then in that eventuality no disallowance u/s 14A of the Act is warranted. With these directions, we allow the ground of appeal for statistical purposes. 19. In the result, the matter is decided in favour of the assessee and against the Revenue and the ground of appeal is thus allowed. 20. In ground No. 4, the assessee has contended that the Assessing Officer as well as ld. CIT(A) has erred in considering an amount of ₹ 1,50,35,287/- as share issue expenses instead of ₹ 1,30,88,710/- and similarly has erred in considering professional and legal fees for IPO amounting to ₹ 97,95,483/- instead of ₹ 1,17,42,030/-. It was submitted that the necessary details wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions and perused the material available on record. We agree with the ld DR that it is a matter of record which can be very well be verified by the AO in terms of exact quantum of share issue expenses, and professional and legal fees for IPO. The matter is accordingly set-aside to the file of AO to verify and consider the appropriate amount towards share issue expenses and professional and legal fees for IPO. In the result, the ground is allowed for statistical purposes. 24. In ground No. 4, the assessee has challenged the action of the ld. CIT(A) in confirming the disallowance of share issue expenses and also not allowing the alternative contention of allowing the said expenditure U/s 35D of the Act. 25. During the course of assessment proceedings, the Assessing Officer has observed that the assessee company has written off expenditure incurred towards professional and other charges for public offer of shares and out of which expenditure of ₹ 1,50,34,747/-related to increase in authorized share capital. As per Assessing Officer, the law is well settled that the expenditure directly related to ROC/stamping fees paid for increase in capital base of company is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee with ROC for increase in shareholders capital and other expenses being stamp duty on issue of share certificates falls within the definition of section 35D eligible for amortization of preliminary expenses. 27. It was submitted that in this proviso, this expenditure will be amortized if incurred either before start of commercial operation or for extension of business. As mentioned above, the Board of Directors of the assessee company decided to take up the new road stretches for which Capital was required and to do so the first statutory requirements was to increase the Authorized Share Capital hence, Appellant s case is covered in the second limb of Section as the expenditure has been incurred for extension of business for which all the expenditure was incurred. 28. It was submitted that in view of the bad capital market, the assessee company could not go to public but have used the various reports prepared by the various consultants to convince the existing shareholders i.e. GoR/IL FS to further subscribe to the share capital and have got seven more road stretches for construction, which is direct evidence of extension of existing business, which is covered as per defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee, if their claim is being disallowed under the section claimed but if that expenditure is allowable/deductible as per other provisions of act. In this connection, we draw the kind attention to the judgment of Supreme Court in the case of Anchor Pressings (P) Ltd. vs. CIT (1986) 161 ITR 159 wherein it has been held that Assessing Officer is duty bound to grant the exemption/ deduction even where assessee failed to claim the same. The operation para of the judgment is reproduced hereunder :- An obligation is imposed on the Income-tax Officer by section 84 of the Income-tax Act, 1961, to grant relief there under and the relief cannot be refused merely because the assessee has omitted to claim the relief, but the mere existence of such an obligation on the Income-tax Officer is not sufficient. Precise factual material and clear data must be contained in the record sufficient to enable the Income-tax Officer to consider whether the relief should be granted under section 84. In the absence of such material, ITA No.7010/2010 no fault can be found with the Income-tax Officer for not making an order under section 84 favouring the assessee. That in view of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Hon ble Rajasthan High Court in case of CIT vs Multi Metals Ltd reported in [1991] 188 ITR 151 wherein the Hon ble Rajasthan High Court has considered the decision of the Hon ble Madras High Court and has held as under: It is, no doubt, true that the distinction between revenue and capital expenditure is a fine one. Dealing with all those cases which took the view that expenses incurred in obtaining registration of the memorandum of association and articles for enhancing capital, the Kerala High Court held that the fee paid under the Companies Act, 1956, to the Registrar was a revenue expenditure. To the same effect was the view taken by the Madras High Court in CIT v. Kisenchand Chellaram (India) P. Ltd. [1981] 130 ITR 385. In coming to the conclusion, the Madras High Court had applied the ratio enunciated by the Hon'ble Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52 . The decision of the Madras High Court was followed by the Karnataka High Court in Hindustan Machine Tools Ltd. (No. 3)v. CIT [1989] 175 ITR 220 . In its view as well, the expenditure incurred by way of remitting filing fee to the Registrar of Companies in respect of enhancement of the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT [1981] 127 ITR 239 /[1980] 3 Taxman 568 (Delhi), Brooke Bond India Ltd. v. CIT [1983] 140 ITR 272/[1982] 10 Taxman 18 (Cal.), Bombay Burmah Trading Corpn. Ltd. v. CIT [1984] 145 ITR 793/[1983] 12 Taxman 178 (Bom.), Groz-Beckert Saboo Ltd. v. CIT [1986] 160 ITR 743 / 27 Taxman 138 (Punj. Har.), Ahmedabad Mfg. Calico ( P.) Ltd. v. CIT [1986] 162 ITR 800 / 28 Taxman 306 (Guj.), CIT v. Aditya Mills [1990] 181 ITR 195 / 50 Taxman 120 (Raj.), CIT v. Multi Metals Ltd. [1991] 188 ITR 151 (Raj.) and Vazir Sultan Tobacco Co. Ltd. v. CIT [1988] 174 ITR 689 / 41 Taxman 7 (AP). We may also state that the Calcutta High Court has affirmed this earlier view in three subsequent decisions reported in Kesoram Industries Cotton Mills Ltd. v. CIT [1992] 196 ITR 845 (Cal.), Wood Craft Products Ltd. v. CIT [1993] 204 ITR 545 (Cal.) and CIT v. Tungabhadra Industries Ltd. [1994] 207 ITR 553 (Cal.) and so also the Gujarat High Court has affirmed its earlier view in Alembic Glass Industries Ltd. v. CIT [1993] 202 ITR 214 (Guj.). 4. We may also indicate that this court laid down the test for determining whether a particular expenditure is revenue or capital expenditure in the case of Empire J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as allowable as a deduction under section 37(1) of the Act. The Karnataka High Court has followed the view taken by the Madras High Court and so also has the Kerala High Court taken the same view. After considering the test laid down by this Court in Empire Jute Co. Ltd.'s case (supra), the Kerala High Court observed in the case of Federal bank Ltd. ( supra): ...we are of the view that the expenditure incurred for the enhancement of authorised capital is only for the purpose of bettering or improving an established business and cannot be said to be for the purpose of a new business. Viewed in a business sense, the enhancement of the authorised capital is only to broaden the capital base which will be conducive to the better conduct and efficiency and profitability of the business. (p. 246) 6. In this view the High Court held that the expenditure incurred by the assessee was an item of revenue expenditure. This line of reasoning has not found favour with the other High Courts which have taken a contrary view. The Calcutta High Court in Brooke Bond India Ltd.'s case (supra) held that where the object of incurring an expenditure is to affect the capital structure a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court and held that it runs counter to the decision of this Court in India Cements Ltd. v. CIT [1966] 60 ITR 52 and Tata Iron Steel Co. Ltd., In re [1921] 1 ITC 125 (Bom.), wherein it was expressly pointed out that the expenditure incurred for the issue of preference shares could not be said to be solely incurred for the purposes of the company's business. Briefly put, it was held that it was an expenditure incurred directly for the purposes of expansion of the capital asset and was, therefore, of capital nature. 7. We do not consider it necessary to examine all the decisions in extenso because we are of the opinion that the fee paid to the Registrar for expansion of the capital base of the company was directly related to the capital expenditure incurred by the company and although incidentally that would certainly help in the business of the company and may also help in profit-making, it still retains the character of a capital expenditure since the expenditure was directly related to the expansion of the capital base of the company. We are, therefore, of the opinion that the view taken by the different High Courts in favour of the revenue in this behalf is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus; Rebutting the submission of the Revenue, the assessee argued that the language of section 35D is wide enough to cover a case of payment of fee to the Registrar for raising capital of the assessee-company and the provision should be so interpreted that the same be not against the assessee, particularly when its object was to benefit him. Learned counsel contended that the settled principle is that a provision of law capable of two interpretations should be interpreted in a manner so as to give benefit to the assessee. Sub-section (2)(c)( iii) of section 35D is as under: 35D(2)(c)... (iii) by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956). The provision contained in sub-section (2)(c)( iii) of section 35D was resorted to by learned counsel for the assessee in the alternative in support of his submission, that the expenditure incurred by way of enhancement of capital would be covered by the same. To us, it appears that even if the provision of sub-section (2)(c )(iii) of section 35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses was allowed under Section 35D of the Act. When it was again claimed for the Assessment Year 1996-97, though it was disallowed and on directions of the Appellate Authority, the Assessing Officer made physical verification of the factory premises. He was satisfied that there was expansion of the facilities to the industrial undertaking of the assesseee. It is on this satisfaction that for the Assessment Year 1996-97 also the expenses were allowed. Once, this position is accepted and the clock had started running in favour of the assessee, it had to complete the entire period of 10 years and benefit granted in first two years could not have been denied in the subsequent years as the block period was 10 years starting from the Assessment Year 1995-96 to Assessment Year 2004-05. The High Court, however, disallowed the same following the judgment of this Court in the case of Brook Bond India Ltd (supra). In the said case it was held that the expenditure incurred on public issue for the purpose of expansion of the company is a capital expenditure. However, in spite of the argument raised to the effect that the aforesaid judgment was rendered when Section 35D was not o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company had gone ahead with the IPO process and had taken preliminary steps for bringing out the IPO through a book-building process. Referring to the draft red herring prospectus prepared by M/s Amarchand Mangaldas, the Assessing Officer observed that it is an extremely vital document which provides useful piece of guidance/data that the company has acquired. The Assessing Officer further observed that although the IPO has been aborted by the company whenever the company will subsequently bringing the IPO, this information will be extremely crucial for the company. It was accordingly held that the projects report provides an enduring benefit to the company and the assessee company is not correct in writing off this expenditure merely because the IPO was aborted. Similarly, the due diligence expenditure made by the assessee company is a capital expenditure as the same provided an enduring benefit to the assessee is a capital expenditure as the same provided and an enduring benefit to the assessee. It was further held by the Assessing Officer that the assessee itself has treated the expenditure as capital expenditure and therefore, merely because the IPO got aborted, the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority of the Board resolved to abort the public offer, this Draft Red Herring Prospectus becomes totally useless and legally unenforceable and cannot be considered for endeavoring benefit rather it is waste paper. In view of above, the conclusion of Ld. AO that it has an endeavoring benefit is not far from the truth but is just imagination of the Ld. AO that this will have some enduring benefit in times to come without raising the funds from the market. The AO has also observed that earlier it has taken as revenue in the current year, on this it is submitted that when this expenditure was incurred the Company intended to go to public and this would have become the part of public issue expenses covered U/s. 35D, however, due to bad market condition, which is beyond the control of the management, has been correctly write-off in the current year, hence in the substance, the transaction pertain to the current year only. Hence this has been correctly written off. 43. It was accordingly submitted that the addition in respect of IPO expenses as a revenue expenditure in current year may be deleted as the decision for not to go for public issue was taken in the current year and due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred as revenue, even if the same was not claimed in the return of income filed by the appellant. The A.O. is duty bound to give due deductions, exemptions or rebate to the Assessee, if their claim is being disallowed under the section claimed but if that expenditure is allowable/deductible as per other provisions of Act as held by the Hon ble Supreme Court case of Anchor Pressings(P) Ltd. vs. CIT (Supra) 45. The ld DR is heard who has relied on the findings of the lower authorities. 46. We have considered the rival submissions and perused the material available on record. The undisputed facts which are emerging from the records are that pursuant to approval granted by the Government of Rajasthan to develop certain specific additional road stretches/projects, the assessee company had proposed to raise funds through an IPO for such expansion activities and in connection with preparation for the IPO, has engaged the services of M/s Luthra and Luthra law firm (consultant), M/s S. Bhandari Company, Chartered Accountants (consultants for preparing the financial information), M/s Amarchand Mangaldas (consultants to the Book running lead manager) and M/s Eman Securities Pvt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid findings of the Coordinate Bench, has held as under: 2. The finding of fact recorded by the Income Tax Appellate Tribunal is that there is (no) dispute that the assessee has in fact incurred the expenditure and that on account of the aborted public issue offer, no new asset has come into existence and consequently there is no question of the assessee getting any enduring benefit. With the approval of SEBI, the assessee was to increase the share capital and thereby promote its business activity. However, the same got aborted due to reasons beyond its control. In these circumstances, in view of the decision of this Court in the case of Commissioner of Income Tax V/s. M/s. Essar Oil Limited, Income Tax Appeal (L) No. 921 of 2006 decided on 16th October 2008, in our opinion, no fault can be found with the decision of the Income Tax Appellate Tribunal in allowing the aborted share issue expenditure under Section 37 of the Income Tax Act, 1961. 48. In the instant case as well, there is no dispute that these expenses have been incurred by the assessee company in connection with the IPO which ultimately got aborted due to unfavourable market conditions which is beyond its con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulted in reducing of loss and did not result in any demand hence the observation of the Ld. CIT(A) regarding withdrawal of interest is erroneous. Thus in view of the above facts, the differential interest on the refund may be directed to the granted to the assessee company. 51. After hearing both the parties and purused the material on record, we deem it appropriate that the claim so made by the assessee company is verified as the same is a matter of record. The matter is accordingly set-aside to the file of the Assessing officer to verify and examine the claim of the assessee regarding short grant of interest u/s 244A and decide as per law. In the result, the ground is allowed for statistical purposes. ITA No. 669/JP/2019 52. Now, we take up assessee s appeal for A.Y 2012-13 wherein the assessee has taken following grounds of appeal:- 1. That the order passed by the Ld. Assessing Officer and Ld. CIT (Appeals), Ajmer, is bad in law as well as facts. 2. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer has wrongly considered ₹ 1,19,49,426/- as Income from Other Sources rather than reducing it from the capital cost of construction of roads, as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowing the depreciation of ₹ 1,17,59,016/- claimed by the assesse, being depreciation on account of Toll building under the block of Building as per Income Tax Act, 1961. 4. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in law as well as in facts by disallowing the expense claimed of ₹ 15,72,414/- (1/5th expense incurred ₹ 78,62,069/-) by the Company for increase in authorized capital as decided by the Rajasthan High Court [Commissioner of Income Tax v. Multi Metals Ltd. reported in 188 ITR 151]. 5. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in making disallowance of ₹ 1,00,000/- under Section 14A of Income Tax Act, 1961. The appellant prays that considering the facts and that no exempt income has been earned, the determination of the amount at ₹ 1,00,000/-u/s 14A read with rule 8D(2) is not justified and be deleted. 6. That the Ld. Assessing officer and Ld. CIT(Appeals), Ajmer, has further erred in disallowing the socio-economic expense of ₹ 50,23,041/- under section 37 of Income Tax Act, 1961 and adding back to income, though these expenses are directly connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the appellate proceedings before the ld CIT(A). It was further submitted that where in the past, depreciation has been allowed on Toll Buildings by the AO, there is no basis to make such disallowance in the year under consideration. It was accordingly submitted that the Ld. AO and Ld. CIT(A) have erred in not appreciating the facts of the case and not allowing the depreciation in case of Toll Buildings, thus the appellant prays for allowance of depreciation in case of Toll Buildings. 58. The ld DR is heard who has relied on the findings of the lower authorities. 59. We have heard the rival contentions and purused the material available on record. The case of the assessee company is that the amount of ₹ 150,46,66,419/-, being disallowed by the Assessing officer, comprised of ₹ 149,29,07,403/- being depreciation on account of Toll Roads and ₹ 1,17,59,016/- being depreciation on account of Toll Buildings. Further, the amortization of ₹ 1,05,06,87,579/- which has been allowed by the Assessing officer is in respect of Toll roads. Accordingly, the depreciation on Toll Buildings amounting to ₹ 1,17,59,016/- has been wrongly disallowed by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intenance, overlays/renewals, replacements, up-gradations, special repairs/ emergency works etc. and such other activities whether anticipates or not (i) other miscellaneous expenses arising out of conformity to statutory requirement/ compliance with the provisions of this agreement; and (k) all other expenditures required to be incurred under this agreement or law or clearances necessary for the operations and maintenance of the project accordingly to specifications and standards. Accordingly the company had undertaken the work of HIV-AIDS awareness and prevention program and considered as operation maintenance cost which was also certified by the independent Author, copy of certificate enclosed as Annexure-III Section 37 of Income Tax Act, 1961, Any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession . Based on above submissions it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the instant case the motive of the assessee is not solely for promoting the business but also social cause. Moreover, during the course of assessment proceedings the assessee failed to prove that the said expenditure has been 'wholly' and 'exclusively' for business purpose. The burden to prove that the expenses were laid out wholly arid exclusively for business purpose her upon the assessee [Goodlas Nerolac Plaints Ltd. Vs CIT (Bom) 137 ITR 58]. 7.4 Here it is also relevant to mention that vide explanation 2 to subsection (1) of Section 37 it has been clarified that for the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the companies Act, 2013 (18 of 2013) 58 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession, amendment is clarificatory in nature. 7.5 The expenditure incurred is not with a view to bring profits or monetary advantage to the assessee Company. Accordingly the said Socio Economic Expenses of ₹ 5023041/- is di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity and accordingly an agreement executed between the Government of Rajasthan and the assessee company which called Partnership and Development Agreement has categorically stipulated that it would be imperative and obligatory on the part of Company to incur certain expenditure for the inhabitants/residents/other affected parties to carry out certain activity which inter-alia includes construction of Schools, Wells, Education for information to leave drinks, liquor, not to drive after drinking and various other activities and it was mandatory to carry out such activities as per agreement with the Government and all such expenses as per the development agreement agreed between Govt., of Rajasthan clearly states as under : Obligations of RIDCOR (appellant): 1. The obligations of RIDCOR under this Agreement shall commence only on the issuance by GOR (within 30 days of this Agreement), under the provisions of Rajasthan Road Development Act, 2002, a single User Fee Notification Order, applicable for the entire Project Period conferring on RIDCOR the right to demand, collect, retain and appropriate User Fee from the Users of the Project Road; 2. Subject to 2.2(1) abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and other relevant information and I supply details as may be reasonably required by the Independent Auditor/Engineer and GoR, when requested; (k) Subject to the provisions of Article 6 and Article 8.1 RIDCOR shall not cease activities on the facility for a continuous period of more than 60 days; (l) Subject to provisions of existing law, enforce collection of User Fee at the rates notified from time to time; (m) Undertake Land Banking in terms of Article 2.1(h), wherever feasible and utilise the proceeds thereof, as certified by independent Auditor, in accordance with this Agreement; (n) Open maintain Financial Security Support Fund (FSSF), during the Trial Operation Period by crediting the Project Revenues earned during this Period; the monies credited into the Financial Servicing Support Fund shall be available for meeting the Deficit during the Operations Period in terms of Article 2.9; (o) Due observance of the provisions of the laws of GoR/GoI including rules regulations made thereunder as applicable to the Project including laws relating to environmental and ecological protection and road safety during the Project Period; and (p) Due observanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or monetary advantage today or tomorrow; Yes 2 to render the Appellant immune from impending or reasonably apprehended litigation; Yes 3 in order to save losses in foreseeable future Yes 4 for effecting economy in working which may pay dividends today or tomorrow; Yes 5 for increasing efficiency in working Yes 6 for removing inefficiency in the working; Yes 7 where the expenditure incurred is such as a wise, prudent, pragmatic and ethical man of the world of business would conscientiously incur with an eye on promoting his business prospects subjects to the expenditure being genuine and within reasonable limits; Yes 8 where it is incurred solely by way of a civil duty owed by the assessee to the society having regard to the nature of his business which brings him profits but results in some detriment to the public at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tanding that though Section 37(1) in general speaks that an expenditure incurred wholly and exclusively for the purpose of business will be allowed as deduction, however the scope of the abovementioned section is wide enough for claiming a particular deduction, if certain conditions laid down therein are satisfied. The jurisdiction of the Revenue authorities is confined to deciding the reality of the expenditure, namely, whether the amount claimed for deduction was factually expended or not, and whether it was wholly and exclusively for the purpose of the business. Once that conclusion is reached in favour of the appellant, deduction of the entire amount should follow as a matter of course (Sanjeevi Co. Vs. CIT (1966) 62 ITR 156 (Mad)). It is well settled that the deductions allowed in determining the income enumerated in the Income-tax Act are not exhaustive. A business expenditure is a voluntary act on the part of a businessman to spend money for carrying on his business with a view to earning profits as held in case of Kamplapat Motilal V. CIT (1976) 104 ITR 783 (All). 69. It was submitted that the test to find out whether a particular expenditure is wholly or partly justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n upon the faith of the then existing law. 71. It was accordingly submitted that linking with the Corporate Social Responsibility (CSR) and disallowance is totally uncalled for. CSR is mandatory only in the case where the Company earns profit whereas in the instant case the rationale of incurring expenditure has been explained above. It was submitted that the assessee being involved in constructing and maintaining various road stretches, incurring this type of expenditure is must to avoid or minimize the accidents, spread of diseases etc. and to encourage the vehicles to come on the appellant s roads which will help the appellant in generating good revenue. The test of allowing expenditure U/S 37 is decided by the Hon ble Gujarat High Court as discussed above and the expenditure so claimed may be allowed and the addition so made by the lower authorities be deleted. 72. The ld DR is heard who has relied on the findings of the lower authorities. 73. We have heard the rival contentions and purused the material available on record. The Hon ble Gujarat High Court in case of CIT vs Navsari Cotton and Silk Mills Ltd (supra) has held that where having regard to the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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