ACIT, New Delhi V. M/s Dharampal Satyapal Ltd., New Delhi

ITA 5808/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0448 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 20-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: STEPHEN GEORGE
• Assessee Lawyers: ASHWANI TANEJA; RANI
• Keywords: Royalty expenses; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH B DELHI ] BEFORE SHRI A. D. JAIN, JM AND SHRI K. D. RANJ AN, AM I. T. A. NO. 5808 (DEL) OF 2010 ASSESSMENT YEAR : 2006-07. ASSTT. COMMISSIONER OF INCOME-TAX, M/S. DHARA MPAL SATYAPAL LTD., C I R C L E : 10 (1), VS. 1711, S. P. MUKHERJEE MARG, N E W D E L H I. D E L H I 110 006. P A N / G I R NO. AAA CD 0132 H ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI ASHWANI TANEJA, C.A.; & MS. RANI, ADV.; DEPARTMENT BY : SHRI STEPHEN GEORGE [CIT] - D.R. O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 6-07 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)-XIII, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE REPRODUCED AS UNDER :- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ORDER OF THE CIT (A) IS WRONG, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE; 2 I. T. A. NO. 5808 (DEL) OF 2010 (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A) HAS ERRED IN DELETING ROYALTY EXPENSES OF RS.2,60,99,45 3/- BEING REVENUE IN NATURE; (3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A) HAS ERRED IN DELETING DISALLOWANCE MADE UNDER SECTI ON 14-A READ WITH RULE 8-D. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ROYALTY EXPENSES OF RS.2,60,99,435/- TREATING THE SAME AS REVENUE IN NA TURE. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MA NUFACTURING AND DISTRIBUTION OF PAN MASALA CONTAINING TOBACCO AND RELATED PRODUCTS. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY ROYALTY EXP ENSES SHOULD NOT BE DISALLOWED AS CAPITAL EXPENDITURE. IT WAS SUBMITTED BY THE ASSESSEE THAT ROYALTY WAS PAID ON SALES AND ALSO SUBMITTED APPELLATE ORDERS FOR EARLIER YEARS WHEREIN THE LD. CIT (A) ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE. THE ASSESSING OFFICER, HOWEVER, ADDED TH E AMOUNT TREATING THE SAME AS CAPITAL EXPENDITURE. 4. ON APPEAL THE LD. CIT (A) OBSERVED THAT THE ASSE SSEE AND M/S. DHARAMPAL SATYAPAL SONS PVT. LTD. WERE USING LATEST REGISTERED TRADE-MARK TULSI WITH ITS NUMEROUS MARKS. THE ASSESSEE FILED DETAILS OF CALCULATION OF ROYALTY PAYMENT. T HE ROYALTY WAS PAID BASED ON SALES. THE LD. CIT (A) FOLLOWED THE DECISION OF THE ITAT IN ASSESSEES OWN CASE IN ITA. NOS. 2813 AND 2814 (DEL) OF 2008 DATED 25 TH SEPTEMBER, 2009. FOLLOWING THE DECISION OF THE IT AT, THE LD. CIT (A) HELD THAT ROYALTY PAYMENT WAS IN THE NATURE OF REVENUE. 5. AT THE OUTSET, THE LD. AR OF THE ASSESSEE SUBMIT TED THAT THE ISSUE IS COVERED BY THE DECISION OF THE ITAT IN THE ASSESSEES OWN CASE IN ITA. NOS. 2813 AND 2814 (DEL) OF 2008 FOR ASSESSMENT YEARS 2002-03 AND 2003-04 DATED 25 TH SEPTEMBER, 2009. ON THE OTHER HAND LD. SR DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 3 I. T. A. NO. 5808 (DEL) OF 2010 6.1 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT ITAT IN ORDER DATED 25 TH SEPTEMBER, 2009 HAD DELETED THE ADDITION BY FOLLOW ING THE DECISION OF THE ITAT FOR ASSESSMENT YEAR 1995-9 6 TO 1998-99 IN ITA. NOS. 293 (DEL) OF 1999, 217 (DEL) OF 1999, 3206 (DEL) OF 2007 AND 386 1 (DEL) OF 2001 WHEREIN IT HAS BEEN HELD AS UNDER :- 4.3 AFTER CONSIDERING RIVAL SUBMISSIONS AND PERUSING OTHER MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE ORDER OF THE LD . CIT (APPEALS) ON THIS ISSUE ALSO. WE NOTED THAT ROYALTY WAS PAID IN VIEW OF AG REEMENT ENTERED INTO BETWEEN THE ASSESSEE AND ITS SISTER CONCERN ON 1/01/1990. ROYALTY WAS PAID SINCE THEN AND THE SAME WAS ALLOWED BY THE AO UPTO AY 1994-95. TH EREFORE, THERE IS NO REASON IN NOT ALLOWING THE CLAIM OF THE ASSESSEE FOR THE Y EAR UNDER CONSIDERATION. THERE IS ALSO NO DISPUTE THAT THE ASSESSEE HAD OBTAINED A PPROVAL OF DEPARTMENT OF COMPANY AFFAIRS UNDER SECTION 314(1-B) OF THE COMPA NIES ACT, VIDE LETTER DATED 2/05/1991 FOR PAYMENT OF ROYALTY AT THE RATE OF 1 P ER CENT OF TOTAL SALES. COPY OF THE SAME IS PLACED ON RECORD. WE FURTHER NOTED THA T AGREEMENT WAS SUBSEQUENTLY AMENDED AND THE ASSESSEE COMPANY HAD PAID ROYALTY A T THE RATE OF HALF PER CENT OF THE SALES ONLY. THEREFORE, IN VIEW OF THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE REASONING GIVEN BY THE LD. CIT (APPEALS), WHICH NEITHER COULD BE CONTROVERTED NOR ANY OTHER MATERIAL WAS BROUGHT ON RECORD BY THE LD. DR, WE CONFIRM THE ORDER OF THE LD. CIT (APPEALS). 6.2 SINCE THE ISSUE OF PAYMENT OF ROYALTY IS COVERE D BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR LAST SEVERAL YEARS, WE DO N OT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (APPEALS) DELETING THE ADDITION RELYING FOR DEC ISION ITAT FOR ASSESSMENT YEARS 2002-03 AND 2003-04. 7. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DELE TING THE ADDITION MADE UNDER SECTION 14-A OF THE ACT / UNDER RULE 8-D OF I. T. RULES, 1962. THE AO MADE DISALLOWANCE UNDER SECTION 14-A RELYING ON THE DECISION OF SPECIAL BENCH OF TH E ITAT IN THE CASE OF ITO VS. DAGA 4 I. T. A. NO. 5808 (DEL) OF 2010 CAPITAL MANAGEMENT P. LTD. THE DISALLOWANCE MADE B Y THE AO UNDER RULE 8-D WAS DETERMINED AT RS.18,26,988/-. 8. ON APPEAL THE LD. CIT (APPEALS) FOLLOWED THE DEC ISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 1 94 TAXMAN 203 WHEREIN IT HAS BEEN HELD THAT THE DISALLOWANCE UNDER SECTION 14-A CAN BE MAD E ON A REASONABHLE BASIS AND THE EXPENSES COULD BE APPORTIONED FOR THIS PURPOSE. THE LD. CIT (A) THEREAFTER WORKED OUT THE DISALLOWANCE UNDER VARIOUS HEADS OF EXPENSES AND DETERMINED THE DISALLOWANCE AT RS.12,02,547/- AS AGAINST DISALLOWANCE OF RS.18,26,988/- MADE BY THE ASSESSIN G OFFICER. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE ORDER OF THE LD. CIT (A) CAREFULLY. THE LD. CIT (A) HAS MADE DISALLOWANCE FROM SALARY A ND REMUNERATION PAID TO GENERAL MANAGER (FINANCE & ACCOUNTS) AT THE RATE OF 15 PER CENT. O UT OF TOTAL ADMINISTRATIVE EXPENSES, THE LD. CIT (A) DISALLOWED RS.8,96,376/-. HE ALSO DISALLOWED T HE AMOUNT OF RS.4,731/- UNDER MISC. EXPENSES. IN ADDITION TO THESE DISALLOWANCES THE A MOUNT OF RS.1,97,400/- WAS ALSO DISALLOWED, WHICH WAS ADMITTED BY THE ASSESSEE. DURING THE COU RSE OF HEARING BEFORE US, THE REVENUE COULD NOT POINT OUT ANY DISCREPANCIES IN ESTIMATION OF DI SALLOWANCES UNDER SECTION 14-A OF THE ACT. THEREFORE, IN OUR CONSIDERED OPINION, THE LD. CIT ( A) IS JUSTIFIED IN RESTRICTING THE DISALLOWANCE AT RS.12,02,547/- AS AGAINST RS.18,26,988/- FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCI T(SUPRA). ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT (APPEALS). 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 28 TH FEBRUARY, 2011. SD/- SD/- [ A. D. JAIN ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH FEBRUARY, 2011. *MEHTA * 5 I. T. A. NO. 5808 (DEL) OF 2010 COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.