The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) upheld the Assessing Officer’s (AO) decision to classify the filing fee for an increase in authorized share capital as revenue expenditure.
Vmobi Solutions Pvt. Ltd., the assessee incurred a filing fee of Rs. 22,10,336 for increasing its authorized share capital during the assessment year 2017-18. The capital was raised to meet the company’s working capital needs.
During the original assessment proceedings, the company claimed the filing fee as a revenue expenditure. The Assessing Officer (AO) accepted the claim stating that the increased capital was used for operational purposes, making the expense ordinary and recurring in nature.
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However, the Principal Commissioner of Income Tax (PCIT) issued a revision order under Section 263 of the Income Tax Act, arguing that the filing fee should have been classified as capital expenditure and claimed the AO’s order was erroneous and prejudicial to the revenue.
The assessee challenged the PCIT’s revision before the ITAT arguing that the filing fee was a revenue expense since the capital raised was for business operations, not for acquiring long-term capital assets. The counsel also pointed out that the AO had properly assessed the situation.
On the contrary, the revenue argued that the PCIT’s revision order was justified as it was based on an audit objection and supported by the CBDT circular dated 16.02.2023 which mandates corrective action in such cases.
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The two-member bench comprising Pavan Kumar Gadale ( Judicial Member) and Renu Jauhri (Accountant Member) observed that the AO had already examined the issue of the filing fee related to the share capital and had classified it as revenue expenditure after sufficient inquiry.
The tribunal noted precedent cases of the Mumbai Tribunal in Navi Mumbai SEZ Private Ltd., where similar expenses were treated as revenue expenditures. Therefore, the tribunal upheld AO’s decision and the assessee’s appeal was allowed.
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