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2013 (8) TMI 326 - AT - Income TaxExpenditure u/s 37(1) - lottery business - A.O. made addition on account of bogus commission - whether payment of commission is against the public policy - CIT deleted addition - Held that - any expenditure incurred for any purpose which is an offence or which is prohibited by law shall not be allowed to be deducted in computing the income - Nothing has been brought on record that the activities of the agents of making representations and mobilizing public opinion for not exercising option under s. 5 of the Central Act was an offence or was prohibited by law - The State Governments were carrying on their respective lottery businesses and the purpose of the Central Act was to limit such activities within the territories of the States at the option of the States. Thus, there was nothing illegal about carrying on the lottery business or mobilizing opinion for continuation of sale of lottery tickets of other States within the State of Madhya Pradesh. Nothing has been brought on record to show that it was even against the public policy - Following decision of CIT Vs. Khemchand Motilal Jain, P. Ltd. 2011 (8) TMI 70 - MADHYA PRADESH HIGH COURT - Decided against Revenue.
Issues Involved:
1. Disallowance of commission paid to M/s K.P. Steels Ltd. 2. Disallowance of ISO audit fee as capital expenditure. Issue-wise Detailed Analysis: 1. Disallowance of Commission Paid to M/s K.P. Steels Ltd.: The revenue challenged the deletion of the addition on account of commission paid to M/s K.P. Steels Ltd., arguing that such payments were made to procure contracts through illegal means, which is contrary to the explanation to Section 37(1) of the I.T. Act, 1961. The facts revealed that the appellant company received a commission from M/s Pharma Ventures International (P) Ltd. for managing to get a contract from the Ministry of Health and Family Welfare and subsequently paid a commission to M/s K.P. Steels Ltd. for subletting the work. The Assessing Officer (AO) disallowed the commission paid, treating it as bogus and illegal. The appellant argued that the nature of the services was explained to the revenue authorities with evidence, and the expenditure incurred for the services for which income was earned should be allowed. The CIT (A) found no merit in the AO's observation that using 'contacts' to obtain the contract was an illegal activity. The CIT (A) concluded that liaison work is not illegal, and the payments made for such work are legitimate business expenditures. The Tribunal upheld the CIT (A)'s decision, noting that the payment was not illegal, and the services rendered were demonstrated. The Tribunal referenced several case laws, including the Delhi 'I' Bench of the Tribunal in the case of ACIT Vs. Jindal Saw Pipes Ltd. and the Hon'ble M.P. High Court in the case of CIT Vs. Khemchand Motilal Jain, P. Ltd., to support its decision. It was held that the revenue failed to justify the applicability of the explanation to Section 37(1) and that the payment was not prohibited by law. 2. Disallowance of ISO Audit Fee as Capital Expenditure: The revenue contended that the expenditure on ISO certification was capital in nature, as it provided an enduring benefit to the assessee. The CIT (A) held that the ISO certificate did not result in the creation of a new asset and was obtained to enhance the company's goodwill. The certificate was not transferable, had no surrender value, and could be withdrawn if standards were not maintained. Therefore, the expenditure was not capital in nature. The Tribunal upheld the CIT (A)'s decision, agreeing that the expenditure for ISO certification could not be considered capital expenditure. The Tribunal dismissed the revenue's ground on this issue. Conclusion: The Tribunal dismissed the revenue's appeal, upholding the CIT (A)'s order on both issues. The commission paid to M/s K.P. Steels Ltd. was deemed a legitimate business expenditure, and the ISO audit fee was not considered capital expenditure. The decision was pronounced in the open court on 31st July 2013.
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