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2020 (3) TMI 709

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....31,11,900/-. 3. Briefly in the facts of the case the assessee was engaged in the business of manufacturing of engineering goods. For the year under consideration, the assessee had furnished the return of income declaring total income of Rs. 5,50,15,923/-. The assessee had paid royalty of Rs. 31,11,900/- to Waeschle Maschinenfabrik GmBH. The case of the assessee was taken up for scrutiny and show cause notice was issued to the assessee to explain as to why the said expenditure should not be treated as capital expenditure. In reply, the assessee explained that it paid royalty to its principal for obtaining assistance in the manufacturing of the products on the basis of the sale made by use of the technical know how and the assistance provide....

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....hnical Collaboration Agreement and was also asked to produce the original documents. The first difference which was noted by the CIT(A) was the difference in the rates of the commission. Another thing which was noted by him was that the agreement dated 01.04.2005 was signed by only one party i.e. the assessee and subsequent agreement, which was signed by both the parties; then, the terms of the agreement were evaluated by CIT(A) and on page 6 of the appellate order, it was concluded by holding that the assessee by entering into the said agreement had acquired benefit of enduring nature hence, the payment made could not be treated as revenue expenditure. Reliance was placed on the decision in Southern Switch Gear Ltd. vs Commissioner Of Inco....

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....he Ld.AR for the assessee during the course of hearing then produced the original agreement and subsequent agreement dated 01.04.2005 and drew our attention to clauses 13.8 and 13.9 and pointed out that there was variation in the terms of the agreement. It was also stressed by the Ld.AR that the payment of royalty under the same agreement was allowed in the hands of the assessee by CIT(A) from Assessment Year 2007-08 onwards. It was also further brought to our notice that out of total sales of Rs. 28 crores, royalty was paid only on Rs. 17 crores i.e. only on the sales where the technical aid of the licensor was taken. Another point which was brought to our notice was that under the earlier agreement, the payment of royalty was in Deutsche....

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....er the automatic route, prior registration with RBI was necessary. 8. We have heard the rival contentions and perused the record. The issue which is arising in the present appeal is with regard to payment of royalty of Rs. 31,11,900/-. The assessee had entered into an agreement with M/s. Coperion Waecshle Gmbh & Co.K.G.Germany as early as on 01.04.1997 in order to avail technical information for manufacturing certain items. The said expense was claimed as revenue expenditure and the same has been allowed as revenue expenditure till Assessment Year 2005-06. The earlier agreement was for a period of 5 years and ended on 31.03.2005; for intervening period, an agreement was executed on 09.08.2004 under which the rate of royalty underwent chang....

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....tion vide para 13.8 in the fresh agreement dated 01.04.2005. 9. Now, coming to the second aspect of the issue raised by the CIT(A). It transpires that before the Assessing Officer, in support of its expenditure, the assessee by mistake had filed earlier agreement dated 01.04.1997; but before the CIT(A), the assessee had filed a later agreement dated 01.04.2005. The CIT(A) during the appellate proceedings compared the terms of the agreement and found them to be at variance. The assessee explained its case but the same was not accepted by the CIT(A). The assessee before us has filed an affidavit in support of its contentions in this regard and we find merit in the plea of the assessee that by mistake/confusion, the agreement was not correc....