CAPITAL COMMERCE PRIVATE LIMITED,MUMBAI vs. INCOME TAX OFFICER 6(2)(1), MUMBAI

When the appeal was called for hearing, no one was present for the assessee. Further, it is revealed from the record, the notice of hearing issued to the assessee for registered post at the address mentioned in col. 10 of Form no.36 as returned unserved with the remark of the postal authority “left without address”. In view of the 2 Capital Commerce Pvt. Ltd.

The only issue contested by the assessee relates to addition of ` 19,74,194 paid as license fee to M/s. Roofit Industries Ltd.

Brief facts are, the assessee a company is engaged in the business of manufacturing cement pipes. For the assessment year under dispute, the assessee filed its return of income on 28th November 2006, declaring loss of ` 18,47,002. Assessment in case of the assessee was completed under section 143(3) of the Act on 19th December 2008, accepting the loss. Subsequently, the Assessing Officer noticing that the license fee of 19,74,194 paid by the assessee pertained to assessment year 2007–08 whereas it was allowed in the impugned assessment year re–opened the assessment under section 147 of the Act by issuing a notice under section 148 of the Act. In course of the assessment proceedings, when the assessee was called upon to justify its claim of deduction in respect of payment of license fee of ` 19,74,194, the assessee submitted that the terms of the agreement was subsequently amended by letter dated 4th January 2006, and as per which the license fee was required to be paid within 21 days of the end of the month and it shall start accruing two months

The learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and material on record observed that as per clause 10 of the agreement between the assessee and M/s. Roofit Industries Ltd. license fee shall start accruing two months after resumption of manufacturing operations of A/C pressure pipe unit. He observed that the assessee resumed manufacturing operation of the A/C pipe unit on 3rd March 2006, as stated in the notes to account. Therefore, as per clause 10 of the agreement, payment of license fee would accrue only from 3rd May 2006, which relates to previous year 2006–07 relevant to assessment year 2007–08. As regards assessee’s claim that clause 10 of the agreement was amended vide letter dated 4th January 2006, the learned Commissioner (Appeals) observed that the said letter submitted by the assessee cannot be regarded as credible evidence. Accordingly, he sustained the addition of ` 19,74,194.

The learned Departmental Representative relying upon the observations of the Departmental Authorities submitted that as per the terms of agreement, payment of license fee accrued in assessment year 2007–08, therefore, the expenditure claimed by the assessee in the impugned assessment year was rightly disallowed.

I have considered the submissions of the learned Departmental Representative and perused the material on record. Undisputedly, as per clause 10 of the agreement dated 7th December 2012, between the assessee and M/s. Roofit Industries Ltd., payment of license fee will accrue two months after resumption of manufacturing operation of A/C pressure pipe unit. It is a fact on record that as per the notes to accounts of the assessee manufacturing operation of the A/C pressure pipe unit commenced on 3rd March 2006, therefore, as per clause 10 of the agreement, payment of license would accrue two months after the commencement of manufacturing activity i.e., from 7th May 2006. That being the case, such payment did not accrue in the impugned assessment year. As regards assessee’s claim that clause 10 of the agreement was subsequently amended it is a categorical finding of the learned Commissioner (Appeals) that except letter dated 4th January 2006, assessee has not furnished any other evidence to demonstrate that the terms of the written agreement was actually amended. The 5 Capital Commerce Pvt. Ltd.

In the result, assessee’s appeal is dismissed. Order pronounced in the open Court on 12.09.2018