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Facts
The revenue filed appeals against the deletion of additions made by the Assessing Officer (AO) concerning branding expenses and legal fees. The assessee, Abhinand Ventures Pvt. Ltd., had claimed these expenses as revenue expenditure. The AO disallowed a portion of branding expenses paid to an associate concern and treated legal fees as capital expenditure. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted these additions, leading to the present appeals.
Held
The Tribunal held that the expenditure incurred on branding expenses, paid to an associate concern for employee motivation and brand promotion, was a business expense and not a diversion of profits. Regarding legal fees, the Tribunal referred to Supreme Court decisions and held that expenses related to trademark registration and related legal advice are revenue in nature, not capital. The Tribunal also upheld the assessee's consistent use of the cash method of accounting.
Key Issues
Whether the disallowance of branding expenses paid to an associate concern was justified and whether legal fees incurred for trademark registration and brand promotion are revenue or capital expenditures.
Sections Cited
Section 37 of the Income Tax Act, Section 143(3), Section 145, Section 147, Section 151, Accounting Standard-9 (AS-9)
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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI PAWAN SINGH, JM & SHRI ARUN KHODPIA, AM
O R D E R
Per Arun Khodpia, AM:
The aforesaid appeals are filed by the revenue challenging the respective orders of Ld. Commissioner of Income Tax (Appeals)-50, Mumbai (for short “The Ld. CIT(A)”), for the Assessment Years (AY) 2014-15, 2015-16, 2016- 17, 2018-19 & 2019-20 and C.O by the assessee for the AY 2016-17.
All the aforesaid appeals of the revenue and the Cross Objection (C.O.) of the assessee are directed to assail the common issues under parallel grounds of appeal, having identical, interconnected and interwoven facts and circumstances qua the additions / disallowances made (except the quantum involved therein), thus, for the sake of concision, as agreed by the parties herein, it is deemed appropriate to perceive all the captioned Appeals/CO collectively and to adjudicate under this common order.
3. To decide the common issues raised in aforesaid appeals/CO, AY 2014-15 has been taken up as the lead case, wherein, the discussion, observations and our adjudication on the identical issues shall 2 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. apply mutatis mutandis to the remaining appeals, as well. If there is any new issue, which does not fall within the compass of common grounds, that shall be dealt with separately under the respective appeals.
The grounds of in AY 2014-15 are culled out as under:
“1. "Whether on the facts and circumstances of the case, the Learned CITIA) erred in deleting the addition made on account of disallowance of branding expenses of Rs. 1,99,00,000/- by treating the payment made by the assessee- Trust to its associate concern as relating to business expenses without appreciating the facts as discussed in the assessment order by the AOP
"2. Whether on the facts and circumstances of the case, the Learned CIT(A) erred in deleting the addition made on account of disallowance of legal fees of Rs. 89,18,266/- by treating these expenses as revenue expenditure instead of capital expenditure?
"3. Whether on the facts and circumstances of the case, the Learned CIT(A) was right in upholding that cash system of accounting followed by the assessee in contravention of accounting standard AS-9 is correct?
The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored.”
Concisely stated, the assessee “Abhinand Ventures Pvt. Ltd. (for an on behalf of Balaji Trust, now dissolved)” has filed its return of income (ROI) for AY 2014-15 on 30.03.2016, declaring total income at Rs. 95,30,01,340/-. The case of assessee was selected for scrutiny; accordingly, statutory notices were issued, wherein various issues were raised by ld. AO, which were responded by 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. the assessee. The assessment under section 143(3) was concluded on 30.12.2016, making additions/disallowances to the tune of Rs. 8,28,83,838/- on account of Brand Promotion Expenses, Legal & Professional Fee Payments, Salaries Incentives & Allowances, Staff Welfare, Travelling and Conveyance expenses. Further the ld. AO also rejected the method of accounting of the assessee by referring to AS-9 issued by the Institute of Chartered Accountants of India, stating that the receipt by way of Royalty has to be accounted for on accrual /mercantile system of accounting.
Being aggrieved with the aforesaid addition/disallowances and the inference by the ld. AO regarding the accounting system of the assessee being cash method of accounting vis-à-vis the mercantile system of accounting, the assessee preferred an appeal before the ld. CIT(A). Wherein, the issues are deliberated extensively and substantial relief has been granted to the assessee.
Since, the First Appellate Authority (FAA) was convinced and has concurred with the contention raised by the assessee on most of the issues, the ld. AO was directed to vacate the additions/disallowances made. The Revenue having a different belief, being unable to accept such decision of FAA has filed the present appeal before us and also the assessee by way of cross objection challenging the jurisdictional issues.
We are taking up the facts of each ground, submissions by the parties and our adjudication, as follows: - 4 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd.
Ground No.1 regarding disallowance of disallowance of Brand Expenses
For AY 2014-15 the ld. AO has examined the claim of assessee under various expenses under the head “Royalty”, the Brand Expense is one of the heads, under which the expenditure by the assessee during the year was to the tune of Rs. 7,04,86,828/-, out of these expenses a disallowance of Rs. 6,88,18,265/- was made by ld. AO, which was deleted by the ld. CIT(A), the revenue has accepted the decision of ld. CIT(A) for certain expenses included in such disallowance, however, an amount of Rs. 1,99,00,000/- paid by the assessee to M/s Essar Agrotech Limited was disputed and assailed under the present appeal, stating that the payment was made to the associate concern, the same cannot be allowed, being for the business purpose of the assessee. On this issue while making the addition the ld. AO’s observations were as under:
“7.2. Under the head Brand promotion expenses, the assessee has also shown huge expenses of Rs. 1,99,00,000/- on account of payments made to M/s. Essar Agrotech limited'. In respect of the said payments, it was explained that, during the year 2013, "the assessee had planned to keep their employees motivated and aligned to Brand ethos, explored different approaches and to achieve positive achievements outcome and growth, the assessee planned to give plant saplings, seasonal fruits to its stake holders and the 'Essar' employees. The assessee stated that these expenses incurred for the purposes of Brand promotion which in turn benefitted the business of the assessee.”
The aforesaid observations and findings of the ld. AO are challenged by the assessee before the ld. CIT(A) wherein the issue was discussed at length ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. and the ld. CIT(A) has decided the issue after taking into consideration the submissions of assessee, wherein the assessee has submitted certain additional evidences, such as details of supplies against each delivery challan, date of invoice, delivery challan number, description of goods, date of supply, mode of transportation, vehicle number and gate pass number, etc. The assessee also furnished copy of gate passes on sample basis consisting of details like vehicle number, time, date, Gate pass number description of goods, unit and quantity. The details of Toll charges paid for transportation of goods in correspondence with the gate passes issued by M/s Essar Agrotech Ltd. The aforesaid details were provided to the ld. AO for remand report, however even after accepting the details furnished, the ld. AO made a remark that the assessee has not been able to substantiate conclusively how the distribution of Mangoes, Plants and Roses among the employees of M/s Essar group of companies helped in promotion of brand “Essar”. In rejoinder the assessee clarified on the issue raised in the remand report thereafter the ld. CIT(A) had decided the issue with following observations:
“31. The AO has not brought any material on record to show that this expenditure was incurred by the appellant only for fostering the business of M/s. Essar Agrotech Ltd., or was made by way of distribution/diversion of profits, or for some improper or oblique purpose outside the course of business, or was wholly gratuitous. The AO has also not been able to show that the transaction was a colourable device. Rather, the AO is doubting the genuineness of the claim merely on the basis of suspicion. As observed by the Hon'ble Court in the above case, the Revenue cannot question the necessity of incurring an 6 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. expenditure by the assessee, and even if an expenditure is incurred by the assessee voluntarily and there was no compelling necessity to incur such expenditure, the assessee can still claim deduction thereof under the relevant provision, provided that it is incurred for promoting the business and to earn profits, in the present case, as discussed above, the appellant has furnished all the requisite details and evidences relating to the expenditure and it has also been found that the expenditure was incurred for the purpose of the business of the appellant. Thus, commercial expediency is established. Under the circumstances, I hold that the AC was not justified in disallowing appellant's claim of deduction of this expenditure.
In view of the above discussion, the AO is directed to delete the disallowance/ addition of Rs.1,99,00,000/- claimed by the appellant on account of payment made to M/s.Essar Agrotech Ltd. Accordingly, Ground No. 3 taken by the appellant is ALLOWED.”
Before us, the ld. CIT-DR / Sr. DR representing the revenue submitted that the assessee was requested to submit delivery challans and mode of transportation in respect of goods received from M/s Essar Agrotech Ltd. along with Vehicle No. but the assessee had not provided any details to the ld. AO, further no evidence for purchase of Mangoes weighing 15,745 Kg. could be produced by the assessee during the assessment proceedings. The ld. DR submitted that under such circumstances, the ld. AO has not accepted the contentions of assessee even in the remand report, reliance was placed on the decision in the case of CIT vs. Calcutta Agency Ltd. (1951) 19 ITR 191 (SC), wherein the Hon’ble Apex Court has held that the primary burden of proof lies on the assessee to substantiate the claim of deduction and facts in their tax return. The ld. DR submitted that the matter may be remanded back to 7 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. the file of ld. AO for verification of genuineness of expenditure as the necessary evidence were not furnished by the assessee even before the FAA.
Per contra, the ld. AR of the assessee has submitted that there are various ways to achieve the brand value it was the obligation on the assessee trust as per agreement with various entities of the Group to create the brand value of Group. To substantiate, copy of brand license agreement between the Balaji Trust and M/s Essar Oil Ltd., one of the group companies was furnished before us according to which specified license fee was to be paid by the licensee to the licensor, the assessee and the licensor is oblige to perform certain duties as mentioned in paragraph-6.4 of the said agreement which reads as under:
“6.4. The Licensor shall also have the following obligations and responsibilities: (i) to periodically organize, to the extent deemed necessary, brand promotiomal activities and campaigns through various media and engage in other activities which in the opinion of the Licensor will enhance the value of the Brand in the Territory,
(ii) to engage the services of specialist agencies, if required, to enhance the value of the Brand in the Territory:
(iii) to co-ordinate major advertising campaigns involving the promotion and development of the Brand in the Territory;
(iv) to undertake activities which, in the opinion of the Licensor, are essential for the purposes of promoting, developing, maintaining, managing and legally protecting the Brand in the Territory, and 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. (v) to maintain a brand office for the purposes of interacting with and co-ordinating with the various entities to which it has licensed the use of the Brand.
The Licensee will co-operate with the Licensor for the performance of the Licensor's obligations in this Clause 6.4 as required.”
In execution of the duties in accordance with the aforesaid agreement, the assessee has undertaken various activities so as to maintain the brand value of the group and in compliance of the aforesaid responsibilities only the payment of Rs. 1,99,00,000/- was made by the assessee-trust on behalf of the licensors, being entities of the Group. It is further submitted that the ld. AO has not doubted the genuineness of the expenses, the only grievance raised by the ld. AO was about furnishing of documents which were also to the extent maximum possible are furnished before the FAA, which in turn were brought to the knowledge of the ld. AO. Ld. AO then had examined such documents and offered his comments in the remand report. The doubt of ld. AO regarding the genuineness of claim by the assessee was merely on the basis of suspicion, which has no place in the eyes of law, so rightly observed by the ld. CIT(A) and accordingly has directed to delete the addition. The ld. AR supported the order of ld. CIT(A) on the aforesaid issue and prayed to uphold the same.
We have considered the rival submissions, perused the material available on record and case laws relied upon by the assessee. Admittedly, certain documents were required by the ld. AO during the assessment proceedings, ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. however those could not be furnished by the assessee to the satisfaction of the ld. AO. Further such documents are furnished before the ld. CIT(A), as additional evidence, which in order to comply with the provisions of Rule 46A were remanded back to the ld. AO and who had examined such documents and accepted that these were furnished as required, however has made a closing remark that the assessee could not conclusively able to substantiate as to how the distribution of Mangoes, Plants and Roses amongst the employees of M/s Essar Group have helped in promotion of Brand “Essar”. We find that such comment of the ld. AO was not explaining any cogent reason to disallow the expenditure, whereas the ld. CIT(A) had elaborately discussed the reasons for allowability of such expenditure and necessity of such expenditure for promotion of the Brand. The ld. CIT(A) also made remarks, such as the ld. AO was failed to brought any material on record to show that such expenditure was incurred by the assessee only for fostering the business of its Associate concern M/s Essar Agrotech Ltd. or the same was for distribution/diversion of profits or was some improper oblique purpose outside the course of business or for some was wholly gratuitous. The ld. CIT(A) also noted that nothing could be brought on record to establish that the transaction was a colourable device. The genuineness of claim was on the basis of suspicion and such suspicion cannot lead to disallowance of expenditure. The details furnished by the assessee before the revenue authorities to prove that the expenditure was incurred for the purpose of business of the assessee and therefore the same was in 10 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. accordance with the principle of Commercial Expediency. We find substance in the submissions of ld. AR, the decision rendered by the ld. CIT(A) qua the aforesaid addition, thus, do not find any merits in the submissions of the revenue that the assessee has not even furnished primary evidence, so the request to examine the claim of expenditure afresh. We, thus, in terms of our aforesaid observations do not find any infirmity in the decision of ld. CIT(A) which needs to be interfered. We thus uphold the same.
In result, Ground No. 1 of the revenue stands rejected in terms of our aforesaid observations.
Ground No.2:- Regarding disallowance of legal fee by treating the same as Capital Expenditure instead of Revenue Expenditure
The ld. AO during the assessment proceedings has examined the Professional and Legal Fee expenditure incurred by the assessee out of which an amount of Rs. 89,18,266/- was disallowed by the ld. AO which includes Rs. 50,56,200/- paid to M/s Amarchand Mangaldas, treating the same as expenditure not related to the business of assessee. Further, certain amounts paid to the members of E-view team were disallowed by observing that the assessee could not prove the genuineness of expenditures and the same are not incurred for the business of assessee.
,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd.
The issue was raised before the ld. CIT(A) who had extensively dealt with the issue. Before the ld. CIT(A) the assessee has furnished afresh confirmation letter duly signed by M/s Amarchand Mangaldas, confirming that the invoices were issued regarding service rendered in connection with review of Brand related documents and advising on various Brand related matters from time to time. Such document was forwarded to the ld. AO for remand proceedings and report which after examination, the ld. AO has observed that such expenditure can be allowed to the assessee but the contention of assessee to treat such expenditure being revenue in nature is not acceptable, whereas such expenditure should be treated as capital expenditure and accordingly would have been accounted for. Regarding the amounts paid to E-view team as Profession Fees, the ld. AO observed in the remand report that the assessee has merely submitted the copies of confirmation letter issued by members of E- view Team, copy of appointment letters and snapshots of some video clips produce by E-view team for promotion of Essar Brand. On perusal of such confirmation letters and respective members of E-view team, confirming that they have rendered professional services for developing Video clips and assisted for promoting and creating the awareness about the Essar Group, the amount received by them was offered for taxation in their respective returns but the ld. AO again doubted that the assessee has not substantiated, as to how the payment of Professional Fee to the E-view team helped in promotion of Brand Essar. In rebuttal the assessee furnished a detailed submission, along 12 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. with additional supporting details, and contended that it is established beyond doubt that services provided by E-view team assisted in promotion of Brand, therefore the same is allowable under section 37 of the Act.
The issue in light of such evidence and explanations was discussed by ld. CIT(A) and decided in favour of the assessee.
Aggrieved with such decision of Ld. CIT(A), the revenue has raised the aforesaid issue in present appeal. The ld. DR representing the revenue has reiterated the facts from the order of ld. CIT(A) and the ld. AO and have strongly supported the findings of ld. AO, that such expenditure being capital in nature should be capitalized.
Per contra, the ld. AR vehemently supported the order of ld. CIT(A) and have read into the observations of ld. CIT(A) in support of the contention that the expenditure incurred on first registration of Trademark related expenses are revenue in nature as held by Hon’ble Supreme Court in the case of CIT vs. Finley Mills Ltd. [20 ITR 475 (SC)]. The findings of Hon’ble Apex Court in this mater are relied upon by the ld. CIT(A) and has deleted the addition by observing as under: “42. I have considered the findings of the AO in the remand report and the submissions thereon made by the appellant. As regards professional fees paid to Amarchand Mangaldas, the only issue for consideration is whether the expenditure is capital or revenue in nature. In the remand report, the AO has stated that the appellant has not put forward any cogent reason or legal 13 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. argument as to how the expenditure can be treated as revenue in nature. In its rejoinder filed before me, the appellant has submitted that the above observation of the AO is in complete disregard to the settled judicial proposition laid down by the Hon'ble Supreme court in the case of CIT vs. Finlay Mills Limited 20 ITR 475 (SC), wherein it has been held that expenditure incurred on first registration of Trade Mark is allowable as revenue expenditure. I have gone through the said decision. It would be useful to reproduce the relevant observations of the Hon'ble Apex Court here under:
"At the desire of the appellant, the Tribunal submitted the following question for the opinion of the High Court :-
"Whether, on the facts of the case, the expenditure incurred by the assessec company in registering for the first time its trade marks which were not in use prior to the 25th February, 1937, is revenue expenditure and an allowable deduction under section 10(2) (xv) of the Indian Income-tax Act ?"
The High Court, following its previous decision and finding that the fact of the trade marks having come into use after the 25th of February, 1937, made no difference in the result, answered the question in the affirmative. The Commissioner of Income-tax, Bombay, has come on appeal to us.
It was argued on behalf of the appellant that the question whether a certain disbursement was of a capital or revenue nature, has to be decided according to the principle laid down in British Insulated and Helsby Cables Ltd. v. Atherton. In that case the company which carried on the business of manufacturers of insulated cables established a pension fund for its clerical and technical salaried staff. The fund was constituted by a trust deed which provided that members should contribute a percentage of their salaries to the fund and that the company should contribute an amount equal to half the contributions of the members; and further that the company should contribute a sum of pound 31,784 to form the nucleus of the fund and to provide the amount necessary in order that past years of service of the then existing staff 14 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. should rank for pension. That sum was arrived at by an actuarial calculation on the basis that the sum would ultimately be exhausted when the object for which it was paid was attained. The House of Lords held that this payment was in the nature of capital expenditure and was therefore not an admissible deduction. Although in the opinions expressed by the different members of the House of Lords (1) [1917] 15 I.T.R. 105. (2) [1926] A.C. 205 the line of approach is not completely the same, the principle stated by Lord Cave in his speech has been test distinguish capital expenditure from revenue expenditure. It was recognised that a sum of money expended, not of necessity and with a view to a direct and immediato bonofit to the trado, but voluntarily and on the grounds of commercial expediency, and in order indirectly to facilitate the carrying on of business, may yet be expended wholly and exclusively for the purposes of the trade. The Lord Chancellor observed that the question appeared to be a question of fact which was proper to be decided by the Commissioners upon the evidence brought before them in each case. The test that capital expenditure is a thing that is going to be spent once and for all and income expenditure is a thing that is going to recur every year was considered an useful element in arriving at the decision but was not certainly the decisive fact. The Lord Chancellor observed as follows:--
"But when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of the trade, I think that there is very good reason for treating such an expenditure as properly attributable not to revenue but to capital."
In order to appreciate the true position here correctly it is next necessary to notice the relevant provisions of the Indian Trade Marks Act, 1940. It may be noted that before this Act there was no Trade Marks Act in India but it was recognised that an action lay for infringement of a trade mark independently of an action for passing off goods. The Act opens with the preamble "whereas it is expedient to provide for the registration and more effective protection of trade marks ...... ..... "Section 2(1) of the Act defines a trade mark as meaning 15 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. "a mark used or proposed to be used in relation to goods for the purpose of indicating or so as to indicate a connection in the course of trade between the goods and some person having the right to use the mark, whether with or without any indication of the identity of that person." Section 14 permits the proprietor of a trade mark to have the trade mark registered. The Attorney- General, on behalf of the appellant, relied on sections 20, 21, 28 and 29 in support of his contention. He argued that before the Trade Marks Act, although the proprietor of a trade mark could maintain an action for infringement of his trade mark and the cause of action in such a case was quite different from the cause of action in an action for passing off goods, by the Trade Marks Act the right of the owner of the trade mark is increased by section 21, and it is made assignable independently of the goodwill under sections 28 and 29 of the Trade Marks Act. The question thus resolves itself into whether by reason of these two incidents the case falls within the principle laid down by Lord Chancellor Cave, as mentioned above.
In our opinion, the contention urged on behalf of the appellant must fail. It is not contended that by the Trade Marks Act a new asset has come into existence. It was contended that an advantage of an enduring nature had come into existence. It was argued that just as machinery may attain a higher value by an implementation causing greater productive capacity, in the present case the trade mark which existed before the Trade Marks Act acquired an advantage of an enduring nature by reason of the Trade Marks Act and the fees paid for registration thereunder were in the nature of capital expenditure. In our opinion, this analogy is fallacious. The machinery which acquires a greater productive capacity by reason of its improvement by the inclusion of some new invention naturally becomes a new and altered asset by that process. So long as the machinery lasts, the improvement continues to the advantage of the owner of the machinery. The replacement of a dilapidated roof by a more substantial roof stands on the same footing. The result however of the Trade Marks Act is only two-fold. By registration, the owner is absolved from the obligation to prove his ownership of the trade mark. It is treated as prima facie proved on production of the registration certificate, It thus merely saves him the trouble of leading evidence, in the 16 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. event of a suit, in a court of law, to prove his title to the trade mark. It has been said that registration is in the nature of collateral security furnishing the trader with a cheaper and more direct remedy against infringers, Cancel the registration and he has still his right enforceable at common law to restrain the piracy of his trade mark. In our opinion, this is neither such an asset nor an advantage as to make payment for its registration a capital expenditure. In this connection it may be useful to notice that expenditure incurred by a company in defending title to property is not considered expense of a capital nature. In Southern (H. M. Inspector of Taxes) v. Borax Consolidated Limited. It is there stated that where a sum of money is laid out for the acquisition or the improvement of a fixed capital asset it is attributable to capital, but if no alteration is made in the fixed capital asset by the payment, then it is properly attributable to revenue, being in substance a matter of maintenance, the maintenance of the capital structure or the capital asset of the company. In our opinion, the advantage derived by the owner of the trade mark by registration falls within this class of expenditure. The fact that a trade mark after registration could be separately assigned, and not as a part of the goodwill of the business only, does not also make the expenditure for registration a capital expenditure. That is only an additional and incidental facility given to the owner of the trade mark. It adds nothing to the trade mark itself. ------------
In our opinion, the decision of the High Court reported in Commissioner of Income-tax, Bombay v. The Century Spinning and Weaving and Manufacturing Co. Ltd. is correct and in the present case also the contention of the appellant must fail. The appeal therefore fails and is dismissed with costs." [Emphasis supplied]
From the above, it can be seen that the Hon'ble Supreme Court has held that expenses incurred in connection with registration of trade marks cannot be treated as capital in nature. From the remand report, it is seen that during remand proceedings, the appellant had explained before the AO that the payment to Amarchand Mangaldas represented legal/professional fees for 17 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. review of documents and advising on legal matters in connection with registration of Essar Brand and copyrights and the AO has not disputed the same. In view of the same and the above decision of the Hon'ble Supreme Court, I see no justification for disallowing this expenditure. Accordingly. the AO is directed to allow deduction of Rs.50,56,200/-, being professional fees paid to the above party, to the appellant.
With respect to the payment of professional fees to E-view Team, the AO has stated that the appellant has failed to explain as to how the payment of professional fees to the E-view team had helped in promotion of the Essar brand. However, as admitted by the AO herself in the remand report, in the confirmations filed by the members of E-view Team, it has been confirmed that they had rendered professional services for developing small video clips which assisted in promoting and creating awareness about the brand Essar. Further, the appellant has also explained that these video clips are run on social media, Essar website and at the corporate offices of Essar etc. Thus, in my view, the appellant has been able to show that the expenditure in question had been incurred for brand promotion. From the discussion in the remand report, it is also evident that the AO is not disputing the fact that the appellant has submitted documentary evidence with respect to payment of professional fees to the E-view Team. Under the circumstances, I find no justification in disallowing the claim of deduction of this expenditure. Accordingly, the AO is directed to allow deduction of expenses claimed by the appellant, on account of payment of professional fees made to the members of E-View Team.
Regarding payment of professional fees to IKYA (manpower consulting agency), the AO has observed that apart from Form 16A, no other documents have been furnished and, thus, the appellant has failed to explain the nature of services provided by these parties and the relevance of such services to its business. However, before me, the appellant has submitted that it had explained before the AO with supporting details that IKEYA was a manpower supply company, which had provided support staff on contract basis to the appellant, who were assisting the staff of the appellant. Further, from the copy of Form 16A filed, it is evident that tax had been deducted at source and the same had 18 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. also been deposited into Government account. The payments to the parties had also been made through banking channels. Before me, the appellant has also submitted that the notice issued by the AO u/s. 133(6) of the Act during assessment proceedings could not be served on these parties due to the fact that these entities had been amalgamated. Having regard to these facts, I see no justification in disallowing the claim of deduction of Rs.2,03,219/-, being payment made to IKYA for supply of manpower/contract staff. Accordingly, the AO is directed to allow the said expenditure.
Thus, after carefully considering the findings of the AO in the remand report and the submissions made by the appellant in the rejoinder and also the details and documentary evidences filed by the appellant before me, I see no justification for making any disallowance out of the Legal & Professional fees claimed by the appellant. The AO is, therefore, directed to delete the entire disallowance of Rs.89,18,265/-. Grounds No. 4 & 5 are, accordingly. ALLOWED.”
The ld. AR also cited before us a list of judgments by Hon’ble Apex Court and Hon’ble High Courts, in support to the aforementioned view adopted by the Ld. CIT(A), which were followed by the coordinate benches of the ITAT in various decisions, the same are extracted as under:
“1) CIT v. Century Spinning Weaving & Manufacturing Co. Ltd [15 ITR 105 (Bom) (HC)]
2) CIT v. Finlay Mills Ltd. [20 ITR 475 (SC)]
3) Dalmia Jain and Co. Ltd. v. CIT [81 ITR 754 (SC)]
4) Bioplus Life Sciences (P.) Ltd. v. DCIT [2022] 138 taxmann.com 297 (Bang) (Trib.)]
5) ITC v. ACIT [2024] 162 taxmann.com 734 (Col) (Trib.)]
6) ACIT v. Cadilla Healthcare Ltd [67 SOT 110 (Ahd.) (Trib.)] ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd.
7) CIT v. Cadilla Healthcare Ltd (263 CTR 686) (Guj.) (HC) 8) PCIT v. Zydus Wellness Ltd [2017] 81 taxmann.com 159 (Guj.) (HC.)]”
In backing of the aforesaid submissions, it was the prayer by ld. AR that the expenditure by way of payment of Professional Fee to M/s Amarchand Mangaldas would squarely covered by the decision of Hon’ble Apex Court and other cases referred to supra, therefore such expenses paid for registration and related expenses for Trademark/Patent, which are akin to the expenditure incurred by way of Professional Fees paid to M/s Amarchand Mangaldas, in the course of review of brand related documents and various brand related matters, therefore are revenue in nature and cannot be treated as capital expenditure.
Having considered the rival submissions, perused the material on record and case laws relied upon by the parties. In the present matter the allegation by the ld. AO that the amount of Rs. 50,56,200/- paid to M/s Amarchand Mangaldas are not related to business of the assessee was clarified by the assessee before the ld. CIT(A) by furnishing the confirmation from the aforesaid legal firm that such expenditure relates to review of brand related documents and advising in the same matter. Therefore the first allegation of the ld. AO that such expenditure are not for the business of assessee has been invalidated, further the contention raised by ld. AO in remand report that such expenditure should be treated as capital expenditure was not supported with 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. any explanation or decision, whereas the assessee has come forward with certain decisions from the Hon’ble Courts referred (supra), which were thoughtfully followed by the ld. CIT(A). Regarding payment to E-view team since the assessee has furnished requisite documents in the form of confirmation, appointment letters and the video clips showing the activities, which were performed by the Professionals in rendering of their assigned duties / services, therefore acceptance of such expenses being for the purpose of business of the assessee by the ld. CIT(A) cannot be faulted with and likewise for IKYA (manpower consulting agency), we thus subscribe to the view expressed by the ld. CIT(A) and accordingly upheld the same.
In result, Ground No.2 of the revenue being devoid of substance and bereft of merits cannot sustain the same, therefore stands disallowed.
Ground No.3: Regarding the system of accounting adopted by the assessee
On this issue the ld. AR placed before us the decision of ITAT, Mumbai in assessee’s own case for AY 2013-14 in vide order dated 25.11.2021, which is followed by the ld. CIT(A) while deciding the issue on accounting treatment of Royalties and has observed as under:
“70. The AO observed that the appellant is following cash system as the method of accounting. However, the same had been rejected by the Department and assessments had been completed based on mercantile system of accounting in the case of the appellant-Trust for the earlier year (A.Y. 2013-14). The AO, ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. accordingly. issued a show cause notice to the appellant in this regard. The AO noticed that in response to the show cause notice, the appellant had made the same arguments as made in A.Y. 2013-14. Accordingly, for the same reasoning given in the assessment order for A.Y. 2013-14, he rejected cash method of accounting followed by the appellant for this year also. In this regard, the AO also observed that as per Accounting Standard-9 of ICAI, royalty is required to be accounted for on accrual basis. However, since the income offered to tax by the appellant on receipt basis was more than the income computed on accrual basis, while computing the total income of the appellant, the AO adopted the income offered by the appellant on receipt basis.
The appellant has submitted that the addition made by the AO due to rejection of cash method of accounting for A.Y. 2013-14 had been deleted by the learned CIT(A), vide order dated 31/03/2017. Further, on further appeal by the Department, the Hon'ble ITAT, vide order dated 25/11/2021, had upheld the decision of the learned CIT(A), observing as under: 71.
"37. Considered the rival submissions and the material placed on record. We notice that the brand licensees i.e., the group entities had credited the license fees of Rs. 29,59,17,233/- in the account of the assessee trust in their respective books of accounts income, on which they had deducted and remitted TDS aggregating to Rs. 2,95,91,725/-. It is also a fact borne from the record, that the assessee who during the year under consideration i.e., the first year of its operations, and consistently thereafter in the subsequent years, was following the cash system of accounting for recognizing its revenue, had during the year under consideration not received any amount out of the aforesaid license fees from any of the group companies. However, in order to claim the TDS credit for the year, the assessee had offered for tax the aforesaid TDS amount as its income for this year, even though it had not received/collected any part of the aforesaid amount As noticed by us hereinabove, it is the first year of the assessee's operation, and it was following cash method of accounting i.e., one of the method prescribed u/s 145 of the Act. It is also a matter of fact borne from the record, that that the revenue is not disputing the fact that 22 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. assessee had not collected any funds during this year from any of the group companies. Also, it is discernible from the record that the assessee had declared its license income based on the amounts that was received by it from its group companies in the subsequent years i.e., as per the cash system of accounting that was consistently followed by it. The table submitted by the Ld. D.R above clearly shows that the assessee had declared the income based on the cash method of accounting and the incomes had been offered to tax properly. Ld. D.R stated that there is difference of amount declared by the group companies as per the Form 26AS, as against the income that was declared by the assessee in the subsequent years. We find that the aforesaid discrepancy is due to the variance in the method of accounting that was adopted by the group companies and the assessee trust. Be that as it may, the aforesaid difference is only due to timing difference and there is no lax avoidance in this case, as there will be difference every year due to settlement of payment between the parties.
37.1 We notice, that the A.O had observed that as per Accounting Standard 9 (AS 9) it is mandatory to follow the mercantile method of accounting for accounting of royalty transaction. As it is rightly brought on record by the Ld. A.R, the above said accounting standard, viz. AS 9 is not applicable to the assessees, a Trust.
37.2 Considering the facts on record and submissions of both parties, we are inclined to accept the finding of Ld. CIT(A) on the aforesaid issue in hand, and based on our above observations as regards the method of accounting adopted by the assessee and non-applicability of the accounting standard 9 to its case, no infirmity emerges from the adoption of cash system of accounting by the assessee trust, which as observed by us hereinabove remained at a liberty to select the method of accounting specified under section 145 of the Act and, follow the same consistently. There may be certain difference in the method of accounting adopted by the service receiver and service provider, but then, the same cannot be a reason to conclude that there has been tax avoidance on the part of the 23 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. assessee trust. In this case, the assessee had not received any funds. though, brand license foes had been credited by the brand licensees i.e.. the group entities in the account of the assessee as appearing in their respective books of accounts. Technically, the assessee during the year under consideration should not have declared any income, however, since the group companies that were following mercantile system of accounting had claimed the license tees as an expense in their respective books of accounts i.e. on accrual basis, and consequently deducted tax at source on the same as per the mandate of law, therefore, the assessee in order to match the tax liability was forced to declare the income to the extent of TDS amount that was deducted and deposited by the group companies i.e. as reflected in the Form 26AS. We do not see any mistake or any infirmity in the method of accounting adopted by the assessee, which, thus, by no means can be considered as tax avoidance on its part. The difference highlighted by the Ld. D.R is due to timing difference. Hence, the argument put forth by the department representative has no force. Accordingly, the Ground of appeal No. 6 is dismissed."
72. I find from the discussion in the impugned assessment order that the AO has rejected the cash method of accounting followed by the appellant on the basis of the same reasoning as in A.Y. 2013-14. Further, the AO has also observed that as per Accounting Standard-9 of ICAI, royalty income is required to be accounted for on accrual basis. However, as can be seen from the order of the Hon'ble ITAT in the case of the appellant for A.Y. 2013-14, relevant portion of which is reproduced above, the Tribunal has held that AS-9 is not applicable to the appellant, being a Trust. Thus, the issue is decided in favour of the appellant by the learned CIT(A) and the Hon'ble ITAT, in earlier year. Further, as discussed hereinabove, in the remand report, the AO has accepted the appellant's claim of deduction of expenditure on account of payment of legal fees to M/s. Amarchand Mangaldas on payment basis, in view of the above decision of Hon'ble ITAT. The AO has, thus, accepted the method of accounting of the appellant as 'cash method', in the remand report.
,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd.
Further, as noted above, though the AO has claimed to have rejected cash method of accounting, while computing the total income, he has adopted the income offered by the appellant on receipt basis, on the ground that the same is more than the income computed on accrual basis. Thus, effectively, the AO has assessed the income of the appellant for the year under consideration on cash basis only. I find that in the subsequent assessment years, appeals for which have also been filed by the appellant, the AO has not only rejected the cash system of accounting followed by the appellant, he has also computed/assessed the total income on accrual basis. Thus, the AO has in fact assessed the incomo of the appellant for different years on the basis of different methods of accounting, which is beneficial to the Department. This would lead to certain income which is already assessed in a year being assessed again in another year. As the assessee is required to follow a method of accounting consistently under the law, even where the AO rejects the method of accounting followed by the assessee, he is also required to assess the income of the assessee for different years on the basis of a single method of accounting. consistently.
In view of the above, respectfully following the aforesaid order of Hon'ble ITAT in appellant's own case for A.Y.2013-14, I hold that the AO was not justified in rejecting cash method of accounting followed by the appellant. Accordingly, Ground No. 9 is ALLOWED.”
In terms of aforesaid observations of ld. CIT(A), it was the submission by ld. AR that the issue is squarely covered from assessee’s own case, also the assessee is consistently following the same practice of accounting, which is approved by the ITAT, Mumbai benches for AY 2013-14, therefore the ld. CIT(A) had rightly decided the issue in favour of the assessee, raising of such issue by the revenue has no substantial baking to disprove such findings.
,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd. 27. On the other hand, ld. DRs of the revenue on this issue has vehemently supported the order of ld. AO.
We have considered the rival submissions, perused the material available on record and case laws relied upon by the assessee. Admittedly the issue is squarely covered by the decision of ITAT, Mumbai in assessee’s own case for AY 2013-14, further, the revenue has not brought on record anything contrary in terms of the facts, circumstances or any decision to dislodge the aforesaid findings of ld. CIT(A) offered in accordance with the observations of ITAT. We, thus, de hors any infirmity in the order of ld. CIT(A), have no hesitation to concur with the same.
In view of such findings and observations, Ground no.3 of the revenue’s appeal, having no sound reasoning to sustain is liable to be rejected, stands dismissed.
Ground No. 4 & 5 are general and academic in nature under which no further arguments were raised by the revenue, the same therefore are rendered as academic and dismissed.
,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd.
Being the ground of appeal and issues raised therein, having interconnected facts and circumstances, also the findings of the ld. AO and the decision of ld. CIT(A) are identical in all the appeals for AYs 2014-15, 2015- 16, 2016-17, 2018-19 and 2019-20 brings all the appeals here in at equivalence, therefore, our decision rendered in AY 2014-15 shall apply mutatis mutandis to all the remaining appeals for AY 2015-16, 2016-17, 2018-19 and 2019-20 also, accordingly all these appeals of revenue are to be treated, as dismissed.
33. The C.O. of assessee for AY 2016-17 challenging the validity of assessment on jurisdictional issues u/s 147 and legality of the sanction u/s 151 of the Act, would rendered as infructuous, as the substantive addition / disallowances made are deleted by the ld. CIT(A), which we have approved. Consequently, the C.O. No. 110/Mum/2025 of assessee for AY 2016-17, stands dismissed.
In combined result, all the captioned appeals of revenue and C.O. of assessee are dismissed, in terms of our aforesaid observations.
Order pronounced in the open court on 28-01-2026.
Sd/- Sd/- (PAWAN SINGH) (ARUN KHODPIA) Judicial Member Accountant Member Mumbai, Dated : 28-01-2026. *SK, Sr. PS 27 ,2118, 2170, 2171, 2172 & CO 110/ Mum/2025 Abhinand Ventures Pvt. Ltd.
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT
BY ORDER,
(Dy./Asstt. Registrar) ITAT, Mumbai