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TMI Blog2016 (9) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961 (Act) in respect of the order passed by the Income-tax officer - 6(1)(4), Mumbai (the AO) under section 143(3) of the Act, on the following ground: The learned CIT(A) erred in confirming the action of the AO in disallowing the consultancy charges paid to Amarchand & Mangaldas & Suresh A Shroff & Co (AMS) amounting to Rs. 10,201,400." 2. During the course of hearing, arguments were made by Shri Nitesh Josh, on behalf of the assessee and by Shri Ganesh Bare on behalf of the revenue. 3. The only effective ground in this case is with regard to disallowance of a sum of Rs. 1,02,01,400 being the consultancy charges paid to the legal advisor firm, M/s Amarchand Mangaldas Suresh A Shroff Company on the ground that the said amount was not incurred for the purpose of business as the same was incurred prior to commencement of business of the assessee. 4. The brief facts as culled out from the orders of the lower authorities are that the assessee company was incorporated during the year under consideration on 25-04-2006. The assessee company is an investment holding company of AIG group and is registered with Reserve Bank of India (RBI) as Non Banking Financial Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. (AMS) for due diligence carried out for investment purposes. Since the appellant company is engaged in the business of making investment, such fees paid is 'for the purpose of business', therefore, the same needs to be allowed u/s 37(1) of the I.T. Act, 1961. The appellant claimed that as per provisions of section 37(1), such expenditure incurred is allowable as this expenditure is neither a capital expenditure nor an expenditure of personal in nature. The appellant further claimed that such expenditure has been incurred wholly and exclusively 'for the purpose of business', therefore the same needs to be allowed. The appellant has also relied upon the following case laws: (a) DCIT vs. Venkateswar Investment & Finance P. Ltd. 277 ITR 20 (Cal), ITAT. (b) CIT Vs. Amalgamations Pvt Ltd (1997)226 ITR 188 (SC) (c) CIT Vs. Malayalam Plantations Ltd (1987)188 ITR 63 (SC) (d) CIT Vs. Jagannath Kishonlal 41 ITR 360 (SC). (e) CIT Vs. Panipat Woolen & General Mills 103 ITR 66. (f) Madhavprasad Jatia Vs. CIT 118 ITR 200 (SC), and (g) S.A. Builders Ltd Vs. CIT288 ITR 1(SC)." 6. Ld. CIT(A) considered the submission of the assessee, but he was not satisfied and did not find fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of a company, expenses under the head "Income from business" can be allowed from which stage? (ii) When that stage was achieved in the case of Assessee Company? i.e. when the business was 'commenced' and when it was 'setup'? (iii) What kind of expenses can be allowed as revenue expenses in the case of a financial company in the course of its business? and (iv) Whether expenses under consideration in the form of legal fee paid to a law firm needs to be capitalised or allowed as revenue expense, under the law? 9. We have pondered over all these issues. As far as first dimension is concerned, i.e. from what stage the expense can be treated as allowable in the case of a company, we shall make first of all, reference to section 3 of the Income-tax Act, 1961, which defines "previous year", as under: "3. For the purposes of this Act, "previous year means the financial year immediately preceding the assessment year: Provided that, in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning with the date of setting up of the business or profession or, as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also brought to our notice that one of the objects for which the company was incorporated was to make investment in other companies, and the assessee company had received funds in the form of share capital or other sources before 11-10-2006 and it had started making due diligence for potential investee companies immediately after getting NBFC registration certificate on 11-10-2006, then it can be said that assessee company was ready to commence its business and thus its business was set-up on 11-10-2006. Thus, we find that in principle, the expenses incurred after 11-10-2006 having been incurred after setting up of business are deductible as revenue expenditure. 11. The next issue to be examined here is about the nature of expenses under question. It is noted that a sum of Rs. 4,21,400 and Rs. 1,60,000 (aggregating to Rs. 2,01,400) were stated to have been incurred on account of reimbursement of expenses for purchase of stamp paper. During the course of hearing it was stated by the Ld. Counsel that no details are available about the nature and purposes of these expenses. Under these circumstances, we find that these expenses are not allowable and, therefore, these are disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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