2019 (8) TMI 346 - AT - Income Tax

Condonation of delay of 1625 days - filing single appeal against order u/s 143(3) as well as order u/s 154 - HELD THAT - There was no negligence or inaction on the part of the assessee in filing the appeal. It was only the advice of the Chief Accountant based on which assessee acted upon. However, on being pointed out by the CIT(A) that two separate appeals need to be filed, the assessee without further delay filed the appeal against the order u/s 143(3). The circumstances leading to delay in filing the appeal does not reveal that the act of the assessee is intentional or that there was some other motive behind in delay in filing the appeal. Thus, following the ratio laid down by the Hon'ble Supreme Court in the case of Ram Nath Sao @ Ram NathSahu and Others 2002 (2) TMI 1280 - SUPREME COURT followed by the Pune Bench of the Tribunal in the case of Atlas Copco 2019 (4) TMI 564 - ITAT PUNE we hereby condone the delay in filing of appeal by the assessee. Addition towards professional fees for valuation of know-how u/s 37(1) - revenue OR capital expenditure - HELD THAT - From the nature of expenditure incurred, we find that the expenditure is not incurred for the acquisition of know-how; it is incurred only for the purpose of valuation of the know-how. Admittedly, the expenditure in isolation has not created any asset nor has it added any value in the know-how of the assessee, benefit of which can be said to have accrued to the assessee over a longer period. Further, valuation of know-how was in the course of business of the assessee as know-how pertained to the business of the assessee. Further, assessee has placed before us the detailed valuation report obtained by him for valuation of know-how and the copies of invoices for professional fee paid for carrying out the valuation exercise. Thus, we find that the said expenditure is not in the nature of capital expenditure but is in the revenue field; and, thus is allowable u/s 37(1). The order of CIT(A) is accordingly set aside and the AO is directed to delete the addition made on account of professional fee paid for valuation of know-how. - Ground allowed

Summary

Issues Involved:
- Condonation of delay in filing appeal against orders under Sections 143(3) and 154 of the Income Tax Act, 1961
- Disallowance of professional fees as business expenditure under Section 37(1) or capital expenditure

Condonation of Delay in Filing Appeal:
The appeals filed by the assessee challenged orders passed by the CIT(A)-14, Mumbai arising from Assessing Officer's orders under Sections 143(3) and 154 of the Income Tax Act, 1961 for the assessment year 2009-10. The delay in filing the appeal against the order under Section 143(3) was 1625 days. The assessee explained that the delay was due to following the advice of the Chief Accountant to opt for rectification under Section 154 rather than appeal. The CIT(A) rejected the application for condonation of delay without discussing the merits of the case. The Tribunal, citing the decision in the case of Atlas Copco (India) Ltd, upheld the condonation of delay, emphasizing that there was no negligence or inaction on the part of the assessee, and the delay was unintentional and based on advice.

Disallowance of Professional Fees:
The Assessing Officer disallowed professional fees of &8377; 7,50,000 paid by the assessee to M/s. M. N. Dastur & Co. for valuation of know-how, stating it was not acceptable without providing reasons. The CIT(A) upheld this disallowance without giving a decision on the matter. The assessee argued that the expenditure was incurred in the course of business and should be allowed as revenue expenditure under Section 37(1) of the Act. Alternatively, it was contended that if treated as capital, depreciation should be allowed. The Tribunal analyzed the nature of the expenditure, finding that it did not result in the creation of a capital asset or enduring benefit. The expenditure was for valuation, not acquisition, of know-how, and did not add value to the asset. Therefore, it was held to be revenue expenditure under Section 37(1) and directed the Assessing Officer to delete the addition made on account of professional fees. Consequently, the appeal against the order under Section 154 was dismissed as infructuous.

In conclusion, the Tribunal allowed the appeal in ITA No. 4665/Mum/2017, condoning the delay in filing and directing the deletion of the addition of professional fees. The appeal in ITA No. 5525/Mum/2016 was dismissed as infructuous since the main appeal was allowed.