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TMI Blog2019 (2) TMI 1531X X X X Extracts X X X X X X X X Extracts X X X X ..... there was any change in the consistent method of accounting while drawing up the financial statements. Therefore, the adhoc addition of 20% against total expenses, in our opinion, could not be sustained at all. advances received from customers - HELD THAT:- there could be no occasion to bring them to tax in the impugned AY when the same were mere advances and the services against the same remained to be rendered by the assessee. This is further fortified by the fact that that the amount of advances, in subsequent years, have been adjusted in invoices raised by the assessee in those years and the revenue has been recognized in those years. This being the case, the addition stand deleted. Adhoc disallowance of marketing and sales promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged by Section 37(1) and therefore, was an allowable expenditure. The balance payment of ₹ 1.89 Lacs represent payment to 24 parties as commission for referrals. Most of these payments are petty payments and made through cheques. The complete details of the same have been placed on record. This being the case, the addition on this account could also not be sustained. Addition of royalty payment - use of Trademark and logo Anibrain - allowable business expense - HELD THAT:- The payment has been made pursuant to memorandum of understanding dated 22/03/2008 towards use of certain trademarks owned by the director. The copies of the trademarks certificates have been placed on record. We find that this payment is recurring in nature an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ING AND SALES PROMOTION EXPENSES ₹ 10,47,381/-: On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming disallowance made by the learned Assessing Officer for a sum of ₹ 10,47,381/- being 50% of the Marketing and Sales Promotion Expenses as allegedly not pertaining to the business activities of the appellant. The appellant prays that the disallowance made by the learned Assessing Officer may kindly be deleted and the total income of the appellant be reduced accordingly. III.DISALLOWANCE OF SALES COMMISSION ₹ 24,76,798/-: On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. Nature of addition Amount (Rs.) Extent of disallowance 1. Work in progress [WIP] Rs.1,93,41,623/- Ad hoc 20% 2. Marketing and sales promotion expenses Rs.10,47,381/- Ad hoc 50% 3. Sales commission Rs.24,76,798/- Full disallowance 4. Royalty Rs.2,10,000/- Full disallowance The addition on account of WIP has been made since the assessee failed to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial on record suggest that the assessee was providing high end visual effects VFX Animation services and therefore, salary expenditure was a period cost for the assessee and therefore, there could not no occasion for the assessee to work out the work-in-progress in the financial statements. The assessee was consistently following completed service contract method in terms of Accounting Standard-9 to recognize the revenue in the books of accounts. Nothing on record suggest that there was any change in the consistent method of accounting while drawing up the financial statements. Therefore, the adhoc addition of 20% against total expenses, in our opinion, could not be sustained at all. Regarding advances received from customers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment was made to Mr. Alan Dinoble who subsequently floated a company namely ADLD LLC and both these payments represent minimum payment pursuant to consultancy agreements entered into by the assessee with them. It was further submitted that consultancy agreement was aimed at widening the sales base of the assessee though overseas new clients and orders. In terms of the agreement, the consultant was to be paid @5% of work generated by them subject to a minimum payment of USD 10000 per month irrespective of sales orders procured. The documents on record demonstrate that it is undisputed fact that the payments have been made by the assessee pursuant to consultancy agreement entered into by the assessee with these two entities. The inv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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