2022 (8) TMI 682 - AT - Income Tax

Appeal allowed for assessee: Litigation expenses treated as revenue, interest on refund calculated till actual refund date.

M/s. Mangalam Arts Govind Nagar (East), Jaipur. Versus Deputy Commissioner of Income-tax, Circle-4, Jaipur.

The appeal was allowed in favor of the assessee on both issues. The litigation expenses were deemed revenue in nature, and the interest on the refund was ... Nature of expenses - Litigation expenses - payment was made to perfect a title or for getting rid of defect in the title or against the threat of litigation - revenue or capital expenditure - CIT(A) has treated the expenditure as capital expenditure for the reason that the details of expenses have not been furnished, the nature of expenditure is different from the earlier years and the outcome of litigation & its present status is not known - HELD THAT:- Expenditure has been incurred not to acquire or improve or extend or possession or removing defect in the title of fixed assets in as much as assessee was not the owner of such asset - When litigation expenditure is incurred to protect the business, the same is revenue expenditure. In the present facts, since assessee has no interest in the ownership of the asset but he is in possession of the asset for conducting its business, the litigation expenditure incurred is only to protect his business and, therefore, the same is revenue expenditure. Accordingly, the litigation expenditure incurred by the assessee is revenue expenditure and not capital expenditure. Hence we allow the expenditure incurred as revenue expenditure. Interest on refund as per section 244A - HELD THAT:- Refund was granted to the assessee on 11.06.2020. The ld. A/R submitted that as per section 244A where refund of any amount becomes due to the assessee, he is entitled to receive simple interest thereon from 1st day of April, of the assessment year to the date on which refund is granted. Simply calculating the interest till the month on which intimation under section 143(1) is issued do not amount to grant of refund. Refund is granted when the amount is actually paid to the assessee. In the case of the assessee, the refund was actually paid to the assessee on 11.06.2020. Therefore, the assessee is eligible for interest under section 244A from April, 2018 to June, 2020 i.e. for 27 months and not from April, 2018 to November, 2019 i.e. 20 months - we direct the AO to allow interest to the assessee upto the actual date of refund i.e. upto 11.06.2020. The matter is restored to the file of the AO. Issues Involved:1. Disallowance of litigation expenses by treating them as capital expenditure.2. Calculation of interest on refund under section 244A.Detailed Analysis:Issue 1: Disallowance of Litigation ExpensesThe primary issue in this case was whether the litigation expenses of Rs. 2,37,00,000/- incurred by the assessee should be treated as capital expenditure or revenue expenditure.Facts and Arguments:- The assessee, a partnership firm engaged in manufacturing and export, incurred legal expenses to defend its possession of a property used for business purposes.- The AO disallowed these expenses, treating them as capital expenditure, citing the Supreme Court decision in V. Jaganmohan Rao vs. CIT, 75 ITR 373 (SC).- The CIT (A) upheld this disallowance, noting a substantial increase in expenses compared to the previous year and lack of details on the outcome of the litigation.Assessee's Contentions:- The assessee argued that the expenses were for protecting its business, not for acquiring or improving a capital asset.- The property in question was in possession of the assessee since 1994 and used for business without any rent.- Legal expenses were incurred to prevent the property from vesting in the Central Government, not to perfect a title.- Previous similar expenses had been allowed as revenue expenditure.Tribunal's Decision:- The Tribunal found that the expenses were indeed for protecting the business and not for acquiring or improving a capital asset.- It distinguished the case from V. Jaganmohan Rao, noting that the assessee was not the owner of the property but only in possession for business purposes.- The Tribunal cited Supreme Court decisions in Dalmia Jain & Co. Ltd. vs. CIT, 81 ITR 754 (SC) and Sree Meenakshi Mills Ltd. vs. CIT, 63 ITR 207 (SC), which support the view that litigation expenses to protect business interests are revenue expenditures.- Consequently, the Tribunal allowed the litigation expenses as revenue expenditure.Issue 2: Calculation of Interest on Refund under Section 244AThe second issue concerned the calculation of interest on the refund due to the assessee.Facts and Arguments:- The assessee claimed a refund of Rs. 5,63,13,820/- and received an intimation under section 143(1) determining the refund at Rs. 5,53,50,676/- with interest calculated up to November 2019.- The actual refund was granted on 11.06.2020, but interest was calculated only up to November 2019.Assessee's Contentions:- The assessee argued that interest should be calculated up to the actual date of refund, i.e., 11.06.2020, as per section 244A of the Income Tax Act.Tribunal's Decision:- The Tribunal agreed with the assessee, stating that interest should be calculated up to the actual date of refund.- It directed the AO to allow interest up to 11.06.2020 and restored the matter to the AO for re-calculation.Conclusion:The appeal was allowed in favor of the assessee on both issues. The litigation expenses were deemed revenue in nature, and the interest on the refund was directed to be calculated up to the actual date of refund.