Business expenditure: Section 37: A. Y. 2004- 05: Payment to financial consultants for professional services in connection with corporate debt restructuring by negotiating with banks and financial institutions: Expenditure for purposes of business and allowable in entirety in year in which incurred: Expenditure spread over in six years by Tribunal with consent of assessee: Department not entitled to object:

The assessee had claimed deduction of Rs. 2.57 crore being amount paid to financial consultants who provided their professional services in connection with the scheme of corporate debt restructuring by negotiating with the banks and financial institutions, which eventually helped the reduction of interest burden of the assessee.

The Assessing Officer disallowed the claim holding that the expenditure is capital in nature. The Tribunal held that the expenditure was revenue in nature and spread it over a period of six years with the consent of the assessee considering the judgment of the Supreme Court in Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 225 ITR 802 (SC).

On appeal by the Revenue, the Gujarat High Court upheld the decision of the Tribunal and held as under:

“i) For the waiver of the loan, payment had been made to the financial consultants. This was for the purpose of business and was allowable u/s. 37(1). Once the expenditure was held to be revenue in nature incurred wholly and exclusively for the purpose of business, it could be allowed in its entirety in the year in which it was incurred.

 ii) However, when the expenditure was spread over a period of six years and the assessee had no objection to such revenue expenditure being spread over, though it could have insisted that this amount be allowed in the year under consideration, the Department could
not challenge it as the expenditure was revenue in nature.”