ITAT deletes Disallowance on account of Legal Fees and Settlement Amount [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has deleted the disallowance on account of legal fees and settlement amount.

The assessee, M/s Omni Active Health Technologies Ltd. is a company engaged in the business of manufacturing and trading of Nutraceuticals products and filed its returns of income declaring total income.

During the course of assessment proceedings, the learned Assessing Officer noted that the assessee has claimed a sum under the head Exceptional items which included as legal and professional charges.

Some other credits were also exceptional items and therefore, there was a net debit. The Assessing Officer noted that in view of the quantum of expenditure and note 16 of schedule 18 of the annual accounts, the claim needs to be examined. Assessee submitted that the legal fees were paid on account of normal routine maintenance of patents, settlement amount paid and legal fees paid to defend existing rights of assessee.

Assessee submitted that the above payments were made to legal firms and the sum is towards settlement, the assessee also explained the nature of litigation and the nature of payments along with details of such payment. Assessee claimed that payments were made with relation to litigation of patents owned by the assessee and further the assessee has incurred expenditure to safeguard its patent product. Ld AO examined the increasing profits of the assessee in subsequent years and therefore held that assessee have the benefit of enduring nature. He therefore held that the expenditure has been given a colour of Revenue expenditure where the same is falling into the category of capital expenditure.

The coram of Judicial Member, Pawan Kumar Gadale and Accountant Member Prashant Maharishi noted that the appeal filed for Assessment Year 2011-12 is also on the similar grounds whether similar nature of expenditure have been disallowed by the learned Assessing Officer holding the same to be capital expenditure. For this year the Assessing Officer disallowed a sum of ₹3,34,14,989/-. The learned CIT(A) deleted the disallowance. Both the parties confirmed that there is no change in the facts and circumstances of the case and CIT(A) has also followed his own order for Assessment Year 2010-11.

“We have carefully considered the rival contentions and also perused the orders of the lower authorities. For the reasons given by us while confirming the order of learned CIT(A) for Assessment Year 2010-11, for similar reasons we also confirm order of learned CIT(A) deleting the disallowance of ₹3,34,14,989/- on account of legal fees and settlement amount for this Assessment year . Thus, order of the learned CIT(A) is confirmed and ground No.1 to 4 of the appeal of the learned Assessing Officer are dismissed,” the court said.

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Dy. Commissioner of Income Tax vs Omni Active Health Technologies Ltd. , 2022 TAXSCAN (ITAT) 256 , Shri Ketan Ved, AR , Shri R .A Dhyani, DR