Expenses Incurred During Regular Course Of Business Cannot Be Treated As Capital Expenses: ITAT

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that expenses incurred during the regular course of business cannot be treated as capital expenses.

The two-member bench of Yogesh Kumar US (Judicial Member) and Anil Chaturvedi (Accountant Member) has observed that the payment was made towards the professional fee, which includes monthly retainer fees for the professional services.

The assessee/respondent is a company stated to be engaged in the business of software development. During the course of the assessment proceedings and on pursuing the professional fees paid by the assessee, AO noted that the assessee had paid Rs. 1,36,000/- to Vineet K. Gupta & Co. on account of the professional fee for the share valuation certificate.

The AO asked the assessee to justify the expense so as to justify its allowability, to which the assessee, inter alia, submitted that the amount represented professional fees paid towards monthly retainership fees as well as professional fees for the valuation of the PE Fund.

Vineet K. Gupta & Co. was engaged on a monthly retainer basis to provide necessary assistance to the company in the course of due diligence of the company to be carried out for the investor by nominated partners from time to time. The expenses were incurred wholly or exclusively for the purpose of business, and no new asset was created. The expenses were fully allowable. The submission of the assessee was not found acceptable by the AO. AO held the expense to be not in the nature of routine business expenses but in the nature of capital expenses. The AO disallowed Rs. 98,88,874, which included Rs. 1,36,000, which is in dispute.

The assessee brought the matter before CIT (A). The CIT(A) granted the assessee partial relief by deleting the addition for payment to Vineet Gupta and Co. and upholding the remainder of the AO's additions. While deleting the addition of the payment to Vineet Gupta and Co., the CIT(A) held that the amount paid to Vineet K. Gupta & Co. was for its professional service, which also included the monthly retainer fees for the year, and it was for regular business expenses and therefore could not be treated as capital expenses. He accordingly deleted the addition made by AO.

The assessee claimed that the expenses were incurred in the course of business and for the purpose of business, and thus CIT(A) should be deleted.

The ITAT upheld the order of the CIT (A) deleting the addition and dismissed the department’s appeal.

Case Title: ACIT Versus Drishti Soft Solutions Pvt. Ltd.

Citation: ITA No. 8523/Del/2019

Date: 10.02.2023

Counsel For Appellant: K. M. Gupta, Rishabh Malhotra

Counsel For Respondent: T. James Singson

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