The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that NBFC being financial company tried to enter in to banking business and for this purpose the assessee incurred expenditure on preparation of a report on transformation of company from financial institution to banking company, which was not beyond the scope of working.
The appeal was filed against the order of CIT(A) and the grounds raised by the assessee were as follows:-
1) That the order of the learned CIT (Appeals) is bad in law and wrong on facts.
2) That on the facts and in the circumstances of the case, the learned CIT (Appeals) has erred in not directing the Assessing Officer to allow credit for self assessment tax paid as per the revised statement filed on 04-07-2016 wherein the assessee made a wrong disallowance for increased provision for Gratuity liability towards an approved gratuity fund by the Commissioner of Income Tax and therefore covered u/s 40A(7)(b) of the Act.
3)That on the facts and in the circumstances of the case, the learned CIT (Appeals) has erred in confirming the addition of Rs. 1,97,84,688/- (including service tax of Rs. 21,13,560/-) in respect of advisory fee paid for application of banking licence.
The CIT(A) had upheld the addition by observing that the assessee despite express prohibition tried to venture into banking business without realizing that the object was specifically prohibited the assessee from carrying on banking business. Agreeing with the conclusion of AO, the CIT(A) had upheld the addition.
The tribunal agreed with the contention of the AR that on receipt report the company tried to get permission for undertaking banking business but without result therefore this expenditure may be treated as incurred for the purpose of business of assessee. Neither the Assessing Officer nor CIT(A) has disputed the quantum of expenditure which was incurred inclusive of service tax to be paid thereon as per relevant provisions.
The tribunal observed that the assessee being NBFC being financial company tried to enter in to banking business and for this purpose the assessee incurred expenditure on preparation of a report on transformation of company from financial institution to banking company, which was not beyond the scope of working of a prudent business entity to do endeavour to expand the scope of its business and the same was nothing but for the purpose of expansion of business only.
The two bench member consisting of Pradip Kumar Kedia (Accountant member) and Chandra Mohan Garg (Judicial member) held that the assessee had incurred expenditure for the purpose of expansion of its business from financial activities to banking activities and thus the same was for the purpose of business of assessee and thus allowable.
Therefore conclusion drawn by the authorities below were held to be not sustainable and thus aside. The bench also directed the Assessing Officer to allow the same to the assessee. Thus the appeal was allowed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
