Corporate expenses are allowable deductions, conditional upon direct connection to business activity, while bond redemption premiums can qualify as revenue expenses.

ORDER

PER SANJAY AWASTHI, ACCOUNTANT MEMBER:

1. The ITAT Registry has reported a delay of 155 days in the filing of this appeal. The Revenue has filed the following petition explaining the delay as under:

“In this case the department had filed appeal with Hon'ble Delhi Bench of ITAT against the order dated 14.07.2022 passed u/s 250 of the Act by Ld.CIT(A)-27, Delhi in appeal no CIT(A), Kolkata-20/10241/2011-12.

However, the Hon'ble ITA T, Delhi vide its order dated 16.02.2024 in no. 2432/Del/2022 has dismissed the appeal of the Revenue with a liberty to file an appeal within 60 days from the date of receipt of order before appropriate Jurisdictional Tribunal citing the Hon'ble Supreme Court judgment in the case of Commissioner of Income Tax vs. Balak Capital Pvt Ltd in Special Leave to Appeal (C) No. 7019/2017 as the assessment order which was subject of appeal was passed by AO, Circle-6, Koltaka.

In view of the above decision of Hon'ble ITAT, Delhi, the appeal in this case was filed on 15.03.2024 with the Hon'ble ITAT, Kolkata bench after receiving the original order which was received in PCIT, Central-2, Delhi office on 06.03.2024.”

1.1 Considering the reasons given in the said petition, the delay is hereby condoned and the appeal is admitted for adjudication.

2. This appeal arises from order u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”) dated 14.07.2022, passed by the Ld. Commissioner of Income Tax (Appeals)-27, Delhi [hereafter “the Ld. CIT(A)”].

2.1 In this case, the Ld. AO is seen to have passed an order in response to direction given u/s 263 of the Act by the Ld. CIT(A) on 13.12.2007. The issues under consideration were the following:

(a) Rs. 1,25,48,095/- shown as corporate expenses have been disallowed.

(b) Rs. 17,28,00,000/- debited as premium on redemption of bonds has been treated as capital expenditure.

2.2 The assessee could succeed before the Ld. CIT(A) on the basis of following findings:

“5.1 The appellant company has incurred a sum of Rs. 1,25,48,995/- towards corporate service fees and expenditure. Expenditure on this account as referred to in the annexure to profit and loss account was paid as per agreement of sharing of services by way of Corporate Service rendered by M/s Ballarpur Industries Limited. In effect. payment of service charges as above was made in terms of the continuation of the existing arrangement made by way of agreement entered in to between the parties and such payment as reflected in the accounts was claimed by way of note forming part of the income tax return filed. The agreement that the appellant had entered in to with the M/s Ballarpur Industries Limited covered the following areas for necessary service on regular basis to the assessee company:

A. LEGAL

B. TAXATION

C. INSURANCE

D. SECRETARIAL

E. FINANCE

F. PEOPLES DEVELOPMENT AND COMMUNICATION

G. LIAISON

H. ADMINISTRATION & SECURITY SERVICES

5.2 The AO has accepted the commitment as per contractual agreement and did not raise any objection with regard to payment as per this Agreement towards corporate service fees and expenditure in subsequent years and no action u/s 263 or 147 of the Act was initiated on this ground. Therefore there is no reason why it should not be allowed for this year also.

5.3 On merit also, the appellant has explained the circumstance under which this Agreement was signed. It has not claimed expenses covered under this Agreement separately. Not allowing this reimbursement will tantamount to as if no expenditure was incurred at all towards these activities, which is not correct……..

6. Ground No. 2 & 2a relate to the addition on account of holding that the premium of Rs. 17,28,00,000/- in respect of Optionally Convertible Bond is not an allowable expenditure incurred for the purpose of business.

6.1 I have f