Share issue expenses is revenue as suggested by CIT Appeals

In a recent ruling, it was held that Share issue expenses is revenue as suggested by CIT Appeals

Share issue expenses were considered as a capital expenditure for income tax purpose. However, there was one exception in this regard. When shares were issued to finance a new project or expand an existing project, share issue expenses constituted preliminary expenses and thus such expenditure could be amortized over a period of 5 years images (3)starting from the year of commencement of business.

It is quite interesting to note that in a recent case of Commissioner of Income-tax, Chennai v.Kreon Financial Services Ltd., CIT (Appeals) upheld the view that the share issue expenses (except printing expenses, lead manager fees and advertisement expenses) were in the nature of revenue expenses only, as those expenses are to meet out the day to day transactions of the business of the assessee.

In the given case, assessee claimed share issue expenses of Rs. 15,02,119/- as revenue expenditure. The AO disallowed the claim on the grounds that those expenses are capital in nature. CIT appeals disallowed the claim in respect of printing expenses, lead manager fees and advertisement expenses by holding that those expenses are capital in nature but as far as the other expenses were concerned, the first Appellate Authority allowed the claim of the assessee by holding that those expenses are revenue in nature.

The Revenue went on appeal against the decision of CIT appeals and ITAT confirmed the order of CIT appeals. The ITAT was also of the view that the nature of the expenses was revenue only, as those expenses were to meet out the day today transactions of the business of the assessee.

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