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Expenses incurred for Buy-Back of Shares amount to ‘Revenue Expenditure’: ITAT [Read Order]

ITAT - expenses - Buy Back Shares - Revenue Expenditure - Taxscan

The Income Tax Appellate Tribunal (ITAT), Bangalore bench has recently held that the expenses incurred by the Company for the buy-back of shares would amount to “revenue expenditure” for the purpose of the Income Tax Act, 1961.

The Assessing Officer noted that during the relevant assessment year, the assessee had spent a sum of Rs.8,90,961 on buy-back of shares and debited the same to Profit & Loss account. He noted that the expenditure was disallowed by the AO in his draft assessment order holding the same to be capital expenditure.

During the proceedings, DRP upheld that the face value of shares bought back is reduced from the paid up capital and the surplus (premium) is debited to reserves such as securities premium account or other reserves (other than revaluation reserve). according to the order of the DRP, these provisions do not permit debiting the amount paid to profit and loss account for the year and therefore, there is no infirmity in the order of the AO and the objection of the assessee is not accepted.”

Before the Tribunal, the assessee submitted that the issue in question is decided in favour of assessee by the judgment of the Karnataka High Court in the case of CIT v. Motor Industries Co. Ltd.

Allowing the submission, the Tribunal held that “in view of the judgment of the Hon’ble High Court of Karnataka in the case of CIT v. Motor Industries Co. Ltd. (supra), we hold that the expenses incurred by the assessee for buy-back of shares amounting to RS.8,90,961 are allowed as revenue expenditure. It is ordered accordingly.”

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