Prior period expenditure is allowable as deduction
Associated Breweries And Distilleries Ltd Vs DCIT
Whether crystallization of professional expenditure of prior period in the relevant AY whose genuiness is proved with materials on record is allowable as revenue expenditure
– YES: ITAT
– Assessee’s appeal partly allowed : MUMBAI ITAT
++ on the issue of disallowance of legal fees, the Apex Court in Bombay Dying & Mfg. Co. Ltd. has held that the expenditure incurred towards professional charges of the solicitors’ firm for the services rendered in connection with the amalgamation was in the course of carrying on of the assessee’s business and, therefore, deductible as revenue expenditure. Also, in Akme Electronics & Control Pvt. Ltd. the legal expenses with reference to amalgamation are held as revenue expenditure. In the instant case, it is found that the expenses relates to prior period which crystallized on receipt and passing of the bills in the current year.
Therefore, the fees paid was an allowable expenditure. Following such findings, this ground of assessee’s appeal is allowed;
++ on the issue of disallowance of interest free loans, in the instant case the assessee had more own funds than the advances made to company under the same management.
The inference drawn by the AO and the CIT(A) that the advances made by the assessee to companies under the same management is not for business purpose is not supported by any evidence.
Such being the facts, following the ratio laid down in Reliance Utilities & Power Ltd., the disallowance made by the AO is deleted. Following such findings, this ground of assessee’s appeal is allowed;
Whether for computation of deduction for an established business, it is correct to treat advertisement expenses as allowable preliminary expenses u/s 35D – NO: ITAT
++ on the issue of disallowance of advertisement expenses, the AO has wrongly held the expenditure as allowable u/s 35D. There can be no debate that the section could apply in the case of a new company and it has no relevance in the case of a 30 year old business like that of the assessee. These are not ‘preliminary expenses’ incurred by the assessee. In the instant case, the expenditure incurred by the assessee is revenue in nature.
The said expenses do not fall in the ambit of 35D as done by the AO. Having gone through the accounts, the CIT(A) has hurriedly enhanced/disallowed the expenses. There was no material before the CIT(A) to do so. Following such findings, this ground of assessee’s appeal is allowed. Also, on the issue of carry forward losses, section 79 relates to carry forward and set off of losses in case of certain companies. The basic facts pertaining to applicability of section 79 or otherwise are not available in the order passed by the AO and the CIT(A). Therefore, the order of the CIT(A) is set aside and restore the matter to the file of the AO. Thus the appeal concerning business loss pertaining to AYs 1997-98 to 2000-01 is allowed for statistical purposes.