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TMI Blog2013 (7) TMI 729X X X X Extracts X X X X X X X X Extracts X X X X ..... 06 2. Ground No. 1 is general in nature. 3. Ground No. 2 & 3 relate to disallowance of Rs. 56,48,349/- being the royalty on sales paid to M/s. Exedy Corpn. Of Japan as capital expenditure. 4. During the course of the scrutiny assessment proceedings, the Assessing Officer found that the assessee has paid a sum of Rs. 56,48,349/- to its associated concern i.e. M/s. Exedy Corpn. Japan on account of the royalty on sales. The assessee was asked to explain why the same expenditure should not be disallowed as capital expenditure. The assessee filed a detailed reply explaining that it has paid technical know-how fees of Rs. 38,27,000/-under clause No. 8.3 of the Technical Assistance Agreement dt. 9th June, 1999, which it has capitalized. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. Counsel. We find that the Allahabad High Court in the case of Kanpur Cigarettes (P) Ltd. (supra) has held that payment towards royalty which was dependant on the quantum of the items manufactured was a revenue expenditure. In the case of the present assessee, the quantum of royalty depends upon the sales. Since the royalty is paid, at a certain percentage of sales, it cannot be said that it gives an enduring benefit to the assessee, the same is to be allowed as revenue expenditure. A similar view has been taken by the Hon'ble Supreme Court in the case of Mewar Sugar Mills Ltd. Vs CIT 87 ITR 400 wherein the Hon'ble Supreme Court has held that royalty payments paid to the Government based on sales are allowable as deduction u/s. 10(2)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubs and for which purpose, the payments of hotel lodging was incurred of which no details have been adduced. The Ld. CIT(A) further observed that the assessee could not substantiate its claim that the expenses are incurred on official work. However, after considering all the aspects, the Ld. CIT(A) was of the opinion that the expenditure of personal nature cannot be over- ruled. However, at the same time directed the AO to restrict the disallowance to 50% and accordingly addition of Rs. 8,60,907/- was confirmed. 13. Before us, the Ld. Counsel for the assessee reiterated what has been stated before the lower authorities. Drawing our attention to the details annexed with the audit report, it is the say of the Ld. Counsel that all the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of the Ld. CIT(A). Ground No. 5 is accordingly dismissed. 16. The next grievance relates to the disallowance of Rs. 50,000/- u/s. 14A of the Act. The AO noticed that the assessee has shown dividend of Rs. 4,82,464/- and claimed the same to be exempt from tax. The AO further observed that the assessee has not disallowed any proportionate expenses towards earning of exempt income. The AO gave an opportunity to the assessee to explain why proportionate expenses on the dividend income should not be disallowed u/s. 14A of the Act. The assessee explained that it has received dividend from UTI Master shares of which it has incurred no expenditure. The AO was not convinced with the reply of the assessee. The AO was of the firm belief that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ground of the assessee is allowed for statistical purpose. 21. In the result, the appeal filed by the assessee is partly allowed for statistical purpose. ITA No. 5083/Mum/2011 - A.Y. 2006-07 22. Ground No. 1 is general in nature. 23. Ground No. 2 & 3 relate to disallowance of Rs. 1,03,40,162/- being royalty on sales paid to M.s. Exedy Corpn. of Japan. This issue has already been discussed in ITA No. 5082/M/2011 for A.Y. 2005-06 at paras 3 to 8. Therefore, on similar lines, similar reasons, the ground raised by the assessee in ITA No. 5083/M/11 for assessment year 2006- 2007 is allowed. 24. Ground No. 4 relates to disallowance of 50% of Rs. 4,70,161/- being expenses incurred through the credit card by employees for subscription, hotel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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