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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI RAM LAL NEGI, JM
O R D E R Per Shamim Yahya, A. M.: This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals) dated 27.01.2012 and pertains to the assessment year 2009-10.
The issue raised in this appeal read as under:
The ld. Commissioner of Income Tax (Appeals) has erred in upholding the additions/contentions made by learned ACIT on account of disallowance of professional fees amounting to Rs.66,65,198/-.
2. The ld. Commissioner of Income Tax (Appeals) erred in making the addition on account of disallowance of Rs.3,28,035/- under section 14A relating expenditure incurred for earning exempted income.
Apropos issue no.1:
On this issue, the Assessing Officer noticed that the assessee has claimed professional fee payment of Rs.69,93,820/- in the profit and loss account. These expenditures were held by the authorities below to be capital in nature. The assessee’s
M/s. Tuscan Ventures Pvt. Ltd. plea was that the professional fee expenditure incurred by the assessee was related to the assessee’s business and the professional fee was in relation to the identification of the areas in connection with the assessee’s business. That the fee receipt in managerial consultancy in this regard has already been offered by the assessee for taxation. In this factual scenario, we find that the authorities below have totally erred in holding the professional fees paid to be capital expenditure. There is no whisper in the orders of the authorities below as to what capital asset has been brought in existence by this expenditure. The assessee has submitted that the expenditure paid to the consultants was meant for extension and expansion of the business already been carried out by the assessee. That the assessee was already earning income from management fee, share in profit, dividend and interest income. In these circumstances, in our considered opinion, the expenditure being inextricably linked with the business of the assessee, has to be allowed as revenue expenditure. Hence, we set aside the orders of the authorities below and allow the expenditure as revenue expenditure.
Apropos issue no.2:
On this issue, the Assessing Officer noted that in the year under consideration, the assessee has earned exempt income. The Assessing Officer proceeded to make the disallowance u/s. 14A and, accordingly, disallowed the sum of Rs.3,28,035/-.
Upon the assessee’s appeal, the ld. Commissioner of Income Tax (Appeals) noted that the assessee has earned subsequent exempt income of Rs.28,68,675/- from M/s. Tuscan Ventures Pvt. Ltd. dividend which are exempted from tax. Therefore, he observed that he agreed with the finding of the Assessing Officer that the assessee would have definitely incurred expenditure in earning of exempt income because of the manpower as well as infrastructure of the assessee company was utilized for earning of exempt income. In this regard, we note that the above said observation of the ld. Commissioner of Income Tax (Appeals) was not at all emanating from the order of the Assessing Officer. The Assessing Officer simply asked the assessee to make the computation of disallowance u/s. 14A and thereafter made the disallowance. There is no whisper by the Assessing Officer that in his opinion, any expenditure has been incurred in this regard. It is settled law that dehorse any satisfaction by the Assessing Officer that the expenditure has been incurred in earning the exempt income, the addition qua section 14A is not sustainable. The ld. Commissioner of Income Tax (Appeals) cannot improve upon the assessment order of the Assessing Officer. He is using lines with reference to the order of the Assessing Officer wherein no such words or lines have been used by the Assessing Officer in the assessment order. Accordingly, we set aside the orders of the authorities below and delete the addition.