TaxTMI 
TaxTMI 
2025 (4) TMI 987
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Act r.w. Rule 8D of I.T. Rules, addition of Rs. 4,02,152/- on account of business promotion expenses @ 20% and addition of Rs. 57,57,715/- on account of 25% disallowance of royalty, treated as capital in nature and depreciation allowed on the capitalized value @25%. In appeal, Ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved with the action of the Ld. CIT(A), assessee is in appeal before us on the following grounds of appeal:- 1. That the assessment order passed u/s. 143(3) of the Act dated 24.3.2014 by AO and also additions / disallowance made therein are illegal, bad in law, without jurisdiction and void ab initio. The Ld. CIT(A) has grossly erred in sustaining the disallowances / additions made. 2. That, on the facts and circumstances of the case, the CIT(A) has erred in law and on facts in sustaining adhoc disallowance made by the AO on account of expenditure incurred for repairs and maintenances of plant and machinery. The disallowance amounting to Rs. 4,96,891/- has been sustained without appreciating that the same was incurred by the assessee wholly for its business. 3. That, on the facts and circumstances of the case, the CIT(A) h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed upon the order of the Ld. CIT(A). 4. We have heard both the parties and perused the records. We find that this addition has been made by the AO, disallowing 20% out of repairs and maintenance on plant and machinery due to the reason that the assessee failed to produce the copy of high value bills and other details as desired. However, it was contended before the Ld. CIT(A) that the expenditure on repairs and maintenance has been incurred for the purpose of business and ledger account etc. has been provided to substantiate the same. The ld. CIT(A) noted that in the remand report, it has been mentioned by the AO that certain payments relates to miscellaneous expenses and for the purchase of camera, lens, LCD etc and some of the payments have been incurred in cash and also various expenses have not been incurred wholly for the current repairs within the meaning of section 31 of the Act. Ld. CIT(A), on going through the details provided by the assessee, observed that there are various expenditure, incurred in cash or paid on self made vouchers and it cannot be justified that these expenses have been wholly incurred for the purpose of repair and maintenance, because, the vouchers ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere are various expenditures, incurred in cash or paid on self made vouchers and it cannot be justified that these expenses have been wholly incurred for the purpose of business promotion or how the business has been increased or gained. Vouchers for these expenses are not available with the assessee and therefore assessee could not establish the allowability of full expenditure as claimed. Further, reason for this disproportionate increase has also not been explained with cogent reasoning. Therefore, Ld. CIT(A) noted that no vouchers are produced by the assessee, hence, it cannot be established that the whole expenditure has been incurred towards business promotion and no personal element can also be ruled and restricted the disallowance @10% amounting to Rs. 2,01,076/- and the balance amount was allowed and directed to be deleted. In our considered view, on the facts and circumstances of the case, Ld. CIT(A) has rightly restricted the addition @10%, which does not need any interference, on our part, hence, we uphold the decision of the Ld. CIT(A) on this issue and reject the ground no. 3 raised by the assessee. 7. As regards ground no. 4 to 6 are concerned, which are relating ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Southern Switch Gear Ltd. is not applicable and distinguishable. Ld. CIT(A) was not convinced with contention of the assessee and he upheld the order of the AO on this issue by holding that assessee has got intangible assets in the form of such rights, hence, the AO has treated 25% of such royalty payment as intangible rights, in the nature of capital assets. Before us, Ld. AR has filed the following written submissions in support of his contention on account of disallowance for royalty expenses - treating it as capital expenses. "The assessee company is engaged in the business of manufacturing of electronics goods and components. The assessee company paid royalty of Rs. 3,07,07,813/- to the following persons in A.Y.2011-12. S.No. Party Name Amount (Rs) 1. Koninklijke Philips Electronics N.V. 1,72,47,376 2. Super Cassettes Industries Ltd. 94,74.997 3. Saregama India Ltd. 22,08,960 4. Service Tax on the above 17,76,480 Total 3,07,07,813 2. The AO relying on the Hon'ble Supreme Court ruling in the case of Southern Switch Gear Ltd. 232 ITR 359 disallowed @ 25% as capital in nature. As per the AO the na....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Master rerecording and any copy/ derivative thereof of the compositions given by the Licensor under the License. 3. Super cassettes Industries Ltd. Para 10.2.2 [Page 107 of PB]- the licensee shall immediately discontinue distribution of the Licensee Devices containing Licensor contents. It is hereby clarified that the termination of this agreement shall not affect those licensee devices that have already been distributed by the Licensee or for which the Licensee has reserved and confirmed orders prior to the date of termination. 6. The facts of the matter are different than Southern Switchgear Ltd, wherein even after the termination of agreement the benefit in the form of manufacturing was available to the assessee. However, in the assessee case after the termination of agreement there is no benefit is available for recording. 7. Hence, the royalty paid is revenue in nature and allowable u/s 37 of the Income Tax Act. 8. Further the facts of the assessee are different than Southern Switchgear Ltd are given at page no 85-87 of PB Assessessment proceedings for earlier and subsequent years 9. It is submitted that the acceptance of the ro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emain same in the earlier assessment proceedings and on that basis following the rule of consistency the royalty is to be allowed as revenue in nature. 11. Reliance on the Case Law Compilation | provided to the bench] 1. CIT v Hero Honda Motors Ltd | 2015] 372 ITR 481 (Delhi)- [Page 1-10 of CLCI-Para 12- This was inspite of the fact that the original license was for indefinite period and the supplementary agreement did not indicate a terminus quo. It was however, observed that the agreement could be terminated and upon such expiration or termination, the Indian assessee would have no right to exploit or use the know-how. There was no vesting of know-how or goodwill in the Indian assessee. 2. Further reliance is placed on Delhi High Court in the case of CIT v EKL Appliances Ltd. 2012|20 taxmann.com 509 (Delhi) [Page no 18-20 of CLCI- Para 8 Relying on the CIT v Lumax Industries Ltd. [2008] 173 Taxmann 290 (Delhi) it was held that the payment of license fee on year-to-year basis for acquisition of technical knowledge would not amount to capital expenditure it is revenue expenditure. [Emphasis Supplied] Further reliance is placed on the ruling of De....