It has been held by the Income Tax Appellate Tribunal (ITAT), Bangalore Bench that income tax deduction could not be allowed to those assessees who are paying the Professional & consultancy charges for acquiring the companies. The reason being the aforesaid expenditure is Capital Expenditure.
Here, in this case, the assessee Steer Engineering Private Limited is a private limited company that acquired the business of 2 companies — Concord United Products Private Limited and Messers Aditya Precision Deposition Moulding Private Limited. During the proceedings of acquiring the aforesaid 2 companies, Steer Engineering had incurred an expenditure of Rs.1,20,820/- as the professional fees
- For the drafting of Business Trade Agreements and
- The professional fee incurred on legal opinions.
And more importantly, the assessee treated it as revenue expenditure that was later on disallowed by the Income Tax Department as it was of the opinion that the aforesaid expenditure is a Capital Expenditure.
The matter went to the Commissioner of Income Tax (Appeals) who upheld the order that was made by the Assessing Officer. Then, The petitioner Steer Engineering approached the Tribunal for relief.
Finally the Income Tax Appellate Tribunal (ITAT), Bangalore Bench comprising Judicial member Beena Pillai and Accountant Member BR Baskaran observed that the incurring of the above-mentioned professional fee paid for acquiring companies resulted in acquiring of capital assets and consequently it cannot be treated as revenue expenditure.
“The Tribunal concluded that in our view, the ratio laid down by Hon’ble Supreme Court in Alembic Chemical Works Co. Ltd., Vs. CIT report in (1989) 177 ITR 377 is applicable. The professional and consultancy charges incurred by the assessee for the acquisition of the two companies can’t be treated as revenue in nature.”
