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2016 (3) TMI 237 - AT - Income TaxTreatment to royalty payments - AO treating the royalty payments being 3% of the sales of the year, as capital expenditure and disallowing 75% of the same after allowing depreciation @ 25% - Held that:- Judgment of the jurisdictional High Court in the case of CIT vs Hitech Arai Ltd, [2014 (8) TMI 459 - MADRAS HIGH COURT] is applicable in his case wherein held that where the royalty payment made by the assessee under renewal agreements were for grant of license to an existing company for manufacture and sale of automobile parts and components for subsequent periods, after the expiry of original period of license and it was not technical know-how for setting up a new plant or for manufacturing a completely new product with aid and assistance of foreign company, payment made was purely revenue in nature, more so, when Department had for the nine earlier assessment years accepted the fact that the payment made towards royalty was revenue expenditure and had not raised dispute thereon.. Accordingly, in our opinion, the assessee’s claim has to be allowed and it is to be treated as revenue expenditure only. - Decided in favour of assessee Disallowance u/s 14A - CIT(A) made disallowance of 2% of the exempt income earned - Held that:- The assessment year under consideration is 2007- 08 and, therefore, the provisions of rule 8D cannot be applied. Rule 8D came into operation with effect from 24.3.2008 i.e from assessment year 2008-09. Disallowance 2% of the exempt income earned is reasonable. CIT(A) is justified in computing disallowance of 2% of the exempt income earned. We do not find any infirmity in the order of the CIT(A) and the same is confirmed.- Decided in favour of assessee in part
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