Tribunal upholds royalty provision, remands marketing cost issue back to AO for fresh consideration

The Tribunal upheld the relief allowed by the ld. CIT(A) regarding the provision made for royalty payment to Phonographic Performance Ltd. at Rs. 660 per needle hour, based on the Copyright Board's order. However, the issue of deletion of disallowance out of provision made for advertisement and marketing cost of Rs. 24,75,876 was remanded back to the AO for fresh consideration, providing the assessee with a reasonable opportunity to be heard. The Revenue's appeal was partly allowed for statistical purposes.

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Issues involved:
1. Disallowance of provision made for royalty payment.
2. Deletion of disallowance out of provision made for advertisement and marketing cost.

Analysis:

Issue 1: Disallowance of provision made for royalty payment

The appeal by the Revenue was against the order passed by the ld. CIT(A) regarding the disallowance of provision made for royalty payment. The assessee company had made a provision for royalty payment to Phonographic Performance Ltd. (PPL) towards royalty payment of Rs. 3,49,86,000. The AO disallowed this amount as a provision under the Income Tax Act is not allowable. However, the ld. CIT(A) allowed part relief to the assessee based on the order of the Copyright Board fixing the royalty rates. The ld. CIT(A) directed the AO to allow the provision for payment of royalty to PPL at Rs. 660 per needle hour. The Revenue contended that the relief allowed was unjustified, but the Tribunal upheld the CIT(A)'s decision, stating that the average rate of Rs. 660 per needle hour was justified based on the Copyright Board's order.

Issue 2: Deletion of disallowance out of provision made for advertisement and marketing cost

The AO disallowed the provision made for advertisement and marketing cost of Rs. 24,75,876, stating it did not pertain to the current year. On appeal, the ld. CIT(A) deleted this disallowance, considering that the liability for these expenses accrued during the year. The Revenue argued that the CIT(A) erred in allowing the claim without giving the AO an opportunity to examine the submissions. The Tribunal observed that the AO made a general disallowance without specific reasons, and the CIT(A) rightly deleted the disallowance. However, as there was no evidence to show that the goods/services were received during the year, the Tribunal set aside the order and remanded the issue to the AO for fresh consideration, providing the assessee with a reasonable opportunity to be heard. The Revenue's appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal upheld the relief allowed by the ld. CIT(A) regarding the provision made for royalty payment but remanded the issue of provision made for advertisement and marketing cost back to the AO for further examination.

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