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2022 (10) TMI 483 - AT - Income TaxAllowable revenue expenses - licence fee paid to Remfry Sagar Consultants Pvt. Ltd. (RSCPL) - as submitted by assessee being a law firm was using the goodwill of RSCPL being a company prohibited from arguing law in India as per the Advocates Act, 1961 and Bar Council of India Rule - HELD THAT - As relying on own case 2021 (9) TMI 998 - ITAT DELHI deduction claimed by the assessee on account of licence fee paid to M/s Remfry Sagar Consultants Pvt. Ltd., is allowable as revenue expenditure u/s 37 of the Act. Consequently, grounds No.1 and 2 of the Revenue being devoid of merits are dismissed. Nature of expenses - disallowance of travelling and entertainment expenses - the personal use element in respect of these expenses cannot be ruled out considering the nature of expenses - CIT-A deleted the addition - HELD THAT - As relying on assessee own case 2021 (9) TMI 998 - ITAT DELHI when the AO has not disputed the books of account qua the expenditure claimed by the assessee in any manner ad hoc disallowance of 10% on foreign travel expenses is not sustainable in the eyes of law. Appeal filed by the Revenue is dismissed.
Issues Involved:
1. Disallowance of license fee paid to Remfry & Sagar Consultants Pvt. Ltd. (RSCPL). 2. Disallowance of traveling and entertainment expenses. Issue-Wise Detailed Analysis: 1. Disallowance of License Fee Paid to RSCPL: The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 37,16,87,188/- made on account of disallowance of the license fee paid to RSCPL. The argument was based on the fact that the assessee, being a law firm, was using the goodwill of RSCPL, a company prohibited from practicing law in India as per the Advocates Act, 1961 and Bar Council rules. Additionally, the Revenue argued that the increasing value of the license fee year after year, without corresponding expenditure by RSCPL for improvement or protection of the goodwill, was ignored by CIT(A). In response, the assessee's counsel cited previous ITAT decisions in the assessee's favor for AYs 2003-04 to 2010-11, 2011-12, 2013-14, and 2014-15, where similar issues were adjudicated. The Tribunal considered the detailed historical context of the firm and the legal precedents, concluding that the license fee paid for the use of the goodwill of "Remfry & Sagar" was allowable under Section 37 of the Income Tax Act as it was an expenditure incurred wholly and exclusively for the purpose of business or profession. The Tribunal noted that the goodwill, initially part of a business of patent agents, was legally transferred and utilized by the law firm, and the arrangement was transparent and well-documented, not a device for tax avoidance. The Tribunal reiterated that the arrangement did not violate any specific law or section under the Advocates Act, 1961, or Bar Council Rules, and the deduction claimed was valid. Consequently, the grounds raised by the Revenue were dismissed. 2. Disallowance of Traveling and Entertainment Expenses: The Revenue also challenged the CIT(A)'s decision to delete the addition of Rs. 10,31,761/- out of traveling and entertainment expenses, arguing that the personal element in these expenses could not be ruled out. The assessee's counsel referred to the ITAT order for AY 2014-15, where a similar addition was made and subsequently deleted by CIT(A), with the Tribunal upholding the deletion. The Tribunal noted that the expenses were incurred for business purposes, and the books of account were not disputed by the AO. The Tribunal emphasized that ad hoc disallowance based on surmises was not sustainable. Following the precedent set in the earlier orders, the Tribunal dismissed the Revenue's ground on this issue as well, confirming that the expenditure was allowable. Conclusion: The appeal filed by the Revenue was dismissed in its entirety, with the Tribunal upholding the CIT(A)'s decision to allow the deductions claimed by the assessee for both the license fee paid to RSCPL and the traveling and entertainment expenses. The Tribunal's order was pronounced in the open court on 10.10.2022.
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