Apax Partners India Advisers (P.) Ltd. Vs. Dy. CIT (ITAT Mumbai)
Dis allowance of provision for legal and professional fees.
On this issue it was noted by the assessing officer that assessee has debited an amount of Rs. 10,00,000 on account of provision for legal and professional fees. The assessing officer found that the said sum is payable to M/s. Amarchand Mangaldas & Suresh A. Shroff & Co. for the advisory/professional services in relation to the following :–
(i) Review of documents of title of Licensors in subject office premises;
(ii) Conducting searches in Land Register;
(iii) Reviewing letter of intent issued by Licensor;
(iv) Attending meeting and teleconferencing on behalf of assessee with external parties; and
(v) Advising on various Indian Laws with regard to acquisition of office on leave and license basis.
The assessing officer was of the opinion that the professional fees has been paid for acquiring the premises on lease which will give the assessee enduring benefits extending beyond the year under consideration. Therefore, the assessing officer held the same to be capital expenditure, not allowable under section 37(1) of the Act.
Upon assessee’s objection, the DRP held that the amount was dis allowable under section 40(a)(ia). The relevant portion of DRP’s direction reads as under :–
“We are of the view that such expenditure cannot be termed as capital in nature only because it represents legal fees payable in relation to acquiring premises on lease. We also accept the assessee’s contention that since the expenses had actually been incurred, the amount was correctly reflected in the form a provision in the P&L A/c in accordance with the method of accounting. However, tax has not been deducted at sources under section 194J at the time of crediting this amount in the books. The relevant provisions state that tax is deductible at the time of payment or credit, even if the credit is to a suspense account. The assessee’s contention that tax was not deductible since the amount did not constitute income in the hands of the recipient, is not acceptable. The revenue nature of the expenditure is not in dispute, and the assessee has no way of knowing the method of accounting followed by the recipient which would determine whether the amount constituted income of the relevant year in its hands. The amount is therefore held to be dis allowable under section 40(a)(ia). The assessing officer is directed to make the necessary modification in the assessment order.”
We have heard both the Counsel and perused the records. Learned Counsel of the assessee submitted that the above is provision for legal expenses. He submitted that the said provision was reimbursed in the next year and the actual expenses booked and taxed were duly deducted at source. Learned Counsel submitted that assessee is not required to deduct tax at source on estimation of expenses i.e. for the provision made for expenses, tax deduction is not required. For this proposition, learned Counsel placed reliance upon case law from Aditya Birla NUVO Ltd. v. Dy. CIT [IT Appeal No. 8427 (Mum.) of 2010, date 17-9-2014].
We find that the ITAT Mumbai Benches in the above said decision has duly upheld the proposition that when the provisions are made and payments are not received and in the subsequent year the provision made is offered for taxation, the impugned amount cannot be disallowed and hence cannot be brought under the ambit of taxation under section 40(a)(ia). No contrary decision was shown to us. Hence we set aside the orders of the authorities below on this issue and decide the issue in favour of the assessee.
