JIL Information Technology Ltd. Vs ACIT (ITAT Lucknow)
Conclusion: Where payment made to foreign entities by way of retainership fee did not result in commensurate business in USA in the year relevant to assessment year 2008-09, it did not imply that the expenditure incurred was not for the purpose of the assessee’s business. AO was directed to delete the addition of Rs.64,88,451/- by observing that the expenditure was disallowed u/s 14A.
Held: Assessee-company was a computer software company. During the year under consideration it entered into an agreement with two foreign agents M/s ASP Services LLC and M/s Tekorigin LLC. Assessee had debited its profit & loss account by Rs.64,88,451/- on account o f payments being made to these foreign agents. AO while framing the assessment order against assessee disallowed the expenses of Rs.64,88,451/- by observing that the expenditure of Rs.64,88,451/- was disallowed u/s 14A. It was held that mere fact that the payment made to the aforesaid entities by way of retainership fee did not result in commensurate business in USA in the year relevant to assessment year 2008-09 did not imply that the expenditure incurred was not for the purpose of the assessee’s business. Considering that the retainer ships were terminated by the assessee within a short time when the assessee realized that the services provided by the aforesaid entities were not satisfactory. There was no requirement in law that every expenditure incurred by the assessee must result in profit. It was sufficient if the expenditure not being in the nature of capital expenditure or personal expenses was laid out or expended wholly and exclusively for the purposes of business. AO was directed to delete the aforesaid addition of Rs.64,88,451/-.
