2010 (7) TMI 1110 - AT - Income Tax

Summary

Issues involved: Appeal by revenue against order of CIT(A) regarding deduction of development charges, consultancy charges, and telephone and car expenses for assessment year 2001-02.

Deduction of Development Charges:
The revenue appealed against CIT(A)'s decision to allow deduction of development charges as revenue expenditure based on a previous Tribunal order. The Tribunal found that the expenses incurred on samples for product development were revenue in nature as they did not have enduring benefit and were necessary for obtaining orders from various companies. The Tribunal also noted that the assessee had filed a return showing a loss, indicating no motive behind the expenditure. As a result, the Tribunal directed the AO to treat these expenses as revenue in nature.

Consultancy Charges:
The revenue contested the deletion of addition of consultancy charges by CIT(A) without providing reasons. The Tribunal observed that further verification was needed as the AO had not sought clarification on the nature of services obtained or parties contacted. While payments were made through account payee cheques, the burden of proof lay on the assessee to demonstrate that the expenses were for business purposes. The matter was remanded to the AO for re-examination.

Telephone and Car Expenses:
The revenue challenged the deletion of additions on account of telephone and car expenses by CIT(A). The Tribunal referred to consistent views of ITAT benches that no disallowance could be made in the hands of a company for personal use unless personal user was involved. Citing precedents, including a decision of the Hon'ble Gujarat High Court, the Tribunal allowed the grounds, holding that no disallowance could be made for personal use in the case of a company.

Conclusion:
The Tribunal dismissed all grounds of the revenue's appeal, concurring with the earlier order. Consequently, the appeal was dismissed, and the order was pronounced on 2nd July 2010.