2021 (2) TMI 1239 - AT - Income Tax

Allowable business expenditure - expenses claimed under the head Assistance to Law Students - as per AO similar disallowance had to be made on the ground that the assistance to law students who are nowhere related to the profession of the assessee and such claim as a business expense is not acceptable to have been incurred wholly and exclusively for the purpose of business/profession of the assessee - HELD THAT - As relying on own case 2019 (8) TMI 731 - ITAT DELHI it is apparent that at least in the case of the professionals the way they promote themselves is changing very fast and the benefits of such expenditure are huge and wide. Therefore according to us the impugned expenditure incurred by the assessee is a revenue expenditure allowable u/s. 37 (1) of the income tax act. We do not subscribe to the view of the learned CIT - A these expenditure is capital in nature. The expenditure incurred by the assessee is the routine day-to-day expenditure incurred by the assessee for promoting his professional profile. These expenditure cannot be held to be capital expenditure in nature as no fresh new fixed assets is created by paying the scholarship sum. Further merely because in the agreement it is mentioned as an annual gift in the form of scholarship it does not become a gift. In fact it is the expenditure incurred by the assessee in furtherance of his business. Thus we reverse the order of the lower authorities and direct the learned assessing officer to delete the above disallowance . - Decided in favour of assessee.

Summary

Issues:
Disallowance of claim under "Assistance to Law Students" for assessment years 2013-14 and 2014-15.

Analysis:
The Appellant, an Advocate, claimed expenses under "Assistance to Law Students" for assessment years 2013-14 and 2014-15. The Assessing Officer disallowed the claim, stating that the assistance to law students was not related to the appellant's profession and therefore not a valid business expense. The Appellant contended that funding students at Oxford University was a strategic business decision to enhance professional reputation and build contacts in the legal fraternity, especially in the international arena. The Appellant argued that the expenses were incurred wholly and exclusively for the purpose of the business. The Appellant cited previous Tribunal decisions where similar claims were allowed, emphasizing the importance of professional judgment in determining allowable business expenses.

The Appellant highlighted that the expenditure was aimed at increasing visibility and social standing in the international legal community. The Tribunal observed that the nature and scale of business/profession should determine the allowability of expenses under section 37(1) of the Income Tax Act. The Tribunal emphasized that the Assessing Officer should consider the perspective of the assessee in determining the necessity of expenses for the business. The Tribunal rejected the Assessing Officer's subjective reasoning and upheld the Appellant's claim, stating that the expenses were revenue expenditures allowable under section 37(1) of the Income Tax Act. The Tribunal differentiated between revenue and capital expenditure, noting that the expenses were routine day-to-day expenditures for promoting the professional profile and not capital in nature.

The Tribunal referred to previous decisions where similar claims were allowed for promoting professional activities. The Tribunal concluded that the consistent view taken in earlier assessment years should be maintained, directing the Assessing Officer to delete the disallowance and allow the appeals of the Appellant for both assessment years. The judgment was pronounced in open court on February 24, 2021, in virtual mode.