2016 (7) TMI 1272 - HC - Income Tax

Inclusion of Modvat in opening stock in the light of section 145A - Held that - The impugned order of the Tribunal while allowing the respondent assessee s appeal on this issue restored the issue for fresh examination by the Assessing Officer. This was done by following the decision of its coordinate bench on the same issue in respect of the same respondent assessee dated 18th January 2013 relating to Assessment Year 1999-2000. Addition on account of royalty payment made to Johnson & Johnson USA persons referred to u/s. 40A(2)(b) - whether the assessee had not discharged its onus to prove the reasonableness of such payments? - Held that - The revenue seeks to put the onus on the Respondent-assessee to establish that the payment made on royalty was reasonable. Further on facts both the CIT(A) as well as the Tribunal has concluded that there is no evidence to characterize the payment as excessive.In the above view the view taken by the impugned order of the Tribunal in upholding the order of the CIT(A) that the payment of royalty made the Associated Enterprises is not excessive is a finding of fact which is not shown to be perverse Depreciation on testing equipment provided to laboratories and hospitals free of charge even though such testing instruments were not used by the Assessee - Held that - The impugned order of the Tribunal has allowed the claim of the respondent-assessee for depreciation on testing equipment by following its decision in the case of M/s. N R Jet Enterprises Ltd., (sister concern of the respondentassessee). No distinguishing features in the present facts from the decision of the Tribunal in M/s. N. R. Jet Enterprises Ltd., (supra) pointed out. In the above view as the Tribunal has merely followed its earlier order and the same has not been shown to us as inapplicable to the present facts. Entrance fees payment and club membership - revenue v/s capital expenditure - Held that - Tribunal by the impugned order correctly upheld the order the CIT(A)as deleted the addition holding that the issue is settled by the decision of this Court in Otis Electricity v/s. CIT 1991 (4) TMI 53 - BOMBAY High Court .

Summary

Issues:
1. Inclusion of Modvat in opening stock
2. Addition on account of royalty payment
3. Depreciation on testing equipment
4. Allowance of club membership fees as capital expenditure

Issue 1: Inclusion of Modvat in opening stock
The Tribunal's order for Assessment Year 1999-2000 was challenged by the Revenue, but the High Court refused to entertain the appeal, maintaining the Tribunal's decision to restore the issue to the Assessing Officer for fresh consideration in line with Section 145A of the Income Tax Act. The issue raised in the present case was concluded against the Revenue in the previous decision, thus not giving rise to any substantial question of law.

Issue 2: Addition on account of royalty payment
The Assessing Officer disallowed a portion of royalty payments made by the respondent-assessee to its parent company, deeming them excessive. However, the CIT(A) allowed the appeal, citing approval by the Reserve Bank of India and previous acceptance by the revenue. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Assessing Officer failed to establish the fair market value of the royalty paid, leading to the deletion of the disallowance. The High Court found no evidence to characterize the payment as excessive, upholding the Tribunal's decision based on factual findings and dismissing the Revenue's grievance.

Issue 3: Depreciation on testing equipment
The Tribunal allowed depreciation on testing equipment provided to laboratories and hospitals, following a previous decision involving a sister concern of the respondent-assessee. The Revenue failed to demonstrate any non-acceptance of the earlier decision or any distinguishing features in the current case. As the Tribunal merely followed its previous order without any shown inapplicability to the present situation, the High Court declined to entertain the proposed question.

Issue 4: Allowance of club membership fees as capital expenditure
The respondent-assessee's claim for club entry fees of its employees was initially disallowed by the Assessing Officer but later approved by the CIT(A) and upheld by the Tribunal. The High Court referenced a previous decision to support the allowance of the club membership fees, concluding that no substantial question of law arose for consideration. Consequently, the appeal was dismissed without any order as to costs.