Tax Appeals for A.Y. 2013-14 & 2014-15 Allowed, Tribunal Directs Deletion of Additions

The appeals filed by the assessee for A.Y. 2013-14 and 2014-15 were allowed by the Tribunal. The Tribunal directed the AO/TPO to delete the additions and disallowances on various issues, including export commission, royalty on sales to AEs, CSR expenditure, signages, sales tools expenses, capitalization of royalty, deduction of expenses for technical know-how, and TDS claim. The Tribunal relied on its earlier decisions and coordinate bench rulings to support its findings. The order was pronounced on 30.09.2020.

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Issues Involved:
1. Addition on account of export commission
2. Addition on account of royalty on sales to its AEs
3. Disallowance of expenditure incurred under corporate social responsibility (CSR)
4. Disallowance of expenditure on signages
5. Disallowance of sales tools expenses
6. Capitalization of royalty
7. Disallowance of claim of deduction of expenses in respect of technical know-how
8. Claim of TDS

Detailed Analysis:

1. Addition on Account of Export Commission:
The primary issue was whether the assessee benefited from making export sales. The Tribunal found that the average price of exports to AEs was higher than the domestic market price. It was also noted that the profitability from exports was significantly higher than domestic sales. The TPO’s assumption that the assessee was a contract manufacturer was rejected. The Tribunal directed the AO/TPO to delete the addition on account of export commission, stating that the assessee had successfully demonstrated the benefits and higher profitability from exports.

2. Addition on Account of Royalty on Sales to its AEs:
The Tribunal referred to its earlier decision in the assessee’s case for A.Y. 2008-09, where it was held that the payment of royalty as per the technology know-how agreement was justified. The Tribunal directed the AO/TPO to delete the addition, following the decision of the coordinate bench.

3. Disallowance of CSR Expenditure:
The Tribunal referenced its decision in the assessee’s case for A.Y. 2012-13, where it was held that CSR expenditure incurred for the benefit of the employees' children and for promoting the business was allowable as revenue expenditure. However, donations to Brahma Kumaris were disallowed as they were considered charity. The Tribunal directed the AO to delete the impugned addition except for the amount paid to Brahma Kumaris.

4. Disallowance of Expenditure on Signages:
The Tribunal referred to its decision in A.Y. 2012-13, where it was held that expenditure on signages for displaying the name at dealer’s premises was revenue in nature and allowable. The Tribunal followed the coordinate bench’s decision and allowed the expenditure.

5. Disallowance of Sales Tools Expenses:
The Tribunal referred to its decision in A.Y. 2012-13, where it was held that expenditure on sales tools/fixtures placed at dealer’s outlets was for maintaining a standard format for displaying products and was wholly and exclusively for business purposes. The Tribunal allowed the expenditure, following the coordinate bench’s decision.

6. Capitalization of Royalty:
The Tribunal referred to its decision in A.Y. 2012-13, where it was held that running royalty paid for the right to license and manufacture two-wheelers was revenue expenditure and allowable. The Tribunal directed the AO to allow the running royalty as business expenditure in entirety.

7. Disallowance of Claim of Deduction of Expenses in Respect of Technical Know-how:
The Tribunal admitted the additional ground of appeal and referred to its decision in A.Y. 2012-13, where it was held that lumpsum royalty paid for new models should be allowed as business expenditure. The Tribunal allowed the additional ground of appeal, following the coordinate bench’s decision.

8. Claim of TDS:
The Tribunal directed the AO to allow the credit of TDS as per the provisions of law.

Conclusion:
Both appeals filed by the assessee for A.Y. 2013-14 and 2014-15 were allowed, with the Tribunal directing the AO/TPO to delete the respective additions and disallowances, following the decisions of the coordinate benches in earlier assessment years. The order was pronounced in the open court on 30.09.2020.

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