TMI Blog2013 (2) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... taling to ₹ 6,10,880/-, remained constant since last three years. Assessee was required to explain why these amounts were not settled despite being due for long. Explanation of the assessee was that it was in the process of reconciliation of those amounts not claimed by the creditor. Assessing Officer was of the opinion that such amounts were appearing in assessee s books for a period exceeding five years and the amounts were not repayable. He applied provisions of Section 41(1) of the Act and made addition of those amounts. 4. In its appeal before CIT(Appeals), argument of the assessee was that it had transactions with several creditors mentioned in the list and those accounts which had no movement were offered for income under Section 41(1) of the Act for assessment year 2011-12. Ld. CIT(Appeals) was appreciative of this contention of the assessee. According to him, insofar as credit totalling to ₹ 2,32,334/- in respect of three parties were concerned, assessee had shown it has income in its return for assessment year 2011-12. Thus he scaled down the addition by ₹ 2,32,334/- and sustained ₹ 3,78,466/- only. 5. Now before us, learned D.R. submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,334 ₹ 4,00,00,000 As per the A.O., the said agreement would, at the best, enable the assessee to effect payment for a period starting from January, 2008 to March, 2008 only. The agreement would imply that M/s UBL had started rendering advisory services to assessee only from January, 2008. As per the agreement, M/s UBL was to provide advisory services to the assessee and such services were given both in India and outside India, in the premises of the assessee. 11. Assessee was required to explain why the whole of the sum of ₹ 4 Crores paid as technical and management fee should not be disallowed. As per A.O., this was not for any business purpose. Assessee produced a confirmation letter from M/s UBL in which, the said company acknowledged receipt of ₹ 4 Crores paid by the assessee towards technical, advisory and management fees. However, the Assessing Officer once again raised a query as to the commercial expediency in making such payment to M/s UBL. To this, a reply was given by the assessee on 21.12.2010, which read as under:- (a) UBL is having dedicated R D and Quality team and highly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not have agreed for the payment. Assessee also produced a list of e-mails and agreements entered by it with Indian Oil Corporation and UBL in support of its contention that quantity discounts were received on account of the efforts of M/s UBL. As per the assessee, it could not have existed without the services of M/s UBL. Assessee was using the dedicated R D team and highly trained engineers of M/s UBL. Just because the agreement was entered with M/s UBL on 27.12.2007, would not mean that services were not made available by the said company from 1.4.2007 itself. As per the assessee, such services were rendered by M/s UBL even before the commencement of relevant previous year. Reliance was placed on the decision of Hon'ble Apex Court in the case of S.A. Builders Ltd. v. CIT (288 ITR 1). 14. Ld. CIT(Appeals) was appreciative of the contentions of the assessee. According to him, the foreign partner, namely, Scottish Newcastle PLC held 50% shares of the assessee-company and this by itself showed that the transactions were at arm s length. CIT(Appeals) also noted that M/s UBL had declared income of ₹ 80,19,22,970/- and paid taxes of ₹ 28,34,38,164/- at maximu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned with the effect or neutrality of a tax levy. Here, assessee had claimed excess payment not commensurate with its commercial expediency and claimed it as revenue outgo. Neither was the amount expended for the purpose of business nor for commercial expediency. Reliance was placed on the decision of Hon ble Calcutta High Court in the case of Jayshree Tea Industries Ltd. v. CIT (272 ITR 193). 16. Per contra, learned A.R., supporting the order of CIT(Appeals), submitted that Revenue could not judge the business purpose by sitting in an arm chair of a businessman. As per learned A.R., no businessman could be compelled to maximize his profits. Assessee here had declared a loss of ₹ 1,08,02,529/- in its return of income. If it had not made the claim of ₹ 4 Crores paid by it to M/s UBL, the effective tax payment if both assessee and M/s UBL were considered together would have been only lesser. If the sum of ₹ 4 Crores was not paid by the assessee, then it would have had a profit of ₹ 2.92 Crores, against the loss of ₹ 1.08 Crores returned. As against this, income of M/s UBL would have gone down by ₹ 4 Crores. M/s UBL was paying tax at maximum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered. Nevertheless,, it had furnished a work-out of its savings due to the help of M/s UBL, which was also disbelieved by the Assessing Officer. There might have been lingering doubt in the mind of the Assessing Officer as to why such amounts were paid to M/s UBL, but in our opinion, a mere suspicion without further evidence would not be a ground for disallowing a claim where actual payments were indeed effected. Further, ld. CIT(Appeals) has given a clear finding that the transaction was revenue neutral. M/s UBL had a returned interest income of ₹ 80,19,22,970/- on which it had paid tax at maximum marginal rate, as noted by the CIT(Appeals). If the sum of ₹ 4 Crores was not received by it, tax payable by the said company would have only gone down. As against this, assessee had returned loss of ₹ 1.08 Crores and therefore, there is much strength in the argument of learned A.R. that if the transaction had not gone through, revenue would only have been at a disadvantage. We cannot say that the reply given by the assessee to the queries made by the Assessing Officer which has been produced at para 11 above, were such that, it called for a disallowance of the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 1566.24 lakhs (b) Vehicles : ₹ 15.63 lakhs (c) Furniture fittings : ₹ 1.18 lakhs (d) Computers : ₹ 0.90 lakhs (e) Office equipments : ₹ 1.31 lakhs (f) Trade Marks, licence permissions, etc. : ₹ 2200.00 lakhs TOTAL : Rs 3785.26 lakhs Thus, assessee had acquired all the operating assets of the said company and the agreement came into effect on 28th February, 2002. 16. Second agreement, copy of which is placed at paper-book pages 55 to 69, gave the licencee a non-exclusive right to use the trademark marco polo . The relevant para of the said agreement, which is also dated 28.2.2002 is reproduced hereunder:- 1. The Licensor grants unto the Licensee a non-exclusive, non-transferable and indivisible right to use the trade mark MARCOPOLO in respect of the non-beer products as set out in Schedule I hereto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2002 fell in previous year relevant to assessment year 2003-04. Assessee had in its return for assessment year 2003-04 claimed depreciation on the value of ₹ 22 crores for trademarks and licences. Assessment for assessment year 2003-04 was completed under Section 143(3) of the Act and such claim was allowed also. In para 3 of the assessment order for assessment year 2003-04, Assessing Officer had mentioned as under:- In response to the hearing notice, assessee srepresentativeShri N. Ranganathan, Company Secretary, appeared and furnished the details. The assessee s representative also produced the bills for addition to fixed assets, copy of agreement between M/s Empee Distilleries and M/s Mc Dowell. After verifying the details filed the assessment is completed as under Thus, assessee had produced all bills for addition to its fixed assets and copies of agreement it had entered with M/s Empee Distilleries Ltd. before the Assessing Officer. Assessment for an assessment year as early as 2003-04 was itself completed after verifying such details. It is not a case where such depreciation was granted by the Assessing Officer first time for the impugned Assessment Year. For ..... X X X X Extracts X X X X X X X X Extracts X X X X
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