GST Helpdesk   Subscription   Demo   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (7) TMI 285 - ITAT DELHI

2015 (7) TMI 285 - ITAT DELHI - TMI - Disallowance of ‘Royalty’ paid to Nike to use the brand name - CIT(A) deleted the addition - Held that:- CIT(A) has rightly observed that it is settled law that if expenditure brings into existence a capital asset or gives any advantage of enduring nature to an assessee, it can be treated as capital expenditure as relying on CIT-XIII, New Delhi Vs Sierra Industrial Enterprises [2010 (7) TMI 70 - DELHI HIGH COURT] i.e, assessee's predecessor in business from .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he opinion of the AO interest payment ought to have been @ 12%. Ld. CIT(A) while deciding in favour of assessee took note of the fact that that the said persons were not the only parties to whom interest @ 15% were paid by the assessee and therefore it cannot be said that the assessee in any manner tried to pass on benefit to a class of close associates as its cost and deleted the disallowance.CIT(A) has observed that in order to make a disallowance u/s 40A(2)(b) it is necessary that the Assessi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of ₹ 4,64,757/- u/s 40A(2)(b) and ordered it’s deletion. - Decided against revenue.

Addition on account of advertisement and promotion expenses - CIT(A) deleted the addition - Held that:- CIT(A) rightly relied on the decision of case of Adidas (2009 (9) TMI 918 - DELHI HIGH COURT) wherein AO disallowed the advertisement expenses by holding that by advertising is promoting/building the Brand of the Licensor and thus it is not wholly and exclusively for the benefit of the assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ent involved in the said expenditure which is purely a guess work, when the assessee has submitted the list of employees and the purpose of visit was clearly mentioned in it. In such circumstances the AO could not have made the adhoc disallowance without making out a case to disprove the claim of the assessee that it’s employees had gone to foreign country for the purpose of business. Therefore we do not find any infirmity in the order of the Ld. CIT(A), hence, we uphold the same - Decided again .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

we are therefore, proceeding to dispose of these appeals by passing this consolidated order, by dealing with the ITA No. 4611/Del/2011 (A.Y. 2008-09) for the sake of convenience. 2. The grounds raised in the ITA No. 4611/Del/2011 (AY 2008-09) reads as under: 1. The Ld. CIT(A) erred in law and on facts of the case in deleting the disallowance of ₹ 2,44,39,358/- made by the AO on account of Royalty. 2. The Ld. CIT(A) erred in law and on facts of the case in deleting the addition of ₹ 4 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eal at any time before or during the hearing of this appeal. 3. The grounds raised in the ITA No. 2366/Del/2013 (AY 2009-10) reads as under:- 1. The Ld. CIT(A) erred in law and on facts on account of disallowance of royalty amounting to ₹ 1,37,28,045/-. 2. The Ld. CIT(A) has erred in law and on facts of the case on account of advertisement and promotion expenses amounting to ₹ 13,31,882/-. 3. The Ld. CIT(A) has erred in law on the facts of the case in deleting the addition of ₹ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tutory notices were sent within the prescribed time. After perusal of the documents submitted by the assessee, the AO observed that the assessee during the relevant year derived income from import, sale, distribution, manufacture of sports footwear. During the course of hearing, the ld AR of the assessee has produced the details called for, which have been test checked and being not satisfied with the reply of the assessee s counsel, the AO made various additions and completed the assessment u/s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

quested the order of the Ld. CIT(A) may be reversed and the order of the Assessing Officer may be affirmed. 8. On the contrary, the Ld. Counsel of the assessee relied upon the order of the Ld. CIT(A) and stated that the order of the Ld. CIT(A) is well reasoned order and the same may be upheld. 9. We have heard both the parties and perused the records available on record. 10. Apropos to Ground No. 1 relates to disallowance of ₹ 2,44,39,358/- in assessment year 2008-09 & ₹ 1,37,28, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

said judgment of the Hon ble Delhi High Court, before the Ld. CIT(A) which was delivered in the matter of CIT-XIII, New Delhi Vs Sierra Industrial Enterprises,i.e, assessee's predecessor in business from whom such license was acquired upon the merger of the company with the assessee. We find that the Ld. CIT(A) has rightly observed that it is settled law that if expenditure brings into existence a capital asset or gives any advantage of enduring nature to an assessee, it can be treated as c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

be treated as capital expenditure. In the present case, both the CIT(A) and ITAT have concluded that royalty payable was in lieu of use of technical information provided by Nike Company for manufacture of products and for use of trademark Nike. According to CIT(A), royalty payable was related to the sales made during a particular year and accordingly the expenditure was of revenue nature. 7. Both the CIT(A) and ITAT have given cogent reasons for arriving at the conclusion that royalty payment w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

CIT(A) has rightly deleted the addition of ₹ 2,44,39,356/- by following the High Court s order in assessee s own case dated 14.7.2010 as aforesaid and decided the issue in favour of the assessee, which does not need any interference on our part, hence, we uphold the order of the Ld. CIT(A) on this issue and decide the same against the Revenue. In the result, the Ground No. 1 on account of Royalty in both the assessment years i.e. 2008-09 & 2009-10 are dismissed. 12. With regard to Gro .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e paid interest @ 15% whereas in the opinion of the AO interest payment ought to have been @ 12%. Ld. CIT(A) while deciding in favour of assessee took note of the fact that that the said persons were not the only parties to whom interest @ 15% were paid by the assessee and therefore it cannot be said that the assessee in any manner tried to pass on benefit to a class of close associates as its cost and deleted the disallowance vide order dated 28/02/2011 in Appeal No. 114/09-10. We find that ass .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

has observed that in order to make a disallowance u/s 40A(2)(b) it is necessary that the Assessing Officer should establish that the benefits given to the related parties are more than the fair market value and if the assessee is making payments to other persons @ 15% then there is no special favour which is being given to the related parties and then disallowance is not warranted. Further, the ld CIT(A) has taken note that the Assessing Officer has not been able to establish as to what was the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o Ground No. 2 in Asstt. Year 2008-09 and Ground no. 3 in Asstt. Year 2009-10 relating to deletion of addition of ₹ 9,13,720/- and ₹ 13,31,882/- respectively made by the AO on account of advertisement and promotion expenses is concerned, we find that the AO observed that the total expenditure under this head was ₹ 92,46,745/-. Out of the total expenses the AO has selected three items, namely, Brand Display charges (Rs 5,68,750/-), Conference and Brand Promotion Meetings (Rs 5,2 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

m, the assessee undertakes sales are in a competitive brand market where high pitched marketing is required by way of innovative advertising and attractive display of products. According to him, today a NIKE shoe is available in smaller towns too. In such circumstances there can be no enduring benefit because of display boards etc because the retail outlet may change it keeping in mind the competition in the market of the products. According to the Ld AR, even otherwise the AO has not passed a s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

or the benefit of the assessee. The Tribunal deleted the disallowance by holding that it was a commercially accepted practice and incurred on grounds of commercial expediency. CIT Vs Indian Alumillium Industries Ltd 80 Taxman 243 KerIa 16. In this case the Hon 'ble High Court has after discussing various landmark decisions on advertisement expenses and as to whether they are capital or revenue and has also held that the companies invite VIPs and celebrities on various launches and campaigns .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

We find that the Ld CIT(A) rightly relied on the decision in the case l;aw as afore-stated especially the case of Adidas (Supra) to arrive at the impugned decision, which needs no interference, so the decision of the Ld CIT(A) deleting the ad-hoc disallowance is upheld and accordingly the ground no. 2 in Asstt. Year 2008-09 and ground No. 3 raised in Asstt. Year 2009-10 stands dismissed. 19. Apropos Ground No. 4 which relates to disallowance of ₹ 1,36,686 being 10% of ₹ 13,36,866/- m .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version