ITAT directs AO to Disallow Asian Paints’ Consulting Fee to Paid for Feasibility Study Report Extent Only for Home Improvement and Decor Business Expenditure [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has directed the Assessing Officer to disallow Asian Paints’ consulting fee paid for a feasibility study report, to the extent that it pertains only to home improvement and decor business expenditure.

The Asian Paints Ltd Paid an amount of Rs.1,74, 0,000 to M/s Avalon Consulting towards a feasibility study report for evaluation of various business opportunities. During the assessment proceedings, the assessee was asked to prove how the said expenditure was related to its business activity

 The assessee submitted that the aforesaid amount was paid towards the feasibility study report for evaluation of various business opportunities that can be conveniently/advantageously combined with the existing business of the assessee. The assessee further submitted that it has strategically looked at the home improvement and decor sector as an avenue for future growth especially since it has synergy with the existing line of decorative paint business in India. Accordingly, the assessee claimed that the expenses on exploratory exercises are incurred out of commercial expediency to expand the existing business by exploring new markets, products, etc.

The Assessing Officer did not agree with the submissions of the assessee and held that the assessee was in the field of paints business and based on the feasibility report the assessee entered into a completely new line of business, i.e. kitchen business, which is nowhere connected to its existing in business. Accordingly, the AO held that the expenditure amounting to Rs.1, 74, 40,000 paid to Avalon Consulting towards the feasibility report study is capital expenditure.

The Commissioner of Income Tax (Appeals) dismissed the ground raised by the assessee on this issue and held that the assessee is venturing into a new line of business, i.e. home improvements and decor, especially in the kitchen, which is not an extension of the existing business of paints.

The two member bench of the tribunal comprising Prashanth Maharishi (Accountant member) and Sandeep Singh Karhail (Judicial member) found no infirmity in the findings of the CIT (A) on this issue. However, from the details of expenditure, further found that the entire expenditure of Rs.1, 74, 40,000 was not incurred on obtaining a feasibility report in respect of home improvement and decor business.

Therefore ITAT directed the AO to restrict the disallowance only to the extent of expenditure pertaining to home improvement and decor business. Accordingly, the assessee’s appeal was allowed.

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