SANSKRUTI WINES,AHMEDNAGAR vs. PRINCIPAL COMMISSIONER OF INCOME-TAX -1, PUNE

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ITA 193/PUN/2021Status: HeardITAT Pune24 August 2022AY 2015-164 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the Assessing Officer ought to have examined the deductibility of the license transfer fee. Since the Pr.CIT merely directed the AO to re-examine the issue, and the assessee would have an opportunity to present its case, no interference with the Pr.CIT's order was warranted.

What were the facts?

The assessee, a wine merchant, paid license fees which included a component for transfer of license. The Pr.CIT initiated proceedings under Section 263, opining that the transfer fee was capital in nature and should not have been allowed as a deduction. The Assessing Officer had not examined this issue during the assessment.

What were the issues?

Whether the license transfer fee paid by the assessee is a revenue or capital expenditure, and whether the Pr.CIT was justified in invoking Section 263 to direct the AO to re-examine this issue.

Which sections of the Income-tax Act were involved?

Section 37(1),Section 263

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH, ‘B’ PUNE

Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI

For Appellant: Shri Bharat Shah
For Respondent: Shri Sardar Singh Meena

आदेश / ORDER

PER R.S. SYAL, VP :

1.

This appeal by the assessee is directed against the order dated 19-03-2021 passed by the Pr.CIT, Pune u/s.263 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2015-16.

2.

Briefly stated, the facts of the case are that the assessee is a wine merchant who furnished its return declaring total income of Rs.4,88,140/-. The assessment was made on total income of Rs.6,88,140/-, making an addition of Rs.2.00 lakh on account of low gross profit. The ld. Pr.CIT noticed that the case was selected for complete scrutiny through Computer Aided Scrutiny Selection (CASS). He observed that the assessee debited payment of license fee to State Excise department, which had two components, namely, Rs.5,07,450/- towards regular license fee and Rs.3,11,604/- being 1/5th of Rs.15,58,020/- towards transfer fees paid in connection with the transfer of license from one concern to another. It was opined that the regular license fee was deductible but the amount of transfer fee paid by the assessee in connection with the transfer of license from one concern to another concern was in the nature of capital expenditure and hence ought to have been disallowed u/s.37(1) of the Act. As the Assessing officer (AO) had not examined this issue, the ld. Pr. CIT set-aside the assessment order and remitted the matter to the file of the AO for examining it afresh. Aggrieved thereby, the assessee has come up in appeal before the Tribunal

3.

After considering the rival submissions and perusing the relevant material on record, it is seen that the assessee paid two types of license fees. There is no dispute on the deductibility of the regular license fee. The assessee also transferred license of one concern with another for which it had to pay transfer fee to State Excise department amounting to Rs.15.58 lakh. Treating the same as preliminary expenditure, the assessee debited its Profit and loss account with 1/5th of such amount for the year under consideration.

The case of the ld. Pr. CIT is that such transfer fees is capital expenditure and hence cannot be allowed as deduction. It is seen that the AO did not examine the license transfer fee during the course of assessment proceedings. The ld. AR also could not point out any case law on the point for allowing such deduction. This shows that the AO ought to have examined this aspect from the angle of deductibility, which he did not. In view of the fact that the ld. Pr.CIT has simply directed the AO to examine this issue afresh and the assessee will have ample opportunity to put across its point of view, we hold that no interference is warranted in the impugned order. We, therefore, countenance the impugned order on this score.

4.

In the result, the appeal is dismissed. Order pronounced in the Open Court on 24th August, 2022.

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