2017 (3) TMI 1520 - BOMBAY HIGH COURT

Inclusion of Modvat in the opening stock - Held that:- The impugned order of the Tribunal while allowing the respondent assessee's appeal on this issue restored the issue for fresh examination by the Assessing Officer. This was done by following the decision of its coordinate bench on the same issue in respect of the same respondent assessee, dated 18th January, 2013 relating to Assessment Year 1999-2000.

Royalty payment - Tribunal allowing the royalty payment @ 2% instead of 1% as was done by the TPO - Held that:- TPO is mandated by law to determine the ALP by following one of the methods prescribed in Section 92C of the Act read with Rule 10B of the Income Tax Rules. However, the aforesaid exercise of determining the ALP in respect of the royalty payable for technical know how has not been carried out as required under the Act. Further, as held by the CIT(A) and upheld by the impugned order of the Tribunal, the TPO has given no reasons justifying the technical know how royalty paid by the Assessing Officer to its Associated Enterprise being restricted to 1% instead 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 involved i.e. the experience and expertise. Thereafter, it would 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.

Addition on account of club entrance fee - revenue expenditure treated by ITAT - Held 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. [1991 (4) TMI 53 - BOMBAY High Court] to be treated as revenue in nature.

Dpreciation is allowable on testing equipments even when the equipment is used by its clients.

Addition on account of unaccounted production and sales - Held that:- Addition 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.