ARA LAW, MUMBAI V. ASST CIT 16(2), MUMBAI

ITA 1889/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0901 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 17-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Assessee Lawyers: A V SONDE
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY , JUDICIAL MEMBER ITA NO. 1889/MUM/2017 : A.Y : 2012 - 13 ARA LAW THE CAPITAL, 1001 - C, B - WING, BKC, BANDRA (E), MUMBAI 400 051. (APPELLANT) PAN : AAAFA5712H VS. ACIT - 16(2), MUMBAI (RESPONDENT) APPELLANT BY : SHRI A.V. SONDE RESPONDENT BY : SHRI RAJESH KUMAR YADAV DATE OF HEARING : 1 2 /1 0 /2017 DATE OF PRONOUNCEMENT : 05 /01/2018 O R D E R PER G.S. PANNU , AM : THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 5 , MUMBAI DATED 26 .1 2 .201 6 , PERTAINING TO THE ASSESSMENT YEAR 20 12 - 13 , WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER, MUMBAI DATED 27. 0 2.201 5 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IN ITS APPEAL, ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN : - 2 ITA NO. 1889/MUM/2017 ARA LAW SUSTAINING THE DISALLOWANCE OF RS.53,74,502/ - BEING NAME LICENSE FEE/ROYALTY PAID BY THE APPELLANT IN PURSUANT TO AGREEMENT DATED 18.3.2004 FOR USE OF BRAND NAME ARA LAW AND ITS GOODWILL BY THE APPELLANT TO RAJESH BEGUR, PROMOTER PARTNER HAVING SOLE AND EXCLUSIVE RIGHT AND TITLE OV ER THE NAME OF ARA LAW AND ALL OTHER INTELLECTUAL PROPERTY RIGHTS VESTED THEREIN FOR THE PURPOSE OF CARRYING ON PROFESSION IN THE NAME OF M/S. ARA LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN : - SUSTAINING ENHANCE MENT BY 5% IN ADHOC DISALLOWANCE IN RESPECT OF EXPENSES INCURRED ON BUSINESS PROMOTION, TRAVELLING AND TELEPHONE EXPENSE HOLDING IT TO BE PERSONAL NATURE WITHOUT POINTING OUT FROM COMPLETE DETAILS FURNISHED WHICH AND HOW A PARTICULAR AMOUNT IS OF PERSONAL NATURE. 3. AS THE ABOVE STATED GROUNDS OF APPEAL REVEAL, THE FIRST SUBSTANTIVE DISPUTE IS WITH REGARD TO AN AMOUNT OF RS.53,74,502/ - REPRESENTING LICENCE FEE/ROYALTY WHICH HAS BEEN DISALLOWED BY THE INCOME - TAX AUTHORITIES. BRIEFLY PUT, THE RELEVANT FACT S ARE THAT THE APPELLANT BEFORE US IS A PARTNERSHIP FIRM WHICH IS CARRYING THE PROFESSION OF ADVOCATES & SOLICITORS , WHOSE FOUNDING PARTNER IS ONE SHRI RAJESH BEGUR . FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, IT FILED A RETURN OF INCOME DECLARING INCOME AT RS.2,33,84,420/ - AND IN THE COURSE OF SCRUTINY ASSESSMENT THE ASSESSING OFFICER NOTED THAT IN THE PROFIT & LOSS ACCOUNT THE ASSESSEE FIRM HAD CLAIMED EXPENDITURE OF RS.53,74,502/ - UNDER THE HEAD ROYALTY. ON BEING ASKED TO EXPLAIN, ASSESSEE POINTED O UT THAT THE AMOUNT WAS PAID TO ITS FOUNDER PARTNER. THE ASSESSING OFFICER REFERRED TO CLAUSE (10) OF THE RESTATED PARTNERSHIP DEED DATED 23.08.2010 AND AFTER EXTRACTING ITS RELEVANT PORTION, CONCLUDED THAT THE ROYALTY WAS PAYABLE ONLY TO THE LEGAL HEIRS O F THE FOUNDING PARTNER, AND THAT TOO, ONLY AFTER THE DEATH OF THE FOUNDER PARTNER. IN VIEW THEREOF, THE ASSESSING OFFICER HELD THAT THE PAYMENT OF ROYALTY OF RS.53,74,502/ - DEBITED IN THE PROFIT & LOSS ACCOUNT COULD NOT BE ALLOWED AS 3 ITA NO. 1889/MUM/2017 ARA LAW A DEDUCTION INASMUCH IT WAS NOT PERMI TTED IN TERMS OF THE PARTNERSHIP DEED. BEFORE THE CIT(A), ASSESSEE ASSAILED THE STAND OF THE ASSESSING OFFICER ON FACTS, AND IN LAW. IT WAS ASSERTED BY THE ASSESSEE THAT ROYALTY WAS BEING PAID TO THE FOUNDER PARTNER REGULARLY EVERY YEAR I N TERMS OF THE NAME LICENCE AGREEMENT DATED 18.03.2004 AND THAT THE ASSESSING OFFICER WAS UNJUSTIFIED IN SELECTIVELY RELYING ON THE RESTATED PARTNERSHIP DEED DATED 23.08.2010 AND DISCARDING THE NAME LICENCE AGREEMENT DATED 18.03.2004, WHICH WAS REFERRE D TO IN THE PARTNERSHIP DEED ITSELF. THE ASSESSEE ALSO POINTED OUT THAT THE DISALLOWANCE OF THE SAID EXPENSE WOULD RESULT IN DOUBLE TAXATION INASMUCH AS THE INDIVIDUAL, SHRI RAJESH BEGUR HAS ALREADY OFFERED THE SAID INCOME IN HIS INDIVIDUAL TAX RETURN AND PAID TAXES THEREON. BEFORE THE CIT(A), ASSESSEE SPECIFICALLY REFERRED TO THE COMPLETE CONTENTS OF CLAUSE (10) OF THE PARTNERSHIP DEED TO CONTEND THAT THE FOUNDER PARTNER OF THE FIRM WAS HAVING SOLE AND EXCLUSIVE TITLE OVER THE NAME ARA LAW AND ALL INTE LLECTUAL PROPERTY VESTED THEREIN, INCLUDING T RADEMARK, C OPYRIGHT, ETC., AND THAT THE ROYALTY WAS PAYABLE TO HIM IN TERMS OF THE NAME LICENCE AGREEMENT DATED 18.03.2004 IN CONSIDERATION FOR ALLOWING THE FIRM TO CARRY ON THE PROFESSION IN THE NAME AND STYL E OF ARA LAW . THE CIT(A) HAS AFFIRMED THE STAND OF THE ASSESSING OFFICER PRIMARILY TAKING THE SAME GROUND INASMUCH, ACCORDING TO HIM ALSO, THERE WAS NO PROVISION IN THE PARTNERSHIP DEED FOR PAYMENT OF ROYALTY TO THE FOUNDING PARTNER, SHRI RAJESH BEGUR. THE CIT(A) JU STIFIED HIS CONCLUSION BY RELYING ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF BHARAT BEEDI WORKS P. LTD. VS. CIT, 69 TAXMAN 453 (SC) TO THE EFFECT THAT THERE HAS TO BE A CLEAR - CUT PROVISION FOR THE PAYMENT OF ROYALTY IN THE PARTNERSHIP DEED. A GAINST SUCH A DECISION OF THE CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4 ITA NO. 1889/MUM/2017 ARA LAW 4. AT THE TIME OF HEARING, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE VEHEMENTLY POINTED OUT THAT THE LOWER AUTHORITIES HAVE FAILED TO APPRECIATE THE FACTS IN PROPER PERSPECTI VE INASMUCH AS THE CLAIM FOR PAYMENT OF ROYALTY TO THE FOUNDING PARTNER WAS BASED ON THE NAME LICENCE AGREEMENT DATED 18.03.2004, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGES 54 TO 60, AND NOT ON THE BASIS OF THE PARTNERSHIP DEED. IN ANY C ASE, THE LEARNED REPRESENTATIVE POINTED OUT THAT THE PARTNERSHIP DEED HAS ALSO NOT BEEN PROPERLY APPRECIATED INASMUCH AS CLAUSE (10) THEREOF MAKES A REFERENCE TO THE NAME LICENCE AGREEMENT DATED 18.03.2004 FOR THE PAYMENT OF ROYALTY TO THE FOUNDING PARTN ER AND THUS, IN THAT VIEW OF THE MATTER, THE PARTNERS CAN ALSO BE UNDERSTOOD TO HAVE RATIFIED THE AGREEMENT DATED 18.03.2004. ON FACTS, IT WAS POINTED OUT THAT THE ASSESSEE - FIRM HAS BEEN PAYING THE ROYALTY REGULARLY SINCE 01.04.2004 AND THAT DURING THE YE AR UNDER CONSIDERATION, ROYALTY OF RS.53,74,502/ - WAS PAID AFTER DEDUCTING THE NECESSARY TAX U/S 194J OF THE ACT. BY REFERRING TO THE CLAUSES OF THE NAME LICENCE AGREEMENT DATED 18.03.2004, IT WAS SOUGHT TO BE POINTED OUT THAT THE ASSESSEE - FIRM IS ALLOW ED TO USE THE NAME ARA LAW AND OTHER INTELLECTUAL PROPERTY RIGHTS ON THE SPECIFIED TERMS AND CONDITIONS WHICH INCLUDE PAYMENT OF ROYALTY. ON THE POINT THAT IN - PRINCIPLE ROYALTY/LICENCE FEE PAID BY THE ASSESSEE IS AN ALLOWABLE DEDUCTION, RELIANCE HAS BEE N PLACED ON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF REMFRY & SAGAR VS. JCIT, [2016] 76 TAXMANN.COM 89 (DELHI TRIB.) . FURTHER, IT HAS BEEN POINTED OUT THAT SINCE THE ASSESSMENT YEAR 2005 - 06 ROYALTY HAS BEEN PAID BY THE ASSESSEE, WH ICH HAS NOT SUFFERED ANY DISALLOWANCE IN THE PAST AND, FOR THAT MATTER, ASSESSMENT MADE U/S 143(3) OF THE ACT DATED 28.11.2008 FOR THE ASSESSMENT YEAR 2006 - 07 HAS ALSO BEEN REFERRED TO. IT WAS, THEREFORE, CONTENDED THAT ON FACTS AND IN LAW, THE CLAIM OF A SSESSEE WAS JUSTIFIED AND 5 ITA NO. 1889/MUM/2017 ARA LAW THE SAME HAS BEEN WRONGLY DENIED BY THE LOWER AUTHORITIES. REGARDING THE RELIANCE PLACED BY CIT(A) ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF BHARAT BEEDI WORKS P. LTD. (SUPRA) , THE LEARNED REPRESENTATIVE STATED THAT THE ISSUE BEFORE THE HON'BLE SUPREME COURT WAS COMPLETELY DIFFERENT AND PERTAINED TO WHETHER THE CEILING ON DEDUCTION U/S 40 (C) OF THE ACT IS APPLICABLE ON ROYALTY PAID FOR USE OF TRADEMARK BY A COMPANY, WHOSE DIRECTORS WERE ALSO THE PARTNERS IN THE R ECIPIENT FIRM . 5. ON THE OTHER HAND, THE LD. DR HAS REITERATED THE STAND OF THE LOWER AUTHORITIES AND POINTED OUT THAT IN THE ABSENCE OF ANY SPECIFIC PR OVISION IN THE PARTNERSHIP DEED FOR PAYMENT OF ROYALTY, THE SAME HAS BEEN RIGHTLY DISALLOWED. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. BEFORE WE PROCEED TO ADDRESS THE CONTROVERSY, WE MAY BRIEFLY RECAPITULATE THE RELEVANT FACTS AND THE BACKGROUND OF THE DISPUTE. THE ASSESSEE BEFORE US IS A PARTNERSHIP FIRM ENGAGED IN THE PROFESSION OF ADV OCATES AND SOLICITORS IN THE NAME AND STYLE OF ARA LAW. THE ASSESSEE - FIRM HAD ENTERED INTO NAME LICENCE AGREEMENT DATED 18.03.2004 WITH ITS FOUNDER PARTNER, SHRI RAJESH BEGUR . THE NAME LICENCE AGREEMENT PRESCRIBES THAT THE FOUNDER PARTNER HAS THE S OLE AND EXCLUSIVE TITLE OVER THE NAME ARA LAW AND AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT, THE FOUNDER PARTNER HAS ALLOWED THE FIRM, THE RIGHT AND LICENCE TO USE THE LETTERS ARA LAW AND THE LOGO AS PART OF ITS NAME, TRADE NAME AND TRADING STYLE IN CONNECTION WITH THE PROFESSIONAL ACTIVITIES TO BE CARRIED OUT. IN CONSIDERATION FOR THE RIGHT AND THE LICENCE TO USE THE NAME ARA LAW, ASSESSEE - FIRM A GREED TO PAY A ROYALTY FROM 01.04.2004 ONWARDS AS A PERCENTAGE OF NET BILLINGS. BE THAT AS IT MAY, IN 6 ITA NO. 1889/MUM/2017 ARA LAW PURSUANCE OF SAID AGREEMENT, ASSESSEE - FIRM HAS BEEN PAYING ROYALTY TO ITS FOUNDER PARTNER, SHRI RAJESH BEGUR, AND SO FAR AS THE YEAR UNDER CONSIDERATION IS CONCERNED, SUCH PAYMENT STANDS AT RS.53,74,502/ - . THE ALLOWABILITY OF SUCH AN EXPENSE IS THE DISPUTE BEFORE US. THE ENTIRE DISCUSSION IN THE ASSESSMENT ORDER AS WELL AS IN THE ORDER OF THE CIT(A) REVEALS THAT THE SOLE BASIS OF DISALLOWANCE IS THAT TH ERE IS NO PROVISION IN THE PARTNERSHIP DEED FOR PAYMENT OF SUCH ROYALTY. IN FACT, THE ASSESSING OFFICER HAS RESTED HIS CASE ON CLAUSE (10) OF THE PARTNERSHIP DEED, WHICH WE REPRODUCE HEREINAFTER : - 10. NAME LICENSE THE NAME, LOGO AND TRADING STYLE, ALL INTELLECTUAL PROPERTY RIGHTS COMPRISED THEREIN AND IN RESPECT THERETO BELONGS EXCLUSIVELY TO THE FOUNDER PARTNER ALONE AND NEITHER THE RETAINED PARTNERS NOR ANY PERSON CLAIMING BY OR THROUGH HER / HIM SHALL HAVE ANY RIGHT, TITLE, INTEREST OR CLAIM WHATSOE VER TO THE NAME, LOGO, WORD OR MARK 'ARA LAW', AS A PREFIX OR SUFFIX OR OTHERWISE EITHER DURING THE CONTINUANCE OF THE FIRM OR UNDER ANY OTHER CIRCUMSTANCE OR EVENT INCLUDING THOSE SET OUT IN ARTICLE 14.1. NOTWITHSTANDING ANYTHING CONTAINED HEREIN, THE RE TAINED PARTNERS HERETO RECOGNIZES THAT THE NAMES AND DERIVATIVES OR PARTS THEREOF HAVE SUBSTANTIAL GOODWILL AND REPUTE WHICH CANNOT BE QUANTIFIED IN MONEY TERMS. ACCORDINGLY, THE RETAINED PARTNERS (INCLUDING IN HIS OR HER CAPACITY AS A PARTNER) EXPRESSLY D ISCLAIM AND/OR WAIVE ANY AND ALL RIGHTS AND INTEREST IN THE AFORESAID NAMES OR EITHER OF THEM AND UNDERTAKE NOT TO UTILIZE THE SAME OR ANY COMBINATION THEREOF AT ANY TIME SAVE AND EXCEPT FOR THE LIMITED PURPOSE OF CARRYING ON THE PROFESSION IN THE FIRM NAM E AND STYLE OF 'ARA LAW' AND ON THE DEATH OF THE FOUNDER PARTNER, SUBJECT NONETHELESS TO PAYMENT OF ROYALTY TO THE LEGAL HEIRS OF THE FOUNDER PARTNER AS PER THE NAME LICENSE AGREEMENT DATED 18TH APRIL, 2004. THE PARTIES HERETO AGREE THAT THE GOODWILL OF T HE FIRM SHALL CONTINUE TO BELONG EXCLUSIVELY TO THE FOUNDER PARTNER. ON ACCOUNT OF OCCURRENCE OF ANY 7 ITA NO. 1889/MUM/2017 ARA LAW OF THE EVENTS MENTIONED IN ARTICLE 14 BELOW NO AMOUNT WHATSOEVER SHALL BE PAYABLE TOWARDS ANY DEEMED OR NOTIONAL GOODWILL TO THE RETAINED PARTNERS, AND, ON LY THE OUTSTANDING CREDIT AMOUNTS, AS REFLECTING IN THEIR RESPECTIVE CURRENT ACCOUNTS, AS THE CASE MAY BE, SHALL BE PAID. 7. A PERUSAL OF THE AFORESAID CLAUSE (10) REVEALS THAT IN THE FIRST PORTION IT IS UNDERSTOOD THAT THE NAME, LOGO, WORD OR MARK ARA LAW AND OTHER INTELLECTUAL PROPERTY RIGHTS, ETC. EXCLUSIVELY BELONGED TO THE FOUNDER PARTNER, SHRI RAJESH BEGUR. THE SECOND PORTION OF THE CLAUSE RECOGNISES THE SUBSTANTIAL GOODWILL OF SUCH ITEMS AND ALL PARTNERS OTHER THAN THE FOUNDER PARTNER DISCLAIM AND WAIVE ANY AND ALL RIGHTS IN THE AFORESAID ITEMS EVEN AT THE TIME OF THE DEATH OF THE FOUNDER PARTNER. IN FACT, THE LA T TER PORTION OF THE SECOND PARA ALSO REFERS TO THE NAME LICENCE AGREEMENT DATED 18.03.2004. WHAT WE ARE TRYING TO POINT OU T IS THAT IT IS NOT A CASE WHERE THE ASSESSING OFFICER WAS OBLIVIOUS TO THE NAME LICENCE AGREEMENT DATED 18.03.2004, WHICH INDEED IS THE BASIS ON WHICH THE ROYALTY PAYMENTS HAVE BEEN MADE TO THE FOUNDER PARTNER. IN FACT, THE SAID CLAUSE OF THE PARTNERSH IP DEED REFERS TO PAYMENT OF ROYALTY TO THE LEGAL HEIRS OF THE FOUNDER PARTNER AS PER THE NAME LICENCE AGREEMENT DATED 18.03.2004. THE AFORESAID HAS BEEN READ BY THE ASSESSING OFFICER TO MEAN THAT THE PAYMENT HAS TO BE MADE ONLY TO THE LEGAL HEIRS OF TH E FOUNDER PARTNER AFTER HIS DEATH AND NOT DURING HIS LIFETIME. SO, HOWEVER, ONCE THE NAME LICENCE AGREEMENT DATED 18.03.2004 IS READ CONJOINTLY WITH THE PARTNERSHIP DEED, IT BECOMES CRYSTAL - CLEAR THAT THE CLAIM OF THE ASSESSEE IN THE I NSTANT YEAR IS FUL LY JUSTIFIED, AND THE ASSESSEE - FIRM IS OBLIGATED TO PAY THE ROYALTY EVEN DURING THE LIFETIME OF THE FOUNDER PARTNER. AT NO STAGE EITHER OF THE LOWER AUTHORITIES HAVE REPUDIATED OR DOUBTED THE BONA FIDE OF NAME LICENCE AGREEMENT DATED 18.03.2004, WHICH F ULLY COVERS THE INSTANT PAYMENT OF 8 ITA NO. 1889/MUM/2017 ARA LAW ROYALTY TO THE FOUNDER PARTNER. IN OUR CONSIDERED OPINION, THE SELECTIVE MEANING PLACED ON THE CONTENTS OF THE PARTNERSHIP DEED HAS LED THE INCOME - TAX AUTHORITIES TO MISDIRECT THEMSELVES TO DISALLOW THE IMPUGNED EXPENDIT URE. FOR THE SAKE OF ARGUMENT, EVEN IF ONE IS TO ACCEPT THE PLEA OF THE ASSESSING OFFICER THAT THE INSTANT PAYMENT OF ROYALTY OF RS.53,74,502/ - IS NOT CONTAINED IN THE PARTNERSHIP DEED, EVEN THEN, WE FIND NO REASON TO DISALLOW THE SAME U/S 37(1) OF THE AC T . FIRSTLY, IN THE ABSENCE OF ANY MATERIAL TO REPUDIATE THE NAME LICENCE AGREEMENT DATED 18.03.2004 OR CHALLENGE ITS BONA FIDE , THE DISALLOWANCE IS UNSUSTAINABLE. SECONDLY, THE FACT THAT THE ANNUAL ACCOUNTS HAVE BEEN DRAWN AND IN THE PROFIT & LOSS ACCOUNT, THE PAYMENT OF ROYALTY TO THE FOUNDER PARTNER HAS BEEN CLAIMED AS A DEDUCTION AND SUCH ACCOUNTS HAVE BEEN ADOPTED BY THE PARTNERS IS A FACTUM WHICH DEMONSTRATES THE CONSENT OF THE PARTNERS TO INCUR SUCH EXPENDITURE, WHICH IS IN CONSONANCE WI TH THE AGREEMENT DATED 18.03.2004 BETWEEN THE ASSESSEE - FIRM AND THE FOUNDER PARTNER . THEREFORE, UNDER THESE CIRCUMSTANCES, WE ARE UNABLE TO UPHOLD THE DISALLOWANCE SUSTAINED BY CIT(A), WHICH IS HEREBY DIRECTED TO BE DELETED. 8. SO FAR AS THE RELIANCE PLA CED BY CIT(A) ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF BHARAT BEEDI WORKS P. LTD. (SUPRA) IS CONCERNED, THE SAME IS WHOLLY IRRELEVANT. IN THE SAID CASE, A PARTNERSHIP - FIRM ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF BEEDIS HAD SO LD ITS RIGHT AND ASSETS TO THE ASSESSEE - COMPANY AND IN TERMS OF THE AGREEMENT, ASSESSEE - COMPANY PAID ROYALTY TO THE FIRM FOR USE OF TRADEMARK. THE PARTNERS OF THE FIRM WERE ALSO THE DIRECTORS OF THE ASSESSEE - COMPANY, AND THE ROYALTY PAID WAS CLAIMED AS DE DUCTION. THE SAME WAS SOUGHT TO BE DISALLOWED BY INVOKING SEC. 40(C) OF THE ACT, BUT THE HONBLE COURT HELD THAT 9 ITA NO. 1889/MUM/2017 ARA LAW IN THE ABSENCE OF ANY FINDING THAT THE AGREEMENT WAS A MERE DEVICE OR A SMOKE SCREEN, THE DEDUCTION FOR PAYMENT OF ROYALTY COULD NOT BE DENIED . IT FURTHER OBSERVED THAT PAYMENT WAS A CONSIDERATION FOR ALLOWING THE ASSESSEE - COMPANY TO USE THE VALUABLE RIGHT WHICH BELONGED TO THE RECIPIENT FIRM. THE ISSUE BEFORE US IS ON A COMPLETELY DIFFERENT FOOTING AND, THEREFORE, IN OUR VIEW, THE CIT(A) CLEA RLY ERRED IN DENYING THE CLAIM OF THE ASSESSEE ON THE BASIS OF THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF BHARAT BEEDI WORKS P. LTD. (SUPRA) . THUS, IN CONCLUSION, WE HEREBY SET - ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 53,74,502/ - MADE UNDER THE HEAD ROYALTY. 9. THE ONLY OTHER GROUND IS THE AD HOC DISALLOWANCE OF 5% SUSTAINED BY THE CIT(A) OUT OF VARIOUS EXPENSES , VIZ. , BUSINESS PROMOTION EXPENDITURE, TRAVELLING EXPENDITURE AND TELEPHONE EXPENDIT URE. WE NOTE THAT IN THE ASSESSMENT ORDER AS WELL AS IN THE ORDER OF CIT(A), THE DISALLOWANCE HAS BEEN MADE ON MERE SURMISES WITHOUT ESTABLISHING THAT ANY PARTICULAR EXPENDITURE HAS BEEN INCURRED FOR NON - BUSINESS PURPOSES. THEREFORE, THE AD HOC DISALLOWA NCE MADE IS HEREBY DIRECTED TO BE DELETED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 T H JANUARY, 2018. SD/ - SD/ - ( SAKTIJIT DEY ) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER MUMBAI, DATE : 5 T H JANUARY , 201 8 *SSL* 10 ITA NO. 1889/MUM/2017 ARA LAW COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, A BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI