Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2022 (5) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (5) TMI 44 - AT - Income TaxLegal and professional charges - disallowance of expenses as no services have been rendered by the professionals - Assessee argued that the appellant company had made payment to reputed professionals to assist it in entering into negotiations with M/s Garnett Specialty Papers Ltd. for firstly commencing of purchase of paper from the supplier of paper thereafter takeover of the supplier company - HELD THAT:- CIT(A) has confirmed the addition by stretching too far the rules of prudence. AO himself observed in the order that the services engaged were from top most legal professionals. If that was the view of Ld. Tax Authorities then it was not justified to discredit the bills raised by them for services holding that assessee failed to provide substantive evidence and it could not succeed in getting supply of paper during the year or even failed to take over the company. The business uncertainties are infinite and to discredit any professional service on basis that concerned business activity having failed inspite of professional service, is not prudent approach. The very purpose of availin such services of professionals is to ensure that the entrepreneur understands well the SWOT analysis of prospective business activity. Entrepreneur’s own experience is not a ground for tax authorities to question the wisdom of assessee to have engaged the expert. While factually otherwise also, in the next year, assessee had purchased paper worth from M/s. Garnett Specialty papers Ltd. as is evident from the details of invoices given. So there is evidence which shows that having failed to take over the said company in relevant year, material was still purchased from it in next year. Next, Ld. CIT(A) has also fallen in error in observing that as expenses were incurred for acquiring or taking over of the company they could not be revenue in nature and not allowable as claimed by the appellant. Backward or forward integration of the activities of a manufacturing business cannot be considered to be establishment of a new enterprises to consider such legal and professional expenses to be for acquiring new assets and to not treat them revenue expenditure. Hon’ble Delhi High Court in Commissioner of Income Tax vs. Priya Village Roadshows Ltd. [2009 (8) TMI 765 - DELHI HIGH COURT] has held that expenses incurred in preparation of feasibility report in the same line of business has to be treated as revenue expenditure. In this judgment itself Hon’ble High Court has also taken into consideration that if the project is shelved that does not make the expenditure made upon feasibility study to be disallowed as business expenditure u/s 37. In Krishak Bharati Cooperative ltd. vs. Jt. Commissioner of Income Tax [2014 (9) TMI 99 - ITAT DELHI] had held that the expenditure which were made by the said assessee to obtain consulting report/ feasibility study on connected business activity, which was ultimately abandoned can be debit under the head “legal and professional charges” as a revenue expenditure. - Decided in favour of assessee.
|