9911796707
TMI Blog2015 (9) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... or AY 2008-09. 2. The Assessee is a 100% export oriented unit located at Gurgaon engaged in the manufacturing of machine tools. For the AY 2005-06, the Assessee's case was selected for scrutiny. A notice under Section 143(2) of the Act along with the questionnaire was sent to the Assessee on 18th June, 2007. In its return of income, the Assessee had claimed royalty expenses amounting to Rs. 50,20,122/- paid to M/s Macnaught Pvt. Ltd., Australia (MPL). The Assessee by reply dated 20th September, 2007 stated that MPL had agreed to allow the Assessee to manufacture and sell a limited number of 'Macnaught' products. When the Assessee was asked to explain why the royalty expenses should not be capitalised since the Assessee was gett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a facie doubtful' and that the justification for the royalty payments was 'also not properly known'. The CIT (A) enhanced the disallowance to Rs. 57,27,094/-. 5. A similar view was taken by the AO and CIT (A) for the other AYs i.e. 2006-07, 2007-08 and 2008-09. The CIT (A) has in the order dated 29th July, 2013 for AY 2008-09, while affirming the order of the AO, extracted the entire royalty agreement entered into between the Assessee and MPL as at 1st June, 2005. The agreement is brief and sets out that MPL had agreed that 'in certain circumstances' the Assessee could manufacture and sell 'a limited number of the Macnaught products'. The agreement also sets out, in a tabular form, the rate of royalty per unit f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the payment of royalty by the Assessee to MPL, to have conducted a detailed inquiry. The Assessee on its part furnished the agreement between itself and MPL under which it was inter alia permitted to use the trademark 'Macnaught' on its products. The royalty was payable per unit of the product and, therefore, was clearly linked to sales. There was also no doubt that such payment was in fact made by the Assessee to MPL. It is also not in doubt that MPL was not related to the Assessee in any manner. In the circumstances, there should have been some reasonable basis for the CIT(A) to simply conclude that this was a sham transaction and proceed to enhance the disallowance. The interpretation of the agreement by the ITAT appears to b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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