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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SMT DIVA SINGH & SH.L.P.SAHU
PER SMT. DIVA SINGH, JUDICIAL MEMBER
1. The present appeal has been filed by the Revenue assailing the correctness of the order dated 03.05.2010 of CIT(A)-XIII, New Delhi pertaining to 2004-05 assessment year on the following grounds:-
1. “The order of Ld.CIT(A) is wrong, perverse, illegal and against the provision of law, liable to be set aside.
I.T.A .No.-3492/Del/2010 & C.O.No.-240/Del/2010
2. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance of Rs.47,96,168/- out of the total Royalty paid of Rs.1,91,84,672/- by treating the same as revenue expenditure.
3. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.”
2. It was a common stand of the parties before the Bench that the issue needs to be restored to the file of the AO for want of necessary discussion in the orders of the authorities below. Elaborating on the above, ld. AR submitted that the Hon’ble High Court was pleased to set aside the order dated 14.07.2011 of the ITAT in the original round before the ITAT wherein the ITAT had upheld the relief granted by the CIT(A) and dismissed the departmental appeal. The Cross Objection of the assessee was dismissed as not pressed. The Revenue carried this issue in appeal before the Hon’ble High Court u/s 260A of the Income Tax Act, 1961. Referring to the judgment dated 13.02.2013, it was submitted that considering the departmental arguments that CIT(A) had arrived at the conclusion that the Agreement since it was only for one year the payment was not for the purposes of acquiring goodwill for life which factual position was disputed by the Revenue.
Considering this argument the Hon’ble High Court found that since the Agreement itself had not been discussed by the ITAT the matter was restored back. On query it was stated that same Agreement has continued. It was a common stand in the circumstances that since the necessary discussion is missing in the orders of the AO and the CIT(A) hence the issue may be restored back.
We have heard the rival submissions and perused the material available on record.
It is seen that on a challenge posed by the Revenue to the order of the ITAT confirming the I.T.A .No.-3492/Del/2010 & C.O.No.-240/Del/2010 relief granted by the CIT(A) the Hon’ble High Court remitted the issue back to the ITAT holding as under:-
3. “However, on going through the decision of the Commissioner of Income-tax (Appeals) as also the Tribunal we find that neither of these authorities have discussed the terms of the agreement between the assessee and Essel Shyam Communication Limited. The learned counsel for the appellant has pointed out that the CIT (Appeals) had deduced the following points:-
1. 1. The royalty was paid to acquire the right to use brand name, title And goodwill to carry its business efficiently and more profitably only for this assessment year.
2. The royalty was paid for right to use goodwill for one year and not to acquire goodwill for life time.
3. There is no basis given by the AO to disallow 25% of such royalty payment.
4. AO has not explained as to how the appellant will be benefited for lifetime.?
The learned counsel for the revenue submitted that the Commissioner of Income-tax (Appeals) had arrived at the decision on the basis of an understanding that the royalty payment was only for the assessment year in question and that it was not for the purposes of acquiring good will for the life time. He submitted that on going through the agreement it would be clear that this was not the factual position. The learned counsel for the respondent controverted the submission by stating that the agreement was only for one year and that the points noted by the Commissioner of Income-tax (Appeals) and affirmed by the Tribunal were in accordance with the terms of the agreement dated 31.01.2004 between the respondent/assessee and Essel Shyam Communication Limited.
5. While we refrain from going into the merits of this controversy, the impugned order deserves to be set aside for the simple reason that the Tribunal has not discussed the agreement at all and has not examined the terms and conditions of the agreement. That was the very first requirement which the Tribunal ought to have examined in order to arrive at the conclusion as to whether the payment towards royalty was of a capital nature or of a revenue nature.
Consequently, we feel that it would be appropriate for us to set aside the impugned order and remit the matter to the Tribunal for a consideration afresh of the revenue’s appeal being . It is ordered accordingly. The Tribunal does not require to go into the cross objections of the assessee because that had already been dismissed as not pressed.”
I.T.A .No.-3492/Del/2010 & C.O.No.-240/Del/2010
4. Examining the prayer of the parties, it is seen that on facts it is justified as the relevant discussion in the assessment order is devoid of discussion on the Agreement as would be borne out from the following discussion:-
3. “The contention of the assessee is considered but not acceptable because from the records it revealed that the assessee had debited Rs.1,91,84,672/- in the P&L A/c as royalty paid to M/s Essel Shyam Communication Ltd. in lieu of license for the use of brand name and goodwill for supply of equipment, installation, maintenance to provide satellite based telecommunication solutions and other services. Thus, the expenditure of Rs.47,96,168/- out of the total royalty paid of Rs.1,91,84,672/- was of capital nature and was not allowable as revenue expenditure. In view of the above discussion Rs.47,96,168/- is disallowed and added to the income of the assessee.
4. Keeping in view the details filed and after discussion with assessee’s representative, total income is computed as under:- Total income as per order u/s 143(3) dt. 29.11.06 Rs.1,02,02,160/- Add: Disallowance as discussed above Rs.47,96,168/- Rs.1,49,98,328/- Assessed u/s 143(3) read with section 147 of the IT Act at total income of Rs.1,49,98,328/- Issue Demand Notice accordingly. Penalty proceeding u/s 271(1)(c) of the Act is initiated for furnishing inaccurate particulars of income as discussed above.”
5. Before the Commissioner, it is seen various arguments on various legal principles invoked were advanced however arguments relying upon the covenants of the Agreement are found to be missing. The conclusion of the CIT(A) consequently is based on no discussion on facts and this was affirmed by the Co-ordinate Bench which approach has not been approved by the Hon’ble High Court. The conclusion of the CIT(A) which was upheld by the Co-ordinate Bench it is seen also does not discuss the Agreement. The same is reproduced hereunder for ready-reference:-
“After going though the appellant’s submission on merit and assessment order following points are noticed:- Page 4 of 6
I.T.A .No.-3492/Del/2010 & C.O.No.-240/Del/2010
The royalty was paid to acquire the right to use brand name, title and goodwill to carry its business efficiently and more profitably only for this assessment year.
The royalty was paid for right to use goodwill for one year and not to acquire goodwill for life time. 3. There is no basis given by the AO to disallow 25% of such royalty payment. 4. AO has not explained as to how the appellant will be benefitted for life time. Therefore, in view of above facts and the decisions of CIT vs Kanpur Cigarettes P. Ltd. (2005) 287 ITR 485 and Shriram Refrigeration vs CIT (1981) 127 ITR 746, I am convinced that such payment of royalty is revenue expenditure fully allowable. Therefore this ground of appeal is allowed.”
6. Accordingly in the absence of any discussion on the specific agreement, the prayer of the parties was found to be justified. In view thereof, the issue is restored to the file of the AO with the direction to pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard on the limited issue on which the remand has been made by the Hon’ble High Court.
6.1. The C.O. originally filed by the assessee has been wrongly listed by the Registry as it stood dismissed as not pressed and the said order of the ITAT qua this issue has not been upset by the Hon’ble High Court and both the parties which necessarily included the assessee through the Ld. AR agree that it has to be dismissed.
In the result, the appeal of the Revenue is allowed for statistical purposes and the cross objection filed by the assessee is dismissed. The order is pronounced in the open court on 10th of June, 2016.