2002 (11) TMI 246 - AT - Income Tax

Summary

Issues:
1. Disallowance of registration fees paid to SEBI.
2. Disallowance of entrance fees paid to Association of Merchant Bankers of India.
3. Addition of alleged interest income.

Issue 1: Disallowance of Registration Fees to SEBI
The assessee, a financier and merchant banker, paid Rs. 2,50,000 to SEBI for registration. The AO treated this as capital expenditure, stating it allowed the assessee to commence business and increased earning capacity. The CIT(A) upheld this view. However, the ITAT disagreed, citing precedents where similar expenses were allowed as business expenditure without enduring advantage. The expenditure was seen as an expansion of existing business, making it revenue in nature. The order of the CIT(A) was set aside, directing the AO to allow the expenditure.

Issue 2: Disallowance of Entrance Fees to AMBI
The AO disallowed Rs. 1,00,000 entrance fees paid to the Association of Merchant Bankers of India, considering it as capital expenditure due to enduring advantage. The CIT(A) upheld this decision. However, the ITAT found that becoming a member of AMBI was an expansion of the existing business, not providing long-term benefits. Precedents were cited where similar expenses were considered revenue in nature. The order of the CIT(A) was set aside, and the AO was directed to allow the expenditure.

Issue 3: Alleged Interest Income Addition
The third ground regarding the addition of Rs. 75,000 on the grounds of alleged interest income was not pressed by the authorized representative during the hearing. The ITAT noted that the issue had been set aside to the AO for verification and assessment of correct income. As it was not pressed, the ground was dismissed. The appeal was partly allowed based on the decisions made for the first two issues.

In conclusion, the ITAT ruled in favor of the assessee, allowing the registration fees and entrance fees as deductible expenditures due to their nature of expanding the existing business without providing enduring benefits. The third ground was dismissed as it was not pressed during the hearing.