2018 (8) TMI 1713 - AT - Income Tax

Nature of expenditure - expenses on implementing the Project Disha and Project Eagle - revenue or capital expenditure - purpose of the project - Held that - The object of the project EAGLE was identical to one project DISHA and the expenditures were incurred by way of legal and professional fee paid to Accenture and consultancy a leading firm in that field. The purpose of the project was to achieve excellence in the promotion of the company on a transformable basis so that the company becomes leader in the formulation business. CIT(A) has passed a very reasoned order treating the same as revenue in nature and we therefore do not find any reason to deviate from the findings of Ld. CIT(A)- decided against revenue

Summary

Issues: Rectification of order regarding treatment of expenses on "Project Disha" and "Project Eagle" as revenue or capital in nature.

Analysis:
1. The assessee sought rectification of an order passed by ITAT regarding the treatment of expenses on "Project Disha" and "Project Eagle." The Revenue raised grounds concerning the nature of these expenses, treated as revenue by CIT(A) but as capital by the AO. While the Tribunal disposed of the appeal, it inadvertently left out deciding ground No.4 related to "Project Eagle."

2. The Revenue argued that ground No.4 regarding expenses on "Project Eagle" was not discussed by the Tribunal and cannot be decided unless the order is recalled. The Tribunal found that both ground Nos.3 & 4 were identical, challenging the treatment of expenses as revenue, and noted that ground No.4 was not decided, constituting a prima facie mistake under section 254(2) of the Act, warranting rectification.

3. The facts revealed that the assessee incurred expenses for a project named "EAGLE" aimed at nationwide growth under the DISHA umbrella. The AO treated the expenses as capital, citing enduring benefits, while the CIT(A) directed the AO to treat them as revenue expenditure based on the project's objective to improve company performance in India.

4. The CIT(A) referenced legal precedents to support treating the expenses as revenue. The Tribunal concurred, noting that the project's purpose aligned with another project, "DISHA," and the expenses were for consultancy to enhance company promotion in the formulation business. Consequently, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's ground No.4 challenging the treatment of expenses on "Project Eagle."

5. The Tribunal amended the order to rectify the omission of deciding ground No.4 and allowed the assessee's miscellaneous application. The decision was pronounced in open court, affirming the treatment of expenses on "Project Eagle" as revenue in nature, in line with the CIT(A)'s directive.

This detailed analysis outlines the issues, arguments, factual background, legal reasoning, and the final decision of the Appellate Tribunal ITAT Mumbai regarding the rectification of the treatment of expenses on "Project Disha" and "Project Eagle."