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2017 (4) TMI 1596 - AT - Income TaxDisallowance on account of interest expenses to Naksha Impex - A.O. was of the opinion that the interest paid to Naksha Impex was quite higher than the rate of interest paid to bank as well as paid on other unsecured loans. Accordingly, the assessee was asked to justify the claim of interest - CIT-A deleted the addition - HELD THAT - Before us, the ld. D.R. simply relied upon the findings of the A.O. without bringing any factual error in the findings of the ld. CIT(A). There is no dispute that the A.O. has not given any adverse findings so far as utilization of borrowed money from M/s. Naksha Impex is concerned. It is also true that Naksha Impex is not a related party and, therefore, provisions of Section 40A(2)(b) of the Act are not applicable. We agree with the First Appellate Authority that for the purposes of the allowance of interest u/s. 36(1)(iii) of the Act, all that the A.O. has to consider is whether the money borrowed is utilized for the purposes of business or not. Since, no adverse findings is given, we decline to interfere with the findings of the ld. CIT(A). Nature of expenditure - payment paid to Vishnu Company Trade Mark Pvt. Ltd. for use of trade mark - revenue or capital expenditure - HELD THAT - There is no dispute that the Vimal Trade Mark is owned by Vishnu Company Trade Mark Pvt. Ltd. It is also true that the assessee has paid the royalty as per the terms and conditions of the registered agreement. It is equally true that the CBDT circular No. 10/69/61-IT(AI) dated 04.09.1962 is not applicable in the instant case. We further find that in the immediately preceding assessment year, similar payments were allowed by the A.O. in scrutiny assessment. Considering the facts in totality, we do not find any reason to interfere with the findings of the ld. CIT(A). Ground no. 2 is accordingly
Issues:
1. Disallowance of interest expenses to Naksha Impex. 2. Treatment of payment to Vishnu & Company Trade Mark Pvt. Ltd. as capital expenditure. 3. Disallowance of Trade Mark License Utilization as revenue expenditure. Analysis: 1. Issue 1: Disallowance of interest expenses to Naksha Impex The Revenue appealed against the deletion of disallowance of Rs. 88,19,558/- made on account of interest expenses to Naksha Impex for A.Y. 2010-11. The Assessing Officer (A.O.) found the interest paid to Naksha Impex at 15% and 18% to be higher than other unsecured loans. The A.O. disallowed the excess interest paid, leading to the addition. However, the CIT(A) allowed the deduction, stating that as long as the borrowed money was used for business purposes, it was allowable under section 36(1)(iii) of the Act. The Tribunal upheld the CIT(A)'s decision, noting no adverse findings on the utilization of borrowed money from Naksha Impex and the absence of related party transactions. 2. Issue 2: Treatment of payment to Vishnu & Company Trade Mark Pvt. Ltd. as capital expenditure The second grievance of the Revenue related to the deletion of the addition of Rs. 5,32,83,949/- made on account of payment to Vishnu & Company Trade Mark Pvt. Ltd. for the use of trade mark, treated as capital expenditure by the A.O. The A.O. disallowed the payment as capital expenditure, considering it a Trade Mark license utilization fee, and allowed depreciation instead. However, the CIT(A) directed the A.O. to delete the addition, stating that the payment was not for acquiring technical know-how and should be treated as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Trade Mark was owned by Vishnu & Company Trade Mark Pvt. Ltd., and the CBDT circular cited by the A.O. was not applicable. 3. Issue 3: Disallowance of Trade Mark License Utilization as revenue expenditure In the appeal for A.Y. 2011-12, the Revenue challenged the deletion of the addition of Rs. 2,23,77,009/- on account of disallowance of Trade Mark License Utilization treated as revenue expenditure. The Tribunal dismissed this ground, referring to a similar issue addressed in a previous appeal (ITA No. 2046/Ahd/2013) and upholding the dismissal based on the detailed reasons provided in the earlier decision. In conclusion, the Tribunal upheld the decisions of the CIT(A) in both appeals, dismissing the Revenue's appeals and confirming the treatment of interest expenses and trade mark payments as allowable deductions or revenue expenditures, as appropriate.
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