TaxTMI 
TaxTMI 
2016 (7) TMI 834
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....ia) of the Act. The Ld CIT(A), however, directed the AO to apply the principles laid down by Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd (343 ITR 270). 4. At the time of hearing, both the parties agreed that this issue is covered by the decision rendered by co-ordinate benches of Tribunal in the assessee's own case in ITA No.3422 & 3437/Mum/2013 relating to AY 2006-07. A perusal of the order passed by the co-ordinate bench of Tribunal shows that the Tribunal has followed the decision rendered by another co-ordinate bench in assessee's own case relating to AY 2001-02 passed in ITA No.1498/Mum/2011 dated 09-04- 2014 and ITA No.3534/Mum/2011 dated 15-06-2012. 5. In ITA No.1498/Mum/2011, the co-ordinate bench has followed the decision rendered by Hyderabad bench of Tribunal in the case of State Bank of Hyderabad (ITA No.578 and 579/Hyd/2010 dated 07-09-2012) and held that the Explanation 2 to sec. 36(1)(vii) introduced by Finance Act 2013 shall be applicable from 1.4.2014, i.e., AY 2014-15. In the case of Catholic Syrian Bank (supra), the Hon'ble Supreme Court had held that the restriction provided in the proviso to sec. 36(1)(vii) shall apply only to the provis....
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....r the provisions of Rule 8D would be reasonable disallowance. 9. Before us the Ld A.R contended that the Tribunal has restricted the disallowance to 1% of the exempt income in AY 2006-07. He further submitted that (a) the interest free funds available with the assessee is in far excess of the investments. (HDFC Bank (284 CTR 409)(Bom)) (b) All investments are held as stock in trade and hence the provisions of sec. 14A should not be applied to it. (India Advantage Securities (ITA 1131 of 2013) The Ld A.R placed his reliance on various case laws. 10. We heard Ld D.R and perused the record. We notice that the Tribunal has restricted the disallowance to 1% of the exempt income in AY 2006-07 and earlier years. Consistent with the view taken therein we direct the AO to restrict the disallowance to 1% of the exempt income in AY 2007-08, since the provisions of Rule 8D are not applicable to this year. 11. In respect of AY 2008-09, the assessee is raising new contentions before us, viz., the investments are held as stock in trade, interest free funds available with it are in far excess of the investments etc. The Ld D.R submitted that the claim of the assessee ....
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.... expenditure relating to issue of capital. During the relevant year, the paid share capital of the assessee has been increased from Rs. 488 crores to Rs. 525 crores by issuing new shares. The AO ascertained that the assessee has incurred a sum of Rs. 8,25,57,501/- towards increasing the share capital by way of fee for merchant bankers, legal fees, Stamp Duty, Registration charges etc. The AO took the view that this expenditure cannot be allowed under sec. 32 to 37 of the Act and further they are not in the nature of revenue expenditure. He also took the view that this expenditure cannot be amortised. Accordingly the AO disallowed the above said expenditure. The Learned.CIT(A) confirmed the disallowance by holding that the expenditure incurred for expansion of capital base is Capital Expenditure. In this regard, the Ld CIT(A) took support of the decision rendered by Hon'ble Supreme Court in the following cases:- (a) Brooke Bond India Ltd Vs. CIT (1997)(225 ITR 798) (b) Punjab State Indl. Corporation Ltd Vs. CIT (225 ITR 792) (c) CIT Vs. Kodak India Ltd (2002)(253 ITR 445) 16. The Ld A.R submitted that the assessee was constrained to increase the share c....
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....'ble Bombay High Court held that the expenditure incurred on raising the capital is revenue in nature. However, in the instant case, the assessee has been carrying on the business for the past several years. The Reserve Bank of India, the apex body which monitors the functioning of banks, had prescribed certain norms that should be complied by the banks. In the course of compliance of those norms, the assessee has raised capital by issuing shares. It was not the case of the assessee that it was not in need of funds. It was also possible to reach the required Capital adequacy ratio by generating profit also. In any case, the above said decision was rendered by Hon'ble Bombay High Court prior to the decision of Hon'ble Supreme Court rendered in the case of Brooke Bond India Ltd (supra). 19. In the case of Brooke Bond India Ltd (supra), the following question was placed before Hon'ble Supreme Court for its decision:- "Whether on the facts and in the circumstances of the case, the Tribunal was right in sustaining the disallowance of Rs. 13,99,305/- being expenses incurred in connection with the issue of fresh lot of shares in 1967?" The Hon'ble Supreme Court noticed that....
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....earn more profit and that in such a case the expenditure that is incurred in connection with issuing of shares to increase the capital has to be treated as revenue expenditure. In this connection, Dr. Pal has invited our attention to the submissions that were urged by learned counsel for the assessee before the Appellate Assistant Commissioner as well as before the Tribunal." However, the Hon'ble Supreme Court refused to acknowledge those facts, i.e., the object of raising capital was to have more working funds, since the statement of case sent by the Tribunal does not indicate that a finding was recorded to the effect that the expansion of capital was undertaken by the assessee in order to meet the need for more working funds for the assessee. After having observed so, the Hon'ble Supreme Court further held as under:- "In any event, the above quoted observations of this Court in M/s Punjab State Industrial Development Corporation Ltd. Chandigarh (supra) clearly indicate that though the increase in the capital results in expansion of the capital base of the company and incidentally that would help in the business of the company and incidentally that would help in the bu....