TMI Blog2014 (11) TMI 851X X X X Extracts X X X X X X X X Extracts X X X X ..... isement of tobacco products etc., in respect of which royalty payments were received - Reasonableness and whether the assessee was wise and prudent in incurring the expenditure, is not within the domain of examination by the assessing officer, unless permitted and allowed under the statute. Expenses can be disallowed u/s 37(1) of the Act, if it is held that it was not wholly and exclusively for business and not by adopting subjective standard of reasonableness - Section 40A(2) of the Act has not been invoked and there is no provision which stipulates that advertisement and brand building expenses could be restricted or partly allowed – there was no need to examine the question as to whether any document belonging to the assessee was foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectively. On the quantum of royalty received, there was no dispute and the Assessing Officer did not make any addition. The Assessing Officer, however, observed that the respondent assessee had incurred substantial expenditure on advertisements and legal and professional fee that was not justified and exorbitant as it constituted a substantial percentage of the receipts by way of royalty. We are not reproducing the finding of the Assessing Officer in detail as it is quoted in paragraph No.6 below. 5. The stand of the respondent assessee was that expenditure on advertisement etc. was in fact and actually incurred. The quantum should not be disputed as payments were made to unrelated third parties like Zee Telefilms, News Television India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's (Parties) who has entered brand lease agreement with the appellant firm. The reason being that when the assessee is entitled to a fixed percentage of turnover there is no apparent reason why the appellant should incur such expenditure on advertisement which is about 73% of the royalty receipts (Rs. 54,63,571) in the year under consideration. The AO is of the view that the reason for booking the above advertisement expenses in case of the assessee firm is apparently to inflate profit of the brand lease holder companies that is M/s. S. Gopal and Company; M/s Flakes and Flavourz and M/s Gopal Corporation ltd. which are being run in industrially backward area and are entitled to claim of deduction u/s 80 IB of the IT Act. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertise in selecting curing, maturing, processing blending and formulating, chewing tobacco mouth fresher, kiwam and pan chatni. The argument being made by the appellant is thus that there was no trade mark/copy right agreement between the appellant and the parties from whom the royalty has been received during the year with reference to user of the trade mark/copy right license in case of Joie Agarbattie. Thus the appellant has argued that there did not arise question of not debiting the advertisement expenses for advertising Joie Agarbattie, the brand for which was being owned by the appellant and the trade and Copyright license of which had not been parted with to a third party. To put it differently, the assessee has not debited the adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f incense sticks. 7. In these circumstances, Revenue preferred appeals before the Tribunal. The Tribunal in the impugned order noticing the facts found by the Commissioner of Income Tax (Appeals) observed that the Departmental Representative has not been able to substantiate the findings of the Assessing Officer. It was also observed that none of the documents contained any incriminating evidence/material. 8. During the course of hearing before us, we asked the learned counsel for the Revenue to examine and point out, whether the findings recorded by the Commissioner of Income Tax (Appeals) on merits were correct and justified. 9. We also notice that the Assessing Officer has not observed or held that the expenditure was not incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d factual position, we do not think that it is a fit case to issue notice as it will be a futile exercise as factually incorrect findings were recorded by the Assessing Officer leading to the additions and the findings recorded by the Commissioner of Income Tax (Appeals) have not been set aside and adversely commented upon by the Tribunal. In fact, the Tribunal has accepted the factual findings and has based their decision in view of the said facts. In these circumstances, we need not examine the question as to whether any document belonging to the respondent-assessee was found during the course of search and whether Section 153C of the Act was rightly invoked. In this regard, we also record that there has been amendment to Section 153C by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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