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2013 (12) TMI 1154 - AT - Income TaxProvision for Royalty Held that - The Copy right Board decided the rate of royalty payable by appellant to PPL at the average rate of Rs.660/- per needle hour - The appellant was allowable the expenditure for payment of royalty to the PPL @ Rs.660 per needle hour and not @ Rs. 1,500 per hour - the provision reflected at Rs.3,49,86,000/- included the opening balance of Rs.94,60,000/-, which was not required to be considered for the purpose of disallowance since the same was not provision made during the year Decided against Revenue. Advertisement and marketing cost Held that - As per Accounting Principle the provision for expenses are also allowable if the goods/services have been received - There is no material on record to show that in the instant case the goods/services have been received by the assessee during the year under consideration and there is no positive finding of the ld. CIT(A) in this regard - Even at this stage the ld. counsel for the assessee has placed no material on record to show that the goods/services have been received by the assessee during the year The issue was restored for fresh decision.
Issues involved:
1. Disallowance of provision made for royalty payment. 2. Deletion of disallowance out of provision made for advertisement and marketing cost. Analysis: Issue 1: Disallowance of provision made for royalty payment The appeal by the Revenue was against the order passed by the ld. CIT(A) regarding the disallowance of provision made for royalty payment. The assessee company had made a provision for royalty payment to Phonographic Performance Ltd. (PPL) towards royalty payment of Rs. 3,49,86,000. The AO disallowed this amount as a provision under the Income Tax Act is not allowable. However, the ld. CIT(A) allowed part relief to the assessee based on the order of the Copyright Board fixing the royalty rates. The ld. CIT(A) directed the AO to allow the provision for payment of royalty to PPL at Rs. 660 per needle hour. The Revenue contended that the relief allowed was unjustified, but the Tribunal upheld the CIT(A)'s decision, stating that the average rate of Rs. 660 per needle hour was justified based on the Copyright Board's order. Issue 2: Deletion of disallowance out of provision made for advertisement and marketing cost The AO disallowed the provision made for advertisement and marketing cost of Rs. 24,75,876, stating it did not pertain to the current year. On appeal, the ld. CIT(A) deleted this disallowance, considering that the liability for these expenses accrued during the year. The Revenue argued that the CIT(A) erred in allowing the claim without giving the AO an opportunity to examine the submissions. The Tribunal observed that the AO made a general disallowance without specific reasons, and the CIT(A) rightly deleted the disallowance. However, as there was no evidence to show that the goods/services were received during the year, the Tribunal set aside the order and remanded the issue to the AO for fresh consideration, providing the assessee with a reasonable opportunity to be heard. The Revenue's appeal was partly allowed for statistical purposes. In conclusion, the Tribunal upheld the relief allowed by the ld. CIT(A) regarding the provision made for royalty payment but remanded the issue of provision made for advertisement and marketing cost back to the AO for further examination.
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