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Income Tax Appellate Tribunal, DELHI BENCH ‘C’, NEW DELHI
Before: SHRI S. V. MEHROTRA & SMT. BEENA A. PILLAI
Date of hearing: 21.06.2016 Date of Pronouncement: 21.07.2016 ORDER
PER BEENA A. PILLAI, JM:
The present appeal has been filed by the Revenue against the order dated 27.12.2013 passed by CIT(A) XV, New Delhi for the Assessment Year 2009-10 on the following ground of appeal:
1. Whether Ld. CIT(A) was correct on facts New Delhi circumstances of the case and in law in deleting the addition ofRs.77,00,367/- made by Assessing Officer on account of disallowance of Royalty payment?”
The brief facts of the case are as under: 2.1 The assessee company is engaged in the business of manufacturing of all kinds of adhesives, sealants, coatings and related products primarily for automotive industry.
2 I.T.A.No.2089./Del/2014 2.2 The assessee company filed its return declaring an income of Rs.9,17,79,860/- on 30.09.3009. The case of the assessee was selected for scrutiny and the notices u/s 143(2) and 142(1) of the Act were served upon the assessee. In response, Ld. A.R. appeared from time to time and filed the requisite details. 2.3 The assessee company had claimed royalty expenditure of Rs.1,02,67,156/-, which was taken for consideration as to whether it is capital in nature. The Assessing Officer treated it as a capital expenditure by relying on various judicial precedents, in particular on the judgement delivered in the case of Southern Switch Gear Ltd. Vs CIT reported in 232 ITR 359 and Fenner Woodrotte & Co. Vs CIT reported in 102 ITR 6656. 2.4 Aggrieved by the assessment order, assessee preferred appeal before Ld. CIT(A), who allowed the claim of assessee by holding as under: “I have gone through the above submissions of the AD, facts of the case and evidence on the records and have also perused the assessment order. It is seen that the facts of the appellant's case in the year under consideration are same as in the Assessment Year 2004-05. In Assessment Year 2004-05, the ITAT has given the decision in favour of the appellant. This order was brought in the knowledge of AO vide letter dated 14.11.2011 by the appellant. Since, the matter involved a 'question of fact', in respect of which ITAT was the final authority, the AO was bound to have followed the same for judicial discipline. I also find that my Ld. Predecessor for AY 2008-09 and the Ld. CIT(A)-27, for AY 2006-07 and AY 2007-08, on same facts have allowed the appeal in favour of appellant
3 I.T.A.No.2089./Del/2014 by holding the Royalty Raid as revenue in nature. Since there are no change in facts and circumstances of the appellant's case in the current year, therefore respectfully following the decision of the ITAT, I hold that the royalty payment in the year under consideration is to be treated as revenue expenditure. Accordingly, the addition made by the AO is deleted. During the course of appellate proceedings assessee has again filed the following photocopies of various certificates amounting to Rs.10,00,000/-, which apparently shows that the appellant has paid donation to SNS Foundation through banking channels:
S.No. Receipt No./Date Amount (in Rs.) 1. 17/14.07.2008 2,50,000 2. 15/10.07.2008 2,50,000 3. 38/21.01.2009 2,50,000 4. 53/05.02.2009 2,50,000
The appellant has furnished a copy of the Notification No.248(E) dated 21.01.2009 issued from F.No.270/305/2003 issued by competent authority for approving the project of SNS Foundation as 'eligible project'. Keeping in view the above, the claim u/s 35AC is being allowed to the extent of Rs.l0,00,000/- and the disallowance in respect of the balance amount of Rs.5,823/- is upheld.”
2.5 Aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us now. 3. It has been pointed out by the Ld. A.R. that the issue involved in the present appeal is settled in favour of the assessee by the order of ITAT passed in I.T.A.No. 4844/Del/2009 and I.T.A.No.118/Del/2012 dated 28th Sep., 2010 and 21st March, 2012 in assessee’s own cases for Assessment Years 2004-05 and 2008-09 respectively.
4 I.T.A.No.2089./Del/2014 He has also placed a copy of the said order of the Tribunal at pages 26-31 of the Paper Book.
The Ld. D.R. supported the order of the Assessing Officer.
We have perused the material placed before us, orders of authorities below and the contentions of both the sides. Ld. CIT(A) has observed that the issue for consideration emerges from license agreement dated 11.02.1997 read with supplemental dated 01.09.2006 entered into between the assessee and M/s. Henkal K GaA, a company organized and existing in Dusseldorf, Germany. Ld. A.R. submitted that the assessee has been incurring royalty expenditure every year, by virtue of this agreement referred hereinabove, which is placed at pages 1-25 of the Paper Book. On perusal of the order passed by this Tribunal for Assessment Year 2004-05 (supra), we observe that the co-ordinate bench of this Tribunal has analyzed the agreement and the nature of the amount paid by the assessee pursuant to the agreement. It has also been observed therein that the royalty payment is a running expenditure incurred by the assessee every year. 5.1 As the Ld. D.R. / Ld. A.O. has not been able to bring out contrary facts, we are in agreement with the submissions of the learned counsel for relating to disallowance of royalty amount is covered in favour of the assessee by the order of the Coordinate Bench of the Tribunal dated 28.09. 2010 (supra) rendered in assessee's
5 I.T.A.No.2089./Del/2014 own case. In the said order of the Tribunal, Delhi 'C' Bench has followed the decision of Hon'ble Jurisdictional High Court dated 3.09. 2009 in of 2009 in the case of CIT Vs. Sarda Motor Industrial Ltd. We reproduce the relevant extract of the aforesaid Tribunal order as follows:- "1.2 From the above, it is very clear that assessee has not obtained any benefit of enduring nature. The royalty is payable on the basis of volume of sales year to year. In the event of termination of agreement has to discontinue uses of material provided return everything in this respect. Hence it cannot be said that any benefit of enduring nature accrued to the assessee. Furthering examining the present case on the touchstone of jurisdictional High Court cited above, we find that the same is squarely applicable to the facts of the case. The Id. Departmental Representative did not fully dispute this finding, he only contended that the agreement also provided training to the assessee's employees, which cannot be returned in any case. We do not find any cogency in this aspect of this agreement as training expense of employee cannot be treated as capital expenditure. The case law relied upon by the revenue are not applicable to the facts of the present case. Hence, respectfully following the precedent from the decision of the Hon'ble jurisdictional High Court cited above, we set aside the order of the authorities below on this issue and decide the issue in favour of the assessee. "
5.2 It is also noted that Coordinate Bench of this Tribunal in I.T.A.No. 118/Del/2012 in assessee’s own case for Assessment Year 2008-09 has followed the order dated 28.09.2010.
6 I.T.A.No.2089./Del/2014
In view of the above position, respectfully following the decisions of this Tribunal in assessee’s own case for Assessment Years 2004-05 and 2008-09, we uphold the order of learned CIT(A) and dismiss this appeal filed by the Revenue.
In the result the appeal of the Revenue is dismissed. Order pronounced in the open court on 21st July, 2016.