The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has disallowed a claim of business expenditure towards the payment of license fee by observing that the assessee illegally obtained the license in the name of his benami, i.e., the employee, violating the rules of excise department and therefore, deduction under section 37 of the Income Tax Act, 1961 is not allowable.
A bench of Shri Shamim Yahya, Accountant Member and Shri Yogesh Kumar U.S., Judicial Member was considering an appeal by the revenue, against the assessee, D D & Company wherein the Assessing Officer rejected the claim of business expenditure incurred towards the payment of license fee. The liquor license has been issued in the name of one Mr. Harish Kumar who is only a sales man, whose income is below taxable.
The division bench of the Tribunal held that “as per remand report the 26AS from of past 5 years show that no TCS has been collected against the PAN nor any TDS made and no refund was issued to Mr. Harish Kumar. During the appellate proceedings, the assessee was asked to furnish the indemnity bond of Mr. Harish to ensure that no such claim of expenditure incurred by him for licensee fee is made by him, but no such indemnity has not been given during the appellate proceedings in spite of the direction. Even in the absence of the indemnity, the Ld. CIT(A) has proceeded to delete the addition made by the A.O. It is also in dispute that the assessee is not the licensee to do the liquor business directly, the assessee has set up his staff who is eligible for the liquor license under reserve quota. But the entire business has been run by the assessee by using his staff Mr. Harish who is a dummy bidder.”
Dismissing the appeal, the Tribunal observed that “Since the said model of business itself is in violation of licenses issued by the Excise Department, the license fee paid by the assessee who is not the license holder cannot be treated as eligible expenses. In view of the above discussion, we are of the opinion that, the grounds of appeal of the Revenue deserves to be allowed.”
Shri Nishant Keri appeared for the assessee and Md. Gayasuddin Ansari, Sr. appeared for the department.
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