Road Infrastructure Development Company of
Rajasthan Ltd. v. ACIT [ITA Nos. 668 to 670/JP/2019, dt. 31-7-2020] : 2020
TaxPub(DT) 3025 (Jp.-Trib.)
1. Alternate claim of expenditure incurred to increase
authorised capital under section 35D instead of section 37(1).
2. Allowability of legal and professional expenses for an
aborted IPO.
Facts:
Assessee in the infrastructure business of building roads
raised two appellate issues before ITAT --
1. Expenditure to increase
authorised capital for a planned IPO is an allowable expense. This was negated
by assessing officer/Commissioner (Appeals) holding it to be a capital
expenditure. It was the assessee's claim that if the expenditure could not be
allowed under section 37(1) then it be considered under section 35D as the same
was manifested for building new road projects.
2. Professional and legal fees
paid for the IPO be allowed as an expenditure as the said idea of IPO itself
was shelved thereby it becoming infructuous expenditure.
Held in favour of the assessee on both points --
1. The alternate claim under
section 35D be considered in lieu of section 37 for expense in connection with
increasing authorised capital.
2. The legal and professional
expense for the shelved IPO is an allowable expenditure under section 37.
Editorial Note: The
verdict discusses a catena of decisions on disallowance of expenditure incurred
for increasing authorised capital including the landmark decisions of Brooke
Bond (1997) 225 ITR 798 (SC) : 1997 TaxPub(DT) 1116 (SC) and Punjab
State Industrial Development Corporation (1997) 93 Taxman 5 (SC) : 1997
TaxPub(DT) 0919 (SC). It also brings forth the fact that certain
expenditure under section 35D are allowable though they are capital or have
been held as capital expenditure in nature elsewhere in the tax law. Even the
legal and professional expenditure of the shelved IPO would deserve
consideration under section 35D it not under section 37 especially prima facie
it being infructuous in nature. Expenditure for an aborted IPO is an allowable
expense is no longer res integra as held in Nimbus Communications
Ltd. v. ACIT [ITA No. 2361 (Mum) of 2007, dated 28-1-2010] : 2010 TaxPub(DT)
1393 (Mum-Trib) subsequently upheld by Bombay High Court in ITA No.
4244/2010, dated 8-12-2011.