The Income Tax Appellate Tribunal (ITAT), Bangalore bench has held that the Legal & Professional charges incurred in connection with the business are to be treated as Revenue Expenditure.
The assessee company filed nil return wherein the case was selected for scrutiny to reconcile “large difference in closing stock shown in balance sheet and profit and loss account as per the return”. Assessee submitted break-up of Work-in-Progress (W-I-P) and produced documents for purchase of land.
The assessee’s contentions were rejected by the Assessing Officer (AO).
Aggrieved by the order, assessee filed appeal before the Commissioner of Income Tax (Appeals) (CIT(A)) and it upheld the order of the AO giving direction to re-compute the income.
The assessee filed appeal before the ITAT stating that expenses that are of enduring nature were capitalized and others were charged to revenue account. The income against these expenses were of administrative nature that helps the company to sustain itself which is not attributable to any particular asset held.
The CIT (A) has re-characterized these expenses as capital asset. The assessee challenged the same giving substantial explanation.
The bench noted that the assessee started its business in the earlier years and the business has already been set up. The assessee has incurred huge amounts towards legal and professional charges and the lower authorities have not disputed the expenditure incurred by the assessee. The only dispute is whether these are capital or revenue expenditure.
The single-member tribunal bench of Shri Laxmi Prasad Sahu (Accountant Member) allowed the submission of the assessee that the legal and professional charges were incurred towards the business of the assessee for maintaining the peaceful possession of the land acquired.
The bench held that the expenditure incurred by the assessee are revenue expenditure and allowed as deduction under Section 37 of the Income Tax Act, 1961.
The appeal of the assessee was partly allowed for statistical purpose.
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