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2020 (11) TMI 613 - HC - Income TaxDisallowance u/s 14A r.w.r. 8D - Tribunal confirming the decision of CIT (A) restricting the disallowance to the extent of exempt income - HELD THAT - Tribunal, while dismissing the appeal of the Revenue on the question of disallowance under Section 14A in conformity with the judicial precedents, find substantial merit in the conclusion drawn by the CIT(A) for limiting the disallowance to the extent of exempt income. Hence, we decline to interfere. - Decided against revenue. Nature of expenditure - expenses incurred on account of professional and legal fees - revenue or capital expenditure - HELD THAT - Professional fees paid by Appellant are for existing business and not incurred for analyzing the market for new line of business or is not for diversification of its business. By incurring such expenditure, Appellant is constantly getting updates regarding market survey carried out for existing product line and same does not give any enduring benefit or is not in nature of capital expenditure. The expenses are not incur red for exploring the market for a new product and rather expenses is incurred for exploring the circumstances as to how Assessee should manage it s existing business more effectively hence relying upon the decision of Hon'ble Delhi ITAT in the case of KJS India Pvt. Limited 2010 (7) TMI 797 - ITAT DELHI expenditure incur red by Appellant is business expenditure allowable under Section 37. Also in the case of Majestic Auto Limited 2009 (1) TMI 57 - PUNJAB AND HARYANA HIGH COURT on similar circumstances held that expenditure incurred for obtaining report on reorganization of its core business and for improving market share and profit ability is allowable as revenue expenditure. Expenditure incurred by Appellant is allowable as revenue expenditure. - Decided in favour of assessee.
Issues:
1. Disallowance under Section 14A of the Income Tax Act, 1961. 2. Allowability of professional and legal fees as revenue expenditure. Issue 1: Disallowance under Section 14A of the Income Tax Act, 1961: The High Court considered the appeal by the Revenue against the order of the Income Tax Appellate Tribunal regarding the disallowance under Section 14A of the Act. The Tribunal had limited the disallowance to the extent of exempt income earned by the assessee, which was ?7,38,000. The Court noted that various judicial precedents, including decisions by the Delhi High Court, Madras High Court, and Gujarat High Court, emphasized that disallowance under Section 14A cannot exceed the amount of tax-exempt income. The Court found substantial merit in the Tribunal's conclusion and declined to interfere with the order, ultimately dismissing the appeal. Issue 2: Allowability of professional and legal fees as revenue expenditure: Regarding the second question raised by the Revenue, the Court examined the Tribunal's findings on the nature of professional fees paid by the assessee. The Tribunal had held that the expenditure on professional fees was allowable as revenue expenditure under Section 37 of the Act. The Court observed that the expenses were incurred for the existing business to obtain updates on the market survey for the existing product line, rather than for new business exploration or diversification. Citing precedents such as a decision by the Hon'ble Delhi ITAT, the Court agreed that the expenditure was business expenditure and allowable as revenue expenditure. The Court referred to previous judgments to support this conclusion, including decisions by the Hon'ble Punjab & Haryana High Court and the Hon'ble Gujarat High Court. As the questions raised by the Revenue were already covered by established precedents, the Court found no substantial questions of law and dismissed the appeal. In conclusion, the High Court upheld the Tribunal's decisions on both issues, affirming the limitation of disallowance under Section 14A to exempt income and allowing the professional and legal fees as revenue expenditure. The Court relied on established judicial precedents to support its findings and dismissed the appeal by the Revenue.
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