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TMI Blog2013 (1) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the facts and circumstances of the case of the appellant firm the order of the learned CIT(A) in upholding disallowance of Rs.2,50,000/- out of advertisement and sales promotion expenses is altogether arbitrary, illegal and uncalled for. 4. That the learned CIT(A) has grossly erred in confirming disallowances of Rs.15,334/- in respect of written of assets and Rs.19,254/- in respect of receivables which is arbitrary and uncalled for. 5 That the order of the learned CIT in confirming disallowance of 1/4th car expenses and depreciation at Rs.21,055/- is arbitrary and uncalled for." I.T.A. no.735/Del./2011[AY 2005-06] 1. "That the order of the learned CIT(A) is against law and facts. 2. That in the facts and circumstances of the case of the appellant firm the order of the learned CIT(A) in confirming disallowance of Rs.2.01.648/- out of advertisement expenses is altogether arbitrary, illegal and void and uncalled for. 3. That in the facts and circumstances of the case of the appellant firm, the order of the learned CIT(A) in confirming disallowance business promotion expenses of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitrary and uncalled for. 6. That the learned CIT(A) has grossly erred in confirming disallowances of Rs.75,000/- suffered in respect of sale of vehicles is illegal and uncalled for." Liberty Enterprises I.T.A. no.738/Del./2011 [AY 2004-05] 1. "That the order of the learned CIT(A) is against law and facts. 2. That in the facts and circumstances of the case of the appellant, the order of the learned CIT(A) in confirming disallowance of advertisement expenses amounting to Rs.3,39,547/- is altogether arbitrary, illegal and void and uncalled for. 3. That the order of the learned CIT(A) in upholding disallowance of 1/4th car expenses and depreciation is arbitrary and uncalled for. 4. That in the facts and circumstances of the case of the appellant the order of the learned CIT(A) in confirming disallowance of claim of actual bonus expenses paid at Rs.1,72,951/- is altogether arbitrary, illegal, void and uncalled for. 5 That the learned CIT (A) has further erred in confirming disallowance of Rs.18,330/- in respect of written off assets which is arbitrary and uncalled f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/4th of expenses at Rs.2,74,000/- is altogether arbitrary, illegal and void and uncalled for. 3. That the order of the learned CIT(A) in confirming disallowance of Rs.1,83,178/- out of advertisement and publicity expenses is arbitrary, illegal and uncalled for. 4. That the learned CIT(A) has further erred in upholding disallowances of Rs.67,790/- out of business promotion expenses which is arbitrary and uncalled for. 5 That the order of the learned CIT(A) in upholding disallowance in respect of written off unrealized securities amounting to Rs.34,740/- is altogether, arbitrary, illegal and uncalled for." I.T.A. Nn.742/Del./2011 [AY 2006-07] 1. "That the order of the learned CIT(A) is against law and facts. 2. That in the facts and circumstances of the case of the appellant the order of the learned CIT(A) in confirming disallowance of depreciation on car amounting to Rs.60,054/- is highly arbitrary, illegal and void and uncalled for. 3. That the order of learned CIT(A) in confirming disallowance of car expenses amounting to Rs.12,626/- is altogether, arbitrary, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee firm, hitherto engaged in the business of footwear and other goods, entered into a trademark license agreement dated 31.3.2003 with M/s Liberty Shoes Ltd., Karnal [LSL],making available 'Liberty' brand exclusively to LSL w.e.f 1.4.2003. and the previous agreement in operation w.e.f. 1.4.2001 was cancelled. This agreement further mentioned that LSL had been using the brand since 1986 and shall continue to use it till perpetuity irrespective of this agreement. The agreement dated 31.3.2003, stated to be valid for a period of 7 years, granted exclusive licence for a period of 7 years to use the trademark globally on and in connection with the goods manufactured or sold by or for the L.S.L. in accordance with the LFC's minimum quality standard and manufacturing specifications. In lieu of granting the exclusive licence, LSL. during the term of this agreement agreed to pay licence fees as per terms referred to in clause 4 of the agreement and extracted by the AO as under:- "The LSL shall, during the term of this agreement, make payment to LFC as licence fees @1.5% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant para 4.03 and 4.04 from that order is reproduced below:- "The issue is examined. The AO held that the royalty received is to be taxed under the head income from other sources'. The appellant challenged the findings of the AO on the basis of the order of the CIT(A)-I, Ludhiana in its case for the A. Y.2000-01. The order relied upon by the appellant is referred to. It is noted that the CIT(A) decided the issue in favour of the department and held royalty income is to be assessed under the head Income from other Sources'. Relevant extracts there from is extracted below:- "The next ground of appeal is regarding Royalty Income for Trade Brand. The Learned Counsel has submitted that the income was generated during the course of business only and hence be allowed. The Assessing Officer has, however, noted in the assessment order that this income as treated as income from 'Other Sources' in the earlier years. Therefore, there was no reason to deviate from that stand. I have examined this matter carefully. Since the income was being shown as income from other sources in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed under the head 'Income from Other Sources' and the decision of the AO/ld. CIT(A) has been accepted by the assessee. The aforesaid agreement dated 31.12.2003 further mentioned that LSL had been using Liberty brand since 1986 and shall continue to use it till perpetuity irrespective of the said agreement. Though the assessee tried to distinguish the facts on the ground that in the year under consideration exclusive right of use of brand 'Liberty' was allowed to Liberty Shoes Ltd., the assessee did not explain as to how this fact can change the nature of income. Accordingly, following the past history of the case and orders of his predecessors, the ld. CIT(A) held that fees received in lieu of allowing the use of brand 'Liberty' is to be assessed under the head 'Income from other sources'. In nutshell right since 1986, the income from Liberty brand has been assessed under the head ' Income from Other Sources'. The plea of the ld. AR that income on account of royalty has been assessed by the AO in subsequent years under the head business is not established because in the AY 2005-06, the AO specifically recorded the findings that since the assessee has given all the rights to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to deductions under section 32A of the Act, the issue was decided in favour of the assessee and against the Revenue. Accordingly, keeping in view the principles of consistency once the issue on the merits has been decided against the Revenue on the same issue during the subsequent assessment years, Hon'ble High Court did not take a different view on a technical reason. This decision rather supports the case of Revenue, the assessee having all along accepted that income from royalty for use of Liberty brand by LSL since 1986 is to be assessed under the head 'Income from Other sources'. In view of the foregoing, especially when the ld. AR did not place before us any material, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground no.2 in the appeal of the assessee in Liberty Footwear Company for the AY 2004-05 is dismissed. 8. Ground no.3 in the appeal in the case of Liberty Footwear Company for the AYs 2004-05 & ground nos.2 & 3 in their appeal for the AY 2005-06 as also ground no. 3 in their appeal for the AY 2006-07 relates to disallowance out of advertisement and bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Liberty Footwear Company in the AY 2004-05 in the following terms:- "4.02 Relevant extracts from the written submissions filed by the appellant are extracted below:- A.O. has proceeded to disallow some of Rs..2,50,000/- on ad hoc basis out of advertisement from business promotion expenditure incurred during the year. The expenditure was for celebration of Golden Jubliee for promotion of brand held exclusively for propagation of brand publicity and rejoicing of event and expenditure incurred was allowable fully and A. O. had no reason or base to make it an adhoc disallowance. Your honour will kindly appreciate that without any reason of assigning adhoc disallowance as has been done by A.O. On the basis of past history of the assessee never disallowance was ever made out of advertisement and publicity in such a manner. " 4.03 The appellant vide para (iii) of this office letter dated 18.10.2010 was asked to produce the following :- "that the AO made an adhoc disallowance of Rs.2.5 lacs out of claim of advertisement expenses amounting to Rs.18,07,023/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of Liberty Shoes Ltd., Karnal instead of appellant, i.e., Liberty Footwear Co.:- Date Particulars Amount 19.2.2004 To bill No.10686 of Lachhman Dass Co., Delhi; c/o 502 pcs. Medal Gold plated. 15180.48 31.3.2004 To bill no.17128 of Luxmi Studio & Color Lab; 9579.60 31.3.2004 Anupam Bansal c/o Liberty Shoes Ltd. 215000 31.3.2004 To bill of Aadi Media Services, New Delhi 13824 31.3.2004 To bill No.2591/01-03 expenses for fashion show at the Grand Vasant Kunj in the name of Liberty Group 24940 4.07 In view of the facts discussed above, it is held that appellant has not been able to establish with the help of the relevant documents that the entire expenses were incurred for the purpose of its business and hence adhoc disallowance out of these expenses made by the A.O. is confirmed." 9.1 In the case of Liberty Footwear Company in the AY 2005-06, the ld. CIT(A) upheld disallowance of advertisement expenses since the expenditure of Rs.1,25,000/- claimed through internal voucher related to payments to Shri Rajindra Jain, Mumbai on account of fee for golden jubilee devotional programme, without producing the relevant bill while bill dated 11.6.2004 for an amount of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The issue is considered. The appellant enclosed the copy of relevant bills which are in the name of Liberty Shoes Ltd..The appellant further enclosed a copy of its letter dated 24.3.2008 filed before the AO during assessment proceedings, wherein nature of expenses specified as;"expenditure relates to cost of liberty folded, "leaflets with envelops". 3.04 As discussed above, that the appellant has granted the exclusive use of brand 'Liberty' to its sister concern, w.e.f 1.4.2003 and hence cost of Liberty Folded leaflets and envelops etc. cannot be said for the business of the appellant and hence disallowance thereof made by the AO is hereby confirmed." 9.3 In the case of Liberty Enterprises in the AY 2004-05 , the ld. CIT(A) found that none of the bills referred to in para 3.09 of the impugned order related to the assessee firm nor the assessee addressed or rebutted the findings of the AO that as per clause 6(vi) of the agreement, all the expenses viz. administrative and selling expenses including advertisement and sales promotion, discounts, claims, commission and branch overheads were to be met by Liberty Shoes Ltd. Accordingly, the ld. CIT(A) upheld the findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Shoes Ltd., the ld. CIT(A) upheld the disallowance. The ld. AR ,though referred us to the details placed in the paper book, did not explain as to why the relevant bills and vouchers were not placed before the lower authorities. Even before us situation is no better. In the absence of relevant bills , we are not inclined to interfere with the findings of the ld. CIT(A) in the AY 2004-05.In the AY 2005-06, the assessee did not dispute the findings of the AO that since the assessee has given all the rights to Liberty Shoes Ltd., it did not carry on any business in the period relevant to AY 2005-06, before the ld. CIT(A) and even before us. Even bills for these expenses were not placed before the ld. CIT(A) nor nature of these expenses is known and nor even it is established as to how these expenses relate to the business, if any, of the assessee in the year under consideration. Similar is the position in the AY 2006-07.In these circumstances, in the absence of any material so as to enable us to take a different view in the matter, we have no hesitation in upholding the disallowance confirmed by the ld. CIT(A) to the extent of Rs.11,61,401/- out of golden Jubliee Celebration expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Ground no.4 in the appeal for the AY 2004-05 in Liberty Footwear Company relates to disallowance of Rs.15,334/- in respect of written of assets and Rs.19,254/- in respect of receivables. The AO disallowed these amounts in the absence of any proof relating to these amounts. 13. On appeal, the ld. CIT(A) upheld the disallowance in the following manner:- "5.00 Ground of appeal No.6 is as under:- That addition of Rs..34,588/- for assets written off and receivable written off is uncalled for. 5.01 Relevant para 6 from the order of A.O. is reproduced as under:- The assessee firm has claimed assets written off at Rs..15334/- and receivable written off at Rs..19254/-. These are not allowed as no proof in regard to the claim has been furnished by the assessee". 5.02 The relevant extracts from the written submissions of the appellant is reproduced below:- "In the magnitude of assessee's business small amount written off in a sum of Rs..15334/ - and Rs.19254/- was so meager amount where disallowances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the disallowance in the AY 2004- 05 in the case of Liberty Footwear Company, since no business was carried on by the assessee as admitted by the assessee in para 2(i) of their letter dated 9th November, 2010 . 17.01 Similarly in the case of Liberty Footwear Company in the AY 2006- 07, the ld. CIT(A) upheld the disallowance in the following terms:- "2.03 The issue is considered. The facts as discussed above are that the appellant hired out its entire business to M/s Liberty Shoes Ltd. with the stipulation that during the term of agreement, no business would be carried out by the appellate firm. It is, therefore, difficult to appreciate the justification of purchase of a car of Rs.36,01,627/- for business purposes. Nothing has been brought on record such as log book etc. to establish that the car was used for the purposes of business, specifically in view of the fact that the entire business was let out. Disallowance of depreciation made by the Assessing Officer is, therefore, confirmed." 17.02 Likewise in AY 2007-08 in the case of Liberty Footwear Company, the ld. CIT(A) upheld the disallowance, following his findings in the AY 2006-07. 17.1 In the case of Lib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm". 3.05 The Assessing Officer disallowed the claim of car expenses and of car depreciation on the ground that entire business has been hired out to Liberty Shoes Limited and hence purchase and use of car was held not to be for business purposes of the appellant. The appellant in the written submissions submitted that all cars were used by the Directors of the Liberty Shoes Ltd. and also by its partners to carry out administrative, manufacturing and sales activities. The appellant has, however, not brought on record any evidence such as log book etc. in support its claim of use of cars for its business purposes. Otherwise also, plea of the appellant is difficult to appreciate in view of the fact that entire business was let out as a going concern to Liberty Shoes Ltd. with the stipulation that the appellant firm will not engage itself in the business (clause 4(a) of the Agreement). In view of these facts, plea of the appellant is not tenable. The depreciation on car disallowed by the Assessing Officer is, therefore, confirmed. 3.06 As far as claim of car expenses is concerned, the appellant submitted that the same was on account of sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s any material, controverting the aforesaid findings of the ld. CIT(A) so as to enable us to take a different view in the matter, accordingly, the aforesaid grounds relating to disallowance of car expenses and depreciation on car, are dismissed. 20. Ground no.4 in the appeal in Liberty Footwear Company for the AY 2005- 06 relates to the disallowance of depreciation of Rs.38,946/- in respect of Central House and Saharanpur Office .The AO disallowed the depreciation, the assessee having transferred all its assets to Liberty Shoes Ltd. 21. On appeal, the ld. CIT(A) upheld the findings of the AO in the following terms:- "5.01 The AO disallowed claim of depreciation amounting to Rs.38,946/- of Central House and Saharanpur office. The appellant in the written submissions relied on the submissions made for the assessment year 2004-05. The written submissions made by the appellant in the last year has been perused and it is noted that there was no such issue under consideration in the last year. In view of these facts, no interference is called for in the order of the Assessing Officer in this regard and depreciation disallowed by him is hereby confirmed." 22. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anand & Anand, Advocates, New Delhi and correspondence, if any carried out with the competent Authority etc. in this regard has been brought on record. It is also difficult to appreciate that trademark/patent is required to be renewed every year. Further clause4(f) of the agreement reads as under; Reimbursement of Expenses: The LFC shall have the right of reimbursement from the LSL of all reasonable expenses incurred by the LFC on behalf of LSL during the terms of this Agreement of any renewal thereof in connection with the maintenance of the Trade Mark in the Territory and the records,if necessary, of this license in the Territory. 5.05. As per clause 4(f) of the agreement, the expenses should have been reimbursed by Liberty Shoes Ltd., as has also been noted by the AO in the order. In view of these facts, disallowance made by the AO is hereby confirmed. 25.1 Following his aforesaid findings, the ld. CIT(A) upheld the disallowance in the AY 2007-08. 25.2 Similarly in the appeal in the case of Liberty Group Marketing Division in the AY 2007-08, the ld. CIT(A) concluded as under: "4.07 The issue is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the AY 2007-08 in the case of Liberty Group Marketing Division are dismissed. 28. Next ground no.3 in the appeal in the case Liberty Footwear Company for the AY 2007-08 relates to disallowance of property tax of Rs.69,995/-.The AO disallowed the amount since property was used by Liberty Shoes Ltd. 29. On appeal, the ld. CIT(A) upheld the disallowance in the following terms' " The issue is considered. The appellant claimed to have paid property tax to the MC Delhi for the buildings situated at 4/42 & 11/51,Punjabi Bagh, New Delhi. The appellant as per letter dated 29.10.2010 /9.11.2010 filed during appeal proceedings for the AY 2004-05 submitted that it stopped manufacturing & selling footwear and hired out its assets as commercial assets to Liberty Shoes Ltd. Nothing has been brought on record to establish that the properties situated at 4/42 & 11/51,Punjabi Bagh, New Delhi were not hired out to M/s Liberty Shoes Ltd., but used for its business. The claim of the appellant can, therefore, not be allowed and hence disallowance thereof made by the AO is hereby confirmed. 30. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO. 35. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR on behalf of the assessee merely reiterated their submissions before the ld. CIT(A) while the ld. DR supported the findings of the ld. CIT(A). 36. We have heard both the parties and gone through the facts of the case. Indisputably and as pointed out by the ld. CIT(A), the assessee did not furnish any evidence before the lower authorities that the amount was claimed on payment basis. The ld. AR claimed that exgratia paid to same staff had been allowed by the AO but not the bonus. Considering the facts and circumstances of the case, especially when the AO did not record any findings as to whether or not the amount was claimed on payment basis, we consider it fair and appropriate to vacate the findings of the ld. CIT(A) and restore the matter to the file of the AO with the directions to allow another opportunity to the assessee to establish its claim of bonus on payment basis ,bringing out clearly as to whether or not the bonus related to employees of the assessee for the year under consideration and thereafter, pass appropriate orders in accordance with law. With these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of submissions of the assessee, the ld. CIT(A) upheld the findings of the AO in the following terms:- "The issue is considered. The appellant claimed to have constructed the new building costing Rs.25,58,690/ - and further for Rs.21,41,660/- during the year under consideration and claimed depreciation thereon. The AO disallowed the claim of depreciation on the addition of new building claimed to be made during the year on the ground that the same was not said to be used for purpose of business of the appellant besides the fact of no increase in the franchise fee. In the written submissions the appellant referred to its letter dated 24.3.2008which was filed on 26.3.2008. The same is perused and it is noted that no justification has been given for constructing the new building/ making additions *to the existing buildings. There is no such clause in the agreement putting an obligation on the appellant for constructing any new budding for the lessee. In view of these facts it is difficult to appreciate that how construction of new building could be said for the purposes of business of the appellant and hence disallowance of depreciation on that building made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluded that the liability was of the said company. 46. On appeal, the ld. CIT(A) upheld the findings of the AO in the following terms: "4.02 Relevant extracts from the written submissions filed by the appellant are as under:- "The appellant encloses herewith a copy of his reply dt.18.3.2008 filed in asstt. Proceedings as also details of Passenger tax paid account (Ref Para 3 of our letter). Kindly treat the same as our submissions in this ground of appeal while appreciating the facts, franchise agreement and moreover no intention of reducing tax burden except meeting the statutory liability being the owner of vehicles" 4.03 The issue is considered. The plea of the appellant is not tenable in view of the fact that entire business has been let out including the personnel and hence all the expenses relating to manufacturing and carrying of business were to be met by the lessee. Further as per clause 6(i) & (iii) of the agreement, reimbursement of employee costs which includes wages and other statutory payments would be made by the LSL. Reliance is placed on clause 4(4) and 4(i) is of no help since the same does not cover pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en transferred to M/s Liberty Shoes Ltd., to whom the assessee leased out its entire assets, including the building. Since the ld. AR on behalf of the assessee did not dispute the aforesaid findings of facts recorded by the ld. CIT(A) nor placed before us any material, controverting the aforesaid findings of the ld. CIT(A), so as to enable us to take different view in the matter, we are not inclined to interfere . Accordingly, .ground no.5 in the appeal in Liberty Enterprises for the AY 2006-07, is dismissed. 53. Ground no. 6 in the appeal in Liberty Enterprises for the AY 2006-07 relates to loss of Rs.3331/- in respect of transfer of duty entitlement. The AO disallowed the claim, liability being not of the year under consideration. 54. On appeal, the ld. CIT(A) upheld the disallowance, the assessee having not rebutted the findings of the AO that the liability did not pertain to the year under consideration. 55. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. AR reiterated their submissions before the lower authorities while the ld. DR supported the findings in the impugned order of the ld. CIT(A). 56. We have heard both the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us. The ld. AR on behalf of the assessee did not refer us to any such document, evidencing that services were rendered by the aforesaid three persons in relation to performance of the business agreement nor as to how this agreement relates to the assessee. In these circumstances, especially when the ld. AR on behalf of the assessee did not place before us any material, controverting the aforesaid findings of the ld. CIT(A), so as to enable us to take different view in the matter, we are not inclined to interfere . Accordingly, .ground no.4 in the appeal in Liberty Enterprises for the AY 2007-08 is dismissed. 61. Next ground no.5 in the appeal in the case of Liberty Group Marketing Division for the AY 2004-05 relates to an amount of Rs.34,740 on account of unrealized securities written off. The AO disallowed the claim in the absence of any details. 62. On appeal, the assessee submitted merely a copy of account of unrealized security written off ,without even adducing any reason or details for such writing off. In these circumstances, the ld. CIT(A) upheld the disallowance. 63. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. AR on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings of the ld. CIT(A), so as to enable us to take different view in the matter, we are not inclined to interfere. Therefore, ground no.6 in the appeal in the case of Liberty Group Marketing Division for the AY 2006-07 is dismissed 69. Next ground no. 5 in the appeal in the case of Liberty Group Marketing Division for the AY 2007-08 relates to disallowance of Rs.4,22,025 on account of establishment expenses. The AO disallowed the establishment expenses of Rs.4,22,025 out of Rs.1,53,11,599; remaining amount of Rs.1,48,89,517 having been claimed from Liberty Shoes Ltd., in the absence of any justification. 70. On appeal, the ld. CIT(A) upheld the findings of the AO, as under: "4.10 Relevant extracts from the written submissions of the appellant are extracted below: "The establishment staff is being maintained & serving for last many years. Never in past any disallowance was made. A chart is being attached for past history along with the detail of their salaries for the year under appeal. The appellant couldn't disputed with the services of this minimum staff kept with the appellant on these services are essentially req ..... X X X X Extracts X X X X X X X X Extracts X X X X
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