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TMI Blog2017 (8) TMI 1181X X X X Extracts X X X X X X X X Extracts X X X X ..... . On the cast and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 48,12,352/- on account of disallowance of royalty expenses by treating the same as revenue expenditure. 4. On the fact and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the above addition by relying on the Hon'ble ITAT decision in assessee's own case in earlier A.Y. ignoring the fact the revenue has filed review petition before Hon'ble High Court for A.Y. 2005-06 and the matter is sub-judice. 3. Return of income declaring Rs. 17,91,36,762/- was e-filed by the assessee on 28.09.2010 which was processed on 14.07.2011. The case was selected for scrutiny and first notice u/s 143(2) of the I.T. Act, 1961 was issued on 24.04.2011 which was served upon the assessee by speed post. In response to notices u/s 143 (2) and 142(1) of the I.T. Act, the ARs of the assessee attended the proceedings from time to time, with whom the case was discussed. The details asked was filed and placed on record. During the previous year relevant to assessment year under consideration, the assessee is engaged in the business of manufacturing and sale of automotive sea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read with Rule 8D(2)(ii), the CIT(A) held as under:- "3.1. While passing the impugned order, the AO noted that the appellant had earned exempt income of Rs. 12,17,836 during the relevant year, but had not disallowed any expenditure pertaining to the exempt income. In response to the AO's query to show cause why disallowance should not be made u/s 14A, the appellant submitted in its letter dated 18.03.2013 that no expenditure had been incurred on earning the exempt dividend income. It was further submitted that the investment in mutual funds was made out of funds received through public issue in January, 2008 and that since this did not represent borrowed funds, no disallowance was warranted out of the interest paid by the appellant. However, the appellant computed the disallowance under rule 8D(2)(iii) at Rs. 10,55,223. The AO rejected the contentions of the appellant and noted that it had availed loans and had incurred interest expenses thereon. Not satisfied with the correctness of the claim by the appellant in respect of expenditure relating to the exempt income, the AO computed the disallowance u/s 14A read with rule 8D and arrived at the disallowance of Rs. 16,69,884 under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides for apportionment on the basis of average value of investment in case of indirect expenditure other than interest, and hence disallowance to the extent of Rs. 10,55,223 is confirmed. Ground 2 of the appeal is thus partly allowed." As relates to royalty expenses, the CIT(A) held as under: "4.1. While passing the impugned order, the AO treated 25% of the royalty expenditure as capital expenditure and disallowed Rs. 48,12,352 out of Rs. 2,32,11,529. He held that the payment made for technical collaboration and license included payment towards technical assistance, which in turn included payment towards training and education. The AO was of the view that for these reasons part of the payments was for purposes that gave enduring benefit, which was not allowable, being capital in nature. Relying upon the decision of Madras High Court in the case of CIT v Southern Switchgear Ltd 148ITR 272 (Madras) which was affirmed by the Hon'ble Supreme Court 222ITR 359 (SC), the AO disallowed 25% of the expenses booked by the appellant as royalty expenses. 4.2. During the appellate proceedings, the AR relied upon the orders of the Hon'ble ITAT in the case of the appellant for AY 05-06, 06- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding recorded by the AO while passing the present Assessment order. The CIT(A) has not at all taken the cognizance about the particulars of investment and its expenses while observing that "Rule 8D(2)(ii) can be invoked only when the assessee has incurred expenditure by way of interest which is not directly attributable to any particular income or receipt, which is not the case here. Hence, no disallowance is warranted under Rule 8D(2)(ii)." Thus, Ground No. 1 & 2 needs to be look into and remitted back to the Assessing Officer for fresh adjudication. Needless to say the assessee be given opportunity to be heard. As relates Ground No. 3 & 4, the same is covered in assessee's own case, for Assessment Year 2005-06, 2006-07 & 2008-09 and 2007-08 & 09-10 in ITA No. 374/Del/2009 A.Y. 2005-06 dated 30.04.2010, ITA No. 4257 & 4258/DEL/2012 in A.Y. 2006-07 & 2008-09 and ITA No. 5276 & 5275/DEL/2013 in A.Y. 2009-10 & 2007-08. The extract of the ITAT order in A.Y. 2009-10 & 2007-08 is as follows: "4. We have taken ourselves through the orders of the Co-ordinate Bench which have been filed and seen that the finding given in the lead order for 2005-06 assessment year, has been followed in 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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