TaxTMI 
TaxTMI 
2025 (7) TMI 1686
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.... section 143(3) of the Income-tax Act, 1961 ("the Act") on 13.11.2014 determining the assessed income at Rs7,75,73,080/-. 4. Subsequently, information was received from the office of the Deputy Director of Income Tax (Inv)-2(2), Mumbai, that the assessee had received an amount of Rs. 268.20 crores in May 2011 through its HSBC Bank account located at M.G. Road, Mumbai, from HPEIF Holding 1 Limited, a private equity arm of HSBC, later renamed as HSBC PI Holdings (Mauritius) Ltd. The information was supported by media reports suggesting disputes between the assessee and the said investor concerning the investment in the assessee's shares. This led the AO to initiate proceedings under section 148 of the Act on 28/03/2019 after obtaining requisite administrative approval. The assessee filed its return in response on 27/05/2019, declaring the same income as originally assessed. 5. Upon seeking reasons recorded for reopening, the assessee filed detailed objections, contending that no fresh tangible material existed and all facts were previously disclosed. However, the objections were disposed of vide a speaking order dated 27/05/2019, and reassessment proceedings were initiated. ....
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....he payment was made for preparation of Information Memorandum and related advisory services under a Letter of Engagement dated 14th October, 2010. The assessee failed to produce the engagement letter and admitted that the services were intended to pitch for investors. Since the only investor was HSBC and the funds raised were in the nature of capital, the AO disallowed the amount holding it as capital expenditure. Payment to Nishith Desai & Associates - Rs. 8,97,458/- (vi) This amount was claimed to be legal fees pertaining to a litigation issue with the investor. Although the assessee submitted two invoices and a letter of engagement, the AO found the expenditure to be post-investment in nature and arising out of a capital transaction, having no nexus with the assessee's regular business. Accordingly, it was disallowed under Section 37(1). 7. Before the ld. AO, the assessee had relied on various judicial precedents to support its claim. However, the AO noted that the cited decisions dealt with expenditures relating to bonds or convertible instruments, which involved debt financing. In contrast, the assessee's expenditure pertained to raising equity capital, wh....
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....ent to KPMG India Pvt. Ltd. - Rs. 1,00,37,300/- 14. KPMG India was appointed in September 2010 to prepare an Information Memorandum aimed at attracting strategic investments for business expansion. The Memorandum comprised detailed information regarding the Company's background, key clients, existing contracts, financials, pipeline projects, technology, and future business plans. The assessee has produced the Board Resolution dated 24.01.2010 authorising the appointment and submitted that the assignment was completed in December 2011. It is the assessee's case that the preparation of this document was unrelated to the subsequent investment by HSBC PI Holdings. The investor had independently exercised its pre-existing rights to subscribe to further capital and the KPMG-prepared document was never utilized for such transaction. 15. Thus, the expenditure incurred on KPMG India was a preparatory exercise for strategic expansion and does not result in any capital acquisition or enduring benefit. The invoice was raised after the funding merely because the work was completed around that time. He thus submitted that the AO's inference of capital nexus based solely on the date of invo....
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....Rs.3,92,852/-) as revenue in nature, and the balance is contested in this appeal. 22. Ld. Counsel strongly relied upon the principles laid down in Empire Jute Co. Ltd. v. CIT (124 ITR 1, SC), wherein it was held that even where some advantage may endure, if the expenditure facilitates day-to-day operations or enhances efficiency, it retains the character of revenue expenditure. The test of enduring benefit is not determinative unless it leads to creation or enhancement of a capital structure or asset. 23. In sum and substance, he submitted that: * All expenditures were incurred in the course of business; * No new asset or capital structure has come into existence; * Expenses were necessitated by business exigencies, investor terms, litigation or regulatory compliance; * Mere proximity to capital raising or timing of invoices does not convert a business expense into a capital one; * Disallowance of service tax components is per se untenable as such tax was paid to the Government and not claimed as deduction. Thus Ld. Counsel concluded that none of the expenses disallowed fall outside the ambit of section 37(1), and the AO has fai....
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....engagement was initiated in the year 2010, substantially prior to any negotiations with the eventual investor, HSBC PI Holdings. The services rendered involved analysis of the assessee's international structure, formulation of strategy, and internal realignment of functions. 30. In our considered view, this expenditure was clearly aimed at enhancing operational efficiency and exploring avenues for future business, and was neither related to nor contingent upon the capital infusion. There is no evidence that the restructuring led to creation of a capital asset or yielded any enduring commercial advantage of the nature contemplated in Ballimal Naval Kishore v. CIT (224 ITR 414). The Ld. CIT(A) rightly appreciated this position and allowed the deduction. We affirm the same. II. Payment to KPMG India Pvt. Ltd. (Rs.1,00,37,300) - Preparation of Information Memorandum 31. KPMG India was engaged through a board-approved resolution dated 24.01.2010 for the purpose of preparing an Information Memorandum, a comprehensive document aimed at facilitating discussions with potential strategic or financial investors. The material placed before us, including the timeline of engagement and ....
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....TR 420) (Cal.). 36. We thus hold that the expenditure of Rs. 25,35,803 was incurred wholly and exclusively for the purposes of business and is allowable under section 37(1). IV. Payment to Nishith Desai & Associates (Rs.8,07,458) - Legal Defence in Post-Investment Dispute 37. Subsequent to the receipt of investment, disputes arose between the assessee and the nominee director of HSBC PI Holdings. The assessee engaged Nishith Desai & Associates, a leading law firm, to defend itself in legal proceedings arising out of those disputes. The services included representation before investigating agencies and rendering legal advice. 38. We find considerable merit in the assessee's submission that these were litigation expenses incurred to protect the interests of the company, its management, and its reputation. Such expenses have been consistently held to be allowable, even where they arise in the context of capital transactions, if the object is to defend or protect the existing business. Accordingly, the payment made is allowed. V. Payment to Wadia Ghandy & Co. (Rs.14,42,008) - Legal Compliance and Subsidiary Governance 39. The engagement of Wadia Ghandy & Co. was two-f....