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Tax Publishers 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.

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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.