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Facts
The assessee, an individual, filed an ITR for AY 2018-19 after receiving compensation for land acquired through litigation. The AO disallowed 50% of claimed advocate fees (Rs. 2,55,000) and the entire audit fees (Rs. 1,47,500) without assigning reason, which was confirmed by the Ld. CIT(A).
Held
The Tribunal found that the audit fees recipient acknowledged the income in his ITR and noted that advocate fees were claimed to be paid via banking channels. It set aside the lower orders and remanded the matter to the AO for limited verification of these payments, directing allowance of both expenses if verified as paid and accounted for by the recipients.
Key Issues
Whether advocate fees and audit fees incurred in relation to compensation for land acquisition should be allowed as expenses, especially when payments are verifiable and accounted for by recipients.
Sections Cited
143(1)
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter in short "the Ld.CIT(A)”), Delhi, dated 26.07.2024 for the Assessment Year (hereinafter in short "AY”) 2018-19.
The only grievance of the assessee is against the action of the Ld.CIT(A) confirming the disallowance of Rs.2,55,000/- and Rs.1,47,500/- made by the AO.
The brief facts are that the assessee had e-filed his return of income (RoI) on 17.07.2018 admitting total income at Rs.79,98,800/- which was processed u/s.143(1) of the Income Tax Act, 1961 (hereinafter in short ‘the Act’). Later, the return was selected for limited scrutiny; and the AO noted in the assessment order that assessee was in receipt of compensation for land acquired to the tune of Rs.79,16,001/- which assessee received after litigation, [details of the same have been taken note by the AO at Page No.2 of his order] and that the assessee, inter alia, had claimed deduction of certain expenses. The AO is noted to have allowed the expenses other than the audit fee of Rs.1,47,500/- and restricted the Advocate fee claimed by the assessee to 50% of the claim i.e. the AO allowed only Rs.2,55,000/- and disallowed 50% ie Rs.2,55,000/-.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who confirmed it.
Aggrieved, the assessee is in appeal before this Tribunal.
We have heard both the parties and perused the material available on record. We note that the assessee is an individual, who has filed his RoI on 17.07.2018 admitting total income at Rs.79,98,800/-. The AO noted that pursuant to litigation/Court orders the assessee received compensation for acquisition of his land amounting to Rs.79,16,001/-.
1. And that the assessee had made certain claims which had been allowed but the AO disallowed 50% of the ‘advocate fees’ claimed ie disallowed Rs.2.55 lakhs as well as ‘audit fees’ of Rs.1,47,500/-, without assigning any reason. Such an action cannot be countenanced being arbitrary and ad-hoc disallowance cannot be accepted. As proof of paying audit fees, an affidavit of Mr.K.V. Balakrishnan has been filed, which contents reveal that he is a practicing as Chartered Accountant and has confirmed receipt of Rs.1,47,500/- from the assessee as fees and acknowledged the fact that said income had been duly accounted for in his Income Tax Return for AY 2018-19.
In respect of the ‘Advocate fees’ the assessee has filed the entire bank statement before us, which shows the proof of said payment and asserted that the ‘advocate fees’ of Rs.5,10,000/- has been paid as professional fees for advocates. In this regard, it is pertinent to note that assessee brought to AO's notice the fact that pursuant to litigation/court order, the assessee has received compensation for acquiring of land to the tune of Rs.79,16,001/- and therefore the assessee’s claim of expenses/advocate fees of Rs.5,10,000/- has to be allowed as expenses which according to the assessee has been paid through banking channel.
(AY 2018-19) Mr.Aggipothu Kupparam Nageswara Rao Since this particular evidences has not been verified by the AO, we set aside the impugned order and restore the appeal back to the file of the JAO with a direction for conducting limited verification as to whether the payment has been made to the advocate through banking channel of Rs.5,10,000/- and if it is found to be true then the fees paid to advocate needs to be allowed as an expenditure likewise the ‘audit fees’ paid Rs.1,47,500/- to Shri K.V. Balakrishnan, CA needs to be allowed, since we find that both had been part of the litigation team and has offered it as their income for AY 2018-19.
In the result, appeal filed by the assessee is partly allowed.