Expenses incurred for an aborted IPO do not yield enduring benefits and are deductible as revenue expenditure under Section 37 of the Income Tax Act.

ORDER

PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against order dated 01.08.2024 passed by the Ld. Commissioner of Income-tax (Appeals) — National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2020-21, raising following grounds: Qe

1. Disallowance of Aborted IPO Expenditure of Rs. 10,22,08,242/- U/sec 37.

1.1. On the facts and circumstances of the case and in Law, The Commissioner of Income tax (Appeals), National Faceless Appeal Centre (NFAC), erred in confirming the disallowance of IPO expenditure of Rs. Rs.10,22,08,242/- U/sec 37 of the Income tax Act, on the ground that the same is capital in nature but ignoring the fact that the proposed IPO was aborted as the appellant could not open the same by the SEBI approved the due date of 04.10.2019 and hence the Legal and Filing Cost was allowable U/sec 37 no enduring benefit has accrued to the assessee as no new asset was acquired.

1.2. The said C.I.T.(Appeals) also erred in not considering the fact that there was a Offer for Sale (OFS) by existing shareholders to Public and it was not an IPO during A.Y.2021-22 and also erred in not considering the fact that the expenditure on OFS were incurred by the said shareholders and not by the Appellant and therefore that cannot be the ground to disallow aborted IPO expenditure U/sec 37 of the.

1.3. The said C.I.T.(Appeals) erred in following the decision of Supreme Court in the case of Brooke Bond India Ltd. 225 ITR 798 ignoring the fact that the said expenditure was towards Legal & Professional Fees, SEBI Fees, Stock Exchange Fees and not for increase in Authorized Share Capital.

2. No Interest granted U/sec 244A on Tax Refund

On the facts and circumstances of the case and in Law, the said A.O. erred in not granting any interest U/sec 244A on the due income tax refund since the date of filing of income tax return.

2. Briefly stated, facts of the case are that during the year under consideration the assessee company was engaged in the business of providing end to end cash and digital payments solutions and automation technology to its customers. The assessee filed return of income on 29.06.2021 declaring total income at Rs.111,94,45,140/- .The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment order passed u/s 143(3) of the Act, the Assessing Officer disallowed expenses of Rs.10,22,10,000/- incurred in relation to initial public offer (IPO) for raising equity share capital. During the assessment proceedings, the assessee contended that the IPO was aborted and hence no asset of enduring nature was created by way of those expenses, thus, expenses being in the nature of the revenue expenditure, same were allowable u/s 37(1) of the Act. But the Ld. Assessing Officer held that expenses incurred for raising equity share capital were in the nature of enduring benefit spread over the future for long period of time. The Assessing Officer also rejected the claim of the assessee that IPO was aborted.

Instead, the Assessing Officer observed that assessee had successfully raised equity share capital of Rs.501.81 crores through IPO in the subsequent financial year. On further appeal, the assessee relied on the decision of Hon’ble Supreme Court in the case of CIT v. Idea Cellular Ltd. 76 taxmann.com 77 and CIT v. Nimbus Communication Ltd. (ITA No. 4244 of 2010) dated 08.12.2011 and submitted that when the IPO is aborted, no new asset come into existence and there is no question of assessee getting any enduring benefit and hence said expenses incurred on the aborted IPO was allowable u/s 37 of the Act. But the Ld. CIT(A)

referred to th