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Issues:
1. Disallowance of trademark compensation 2. Disallowance of godown rent Issue 1: Disallowance of trademark compensation The Assessing Officer disallowed Rs. 2,51,867 as trademark compensation paid by the assessee to M/s. Ramaika (I) Ltd. for using their trademarks on fiberglass sheets. The AO contended that the payment was not necessary as the assessee was merely a stockist and did not incur separate expenses for label printing. He also argued that the trademark usage did not add value as the product was purchased with the trademark already affixed. However, the CIT(A) overturned this disallowance, stating that the compensation was genuinely paid to promote sales and did not result in profit diversion to a sister concern. The CIT(A) analyzed each reason for disallowance and found them unsubstantiated. The tribunal upheld the CIT(A)'s decision, noting that the compensation was paid as per a valid agreement and contributed to increased sales without affecting tax liability. Issue 2: Disallowance of godown rent The AO disallowed 50% of the godown rent amounting to Rs. 1,95,000, paid by the assessee to a sister concern, M/s. Ram Fabrics (India) Ltd. The AO questioned the reasonableness of the rent compared to other premises rented by sister concerns. However, the CIT(A) found the rent to be fair and reasonable, considering the business expansion and increased turnover. The CIT(A) held that Section 40A(2)(b) did not apply as the transaction was genuine and not for tax evasion. The tribunal concurred with the CIT(A), stating that the rent was justified for the business needs, and there was no basis for the ad hoc disallowance. Consequently, the tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision regarding the godown rent disallowance. ---
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