DCIT, NEW DELHI vs. M/S. GAPS POWER INFRASTRUCTURE PVT. LTD., NEW DELHI

This appeal is preferred by revenue against the order of the Ld. Commissioner Of Income Tax (Appeals) – 4, New Delhi (Ld. CIT (A)) dated 27/11/2014 wherein the addition made by The Deputy Commissioner Of Income Tax, circle 12 (1), New Delhi dated 31/01/2014 of Rs. 4877182/– made for management overhauling charges is deleted. The Ld. assessing officer held that these expenditure are capital in nature whereas the Ld. CIT (A) has held that these expenditure are revenue in nature and are allowable as Under Section 37 (1) of the Act.

The revenue has raised the solitary ground of appeal, the facts of which are that that in the profit and loss account of the assessee company, legal and professional charges of Rs. 8294955/– were claimed against the earlier year’s expenses of Rs. 2368331/–. Therefore the Ld. assessing officer asked for the detail of the expenses incurred by the assessee during the year which revealed that during the year under reference the assessee company has carried out management overhauling exercise and incurred an expenditure of Rs. 5 419092/–. The Ld. assessing officer on examination of the details held that these expenditure are capital expenditure in nature and therefore he allowed the depreciation at the rate of 10% of these expenditure and made the balance disallowance of Rs. 4877182/–.

The Ld. DR vehemently stated that the assessee has incurred these expenditure for the management overhauling charges which are capital in nature. She vehemently supported the order of the Ld. assessing officer.

The Ld. authorized representative supported the order of the Ld. CIT (A) and took us through the various pages of paper books and explanation filed by the assessee on 22/1/2014 wherein it is stated that these expenditure are revenue in nature. He further stated that assessee has not derived any advantage of enduring nature and therefore it cannot be held to be capital expenditure. He stated that the services are related to the commission on sale of carbon emission reduction which has been included in the revenue. He further referred to the bills of corporate finance advisers for Rs. 26 Lacs and oasis counsel and advisory private limited for legal consultancy Services and stated that these expenditure are for executing agreements between assessee and ILFS and are in nature of consultancy fees.

We have carefully considered the rival contention and perused the orders of the lower authorities. During the year the assessee has sold 37187 units of carbon emission reduction units for which the assessee has shown income of Rs. 4260 8474/–. The assessee has paid success fee @ 5.5% to Emergent Ventures India Private Limited amounting to Rs.