The Income Tax Appellate Tribunal (ITAT), Delhi bench held that the payment made to professionals towards due diligence fees for rendering assistance to acquiring company is revenue expenditure. Therefore, the bench allowed the deduction claimed by the assessee.
The assessee, Shrimp Improvement Systems India (P) Ltd engaged in the business of production of aquaculture products and fisheries. During the assessment proceedings AO found that tassessee had claimed a sum of Rs. 1,00,89,351/- on account of due diligence expenses under the head “exceptional items”. Moreover the assessee claim the expenses are revenue expenditure under Section 37 of the Income Tax Act. Accordingly, Assessing Officer (AO) denied the claim and held that it was capital in nature.
Aggrieved by the order, the assessee filed an appeal before the CIT(A) who disallowed the claim. Thereafter, the assessee filed a second appeal before the tribunal.
The tribunal relied upon the decision of Karnataka High Court in the case of CIT Vs. Onmobile Global Ltd observed that the expenditure incurred by the assessee for conducting due diligence of a company which was eventually acquired by the company to be allowable as revenue expenditure.
After reviewing the facts and records, the two-member bench of M. Balaganesh (Accountant member) and Chandra Mohan Garg, (Judicial Member) directed the AO to grant deduction on account of due diligence fees paid to the professional in the sum of Rs. 1,00,89,351/.
Rajesh Malhotra counsel appeared for assessee and Anuj Garg, counsel appeared for revenue.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
