Disallowance of share capital increase fees cannot stand when the amount was not claimed in the profit and loss account.

Fees paid for increase in authorised share capital were directly debited to retained earnings and reflected in the balance sheet under other equity, while the assessee did not claim them as revenue expenditure in the profit and loss account. On that basis, a disallowance made through adjustment under section 143(1) could not be sustained merely because the tax audit report noted the item. The disallowance was deleted.

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Issues: Whether the adjustment under section 143(1) of the Income-tax Act, 1961, could sustain a disallowance of fees paid for increase in authorised share capital when the amount was directly debited to retained earnings and not claimed in the profit and loss account.

Analysis: The amount was reflected in the balance sheet under other equity as share issue expenses and the tax audit report recorded that it was directly debited to retained earnings. Since the assessee had not claimed the amount as a revenue expenditure in the profit and loss account, there was no basis for treating it as a disallowable claim merely because of its appearance in the audit report.

Conclusion: The disallowance could not be sustained and was deleted.

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