Ocimum Bio Solutions India Ltd. Vs DCIT (ITAT Hyderabad)
On perusal of the financial statements submitted by the assessee, we find that there is no doubt that the assessee has increased share capital. On perusal of the provisions of section 35D, we find substance in the written synopsis submitted by the ld. AR of the assessee relying on the judgements quoted supra that section 35D provides amortization of certain expenses, which are in the nature of capital/intangibles/preliminary expenses, which have been incurred by the assessee in the preliminary stage of the company or in the normal course of business and the assessee is entitled to amortize of expenses over a period of time as per section 35D. Therefore, the AO is directed to allow the ROC expenditure incurred towards increase of share capital as per section 35D of the IT Act, 1961.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal filed by the assessee is directed against CIT(A) – 4, Hyderabad’s order dated 28/09/2018 involving proceedings u/s 143(3) of the Income- Tax Act, 1961 ; in short “the Act.
2. Briefly the facts of the case are that the assessee company, engaged in the business of R&D and software development in life sciences, filed its return of income for the AY 2007-08 declaring NIL income, which was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and accordingly, the AO issued statutory notices to the assessee, against which, the AR of the assessee filed required information. After going through the information, the AO completed the assessment determining the assessed income of the assessee at Rs. 2,45,50,920/- by making the following expenses:
1. ROC expenses of Rs. 13,00,000/-
2. Expenses towards acquisition of subsidiary companies of Rs. 66,17,681/-
3. Carry forward loss of Rs. 16,43,939/-
3. When the assessee preferred an appeal before the CIT(A) against the order of AO, the CIT(A) partly allowed the appeal of the assessee.
4. Aggrieved by the order of the CIT(A), the assessee is in appeal before the ITAT raising 16 grounds of appeal. Ground No. 1 & 16 are general in nature, hence, need no adjudication. Ground Nos. 2 to 6 are regarding addition of Rs. 13,00,000/- towards ROC expenses. Ground Nos. 7 to 14 are regarding addition of Rs. 66,17,681 towards expenses for acquisition of subsidiary companies. Ground No. 15 is relating to the addition of Rs. 16,43,939/- towards carry forward loss.
5. As regards ground Nos. 2 to 6 regarding the addition of Rs. 13,00,000/-, during the course of assessment proceedings, the AO noticed that the assessee had paid ROC fees of Rs. 13,00,000/- and asked the assessee to furnish details in this regard. Assessee stated that the fees paid to ROC for increase in authorized share capital which is to be allowed as revenue expenditure. The contention of the assessee was rejected by the AO and added the said amount of Rs. 13,00,000/- to the income of the assessee relying on the decision of the Hon’ble Apex Court in the case of Punjab State Industrial Development Corporation Ltd. Vs. CIT, 220 ITR 792.
5.1 On appeal, the CIT(A) confirmed the addition made by the AO.
5.2 Before us, the ld. AR of the assessee has filed written synopsis in respect of ROC fees, which is as under:
“During the assessment year under reference, the assessee had paid a sum of Rs.27,50,OOOj – to the Ministry of Corporate Affairs, New Delhi towards “increase in Authorised share capital. Consequently, this amount was debited to the P & L account as allowable expenditure connected with the business activity by treating the same as revenue expenditure.
In this connection, we would like to submit that the expenditure incurred for the enhancement of authorised capital is only for the purpose of bettering or improving, an established business and cannot to be for the purpose of a new business. If the same is viewed in a business sense, the enhancement of the authorised capital is only to have better conduct, efficiency and profitability of the business.
At this juncture it is to bring to your notice that
