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2012 (10) TMI 714 - ITAT, DELHIPayment of Royalty - Revenue v/s capital - Held that:- As decided in assessee's own case that the assessee was required to pay royalty @2% of the items manufactured and sold under the agreement determined on the basis of quantity and value of the production. Therefore, the expenditure incurred by the assessee company was essentially of recurring and revenue in nature. AO treated 25% of such payment as capital in nature but these findings are not justified as the assessee company was not deriving any benefit of enduring nature. Accordingly, the expenditure of royalty so claimed by the assessee company on the products manufactured by it was related and computed at 2% of net ex-factory sale price on half yearly basis under the agreement. Admittedly, the assessee company did not make payment of royalty for acquiring process or design or technology which can be utilized by the assessee in the years to come and the assessee company was not deriving any benefit of enduring nature. Thus such expenditure does not fall in the ambit of capital in nature - in favour of assessee. Disallowance of car expenses, advertisement expenses and sales promotion expenses - CIT(A) deleted the addition - Held that:- There was no disallowance by the AO related to motor car, advertisement and sales promotion expenses in the earlier assessment year. On bare reading of the assessment order, AO merely held that the personal nature of expenses under these heads cannot be ruled out, therefore, he made estimated disallowance of 10% on account of expenses incurred in this regard & has not brought any evidence or observation that the particular part of this expenditure was incurred to extend personal benefit to any director or employee of the company - the accounts of the assessee company are continuously audited by the Chartered Accountant and there is no adverse reporting in the audit report regarding any personal use of any business asset by the director or employee of the company - as decided in Sayaji Iron & Engg. Co. Ltd. vs. CIT [2001 (7) TMI 70 - GUJARAT HIGH COURT] that for the purpose of company, no expenditure shall be deemed to be in the nature of personal expenditure as the company has a separate legal entity - in favour of assessee.
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