DCIT, New Delhi V. M/s Frank Brothers & Co (Publisher) Ltd., New Delhi

ITA 4663/DEL/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7831 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 25-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K V K SINGH
• Keywords: Opportunity of being heard; Capital expenditure

Judgement Text

I.T.A. NO. 4663/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4663/DEL/2010 A.Y. : 2007-08 DCIT, CIRCLE 11(1), CR BUILDING, NEW DELHI 2 VS. M/S FRANK BROTHERS & CO. (PUBLISHER) LTD., 4675-A/21, ANSARI ROAD, DARYAGANJ, NEW DELHI (PAN/GIR NO. : AAACF0781E) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : NONE DEPARTMENT BY : SH. K.V.K. SINGH, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: PER SHAMIM YAHYA: PER SHAMIM YAHYA: PER SHAMIM YAHYA: AM AMAM AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XIII, NEW DEL HI DATED 17.8.2010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED READ AS UNDER:- I) THE ORDER OF LD. CIT(A) IS WRONG, PERVERSE, IL LEGAL AND AGAINST THE PROVISIONS OF LAW, LIABLE TO BE SET A SIDE. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN DELETING THE ADDITIONS OF ` 27,21,133/- ON ACCOUNT OF ROYALTY. I.T.A. NO. 4663/DEL/2010 2 III) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AM END ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING . 3. IN THIS CASE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PUBLISHING AND SELLING BOOKS MAINLY FOR SCHOOL CHI LDREN. ASSESSING OFFICER NOTED DURING THE COURSE OF ASSESSMENT PROC EEDINGS IT WAS FOUND THAT AN AMOUNT OF ` 18678711/- HAS BEEN CLAIME D BY THE ASSESSEE AS AN EXPENSE ON ACCOUNT OF ROYALTY. ASSE SSING OFFICER OBSERVED THAT AUTHORISED REPRESENTATIVE WAS ASKED TO SUBSTANTIATE THE EXPENSE AND IT WAS SUBMITTED BY THE LD. AUTHORIS ED REPRESENTATIVE THAT THE ROYALTY IS PAID TO THE AUT HOR OF THE BOOK AND IS COMPUTED ON THE BASIS OF THE SALES OF THE BOOKS OF T HE AUTHOR. FROM THIS ASSESSING OFFICER INFERRED THAT THE PAYMENT O F ROYALTY IS DIRECTLY RELATED TO THE SALE OF BOOKS. ASSESSEE GAVE A FOLLOWING COMPARATIVE CHART OF SALES OF THE ASSESSEE COMPANY AN D THE EXPENSES ON ROYALTY IN THIS YEAR AND THE PREVIOUS YEAR:- A.Y. 2007-08 A.Y. 2006-07 PERCENTAGE INCREASE SALES 31,48,83,212 26,61,28,932 +18.31% ROYALTY 1,86,78,711 1,13,98,270 +63.87% ASSESSING OFFICER OBSERVED THAT WHILE THE SALES HAVE INCREASED BY 18.31% OVER THE PREVIOUS YEAR, THE CO-RELATED RO YALTY EXPENSE HAS INCREASED BY WHOOPING 63.87%. ASSESSING OFFICER H ELD THAT THIS EXTRA INCREASE IN PERCENTAGE TRANSLATES INTO AN EXTRA CLA IM OF ` 51,93,418/- ON ACCOUNT OF ROYALTY EXPENSE. ASSESSING OFFICER FURTHER OBSERVED THAT THE TOTAL EXTRA INCREASE IN ROYALTY EXPENSE BASED ON THE YEAR TO YEAR PERCENTAGE COMPARISON VIS-A-VIS SALES WAS ` 51, 93,418/-. ASSESSING OFFICER FURTHER OBSERVED THAT THIS SHOUL D BE AMOUNT OF I.T.A. NO. 4663/DEL/2010 3 DISALLOWANCE IN THE NORMAL COURSE. HOWEVER, TAKING A CONSIDERATE VIEW AND ALLOWING A PERCENTAGE INCREASE OF 40% OVER THE PREVIOUS YEAR, ROYALTY EXPENDITURES AGAINST AN INCREASE OF 1 8.31% IN SALES, THE DISALLOWANCE IS RESTRICTED TO ` 27,21,133/-. TH EREFORE, ASSESSING OFFICER HELD THAT AN ADDITION OF ` 27,21,133/- IS MADE TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGAINST THE ABOVE ORDER THE ASSESSEE APPEALED BE FORE THE LD. COMMISSIONER OF INCOME TAX (A). LD. COMMISSIONER OF INCOME TAX (A) DELETED THE ADDITION HOLDING AS UNDER:- THE DETAILED SUBMISSIONS FILED BY THE AUTHORISED REPRESENTATIVE FROM TIME TO TIME ALONGWITH THE COPI ES OF MEMORANDUM OF AGREEMENT ENTERED INTO BETWEEN APPELLANT COMPANY WITH THE VARIOUS AUTHORS, FOR PAYM ENT OF ROYALTY, WHICH IS BASED ON A PERCENTAGE OF SALE PRO CEEDS FOR EACH TITLE OF THE PRINTED PRICE ON THE TEXT BOOKS H AVE BEEN GONE THROUGH. THE APPELLANTS AUTHORISED REPRESENT ATIVE HAS ON 12.8.2010 PROVIDED DETAILS OF THE PERCENTAGE ROYALTY PAID TO DIFFERENT AUTHORS ON VARIOUS TITLES. THESE DETAILS SHOW THE GROSS VALUE, DISCOUNT, NET VALUE AND ROYAL TY AMOUNT WITH RESPECT TO EACH OF THE TITLE. SUCH EXE RCISE HAS BEEN DONE FOR DIFFERENT AUTHORS TO WHOM ROYALTY HAS BEEN PAID DURING THE YEAR. IT HAS BEEN NOTICED FROM THE COPIES OF THE AGREEMENT WITH THE AUTHORS AS WELL AS FROM THE OTHER DETAILED CHART OF ROYALTY CALCULATION THA T THE RATE OF ROYALTY VARIES IN CASE OF A GIVEN AUTHOR DEPENDI NG ON THE TITLE OF THE BOOK AND THE CLASS FOR WHICH THE SAME A RE PRESCRIBED. ON 12.8.2010, THE APPELLANT ALSO DEMON STRATED I.T.A. NO. 4663/DEL/2010 4 THROUGH THE COPY OF AGREEMENT AND THE ROYALTY PAID TO EACH AUTHOR THAT THE COMPUTATION OF ROYALTY IS COMPUTED A S A PERCENTAGE OF SALE AND THERE IS NO LUMPSUM PAYMENT TO ANY AUTHOR AS HAS BEEN OBSERVED BY THE ASSESSING OFFICE R IN THE ASSESSMENT ORDER. IT IS ALSO NOTICED THAT PAYME NT FOR ROYALTY ARE COMPUTED ON SALES VALUE AND VOLUME OF E ACH WORK AFTER DEDUCTING THE DISCOUNT AND NO AMOUNT OF R OYALTY IS PAID ON MANUSCRIPT AS OBSERVED BY THE ASSESSING OFFICER. IN THIS CONNECTION, IT IS OBSERVED THAT AS THE ROYA LTY PERCENTAGE DIFFERS ON EACH TITLE AND WOULD ALSO DIF FER FROM AUTHOR TO AUTHOR AND IS BASED ON THE PREVAILING AG REEMENT THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING O FFICER ON AN ESTIMATE BASIS, AS HAS BEEN DONE IN THE ASSES SMENT ORDER IS NOT APPROPRIATE. THE LD. AUTHORISED REPRE SENTATIVE HAS ALSO PROVIDED DETAILED BREAK UP OF ROYALTY PA ID TO EACH AUTHOR DURING THE YEAR WHICH TOTALS TO ` 1,86,78,71 1/- WHICH IS THE ROYALTY DEBITED IN APPELLANTS ACCOUNT FOR THE YEAR. THUS, AS THE ENTIRE ROYALTY PAYMENT IS ON REVENUE A CCOUNT AND IS NOT AN ITEM OF CAPITAL EXPENDITURE AND THEREF ORE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR ` 27,21,133/- IS DELETED. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE . NONE APPEARED ON BEHALF OF THE ASSESSEE. UPON CAREFUL CONSIDERATION, WE FIND THAT MATTER CAN BE DISPOSED OF BY HEARING THE LD. DEPARTMENTAL REPRESENTATIVE AND PERUSING THE RECORDS. WE FIND THAT ASSESSING I.T.A. NO. 4663/DEL/2010 5 OFFICER HAS MADE THE IMPUGNED ADDITION BY COMPARIN G THE ROYALTY PAID VIS-A-VIS SALES OF A PARTICULAR YEAR. LD. C OMMISSIONER OF INCOME TAX (A) HAS NOTED THAT ASSESSEE HAS SUBMITTED VARIOU S COPY OF AGREEMENTS WITH AUTHORS AS WELL AS DETAILED CHART OF ROYALTY CALCULATION. CONSIDERING THESE AGREEMENTS AND DETA ILED CHART OF ROYALTY, LD. COMMISSIONER OF INCOME TAX (A) HAS HELD THAT THE ENTIRE ROYALTY PAYMENT IS ON REVENUE ACCOUNT AND THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER FOR ` 27,21,133/- IS DELETE D. 6.1 IN THIS REGARD, IT IS THE CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT THERE IS NO MENTION IN THE APPEL LATE ORDER AS TO WHETHER THE DETAILS OF AGREEMENT AND ROYALTY CHARGES , SUBMITTED BEFORE THE LD. COMMISSIONER OF INCOME TAX (A), WERE AL SO GIVEN TO THE ASSESSING OFFICER. HE FURTHER CLAIMED THAT THERE IS NO MENTION IN THE APPELLATE ORDER THAT THE REMAND REPORT IN THIS RE GARD WAS SOUGHT. HENCE, LD. DEPARTMENTAL REPRESENTATIVE CONTENDED THA T MATTER MAY BE REMITTED TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER THE ISSUE AFRESH. 6.2 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D PERUSED THE RECORDS. IN OUR CONSIDERED OPINION, INTERE ST OF JUSTICE WILL BE SERVED, IF THE MATTER IS REMITTED TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER THE ISSUE AFRESH. WE HOLD AND DIRECT A CCORDINGLY. NEEDLESS I.T.A. NO. 4663/DEL/2010 6 TO ADD THAT THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 04/7/2012, UP ON CONCLUSION OF HEARING. SD/- SD/- [U.B.S. BEDI] [U.B.S. BEDI] [U.B.S. BEDI] [U.B.S. BEDI] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 04/7/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES