Deduction allowable on Expenses towards Improvisation in Process and Technology which are Supplemental to Business: ITAT [Read Order]

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) in the case of M/s. Manipal Health Systems Pvt. Ltd. v. ACIT held that the expenditure incurred for the expansion of the existing business, should be treated as Revenue Expenditure.

The present appeal has been filed by the appellant against the confirmation of disallowance made by the Assessing Officer (AO) under Section 40A of the Income Tax Act holding that the said amount being the foreign exchange loss on reinstatement of closing balance of foreign currency loan amount was capital in nature which was suffered on account of capital advance made to subsidiary.

Assessee preferred an appeal before the Commissioner of Income Tax Appeals (CIT(A)) with the submission that assessee has offered an income under the head ‘foreign exchange fluctuation gain’. The CIT(A) however ruling against the assessee held that the loss amount being foreign Exchange Loss on Restatement of Closing Balance of Foreign Currency Loan Amount which is essentially capital in nature is liable to be added back to the Total Income of the Assessee Company. Furthermore, it confirmed the disallowance made by the AO to the extent of 1/3^rd of the total claim raised by the assessee.

With respect to the issue relating to expenses incurred in the ordinary course of business with a view to expand the existing business, the appellant contended that the same would be allowable as revenue expenditure.

After carefully considering the arguments advanced by both the parties, the Tribunal bench comprising of Judicial Member Sunil Kumar Yadav and Accountant Member Jason P Boaz held that AO has not doubled the payment made by the assessee on account of services rendered by them without bringing in record any cogent material to demonstrate that the payment made by the appellant is in excessive. With respect to the issue pertaining to improvisation in the process and technology in some areas of enterprises, heavy reliance was placed on the precedents signifying the position prevalent before the present case, the Tribunal concluded that the expenditure incurred for the expansion of the existing business, should be treated as revenue expenditure.