TMI Blog2011 (2) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... same. Capital expenditure or revenue expenditure - payment of royalty - held that:- the royalty in this case is based upon the percentage of production/sales and it cannot be said to be resulting in a benefit of enduring nature and as such the same is allowable. Research and Development expenditure - expenditure was incurred for development and improvement of the existing products as well as the new products in the appellant’s existing line of business. - Held that:- the details regarding research and development expenditure were not produced before the Assessing Officer Ld. Commissioner of Income-tax (Appeals)’s order in this regard is also silent regarding details. Under these circumstances, both the counsel fairly agreed that the issue may be remitted to the files of the Assessing Officer to examine the issue afresh. - IT APPEAL NOS. 4878 (DELHI) OF 2009 & 3895, 421 & 4333 (DELHI) OF 2010 - - - Dated:- 11-2-2011 - I.P BANSAL, SHAMIM YAHYA, JJ. Shailesh S. Shah and Akash Singhal for the Appellant. Stephen George for the Respondent. ORDER Shamim Yahya Accountant Member. These appeals by the Revenue emanate out of the respective orders of the Ld. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot apply. 4.1 Respectfully following the precedent from the Special Bench decision, we uphold the order of the Ld. Commissioner of Income-tax (Appeals) on this issue. 5. The next issue raised is that Ld. Commissioner of Income-tax (Appeals) erred in deleting the disallowance of Rs. 9,56,62,981 being provision for expenses made by the appellant on the ground the same are on an estimated basis and not the precise ascertainment of liability. 6. Assessing Officer in this case noted that assessee had made provision for expenses amounting to Rs. 9,56,62,981 claimed during the year. These expenses were being incurred on account of travelling conveyance, office administration and marketing expenditure etc. Assessing Officer was of the opinion that since the assessee has failed to give the specific accounts on which the provision was made. He made the disallowance of Rs. 9,56,62,981. 7. Before the Ld. Commissioner of Income-tax (Appeals) assessee made the elaborate submissions and bills were also submitted which were paid subsequently, but the provision of the same was made during the year as the liability had arisen during the year. In this regard, Ld. Commissioner of Income-tax (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f these transactions is considered at NIL. This amount of Rs. 39951000 is to be added back to the total income." Accordingly, the Assessing Officer added back this amount to the income of the assessee. 14. Upon assessee s appeal Ld. Commissioner of Income-tax (Appeals) elaborately discussed the issue. Ld. Commissioner of Income-tax (Appeals) observed that he has gone through the order of the TPO found that TPO has determined the arms length price for the royalty payment to be NIL value primarily on the ground that the assessee has not been benefited from the technical know how received from the AE (Associated Enterprises) and there is no justification for payment of royalty because inspite of having purchased the technical know how the assessee has incurring continues losses. Ld. Commissioner of Income-tax (Appeals) further noted that the royalty payment was approved by the Government of India. A list of companies which were making royalty payment despite persistent losses was also submitted by the assessee to the TPO. Ld. Commissioner of Income-tax (Appeals) referred to the assessee s submission that because of the increase in competition due to change in the customer preference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnology or technical know how is to be taken and at what cost etc., or what steps should be taken to meet the needs of the market forces and to face the competitors etc. Ld. Commissioner of Income-tax (Appeals) held that royalty payment was incurred for genuine business purpose and the disallowance were uncalled for and unjustified. 15. Against this order the revenue is in appeal before us. 16. Ld. Departmental Representative relied upon the order of the TPO. 17. Ld. counsel of the assessee submitted to the elaborate submissions and order passed by the Ld. Commissioner of Income-tax (Appeals). 18. We have carefully considered the rival submissions and perused the records. We find that Ld. Commissioner of Income-tax (Appeals) has given the correct finding in this regard that royalty payment in this case was justified and the TPO was totally wrong in disallowing the royalty payment on the ground that the company has incurred losses. We do not find any infirmity in the well reasoned order of the Ld. Commissioner of Income-tax (Appeals) and accordingly we uphold the same. 19. In the result, this Revenue appeal is partly allowed for statistical purposes. ITA NO. 3895 20. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... license fees, the entire royalty payment made by the assessee in the relevant assessment year in question, in terms of the agreement is treated as having been incurred in connection with the running of its business and is deductible revenue expenditure. Therefore, the disallowance made by the Assessing Officer is deleted." 24. Against this order the Revenue is in appeal before us. 25. We have heard both the counsel and perused the records. Both the counsel fairly agreed that the royalty in this case is based upon the percentage of production/sales and it cannot be said to be resulting in a benefit of enduring nature and as such the same is allowable. Accordingly, we uphold the order of the Ld. Commissioner of Income-tax (Appeals) and decide the issue in favour of the assessee. 26. The next issue raised is that Ld. Commissioner of Income-tax (Appeals) erred in deleting the disallowance of doubtful debts/advance written off of Rs. 66,86,974 by treating the same as revenue expenditure. 27. On this issue the Assessing Officer held that claim of the assessee cannot be allowed, as no details regarding these expenses have been filed, whether these were actually trade debts incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd accordingly have been written off as business loss. It is not the case the Assessing Officer that the said amount was recovered by the assessee at a later date. Hence the same are allowable under section 28 and 37(1) of the Act. In respect of other amounts of Rs. 18,974 in the absence of details, the disallowance made by the Assessing Officer is proper, and claim for deduction under section 36(1)(vii) or 28 has rightly been rejected. As a result, out of the disallowance made by the Assessing Officer of Rs. 66,86,974, Rs. 66,68,000 stands deleted and the balance Rs. 18,974 is confirmed." 29. Against this order the revenue is in appeal before us. 30. We have heard the rival contentions and perused the records. Both the counsel fairly agreed that as per section 36(vii) deduction is to be provided for amount of any bad debt and part thereof which is written off as irrecoverable in the accounts of the assessee in the previous year. We note that assessee has duly written off all the amounts under consideration in the books of accounts. Ld. Commissioner of Income-tax (Appeals) has himself elaborately considering all the various other aspects. Accordingly, we uphold the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is that Ld. Commissioner of Income-tax (Appeals) has erred in deleting the addition of 3,42,97,940 on account of arms length price of the brand fees/royalty transaction. 39. In this case during the assessment proceedings, the Assessing Officer noted the following International Transactions entered into by the appellant during the financial year 2002-03, as reported in Form 3CEB, filed along with the return of income: S.No. Description of transaction Method Value (in Rs.) 1. Purchase of components TNMM 9,15,101 2. Sale of components TNMM 53,206 3. Purchase of finished goods TNMM/RPM 16,16,966 4. Return of finished gods - 36,68,825 5. Sales of finished goods TNMM 35,62,974 6. Purchase of finish good (samples) - 1,62,436 7. Brand fees/royalty payments CUP 3,42,97,940 8. Services rendered (received) TNMM 27,64,434 9. Revenue grant - 50,00,00,000 10. Service rendered (paid) - 20,82 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Hon ble Apex Court in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306 (SC). In this case, Hon ble Apex Court elaborately analysed scheme of section 43B and held that amounts which fall in the realm of section 43B have to be allowed so far as they are actually paid upto the date of filing of return. 42. Respectfully following the Hon ble Apex Court decision above, we uphold the decision of the Ld. Commissioner of Income-tax (Appeals) and decide the issue in favour of the assessee. 43. The next issue raised is that Ld. Commissioner of Income-tax (Appeals) erred in deleting the addition of Rs. 1,73,07,866 on account of provision of gratuity. 44. Upon assessee s appeal Ld. Commissioner of Income-tax (Appeals) elaborately considered the issue. He noted that as per section 115JB of the Income-tax Act only in certain case provision of liability are required to be added back while computing book profit under section 115JB of the Act. From the records, he found that provision or gratuity was made on the basis of calculation given by actuary. Therefore, he held that it is a ascertained liability and therefore, it should be taken into consideration for determining the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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