2009 (8) TMI 16 - HC - Income Tax

Disallowance of expenses - Rs.4,40,183/- out of travelling expenses, Rs. 1,10,804/-out of salary and Rs.53,543/- out of research and development expenses claimed by the assessee pertaining to M/s Honda Motor Cycles for which the assessee is a promoter and is separate identity under the head of Hero Honda Ltd. and came into existence afterwards revenue submitted that since it is a new venture and expenditure being of capital nature, that of promoter, cannot be allowed as revenue expenditure held that - finding of the Tribunal shows that the expenses had been incurred in the course of the business of the assessee with a view to get latest technology know-how of mopeds from Honda Motors Company Limited. In such a situation, the expenses incurred had nexus with the existing business of the assessee order of ITAT upheld deleting the allowing the deduction

Summary

Issues:

1. Whether the Tribunal was right in law in deleting certain additions made by the Assessing Officer?
2. Whether the expenses claimed by the assessee were revenue expenses with nexus to the existing business?

Analysis:

1. The main issue in this case was whether the Tribunal was correct in deleting the additions made by the Assessing Officer. The Tribunal had to decide on the legality of deleting the addition of specific expenses claimed by the assessee, including travelling expenses, salary, and research and development expenses. The Assessing Officer had made these additions, which were initially upheld by the CIT(A). However, the Tribunal found that these expenses were revenue expenses related to the existing business of the assessee. The Tribunal analyzed the details of the expenses claimed by the assessee under different heads and concluded that they were allowable as revenue expenses. The Tribunal's decision was based on the fact that the expenses had a direct nexus to the existing business of the assessee, and therefore, they were considered legitimate revenue expenses.

2. The second issue revolved around whether the expenses claimed by the assessee were revenue expenses with a connection to the existing business. The Tribunal's finding highlighted that the expenses were incurred by the assessee in the course of its business to acquire the latest technical know-how of manufacturing mopeds from Honda Motors Company Limited. The Tribunal emphasized that these expenses were directly related to the existing business operations of the assessee, indicating a clear nexus between the expenses and the business activities. As a result, the Tribunal concluded that the expenses claimed were allowable as revenue expenses due to their direct relevance to the expansion and enhancement of the existing business. The Tribunal's decision was primarily based on the factual determination that the expenses were incurred to benefit the ongoing business operations of the assessee.

3. In summary, the judgment of the High Court, delivered by the bench of ADARSH KUMAR GOEL and DAYA CHAUDHARY, JJ., upheld the Tribunal's decision to delete the additions made by the Assessing Officer. The Court agreed with the Tribunal's finding that the expenses claimed by the assessee were revenue expenses with a direct nexus to the existing business activities. The Court emphasized that the expenses were legitimately incurred to enhance the business operations of the assessee, particularly in acquiring technical know-how for manufacturing mopeds. Therefore, the Court ruled in favor of the assessee, concluding that the expenses were allowable as revenue expenses.