Avitel Post Studioz Limited Vs DCIT (ITAT Mumbai)
Assessee, Avitel Post Studioz Ltd., challenged the disallowance of ₹1,58,51,240 incurred as legal & professional expenses, which were held by AO & CIT(A) to be capital in nature u/s 37(1).
The reassessment was initiated based on information about a ₹268.20 crore investment received from HSBC PI Holdings (Mauritius) in 2011. AO disallowed professional fees paid to five firms (KPMG, AZB & Partners, Nishith Desai & Associates, Wadia Gh&y & Co., & KPMG India), citing the expenses as capital expenditure related to capital-raising.
| Party | Amount | Reason for AO’s Disallowance |
|---|---|---|
| KPMG India | 1,00,37,300 | Preparation of Information Memor&um – deemed capital in nature |
| AZB & Partners | 25,35,803 | Legal work for preference share issue – linked to capital raising |
| KPMG (UK Ops) | 9,37,771 | Restructuring advice – insufficient documentation |
| Nishith Desai & Assoc | 8,97,458 | Legal defence in investor litigation – post-investment |
| Wadia Ghandy & Co | 14,42,908 | Legal advisory & documentation – linked to HSBC deal |
Before the Tribunal, Assessee argued that
- All expenditures were incurred in the course of business;
- No new asset or capital structure has come into existence;
- Expenses were necessitated by business exigencies, investor terms, litigation or regulatory compliance;
- Mere proximity to capital raising or timing of invoices does not convert a business expense into a capital one;
- Disallowance of service tax components is per se untenable as such tax was paid to the Government & not claimed as deduction.
Thus none of the expenses disallowed fall outside the ambit of section 37(1), & the AO has failed to establish the capital nature of these outlays.
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