TaxTMI 
TaxTMI 
2013 (8) TMI 361
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....ave treated demutualization expenses as revenue in nature as claimed by the appellant." 3. Brief facts on this issue till assessment stage are noted by the learned CIT(A) in paragraph 4 of his order, which is reproduced below: "The first ground of appeal is directed against the action of the A.O. in disallowing the demutualization expenses of Rs. 13,80,837/- treating the same as capital expenditure. The A.O. noted that the appellant had debited an amount of Rs. 13,80,837/- as demutualization expenses which included expenses incurred towards shares transfer stamp, committee meeting, legal and consultancy, registration fee, advertisement expense etc. The A.O. asked the appellant to explain as to why the demutualization expenses should not be capitalized. The appellant submitted before the A.O. that the expenditure was incurred for the preserving the capital of the company and should be considered as revenue expenses. The A.O. did not accept the submission of the appellant. He held that demutualization refers to change in set-up of the management that are enduring in nature. By virtue of this process the nature and set-up of organization gets completely changed and therefore, an....
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.... It was submitted in reply that balance sheet of the assessee company is available at page no.1 of the paper book as per which the paid up share capital was Rs.29 lac as on 31.3.2007 and at Rs.145 lac as on 31.3.2008. He submitted that although there is increase in the paid share capital of the assessee company but the expenses incurred were not for this purpose but for demutualization and hence, the increase in the paid up capital has no relevance. As against this, learned D.R. of the Revenue supported the order of learned CIT(A). 6. We have considered the rival submissions and perused the material on record and gone through the orders of authorities below and the judgments cited by learned AR of the assessee. First of all, we would like to point out that this issue was decided by learned CIT(A) as per paragraph 4.2 and 4.3 of his order, which are reproduced below for the sake of ready reference: "I have considered the facts of the case as also the observation of the AO. Admittedly, these expenses have been incurred for restructuring of the capital structure of the appellant company. After demutualization the capital base of the company has under gone complete change and the....
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....reported in 93 Taxman 5 (SC). This decision was on this basis that the expenditure may help in the business of the assessee company and may also help in profit making but since the expenditure was directly related to the expansion of the capital base of the company, the same is capital expenditure. We have also seen that the paid up share capital of the assessee company has grown up from Rs.29 lacs as on 31.7.2007 to Rs. 145 lacs as on 31.3.2008. The dilution of 51% of shares of the assessee company to outsiders was achieved by resorting to further issues of share capital to outsiders and hence, this is correct that the expenditure is directly related to expansion of the capital base of the company. It is true that such expansion of the capital base of the company was required to fulfill the requirements of SEBI but still the fact remains that the expenditure has resulted into expansion of the capital base of the assessee company and, therefore, in our considered opinion, this issue is squarely covered in favour of the Revenue and against the assessee company by the judgment of Hon'ble Apex Court rendered in the case of Punjab State Industrial Development Corporation Ltd. (supra) w....
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....R of the assessee is rendering any help to the assessee and in fact, the decision of the learned CIT(A) is supported by the judgment of Hon'ble Apex Court rendered in the case of PSIDC (supra) and, therefore, we decline to interfere in the order of learned CIT(A) on this issue. The ground no.1 is rejected. 10. Ground No.2 is as under:- "Ld. CIT(A) erred in law and on facts in upholding the action of AO in disallowing expenses of Rs.9,26,795/- under Section 14A of the Act in respect of exempt dividend income of Rs.18,48,712/- earned from mutual fund investment that entailed no expenditure. Ld. CIT(A) failed to appreciate that neither any amount was borrowed nor any interest was paid for investment earning exempt income. This unilateral act of ld. CIT(A) confirming disallowance without there being any nexus between dividend earned and expenses estimated to have incurred deserves to be quashed." 11. It was submitted by learned AR of the assessee that the AO has applied Rule 8 D straight away whereas as per sub Rule 1 of Rule 8D, a finding has to be given by the AO that having regard to the accounts of the assessee, he is not satisfied with the claim made by the assessee that ....
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.... is in mutual fund and there is no expenditure incurred for making such investment in mutual fund and the investment in subsidiary is old investment. In this regard, we would like to observe that whether the investment is an old investment or whether the investment is a mutual fund or otherwise, it has to be accepted that decision has to be taken as to when and where the investment is to be made and it has to be analyzed periodically as to whether the investment is to be continued or not and in the present year, the assessee has sold three old investments in mutual funds and added in two old investments and one investment in mutual fund was kept unchanged. This very pattern of selling same investments in mutual funds, maintaining status quo in one investment in mutual fund and having further amount in two mutual investments itself shows that regular monitoring of investments was done by the management and therefore, this claim of the assessee that no expenditure was incurred on account of administrative expenses for earning dividend income cannot be accepted. 16. Regarding the reliance placed by learned AR of the assessee on the Tribunal decision rendered in the case of DCIT Vs.....