By TIOL News Service

NEW DELHI, MAR 04, 2019: THE issue is - Whether professional fees incurred for expansion of existing business and not for starting a new line of business is revenue in nature and hence allowable. YES is the answer.

Facts of the case

The assessee company is engaged in the business of manufacturer and supplier of sheet metal stampings and weldments of specific designs to Maruti Suzuki Ltd. Upon filing the return, the case was selected for scrutiny. During the assessment proceedings, the AO observed that the assessee had incurred expenditure on legal and professional charges. Unsatisfied by the justification of the assessee, the AO made addition. The AO also observed that the assesee had earned dividend income and after applying the provisions of section 14A r/w Rule 8 D, worked out the disallowance on such income to the extent of balance amount not suo moto disallowed by the assessee. The AO also observed that the assessee had claimed miscellaneous expenditure incurred in paying HSIIDC as subleasing fees for sub letting out the land to its group concerns. This was disallowed by the AO. The CIT(A) upheld the action of the AO.

On hearing the appeal, the Tribunal held that,

++ on disallowance of expenditures incurred for legal and professional fees, in the instant case the payment has not been made for creating a new line of business or distinct business and the payment has been made for expansion or restructuring of the existing business. Respectfully following the decision of jurisdictional High Court in CIT Vs. Priya Village Road Shows Ltd., the CIT(A) is not justified in upholding the disallowance of the professional fees paid to one M/s. Accenture Services Private Limited as capital in nature. Following the ratio of the jurisdictional High Court, the issue is decided in favor of the assessee;

++ on disallowance of miscellaneous expenditure, the AO disallowed such amount being sub-leasing charges paid to HSIIDC because it was penal in nature. The CIT(A) has held that the amount so paid towards sub-leasing fees is not penal in nature and held it as capital in nature. The assessee has submitted that since the assessee has already offered to tax the income arising on account of subleasing to the group concerns, therefore, the corresponding expenditure incurred by the assessee for earning such income should also be allowed as deduction. This contention is accepted on merit. Since there is no dispute to the fact that the assessee has offered to tax the income arising to it on account of sub-leasing, therefore, by simple logic corresponding expenditure, which is the Government fees paid towards sub-leasing of the property should be allowed as expenditure. Therefore the CIT (A) is not justified in sustaining the addition and treating the amount as capital in nature. The ground raised by the assessee is accordingly allowed.

(See 2019-TIOL-558-ITAT-DEL)