2015 (9) TMI 663

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.... 14th November, 2014 in ITA No.4776/Del/2013 for AY 2008-09. 2. The Assessee is a 100% export oriented unit located at Gurgaon engaged in the manufacturing of machine tools. For the AY 2005-06, the Assessee's case was selected for scrutiny. A notice under Section 143(2) of the Act along with the questionnaire was sent to the Assessee on 18th June, 2007. In its return of income, the Assessee had claimed royalty expenses amounting to Rs. 50,20,122/- paid to M/s Macnaught Pvt. Ltd., Australia (MPL). The Assessee by reply dated 20th September, 2007 stated that MPL had agreed to allow the Assessee to manufacture and sell a limited number of 'Macnaught' products. When the Assessee was asked to explain why the royalty expenses shoul....

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....the sanctity of the royalty agreements was 'prima facie doubtful' and that the justification for the royalty payments was 'also not properly known'. The CIT (A) enhanced the disallowance to Rs. 57,27,094/-. 5. A similar view was taken by the AO and CIT (A) for the other AYs i.e. 2006-07, 2007-08 and 2008-09. The CIT (A) has in the order dated 29th July, 2013 for AY 2008-09, while affirming the order of the AO, extracted the entire royalty agreement entered into between the Assessee and MPL as at 1st June, 2005. The agreement is brief and sets out that MPL had agreed that 'in certain circumstances' the Assessee could manufacture and sell 'a limited number of the Macnaught products'. The agreement also sets ....