2024 (3) TMI 884 - AT - Income Tax

Allowable expenditure u/s 37(1) - addition relating to form fees which was deposited for obtaining the wine shop through government - non-accepting the theory of commercial expediency - argued that the assessee has made multiple applications for lottery to obtaining the wine shop licence and for that he has made 20 application of each 15,000/- the payment has been made by banking channel. As the state government has not put any restriction on making number of application the genuine business expenditure being in accordance with the law cannot be denied u/s. 37(1) Whether the money paid for making 20 applications by the assessee by way of application fees paid for allotment of licence for liquor shop from his bank account as the same is allotted based on the lottery system and the fees paid is non-refundable? - HELD THAT - Before us AO though ld. DR did not controvert the fact that the assessee has made 20 application and only one was accepted so the payment of application to increase the probability of the allotment is licence cannot be denied to the assessee when the assessee has demonstrated the payment from the bank statement, filed an affidavit confirming the fact and most important amongst all the allotment of licence is not disputed by the revenue. Thus, the money paid for making 20 applications for the allotment of liquor licence cannot be disallowed as the same is in respect of the business of the assessee and he has been allotted liquor licence shop in Jaipur as clearly confirmed by the ld. AO in the order. Considering these specific fact and confirmation of the assessee by way of an affidavit that even the amount paid for applying licence in 20 numbers for his business and therefore denial of claim of expenditure u/s 37(1) of the Act is not correct and therefore, the same is directed to be allowed and addition made by the ld. AO confirmed by the ld. CIT(A) is directed to be deleted. In terms of these observations, the appeal of the assessee is allowed.

Summary

Issues:
The judgment involves the addition of form fees as revenue expenditure, non-acceptance of theory of commercial expediency, and the allowance of deduction under section 37(1) of the Income Tax Act.

Addition of Form Fees as Revenue Expenditure:
The appeal arose from the order of the Ld CIT(A) for the assessment year 2017-18, challenging the addition of Rs. 300528/- for form fees paid for obtaining a wine shop. The Appellate Tribunal noted that the assessee had paid Form Fee Expenses of Rs. 3,00,528/- towards allotment of new Wine/Shop for the next Financial Year 2017-18. However, the Tribunal found that the claim was not entertainable under section 37(1) of the Income Tax Act as the fees paid were not related to the financial year under consideration. The Tribunal upheld the addition made by the Assessing Officer, dismissing the grounds of appeal filed by the assessee.

Non-Acceptance of Theory of Commercial Expediency:
The ld. CIT(A) sustained the addition of form fees, stating that the assessee failed to provide details of 20 application forms for the allotment of new liquor shops. The ld. CIT(A) rejected the theory of commercial expediency, emphasizing that the assessee did not submit basic details to ascertain the purpose of the payments. The Tribunal confirmed the ld. CIT(A)'s decision, stating that in the absence of evidence, the theory of commercial expediency was not acceptable, and the detailed submissions made by the assessee were rejected.

Allowance of Deduction under Section 37(1) of the Act:
The assessee argued that the form fees paid were business expenses incurred for sustaining the business. The Tribunal noted that the money paid for making 20 applications for the allotment of a liquor license was not violative of any law and was based on a lottery system. The Tribunal observed that the payment increased the probability of allotment and was in respect of the business of the assessee. Considering the evidence provided, including bank statements and an affidavit, the Tribunal directed the allowance of the deduction under section 37(1) of the Act. The appeal of the assessee was allowed, and the addition made by the Assessing Officer was directed to be deleted.