Wine shop license application fees allowed as business expenditure under section 37(1)

ITAT Jodhpur allowed the assessee's appeal regarding form fees for wine shop license applications. The assessee paid Rs. 15,000 each for 20 applications through banking channels to increase probability of license allotment via lottery system. Revenue authorities disallowed the expenditure under section 37(1). ITAT held that since the assessee obtained the license, payments were genuine business expenditure supported by bank statements and affidavit. The tribunal directed deletion of the addition, ruling the expenditure was allowable under section 37(1) as legitimate business expense for license procurement.

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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.

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