The ACIT, Circle - 6, Ahmedabad V. M/s. Vishnu Packaging, Ahmedabad

ITA 2046/AHD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6319 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 02-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADIPKUMAR MAJUMDAR
• Assessee Lawyers: G C PIPARA
• Keywords: Depreciation; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NOS: 2046/AHD/2013 & 1218/AHD/2015 (ASSESSMENT YEARS: 2010-11 & 2011-12) ACIT, CIRCLE-6, AHMEDABAD AND JT. COMMISSIONER OF INCOME- TAX, RANGE-6, AHMEDABAD V/S M/S. VISHNU PACKAGING PLOT NO. 49/50, BLOCK A, MAHA GUJARAT ESTATE, VILLAGE: MORAIYA, TALUKA: SANAND, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AANFM0975H APPELLANT BY : SHRI PRADIP KUMAR MAJUMDAR, SR. D R RESPONDENT BY : SHRI G.C. PIPARA, A.R. ( )/ ORDER DATE OF HEARING : 03 -04-201 7 DATE OF PRONOUNCEMENT : 06 -04-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NOS. 2046/AHD/2013 & 1218/AHD/2015 ARE TWO SEPA RATE APPEALS BY THE REVENUE PREFERRED AGAINST TWO SEPARATE ORDERS O F THE LD. CIT(A)-XI AND ITA NO. 2046 /AHD/13 & 1218/AHD/15 . A.YS. 2010-1 1 & 2011-12 2 LD. CIT(A)-3, AHMEDABAD DATED 15.05.2013 & 17.02.20 15 PERTAINING TO A.YS. 2010-11 & 2011-12 RESPECTIVELY. 2. AS COMMON GRIEVANCE IS INVOLVED IN IMPUGNED APPEALS , THEY WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE. ITA NO. 2046/AHD/2013 FOR A.Y. 2010-11 3. THE FIRST GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 88,19,558/- MADE ON ACCOUNT OF INTEREST EXPENSES TO NAKSHA IMPEX . 4. THE ASSESSEE IS MANUFACTURING PAN MASALA WITHOUT TO BACCO AND PAN MASALA CONTAINING TOBACCO. THE RETURN FOR THE YEAR UNDER C ONSIDERATION WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY ST ATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 5. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS PAID INTEREST OF RS. 5.01 CRO RES WHICH INCLUDED INTEREST OF RS. 4.70 CRORES PAID ON UNSECURED LOANS FROM THE BANK AND OTHERS. THE A.O. FURTHER FOUND THAT THOUGH THE ASSE SSEE HAS PAID INTEREST TO THE PARTIES @ 12% BUT HAS PAID INTEREST TO M/S. NAK SHA IMPEX @ 15% AND 18%. THE A.O. WAS OF THE OPINION THAT THE INTEREST PAID TO NAKSHA IMPEX WAS QUITE HIGHER THAN THE RATE OF INTEREST PAID TO BANK AS WELL AS PAID ON ITA NO. 2046 /AHD/13 & 1218/AHD/15 . A.YS. 2010-1 1 & 2011-12 3 OTHER UNSECURED LOANS. ACCORDINGLY, THE ASSESSEE WA S ASKED TO JUSTIFY THE CLAIM OF INTEREST. THE ASSESSEE FILED A DETAILED RE PLY WHICH DID NOT FIND ANY FAVOUR WITH THE A.O. AND THE A.O. PROCEEDED BY DISA LLOWING THE INTEREST PAID IN EXCESS OF 12% AND MADE ADDITION OF RS. 88,1 9,558/-. 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND VEHEMENTLY ASSAILED THE ASSESSMENT ORDER. THE ASSESSEE STRONGLY CONTEND ED THAT THE LOAN OBTAINED WAS UTILIZED FOR THE PURPOSE OF BUSINESS O NLY AND IT IS NOT THE CASE OF THE A.O. THAT THE BORROWED MONEY FROM NAKSHA IMP EX WAS NOT UTILIZED FOR THE PURPOSE OF BUSINESS. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND JUDICIAL DECISIONS RELIED UPON BY THE ASSESSEE, LD. CIT(A) OBSERVED THAT THE INTEREST FOR THE FIRST THREE MONTH OF THE ACCOU NTING YEAR HAS BEEN PAID @ 18% WHILE FOR THE REST OF THE YEAR, INTEREST HAS BEEN PAID @ 15%. THE LD. CIT(A) WAS OF THE OPINION THAT SINCE M/S. NAKSHA IM PEX IS NOT A RELATED PARTY ALL THAT THE A.O. HAS TO CONSIDER IS WHETHER THE ASSESSEE HAS BORROWED MONEY FOR THE PURPOSE OF BUSINESS AND IF Y ES THEN THE SAME IS ALLOWED U/S. 36(1)(III) OF THE ACT. BEING CONVINCED WITH THE UTILIZATION OF MONEY FOR THE PURPOSES OF BUSINESS, THE LD. CIT(A) DIRECTED THE A.O. TO DELETE THE ADDITION OF RS. 88,19,558/-. 7. BEFORE US, THE LD. D.R. SIMPLY RELIED UPON THE FIND INGS OF THE A.O. WITHOUT BRINGING ANY FACTUAL ERROR IN THE FINDINGS OF THE L D. CIT(A). THERE IS NO DISPUTE THAT THE A.O. HAS NOT GIVEN ANY ADVERSE FIN DINGS SO FAR AS UTILIZATION OF BORROWED MONEY FROM M/S. NAKSHA IMPEX IS CONCERN ED. IT IS ALSO TRUE THAT NAKSHA IMPEX IS NOT A RELATED PARTY AND, THERE FORE, PROVISIONS OF ITA NO. 2046 /AHD/13 & 1218/AHD/15 . A.YS. 2010-1 1 & 2011-12 4 SECTION 40A(2)(B) OF THE ACT ARE NOT APPLICABLE. WE AGREE WITH THE FIRST APPELLATE AUTHORITY THAT FOR THE PURPOSES OF THE AL LOWANCE OF INTEREST U/S. 36(1)(III) OF THE ACT, ALL THAT THE A.O. HAS TO CON SIDER IS WHETHER THE MONEY BORROWED IS UTILIZED FOR THE PURPOSES OF BUSINESS O R NOT. SINCE, NO ADVERSE FINDINGS IS GIVEN, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1 IS ACCORDINGLY DISMISSED. 8. THE SECOND GRIEVANCE OF THE REVENUE RELATES TO THE DELETION OF THE ADDITION OF RS. 5,32,83,949/- MADE ON ACCOUNT OF PAYMENT PAI D TO VISHNU & COMPANY TRADE MARK PVT. LTD. FOR USE OF TRADE MARK WHICH WAS TREATED AS CAPITAL EXPENDITURE BY THE A.O. 9. WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESS EE HAS INCURRED EXPENSES OF RS. 5,32,83,949/- FOR TRADE MARK LICENSE UTILIZA TION FEES. THE ASSESSEE WAS ASKED TO JUSTIFY PAYMENT OF THE SAME. THE ASSES SEE FILED THE COPY OF THE AGREEMENT WITH M/S. VISHNU & COMPANY TRADE MARK PVT. LTD. THAT (VIMAL BRAND PAN GUTAKHA AND PAN MASALA) ARE LICE NSE ON TRADE MARK OF M/S. VISHNU & COMPANY TRADE MARK PVT. LTD AND SINCE THE ASSESSEE HAS USED THE LICENSE TRADE MARK OF VISHNU & COMPANY TRA DE MARK PVT. LTD. THE LICENSE FEE PAID BY THE ASSESSEE IS AN ALLOWABLE EX PENDITURE U/S. 37 OF THE ACT. THIS SUBMISSION OF THE ASSESSEE DID NOT FIND A NY FAVOUR WITH THE A.O. WHO WAS OF THE OPINION THAT THE TRADE MARK LICENSE UTILIZATION FEES TREATED TO M/S. VISHNU & COMPANY TRADE MARK PVT. LTD. HAVE TO BE CONSIDERED AS A CAPITAL EXPENDITURE AND ACCORDINGLY DISALLOWED THE SAME AND AT THE SAME TIME ALLOWED DEPRECIATION @ 25%. ITA NO. 2046 /AHD/13 & 1218/AHD/15 . A.YS. 2010-1 1 & 2011-12 5 10. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND REITERATED ITS CLAIM. 11. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD.CIT(A) FOUND THAT THE VIMAL TRADE MARK IS OWNED BY M/S. VISHNU & CO MPANY TRADE MARK PVT. LTD. AND THE ASSESSEE HAS PAID ROYALTY @ 6% OF ITS TURNOVER AS PER THE TERMS AND CONDITIONS OF LICENSE/REGISTERED USER AGR EEMENT DATED 11.05.2007. THE LD. CIT(A) FURTHER OBSERVED THAT TH E CBDT CIRCULAR RELIED UPON BY THE A.O. DOES NOT APPLY ON THE IMPUGNED PAY MENT SINCE THERE IS NO ACQUISITION OF ANY TECHNICAL KNOWHOW; THEREFORE, THERE IS NO REASON TO TREAT THE IMPUGNED PAYMENT AS CAPITAL EXPENDITURE. THE LD. CIT(A) ACCORDINGLY DIRECTED THE A.O. TO DELETE THE IMPUGNE D ADDITION. 12. BEFORE US, THE LD. D.R. STRONGLY RELIED UPON THE FI NDINGS OF THE A.O. 13. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AU THORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD IN THE FORM OF A PAPER BOOK. THERE IS NO DISPUTE THAT THE VIMAL TRADE MA RK IS OWNED BY VISHNU & COMPANY TRADE MARK PVT. LTD. IT IS ALSO TRUE THAT THE ASSESSEE HAS PAID THE ROYALTY AS PER THE TERMS AND CONDITIONS OF THE REGISTERED AGREEMENT. IT IS EQUALLY TRUE THAT THE CBDT CIRCULAR NO. 10/69/61 -IT(AI) DATED 04.09.1962 IS NOT APPLICABLE IN THE INSTANT CASE. WE FURTHER F IND THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, SIMILAR PAYMENTS WERE AL LOWED BY THE A.O. IN SCRUTINY ASSESSMENT. CONSIDERING THE FACTS IN TOTAL ITY, WE DO NOT FIND ANY ITA NO. 2046 /AHD/13 & 1218/AHD/15 . A.YS. 2010-1 1 & 2011-12 6 REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CI T(A). GROUND NO. 2 IS ACCORDINGLY DISMISSED. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ITA NO. 1218/AHD/2015 FOR A.Y. 2011-12 15. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. C IT(A) ERRED IN DELETING THE ADDITION OF RS. 2,23,77,009/-ON ACCOUNT OF DISALLOW ANCE OF TRADE MARK LICENSE UTILIZATION BY TREATING IT AS REVENUE EXPEN DITURE. 16. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY US IN ITA NO. 2046/AHD/2013 (SUPRA). FOR OUR DETAILED REASONS GIVEN THEREIN, TH IS GROUND OF THE REVENUE IS DISMISSED. APPEAL FILED BY THE REVENUE IS ACCOR DINGLY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 06- 04- 20 17 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER TRUE COPY ACCOUNTANT MEMBER AHMEDABAD: DATED 06/04/2017 RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD