2021 (9) TMI 998 - AT - Income Tax

Licence fee paid to RSCPL - allowable expenditure u/s 37 - HELD THAT - Revenue has failed to bring on record any distinguishing facts qua the year under assessment vis- -vis preceding and succeeding years to controvert the findings returned by the coordinate Bench of the Tribunal, we are of the considered view that amount of deduction claimed by the assessee on account of licencee fee paid to RSCPL is allowable expenditure u/s 37. Ad hoc disallowance @ 10% of the foreign travel expenses claimed by the assessee on ground of personal element in these expenses - HELD THAT - None of the expenditure claimed by the assessee as business expenditure can be disallowed merely on the basis of surmises. Ld. CIT (A) deleted the impugned addition by following the earlier years order allowing identical expenditure. When AO has not disputed the books of account qua the expenditure claimed by the assessee in any manner, ad hoc disallowance to the extent of 10% of the foreign travel expenses is not sustainable in the eyes of law. So, we find no ground to interfere in the findings returned by the ld. CIT (A), hence ground determined against the Revenue.

Summary

Issues Involved:
1. Disallowance of license fee paid to Remfry & Sagar Consultants Pvt. Ltd. (RSCPL).
2. Increasing value of the license fee paid without corresponding expenditure by RSCPL.
3. Disallowance of foreign travel expenses on the grounds of personal element.

Issue-wise Detailed Analysis:

1. Disallowance of License Fee Paid to RSCPL:
The Revenue challenged the deletion of the addition made on account of the disallowance of ?30,49,29,397/- paid as a license fee to RSCPL. The Assessing Officer (AO) disallowed this expenditure, arguing that the payment was not justified as being wholly and exclusively for business purposes, particularly since the payment increased annually without RSCPL incurring any expenditure to improve or protect the goodwill. The Tribunal, however, upheld the CIT(A)'s decision to delete the addition, noting that the issue had been previously decided in favor of the assessee in multiple assessment years (2003-04 to 2009-10, 2013-14, and 2015-16). The Tribunal reiterated that the license fee paid to RSCPL was allowable as revenue expenditure under Section 37 of the Income Tax Act. The Tribunal referenced a detailed analysis of the historical context and legal precedents, including the Supreme Court's decision in the Devidas Vithaldas & Co. case, which supported the view that goodwill could be alienated and that the license fee was a legitimate business expense.

2. Increasing Value of License Fee:
The Revenue contended that the license fee paid by the assessee to RSCPL was increasing yearly without RSCPL undertaking any activities to enhance or protect the goodwill, suggesting that the payments were not genuine business expenses. The Tribunal dismissed this argument, emphasizing that the license agreement, which stipulated a fee based on a percentage of the bills raised, was still in operation, and there was no reason to interfere with the CIT(A)'s findings. The Tribunal noted that the arrangement was transparent, legally documented, and had been consistently upheld in previous assessments. The Tribunal also highlighted that the Revenue had not provided any distinguishing facts for the year under assessment compared to previous years.

3. Disallowance of Foreign Travel Expenses:
The AO made an ad hoc disallowance of 10% of the foreign travel expenses claimed by the assessee, totaling ?10,24,570/-, on the grounds that a personal element could not be ruled out. The CIT(A) deleted this addition, and the Tribunal upheld this decision. The Tribunal reasoned that business expenditures could not be disallowed based on mere surmises and that the AO had not disputed the assessee's books of account regarding the claimed expenses. The Tribunal found no basis for the ad hoc disallowance and thus determined this ground against the Revenue.

Conclusion:
The Tribunal dismissed the Revenue's appeal, finding no illegality or infirmity in the CIT(A)'s order. The deductions claimed by the assessee on account of the license fee paid to RSCPL and foreign travel expenses were upheld as allowable business expenditures under Section 37 of the Income Tax Act. The Tribunal's decision was pronounced in open court on September 22, 2021.