Claim of Deduction under Section 37 of the Income-tax Act, 1961 – ipo exp.
This query is : Resolved
22 May 2025
• The Company raised a total amount of ₹36.58 crores through the Rights Issue.
• As per the prospectus filed with SEBI, one of the objects of the issue was to meet general corporate purposes including working capital needs.
• Subsequently, a portion of the Rights Issue proceeds amounting to ₹28.88 crores has been utilised for working capital purposes including purchase of raw materials, payment to creditors, overhead expenses, Rights Issue expenses, etc.
• The said expenses are reflected in the books of account and are directly related to the regular operations of the business.
• As per the prospectus filed with SEBI, one of the objects of the issue was to meet general corporate purposes including working capital needs.
• Subsequently, a portion of the Rights Issue proceeds amounting to ₹28.88 crores has been utilised for working capital purposes including purchase of raw materials, payment to creditors, overhead expenses, Rights Issue expenses, etc.
• The said expenses are reflected in the books of account and are directly related to the regular operations of the business.
12 August 2025
Tax Treatment:
General Rule under Section 37(1):
Expenses incurred wholly and exclusively for the purpose of business or profession are deductible.
Expenses on Rights Issue / IPO:
Expenses incurred for raising capital (such as underwriting fees, brokerage, legal fees, printing and distribution of offer documents, etc.) are capital in nature and not deductible as business expenses.
These costs are generally treated as capital expenditure and are adjusted against the Securities Premium Account or debited to “Share Issue Expenses” account, which is a capital reserve.
Working Capital Expenses:
Expenses like purchase of raw materials, payment to creditors, overhead expenses — which are regular business expenses — are deductible under Section 37, since they are incurred for carrying out business operations.
Rights Issue Expenses in Books:
If the Rights Issue expenses are recorded under capital heads, they are not deductible.
If expenses related to Rights Issue have been booked as revenue expenditure, the tax authorities may disallow them, treating them as capital in nature.
General Rule under Section 37(1):
Expenses incurred wholly and exclusively for the purpose of business or profession are deductible.
Expenses on Rights Issue / IPO:
Expenses incurred for raising capital (such as underwriting fees, brokerage, legal fees, printing and distribution of offer documents, etc.) are capital in nature and not deductible as business expenses.
These costs are generally treated as capital expenditure and are adjusted against the Securities Premium Account or debited to “Share Issue Expenses” account, which is a capital reserve.
Working Capital Expenses:
Expenses like purchase of raw materials, payment to creditors, overhead expenses — which are regular business expenses — are deductible under Section 37, since they are incurred for carrying out business operations.
Rights Issue Expenses in Books:
If the Rights Issue expenses are recorded under capital heads, they are not deductible.
If expenses related to Rights Issue have been booked as revenue expenditure, the tax authorities may disallow them, treating them as capital in nature.
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