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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE KUL BHARAT & HONBLE MANISH BORAD
This appeal at the instance of Assessee pertaining to A.Y. 2007-08 is directed against the order of Commissioner of Income Tax(Appeals)-1, Indore (in short ‘CIT’), dated 27.11.2017 which is arising out of the order u/s 143(3)/263 of the Income Tax Act 1961 (hereinafter called as the ‘Act’) framed on 18.11.2011 by ITO-2(1), Indore. 2. The assessee has raised following grounds of appeal:
Shri Sunil Rathore ITANo.98/Ind/2018
1.On the facts and circumstances of the case and in law the learned Commissioner of Income Tax (Appeal)-I ("CIT(A),,) erred in confirming the disallowance of license fees paid in earlier year but crystallized during year. 2.On the fact and circumstances of the case and in law the learned AO ought to have allowed the claim following the principle of consistency in not assessing such advance payment for license fees.
3.Without prejudice to above the learned CIT(A) erred in not giving full effect to the cash system of accounting as considered by the AO.
4. The Appellant humbly prays that the said disallowance be deleted.
The Appellant craves leave to add / delete / modify any/ all the aforesaid Grounds.
Brief facts of the case as culled out from the records are that the assessee is an individual engaged in the business of liquor.
Return of income for the Assessment Year 2007-08 was filed on 30.10.2007 declaring income of Rs. 6,93,160/-. Case selected for scrutiny through CASS. Assessment u/s 143(3) of the Act framed on 12.02.2009. Subsequently Ld. CIT(A)-1 vide his order u/s 263 of the Act dated 17.03.2011 set aside the order of Ld. A.O u/s 143(3) of the Act and directed for framing it afresh with regard to the issue of claim of licence fee paid in the preceding year. Ld. A.O completed 2 Shri Sunil Rathore ITANo.98/Ind/2018 the assessment u/s 143(3) r.w.s. 263 of the Act and disallowed the expenditure of advance licence fee at Rs.12,72,096/- and assessed the income at Rs.20,02,410/-. Aggrieved assessee preferred appeal before Ld. CIT(A) but could not succeed as Ld. CIT(A) dismissed the assessee’s appeal not treating it as maintainable since the assessee did not file any appeal against the order of Ld. CIT(A)-1 u/s 263 of the Act. Thereafter assessee challenged the finding of Ld. CIT(A) and filed appeal before Hon'ble Tribunal. The Hon'ble Tribunal vide order dated 16.11.2015 set aside the finding of Ld. CIT(A) and directed Ld. CIT(A) to decide the issue on merits.
Following the direction of Hon'ble Tribunal Ld. CIT(A) decided the issue on merits and confirmed the addition made by Ld. A.O. Now the assessee is again in appeal before the Tribunal.
Ld. Counsel for the assessee referring to the paper book and the written submissions submitted that as per the Government regulations the assessee is required to pay the licence fees in advance i.e. before the commencement of the year for which the licence is applied. In case the licence is not granted it is refunded and in case it is granted then it is claimed as an expenditure for the 3 Shri Sunil Rathore ITANo.98/Ind/2018 year to which it pertains. It was submitted that the assessee is following the cash system of accounting but since the alleged amount was an advance paid for next year and was also shown as an advance in the balance sheet and only when the licence was granted the expenditure got crystallized in the year for which it pertained and therefore the advance licence fee for Financial Year 2006-07 paid during financial year 2005-06 has been rightly claimed as expenditure during the financial year 2006-07.
Ld. Departmental Representative vehemently argued supporting the orders of both the lower authorities.
We have heard rival contentions and perused the records placed before us and carefully gone through the written submissions and the documents filed in the paper book. The short issue for consideration is the disallowance of licence fee of Rs. 12,72,096/-. On perusal of the audited financial statement, the application for grant of licence for selling liquor for Financial Year 2006-07, the amount paid as advance licence fees and other relevant documents, we find that in the due course of busness assessee is obliged to pay licence fee in advance i.e. before the 4 Shri Sunil Rathore ITANo.98/Ind/2018 commencement of the year for which it pertains. The assessee has shown the alleged amount of Rs.12,72,096/- paid during the financial year 2005-06 as an advance licence fee for the financial year 2006-07 (relevant to assessment year 2007-08) in its audited financial statement. The advance is duly shown in the balance sheet on the asset side. When the assessee was granted the liquor licence for financial year 2006-07 i.e. Assessment Year 2007-08 he has claimed it as expenditure in the Profit & Loss Account of Assessment Year 2007-08. We are of the considered view that since the expenditure of licence fees has crystallized during Financial Year 2006-07 (Assessment Year 2007-08), the assessee has rightly claimed it as an expenditure against revenue of assessment year 2007-08. Issue of cash system/mercantile system of accounting is not having any impact on the issue under consideration because the amount of advance licence fees paid during Financial Year 2005-06 was just an advance and it converted into expenditure during Financial Year 2006-07 (Assessment Year 2007-08). Thus Ld. CIT(A) was not justified in confirming the addition made by Ld.
A.O. We thus set aside the finding of Ld. CIT(A) and allow the claim 5 Shri Sunil Rathore ITANo.98/Ind/2018 of the assessee for the expenditure of licence fees of Rs.12,72,096/-. The sole issue raised by the assessee is allowed. 7. In the result appeal of the assessee is allowed.
Order was pronounced in the open court on 02.11.2020