2019 (4) TMI 1362 - AT - Income Tax

Additions on account of technical know-how expenses - Whether expenditure incurred in the form of technical know-how is capital in nature ? - HELD THAT - Know-how was to remain the sole and exclusive property of the provider and the appellant company is required to fully exploit the same. Further the technical know-how was also to be paid in relation to the sales affected by the assessee company. It is also required to be noted that assessee is engaged in the same business for which technical know-how is by the assessee and it is not at its an altogether a new line of business which is developed. In the present appeal the facts above are absolutely identical to the proceedings for earlier years 2018 (6) TMI 1598 - ITAT NEW DELHI and the same is also evident from last para at the AO's order at page 4. The arguments of the AO in the assessment order and the arguments of the Ld. AR in their written submissions are also identical to the arguments made during the appellate proceedings for A.Y. 2011-12 and A.Y. 2010-11. Since there are no new facts and arguments from the either side, thus have no hesitation in following my own order in the case of the appellant for the appeal for A.Y. 2011-12 and A.Y. 2010-11. Hence following the precedent of my earlier order hold that the AO has erred in making an addition on account of disallowance of Technical Know-how Expenses. - Decided against revenue.

Summary

Issues:
1. Allowability of technical know-how expenses as capital expenditure.

Analysis:
The appeal by Revenue challenged the order of the Learned Commissioner of Income Tax (Appeals) regarding the deletion of additions on account of technical know-how expenses for Assessment Year 2012-13. The Assessee contended that the issue was covered in their favor by the orders of Co-ordinate Bench of ITAT, Delhi, for previous assessment years. The Departmental Representative also agreed that the issue was in favor of the Assessee based on previous orders. The Ld. CIT(A) followed his own orders for Assessment Years 2010-11 and 2011-12, stating that the facts were identical. The Ld. CIT(A) emphasized that the right obtained by the Assessee was to use the know-how, which was not of enduring nature. The Ld. CIT(A) concluded that the expenditure for obtaining technical know-how was revenue in nature, aimed at improving product quality and profitability without adding to the profit-earning apparatus.

The Tribunal noted that the facts for the current year were identical to previous assessment years where the issue was decided in favor of the Assessee by Co-ordinate Benches of ITAT, Delhi. Both sides agreed that there were no distinguishing facts for the current year compared to previous years. As a result, the Tribunal decided the disputed issue in favor of the Assessee and dismissed the appeal filed by the Revenue. The Tribunal upheld the decision that the technical know-how expenses were revenue expenditure, not capital in nature, based on the precedents set in previous orders.

In conclusion, the Tribunal upheld the decision of the Ld. CIT(A) to delete the additions on account of technical know-how expenses, considering the expenditure as revenue in nature aimed at improving product quality and profitability. The Tribunal found the issue to be covered in favor of the Assessee by previous orders of Co-ordinate Benches of ITAT, Delhi, and dismissed the appeal filed by the Revenue, affirming that the technical know-how expenses were not capital expenditure.