2019 (10) TMI 388 - AT - Income Tax

Disallowance of foreign travel and legal expenditure - Allowable revenue expenditure - HELD THAT - Assessee has not appeared at the time of verification of the vouchers, however, accountant of the assessee was present. AO observed that whether these expenditures are related to the business or not is not known, since the assessee could not explain before him. In this regard, assessee has submitted detailed payment vouchers and relevant invoices before us in the form of paper book. On verification of these vouchers and bills, we notice that assessee has incurred travel expenditure, which includes travel by train and domestic air fares. All these expenditures are incurred for the purpose of domestic travel and entertainment for the visitors. Legal and professional expenditure - assessee has incurred for legal purpose and fees to lawyers and also paid as retainer fees to the different professionals. These are relevant expenditure for the purpose of business and it is the assessee, who will determine what is the relevant legal assistance and it may incur depending upon the nature of legal advice they may require. Therefore, in our considered view, all these expenditures are relevant for the purpose of business. Therefore, we are in agreement with the findings of CIT(A) and accordingly, ground raised by the revenue on this count is dismissed. Maintenance expenditure - In this AY, as per the concession agreement entered by the assessee, with the MP Govt., assessee has to maintain roads on periodical basis and at least it has to carry out relaying of roads as per the agreement on regular basis. Assessee has incurred expenditure on maintenance over the years and the department has always accepted the same as revenue expenditure and only in this AY, AO has taken it as capital expenditure considering the quantum of expenditure without any basis. Since the assessee is maintaining roads in order to collect tollway fees, it is the responsibility of the assessee to maintain the roads as per the concession agreement. Therefore, this is the regular business expenditure, we are inclined to accept the findings of CIT(A) in this regard. - Appeal of revenue disallowed.

Summary

Issues:
1. Condonation of delay in filing the appeal.
2. Disallowance of expenses by AO.
3. Appeal against CIT(A)'s order on disallowance of expenses.

Issue 1: Condonation of delay in filing the appeal
The Revenue filed an appeal with a delay of 4 days, citing departmental procedures as the reason. The Assessee sought condonation of the delay, asserting it was unintentional. The Revenue supported the claim. The Tribunal, noting the reasonable cause, condoned the delay and admitted the appeal for adjudication.

Issue 2: Disallowance of expenses by AO
The AO disallowed expenses claimed by the Assessee, including salaries, maintenance, and legal charges, totaling to ?7,24,40,625. The AO found certain expenses unrelated to the business and disallowed ?20,82,628. Further, the AO treated maintenance expenses as capital expenditure, disallowing ?5,93,30,447. The Assessee appealed to the CIT(A) against these disallowances.

Issue 3: Appeal against CIT(A)'s order on disallowance of expenses
The CIT(A) overturned the AO's disallowances. Regarding the disallowed expenses, the CIT(A) found that the Assessee had produced relevant vouchers and bills, supporting the expenses. The CIT(A) allowed the Assessee's appeal on the disallowed expenses related to travelling and legal charges. Similarly, the CIT(A) found that the maintenance expenses were incurred as per contractual obligations and were revenue expenditure, not capital. The Revenue, aggrieved by the CIT(A)'s decision, appealed to the ITAT.

The ITAT upheld the CIT(A)'s decision. The Tribunal found that the Assessee's expenses on travelling and legal fees were essential for business purposes, supported by vouchers. Regarding maintenance expenses, the ITAT noted the regular incurring of such expenses as per contractual obligations. The ITAT agreed with the CIT(A)'s findings that these expenses were revenue in nature and necessary for the Assessee's business operations. Consequently, the ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s decision on the disallowance of expenses.