TaxTMI 
TaxTMI 
2012 (10) TMI 714
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce of payment of Royalty. 2. That the CIT(A) has erred in law and on facts on the case in deleting the addition of Rs.5,85,033/- made on account of disallowance of car expenses, advertisement expenses and sales promotion expenses." 3. The revenue is aggrieved by the impugned order of Commissioner of Income Tax(A) which deleted the addition made by the Assessing Officer by way of disallowance of payment of royalty of Rs.25,20,552/- in AY 2006-07 and addition of Rs.22,90,697 for AY 2008-09. In the appeal pertaining to AY 2008-09, the revenue is also aggrieved by the impugned order of Commissioner of Income Tax(A)-II which deleted the addition of Rs.5,85,033/- made on account of disallowance of car expenses, advertisement expenses and sales promotion expenses made by the Assessing Officer. 4. We have heard rival contentions of both the parties and carefully perused the record before us in the light of facts and circumstances of the case. The assessee is engaged in the business of manufacturing of PVC profiles and it entered into an agreement with M/s Tokai Kogyo Co. Ltd., Japan to procure technical assistance relating to know-how, training, education and upgradation of techn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enue in nature. However, the AO has treated 25% of such payment as capital in nature. The expenditure so claimed is charged on the products manufactured by the assessee company and the same is not incurred for acquiring a process or design or technology which can be utilized by the assessee for years to come so as to categorize such expenditure,as capital in nature. Nothing was brought on record by the learned DR to controvert the findings of the CIT(A) recorded at pages 5 & 6 of appellate order. We therefore do not find any reason to interfere in the order of CIT(A) for allowing the entire payment of royalty as revenue expenditure. 7. In view of above, we observe that in earlier judgement of Tribunal in assessee's own case, it has been observed that the assessee was required to pay royalty @2% of the items manufactured and sold under the agreement. Such royalty payment was determined on the basis of quantity and value of the production. Therefore, the expenditure incurred by the assessee company was essentially of recurring and revenue in nature. We also observe that the Assessing Officer treated 25% of such payment as capital in nature but these findings are not justified a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the above submissions, the assessee's representative submitted that the Assessing Officer made this disallowance only on the basis of surmises and conjectures because the Assessing Officer has not pointed out any specific instance which could support his belief that any expenditure incurred by the appellant pertaining to the motor car expenses, advertisement expenses and sales promotion expenses was for some personal benefit of any director or employee of the company. The AR supported the impugned order and relied on the judgment of ITAT, Delhi Bench in the case of ACIT vs Amtek Auto Ltd. 112 TTJ 455 and judgment of Gujarat High Court in the case of Sayaji Iron & Engg. Co. Ltd. vs. CIT 253 ITR 749 (Guj). 11. After careful consideration of arguments of both the parties in this regard and careful perusal of impugned order and assessment order, we observe that the Assessing Officer made the disallowance of 10% on the expenditure incurred by the assessee on motor car, advertisement and sales promotion with the following observations:- "On examination of the books of account and supporting vouchers, it is seen that the assessee has claimed the following expenses:- (i) Motor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sment order without looking into the return of income and balance sheet and profit and loss account filed before him u/s 139(1) by the appellant. It is thus he has failed to appreciate the fact that the books of accounts of the assessee are audited by a chartered accountant and there is no adverse finding of such kind by the auditor in its report. Your honour a copy of audited balance sheet and profit and loss account is placed for your kind reference in the paper book. A perusal of the same will reveal that the assessee has duly recorded all the transactions in its books of accounts. The assessee is unable to understand the state of mind of the Id. AO in which he has made the said addition. It is prayed before you to kindly delete it as the same is without any basis and without bringing any corroborative evidence against the assessee. It is surprising to note that the Id. AO has not written anything except writing that the personal use cannot be ruled out. He has not brought forward even an iota of fact or infirmity in the books of accounts/ details produced before him. Thus his action of making a disallowance without any corroborative evidence in this respect is bad in law and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant. Thus the assessing officer is directed to delete the disallowance of Rs. 5,85,033/-. The Appellant succeeds in this ground of appeal and the same is allowed." 13. In view of above, at the outset both the parties admitted that there was no disallowance by the Assessing Officer related to motor car, advertisement and sales promotion expenses in the earlier assessment year. On bare reading of the assessment order, we are inclined to observe that the Assessing Officer merely held that the personal nature of expenses under these heads cannot be ruled out, therefore, he made estimated disallowance of 10% on account of expenses incurred in this regard. The Assessing Officer has not brought any evidence or observation that the particular part of this expenditure was incurred to extend personal benefit to any director or employee of the company. This point has not been disputed by the ld. DR that the accounts of the assessee company are continuously audited by the Chartered Accountant and there is no adverse reporting in the audit report regarding any personal use of any business asset by the director or employee of the company. Therefore, we finally hold that the Assessing Officer ....