The Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) in DCIT v. M/s. Mercury Projects held that the amount paid to ROC for the enhancement of authorized share capital is not deductible from the total income under the provisions of the Income Tax Act,1961.
Assessee- company engaged in the business of supply and trading of construction material, construction machinery and other goods for infrastructure, real estate and power sector, paid a sum of Rs.1,11,02,000 to the Registrar of Companies towards increase in authorized capital and has debited the same to the P&L A/c. The assessee has amortized the said expenditure and has claimed 1/5th of the same as the deduction under Section 35D of the Income Tax Act. However, the department rejected the claim and held that the expenditure is capital in nature.
On appeal, the Commissioner of Income Tax (Appeals) granted relief to the assessee. Against the first appellate order, the Revenue approached the Tribunal.
The department relied on the decision of the Supreme Court in various cases.
Allowing the department’s contentions, the bench noted that the Supreme Court in the cases cited by the DR has held that the expenditure incurred for the increase in the authorized share capital, is capital in nature.
Allowing the appeal by the department, the bench held that “From the facts of the case before us, we find that undisputedly, the amount paid by the assessee to ROC for enhancement of the authorized share capital is capital in nature. The Hon’ble Supreme Court was considering the nature of such expenditure in the cases of Brooke Bond India Ltd as well as Punjab State Industrial Development Corporation (Supra) and their allowability under Section 37(1) of the Income Tax Act. The question before us is the amortization of such expenditure and allowability of 1/5th thereof during the relevant A.Y under Section 35D of the Income Tax Act.”Subscribe Taxscan AdFree to view the Judgment