TMI Blog2017 (3) TMI 1520X X X X Extracts X X X X X X X X Extracts X X X X ..... ead of 2%, as claimed by the respondent assessee. This determination of ALP of technical know how royalty by the TPO was adhoc and arbitrary as held by the CIT(A) and the Tribunal. Brand usage royalty - Held that:- The impugned order of the Tribunal correctly proceeds to hold that in any view of the matter, even if there was no agreement to support the agreement, yet where the payment is made on account of commercial expediency, the same ought to be allowed. See Commissioner of Income Tax Vs. Associated Electrical Agencies[2003 (12) TMI 36 - MADRAS High Court] Addition u/s 40A - addition of professional fees paid to Crawford Bailey & Co. (Advocate & Solicitor) to the extent of 10% of the fees paid -one director being a partner of the firm receiving the fees - Held that:- The onus would necessarily first be upon the Revenue before it disallows the payment made to persons covered under Section 40A(2)(b) of the Act in respect of professional services to establish that the payment was excessive. This it could do by calling for the details of the services rendered and making enquiries of the fees for such services in comparable cases i.e. taking into account the Advocates involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in its decision regarding the inclusion of Modvat in the opening stock with its decision deleting modvat credit from the valuation of closing stock as on 31.03.1999 rendered for assessment year 1999-2000? (B) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the addition on account of tax on trademark / brand name royalty without appreciating the fact that as per Article 13 of the Agreement, no condition exists for royalty being net of taxes and approval taken from Reserve Bank of India cannot be taken to be augmenting the terms of agreement with the principal ? (C) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in upholding the deletion made by CIT(A) of the disallowance of royalty on traded goods based on Article 7 of the agreement with the principal? (D) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing the royalty payment @ 2% instead of 1% as was done by the TPO? (E) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the bra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial question of law. (c) In the above view, it is agreed position between the parties that for the reasons indicated in our order dated 28th March, 2016 passed in Income Tax Appeal No.2197 of 2013 (supra), the question (A) as proposed does not give rise to any substantial question of law. Thus, not entertained. 4. Regarding question (D) : (a) The respondent assessee paid to its Associated Enterprises (AE), technical know how royalty of 2%. The Transfer Pricing Officer (TPO) by order dated 24th March, 2005 restricted the technical know how royalty paid by the respondent assessee to its AE at 1% instead of 2%, as claimed. In terms of the determination dated 24th March, 2005 of the TPO on the above issue amongst others, an assessment order dated 28th March, 2005 for the subject Assessment Year was passed by Assessing Officer under Section 143(3) of the Act. (b) Being aggrieved with the order dated 28th March, 2005 of the Assessing Officer, the respondent assessee preferred an appeal to the Commissioner of Income Tax (Appeals) [CIT(A)]. By an order dated 22nd March, 2007, the appeal of the respondent assessee on the issue of royalty payable on technical know how, allowed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the CIT(A), a showcause notice was issued to the respondent assessee as to why the payment of royalty on brand usage should not be disallowed for the period 1st July, 2001 to 14th March, 2002. This for the reasons that the agreement for brand usage royalty was executed by the respondent assessee only on 14th March, 2002. The respondent assessee responded to the notice pointing out that it was agreed between the parties that the royalty would be paid to the AE by the respondent assessee w.e.f. 1st July, 2001. A draft agreement was thereafter prepared and presented to the Reserve Bank of India (RBI) on 10th August, 2001 for its approval. The approval was granted in November, 2001 and agreement was finally signed on 14th March, 2002. In terms of the said agreement as executed (similar to draft agreement), the royalty had to be paid w.e.f. 1st July, 2001. However, the CIT(A) was not satisfied with the explanation. This was more particularly in the absence of the minutes of the board meeting of the respondent assessee recording its decision to make the payment of brand usage royalty at 1% w.e.f. 1st July, 2001 being produced. Consequently, by the order dated 22nd March, 2007, the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 10% of the fees paid. The disallowance in absolute terms is ₹ 1.11 lakhs. This was by invoking Section 40A(2)(b) of the Act. (b) Being aggrieved, the respondent assessee carried the issue in appeal to the CIT(A). By an order dated 22nd March 2007, the CIT(A) held that the fees paid for legal advice / consultation / assistance / representation to a professional advocates firm, cannot by itself be considered to be excessive as there is no standard rate of fees charged by Advocates firm available. The fees would differ depending upon the nature of the services, the complexity of the issues involved and the time available with the advocate concerned. In the above view, it would be impossible for the respondent assessee to furnish comparables. The CIT(A) held that onus in such a situation would necessarily be upon the Revenue to establish that the payment was excessive. As the Revenue not been able to discharge its above onus, the appeal of the respondent assessee was allowed. (c) Being aggrieved, the Revenue carried the issue in further appeal to the Tribunal. By the impugned order, the Tribunal upheld the order of the CIT(A). It held that the onus to establish that pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be for the assessee to show why the comparison is not proper. No such exercise was done. Therefore, the disallowance of 10% is adhoc. Thus, in the present facts, the Revenue has not even remotely attempted to establish that the payment made to the Advocates for professional services was excessive. In the circumstances, no fault can be found with the orders of the CIT(A) and the Tribunal. (e) Therefore, the question as proposed does not give rise to any substantial question of law. Thus, not entertained. 7. Regarding question (G) : (a) It is an agreed position between the parties that the issue raised herein stands covered against the Revenue and in favour of the respondent assessee by the decision of this Court in Commissioner of Income Tax Vs. Johnson Johnson Ltd. (Income Tax Appeal No.2441 of 2013) decided on 4th July, 2016 in respect of A.Y. 2001-02 raising an identical issue as raised herein. This was for the reason that the issue of treatment to be given to club fees is settled by an earlier decision of this Court in Commissioner of Income Tax Vs. Otis Elevators (I) Ltd. 194 ITR 682. (b) In the above view, the question as formulated stands concluded against the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the Revenue in support of the appeal relied upon the order of the Assessing Officer . (e) The addition on account of unaccounted production and sales has been made in the absence of the regular books of accounts maintained by the respondent assessee, being found to be defective in any manner. More particularly, in the absence of any evidence that there were purchase and sales outside the regular books of accounts, it is not permissible to disregard the normal books of accounts. So far as the production loss is concerned, the CIT(A) as well as the impugned order of the Tribunal has followed an earlier order of its coordinate bench in respect of the same respondent assessee for A.Y. 1991-92 to hold that the production loss depends on number of factors and in the absence of any comparable data to show that the loss claimed was in excess, the same cannot be disallowed. (f) We note that the finding of the CIT(A) as well as the Tribunal are essentially findings of facts. The same has not been shown to be perverse in any manner so as to give rise to any substantial question of law. Thus, the proposed question is not entertained. 10. The appeal is admitted on substantial que ..... X X X X Extracts X X X X X X X X Extracts X X X X
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