Payment to Legal and Tax Consultants are Revenue Expenditure: ITAT sets aside Disallowance [Read Order]

The Income Tax Appellate Tribunal (ITAT), New Delhi Bench sets aside disallowance as payment to legal and tax consultants are revenue expenditure.

The assessee company, M/s. Instel Services Pvt Ltd is engaged in the business of sale, distribution and trading of various telecommunication products including mobile handsets, data cards and Smart phones on a whole-sale cash and carry basis to various distributors throughout India and also providing investment consultancy services to group companies holding of investment in Group of Companies for retaining a controlling stake on them.

In the assessment order showed that AO had taken note of the fact that the payment was being made as a fee for assistance in connection with seeking clarification from RBI on applicability of CIC Guidelines and applicability of FEMA on subscription of RPS and evaluating tax implications of unwinding RPS held by the Assessee. Thus, certainly relevant evidence was on record.

The CIT(A) sustained the addition by observing that the relevant documents in the form of invoices were not presented during the assessment proceedings

A Division Bench consisting of Shamim Yahya, Accountant Member and Anubhav Sharma, Judicial Member observed that “Redeemable Preferences Shares (RPS) held by the assessee being long term in nature may be capital expenditure but the expenses paid to legal and professionals for an opinion about legal and tax consequences of the prospective investment cannot be considered to be a capital expenditure. The legal expenses were merely to avoid panel provisions and to assure that there is no breach of any regulatory guidelines of investment.”

“These expenses did not add any value to the investment nor would have reduced the risk of investment, but merely made the investment in consonance with the law of the land. Therefore, disallowance by calling them, capital expenditure cannot be sustained” the Tribunal said.

To Read the full text of the Order CLICK HERE

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