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(6) The Commissioner of Income Tax (Appeals) erred in allowing only 50% of the expenses claimed in respect of payments made to the employees.

(7) The Commissioner of Income Tax (Appeals) erred in holding that the main business did not commence and the business involved in earning interest from its advances.

(8) The Commissioner of Income Tax (Appeals) erred on facts and in law in holding that payments of legal expenses to Mess Rs. Little and Co. was capital expenditure and further erred in confirming disallowance of Rs. 2,89,650 paid to Shri V. Mohan, Internal Auditor (9) The Commissioner of Income Tax (Appeals) erred in allowing only a part of expenses claimed by the assessee on account of travel, repairs and maintenance, software expenses, telephone and miscellaneous expenses without giving any reasons whatsoever.

It was contended that the CIT(A) though given a finding that the Assessing Officer disallowed the expenditure on ad hoc basis, has retained part disallowances on similar ad hoc basis. Shri Hiten Talati whose expenses have been allowed, was Internal Auditor till June 93. There after Shri V. Mohan was appointed as Internal Auditor and the payment to this concern is on account of these services for the rest of the period. For similar services, CIT(A) has allowed the expenditure till June 93 but for the balance period the same has been disallowed holding that the same "does not appear to relate to this business of earning interest and is an expenditure to be capitalised". The expenses were incurred for internal audit, which was of utmost necessity. The assessee's main business is already commenced. The CIT(A)'s disallowance of this amount was totally unjustified. Regarding the payment to M/s Little and Co., there is no existence of joint venture agreement, the same was for management of funds and not for a joint venture, which has been alleged on the basis of misconception. The assessee wanted to have an agreement for management of funds with 'ZEITGEIST' of United States, which is a reputed investment and finance company. The preamble of the agreement makes it very clear that both parties are investment and finance companies in India and UK respectively and intend to expand their investment and finance business to Asia and more particularly to India. The assessee has the requisite experience as Adviser and Consultant in the field of investment and finance in Indian capital market and has agreed to render services to 'ZEITGEIST' Investment and finance was regular business of the assessee and was being operated on a higher scale. Involvement of foreign participants in the investment and finance business was the business purpose of the assessee and for such participation agreements and various other formalities were to be executed and all these activities combined are in the normal course of business and the expenses incurred in this behalf are wholly and exclusively for the purpose of business. None of the authorities has bothered to look into the nature of legal expenses paid to Little and Co. The whole expenditure has been considered to be for joint venture, which is not correct. The expenses paid to Little and Co. include expenses for Notorial services work done in connection with Citi Bank and Kotak Mahindra, etc. Since the legal expenses were paid for day-to-day business activities and being wholly and exclusively for the purpose of business, the same should be allowed.

26. On ground No. 8, we have heard the rival submissions and perused the material available on record. As far as the expenses to Little and Co. are concerned, we find that what existed between assessee and ZEITGEIST was an agreement for management of funds, which is evident from the preamble and clauses of the agreement. The assessee was in investment and finance management business and such type of fund management agreements are executed in the normal course of the assessee's business. The AO has referred the same as joint venture as a separate and distinct business activity, which is not a correct observation. The agreement was executed in the normal course of business activity of the assessee and the expenditure incurred in this behalf cannot be called joint venture expenses to be capitalised and the same are to be allowed as business expenditure incurred wholly and exclusively for the purpose of business. Similarly, the other expenses paid to Little and Co. are incurred for power of attorney, stamp duty, notarial charges for works in connection with Citi Bank and Kotak Mahindra and are for the purposes of business and hence allowable as business expenditure. The lower authorities have allowed fees paid to Hiten Talati, who was Internal Auditor up to June 93. M/s. V. Mohan were appointed as internal auditors in place of Shri Hiten Talati and payment in this behalf is for these and for other services like consultation of Company Law, FERA, Income-tax and Other Acts, etc. Appointment of internal auditor is a normal function for doing such business. When the fees in this behalf up to June 93 was allowed, we see no reason to disallow the same for the balance of the period. In any case, the payment to M/s. V. Mohan was in the normal course of business and incurred wholly and exclusively for the purpose of business. The professional fees paid by the assessee is allowed as a business expenditure. Ground No. 8 is accordingly allowed in favour of the assessee.

38. Ground No. 8 is in respect of legal expenses paid to M/s. Little and Co. which was treated as capital in nature and also in regard to the disallowance of Rs. 2,89,650/- paid to Shri V. Mohan, Internal Auditor. The assessee had paid legal and professional fees aggregating to Rs. 9,26,483/- as under:

Legal & Professional fees:

Hiten Talati (Internal Auditor upto June 1993) Rs. 15583.00 Little and Co. (Expenses, incurred towards Joint venture) Rs. 621250.25 V.Mohan (Internal Auditor) Rs. 289650.00