2017 (11) TMI 958 - AT - Income Tax

Addition by holding Royalty payment as revenue expenditure - whether expense incurred for royalty payment was for extension of an existing business? - CIT-A deleted the addition - Held that - When the royalty payment has been made in accordance with the agreement for a specified period @ 3% to 5% on the manufactured items and no lump-sum payment has been made and after termination of the agreement, the assessee company was required to return all drawings and technical papers to its collaborators, no enduring benefit can be accrued to the assessee company. Furthermore on the basis of same agreement entered into between the assessee company and Toyoda Gosei Co. Ltd., similar disallowance of royalty payment for AYs 2008-09 and 2009-10 was deleted by CIT (A), against which no appeal has been filed by the Revenue before the Tribunal and all these facts have been duly elaborated in para 4.2 of the impugned order. In these circumstances, following the rule of consistency also, there is no illegality or perversity in the findings returned by ld. CIT (A) on the issue of royalty payment - Decided against revenue Depreciation @ 60% is allowable on UPS - Held that - Identical issue has come up before the Tribunal in assessee s own case for AY 2009-10 wherein order of CIT (A) deleting the similar addition was upheld and Tribunal by following the decision rendered by Hon ble Delhi High Court in case of CIT vs. M/s. Bonanza Portfolio Ltd. 2011 (8) TMI 1058 - DELHI HIGH COURT . So, following the decision rendered by coordinate Bench of the Tribunal and keeping in view the fact that the Revenue is required to follow the rule of consistency - Decided against revenue MAT computation - whether provision of section 79 will not apply for the purpose of computation of book profit u/s 115JB - addition on account of provisions for gratuity, warranty and earned leave - Held that - Identical issue has come up before the Tribunal in assessee s own case in AY 2009-10 the assessee has brought on record the details of carry forward profit / loss up to 31.03.2009 as per books of account, copy of actuarial valuation of the earned leave liability including compensated absence for the period from 01.04.2009 to 31.03.2010 as per AS-15 (R), copy of actuarial valuation of the gratuity liability for the period from 01.04.2009 to 31.03.2010 as per AS-15 (R) and copy of annual accounts for the period ending 31.03.2010, available at pages 46 to 72 of the paper book. We are of the considered view that all these documents are required to be verified by the AO as to the figures of brought forward business loss or depreciation, actuarial valuation of the earned leave liability and actuarial valuation of the gratuity liability to recompute the book profit u/s 115JB. So, following this, grounds determined against the Revenue

Summary

Issues:
1. Whether the deletion of royalty payment as revenue expenditure was justified.
2. Whether the deletion of depreciation disallowance on UPS was correct.
3. Whether the provision of section 79 applies for computing book profit under section 115JB.

Analysis:

1. Royalty Payment as Revenue Expenditure:
The Appellant sought to set aside the order deleting the addition of royalty payment as revenue expenditure. The Tribunal noted that the royalty payment was made according to the agreement for a specified period, ranging from 3% to 5% on manufactured items, with no lump-sum payment made. After termination, the company had to return all drawings and technical papers, indicating no enduring benefit. The Tribunal referred to the consistency in deleting similar disallowances for previous assessment years. It concluded that no illegality existed in the CIT (A)'s findings, ruling against the Revenue on this issue.

2. Depreciation Disallowance on UPS:
The Assessing Officer disallowed depreciation at 60% on UPS, allowing only 15%. However, the CIT (A) deleted this addition, citing a previous decision. The Tribunal upheld this deletion, referring to a similar decision in the assessee's case for a previous assessment year. Following the rule of consistency and judicial precedents, the Tribunal ruled against the Revenue on this ground.

3. Application of Section 79 for Computing Book Profit:
Regarding the application of section 79 for computing book profit under section 115JB, the Tribunal noted the self-contained nature of section 115JB. The Tribunal referred to a previous decision in the assessee's case for another assessment year, where it was held that section 79 does not apply while computing book profits under section 115JB. The Tribunal emphasized the need for verification of specific documents by the Assessing Officer to recompute the book profit. Following the decision in the assessee's previous case, the Tribunal ruled against the Revenue on this issue.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s order on all grounds. The judgment provided detailed reasoning for each issue, emphasizing consistency in decisions and the self-contained nature of relevant legal provisions.