2021 (8) TMI 1080 - AT - Income Tax

Nature of expenses - professional expenses - revenue or capital expenditure - CIT-A treated expenses claimed by the assessee as revenue expenditure instead of capital expenditure treated by the AO - HELD THAT - CIT(A) has decided the said issue in favour of the assessee by following the ratio laid down in the case of CIT vs. SRF Ltd. 2015 (7) TMI 1029 - DELHI HIGH COURT and case of Reliance Footprint Ltd. 2013 (12) TMI 161 - ITAT MUMBAI and case of DSM Sinochem Pharmaceuticals India (P) Ltd. 2015 (12) TMI 1827 - ITAT CHANDIGARH . Since, the Ld. CIT(A) has decided the issue in accordance with the law laid down by decided judgments no infirmity in the order passed by the Ld. CIT(A). - Decided against revenue.

Summary

Issues:
1. Allowability of professional expenses as revenue expenditure.
2. Treatment of expenses incurred for business expansion.
3. Disallowance of expenses by the Assessing Officer.

Issue 1: Allowability of Professional Expenses as Revenue Expenditure:
The case involved an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2013-14, where the Ld. CIT(A) allowed the appeal filed by the assessee against the assessment order. The Revenue contended that professional expenses of ?3,47,72,000 incurred by the assessee should have been capitalized as they were incurred at a preoperative stage. However, the Ld. CIT(A) held that since the business was in existence and the expenses were connected with the expansion of the business, they were allowable as revenue expenditure. The Ld. CIT(A) based this decision on established legal principles and previous court rulings, including the decision of the Hon’ble Delhi High Court in CIT vs. SRF Ltd., and the Mumbai Tribunal in Reliance Footprint Ltd. vs. ACIT. The Ld. CIT(A) also referred to a decision by the Chandigarh Bench of the Tribunal in the case of DSM Sinochem Pharmaceuticals India (P) Ltd. vs. DCIT, where similar expenses were allowed as revenue expenditure. The Tribunal upheld the findings of the Ld. CIT(A) and dismissed the Revenue’s appeal.

Issue 2: Treatment of Expenses Incurred for Business Expansion:
The Assessing Officer had initially reduced the loss claimed by the assessee and determined the business loss, including expenses for the assessment year 2013-14. In the first appeal, the Ld. CIT(A) directed the AO to delete the disallowance made, which led to the Revenue filing the present appeal. The Revenue argued that since the assessee had not commenced business activities, the expenses should have been capitalized. On the contrary, the Ld. counsel for the assessee supported the Ld. CIT(A)’s order, stating that the expenses were related to the expansion of the existing business, and therefore, the disallowance made by the AO was incorrect. The Tribunal, after hearing both parties, agreed with the Ld. CIT(A) and upheld the decision to allow the expenses as revenue expenditure due to their connection with the business expansion.

Issue 3: Disallowance of Expenses by the Assessing Officer:
The AO had disallowed certain expenses claimed by the assessee, leading to a reduced loss amount. However, the Ld. CIT(A) set aside the AO’s action and directed the deletion of the disallowance. The Revenue challenged this decision on various grounds, including the nature of the assessee’s business and the allowability of specific expenses. Ultimately, the Tribunal found no fault in the Ld. CIT(A)’s decision, as it was based on legal precedents and the factual circumstances of the case. Therefore, the Tribunal dismissed the Revenue’s appeal and upheld the order passed by the Ld. CIT(A).

This detailed analysis of the judgment highlights the key issues addressed in the case, the arguments presented by both parties, and the legal reasoning behind the Tribunal's decision to dismiss the Revenue's appeal.