DEGUSTIBUS HOSPITALITY P.LTD,MUMBAI vs. DCIT 5(1), MUMBAI

Assessee has raised the following grounds of appeal: -

Brief facts of the case are that the assessee is a company engaged in the business of running of continental restaurant. It furnished its return of income for A.Y.2010-11 on 06.10.2010 declaring total loss at `5,59,82,258/-. Notice under Section 143(2) of the Income Tax Act, 1961 (hereinafter "the Act") dated 27.08.2011 was issued and served on the assessee. The AO completed the assessment under Section 143(3) of the Act determining the total loss by a reduced figure of `5,46,34,690/- on 28.03.2013 by making the adjustments. During the course of assessment proceedings the AO has noticed that the assessee has debited an amount of `98,23,302/~ under the head Legal & Professional Fees. On verification of the details of the expenses submitted, the AO has seen that the assessee has claimed legal service charges amounting to `12,59,346/- paid to AZB& Partners. The assessee was asked why the above expenses should not be treated as deferred revenue expenditure for three years as the claim is very high and the benefit of the expenses likely to be availed by the assessee for more than one year. The assessee has agreed to treat the expenses for three equal proportions from A.Y.2010-11 onwards. Accordingly, 2/3 of `12,59,346/- i.e. `8,39,564/- was disallowed and added to the total income of the assessee. Further the AO noticed that the assessee has debited an amount of `98,23,302/- under the head Legal & Professional Fees. On verification of the details of the expenses submitted, the AO has seen that the assessee has claimed Services for Equity Share Transaction amounting to `5,00,000/- paid to Kanga & Co. During the course of assessment proceedings, the assessee was asked as to why the above expenses should not be capitalized/disallowed in view of the fact that the expenses have you been incurred on account of transfer of shares

Upon assessee’s appeal the learned CIT(A) confirmed the addition. He upheld the action of the Assessing Officer as well as noted the fact that the assessee has accepted the disallowance before the Assessing Officer.

Against the above the assessee is in appeal before us. We have heard both the counsels and perused the records. We find that the assessee has incurred legal and professional expenses. These expenses are in the nature of revenue expenditure. Just because the quantum of expenditure is high it cannot change the nature of expenditure from revenue to capital. Moreover, in tax laws there is no concept of deferred revenue expenditure. Furthermore concession as to law cannot be treated as estoppel, barring the assessee from challenging the same. Accordingly we set aside the orders of the authorities below treating part of the legal expenditure a deferred revenue expenditure.

As regards the disallowance of expenditure as capital expenditure on account of litigation and related expenses regard to transfer of shares, we find that litigation in this regard cannot add to the value of the shares. Hence by no stretch of imagination it can be said that the litigation has increased the value of the shares and hence the litigation expenditure in this regard is not required to be capitalised.

In this view of the matter, in our considered opinion, the treatment of legal expenditure as capital expenditure is not sustainable. Accordingly we set aside the order of the authorities below.