2015 (6) TMI 250 - HC - Income Tax

Disallowance of management fee - CIT(A) allowed the claim - Held that - As to whether the expenditure was wholly laid out for the business purpose and was driven by commercial expediency cannot be viewed from a narrow lens of revenue officer s perspective. The element of business activity or expenditure cannot be subjected to objective reasonable standard as the AO sought to impose upon it. To that extent, the CIT(Appeals) decision, in the considered view of this Court cannot be faulted. Since the ITAT reconsidered these aspects, no question of law arises - Decided against revenue. Disallowance of advertising expenditure - CIT(A) allowed the claim - Held that - AO allowed depreciation only to the tune of 25% and disallowed ₹ 21,56,211/-. The CIT(A) took note of the judgment of the Supreme Court on how capital expenditure had to be treated (Empire Jute Co. Ltd. V. CIT on 124 ITR 1, K.T.M.T.M. Abdul Kayoom V. CIT (1980 (5) TMI 1 - SUPREME Court). On this ground, the ITAT was of the opinion that the relief as claimed was warranted. So the ITAT too confirmed these findings. No substantial question of law is made out. - Decided against revenue.

Summary

Issues:
1. Disallowance of management fee by the AO
2. Reasoning behind disallowance of advertising expenditure by the ITAT

Analysis:
1. The first issue revolves around the disallowance of management fee by the AO. The assessee claimed a deduction under Section 37 of the Income Tax Act for management fee expenditure. The AO doubted the genuineness of the expenditure due to lack of supporting documents. However, the CIT(A) accepted the expenditure after considering detailed submissions from the assessee, which demonstrated the necessity and business purpose of the management fee. The ITAT upheld the CIT(A)'s decision, emphasizing that the expenditure was incurred for genuine business purposes. The High Court concurred with the ITAT's view, stating that the business activity and expenditure should not be judged narrowly by revenue officers, and commercial expediency should be considered. Therefore, the appeal on this issue was dismissed.

2. The second issue pertains to the disallowance of advertising expenditure by the AO. The AO allowed only 25% depreciation on the total amount of expenditure and disallowed a significant portion. The CIT(A) referred to relevant judgments, including the Supreme Court's decision on the treatment of capital expenditure, and granted relief to the assessee. The ITAT upheld the CIT(A)'s decision, stating that the relief claimed was justified based on legal precedents. The High Court found no substantial question of law in this regard and dismissed the appeal, affirming the ITAT's decision.