Assistant Commissioner of Income-tax, V. Kirloskar Ferrous Industries Ltd., Pune

ITA 604/PUN/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6993 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 30-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANTKUMAR C LEUVA
• Keywords: Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , # , % & BEFORE SHRI R.K. PANDA, AM & SHRI VIKAS AWASTHY, JM . / ITA NO. 604/PUN/2015 %( ( / ASSESSMENT YEAR : 2010-11 ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 14, PUNE. .. APPELLANT VS. KIRLOSKAR FERROUS INDUSTRIES LTD, A-13, LAXMANRAO KIRLOSKAR ROAD, KHADKI, PUNE 411003 PAN: AAACK7297E .. RESPONDENT ASSESSEE BY : SHRI C.H.NANIWADEKAR DEPARTMENT BY : SHRI HEMANT KUMAR C. LEUVA DATE OF HEARING : 08-03-2017 DATE OF PRONOUNCEMENT : 10-03-2017 / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE OR DER DATED 18/02/2015 OF CIT (A) 7, PUNE RELATING TO ASSESSM ENT YEAR 2010-11. 2 ITA NO.604/PUN/2015, A.Y: 2010-11 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE READS AS UNDER : '1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) ERRED IN ALLOWING THE CLAIM OF ROYALTY A ND NOT TREATING THE CLAIM OF AS CAPITAL EXPENDITURE.? 3. FACTS OF THE CASE IN BRIEF THAT THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF MANUFACTURING OF GRAY IRON CASTING AND PIG IRO N. IT FILED ITS RETURN OF INCOME ON 18/09/2010 DECLARING TOTAL INCOME OF RS.70,89,51,380/-. DURING THE COURSE OF ASSESSMENT PROCEE DINGS THE ASSESSING OFFICER OBSERVED FROM THE DETAILS OF OFFICE AND ADMIN ISTRATIVE EXPENSES THAT ASSESSEE HAS PAID ROYALTY FOR AN AMOUNT OF RS.1,67,14,720/- TO KIRLOSKAR PROPRIETARY LIMITED FOR USE OF K IRLOSKAR NAME. HE OBSERVED THAT IN THE PRECEDING ASSESSMENT Y EAR SUCH CLAIM WAS DISALLOWED BY CONSIDERING THE SAME AS CAPITAL EXPENDITU RE IN NATURE. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY SUCH EXPENDITURE SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE IN NATURE. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND FOLLOWING THE ORDER OF HIS PREDECESSOR IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE ASSESSING OFFICER TREATED THE AMOUNT OF RS.1,67,14 ,720/- PAID TO THE PARENT COMPANY FOR USING KIRLOSKAR BRAND AS CAPITAL IN NATURE. HE ACCORDINGLY DISALLOWED THE SAME AND ADDED T O THE TOTAL INCOME OF THE ASSESSEE. 4. BEFORE THE CIT(A), IT WAS ARGUED THAT THE TRIBUNAL IN ASS ESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR H AS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. BASED ON THE ARGUM ENTS ADVANCED BY THE ASSESSEE AND FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE ON THIS VERY ISSUE, THE LD. CIT(A) DIRECTED THE A SSESSING OFFICER TO DELETE THE ADDITION MADE ON ACCOUNT OF ROYALTY PAYMENT. 3 ITA NO.604/PUN/2015, A.Y: 2010-11 4.1 AGGRIEVED WITH SUCH ORDER OF CIT(A) THE REVENUE IN AP PEAL BEFORE US. 5. AFTER HEARING BOTH THE SIDES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) DIRECTING THE ASSESSING OFFICER TO TREAT TH E AMOUNT OF RS.1,67,14,720/- PAID TO KIRLOSKAR PROPRIETARY LIMITED FOR US E OF KIRLOSKAR NAME AS REVENUE IN NATURE. WE FIND IDENTICAL ISS UE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN TH E IMMEDIATELY PRECEDING ASSESSMENT YEAR. WE FIND THE TRIBUNAL IN ITA NO.842/PN/2013 ORDER DATED 16/04/2014 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE PERTINENT FACTS WHICH EMERGE FROM THE ORDERS OF THE AUTHORITIES BELOW CAN BE SUMMARIZED AS FOLLOWS. THE ASSESSEE IS USIN G THE NAME KIRLOSKAR NAME IS WITH M/S KIRLOSKAR PROPRIETARY LIMITED AND IN TERMS OF AN AGREEMENT, ASSESSEE PAYS A SUM OF RS.1,00,000 /- PER ANNUM AS LICENSE OR COPYRIGHT FEE TO M/S KIRLOSKAR PROPRIETA RY LIMITED FOR THE USE OF NAME. FURTHER, ASSESSEE HAS ALSO ENTERED INTO A USER AGREEMENT WITH M/S KIRLOSKAR PROPRIETARY LIMITED DATED 24.11.2 006 WHICH WAS REVISED ON 04.02.2008. IN TERMS THEREOF THE SAID C ONCERN, M/S KIRLOSKAR PROPRIETARY LIMITED HAS ADMITTED ASSESSEE AS A MEMBE R AND ASSESSEE ALSO AGREED TO MAINTAIN THE QUALITY AND TO COMPLY W ITH THE SPECIFICATIONS PRESCRIBED BY THE SAID CONCERN. M/S KIRLOSKAR PROPRIETARY LIMITED IS ACKNOWLEDGED AS THE ORIGINAL CONCEIVER, ADOPTER, USER AND REGISTERED PROPRIETOR OF THE TRADEMARK KIRLOSKAR. FOR ALLOWING THE USE OF THE TRADEMARK, M/S KIRLOSKAR PROPRIETARY LIMITED CHARGES FROM ASSESSEE 0.25% OF ITS ANNUAL TURNOVER AS ROYALTY IN TERMS OF THE METHOD PRESCRIBED IN THE AGREEMENT. SIMILAR PAYMENTS WERE MADE IN ASSESSMENT YEARS 2007-08 AND 2008-09 AS COPYRIGHT F EE AND ROYALTY TO M/S KIRLOSKAR PROPRIETARY LIMITED. HAVING REGARD T O THE FACT POSITION, IT IS QUITE EVIDENT THAT THE PAYMENTS TO M/S KIRLOSKA R PROPRIETARY LIMITED HAVE BEEN MADE ONLY FOR THE USE OF KIRLOSKAR NAME AND NOT FOR THE SUPPLY OF ANY TECHNICAL KNOWHOW FOR PRODUCTION OF G OODS. THERE IS NO MATERIAL TO SUPPORT THE PLEA OF THE REVENUE THAT AN Y ENDURING BENEFIT HAS ACCRUED TO THE ASSESSEE WHICH WOULD BE IN THE C APITAL FIELD. IN-FACT, DURING THE CURRENCY OF THE AGREEMENT WITH M/S KIRLO SKAR PROPRITARY LIMITED, THE BENEFIT WHICH ACCRUES TO THE ASSESSEE IS IN THE REVENUE FIELD, NAMELY, IN THE COURSE OF CARRYING ON OF ITS BUSINESS OPERATIONS AND THE EXPENDITURE INCURRED IN CONNECTION THEREOF WOUL D BE REVENUE IN NATURE. THEREFORE, IN OUR CONSIDERED OPINION, THE CIT(A) MADE NO MISTAKE IN DIRECTING THE ASSESSING OFFICER TO TREAT THE IMPUGNED EXPENDITURE AS A REVENUE EXPENDITURE. 8. IN VIEW OF THE AFORESAID DISCUSSION, WE HEREBY A FFIRM THE ORDER OF THE CIT(A), SPECIALLY HAVING REGARD TO THE FINDINGS RECORDED BY HIM IN PARA 7 OF THE IMPUGNED ORDER, WHICH HAVE NOT BEEN A SSAILED BY THE REVENUE BEFORE US ON THE BASIS OF ANY COGENT MATERI AL OR EVIDENCE. 4 ITA NO.604/PUN/2015, A.Y: 2010-11 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. 6. SINCE THE LD. CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF T HE ASSESSEE HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN ASSESS EES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THERE FORE, IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE LD. DR, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. ACCORDINGLY THE SAME IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 10TH DAY OF MARCH, 2017. SD/- SD/- ( # / VIKAS AWASTHY) (. . / R.K. PANDA) % / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 10 TH MARCH, 2017 S S G G R R - .%0# 1# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. () / THE CIT(A)-7, PUNE 4. / THE CIT-5, PUNE 5. , ! , # , / DR, ITAT, B BENCH, PUNE. 6. & / GUARD FILE. / BY ORDER, / / TRUE COPY / / / ASSISTANT REGISTRAR, ! , / ITAT, PUNE