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TMI Blog2020 (8) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... into during AY 2015-16. No royalty was paid till a license agreement dated 22.07.2014 was entered into between the assessee and the proprietor ship concern of Ms. Rai, namely Indian Inc. As per the agreement, a payment of 2% of net revenue was to be made by the assessee to Indian Inc. on account of royalty for the use of the name Indian Inc. . The tax was duly deducted at source and deposited under Section 194J of the Income Tax Act, 1961. Besides this, Ms. C.E. Rai had offered the said amount in here individual income tax return where she was taxed at the rate of 34.61% whereas the tax rate applicable for the company was 33.06%. All these factual aspects were not at all disputed by the Revenue authorities. Merely on the ground that trademark was earlier i.e. prior to present assessment year not registered cannot be the ground for making disallowance. In fact, in the earlier assessment years, the said expenditure was allowed by the Revenue. Thus, the Assessing Officer as well as the CIT(A) was not correct in disallowing the said claim of business expenditure in respect of payment of royalty under Section 37 - Decided in favour of assessee. Disallowing depreciation on the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng huge disallowances on issues which were not the basis for initiating Limited Scrutiny and consequently the order passed is bad in law and void ab-initio. 1.1 The Ld. AO has grossly erred in facts and in law in converting the assessment in a Complete Scrutiny without seeking prior approval of the Principal Commissioner of Income Tax/ Commissioner of Income Tax as directed in the Board s Instruction No. 5/2016 in respect of CASS assessment, and the order passed in violation of Board s instructions is bad in law and void ab-initio. 2 The Ld. CIT(A)/Ld. AO has grossly erred on facts and in law in making/ sustaining various disallowances of ₹ 83,28,736/- to the returned income of the Assessee of ₹ 1,98,88,800/-. 3 The Ld. CIT(A)/Ld. AO has grossly erred on facts and in law in disallowing the trademark fee amounting ₹ 45,52,624/- paid to the M/s India Inc., a proprietorship, for using the name Indian Inc . 3.1 The Ld. CIT(A)/Ld. AO has grossly erred on facts and in law in not taking into account the agreement entered into by the Appellant with M/s. Indian Inc in respect of the use of trademark. 3.2 The Ld. CIT(A)/Ld.AO has grossly erred on facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciate that all the expenses were incurred for the purpose of business only. 5.2 The Ld. CIT(A) has grossly erred on facts and in law in disallowing the travel expenses on an ad- hoc basis even though she has herself acknowledged the fact the business of the Appellant requires frequent travel by the Appellant s employees to different parts of the world. ADDITIONAL GROUNDS 1. The Ld. A.O has grossly erred in facts and in law in exceeding his jurisdiction in making huge disallowance son issues which were not be basis for initiating Limited Scrutiny and consequently the order passed is bad in law and void ab-initio. 1.1 The Ld. A.O has grossly erred in facts and in law in converting the assessment in a Complete Scrutiny without seeking prior approval of the Principal Commissioner of Income tax as directed in Board s Instruction No. 5/2016 in respect of CASS assessment and the order passed in violation of Board s instruction is bad in law and void-ab-initio. 3. During the year, the assessee company was engaged in the business of Buying agency and rendering services to overseas buyers for sourcing of export products from India. The assessee company filed its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as then it would have claimed depreciation at full rate as then period after put to use would have been more than 180 days. However, the assessee claimed the depreciation at half rate which means period after put to use as claimed by assessee is less than 180 days. Thus, the Assessing Officer disallowed the depreciation of ₹ 34,17, 232/-. 5. Further, the Assessing Officer observed that the assessee debited amount of ₹ 35,88,804/- on account of credit card payments. Therefore, the assessee was asked to substantiate the said expenses and prove that entire of these expenses were wholly and exclusively for business purposes. In response, the assessee furnished a chart of payments made through credit card. The Assessing Officer held that the entire of the expenses cannot be allowed as claimed. Hence to cover such leakage expenditure amounting to ₹ 5,38,320/- (20% of ₹ 35,88,804/-) was disallowed by the Assessing Officer. 6. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. 7. Firstly, the Ld. AR submitted in respect of additional ground that the Assessing Officer grossly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Indian Inc. is a sole proprietorship firm of Ms. C.E. Rai was set up in the year 1989. The said firm was carrying on the business of Buying Agency and Running Services to overseas buyers for sourcing of merchandise from India. The sole proprietorship carried on the said business till the year 2002 and the business profit were tax in the hands of Ms. C.E. Rai. In the year 2002 with a view to operate in a corporate structure considering that business was growing and employees strength was also increasing, the operations were carried on by the assessee company in which Ms. C.E. Rai was the majority share holder and Managing Director. Since, the assessee company had just taken over the operations and there was a need to ensure continuity with the customers and vendors, Ms. Rai permitted the use of Logo/trade name Indian Inc. on a royalty free basis to the assessee company. This was an informal understanding and no written agreement in this context was entered into in 2002. An oral agreement also equivalent as per the decision of the Hon ble Delhi High Court in case of Nanak Builders and Investor Pvt. Ltd. Vs. Vinod Kumar Alag AIR 1993 Delhi 315. Being a commercial decision betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon the decision of the Hon ble Punjab Haryana High Court in case of Pr. CIT Vs. Mobisoft Tele Solutions Pvt. Ltd (2016) 65 taxmann.com 214. The Ld. AR further submitted that the Assessing Officer observed that the trade mark is unregistered and can be used by any other entity. The Ld. AR submitted that such an argument is devoid of substances and merit. It is well settled that in the absence of any definition of trade mark in the Income Tax Act, reference should be taken for the definition from Trademarks Act, 1999. The word royalty is defined in Explanation 2 to Section 69(1) (vi) of the Income Tax Act, 1961. The word trade mark includes registered trademarks as well as unregistered trademarks. Unregistered marks are defined as marks which are not registered in relation to goods or services (i.e. names, marks or logos) used in relation to a business, under the Trademarks Act. Though u/s 27 of the Trademarks Act, 1999, no action for infringement is allowed for unregistered trademarks it can still be protected by means of common laws of tort of passing off. Once it is established that unregistered mark has comparable goodwill or reputation in connection with the prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties and perused all the relevant material on record. From the perusal of the findings given by the CIT(A) it emerges that the transaction under reference was a commercial arrangement between two parties which was entered into during AY 2015-16. No royalty was paid till a license agreement dated 22.07.2014 was entered into between the assessee and the proprietor ship concern of Ms. Rai, namely Indian Inc. As per the agreement, a payment of 2% of net revenue was to be made by the assessee to Indian Inc. on account of royalty for the use of the name Indian Inc. . The tax was duly deducted at source and deposited under Section 194J of the Income Tax Act, 1961. Besides this, Ms. C.E. Rai had offered the said amount in here individual income tax return where she was taxed at the rate of 34.61% whereas the tax rate applicable for the company was 33.06%. All these factual aspects were not at all disputed by the Revenue authorities. Merely on the ground that trademark was earlier i.e. prior to present assessment year not registered cannot be the ground for making disallowance. In fact, in the earlier assessment years, the said expenditure was allowed by the Revenue. Thus, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erseas buyers. So the contention of the assessee that the property was in use, does not survive. The Assessing Officer rightly rejected the claim of depreciation to the assessee. Thus, Ground Nos. 4, 4.1 and 4.2 are dismissed. 16. As regards disallowance in respect of travel expenses, the Ld. AR submitted that the assessee incurred a sum of ₹ 77,92,185/- towards domestic travel expenses. Out of the said expenditure, ₹ 28,64,289/- was incurred through corporate credit card of the assessee. The Assessing Officer disallowed ₹ 5,38,320/- on an ad-hoc basis on a pure surmises that the same could be personal in nature and not related to business even though relevant bills and documentary evidences were produced before him and the same was acknowledge by him. The CIT(A) restricted the disallowance to 10% of expenses even after acknowledging that such expenses were in relation to the needs of the business. 17. The Ld. DR relied upon the Assessment Order and the order of the CIT(A). 18. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the disallowance in respect of travel expenses was made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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