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[2015] 152 ITD 828 (Mumbai – Trib.) Navi Mumbai SEZ (P.) Ltd. vs. Assistant CIT A.Y.: 2008-09 Date of Order: 22nd December 2014.

By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punja bi
Bhadresh Doshi Chartered Accountants
Reading Time 1 mins
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Section 37(1) – Where assessee incurs certain expenditure for increase in share capital and if the entire incremental share capital is used to meet the need for more working funds, then the said expenditure is to be allowed as revenue expenditure.

FACTS
The assessee filed its return wherein expenditure incurred for increase on share capital was claimed as revenue expenditure.

The revenue authorities rejected assessee’s claim holding that expenditure in question was capital in nature

On appeal before Tribunal:

HELD THAT
It was noted from record that the entire incremental share capital has been absorbed in the inventories. There is not an iota of doubt that the increase in the share capital has been fully utilised only in the purchase of trading stock.

In the present day scenario, the authorised/paid up capital is not static and can also be reduced as per provisions of the Companies Act. In the light of the factual matrix of the balance sheet, plea raised by the assessee is allowed and the Assessing Officer is directed to treat the expenditure in question as revenue expenditure..

In the result, the appeal filed by the assessee is allowed.

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