Case Law Details
Esteem Finventures Limited (Now Kapedome Enterprises Limited) Vs ACIT (ITAT Delhi)
ITAT is of considered opinion that the ld. CIT(A) has confirmed the addition by stretching too far the rules of prudence. The Ld. AO himself observed in the order that the services engaged were from top most legal professionals. If that was the view of Ld. Tax Authorities then it was not justified to discredit the bills raised by them for services holding that assessee failed to provide substantive evidence and it could not succeed in getting supply of paper during the year or even failed to take over the company. The business uncertainties are infinite and to discredit any professional service on basis that concerned business activity having failed inspite of professional service, is not prudent approach. The very purpose of availing such services of professionals is to ensure that the entrepreneur understands well the SWOT analysis of prospective business activity. Entrepreneur’s own experience is not a ground for tax authorities to question the wisdom of assessee to have engaged the expert. While factually otherwise also, in the next year, assessee had purchased paper worth Rs. 3,20,99,547/- from M/s. Garnett Specialty papers Ltd. as is evident from the details of invoices given on page no. 51-52 of the paper book. So there is evidence which shows that having failed to take over the said company in relevant year, material was still purchased from it in next year.
Backward or forward integration of the activities of a manufacturing business cannot be considered to be establishment of a new enterprises to consider such legal and professional expenses to be for acquiring new assets and to not treat them revenue expenditure. Hon’ble Delhi High Court in Commissioner of Income Tax vs. Priya Village Roadshows Ltd. (supra) has held that expenses incurred in preparation of feasibility report in the same line of business has to be treated as revenue expenditure. In this judgment itself Hon’ble High Court has also taken into consideration that if the project is shelved that does not make the expenditure made upon feasibility study to be disallowed as business expenditure u/s 37 of the Act. Relying this judgment a Co-ordinate Bench in the Krishak Bharati Cooperative ltd. vs. Jt. Commissioner of Income Tax (supra) had held that the expenditure which were made by the said assessee to obtain consulting report/ feasibility study on connected business activity, which was ultimately abandoned can be debit under the head “legal and professional charges” as a revenue expenditure.
ITAT held that Ld. CIT(A) has erred in confirming the disallowance of Rs. 22,45,508/- out of legal and professional charges made by the Ld. AO. The appeal of assessee is allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
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