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2020 (4) TMI 757 - ITAT MUMBAIDisallowance of service expenditure - service charges were incurred by the assessee in order to attract the customers in India who are transacting in overseas capital market - HELD THAT:- Assessee has stopped utilizing the services of group entities and started employing its own staff and relevant services extended to its customers by utilizing its own staff. There is considerable increase in the employees cost shows that there is shift in the management decision. Even otherwise assessee has submitted the analysis of making payments to its sister concern and submitted the relevant documents treating this as international transaction. Since the transaction involved is only to the extent of ₹ 2.89 crores, therefore AO may not have referred this case to TPO, just because it is not coming under TP study and there is abnormal increase in the cost, does not mean that assessee has not incurred this expenditure for its business. Therefore, in our considered view, these transactions are revenue in nature and having direct relevance to its business and incurred to extend the services to its customers in the overseas market with the help of its group concerns are only a revenue expenditure and eligible to be claimed as deductible expenditure under section 37 of the Income Tax Act. Payment of membership and subscription charges disallowed - HELD THAT:- These expenses are renewable and recurring in nature and only in this assessment year, assessee has borne the above said expenditure for its business purposes. As per the submission of the assessee, for the subsequent assessment years, these costs were diverted to its clients. Since these expenditure was incurred in order to facilitate the clients in India and it has direct relevance to the business carried on by the assessee, but however there is no assets installed by the assessee except facilitating the installation to the clients. It may look capital in nature, but it is the cost incurred by the assessee to facilitate the transactions between the clients and group concerns. There is no direct enduring benefit to the assessee, it can be termed as incurred for the purpose of business and to set up a transaction meant for overseas capital market - this expenditure can be treated preliminary expenditure for the purpose of business and therefore this transaction may increase the business/ trade for the assessee in the subsequent year. Accordingly, we direct AO to allow one fifth (1/5th) of the expenditure in this assessment year and balance in the next 4 assessment years treating this similar to the treatment as preliminary expenditure. Accordingly, Ground no. 2 raised by the assessee is partly allowed.
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