Income Tax Appellate Tribunal - Jaipur
Dcit, Jaipur vs Compucom Software Limited, Jaipur on 9 May, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM
vk;dj vihy la-@ITA No. 58/JP/2015
fu/kZkj.k o"kZ@Assessment Years : 2011-12.
The Dy. Commissioner of cuke M/s. Compucom Software Ltd.,
Income-tax, Vs. 5A, Tilak Bhawan, Tilak Marg,
Circle-6, C-Scheme,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAACG 5818 P
vihykFkhZ@Appellant izR;FkhZ@Respondent
C.O. NO. 40/JP/2017
(Arising out of ITA No. 58/JP/2015)
Assessment Year : 2011-12.
M/s. Compucom Software Ltd., cuke The Dy. Commissioner of
5A, Tilak Bhawan, Tilak Marg, Vs. Income-tax,
C-Scheme, Circle-6,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAACG 5818 P
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Smt. Seema Meena (JCIT)
fu/kZkfjrh dh vksj ls@Assessee by : Shri Rohan Sogani and
Shri Rajeev Sogani (C.As.)
lquokbZ dh rkjh[k@ Date of Hearing : 08.05.2018.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 09/05/2018.
vkns'k@ ORDER
PER VIJAY PAL RAO, J.M.
This appeal by the revenue and cross objection by the assessee are directed against the order dated 27th November, 2014 of ld. CIT (Appeals)-2, Jaipur for the 2 ITA No. 58/JP/2015 and CO No. 40/JP/2017. M/s. Compucom Software Limited, Jaipur.
assessment year 2011-12. The revenue has raised the following grounds of appeal :-
" 1. Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) erred in deleting the addition of Rs. 8,71,641/- made by the AO on account of expenses incurred for increase of share capital by treating the same as capital expenditure.
2.(a) Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) erred in deleting the addition of Rs. 1,14,667/- made for depositing the employee's contribution to PF & ESI beyond the prescribed time limit provided in the respective Acts.
(b) Whether on the facts and in the circumstances of the case and in law the ld. CIT (A) erred in holding that employees contribution to PF & ESI are governed by the provision of section 43B and not by section 36(1)(va) r.w.s. 2(24)(x) of the I.T. Act.
3. Whether on the facts and in the circumstances of the case and in law the ld. CIT (Appeals) erred in deleting the addition of Rs.
18,33,036/- made by the AO on account of disallowance of expenditure u/s 14A read with rule 8D(2)(ii).
4. On the facts and in the circumstances of the case and in law the ld. CIT (Appeals) erred in deleting the addition of Rs. 2,15,000/- made by the AO by disallowing the Loan Processing Fees by holding it as capital expenditure since it has been incurred for purchase of capital assets.
5. The applicant craves its rights to add, amend or alter any of the grounds on or before the hearing.
Ground No. 1 is regarding deletion of addition of Rs. 8,71,641/- made by the AO on account of expenditure incurred for increase of share capital treating the same as capital in nature.
2. During the course of assessment proceedings, the AO noted that the assessee has claimed the expenditure relating to increase in authorized share capital total 3 ITA No. 58/JP/2015 and CO No. 40/JP/2017. M/s. Compucom Software Limited, Jaipur.
amounting to Rs. 8,99,141/-. The AO was of the view that the expenditure relates to increase in authorized share capital, therefore, the same is not allowable expenditure being capital in nature. Accordingly, the AO proposed to disallow the said claim of expenditure. The assessee objected to the disallowance made by the AO and relied upon the decision of Hon'ble Supreme Court in case of CIT vs. General Insurance Corporation, 156 Taxman 96 (SC). The AO did not accept the contention of the assessee and held that the decisions of Hon'ble Supreme Court in the case of Brooke Bond India Ltd. vs. CIT, 225 ITR 798 (SC) as well as in the case of Punjab State Industrial Development Corporation Ltd. vs. CIT (1997) Taxman 5 (SC) are applicable in the case of the assessee so far as the expenditure incurred relating to increase in authorized capital of the assessee. Accordingly, the AO made an addition of Rs. 8,71,641/- being the expenditure related to increase in authorized share capital. On appeal, the ld. CIT (A) has deleted the said disallowance made by the AO by following the decision of Hon'ble Supreme Court in case of CIT vs. General Insurance Corporation (supra).
3. Before us, the ld. D/R has contended that the ld. CIT (A) has committed an error by deleting the addition in respect of the expenditure which was incurred for increase in authorized share capital of the assessee company and not related to the issue of bonus share. The ld. D/R has strongly relied upon the decision of Hon'ble Supreme Court in the case of Brooke Bond India Ltd. vs. CIT (supra) as well as decision in the case of Punjab State Industrial Development Corporation Ltd. vs. CIT (supra).
4ITA No. 58/JP/2015 and CO No. 40/JP/2017.
M/s. Compucom Software Limited, Jaipur.
3.1. On the other hand, the ld. A/R of the assessee has submitted that the assessee has issued bonus share during the year under consideration and, therefore, the expenditure of Rs. 8,99,141/- was incurred for the purpose of issuing the bonus share and, therefore, the same is allowable expenditure as per the decision of the Hon'ble Supreme Court in case of CIT vs. General Insurance Corporation Ltd. (supra). The ld. A/R has referred to the findings of the Hon'ble Supreme Court in the case of CIT vs. General Insurance Corporation Ltd. (supra) and submitted that on the identical facts, the Hon'ble Supreme Court has distinguished the decisions in the case of Brooke Bond India Ltd. (supra) as well as Punjab State Industrial Development Corporation Ltd. (supra) on the ground that all these cases relate to issue of fresh share which lead to inflow of fresh funds into the company which expenditure was added to its capital employed in the company resulting in expansion of profit making apparatus, whereas the effect of issuance of bonus share has been explained by the Hon'ble Supreme Court in the case of CIT vs. Dalmia Investment Co. Ltd. 52 ITR 567 (SC). The total value remains the same and only the profits in the hands of the company are converted into capital instead of paying them over to the shareholders. The ld. A/R has then relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs. Tata Chemicals Ltd. 75 Taxmann.com 228 and submitted that by following the decision of Hon'ble Supreme Court in the case of CIT vs. General Insurance Corporation Ltd. (supra), the Hon'ble High Court has upheld the order of the Tribunal in allowing the expenditure incurred for increase in authorized share capital and issuance of bonus share. Thus the ld. A/R has submitted that when the assessee has issued only bonus share and not received any 5 ITA No. 58/JP/2015 and CO No. 40/JP/2017. M/s. Compucom Software Limited, Jaipur.
fresh funds then the expenditure incurred for issuing the bonus share is an allowable expenditure.
4. We have considered the rival submissions as well as the relevant material on record. The details of the expenditure incurred by the assessee in respect of increase in authorized share capital as well as issuance of bonus share are given in para 5.1 of the assessment order as under :-
Sr. No. Particulars Amount Remarks
1. ROC Fees 800500 Filing fee for increase in
authorized capital.
2. Share issue exp. 37923 Paid to NSDL for legal fees ag.
Bonus share issue.
3. Share issue exp. 32115 Paid to CDSL being legal fee ag.
Bonus share issue
4. Share issue exp. 22000 Legal fee paid ag. Bonus share
issue
5. Share issue exp. 1103 Paid to NSDL being legal fees ag.
Bonus share issue
6. ROC fees 5500 ROC fee paid to Sandeep Taneja
Total 899141
It is clear from the details that the expenditure of Rs. 8,00,500/- has been incurred in respect of the filing fee for increase in authorized capital. The assessee has increased its authorized share capital from Rs. 12,00,00,000/- to Rs. 20,00,00,000/- during the year under consideration. Therefore, there is an increase of Rs. 8,00,00,000/- of authorized share capital. The assessee has also issued bonus share of more than Rs. 5,00,00,000/- during the year. So far as the expenditure incurred for issuing of bonus share, the same is an allowable claim in view of the decision of the Hon'ble Supreme Court in the case of CIT vs. General Insurance Corporation 6 ITA No. 58/JP/2015 and CO No. 40/JP/2017. M/s. Compucom Software Limited, Jaipur.
(supra). However, the expenditure incurred exclusively for increase in authorized share capital of the assessee cannot be allowed as a revenue expenditure as the same is purely in capital field. The AO while dealing with this issue, has held in para 5.3 as under :-
" 5.3. I have carefully considered the submissions made by the assessee, out of the total expenses of Rs. 8,99,141; Rs. 5500/- is regular filing fee which is allowed but the balance Rs. 8,93,641/- are related to ROC fees & NSDL/CDSL fees payments for increase in authorized and issued share capital base of the assessee company. The Authorized share capital has been increased Rs. 20 crores from Rs. 12 crores and issued share capital has been increased to Rs. 15.82 crores from Rs. 10.05 crores during the previous year under consideration. Out of these expenses Rs. 8,93,641/- are mainly related to ROC fee/stamping fees for increase in authorized share capital of company by Rs. 8 crores in comparison to preceding year and as such not related to revenue expenses for bonus share issue, in fact the whose authorized capital base of company is still not issued/subscribed. Though, it appears that Rs. 22,000/- legal fee paid is related to bonus share issue and accordingly the same is allowed on the basis of the case law relied upon by AR. However, the same is not applicable in the facts of assessee's case for balance expenses, as the same are not for bonus share issue but for increase in authorized share capital base of assessee the company. Accounting classification of this expenditure by assessee is misleading. Even in the case law relied upon by assessee the Hon'ble SC has allowed only expenditure related to issue of bonus shares only. The law is now settled on this issue and that expenditure directly related to ROC/Stamping fees paid for increase in capital base of company is held to be capital expenditure by Hon'ble Supreme Court 7 ITA No. 58/JP/2015 and CO No. 40/JP/2017. M/s. Compucom Software Limited, Jaipur.
in the cases of Brooke Bond India Ltd. vs. CIT, 225 ITR 798 (SC) and in the Punjab State Industrial Development Corporation Ltd. vs. CIT (1997) taxman 5 (SC). Accordingly, the claim of expenditure to the extent of Rs. 8,71,641/- (8,99,141 - 22,000 - 5000) is held to be related to increase in authorized share capital base of company and he same is allowed being capital in nature and added to the taxable income of the assessee company."
Thus the AO has disallowed the expenditure to the tune of Rs. 8,71,641/- being incurred for the purpose of increase in authorized share capital of the assessee by treating the same as capital in nature in view of the decision of Hon'ble Supreme Court in the case of Brooke Bond (India) Ltd. vs. CIT (supra) as well as Punjab State Industrial Development Corporation Ltd. vs. CIT (supra). The ld. CIT (A) allowed the claim of the assessee in para 2.3 as under :-
" 2.3. I have perused the facts of the case, the assessment order and the submissions of the appellant. In this year, the assessee has increased its authorized share capital from Rs. 12 crores to 20 crores to enable it to issues bonus share. For this purpose, it has incurred expenditure on account of fees paid to ROC of Rs. 8,00,500/- and fees paid to NSDL and CDSL of Rs. 71,141/-. The above expenditure has been held to be capit4al expenditure by the Assessing Officer and has been disallowed. It has been stated by the appellant that expenditure incurred for increasing the authorized share capital on account of issue of bonus shares is revenue in nature in view of the judgement of the Apex Court in the case of CIT vs. General Insurance corporation (2006) 156 Taxman 96 (SC). This contention of the appellant is correct because issue of bonus shares does not result in any inflow of fresh 8 ITA No. 58/JP/2015 and CO No. 40/JP/2017. M/s. Compucom Software Limited, Jaipur.
funds or increase in the capital employed. Issue of bonus shares is merely a reallocation of the company's funds by capitalization of reserves and does not lead to any benefit of enduring nature. Therefore, in view of the above judgment of the Apex Court, this expenditure is held to be revenue in nature and allowable. The case laws cited by the Assessing Officer are not relevant to the facts of this issue since they do not deal with increase in the authorized share capital on account of issue of bonus shares. Hence, the addition made by the Assessing Officer is directed to be deleted. This ground is allowed."
The question arises whether the decision of Hon'ble Supreme Court in the case of CIT vs. General Insurance Corporation (supra) covers the expenditure incurred for increase in the authorized share capital or the said decision is confined only on the issue of expenditure incurred in respect of issue of bonus shares. The question of law framed in the said case has been reproduced by the Hon'ble Supreme Court in para 1 as under :-
" Whether on the facts and in the circumstances of the case and in law the Tribunal was right in holding that the expenditure incurred on account of share issue is allowable expenditure ?
The Hon'ble Supreme Court has further noted the fact that the assessee in the said case incurred expenditure separately on account of increase in authorized share capital and the issue of bonus share. Further, the Hon'ble Supreme Court has noted the relevant facts in para 3 to 7 as under :-9 ITA No. 58/JP/2015 and CO No. 40/JP/2017.
M/s. Compucom Software Limited, Jaipur.
"3. The Assessing Officer disallowed both the items of expenditure as revenue expenditure. According to him, the expenses incurred were towards a capital asset of a durable nature for the acquisition of a capital asset and, therefore, the expenses could only be attributable towards the capital expenditure.
4. The assessee being aggrieved filed an appeal under section 143(3) before the CIT (Appeals). Disallowance of Rs. 1,04,28,500 in respect of stamp duty and registration fees incurred in connection with the increase in the authorized share capital were bifurcated by the CIT (Appeals) into two categories, one relating to the increase in authorized share capital from Rs. 75 crores to Rs. 250 crores and second relating to issue of bonus shares. In respect of the first category of expenditure it was held that the same was not allowable in terms of the judgments of the Bombay High Court in the case of Bombay Burmah Trading Corporation Ltd. V. CIT [1984] 145 ITR 793 and Richardson Hindustan Ltd. V. CIT [1988] 169 ITR 516. The expenditure falling under second category was allowed as revenue expenditure being directly covered by the decision in Bombay Burmah Trading Corpn. Ltd.'s case (supra).
5. The revenue being aggrieved challenged the order passed by the CIT (Appeals) before the Income Tax Appellate Tribunal ('the Tribunal'). The Tribunal upheld the decision of the CIT (Appeals) treating the expenses incurred towards the issue of bonus shares as revenue expenditure by observing inter alia as under :
"We have carefully considered the rival submissions. The basis for the judgment by Hon'ble Supreme Court in the case of Brooke Bond India Ltd. V. CIT, [1997] 225 ITR 798, has been that the expenditure was connected with the expansion of the capital base of the company and therefore such expenditure was capital expenditure. However, in the case of issue of bonus shares there does not take place an expansion of the capital base of the company but only reallocation of the existing funds. We, therefore, hold that the Learned CIT (Appeal) rightly decided this issue in favour of the assessee. This ground of appeal is therefore rejected."
6. The revenue thereafter filed an appeal under section 260A of the Income-tax Act ("the Act") before the High Court of Bombay, raising two questions of law. The High Court in its judgment has affirmed the Tribunal's judgment by following its earlier decision in the case of Bombay Burmah Trading Corporation Ltd. Case (supra). This court granted leave qua the question of law as reproduced in para 1 of this judgment.
7. On the question, as to whether the expenses incurred in connection with the issue of bonus shares is a revenue expenditure or a capital expenditure, there is a conflict of opinion between the High Courts of Bombay and Calcutta on the one hand and Gujarat and Andhra Pradesh on the other. Bombay and Calcutta High Courts have taken the view that the expenses incurred in connection with the issue of bonus shares is a revenue expenditure whereas Gujarat and Andhra Pradesh High Courts have taken the view that the expenses incurred in connection with the bonus shares is in the nature of capital expenditure."
10ITA No. 58/JP/2015 and CO No. 40/JP/2017.
M/s. Compucom Software Limited, Jaipur.
Thus it is clear that in case of GIC the AO disallowed the entire expenditure incurred by the assessee for increase of authorized share capital as well as for issue of bonus share. On appeal, the ld. CIT (A) bifurcated the expenditure into two categories - one related to the increase in authorized share capital and second relating to issue of bonus share. The ld. CIT (A) in the said case held that the expenditure in respect of authorized share capital was not allowable in terms of judgment of Hon'ble Bombay High Court in the case of Bombay Burmah Trading Corporation Ltd. vs. CIT, 145 ITR 793 (Bombay) as well as in the case of Richardson Hindustan Ltd. vs. CIT, 169 ITR 516 (Bombay). The expenditure falling under the second category being for issue of bonus share was allowed by the ld. CIT (A) as revenue expenditure being directly covered by the decision of the Hon'ble Bombay High Court in the case of Bombay Burmah Trading Corporation Ltd. (supra). Aggrieved by the order of the ld. CIT (A), the revenue filed appeal before the Tribunal and the Tribunal upheld the decision of ld. CIT (A) treating the expenditure incurred towards the issue of bonus share as revenue expenditure. Therefore, the issue before the Tribunal as well as before the Hon'ble High Court and Hon'ble Supreme Court in case of CIT vs. General Insurance Corporation (supra) was only the expenditure incurred for issuance of bonus share. As far as expenditure incurred for increase in authorized share capital, the same had attained finality at the level of ld. CIT (A) as the assessee did not challenge the decision of the ld. CIT (A) before the Tribunal. Hence the decision in the case of CIT vs. General Insurance Corporation (supra) is confined only in respect of expenditure incurred in connection with issuance of bonus share. The issue of allowability of the expenditure for increase in authorized capital was dealt with by 11 ITA No. 58/JP/2015 and CO No. 40/JP/2017. M/s. Compucom Software Limited, Jaipur.
the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. vs. CIT (supra). The question of law referred for decision has been reproduced by the Hon'ble Supreme Court in para 1 as under :-
" Whether, in the facts and circumstances of the case, the Tribunal was right in law in holding that the amount of Rs. 1,50,000 paid to the Registrar of Companies, as filing fee for enhancement of capital, was not revenue expenditure ?
And the Hon'ble Supreme Court has held in para 7 as under :-
"7. We do not consider it necessary to examine all the decisions in 11xtensor 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 the preferable view as compared to the view based on the decision of the Madras High Court in Kisenchand Chellaram (India) (P.) Ltd.'s case (supra) . We, therefore, answer the question raised for our determination in the affirmative, i.e., in favour of the revenue and against the assessee."
The said decision of Hon'ble Supreme Court still holds the field as it was followed by the Hon'ble Supreme Court in case of Brooke Bond (India) Ltd. vs. CIT (supra) in para 4 to 6 as under :-
"4. We find that this matter has come up for consideration before this Court in Punjab State Industrial Development Corpn. Ltd v. CIT [Tax Reference No. 1 of 1990, dated 4-12-1996]. In that case, the question under consideration was whether an amount of Rs. 1,50,000 paid to the Registrar of Companies as filing fee for enhancement of capital was not the revenue expenditure. The Court has taken note of the decisions of the Madras, Andhra Pradesh, Karnataka and Kerala High Courts to which reference has been made by Dr. 12 ITA No. 58/JP/2015 and CO No. 40/JP/2017. M/s. Compucom Software Limited, Jaipur.
Pal as well as the judgment under challenge in this appeal and the judgment of the High Courts taking the same views that taken in the impugned judgment. This Court has also taken note of the decisions in Empire Jute Co. Ltd. S case (supra)as well as India Cements Ltd.'s case (supra). While holding that the amount of Rs. 1,50,000 paid to the Registrar of Companies as filing fee for enhancement of the capital was not the revenue expenditure, this Court has said :
"We do not consider it necessary to examine all the decisions in 12xtensor 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 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 attention to the submissions that were urged by the learned counsel for the assessee before the AAC as well as before the Tribunal. It is no doubt true that before the AAC as well as before the Tribunal it was submitted on behalf of the assessee that increase in the capital was to meet the need for working funds for the assessee- company. But the statement of case sent by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of the capital was under
taken by the assessee in order to meet the need for more working funds for the assessee. We, therefore, cannot proceed on the basis that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for working funds for the assessee to carry on its business. In any event, the above quoted observations of this Court in Punjab State Industrial Development Corpn. Ltd. 's case (supra)clearly indicate that though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and may also help in the profit making, the expenses incurred in that connection still retain the character of a capital expenditure since the expenditure is directly related to the expansion of the capital base of the company."13 ITA No. 58/JP/2015 and CO No. 40/JP/2017.
M/s. Compucom Software Limited, Jaipur.
As regards the decision of Hon'ble Bombay High Court in the case of CIT vs. Tata Chemicals Ltd. (supra), we find that the Hon'ble High Court has held in para 4 as under :-
"4. Re. Question (2)
(a) We find that the impugned order of the Tribunal has allowed the Respondent Assessee's appeal before it by following the decision of the Apex Court in the case of CIT v. General Insurance Corpn. [2006] 286 ITR 232/156 Taxman 96. The issue arising herein is with regard to the nature of expenditure incurred in connection with issuance of bonus shares, is it capital or revenue expenditure. The Revenue contends that the same cannot be allowed as revenue expenditure as it is capital expenditure.
(b) This very issue arose for consideration before the Apex Court in General Insurance Corpn. (supra), wherein the Court held that in case of issue of bonus shares, there is no increase in capital structure of the respondent-assessee before it. It does not give rise to any inflow of fresh funds as the capital employed continues to remain the same. Nor is there any benefit of enduring nature received on issue of bonus shares.
Therefore, the expenses incurred for issue of bonus shares are to be allowed as revenue expenditure.
© Mr. Suresh Kumar, learned Counsel appearing for the Revenue, contends that expenditure incurred for issuance of shares would be capital in nature as held by the Supreme Court in Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798/91 Taxman 26. This case was considered by the Apex Court in General Insurance Corpn's (supra) and held to be inapplicable in case of expenditure incurred for issue of bonus shares. Brooke Bond India Ltd.'s (supra) was not a case of issue of bonus shares but issue of fresh shares which resulted in expansion of the capital base of the Assessee. As the expenditure was related to expansion of capital base resulting in an enduring benefit, the expenditure also had to be considered to be capital in nature.
(d) In view of the issue being covered by the Apex Court decision in General Insurance Corpn's (supra), the question as raised does not give rise to any substantial question of law. Therefore, not entertained."
14ITA No. 58/JP/2015 and CO No. 40/JP/2017.
M/s. Compucom Software Limited, Jaipur.
Thus the issue which was considered by the Hon'ble Bombay High Court in case of Tata Chemical Ltd. (supra) is regarding the expenditure for issue of bonus share and there was no increase in capital structure of the assessee company and accordingly by following the decision of Hon'ble Supreme Court in the case of CIT vs. General Insurance Corporation (supra) the decision of the Tribunal was upheld. Accordingly, in view of the decision of the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation vs. CIT (supra) as well as Brooke Bond (India) Ltd. vs. CIT (supra) and further the decisions of Hon'ble Bombay High Court in the case of Bombay Burmah Trading Corporation vs. CIT (supra) as well as Richardson Hindustan Ltd. vs. CIT (supra), the expenditure incurred for increase in authorized share capital of the assessee company is not an allowable revenue expenditure. Hence we set aside the impugned order of ld. CIT (A) and restore the order of the A.O. Ground No. 2 is regarding disallowance made by the AO on account of depositing employees' contribution to PF & ESI beyond the prescribed time limit provided in the respective Acts which was allowed by the ld. CIT (A) on the ground that the payment was made before the due date of filing of the return of income.
5. We have heard the ld. D/R and carefully perused the relevant material on record. At the outset, we note that this issue is covered by the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. State Bank of Bikaner & Jaipur, 363 ITR 70 (Raj.) as well as the decision in the case of CIT vs. Jaipur Vidhyut Vithran Nigam Ltd., 363 ITR 307 (Raj.). In view of the above binding precedent of Hon'ble 15 ITA No. 58/JP/2015 and CO No. 40/JP/2017. M/s. Compucom Software Limited, Jaipur.
Jurisdictional High Court, we do not find any error or illegality in the impugned order of ld. CIT (A).
Ground No. 3 is regarding disallowance made by the AO under section 14A of Rs. 18,83,734/- which was deleted by the ld. CIT (A).
6. We have heard rival submissions of the ld. D/R as well as the ld. A/R and considered the relevant material on record. The assessee made self-disallowance of Rs. 3,56,157/- under section 14A of the IT Act. The AO noted that the assessee has incurred net interest expenditure of Rs. 3,50,65,426/- and proportionately made a disallowance of Rs. 18,33,036/- on account of interest expenditure under section 14A. As regards the disallowance made on account of indirect administrative expenditure, we find that there is no much difference in the disallowance worked out by the AO under Rule 8D being .5% of average investment and the self-disallowance made by the assessee. Therefore, the only grievance of the assessee was regarding the disallowance made by the AO under section 14A on account of interest expenditure. The ld. CIT (A) has deleted the said addition made by the AO under section 14A by considering the fact that the assessee's own interest free funds are more than sufficient to make the investment. The relevant finding of the ld. CIT (A) on this issue are in para 5.4.1 to 5.4.4 as under :-
" 5.4.1. The appellant has stated that it had sufficient interest free funds to the tune of Rs. 75.67 crores on account of share capital and reserves and surplus, at the beginning of the year as against investment of only Rs. 7.92 crore, income from which is exempted. It has stated that no interest disallowance can be made when interest free funds exceed the investments in tax free securities in view of the 16 ITA No. 58/JP/2015 and CO No. 40/JP/2017. M/s. Compucom Software Limited, Jaipur.
decision of the Bombay High Court in the case of CIT vs. HDFC Bank Ltd. (Income Tax Appeal No. 330 of 2012, dated 23.07.2012) in which the decision in the case of Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom) has been followed.
5.4.2. I have perused the judgment in the case of CIT vs. HDFC Bank Ltd. which is applicable to the facts of this case. Para 5 of this order is reproduced as under :-
" We find that the facts of the present case are squarely covered by the judgment in the case of Reliance Utilities and Power Ltd. (supra). The finding of fact given by the ITAT in the present case is that the Assessee's own funds and other non- interest bearing funds were more than the investment in the tax-free securities. This factual position is not one that is disputed. In the present case, undisputedly the Assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in the tax-free securities. In view of this factual position, as per the judgment of this Court in the case of Reliance Utilities and Power Ltd. (supra), it would have to be presumed that the investment made by the Assessee would be out of the interest-free funds available with the Assessee. We therefore, are unable to agree with the submission of Mr. Suresh Kumar that the Tribunal had erred in dismissing the Appeal of the Revenue on this ground. We do not find that question (A) gives rise to any substantial question of law and is therefore, rejected."
5.4.3. In this case also, the interest free funds available with the appellant are much greater than the investment in tax free investments. The Assessisng Officer has not established any nexus between interest bearing funds and its investment in assets, whose income is exempted. Therefore, in view of the above judgment, it would have to be presumed that the investment made by the assessee is out of interest free funds available with it. Hence, the disallowance of interest expenses of Rs. 18,33,036/- under Rule 8D(2)(ii), is directed to be deleted. This ground is allowed.
17ITA No. 58/JP/2015 and CO No. 40/JP/2017.
M/s. Compucom Software Limited, Jaipur.
5.4.4. As regards, the disallowance of half percent of the average value of tax free investments, it is not possible that no expenditure would be incurred in relation to such investments. Therefore, the disallowance of expenditure of Rs. 3,66,854/- under Rule 8D(2)(iii) made in the return of income, has been correctly made."
We further noted that during the year under consideration there is an increase in the investment of about Rs. 1,15,00,000/- whereas the assessee's own funds which includes share capital and reserve and surplus has increased from Rs. 7,27,00,000/- to Rs. 9,30,00,000/-. Therefore, the increase in the assessee's own funds is more than the investment made during the year under consideration. The AO has not made any disallowance on account of interest expenditure in the earlier assessment year, therefore, in view of the facts and circumstances of the case when the assessee's own funds is more than sufficient to make the investment during the year or even the entire investment then the disallowance made by the AO on account of interest expenditure is not justified. Hence we do not find any error or illegality in the order of the ld. CIT (A) qua this issue.
Ground No. 4 is regarding disallowance made by the AO on account of loan processing fee which was deleted by ld. CIT (A).
7. We have heard the ld. D/R as well as the ld. A/R and considered the relevant material on record. The AO found that the assessee has incurred an expenditure of Rs. 2,15,000/- on account of loan processing charges which was taken for financing the equipments. Accordingly, the AO held that the said expenditure is not allowable being capital in nature. On appeal, the ld. CIT (A) has deleted the said disallowance 18 ITA No. 58/JP/2015 and CO No. 40/JP/2017. M/s. Compucom Software Limited, Jaipur.
made by the AO by holding the same as revenue in nature. The relevant finding of the ld. CIT (A) is in para 6.3 as under :-
" 6.3. I have perused the facts of the case, the assessment order and the submissions of the appellant. The settled legal position is that front end fees for obtaining a loan (in the nature of processing fees) is a condition precedent for obtaining a loan and has been held to be revenue in nature irrespective of the purpose for which the loan has been taken. Reliance is placed on -
(i) India Cements Ltd. vs. Commissioner of Income Tax (1966) 60 ITR 52 (SC)
(ii) Deputy Commissioner of Income-tax, Baroda vs. Gujarat alkalies & Chemicals Ltd. (2008) 299 ITR 85 (SC)
(iii) Commissioner of Income Tax vs. Super Spinning Mills Ltd.
(2008) 296 itr 168 (Mad.)
(iv) CIT vs. Sh. Meenaxi Mills Ltd. (2007) 290 ITR 107 (Mad.) In view of the above discussion, it is held that the above expenditure is revenue in nature and is allowable. The Assessing Officer is directed to delete the above addition. This ground is allowed."
It is pertinent to note that the AO has not questioned the claim of interest on the said loan taken for financing the equipments. Therefore, when the interest expenditure on the said loan is allowed by the AO then the processing fee of the loan taken for acquiring the equipments cannot be disallowed by treating the same as capital in nature. Accordingly, when the asset acquired by the assessee from the said loan is put to use for business purposes then we do not find any error or illegality in the order of ld. CIT (A) qua this issue.
19ITA No. 58/JP/2015 and CO No. 40/JP/2017.
M/s. Compucom Software Limited, Jaipur.
C.O. No. 40/JP/2017 :
8. The assessee has filed the Cross Objection belated by 1039 days. The assessee has filed an application for condonation of delay and explained the cause of delay as the Tax Practitioner of the assessee has advised the assessee to file the objections. It is transpired from the record that the appeal of the revenue was filed on 19th January, 2015 and thereafter it was dismissed by the Tribunal vide order dated 18th December, 2015 on the ground of Low Tax Effect. Subsequently, the said order of the Tribunal was recalled in M.A. No. 79/JP/2017 filed by the revenue vide order dated 11th July, 2017. After the said order dated 18th December, 2015 was recalled by the subsequent order in M.A, the assessee has filed the present Cross Objection and, therefore, the delay in filing the Cross Objection has to be counted by excluding the time period from 18th December, 2015 till 11th July, 2017. Therefore, the assessee has explained that the actual delay in filing the Cross Objection is only 132 days and not 1039 days. Having regard to the facts and circumstances of the case that initially the appeal of the revenue was dismissed by the Tribunal on the ground of Low Tax Effect and without the appearance of the assessee, therefore, after recalling of the said order the assessee has filed the present Cross Objection which was belated by 132 days for which the assessee has explained the sufficient cause. Since the appeal of the revenue has to be decided on merits, therefore, no prejudice would be caused to the revenue if the cross objection of the assessee is also considered and adjudicated on merits. Accordingly, we condone the delay of 132 days in filing the cross objection of the assessee.
20ITA No. 58/JP/2015 and CO No. 40/JP/2017.
M/s. Compucom Software Limited, Jaipur.
On merits :
9. The assessee has raised the following grounds :-
" (1) In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the action of ld. AO in disallowing a sum of Rs. 37,16,620/- incurred by the assessee company towards its Corporate Social Responsibility. The action of ld.
CIT (A) is illegal, unjustified, and arbitrary against the facts of the case. Relief may please be granted by quashing the disallowance.
(2) The assessee craves its rights to add, amend or alter any of the grounds on or before the hearing.
The only issue in the Cross Objection is regarding disallowance of Corporate Social Responsibility of expenditure.
10. During the course of hearing, the ld. A/R of the assessee has submitted that the assessee is pressing the issue only in respect of the expenditure of Rs. 7,16,620/- out of the total claim of Rs. 37,16,620/-. The ld. A/R has submitted that the assessee has been providing the services to the State Government of Rajasthan as Computer Education in the Government schools. The assessee under the Agreement with the Government has to provide Computer education through Mobile Vans/Labs under the Public Private Partnership basis. The expenses of Rs. 7,03,003/- and Rs. 31,517/- are relating to the buses/project which are fitted with computers and peripherals as mobile lab for providing the computer education to the Government schools. The ld. A/R has referred to the MOU dated 4.8.2008 and submitted that as per the said MOU with the State Government, the assessee is under obligation to provide the mobile van/computer and other peripherals for computer education to the students of the Government schools. Therefore, the 21 ITA No. 58/JP/2015 and CO No. 40/JP/2017. M/s. Compucom Software Limited, Jaipur.
object of the project is to benefit more than 7,000 students of Government schools for which the assessee has incurred expenditure under Corporate Social Responsibility (CSR). The ld. A/R has further contended that though the assessee has claimed this expenditure under CSR, however, the expenditures were incurred in respect of the regular business activity of the assessee as the assessee is providing Mobile Bus and its running and maintenance expenditure are borne by the assessee which is allowable under section 37(1) of the Act. Hence, the ld. A/R has submitted that the said expenditure to the extent of Rs. 7,16,620/- is an allowable claim of assessee.
10.1. On the other hand, the ld. D/R has submitted that the assessee has claimed the expenditure under the head CSR Expenses which is not allowable for the assessment year under consideration as it is an application of income and not an expenditure incurred for earning the income. She has referred to the provisions of section 37 and submitted that the Explanation 2 to section 37(1) has been inserted by Finance Act, 2014 with effect from 1.4.2015 and, therefore, the said expenditure on CSR is not allowable for the year under consideration. She has relied on the orders of the authorities below.
11. We have considered the rival submissions as well as the relevant material on record. The AO and the ld. CIT (A) have rejected the claim of the assessee on the ground that the expenditure under CSR is not an allowable deduction as per the provisions of law. However, if the said expenditure though claimed under CSR has a direct nexus to the regular business activity of the assessee then the same would be an allowable expenditure under section 37(1). In the case in hand, the assessee has 22 ITA No. 58/JP/2015 and CO No. 40/JP/2017. M/s. Compucom Software Limited, Jaipur.
filed the Memorandum of Understanding dated 4.8.2008 under which the assessee is under obligation to provide the facilities of Mobile Van/Lab fitted with Computer and other peripherals for the purpose of education to the students of Government schools. Since this MOU has not been considered and examined by the authorities below and further the direct nexus of the expenditure was also not examined by the AO as well as by the ld. CIT (A), therefore, in the facts and circumstances of the case, we set aside this issue of allowability of the expenditure of Rs. 7,16,620/- incurred by the assessee in respect of Mobile Van/Lab for the purpose of providing Computer education to the students of Government schools. The issue is restored to the record of the AO for proper examination and adjudication of the same. Needless to say that the assessee be given proper opportunity of hearing.
12. In the result, appeal of the revenue is partly allowed and cross objection of the assessee assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 09/05/2018.
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23
ITA No. 58/JP/2015 and CO No. 40/JP/2017.
M/s. Compucom Software Limited, Jaipur.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The DCIT, Circle-6, Jaipur.
2. izR;FkhZ@ The Respondent-M/s. Compucom Software Ltd., Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File {ITA No. 58/JP/2015 & CO No. 40/JP/17} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar