Tribunal decision on appeal: Fee paid allowed, interest disallowed, book profit addition rejected

The Tribunal partly allowed the appeal, accepting the grounds related to the fee paid to Registrar of Companies and Corporate Debt Restructuring expenditure. The disallowance of interest under section 43B was upheld. The addition to book profit under section 115JB towards disallowance under section 14A was rejected based on a Special Bench decision. The order was pronounced on 13th May 2022.

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Issues Involved:
1. Disallowance of fee paid to Registrar of Companies for increasing authorized share capital.
2. Disallowance of expenditure incurred for Corporate Debt Restructuring (CDR).
3. Disallowance of interest under section 43B of the Income-tax Act, 1961.
4. Addition to book profit under section 115JB towards disallowance under section 14A.

Issue-wise Detailed Analysis:

GROUND NO. 1:
This ground is general and does not require adjudication as there were no specific submissions from either side.

GROUND NO. 2:
The assessee challenged the disallowance of Rs. 1,78,98,000/- made by the Assessing Officer (AO) on account of the fee paid to the Registrar of Companies (ROC) for increasing authorized share capital. The assessee argued that the increase in authorized capital was necessitated due to the Corporate Debt Restructuring (CDR) and hence the fee incurred is revenue in nature. The AO and the Commissioner of Income Tax (Appeals) [CIT(A)] treated the expenditure as capital in nature, relying on the decisions of the Supreme Court in Brooke Bond India Ltd. and the Andhra Pradesh High Court in Vazir Sultan Tobacco Co. Ltd. However, the Tribunal observed that the facts of the present case are different and referred to the Supreme Court's decision in CIT vs. General Insurance Corporation, which allowed such expenditure as revenue. Since the increase in authorized capital was due to CDR with no fresh inflow of funds, the Tribunal accepted the assessee's claim, treating the expenditure as revenue in nature.

GROUND NO. 3:
The assessee challenged the disallowance of Rs. 1,46,45,814/- incurred for CDR. The AO disallowed the deduction, treating the expenditure as capital in nature because it resulted in an enduring benefit by converting debt into equity. The CIT(A) upheld this view. The Tribunal, however, noted that the CDR was a reconditioning of existing loans and debts, with no acquisition of enduring advantage. The major component of the expenditure was a remuneration paid to ICICI Bank for acting as a Monitoring Institution. The Tribunal concluded that the expenditure was revenue in nature and allowed the deduction.

GROUND NO. 4:
The assessee challenged the disallowance of Rs. 12,03,12,777/- on account of interest under section 43B of the Act. The interest was payable to HSBC, Standard Chartered Bank, and Citi Bank, which were not paid up to the due date for filing the return. The AO invoked section 43B(e), which mandates that interest on loans from scheduled banks is allowable only when actually paid. The assessee contended that these banks were not scheduled banks and that payments to non-CDR lenders required approval from the Monitoring Committee. The AO rejected these contentions, noting that the banks were included in the Second Schedule to the RBI Act, 1934, and therefore were scheduled banks. The CIT(A) upheld the AO's decision. The Tribunal agreed with the lower authorities, confirming the disallowance under section 43B(e).

GROUND NO. 5:
The assessee claimed that the addition cannot be made to the book profit under section 115JB towards disallowance under section 14A. The Tribunal noted that this issue is covered by the Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd., which held that disallowance under section 14A cannot be added while computing book profit under section 115JB. The Tribunal accepted this ground, following the Special Bench decision.

DISPOSITION:
The appeal of the assessee was partly allowed. The Tribunal accepted the grounds related to the fee paid to ROC and CDR expenditure, while dismissing the ground related to disallowance of interest under section 43B. The ground related to addition under section 115JB was accepted based on the Special Bench decision.

Order Pronounced:
The order was pronounced in the Court on 13th May, 2022.

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