Assessee's Appeal Dismissed: Fees for Share Capital Increase as Capital Expenditure

The appeal by the Assessee challenging the disallowance of fees paid to the Registrar of Companies for the increase in share capital was dismissed. The Tribunal upheld the decision that such fees constitute capital expenditure based on the precedent set by the Supreme Court. Despite arguments questioning the appropriateness of the proceedings under section 154 of the Income Tax Act, the Tribunal found them justified due to the clear legal position established by the Supreme Court. Consequently, the disallowance of the fees as capital expenditure was affirmed, and the appeal was dismissed.

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Issues:
Assessment of fees paid to Registrar of Companies (ROC) for increase in share capital as capital expenditure and disallowance under section 154 of the Income Tax Act, 1961.

Analysis:
The appeal was filed by the assessee against the order passed by the Ld. CIT(A), Bangalore pertaining to the assessment year 2014-15. The assessee, a company, had paid fees to the ROC for an amount of Rs. 5,03,000 towards an increase in share capital during the relevant previous year. Initially, in the assessment completed under section 143(3) of the Income Tax Act, 1961, the Assessing Officer (AO) did not disallow the claim for deduction on account of fees paid to the ROC. However, based on the decision of the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. vs CIT, it was established that fees paid to the ROC for an increase in share capital should be treated as capital expenditure and not allowed as a deduction.

Subsequently, the AO, realizing the oversight in not disallowing the ROC filing fees in the initial assessment, initiated proceedings under section 154 of the Act. By an order dated 26-10-2018, the AO disallowed the ROC filing fees and added the disallowed sum to the income assessed under section 143(3) of the IT Act, 1961. Upon appeal by the assessee, the Ld. CIT(A) upheld the decision of the Assessing Officer.

During the proceedings before the Appellate Tribunal, the counsel for the assessee did not contest the capital nature of the expenditure but argued that the issue was debatable, questioning the appropriateness of proceedings under section 154 of the Act. However, the Tribunal found the submissions lacking merit. It was emphasized that the decision of the Hon'ble Supreme Court in the Punjab State Industrial Development Corporation Ltd. case had definitively established the nature of fees paid to ROC for share capital expansion as capital expenditure. The Tribunal noted that the AO had overlooked the disallowance of these fees during the initial assessment, justifying the initiation of proceedings under section 154. The Tribunal clarified that if the ultimate answer to a question is unequivocal, even if the issue is debatable, proceedings under section 154 can be initiated. Given the settled legal position by the Supreme Court, the Tribunal concluded that there was no merit in the appeal and accordingly dismissed it.

In conclusion, the appeal by the Assessee was dismissed, affirming the disallowance of fees paid to the ROC for the increase in share capital as capital expenditure in accordance with the decision of the Hon'ble Supreme Court.

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