2017 (11) TMI 1713 - HC - Income Tax

Addition u/s 68 - claim towards trade credit unexplained - Held that - The Court is of the opinion that the question urged is purely factual. Since the findings recorded by the CIT(A) and the ITAT are concurrent they reflected that the trade advances received by the applicant were adjusted against the sales made to them in the subsequent years. As such no question of law arises. For enhancement of licence fee is concerned the facts are that the Assessee was originally paying 50 lakhs per months licence fee to M/s. Flex Group of Companies. During the Assessment Years in question the fee was revised mid-term to 2 crores per month. The A.O. add 9 crores upon an understanding that the licence fee increased was arbitrary. The CIT(Appeals) however deleted this entire amount. The Revenue s Appeal succeeded substantially to the extent of 6 crores. No justification to interfere with the ITAT s findings which are also factual as far as this issue goes.

Summary

Issues:
1. Reallocation of expenditure/income on account of royalty from Jammu Unit to Corporate Division.
2. Entitlement to deduction under Section 80IB of the Income Tax Act in respect of sub-licence fee.
3. Sums added under Section 68 of the Income Tax Act and the reduction of the sum towards licence fee expenditure incurred by the Assessing Officer for the Malanpur Unit.

Analysis:
1. The first issue pertains to the reallocation of expenditure/income on account of royalty from the Jammu Unit to the Corporate Division. The Assessee, engaged in manufacturing flexible packaging material, had paid royalty and received sub-licence income. The Assessing Officer added a sum towards trade credit, but the CIT(A) deleted this amount after verifying the records. The ITAT affirmed this finding, concluding that the trade advances received were adjusted against subsequent sales, leading to no legal question.

2. The second issue involves the entitlement to deduction under Section 80IB of the Income Tax Act concerning the sub-licence fee. The Assessee's licence fee was increased mid-term, leading to a dispute over the enhancement amount. The CIT(A) deleted the entire amount added by the Assessing Officer, but the Revenue's Appeal succeeded partially. The Court found no reason to interfere with the ITAT's factual findings on this matter.

3. The final issue concerns the sums added under Section 68 of the Income Tax Act and the reduction of the sum towards licence fee expenditure for the Malanpur Unit. The CIT(A) had deleted a substantial amount added by the Assessing Officer, which the Revenue partially succeeded in appealing. The Court upheld the ITAT's factual findings, indicating no grounds for interference.

This judgment addresses crucial tax law issues related to reallocation of income, entitlement to deductions, and additions under specific sections of the Income Tax Act. The Court's analysis focused on factual findings by lower authorities and upheld decisions based on verifications and records. The case highlights the importance of proper documentation and compliance with tax regulations in determining tax liabilities and deductions.