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TMI Blog2025 (2) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... nted. However, disregarding the response filed by the assessee, the CPC issued an intimation u/s 143(1) of the Act wherein the following adjustments were made to the income of the assessee calculating under the normal provisions of the Act: Sr. No. Particulars Amount (INR) 1 Total income under normal provisions as per Return of income 27,61,96,070 2 Add: Disallowance of employees' contribution to provident fund u/s 36(1)(va) 23,778 3 Add: Disallowance of IPO costs u/s 37(1) 1,17,25,562 4 Add: Disallowance of income tax and interest on TDS paid 5,816 5 Less: Disallowance of CSR expenditure not considered in intimation u/s 143(1) 38,54,277 6 Total income as per intimation u/s 143(1) 28,40,96,940 3. Before the Ld. Addl./JCIT(A) the assessee inter-alia submitted that the expenditure of Rs. 1,17,25,562/- relates to the IPO expenses in respect of abandoned / aborted project which is revenue in nature. It was submitted that there was no enduring benefit as a result of such aborted expenditure. The decision of the Hon'ble Bombay High Court in the case of Nimbus Communication Ltd. vide ITA No.4244/2010 was relied upon before the Ld. Addl./JCIT(A). It was further subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this adjustment as there is a stark difference between the values reported by the CA and the values incorporated in the return of income. Under such circumstances, the adjustment made by the CPC is upheld and the corresponding ground of appeal is dismissed." 5. Aggrieved with such order of the Ld. Addl./JCIT(A), the assessee is in appeal before the Tribunal by raising the following grounds: Ground No. 1 1.1. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income-tax Appeals, Addl/JCIT (A)-4. ['Ld. CTT(A)') erred in upholding the order passed by Assistant Director of Income-tax, Centralised Processing Center (Ld. AO) under section 143(1) of the Income-tax A, 1961 (the Act') and not treating the same as bad-in-law and void-ab-initio 1.2. The Appellant submits that the said intimation passed under section 143(1) of the Act be declared as bad-in-law and therefore, be set-aside/quashed. Ground No. 2 2.1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not considering the binding decision of the Hon'ble Jurisdictional High Court in relation to allowability of expenditure incurred for i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om services 928,010 NSDL Annual filing fees 105,000 CDSL Onetime fees 95,000 Frost & Sullivan (India) Pvt Ltd Market Research expenses 1,500,000 S & R Associates Legal fees 6,958,681 J Sagar Associates Professional fees- for review of Red Herring Prospectus 1,014,103 IIFL Holdings Ltd Reimbursement of IPO related expenses 112,768 Price water house & Co Bangalore LLP Professional fees - for restatement of Financials 10,12,000 Total 11,725,562 9. The Ld. Counsel for the assessee drew the attention of the Bench to the decision of the Hon'ble Bombay High Court in the case of CIT vs. Nimbus Communication Ltd. vide ITA No.4244/2010, order dated 08.12.2011 and submitted that the Hon'ble High Court in the said decision has upheld the decision of the Tribunal where it has been held that where the assessee had incurred expenditure of Rs. 87,21,675/- towards initial public offer of shares, since it had to abort the proposed public issue, the expenditure in question was a loss and as no enduring benefit had accrued to the assessee, it should be allowed as a revenue expenditure. 10. Referring to the Article 265 of the Constitution, he submitted that no tax ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer especially when the issue stands decided in favour of the assessee by the decision of the Hon'ble jurisdictional High Court. We find the Hon'ble Bombay High Court in the case of CIT vs. Nimbus Communication Ltd. (supra) has held as under: "2. The finding of fact recorded by the Income Tax Appellate Tribunal is that there is 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." 5. We find the Co-ordinate Bench of the Tribunal in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. 22. Further, it was pointed out that if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. Thus, it was held that the test of enduring benefit is not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. 23. Further, it was held that another test, which is often applied is the one based on distinction between fixed and circulating capital. This test was applied by Lord Haldane in the case of John Smith & Son v. Moore 12 TC 266, where the learned Law Lord drew the distinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred from the capital account forgetting that the test to be applied to ascertain as to whether the expenditure is revenue or capital is not based on where the funds were drawn from. The broad parameters and tests, which have been laid down by various decisions are that there should be an enduring benefit, which should accrue to the assessee and there should be a creation of a new asset. In the instant case, both these parameters remain unfulfilled. 27. The High Court of Delhi in Indo Rama Synthetics Ltd. (supra) held that if the expenditure is incurred for starting a new business, which was not carried out by the assessee earlier, then such expenditure was held to be capital in nature. However, if the expenditure incurred is in respect of the same business, which is already carried on by the assessee, even if it is for the expansion of the business, viz., to start a new unit, which is same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure and in such a case whether it is a new business/asset would become a relevant factor. 28. It is further held that if there is no creation of new asset, then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In our considered view, reliance placed on the decision of this Court in the case of E.I.D. Parry (India) Ltd. (supra) and the Kerala High Court in the case of Malabar & Pioneer Hosiery (P.) Ltd. (supra) is of little avail, as in both cases, it was for a new project, in contra distinction with the factual position in the case on hand. Therefore, those decisions are factually distinguishable. Heavy reliance was placed on the decision of this Court in the case of Mascon Technical Services Ltd. (supra). 34. At the first blush it appears that the decision would help the case of the revenue, but on a closer reading it proves otherwise. The question was whether the assessee was justified in seeking for bifurcation of the expenses incurred into capital and revenue. The Division Bench referred to the decision in the case of Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798/91 Taxman 26 (SC). In the case of Brooke Bond India Ltd. (supra), it was held that expenditure, in connection with the additional issue of shares, paid to the Registrar of Companies by way of filing fee and hence, has no application. The Division Bench held that the decision in the case of Brooke Bond India Ltd. (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 022) 195 ITD 142 (Mumbai-Trib.) has held that the Assessing Officer could not make disallowance based on observations made in tax audit report that payments were made after due date specified under respective Acts. The relevant observations read as under: "9. What a tax auditor states in his report are his opinion and his opinion cannot bind the auditee at all. In this light, when one considers what has been reported to be „due date‟ in column 20 (b) in respect of contributions received from employees for various funds as referred to in Section 36(1)(va) and the fact that the expression „due date‟ has been defined under Explanation (now Explanation 1) to Section 36(1)(va) provides that "For the purposes of this clause, „due date‟ means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise", one cannot find fault in what has been reported in the tax audit report. It is not even an expression of opinion about the allowabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the due date under Explanation (now Explanation 1) to Section 36(1)(va). That question, in our humble understanding, can be relevant, for example, when a call is required to be taken on merits in respect of an assessment under section 143(3) or under section 143(3) r.w.s. 147 of the Act, or when no findings were to be given on the scope of permissible adjustments under section 143(1)(a)(iv). That is not the situation before us. We, therefore, see no need to deal with that aspect of the matter at this stage. 18. In view of the above discussion and relying on various other decisions cited before us, we set aside the order of the Ld. Addl./JCIT(A) and direct the Assessing Officer to delete the disallowance of Rs. 1,17,25,562/- on account of IPO cost u/s 37(1). The first issue raised by the assessee in grounds of appeal No.2.1 to 3.1 is accordingly allowed. 19. The ground of appeal No.4 relates to the grant of credit of DDT amounting to Rs. 1,52,65,049/- u/s 115-O of the Act. 20. The Ld. Counsel for the assessee at the outset submitted that since no credit was given, a direction may be given to the Assessing Officer to follow the due procedure. The Ld. DR has no objection. According ..... X X X X Extracts X X X X X X X X Extracts X X X X
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