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Facts
The Assessing Officer (AO) disallowed logo charges, treating them as capital expenditure and noting they were not paid by other group concerns, and also disallowed excessive depot service charges paid to a related party, M/s. T.T.Kishnamachari & Co., invoking Section 40(A)(2) of the Income Tax Act. The CIT(A) allowed the assessee's appeal, relying on earlier ITAT orders in the assessee's own case. The Revenue then appealed to the ITAT against the CIT(A)'s order.
Held
The Income Tax Appellate Tribunal (ITAT) dismissed the Revenue's appeals for Assessment Years 2017-18 and 2018-19. The Tribunal found no infirmity in the CIT(A)'s order, as the issues regarding disallowance of logo charges and depot service charges were squarely covered by the ITAT's own previous decisions in the assessee's case for earlier assessment years, which were not stayed by the High Court.
Key Issues
Whether the CIT(A) erred in deleting the disallowance of logo charges and depot service charges, particularly concerning their nature (revenue vs. capital) and applicability of Section 40(A)(2) for related party transactions, given that earlier ITAT decisions on these issues were appealed to the High Court by the Revenue.
Sections Cited
40(A)(2), 260A
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M : Aforesaid two appeals filed by the Revenue for Assessment Years (AYs) 2017-18 & 2018-19 arising out of the identical orders of Learned Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi [hereinafter “CIT(A)”] dated 22.02.2024 & 27.05.2024.
& 1873/Chny/2024 :- 2 -:
There is a delay of 25 days in filing the appeal by the Revenue in for A.Y 2017-18. The Revenue has filed affidavit stating the reasons for delay in filing the appeal. We have considered the petition of delay in filing the appeal and satisfied that there was sufficient cause for not filing the appeal within the prescribed time limit. Hence, the delay is condoned accordingly.
The facts in both the appeals of the Revenue are identical and issues are common hence, we proceed to pass a common order. For brevity, we shall take up the appeal in for A.Y 2017-18 as lead case. The grounds of appeal raised by the assessee for A.Y 2017-18 are as under:
“1. The order of the CIT (A) is contrary to the facts and circumstances of the case.
2. The Id. CIT (A) erred in deleting the addition made by the AO towards logo charges by relying upon the order of the Hon'ble ITAT Chennai in assessee's own case wherein the ITAT allowed the logo charges expenses as revenue expenses in earlier years. 2.1 The Id. CIT (A) failed to appreciate the fact that relied upon the order of the Hon'ble ITAT Chennai in assessee's own case wherein the ITAT allowed the logo charges expenses as revenue expenses in earlier years was not accepted by the revenue & further appeal u/s 260A was filed before the Hon'ble High Court.
3. The Id. CIT (A) erred in deleting the disallowance made by the AO towards Depot Service charges by relying upon the order of the & 1873/Chny/2024 :- 3 -:
Hon'ble ITAT Chennai in assessee's own case wherein the ITAT allowed the appeal of the assesse in earlier years. 3.1 The Id. CIT (A) failed to appreciate the fact that relied upon the order of the Hon'ble ITAT Chennai in assessee's own case wherein the ITAT deleted the disallowance made towards depot service charges in earlier years was not accepted by the revenue & further appeal u/s 260A was filed before the Hon'ble High Court 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored.”
The brief facts of the case are that the assessee-company has filed its return of income on 31.10.2017 declaring total income of Rs.28,91,60,480/-. Subsequently, consequent upon amalgamation of assessee-company and M/s. TSL Techno Services Ltd. with M/s. TTK Healthcare Ltd., the assessee-company revised return of income. The A.O reopened the assessment and made disallowance of Logo charges of Rs. 2,87,96,231/- paid to its group concern M/s.
T.T.Kishnamachari & Co for using TTK monogram , as such charges were not paid by other sister concern for using the monogram and also because such expenditure is capital in nature. The AO also made disallowances of Depo Service Charges of Rs.3,51,75,642 , @1% of sale made through sister concern M/s. TTK & Co. as the assessee has paid Depo. Charges @ 3% on sales effected by M/s. TTK & Co. compared to depo charge @ 2% paid to other parties invoking the provisions of Section 40(A)(2) of the Act. Aggrieved, the assessee has & 1873/Chny/2024 :- 4 -: filed appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A) allowed the appeal on both the issues, relying on the order of ITAT, Chennai in assessee’s case in earlier years. Now, the Revenue is in appeal on the ground that the Department has preferred appeal before the Hon’ble High Court.
The Ld. Departmental Representative (DR) has argued that the assessee has paid 0.5% of the sale made to M/s. T.T.Kishnamachari & Co. for using the monogram entitled “TTK” for its image and identity in the public minds relating to the quality of the products and other services as well as restructure of the organization. The A.O disallowed the above charges u/s. 40(A)(2)(b) of the Act as M/s. TTK & Co. is part of the same group and such charges had not been paid by other group concerns for logo charges. The Ld. DR has argued that logo charges paid is capital in nature . As regard to Depo. Services, the Ld. DR has argued that the assessee has paid excessive amount for Depo charges to M/s. TTK and Co and therefore, the A.O was justified to make the disallowance u/s. 40(A)(2) of the Act.
The Ld. Authorized Representative (A.R) of the assessee, on the other hand, supported the order of Ld. CIT(A) and argued that the & 1873/Chny/2024 :- 5 -: issue is squarely covered in favour of the assessee by the order of Hon’ble ITAT, Chennai in to 1830/Mds/2011 & 2077/Mds/2011 dated 31.10.2011 and these orders are not stayed by Hon’ble High Court. Therefore, the Ld. CIT(A) was bound by decision of Hon’ble ITAT .
We have heard the rival submissions, and perused the materials available on record. We find that both the issues in appeal are covered by the tribunal’s decision in assessee’s own case in & 1461/Chny/2024 for the A.Y 2013-14, 2014-15& 2016-
The Tribunal has followed the same in A.Y 2020-21 in in the order dated 25.10.2024. As the Ld CIT(A) has allowed assessee’s appeal following the decision of tribunal in earlier years, we do not find any infirmity in the order of Ld. CIT(A) deleting the disallowances of depo service charges and logo charges expenses made by the A.O . In view of the above, the appeal in ITA No.1490/Chny/2024 for A.Y 2017-18 is dismissed.
8. We find that the identical issue of disallowances of logo charges is involved in Revenue’s appeal for A.Ys 2018-19 also and accordingly, our adjudication above in A.Y 2017-18 is mutatis & 1873/Chny/2024 :- 6 -:
In the result, both the appeals filed by the Revenue are dismissed.
Order pronounced on 14th February, 2025.