The Tax Publishers2021 TaxPub(DT) 0114 (Ind-Trib)

INCOME TAX ACT, 1961

Section 37

Where expenditure on account of licence fees got crystallized during financial year 2006-07 (assessment year 2007-08), the assessee rightly claimed it as expenditure against revenue of assessment year 2007-08.

Business expenditure - Licence fees payment of in advance - Assessee was granted Liquor licence - Allowability

AO disallowed expenditure of advance licence fee. Assessee submitted that as per the Government Regulations, he was required to pay the licence fees in advance, i.e., before the commencement of the year for which the licence was applied. It was further submitted that the assessee was following cash system of accounting but since the alleged amount was an advance paid for next year and was also shown as an advance in 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 had been rightly claimed as expenditure during the financial year 2006-07 (assessment year 2007-08). Held: When the assessee was granted liquor licence for financial year 2006-07, i.e., assessment year 2007-08, he claimed license fees as expenditure in Profit & Loss Account of assessment year 2007-08. Since the expenditure on account of licence fees got crystallized during financial year 2006-07 (assessment year 2007-08), the assessee rightly claimed it as expenditure against revenue of assessment year 2007-08. Further, the issue of cash system/mercantile system of accounting would not have 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, the assessee's claim for the expenditure of licence fees was allowed.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2007-08



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