Indian Kanoon - Search engine for Indian Law

4. Aggrieved by the assessment order, the assessee preferred appeal before the learned CIT(A). Before the learned CIT(A), the assessee challenged the disallowance of ROC fee made by the Assessing Officer contending, inter alia, that, the said ROC fee paid to the Registrar of Companies towards increase in authorized share capital of the Company and, therefore, it is a revenue expenditure as per provisions of sec.37(1) of the Act and as per the provisions of sec.35D of the Act stating that in 5 years i.e., 1/5th of the same is allowable in the current year. The learned CIT(A) after considering the submissions of the assessee, relevant provisions of the Act as well as the decisions relied by the assessee, held that, when the conditions u/sec.35D(1) and (2) are not satisfied, the fee paid to ROC is not an allowable expenditure. Further, the assessee has neither contended nor proved that, the fee paid to the ROC is in connection with the extension of the undertaking or in setting- up of a new industrial unit. Therefore, the learned CIT(A) held that, the ROC fee is not an allowable expenditure u/sec.35D of the Act and dismissed the appeal of the assessee.

ITA.Nos.443, 516, 517 & 518 /Hyd./2022 And C.O.Nos.19, 20 & 21/Hyd./2025

5. Aggrieved by the Order of the learned CIT(A), the assessee is now, in appeal before the Tribunal.

6. CA, P. Murali Mohan Rao, Learned Counsel for the Assessee submitted that, the Assessing Officer was erred in disallowing ROC fee amounting to Rs.9,38,000/- which is an allowable expenditure as per the provisions of sec.37(1) of the Act. The learned CIT(A) also without considering the submissions of the assessee, sustained the addition made by the Assessing Officer. He submitted that, the assessee company has paid the sum of Rs.9,38,000/- to the Registrar of Companies for the purpose of increase in the authorized share capital, which is expended wholly and exclusively for the purpose of the business and, therefore, the said expenditure has to be allowed. He further submitted that, the fee is paid to ROC to facilitate the assessee's business operations and to enable it to carry-out it's business more efficiently and profitably and, therefore, it is allowable as revenue expenditure as per the provisions of u/sec.37(1) of the Act. In support of this contention, the Learned Counsel for the Assessee relied on the decision of Coordinate Bench of ITAT, Hyderabad in the case of Madhucon Toll Highways Ltd., Hyderabad vs., ACIT, Circle-16(2), Hyderabad in ITA.No.1487/Hyd./2018 and ITA.No.2100/Hyd./2017, dated 13.04.2022; Order of ITAT, Mumbai in the case of Navi Mumbai SEZ (P.) Ltd., vs., ACIT 54 taxmann.com 259 (Mum.Tribu.); Order of ITAT, Jaipur in the case of Bhatia Corporation Pvt. Ltd., vs., ACIT in ITA.No. 1044/JP/2017, dated 23.02.2018 and Order ITA.Nos.443, 516, 517 & 518 /Hyd./2022 And C.O.Nos.19, 20 & 21/Hyd./2025 of ITAT, Delhi Bench in the case of Haryana Jewellers Pvt. Ltd., vs., ITO in ITA.No.2315/Del./2018, dated 10.09.2018.

7. Sri Madan Mohan Meena, learned Sr. AR for the Revenue, on the other hand, strongly relied on the order of the learned CIT(A) and submitted that, the fee paid by the assessee company to ROC is related to the capital expenditure incurred by the company, though, incidentally it would help in the business of the company, but, still it retains the character of 'capital expenditure'. He submitted that, the learned CIT(A) has also considered the expenditure as capital expenditure by following Judgment of Hon'ble Supreme Court in the case of M/s. Punjab State Industrial Development Corpn. Ltd., vs., CIT 225 ITR 792 (SC) wherein the Hon'ble Supreme Court has considered the fee paid to Registrar of Companies for expansion of the capital base of the company was directly related to the capital expenditure incurred by the company and rejected the view taken by the Hon'ble Madras High Court in the case of Kisenchand Chellaram (India) (P) Ltd., [1981] 130 ITR 385 (Madras) (HC). He further submitted that, before the learned CIT(A), the assessee contended that the ROC paid is allowable as per provisions of sec.35D of the Act in 5 years i.e., 1/5th of the same is allowable in the current year. In this behalf, the Learned Sr. AR submitted that, as per the provisions of sec.35(D) of the Act, amortization of preliminary expenses are pertains to before the commencement of the business and as per provisions of sec.35D(1)(i) and 35D(i)(ii) any expenditure incurred after the commencement of it's business, in connection with extension of his undertaking or ITA.Nos.443, 516, 517 & 518 /Hyd./2022 And C.O.Nos.19, 20 & 21/Hyd./2025 in connection with his setting-up of a new unit. He submitted that, in the instant case, the assessee had already commenced it's business and, therefore, the sub-section relating to before the commencement of business is not applicable. Further, with respect to already existing business, the expenses incurred in connection with the extension of the undertaking or in connection with the setting up of a new unit, are allowable to the extent of 1/5th for the next 5 years, provided the expenses fall under sub-section (2) of Section 35D of the Act. Since, in the instant case, the assessee company has not brought out any fact on record that, the increased capital base was used for extension of the undertaking or in connection with setting up of a new unit. Therefore, the onus is on the assessee company to prove that, the increased capital base was used for setting-up of a new undertaking has not been proved that, the fee paid to the ROC is in connection with the extension of the undertaking or in setting-up of a new industrial unit, therefore, the order of the learned CIT(A) that, the ROC fee is not an allowable expenditure u/sec. 35D of the Act, should be upheld.

8. We have heard both the parties, perused the material on record and the orders of the authorities below. There is no dispute with regard to the fact that the appellant has paid fee for increasing authorized share capital of the company for an amount of Rs. 9,38,000/- and claimed deduction under Section 37(1) of the Income Tax Act, on the ground that the said expenditure is in the nature of revenue expenditure, because increase in authorized capital of the company enhances the ITA.Nos.443, 516, 517 & 518 /Hyd./2022 And C.O.Nos.19, 20 & 21/Hyd./2025 working capital. The A.O. disallowed ROC fee on the ground that, it is in the nature of capital expenditure because any fee paid for increased authorized capital can only be allowed as deduction under Section 35D of the Act, if such increase in authorized capital is for the purpose of extension of existing business or in connection with setting up of a new unit. The A.O. took support from the decision of Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. Vs. CIT 225 ITR 792 (1997). We find that, although the assessee claims deduction towards ROC fee under Section 37(1) of the Act, but failed to file relevant evidences to prove that the said increase in authorized capital is for the purpose of working capital of the company. Further, deductions towards fee paid to ROC for increase in authorized capital of the company has been dealt with under Section 35D of the Act, and where only the said expenditure is deductible, if it is for the purpose of extension of undertaking or setting up of a new unit as held by the Hon'ble Supreme Court in the case of Brooke Bond India Ltd. Vs. CIT reported in 225 ITR 798. Since the assessee failed to prove with relevant evidences that said ROC fee paid for increase in authorized capital of the company falls under the provisions of Section 35D of the Act, the deduction claimed by the assessee cannot be allowed as deduction.