TMI Blog2018 (2) TMI 2104X X X X Extracts X X X X X X X X Extracts X X X X ..... onafide of the said explanation is therefore not under challenge especially in light of the plausible view which can be taken in respect of share issue expenditure which has been claimed as revenue expenditure. Given that all necessary facts are on record regarding claim of the share issue expenditure and the explanation of the assessee has been found to be bonafide, merely because the expenditure so claimed is disallowed and treated as capital expenditure, the same cannot be basis for levy of penalty for furnishing inaccurate particulars of income u/s 271(1)(c) - A similar view has been taken in case of JKP Auto parts [ 2017 (5) TMI 1617 - ITAT DELHI] In the result, the penalty so levied and confirmed by the ld CIT(A) is hereby deleted. Decided in favour of assessee. - SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SINGH YADAV, AM For the Assessee : Shri P. C. Parwal (CA) For the Revenue : Shri Ran Singh (Addl.CIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A)- Kota dated 09.11.2017 for Assessment Year 2011-12 wherein he has confirmed the levy of penalty amounting to Rs 99,653 u/s 271(1)(c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37(1) of the Act. The reply of the assessee was however, not found acceptable to the AO. The AO was of the view that there is no iota of doubt about the fact that the expenses claimed by the assessee towards increase in share capital and ROC fees are of capital expenditure relying on the decisions of the Hon ble Supreme Court referred supra. It was accordingly held that the assessee has furnished inaccurate particulars of income to the tune of Rs. 3 lac and penalty of Rs. 99,653/- under section 271(1)(c) was levied on the assessee company. 5. Being aggrieved, the assessee carried the matter in appeal before the ld CIT(A) who has confirmed the said levy of penalty u/s 271(1)(c) of the Act. The ld CIT(A) held that the claim of the assessee was not bonafide in view of the existing position of law as on the date of raising the claim related to increase in the authorized share capital which being a capital expense, deduction was not allowable in the profit/loss account per se. It was held by the ld CIT(A) that it could not therefore be held that there was no deliberate intention of making a wrong claim before the authorities especially when the appellant was assisted by the competent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue. Nowhere from the records is it borne out that, whether such authorized capital was for either running of business or for any expansion of business or for setting up of new business. The treatment of such an expense whether it is for capital or revenue largely depends on the facts of the case and there is often very thin line demarcation between the expense which can be reckoned as capital or revenue. If the assessee had claimed to be a revenue expenditure stating that the authorized capital was for the purpose of its running of business, then, it cannot be held that the assessee has filed any inaccurate particulars of income, if such an expense is treated as capital expenditure for the purpose of levy of penalty u/s 271 (1)(c). In any case whether the expenditure is revenue or capital is quite debatable issue and on such a claim, penalty u/s 271 (1)(c) for furnishing of inaccurate particulars cannot be levied. Thus, Tribunal hold that on this addition also no penalty can be levied by the Assessing Officer or can be confirmed by the ld. CIT(Appeals) and therefore same is directed to be deleted. If assessee had claimed expenses incurred by it to be revenue expenditure stating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of Allahabad, Himachal Pradesh, Delhi, Calcutta, Bombay, Punjab, Gujarat, Andhra Pradesh and Rajasthan have held in favour of the revenue in the following cases: CIT v. Modi Spg. Wvg. Mills Co. Ltd. [1973] 89 ITR 304 (All.), Mohan Meakin Breweries Ltd. v. CIT (No. 2)[1979] 117 ITR 505/2 Taxman 460 (HP), Bharat Carbon Ribbon Mfg. Co. Ltd. v. 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. Tungabha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made to Mohan Meakin Breweries Ltd. v. CIT ( No. 2)[1979] 117 ITR 505 (HP), Bharat Carbon Ribbon Mfg. Co. Ltd. v. CIT [1981] 127 ITR 239 (Delhi), Bombay Burmah Trading Corpn. Ltd. v. CIT [1984] 145 ITR 793 (Bom.) and Groz-Beckert Saboo Ltd. v. CIT [1986] 160 ITR 743 (Punj. Har.). 5. The Tribunal has placed reliance on the decision of the Allahabad High Court in CIT v. Modi Spg. Wvg. Mills Co. Ltd. [1973] 89 ITR 304 and the decision of the Bombay High Court in CIT v. Elphinstone Spg. Wvg. Mills Co. Ltd. [1975] 100 ITR 139. We have considered the said decisions and we find that these decisions have no application to the present case. In Modi Spg. Wvg. Mills Co. Ltd.'s case (supra) it was held that the amount paid to a lawyer for advising a company on amendments in the articles of association and for drafting a special resolution so that the articles could be amended to bring them into accord with changes brought about in the law relating to companies is an allowable expenditure under section 10(2)(xv) of the Act as it is incurred in order that the company should continue to function in accordance with law and is not capital expenditure. Similarly in Elphinstone Sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced by learned counsel for the assessee on Federal Bank Ltd. v. CIT [1989] 180 ITR 241 (Ker). The submission was that where registration fee is paid only to broaden the capital base for better conduct and efficiency and profitability of business, the amount spent is deductible as revenue expenditure under section 37(1) of the Income-tax Act. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 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 the preferable view as compared to the view based on the decision of the Madras High Court in Kisenchand Chellaram s case. 5. This decision thus covers the question that falls for consideration in this appeal. 6. Dr. Pal has, however, submitted that this decision does not cover a case, like the present case, where the object of enhancement of the capital was to have more working funds for the assessee to carry on its business and to earn more profit and that in such a case the expenditure that is incurred in connection with issuing of shares to increase the capital has to be treated as the revenue expenditure. In this connection, Dr. Pal has invited our a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 37(1) of the Act. The question before the Tribunal was whether such addition comes within the ken of prima facie adjustment. 6. Adverting to the applicability of the ratio of the decision of the Hon ble Apex Court rendered in the case of Brooke Bond (India) Ltd. v. CIT [1997] 225 ITR 798, learned counsel submitted that it was incumbent on the Assessing Officer to examine the object of the capital enhancement. The ratio of Brooke Bond (India) Ltd. is not applicable if enhancement of capital was in the context of more working funds. This decision of the Apex Court does not cover all the cases of capital enhancement. 7. It was further contended that the Revenue did not examine the issue in the right perspective. Even the applicability of section 35D of the Act was not considered. Matter was not viewed in totality. De hors examining the object of making right issue, matter was adjudicated. Allowability of the claim under other provisions of the statute was not considered. 8. Shri Shaji P. Jacob, ld. D.R. submitted that it is open for the Assessing Officer to make the disallowance on the basis of information available in the return. The claim of the assessee was inadmissible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to carry on its business. 10. From this it can be concluded that if the expansion of capital is in order to meet the need for more working funds, in that eventuality the expenditure could partake the nature of revenue expenditure. De hors examination in this regard, it is not possible to apply the ratio. 11. Each case depends on its own facts, and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid temptation as said by Cordozo by matching the colour of one case against the colour of another. I am reminded of Heraclitus who said you never go down the same river twice . What the great philosopher said about time and flux can relate to law as well. It is trite that a ruling of superior court is binding law. It is not of scriptural sanctity but is of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decision, exalting the doctrine of precedents into a prison house of bigotry, regardless of varying circumstances and myriad d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores and the share application money has been increased from 172.12 crores to 1170 crores. The inventories which were Nil during the previous year ending on 31.3.2007 now stand at 2472.48. 14. The aforementioned figures clearly show that the entire incremental share capital has been absorbed in the inventories. The Hon'ble Supreme Court in the case of Punjab State Industrial Development Corpn. Ltd. (supra) has clearly laid down that the celebrated test as laid down in the case of Lord Cave L.C. in Atherton (supra) must yield where there are special circumstances leading to a contrary conclusion. After considering the balancesheet of the assessee as stated hereinabove, we find that special circumstances do exist in the present case which lead to taking a contrary conclusion. There is not an iota of doubt that the increase in the share capital has been fully utilized only in the purchase of trading stock. 19. In light of above, as per the decision of the Coordinate Bench in case of Lakshmi Auto (supra), it is clear that the decision of the Hon ble Supreme Court in the case of Brooke Bond (India) Ltd. (supra) cannot be applied in all cases universally but after examining t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
