2015 (12) TMI 347 - AT - Income Tax

Disallowance of Licensing/registration fee & ISO registration fees - CIT(A) deleted the addition - revenue v/s capital in nature - Held that - CIT(A) granted relief by holding that the AO could not understand the business activity of the assessee properly. He further observed that the assessee company was doing business of giving card to customers of different business entities and impugned expenditure incurred towards plant registration and licensing and registration fee for different places all over India. He also observed that these expenses were allowed to the assessee in other preceding and succeeding assessment years except A.Y. 2004-05 which is the period under consideration. It is not the case of the AO that these expenses incurred by the assessee brought any asset or benefit of enduring nature for the assessee and these are one time expenditure, capital in nature, hence, the view taken by the CIT(A) is correct and sustainable and we approve the same. - Decided against revenue

Summary

Issues:
1. Whether the CIT(A) erred in deleting the addition of Rs. 28,06,409/- made by the AO on account of disallowance of Licensing/registration fee & ISO registration fees being of capital in nature?
2. Whether the order of the CIT(A) is erroneous and not tenable on facts and in law?

Analysis:

Issue 1:
The Revenue appealed against the CIT(A)'s order deleting the addition of Rs. 28,06,409/- made by the AO for A.Y. 2004-05, arguing that the expenses were of enduring benefit to the assessee. The Revenue contended that the CIT(A) granted relief without basis. The AR of the Assessee argued that the expenses were recurring in nature and continuously incurred during preceding and subsequent years, hence allowable as per rule of consistency.

Upon careful consideration, the Tribunal noted the written contentions submitted by the assessee before the CIT(A), highlighting that the expenses were incurred for maintaining the business and not for acquiring any right to operate services. The Tribunal agreed with the CIT(A) that the expenses were revenue in nature, not capital, as they did not bring any enduring benefit to the assessee. The Tribunal supported the CIT(A)'s decision based on the business activity of the assessee, emphasizing that the expenses were incurred for improving the business and were allowed in other years. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order.

Issue 2:
The Tribunal upheld the CIT(A)'s decision, stating that the AO failed to understand the business activity of the assessee properly. The Tribunal concurred with the CIT(A)'s reasoning that the expenses were revenue in nature, necessary for improving the business, and not capital expenditures. The Tribunal emphasized the rule of consistency and the lack of enduring benefit to the assessee from the expenses. As a result, the Tribunal found no merit in the Revenue's grounds and dismissed the appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order, as the expenses in question were deemed revenue expenditures necessary for the business and not capital in nature.