2019 (4) TMI 1362 - AT - Income Tax

Tribunal affirms technical know-how expenses as revenue, improving product quality and profitability

The Tribunal upheld the decision of the Ld. CIT(A) to delete the additions on account of technical know-how expenses, considering the expenditure as ... Allowability of technical know-how payments as revenue expenditure - Capital versus revenue nature of technical know-how/royalty payments - Binding effect of co-ordinate bench decisions - Followance of own precedent by appellate authorityAllowability of technical know-how payments as revenue expenditure - Capital versus revenue nature of technical know-how/royalty payments - Whether the disputed technical know-how payments are capital in nature or allowable as revenue expenditure for the assessee in A.Y. 2012-13 - HELD THAT: - The Tribunal found that the facts for A.Y. 2012-13 are identical to the assessee's earlier years and that the Ld. CIT(A) had followed his earlier appellate findings for those years. The coordinate benches of the Tribunal in the assessee's own case for earlier assessment years had held the technical know-how payments to be of revenue nature on identical facts. Neither party pointed out any distinguishing facts for A.Y. 2012-13. In those circumstances the appellate forum applied the same conclusion - that the assessing officer erred in treating the payments as capital - and allowed the assessee's contention. [Paras 4]Technical know-how payments held to be revenue expenditure and disallowance by AO deleted for A.Y. 2012-13.Binding effect of co-ordinate bench decisions - Followance of own precedent by appellate authority - Whether the Tribunal should follow the decisions of co-ordinate benches and the Ld. CIT(A)'s own precedent in deciding the appeal for A.Y. 2012-13 - HELD THAT: - Both parties conceded that the facts are identical and that coordinate-bench decisions in the assessee's own case favour the assessee. The Ld. CIT(A) had followed his earlier orders for identical facts. Absent any distinguishing circumstances, the Tribunal respectfully followed the coordinate-bench and predecessor appellate orders and applied those precedents to decide the present appeal. [Paras 4]Tribunal follows co-ordinate-bench and earlier appellate precedents; Revenue's appeal dismissed for want of any distinguishing fact.Final Conclusion: Revenue's appeal dismissed; the addition disallowing technical know-how expenses is deleted for Assessment Year 2012-13, the Tribunal following co-ordinate-bench and earlier appellate orders on identical facts. Issues:1. Allowability of technical know-how expenses as capital expenditure.Analysis:The appeal by Revenue challenged the order of the Learned Commissioner of Income Tax (Appeals) regarding the deletion of additions on account of technical know-how expenses for Assessment Year 2012-13. The Assessee contended that the issue was covered in their favor by the orders of Co-ordinate Bench of ITAT, Delhi, for previous assessment years. The Departmental Representative also agreed that the issue was in favor of the Assessee based on previous orders. The Ld. CIT(A) followed his own orders for Assessment Years 2010-11 and 2011-12, stating that the facts were identical. The Ld. CIT(A) emphasized that the right obtained by the Assessee was to use the know-how, which was not of enduring nature. The Ld. CIT(A) concluded that the expenditure for obtaining technical know-how was revenue in nature, aimed at improving product quality and profitability without adding to the profit-earning apparatus.The Tribunal noted that the facts for the current year were identical to previous assessment years where the issue was decided in favor of the Assessee by Co-ordinate Benches of ITAT, Delhi. Both sides agreed that there were no distinguishing facts for the current year compared to previous years. As a result, the Tribunal decided the disputed issue in favor of the Assessee and dismissed the appeal filed by the Revenue. The Tribunal upheld the decision that the technical know-how expenses were revenue expenditure, not capital in nature, based on the precedents set in previous orders.In conclusion, the Tribunal upheld the decision of the Ld. CIT(A) to delete the additions on account of technical know-how expenses, considering the expenditure as revenue in nature aimed at improving product quality and profitability. The Tribunal found the issue to be covered in favor of the Assessee by previous orders of Co-ordinate Benches of ITAT, Delhi, and dismissed the appeal filed by the Revenue, affirming that the technical know-how expenses were not capital expenditure.