TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1319
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.... to the issues to be considered in the limited scrutiny proceedings. 3. The NFAC ought to have noticed that the royally payment is based on the comprehensive agreement between the Parent company and Appellant company and hence the payment made by the Appellant on scrap sales is business decision, resultantly, Assessing Officer should not have put himself in the shoes of the Assessee to decide as to whether royalty is payable, so long as the payment is not disputed. 4. The NFAC erred in not considering the legal plea with regard to the allowance of deduction pertaining to royalty expenses and SAP Maintenance expenses u/s 40(a)(i) of the Act, by overlooking the fact that in the immediately preceding years the Assessing Officer having disallowed the claim, new claim was made in this year to protect the interests of the Assessee - based on the year of payment- and thus rejection of claim would amount to double disallowance i.e, in the year of debiting to the P & L account and also in the year of remittance as per the provisions of DTAA. 5. Further, the NFAC ought to have appreciated that in the immediately preceding years the disallowance made u/s 40(a)(i) having been contested i....
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....bmitted that the royalty agreement mainly relates to sharing of knowhow of the parent with the Indian subsidiary. The AO after considering the relevant submissions of the assessee observed that, the question is as to whether royalty is attracted on sale of scrap as scrap involves no trademark, brand name and knowhow of the holding company, which is otherwise more related to the production process, manufacturing quality and end product that is sold. So the concept of royalty on scrap is more like an arrangement to plough back funds to the holding company, while at the same time benefiting from the expenditure claim on the royalty payment. Therefore, rejected the arguments of the assessee and made addition of Rs. 10,36,736/- towards royalty on scrap sales. The AO further noted that on perusal of return of income, it is seen that the carry forward of losses in the previous years are as per the returned loss claimed in those years. Therefore, the carry forward of losses is restricted as per the assessed losses in the previous years as per the order passed u/s 143(3) of the Act. 5. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the Ld.CIT(....
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....h a direction to consider the inter-play of DTAA and the domestic laws vis-à-vis the accounting treatment given by the assessee for the expenditure incurred towards the payment of royalty and SAP maintenance expenditure. Since the assessee has claimed expenditure towards expenses for the year under consideration towards disallowance made for earlier assessment year and for earlier assessment year, the issue has been set aside to the file of the Ld.CIT(A) and further, the issue of deduction towards the said expenditure for the year under consideration is fully dependent on the outcome of the pending appeals before the CIT(A), the present appeal filed by the assessee may be set aside to the file of the Ld.CIT(A) for reconsideration. He further submitted that the Ld.CIT(A) had also rejected the ground taken up by the assessee on the issue of carry forward of losses and the same may be set aside to the file of the Ld.CIT(A) to consider, in light of pending appeals filed for the earlier assessment years. The learned counsel for the assessee, further referring to the issues taken up for limited scrutiny submitted that, the additions made by the AO in the assessment order are entir....
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....wards royalty expenses against the receipts/sales turnover from sale of scrap. Further, the other issue considered by the AO, i.e. carry forward of losses of earlier years on the basis of assessed income/loss as per the order passed u/s 143(3) is also stemmed from the issues taken up for limited scrutiny, because, once the total income has been determined for any assessment year, on the basis of assessment order passed by the AO, then the consequent brought forward losses if any has to be allowed in accordance with the provisions of section 71 to 72 of the Act. Therefore, we are of the considered view that there is no merit in the arguments of the assessee that the AO has travelled beyond the scope of limited scrutiny and made additions towards other issues. Thus, we reject the ground taken up by the assessee. 10. Having said so, let us come back to the issues of additions made towards disallowance of royalty and restriction of carry forward losses of earlier assessment years as per the order passed u/s 143(3) of the Act. In so far as the disallowance of royalty payment, it was the argument of the counsel for the assessee that the said payment is as per the agreement between the a....