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Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI SUDHANSHU SRIVASTAVA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-4, New Delhi dated 28.01.2015 pertaining to assessment year 2010-11.
The grievance of the Revenue is two-fold. Firstly, the Revenue is aggrieved by the deletion of addition of Rs. 18,41,180/- made on account of capitalization of royalty payments and secondly, the Revenue is further aggrieved by the direction to exclude telephone expenses and further travelling expenses of Rs. 50,41,860/- from the export turnover for the calculation of deduction u/s 10B of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'].
At the very outset, the ld. AR pointed out that in so far as the grievance raised vide Ground No. 1 is concerned, the issue is well settled in favour of the assessee and against the Revenue by the order of the Tribunal in assessee’s own case in 638/DEL/2013 and 4373/DEL/2013 in respect of A.Ys 2005-06, 2006-07 and 2007-08. It is the say of the ld. AR that similar issue was considered in A.Y 2008- 09 also in ITA No. 4776/DEL/2013.
The ld. DR fairly conceded to this.
We find force in the contention of the ld. AR. An identical issue was considered and decided by the Tribunal in assessee’s own case in earlier A.Ys [supra]. We find that the order passed by the Tribunal in 3 A.Y 2008-09 was affirmed by the Hon'ble Jurisdictional High Court of Delhi vide order dated 04.09.2015. The relevant findings of the Hon'ble High Court read as under:
‘‘6. In the impugned order, the ITAT has observed, on perusal of the very same agreement, that the royalty is essentially being paid for use of the trademark 'Macnaught' on the products of the Assessee and for using the drawings etc. The expenditure was incurred wholly and exclusively for the purposes of the business of the Assessee. From the payments made to MPL, the Assessee had deducted tax at source and deposited it with the Government. The genuineness of the payment was also not in doubt. In the circumstances, the IT AT was of the view that the CIT(A) was not justified in enhancing the addition made by the AO by capitalising the royalty. The appeals of the Assessee were, accordingly, allowed.
It is urged before us by Mr. Raghvendra Singh, the learned Junior Standing counsel for the Revenue, that the royalty agreement between the Assessee and MPL was vague. There was nothing to indicate that the use of 4 the trademark was permitted only for a limited period after which it would revert to MPL. It was also not clear whether there was anything to indicate that the benefit thereunder could not continue indefinitely. He urged that document was drawn up in a very casual manner without completely spelling out the rights and obligations of the parties. According to him, the royalty agreement was a sham document without any legal sanctity.
8. There was sufficient opportunity for the AO, if he doubted the genuineness of the payment of royalty by the Assessee to MPL, to have conducted a detailed inquiry. The Assessee on its part furnished the agreement between itself and MPL under which it was inter alia permitted to use the trademark 'Macnaught' on its products. The royalty was payable per unit of the product and, therefore, was clearly linked to sales. There was also no doubt that such payment was in fact made by the Assessee to MPL. It is also not in doubt that MPL was not related to the Assessee in any manner. In the circumstances, there should have been some reasonable basis for the CIT(A) to simply conclude that this was a sham transaction and proceed to enhance the disallowance. The interpretation of the agreement by the IT AT appears to be plausible. The Court is not persuaded to hold that the I TAT is perverse.
No substantial question of law arises. The appeals are dismissed.”
Respectfully following the decision of the Hon'ble Jurisdictional High Court of Delhi Ground No. 1 is dismissed
7. In so far as the grievance raised vide Ground No. 2 is concerned, in our considered opinion, only those items of expenditure which are includible in the consideration in respect of export can be excluded from the export turnover in terms of second limb of the definition. We find that the AO has made a passing reference that in the bills raised by the assessee to its clients, telephone charges were also included and are part of the consideration in respect of export and therefore, according to the AO, the same has to be excluded from the export turnover. However, we find that there is no such evidence brought on record by the AO. Therefore, we do not find any reason to interfere with the finding of the CIT(A). The same is good for travelling expenses incurred in foreign exchange. Ground No. 2 is accordingly dismissed.
In the result, the appeal of the Revenue in is dismissed. The order is pronounced in the open court on 11.06.2018.