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TMI Blog2022 (5) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... he exempted income. 1.1 That both the Assessing Officer and the CIT(A) erred in rejecting the sum of Rs. 1,49,036/- worked out by the assessee and offered for disallowance u/s 14A of the Act without giving the reasons that having regard to the accounts of the assessee, they were not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the Act. 1.2 That without prejudice the CIT(A) having recorded that the disallowance u/s 14A ought to be based on the ratio laid down in the judgment dated 12-8-2010 of the Mumbai High Court in Godrej & Boyce Manufacturing Company vs DCIT, which had direct support of the judgment dated 6-7-2010 of the Supreme Court in M/s Walfort Share and Stock Brokers Pvt. Ltd, yet erred in properly applying the same and instead chose to confirm the disallowance by adopting an adhoc percentage i.e. 10% of the exempted income. That the order of the CIT(A) being inconsistent with the rule laid down by the Apex Court is not sustainable. Ground No.2 2. That on the facts and circumstances of the case and in law the CIT(A) erred in holding the sum of Rs 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred for earning of the exempt income under section 14A of the IT Act. Further the calculation of 10% of exempt income shall also take into account & give credit for the suo motu disallowance for Rs. 1,49,036/- made by the appellant in his revised return of income. Subject to the above the addition for Rs. 14,96,211/- made by the AO u/s 14A through application of Rule 8D is directed to be deleted. 4.2 It was submitted by the ld. Counsel for the assessee that in the assessee's own case for the assessment year 2004-05 and 2005-06, the Co-ordinate bench has directed the Ld. AO to re-determine the disallowance u/s 14A of the Act after considering the judgment of Hon'ble Supreme Court of India in Maxopp Investment Ltd. and further directing that in no way disallowance determined by the AO shall exceed 10% of the amount of dividend income. It was submitted that unlike in the earlier years in the revised return of income suo moto disallowance was made by the assessee but the Ld. Tax Authorities below have not taken the same into consideration. . Ld. DR could not distinguish the facts or cite any other legal proposition to contrary. 4.3 It can be observed that in the asssesse's own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cense and Non-Compete Agreement on 13-12- 2002 with M/s Vilter Manufacturing Corporation ('Vilter' hereinafter) 5555, South Packard Avenue, Cudahy, Wisconsin, USA, The said agreement was amended by the supplementary agreement dated 5-11-2003. In pursuance of said agreement, a sum of Rs. 15,39,793 was actually paid by the appellant as part consideration during the year under consideration. The amount payable under the agreement was treated as deferred revenue expenditure in the books of account and a sum of Rs. 32,32,960 was charged off to the P & L A/c. during the year under consideration. In the computation of total income, however, the amount of Rs.32,32,960/- was added back and the sum of Rs. 15,39,793/- claimed as revenue expenditure. 5.1 The Ld. AO however held the sum of Rs. 15,39,793/- as capital expenditure and disallowed the same, making the following observation:- "All the case laws relied upon by the assessee, are delivered prior to the insertion of section 32(1)(ii) i.e., from 1.4.1998 (ought to be from 1-4-99). Hence the ratio of these case laws are not applicable to the facts of the assessee's case. In section 32(1)(ii) it is clear that technical know how should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in a more technically viable and profitable manner, therefore, the same was rightly claimed by the assessee as a revenue expenditure for computing its income for the year under consideration and had wrongly been dubbed as a capital expenditure by the lower authorities. Our aforesaid view i.e. where an assessee who is engaged in the business of manufacturing and selling certain products had made a payment to a foreign company for merely acquiring a right to use technical know-how, whereas the ownership and intellectual property rights in the said know-how remained with the foreign company, then, the payment in question would be in the nature of a revenue expenditure, is supported by the judgment of the Hon'ble High Court of Delhi in the case of OT Vs. Hero Honda Motors Ltd., (2015) 372 UR 481 (Del). We, thus, in the backdrop of our aforesaid observations not finding favour with the view taken by the lower authorities wherein they had rejected the assessee's claim for deduction of the payment made for the technical know-how to M/s Vilter Manufacturing Corporation, USA as a revenue expenditure, and had dubbed the same as a capital expenditure, set- aside the.order of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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