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TMI Blog2014 (1) TMI 1921X X X X Extracts X X X X X X X X Extracts X X X X ..... ) what is required of the Assessing Officer is to form an opinion that an expenditure is not excessive or unreasonable. The discretion to decide this issue is vested with the Assessing Officer and he has exercised the same in favour of the assessee. Thus, it cannot be said that an error has crept into the assessment order causing prejudice to the Revenue. Disallowance of payment towards fees and technical advisory and management fees - Whether technical advisory and management fees paid to UBL is for the purpose of business or not ? - HELD THAT:- Respectfully following the decision of the Coordinate Bench in assessee s own case for the assessment year 2008-09 [ 2013 (2) TMI 716 - ITAT CHENNAI ] held it be allowable, since expenditure incurred was for making the business which continued after closure of an unit, viable. In our opinion, this case will only support the case of the assessee hereand in the Revenue could not file any higher Court s decision to take a different view, we find no reason to interfere with the order passed by the ld. CIT(Appeals) and the grounds raised by the Revenue are dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... s) and detailed submissions were made before him and the same is extracted as under: "5.1 The Id. AR vehemently contested against the said addition, the written submission of the appellant are reproduced as under: 1. Your Appellant Company submits that it had made a claim on account of depreciation relating to Intangible Assets in the sum of Rs. 3, 11,35,290/-relating to Asst year 2005-06. 2. Your Appellant submits that the Assessing Officer disallowed the claim of depreciation relating to Intangible Assets on the ground that the Appellant could not substantiate the valuation of trade marks and licenses at Rs. 22 Crores while acquiring the same from Empee Distilleries Limited. 3. Your Appellant Company submits that the Assessing Officer has held that the aforementioned asset is an appreciating asset and therefore is not eligible for depreciation. 4. Your Appellant Company submits that it had acquired the licenses and trademarks being intangible assets from Empee Distilleries Ltd for a sum of Rs. 22 Crores vide an Asset Purchase Agreement dated 28th Feb., 2002. (Copy of Asset Purchase Agreement enclosed). 5. Your Appellant Company submits that Empee Distilleries Ltd is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs.22 crores towards cost of trade marks, licence, permissions etc. The relevant part is reproduced hereunder for ready reference and clarity: "Whereas pursuant to negotiations between the parties the Vendor agrees to sell and transfer the Operating Assets free from all charges and liabilities whatsoever and the Purchaser has agreed to acquire the same for the consideration and upon the terms and conditions hereinafter contained. . "Operating Assets" shall mean the assets and includes Plant and machinery Rs 1566.24 lacs Vehicles Rs. 15.631acs Furniture & fittings Rs 1. 18 lacs Computers . Rs. 0.90 lacs Office equipments Rs. 1.31 lacs Trade Marks, licence & permissions, etc. Rs. 2200.00 lacs Total Rs. 3785. 26 lacs 2. PRICE AND PAYMENT A. The Purchaser agrees to pay a sum of Rs.37,85,26,000/- (Rupees thirty seven crores eighty five lacs twenty-six thousand only) for the purchase of said Operating Assets from the Vendor. The said consideration shall be paid as under: (1) Rs.11,00,00,000/- (Rupees eleven crores only) Paid on or before the date of execution hereof (the payment and receipt whereof, the Vendor doth hereby admit and acknowledge) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation in respect of trade marks and licence. Accordingly, the ground is allowed." The revenue went on appeal against this order of CIT(A). The IT AT 'D' Bench, Chennai in ITA No. 1295/Mds/2012 dated 14.2.2013 in the appellant's own case for the AY 2008-09 dismissed the revenue appeal holding para 20 as under: 20. Vide its ground No.4, grievance of the Revenue is that disallowance of ₹ .1.31 Crores claimed as depreciation on trademarks and licences, disallowed by the A.O. was allowed by the CIT(Appeals). Depreciation claim was on trademarks and licences acquired by the assessee from M/s Empee Distilleries Limited vide agreement dated 28.2.2002. The issue how far depreciation was allowable on these intangible assets, had come up before this Tribunal in assessee's appeal against a 263 revision attempted by CIT for assessment year 2007-08 in I.T.A. No. 1209/Mds/2012. This Tribunal had at para15 to 19 held that the claim of depreciation was justified. Paras 15 to 19 of the said order is reproduced hereunder:- ............................................................................................................................ ............... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; . 15.63 lakhs (c) Furniture & fittings ₹ . 1.18 lakhs (d) Computers ₹ . 0.90 lakhs (e) Office equipments ₹ . 1.31 lakhs (f) Trade Marks, licence& permissions, etc. ₹ . 2200.00 lakhs TOTAL ₹ . 3785.26 lakhs Thus, assessee had acquired all the operating assets of the said company and the agreement came into effect on 28th February, 2002. 16. Second agreement, copy of which is placed at paper-book pages 55 to 69, gave the licencee a non-exclusive right to use the trademark 'marco polo'. The relevant para of the said agreement, which is also dated 28.2.2002 is reproduced hereunder:- "1. The Licensor grants unto the Licensee a non-exclusive, nontransferable and indivisible right to use the trade mark "MARCOPOLO" in respect of the non-beer products as set out in Schedule I hereto (hereinafter referred to as "the said Trade Mark" and "the Products") to be manufactured by the Licensee for the limited period of 9 (nine) months from the date hereof. The Licensee has provided to the Licensor its estimated production of various non-beer products to which the licensee shall apply and details whereof are set out in Schedule II to this Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2003-04, Assessing Officer had mentioned as under:- "In response to the hearing notice, assessee's representative Shri N. Ranganathan, Company Secretary, appeared and furnished the details. The assessee's representative also produced the bills for addition to fixed assets, copy of agreement between M/s Empee Distilleries and M/s Mc Dowell. After verifying the details filed the assessment is completed as under" Thus, assessee had produced all bills for addition to its fixed assets and copies of agreement it had entered with M/s Empee Distilleries Ltd. before the Assessing Officer. Assessment for an assessment year as early as 2003-04 was itself completed after verifying such details. It is not a case where such depreciation was granted by the Assessing Officer first time for the impugned Assessment Year. For the relevant assessment year, assessee was claiming depreciation only on Written Down Value of the intangible assets. From assessment year 2003-04 onwards, obviously, assessee has been granted depreciation on such intangible assets. Therefore, we cannot say that Assessing Officer had completed the assessment for impugned assessment year oblivious of this. Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, respectfully following the Coordinate Bench decision in assessee's own case, the grounds of appeal on this issue raised by the Revenue are dismissed. 10. The next issued raised by the Revenue in ground Nos. 3 to 3.6 relating to service charges paid to UBL and IIL were revenue in nature and capitalization of service charges amounting to ₹ 11,94,34,603/-. In the assessment order, the Assessing Officer has observed that there is no difference in the position in assessment year 2005-06 with that of assessment year 2004-05 as far as payment of service charges are concerned. The Assessing Officer has reproduced the discussion made in the assessment order for the assessment year 2004-05 and concluded in para 11.2 of the assessment order that the above discussion made in the assessment year 2004-05 is applicable for this year also and there is no difference in the position in the assessment year 2005-06 with that of assessment year 2004-05 as far as payment of service charges are concerned. In view of the detailed discussion made in the assessment year 2004-05 and reproduced in his order for this year also, the payment of service charges of ₹ 15,92,46,138/- to IIL a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and United Breweries Limited. 9. Your Appellant Company further submits that this is a recurring expenditure. 10. Your Appellant Company also submits that the very basis of the payment of service charges is the total volume of various brands of beer manufactured and sold. 11. Your Appellant Company submits that the Assessing Officer has completely ignored the essence of the agreement and the 'basis of the payment and has arrived at the conclusion that the expenditure in question 'relates to transfer of Technical Knowhow. 12. Your Appellant company submits that the Assessing Officer ought to have accepted the submissions that the expenditure is recurring in nature and the payment in question is based on the volume of the production of the brands of beer manufactured. Since tl]e expenditure in question is based on the volume produced and sold, if the Appellant Company does not produce any beer of the respective brands, the Appellant Company would not have had to pay any service charges. 13. Your Appellant submits that the nature of the payment is Royalty and a revenue item of expenditure. 14. Your Appellant submits that the' basis on which the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it to be revenue in nature. The ld. CIT has concluded that verification of a transaction with the group company is at arm's length and is not a statutory requirement u/s 40A(2) of the Act. It was argued that as per the provisions of section 40A(2) what is required of the Assessing Officer is to form an opinion that an expenditure is not excessive or unreasonable. The discretion to decide this issue is vested with the Assessing Officer and he has exercised the same in favour of the assessee. Thus, it cannot be said that an error has crept into the assessment order causing prejudice to the Revenue." 17. We, therefore, respectfully following the decision of the Tribunal in assessee's own case for the assessment year 2004-05, decide the issue in favour of the assessee for the assessment year under consideration. Accordingly, the grounds raised by the Revenue are dismissed. 1480/Mds/2013 [A.Y. 2006-07] 18. For the assessment year under consideration, the Revenue has raised two effective grounds in its appeal viz., first ground relates to disallowance towards depreciation on trademarks and licences and the second ground is capitalization of service charges. Except change of figures, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to UBL even for any non-business purpose, but such payments, if not proved to be laid out for the business purpose of the assessee company, then they have to be disallowed and suffer tax in the hands of the assessee company. Therefore, the Assessing Officer disallowed the amount of ₹ .10 crores paid to UBL. 21. Aggrieved, the assessee carried the matter in appeal before the ld. CIT(Appeals) and submitted as under: "5.1 The learned AR vehemently contested against the said addition and submitted as under: 1. Your Appellant Company made a total payment of Rs. 10,00,00,000/- towards Technical Advisory and Management Fees to United Breweries Ltd during the course of the relevant assessment year. 2. Your appellant Company submits that the Assessing Officer disallowed the claim of expenditure on the ground that the expenditure in question is not made for commercial expediency. 3. Your appellant Company submits that it had entered into a Services Agreement with United Breweries Ltd vide agreement dated 29/12/2007 duly extended by a letter dated 1st April, 2008 and amended by another letter dated 1st August, 2008. Payments on various dates were made based on the various d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own case. Your Appellant filed an appeal in respect of the said disallowance and the CIT(A) III vide his order in ITA No. 362/10-11 dated 27th March, 2012 had allowed the claim of the Appellant herein. 12. Your Appellant Company submits that thereafter, the Department preferred an appeal before the Hon'ble Tribunal which heard the matter and dismissed the appeal of the Department in ITA No. 1295/Mds/2012 dated 14th February, 2013. 13. Your Appellant submits that it has enclosed the aforementioned Appellate Orders and further submits that the detailed reasons provided in the Appellate orders be taken on record. 14. Your Appellant further submits that it is placing reliance in respect of the decision of the Hon'ble Supreme Court of India in S.A. Builders case where the Hon'ble Supreme Court has held that the Revenue could not by itself sit in the armchair of a businessman. 15. Your Appellant Company in view of the above factual position and legal position, prays that the disallowance of Rs. 10,00,00,000/- made on account of payment towards technical and managerial advisory services be deleted in full and the claim of the Appellant allowed in full." 22. The ld. CIT(Appeals), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of its association with M/s UBL cannot be brushed aside. No doubt, assessee had produced some e-mail communication and an agreement entered with M/s IOC for purchase of furnace oil for justifying the benefits it had received through its association with M/s UBL, before the CIT(Appeals). However, in our opinion, these were at best corroborative evidence and were not stand alone evidence. Assessee had during the course of assessment proceeding, produced before Assessing Officer details of the services rendered by M/s UBL. In our opinion, even dehors the records produced by the assessee before the ld. CIT(Appeals), it could reasonably demonstrate the business purpose behind its association with M/s UBL. Assessee might not have been able to produce before the Assessing Officer specific evidence, but nevertheless, M/s UBL had acknowledged that Rs. 4 Crores was received by it for services rendered. Nevertheless,, it had furnished a work-out of its savings due to the help of M/s UBL, which was also disbelieved by the Assessing Officer. There might have been lingering doubt in the mind of the Assessing Officer as to why such amounts were paid to M/s UBL, but in our opinion, a m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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