2016 (6) TMI 1250 - AT - Income Tax

Addition on account of payment of royalty - established nexus between the services rendered and services required for the business - Held that - We find that this issue has not come up for the first time. It was also there in the earlier assessment years. A perusal of the order of the First Appellate Authority shows that in earlier years, a similar disallowance was deleted by the Appellate Authorities. We also find that the royalty payment is pursuant to an agreement which was before the Assessing Authority, we do not find any logic/reason in making the disallowance. Since the First Appellate Authority has followed the findings given in earlier assessment years, no interference is called for. Ground no. 1 is accordingly dismissed.

Summary

Issues:
1. Disallowance of royalty payment and seminar expenses for A.Y. 2008-09.
2. Disallowance of royalty payment, training, seminar expenses, and non-achievement of targets for A.Y. 2009-10.

Analysis:
1. For A.Y. 2008-09, the Revenue challenged the deletion of royalty payment and seminar expenses. The Assessing Officer (A.O.) disallowed the royalty payment of ?70,40,105 and seminar expenses of ?35,29,028. The Appellate Tribunal noted that similar issues were decided in favor of the assessee in previous years. The royalty payment was pursuant to an agreement, and the Tribunal found no reason for disallowance. The First Appellate Authority's decision was upheld, dismissing the Revenue's appeal.

2. Regarding A.Y. 2009-10, the Revenue contested the deletion of royalty payment, training, seminar expenses, and non-achievement of targets. The A.O. disallowed royalty payment of ?71,75,909, training and seminar expenses of ?5,92,546, and non-achievement of targets amounting to ?93,45,801. The Tribunal, following precedent, upheld the deletion of these expenses as revenue expenditure. The Tribunal emphasized that the expenditure was for the smooth operation of the business and did not create any enduring benefit. The Revenue's appeal was dismissed based on lack of distinguishing decisions in their favor.

3. The only remaining issue for A.Y. 2009-10 was the non-achievement of targets amounting to ?93,45,801. The A.O. disallowed this claim based on the previous year's disallowance. The assessee argued that such payments were contractual and allowable as business expenses. The First Appellate Authority deleted this addition, citing precedent and the contractual nature of the payments. The Tribunal upheld the deletion, emphasizing the contractual nature of the payments and the revenue expenditure nature. The Revenue's appeal was dismissed based on the consistency of decisions and lack of distinguishing factors in their favor.