M/S IFMR RURAL RURAL CHANNELS & SERVICES PVT LTD, CHENNAI V. DCIT CORPORATE CIRCLE 2 (2), CHENNAI

ITA 561/CHNY/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4860 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 16-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G JOHNSON
• Assessee Lawyers: N VENKATRAMAN
• Keywords: Capital asset; Revenue expenditure; Capital expenditure
• Section: 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , . , % BEFORE SHRI V.DURGA RAO , JUDICIAL MEMBER AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.561/CHNY/2018 ( / ASSESSMENT YEAR: 2012-13) M/S. IFMR RURAL CHANNELS & SERVICES P.LTD. PHASE-I, 10 TH FLOOR, IITM RESEARCH PARK, KANAGAM VILLAGE, (BEHIND TIDEL PARK) TARAMANI, CHENNAI-600 113. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-2(2), 512, 5 TH FLOOR, WANAPARTHY BLOCK, CHENNAI-600 034. PAN: AAFCR 4450D ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. N.VENKATRAMAN, C.A. /RESPONDENT BY : MR. G.JOHNSON, ADDL.CIT ! /DATE OF HEARING : 07.09.2021 ! /DATE OF PRONOUNCEMENT : 29.09.2021 / O R D E R PER G.MANJUNATHA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST ORDER PASSED BY THE LEARNED CIT(A)-13, CHENNAI DATED 11. 12.2017 AND PERTAINS TO ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 1) THE ORDER OF THE LEARNED CIT (A) - 13 IS CONTRAR Y TO THE FACTS OF THE CASE AND IS THEREFORE UNSUSTAINABLE. 2) THE LEARNED C.I.T (A)- 13 OUGHT NOT TO HAVE SUST AINED THE ADDITION OF RS. 1,24,56,952/- MADE BY THE ASSESSING OFFICER AS CAPITAL EXPENDITURE. 2 ITA NO. 561/CHNY/2018 3) THE C.LT(A) - 13 OUGHT TO HAVE APPRECIATED THE F ACT THAT THE LEGAL AND PROFESSIONAL CHARGES DISALLOWED BY THE LE ARNED ASSESSING OFFICER INCLUDES DUE DILIGENCE FEES, CONS ULTATION FEES FOR DRAFTING INVESTMENT AGREEMENTS AND FEES FO R RAISING CAPITAL / DEBENTURES WHICH ARE ESSENTIAL / CRITICAL FOR EXPANDING OPERATIONS AND NETWORK OF THE COMPANY ACR OSS VARIOUS RURAL AREAS / STATES IN INDIA. 4) THE C.I.T (A) -13 OUGHT TO HAVE APPRECIATED THE FACT THAT THAT ALL THE EXPENSES RELATED ONLY TO THE RUNNING OF THE BUSINESS. THE EXPENSES DID NOT RESULT IN ACQUISITION OF ANY A SSET. THEY DID NOT RESULT IN THE APPELLANT COMPANY GETTING AN ADVANTAGE OF ENDURING NATURE. THE EXPENSES RELATED TO THE CAR RYING ON OF ITS BUSINESS MORE EFFECTIVELY IN THE ORDINARY CO URSE OF BUSINESS, AND OUGHT NOT TO HAVE SUSTAINED ADDITIONS ON THAT SCORE. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS OF RURAL FINANCING FILED I TS RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13 ON 25.09.2012 DE CLARING LOSS OF RS.4,82,53,278/-. THE CASE HAS BEEN TAKEN U P FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS IN CURRED HUGE PROFESSIONAL AND LEGAL CHARGES AND HENCE, CALLED U PON THE ASSESSEE TO FILE NATURE OF EXPENSES INCURRED UNDER THE HEAD LEGAL AND PROFESSIONAL CHARGES. IN RESPONSE, THE ASSESSEE HAS FILED DETAILS OF EXPENSES, WHICH INCLUDES PROFE SSIONAL FEES PAID FOR INCORPORATION AND INCIDENTAL EXPENSES, R OC FEES, PURCHASE OF SHARE TRANSFER STAMPS, CHARGES FOR DRA FTING INVESTMENT AGREEMENT, WEBSITE MAINTENANCE EXPENSES, 3 ITA NO. 561/CHNY/2018 PROVISION FOR EQUITY RAISING EXPENSES & EMPLOYEE S HARING COST AND CLAIMED THAT ALL THESE EXPENSES ARE INCURRED I N THE COURSE OF BUSINESS OF THE ASSESSEE FOR RAISING CAPITAL TO EXPAND ITS OPERATIONS. THE ASSESSING OFFICER, HOWEVER, WAS NO T CONVINCED WITH THE EXPLANATION FURNISHED BY THE ASS ESSEE AND ACCORDING TO HIM, EXPENSES INCURRED BY THE ASSESSEE IS IN NATURE OF CAPITAL EXPENSES, WHICH GIVES ENDURING BE NEFIT AND THUS, CANNOT BE ALLOWED AS DEDUCTION AND HENCE, MAD E ADDITION OF RS.1,24,56,952/-. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE PREFERRED AN APPEAL BEFORE CIT(A). BEFORE THE LEARN ED CIT(A), THE ASSESSEE HAS REITERATED ITS ARGUMENTS TAKEN BEF ORE THE ASSESSING OFFICER AND SUBMITTED THAT LEGAL AND PRO FESSIONAL CHARGES INCURRED AFTER COMMENCEMENT OF BUSINESS, E VEN IF EXPENSES ARE INCURRED WHICH RELATED TO CAPITAL ASS ETS, NEEDS TO BE ALLOWED AS DEDUCTION, BECAUSE WHILE INCURRING SAID EXPENSES THE ASSESSEE DOES NOT ACQUIRE ANY CAPITAL ASSET AND FURTHER EXPENSES INCURRED DOES NOT GIVE ENDURING BENEFIT. THE LEARNED CIT(A), AFTER CONSIDERING RELEVANT SUBMISSI ONS OF THE ASSESSEE AND ALSO TAKEN NOTE OF VARIOUS FACTS BROUG HT OUT BY 4 ITA NO. 561/CHNY/2018 THE ASSESSING OFFICER OBSERVED THAT PROFESSIONAL A ND LEGAL CHARGES INCURRED BY THE ASSESSEE, INCLUDING WEBSIT E MAINTENANCE EXPENSES IS IN THE NATURE OF CAPITAL E XPENDITURE AND NOT ALLOWABLE UNDER THE ACT. AGGRIEVED BY THE L EARNED CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED A.R FOR THE ASSESSEE SUBMITTED THAT THE LEARNED CIT(A) HAS ERRED IN SUSTAINING ADDITIONS MA DE BY THE ASSESSING OFFICER TOWARDS LEGAL AND PROFESSIONAL C HARGES INCURRED AS CAPITAL EXPENDITURE, WITHOUT APPRECIAT ING FACT THAT SAID EXPENDITURE WAS INCURRED AFTER COMMENCEMENT OF BUSINESS AND FOR BUSINESS OPERATIONS OF THE ASSESSEE. THE AR FURTHER SUBMITTED THAT THOUGH EXPENDITURE WAS INCURRED TO R AISE CAPITAL, BUT SUCH CAPITAL WAS RAISED TO ENHANCE BUSINESS OPE RATIONS OF THE ASSESSEE WHICH CANNOT BE CONSIDERED AS ACQUISIT ION OF ANY CAPITAL ASSET OR EXPENSES INCURRED GIVES ENDURING B ENEFIT TO THE ASSESSEE. 6. THE LEARNED DR, ON THE OTHER HAND, SUPPORTING O RDERS OF THE ASSESSING OFFICER AS WELL AS LEARNED CIT(A) SU BMITTED THAT IT IS AN ADMITTED FACT BY NATURE OF EXPENSES INCUR RED BY THE ASSESSEE THAT ALL EXPENSES ARE INCURRED FOR RAISIN G CAPITAL 5 ITA NO. 561/CHNY/2018 WHICH IS IN THE NATURE OF CAPITAL EXPENDITURE WHICH GIVES ENDURING BENEFIT TO THE ASSESSEE AND THUS, SAME CA NNOT BE ALLOWED AS DEDUCTION. THE LEARNED CIT(A) AFTER CONS IDERING RELEVANT FACTS HAS RIGHTLY AFFIRMED ADDITION MADE B Y THE ASSESSING OFFICER AND HIS ORDER SHOULD BE UPHELD. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. IT IS AN ACCEPTED POSITION OF LAW THAT AN E XPENDITURE WHICH CONFERS BENEFIT TO THE BUSINESS FOR A LONG PERIOD IS CONSIDERED TO BE CAPITAL EXPENDITURE. FURTHER, IT H AS BEEN CLARIFIED BY THE COURTS THAT BENEFITS TO THE BUSIN ESS SHOULD NOT BE TRANSITORY, BUT SHOULD BE OF AN ENDURING NATURE . IF THIS ADVANTAGE OBTAINED AS A RESULT OF INCURRING EXPENDI TURE CONSISTS MERELY OF FACILITATING BUSINESS OPERATION OR ENABLI NG MANAGEMENT OR CONDUCT OF BUSINESS TO BE CARRIED ON MORE EFFECTIVELY, THEN EXPENDITURE HAS TO BE CONSIDERED AS REVENUE EXPENDITURE. IF YOU EXAMINE NATURE OF EXPENSES INC URRED BY THE ASSESSEE IN LIGHT OF ABOVE LEGAL POSITION, ONE HAS TO UNDERSTAND WHETHER BY INCURRING SAID EXPENDITURE THE ASSESSEE HAS ACQUIRED ANY CAPITAL ASSET OR IT GIVES ANY ENDURING BENEFIT TO THE 6 ITA NO. 561/CHNY/2018 ASSESSEE. IN THIS CASE, THE ASSESSEE HAS PAID PROFE SSIONAL AND LEGAL CHARGES TO VARIOUS LAW FIRMS FOR INCORPORATI ON OF COMPANY, PURCHASE OF SHARE TRANSFER STAMPS FOR ACQUISITI ON OF COMPANY PROFESSIONAL FEES PAID FOR DRAFTING INVESTMENT AGRE EMENT, STRUCTURING VARIOUS DOCUMENTS, DUE DILIGENCE ETC. FOR INVESTMENT AGREEMENT, SHARING OF EMPLOYEE COST A ND PROVISION FOR EQUITY EXPENSES AND SAID EXPENDITURE CANNOT BE CONSIDERED AS CAPITAL IN NATURE WHICH GIVES ENDURI NG BENEFIT TO THE ASSESSEE. FURTHER, ALL THESE EXPENSES WERE INC URRED AFTER COMMENCEMENT OF BUSINESS FOR EXPANDING BUSINESS OPERATIONS OF THE ASSESSEE. FURTHER, EXPENSES DID NOT RESULT IN ACQUISITION OF ANY ASSET NOR DID THEY GIVE ANY END URING BENEFIT TO THE ASSESSEE. THEREFORE, WE ARE OF THE CONSIDER ED VIEW THAT EXPENSES INCURRED RELATING TO CARRYING ON OF BUSIN ESS MORE EFFECTIVELY IN THE ORDINARY COURSE OF BUSINESS EVEN IF, EXPENSES ARE INCURRED WHICH ARE RELATED TO CAPITAL ACCOUNT C ANNOT BE CONSIDERED AS CAPITAL IN NATURE, MORE PARTICULARLY, WHEN THE ASSESSEE HAS INCURRED SAID EXPENDITURE AFTER COMM ENCEMENT OF BUSINESS IN THE ORDINARY COURSE OF ITS BUSINESS ACTIVITIES. THIS LEGAL POSITION IS CLARIFIED BY CBDT VIDE CIRC ULAR NO.10 DATED 18.06.1964, WHERE IT HAS BEEN CLARIFIED THA T PROFESSIONAL 7 ITA NO. 561/CHNY/2018 CHARGES INCURRED FOR RUNNING BUSINESS MORE EFFECT IVELY CANNOT BE TREATED AS CAPITAL IN NATURE. AS REGARDS WEBSI TE DEVELOPMENT EXPENSES, WE FIND THAT THE HONBLE DEL HI HIGH COURT IN THE CASE OF CIT VS. INDIA VISIT COM (2009) 176 TAXMAN 164 HAS HELD THAT WEBSITE DEVELOPMENT EXPENSES IS REVENUE IN NATURE. FROM THE ABOVE, IT IS VERY CLEAR THAT AN Y EXPENDITURE INCURRED FOR OBTAINING ADVISE ON INDUSTRIAL, FINAN CE OR LEGAL MATTERS ARE CONSIDERED TO BE ALLOWABLE AS DEDUCTI ON, IF SUCH EXPENDITURE IS INCURRED IN CONNECTION WITH RUNNING OF BUSINESS OF THE ASSESSEE. IN THIS CASE, IF YOU GO THROUGH N ATURE OF EXPENSES INCURRED BY THE ASSESSEE INCLUDING PROFE SSIONAL FEES PAID FOR INCORPORATION OF COMPANY, PURCHASE OF SHA RE TRANSFER STAMPS, CONSULTATION FEES PAID FOR DRAFTING INVEST MENT AGREEMENT, PROFESSIONAL FEES PAID FOR STRUCTURING V ARIOUS DOCUMENTS AND DUE DILIGENCE FOR INVESTMENT AGREEME NT ARE DEFINITELY IN THE NATURE OF REVENUE EXPENSES, WHIC H CANNOT BE AT ANY STRETCH OF IMAGINATION BE CONSIDERED AS CAPI TAL IN NATURE. THE OTHER EXPENSES INCURRED BY THE ASSESSEE INCLUDI NG WEBSITE EXPENSES AND SHARING OF EMPLOYEE COST ARE INCURRED IN ORDINARY COURSE OF BUSINESS AND THUS, SAME ARE IN THE NATURE OF REVENUE EXPENDITURE. 8 ITA NO. 561/CHNY/2018 8. IN THIS VIEW OF THE MATTER, AND CONSIDERING FA CTS AND CIRCUMSTANCES OF THIS CASE, WE ARE OF THE CONSIDERE D VIEW THAT THE LEARNED CIT(A) HAS ERRED IN SUSTAINING ADDITION MADE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCE OF LEG AL AND PROFESSIONAL CHARGES AS CAPITAL IN NATURE. HENCE, W E REVERSE FINDING OF LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION CLAIMED TOWARDS LEGAL AND PROFESS IONAL CHARGES. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH SEPTEMBER, 2021 SD/- SD/ ( . ) ( . ) (V.DURGA RAO) ( G. MANJUNATHA ) % ' / JUDICIAL MEMBER ' / ACCOUNTANT MEMBER % /CHENNAI, * /DATED 29 TH SEPTEMBER, 2021 DS ,- .- /COPY TO: 1. APPELLANT 2. RESPONDENT 3. / () /CIT(A) 4. / /CIT 5. - 3 /DR 6. /GF .