Payment of Tax Consultation Fee after passing of Order by Income Tax Department cannot be treated as Prior Period Expenses: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai held that payment of Tax Consultation Fee after passing of Order by Income Tax Department cannot be treated as Prior Period Expenses.

The assessee, M/s. Maharashtra State Electricity Transmission Company Ltd. is one of the successor companies to the erstwhile Maharashtra State Electricity Board (MSEB. On the demerger, the assets of MSEB were specifically allocable to the transmission undertaking and were transferred to the assessee. Similarly, liabilities of MSEB to the extent they pertained to/were directly relatable to the transmission undertaking were transferred to the assessee. Accordingly, the sum of Rs.8.80 lakh being legal and professional fees, though pertaining to the erstwhile MSEB was debited to the Profit & Loss Account of the assessee on the basis of the apportioned brought forward losses and unabsorbed depreciation.

The professional fees invoices were raised by the assessee’s Tax Consultant i.e., M/s. P.C. Hansotia & Co., for various professional services rendered by it in representing the erstwhile MSEB before various appellate authorities. The Assessing Officer passed under section 143(3) on the basis of the Comptroller and Auditor General (CAG) report under section 619(4) of the Companies Act, 1961 made the addition of the aforesaid legal and professional charges by treating the same to be prior period expenses.

In an appeal before the Commissioner of Income Tax (CIT), the assessee submitted that the invoices were raised by the Tax Consultant only after the various orders were passed by the Tax Department during the year ended, and thus, the expenditure was crystallized during the year under consideration. The CIT allowed the appeal filed by the assessee on this issue and being aggrieved, the Revenue is in appeal before the Tribunal.

Pramod Kumar, Vice President, and Sandeep Singh Karhail, Judicial Member held that “In such a scenario, if the Tax Consultant following its general practice raises the invoice upon conclusion of the matter after passing of the order by the concerned authority, we are of the considered view that such expenditure cannot be treated as prior period expenses. Particularly, it is only when the invoices for legal and professional services are raised by the Consultant, the liability arises / crystallizes in the hands of the assessee and it is only in that year such expenditure will be allowable to the assessee.”

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