Inspiron Engineering Pvt.Ltd., Ahmedabad v. The ACIT.,Circle-4,, Ahmedabad

ITA 210/AHD/2010 | 2006-2007
Pronouncement Date: 25-10-2013 | Result: Allowed

Appeal Details

RSA Number 21020514 RSA 2010
Assessee PAN AAACM7178A
Bench Ahmedabad
Appeal Number ITA 210/AHD/2010
Duration Of Justice 3 year(s) 9 month(s) 4 day(s)
Appellant Inspiron Engineering Pvt.Ltd., Ahmedabad
Respondent The ACIT.,Circle-4,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 25-10-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 25-10-2013
Date Of Final Hearing 09-10-2013
Next Hearing Date 09-10-2013
Assessment Year 2006-2007
Appeal Filed On 21-01-2010
Judgment Text
C IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD C BENCH . .. . . . . . ! ! ! ! '# ' '# ' '# ' '# ' $ $ $ $ BEFORE S/SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER AN D N.S. SAINI ACCOUNTANT MEMBER) ITA NO.210/AHD/2010 [ASSTT.YEAR : 2006-2007] INSPIRON ENGINEERING P. LTD. SURVEY NO.320 NR. CHOTALAL BUS STAND ODHAV ROAD ODHAV AHMEDABAD. PAN : AAACM 7178 A /VS. ACIT CIR.4 AHMEDABAD. ITA NO.657/AHD/2010 [ASSTT.YEAR : 2006-2007] ACIT CIR.4 AHMEDABAD. /VS. INSPIRON ENGINEERING P. LTD. SURVEY NO.320 NR. CHOTALAL BUS STAND ODHAV ROAD ODHAV AHMEDABAD. ( (( (&' &' &' &' / APPELLANT) ( (( (()&' ()&' ()&' ()&' / RESPONDENT) * + '/ ASSESSEE BY : SHRI S.N. SOPARKAR . + '/ REVENUE BY : SHRI J.P. JHANGID SR.DR / + 0#/ DATE OF HEARING : 9 TH OCTOBER 2013 123 + 0#/ DATE OF PRONOUNCEMENT : 25-10-2013 ITA NO.210 AND 657/AHD/2010 -2- '4 / O R D E R PER N.S. SAINI ACCOUNTANT MEMBER : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VIII AHME DABAD DATED 27.10.2009. ITA NO.210/AHD/2010 (ASSESSEES APPEAL) 2. THE GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS GENERAL IN NATURE AND HENCE REQUIRES NO SEPARATE ADJUDICATION . 3. THE GROUND NO.2 OF THE ASSESSEES APPEAL IS DIRE CTED AGAINST THE ORDER OF THE LEARNED CIT(A) FOR CONFIRMING THE DISALLOWANCE OF RS.30 88 359/- BEING LOGO FEES PAID TO ATE ENTER PRISES PVT. LTD. BY INVOKING THE PROVISIONS OF SECTION 40A(2)( B) OF THE IT ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE AO OBSE RVED THAT A COMPANY ATE ENTERPRISES PVT. LTD. WAS ESTABLISHED IN 1939 AND TILL DATE IT HAS NOT REGISTERED ATE AS TRADE MAR K AND THAT THE ATE ENTERPRISE PVT. LTD. HAS ONLY APPLIED FOR THE T RADE MARK. MOREOVER THE ASSESSEE-COMPANY HAS FAILED TO ESTABL ISH THAT THE USE OF LOGO HAS RESULTED IN WINDFALL PROFIT TO THE ASSESSEE- COMPANY. THE ASSESSEE HAS DISCLOSED TOTAL INCOME O F RS.32 75 15 122/- AND PROFIT BEFORE TAX WHICH WAS I NCLUSIVE OF DEPRECIATION OF RS.1 53 83 229/- COMES TO 4.70% WH ICH CANNOT BE SAID TO BE WINDFALL PROFIT BY USING THE LOGO. F URTHER SINCE IT WAS NOT REGISTERED THE ASSESSEE-COMPANY WAS AT LIB ERTY TO USE ITA NO.210 AND 657/AHD/2010 -3- ATE TRADE MARK. THE FAILURE ON THE PART OF ATE ENT ERPRISE PVT. LTD. TO GET ITS LOGO ATE REGISTERED AS TRADE MARK SINCE 1939 TO 2008 I.E. DURING THE SPAN OF 69 YEARS ITSELF IS S UGGESTIVE OF THE VALUE ATTACHED TO THE LOGO AND BENEFIT CAN BE HAD B Y USE OF THAT LOGO. FURTHER THE ASSESSEE HAD PAID COMMISSION O N SALE TO ATE MARKET PVT. LTD. WHO IS SELLING AGENCY OF THE COMP ANYS PRODUCT. THE AO THEREFORE HELD THAT IN VIEW OF T HE PROVISIONS CONTAINED IN SECTION 40A(2)(A) R.W.S. 40A(2)(B) AT E ENTERPRISE PVT. LTD. IS A PERSON SPECIFIED UNDER SECTION 40A( 2)(B) THE PAYMENT IS EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE LEGITIMATE NEED OF THE BUSINESS OR PROFESSION OF THE ASSESSEE-COMPANY OR BENEFIT ARRIVED FOR ACCR UING TO IT THEREFROM. THUS THE AO MADE DISALLOWANCE OF RS.3 0 88 359/-. 5. ON APPEAL BEFORE THE LEARNED CIT(A) THE ASSESSE E ARGUED THAT LOGO FEES OF RS.30 88 359/- HAD BEEN PAID TO A TE ENTERPRISES P. LTD. FOR USE OF THE LOGO ATE ON T HE PRODUCTS OF THE ASSESSEE IN ACCORDANCE WITH THE AGREEMENT ENTER ED INTO BETWEEN THE PARTIES AND THE LOGO FEE WAS PAID AT 1 % OF THE TURNOVER. IT WAS FURTHER SUBMITTED THAT THE LOGO FEE WAS CONSISTENTLY PAID OVER THE PAST THREE YEARS AND TH E AMOUNT OF RS.19 16 555/- WAS PAID ON ACCOUNT OF LOGO FEES IN A.Y.2004- 2005 AND RS.26 09 028/- WAS PAID IN A.Y.2005-2006 AND THE SAID EXPENDITURE ON PAYMENT OF LOGO FEE WAS ALLOWED IN FULL BY THE AO IN THE SCRUTINY ASSESSMENT MADE UNDER SECTIO N 143(3) OF THE ACT FOR A.Y.2005-2006. THEREFORE DISALLOWANCE OF THIS ITEM OF EXPENDITURE MADE BY THE AO IN THE ASSESSMENT YEA R 2006-2007 ITA NO.210 AND 657/AHD/2010 -4- WAS TOTALLY PERVERSE AND UNJUSTIFIED IN LAW. IT WA S FURTHER SUBMITTED THAT IN THE ASSESSMENT ORDER THE AO HAS NOT MENTIONED AS TO HOW AND WHY THE LOGO FEES IS UNREASONABLE OR EXCESSIVE. HE HAS ALSO NOT MENTIONED ANYTHING AS TO WHAT IS TH E REASONABLE AMOUNT. THE AO HAD CAPRICIOUSLY DISALLOWED THE EN TIRE EXPENDITURE WITHOUT APPRECIATING THE FACTS AND EVID ENCE ADDUCED BEFORE HIM AND IT WAS SUBMITTED THAT PAYMENT OF LO G FEE WAS BASED AS PER THE AGREEMENT ENTERED INTO BETWEEN THE PARTIES WAS GENUINE REASONABLE AND LOGO FEE OF 1% OF THE TURNO VER CANNOT BE TERMED AS UNREASONABLE OR EXCESSIVE PARTLY WHEN THE DEPARTMENT HAS ACCEPTED AND ALLOWED SUCH EXPENDITURE IN THE SC RUTINY ASSESSMENT FOR A.Y.2005-2006. SINCE THERE HAS BEEN NO CHANGE IN THE FACTS AS WELL AS POSITION IN LAW IN SO FAR A S ISSUE OF PAYMENT ON LOGO FEE IS CONCERNED IT WAS SUBMITTED THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING LOGO FEES OF RS.30 88 359/ -. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE CONFIRMED THE ACTION OF THE AO BY OBSERVING AS UNDE R: 8.2 I HAVE CONSIDERED THE FACTS AND SUBMISSION OF THE LD. A.R CAREFULLY. I HAVE ALSO GONE THROUGH THE AGREEME NT ENTERED INTO BY THE APPELLANT WITH A.T.E ENTERPRISE S P. LTD. (A.T.E.E P L). IT HAS BEEN CLAIMED THAT THE A.T.E.E .P.L IS THE HOLDING COMPANY OF THE APPELLANT. IT HAS BEEN C LAIMED THAT A.T.E.E.P.L WAS ESTABLISHED IN 1939 FOR MARKET ING TEXTILE MACHINERIES EQUIPMENT AND ACCESSORIES FOR VARIOUS EUROPEAN MANUFACTURERS HOWEVER AS PER PARA 3.1 OF THE AGREEMENT ENTERED INTO BY THE APPELLANT WITH THAT C OMPANY DATED 3.9.2003 IT IS REVEALED THAT A.T.E.E.P.L IS ENGAGED IN THE BUSINESS OF MAKING INVESTMENTS LEASING AND LICENSING PROPERTIES. THEREFORE UNDER THESE CIRCUMS TANCES IT IS NOT CLEAR AS TO HOW THE LOGO OF A COMPANY WHI CH IS ITA NO.210 AND 657/AHD/2010 -5- ENGAGED IN A BUSINESS TOTALLY DIFFERENT FROM THE AP PELLANT WOULD HELP ITS BUSINESS. 8.3 THERE IS NO DISPUTE ABOUT THE FACT THAT A.T.E I S NOT A REGISTERED TRADE MARK AND IT HAS BEEN CLAIMED THAT AS PER PARA 3.4 OF THE AGREEMENT ENTERED INTO BY THE APPEL LANT WITH THAT COMPANY A.T.E.E.P.L. HAS MADE AN APPLICA TION FOR REGISTRATION OF TRADE MARKET VIDE AN APPLICATIO N DATED 8.8.2001. THERE IS NOTHING ON RECORD TO SHOW THAT IT WAS GRANTED REGISTRATION EVEN UPTO THE APPELLATE PROCEE DINGS UNDER REFERENCE. THEREFORE IN THESE CIRCUMSTANCES IT IS VERY CLEAR THAT A.T.E COULD BE USED BY ANY CONCERN FOR PROPAGATING ITS PRODUCT. IT DEFIES THE LOGIC THAT W HEN THE A.T.E IS NOT REGISTERED AS TRADE MARK BY THAT COMPA NY IN LAST 70 YEARS OF ITS INCORPORATION THEN HOW SUCH NA ME ENJOYS A BRAND VALUE. IN NORMAL CIRCUMSTANCES THE V ALUE OF TRADE MARK COMES FROM THE GOODWILL GENERATED BY THE COMPANY HOLDING THE SAME. I HAVE ALSO GONE THROUGH THE PROFIT AND LOSS ACCOUNT OF A.T.E.E.P.L FOR THE RELE VANT PERIOD A COPY THEREOF HAS BEEN FILED DURING THE AP PELLATE PROCEEDING IT IS REVEALED THERE FROM THAT THE COMP ANY WAS HAVING RECEIPTS ONLY FROM ROYALTIES INTEREST DIVI DEND ETC. BESIDES EARNING THROUGH SALE OF CAPITAL ASSETS. THE RE IS NO TRADING RECEIPT DURING THE RELEVANT PERIOD. A CLOSE ANALYSIS OF THE PROFIT AND LOSS ACCOUNT OF THAT COMPANY REVE ALS THAT IT IS SURVIVING ON ROYALTY ETC. PAID BY THE SUBSIDI ARY COMPANIES. IF THAT COMPANY WAS HOLDING SUCH A TREME NDOUS GOOD WILL THAN IT WOULD NOT BE SURVIVING ON THE REC EIPTS FROM SO CALLED BRAND LOGO. THEREFORE UNDER THESE CIRCUMSTANCES THERE DOES NOT APPEAR TO BE ANY JUST IFICATION FOR PAYMENT OF ROYALTY FOR ALLEGED USE OF LOGO A.T. E WHICH IS NEITHER REGISTERED AS TRADE MARK NOR SHOWN TO BE HOLDING ANY KNOWN GOODWILL IN THE MARKET. IN VIEW O F THIS IT IS CLEAR THAT THE AMOUNT UNDER REFERENCE HAS BEE N PAID BY THE APPELLANT FOR THE CONSIDERATION OTHER THAN THE BUSINESS THEREFORE THE SAME CANNOT BE ALLOWED AS EXPENSE FR OM THE PROFITS OF THE RELEVANT PERIOD. THE DISALLOWANCE T HEREFORE MADE BY THE A.0 IS HEREBY CONFIRMED AND THE APPELLA NT'S GROUND AGAINST THE SAME IS REJECTED. ITA NO.210 AND 657/AHD/2010 -6- 6. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT TH E LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE OF LOGO FEE M AINLY ON THE GROUND THAT THE LOGO WAS NOT REGISTERED UNDER THE T RADE MARKS ACT 1999. HE SUBMITTED THAT THE LOGO WAS IN FACT REGISTERED IN THE NAME OF ATE ENTERPRISES PVT. LTD. BY CERTIFICA TE NO.385207 ISSUED BY REGISTRAR OF TRADE MARKS ON 10.6.2005. I T WAS SUBMITTED THAT A PRAYER HAS BEEN MADE TO THE TRIBUN AL FOR ADMITTING THIS EVIDENCE AS ADDITIONAL EVIDENCE AS THE SAME COULD NOT BE BROUGHT BEFORE THE LOWER THE LOWER AUTHORITI ES. IT WAS FURTHER ARGUED THAT EVEN IF THE TRADE MARK IS NOT R EGISTERED STILL UNDER THE TRADE MARKS ACT 1999 UNDER SECTION 27(2 ) OF THE ACT PROVIDES THAT NOTHING IN THIS ACT SHALL BE DEEMED T O AFFECT RIGHTS OF ACTION AGAINST ANY PERSON FOR PASSING OFF GOODS OR SERVICES AS THE GOODS OF ANOTHER PERSON OR AS SERVICES PROVIDED ANY ANOTHER PERSON OR THE REMEDIES IN RESPECT THEREOF. HE FU RTHER SUBMITTED THAT SECTION 134(1)(C) OF THE SAID ACT PROVIDES THA T FOR PASSING OFF ARISING OUT OF THE USE BY THE DEFENDANT FOR ANY TRA DE MARK WHICH IS IDENTICAL WITH OR DECEPTIVELY SIMILAR TO THE PLA INTIFFS TRADE MARK WHETHER REGISTERED OR UNREGISTERED SHALL BE INSTITUTED IN ANY COURT INFERIOR TO A DISTRICT COURT HAVING JURIS DICTION TO TRY THE SUIT. THUS IT WAS SUBMITTED THAT EVEN IF THE LOG O WAS NOT REGISTERED THE OWNER OF THE LOGO HAS THE RIGHT TO SUE THE PARTY USING THE SAME WITHOUT HIS PERMISSION. THEREFORE THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE MA DE BY THE AO FOR LOGO FEE ON THE GROUND THAT THE LOGO WAS NOT RE GISTERED UNDER ITA NO.210 AND 657/AHD/2010 -7- THE TRADE MARKS ACT 1999. IN THE END HE SUBMITTE D THAT THE ISSUE OF REGISTRATION WAS ONLY ACADEMIC AS THE ASS ESSEE HAS FILED BEFORE THE TRIBUNAL THE COPY OF REGISTRATION CERTIF ICATE OF THE LOGO IN THE ATE PRODUCTS. HE ALSO PLACED RELIANCE ON TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SKYLINE ED UCATION INSTITUTE P. LTD. VS. SL VASWANI & ANR. REPORTED I N AIR 2010 SUPREME COURT 3221 IN PARA 20 OF THE ORDER HAS HELD THAT EVEN AN UNREGISTERED PRIOR USER OF A NAME CAN INSTI TUTE ACTION FOR PASSING OFF AND SEEK INJUNCTION AGAINST THE SUBSEQU ENT USER OF THE SAME NAME BY PROVING THAT MISREPRESENTATION BY THE DEFENDANT TO THE PUBLIC THAT THE GOODS/SERVICES OFFERED BY HIM A RE THAT OF THE PLAINTIFF AND SUCH MISREPRESENTATION HAS CAUSED HAR M TO THE GOODWILL AND REPUTATION OF THE PLAINTIFF OR THE PLA INTIFF DEMONSTRATES THAT IT HAS SUFFERED LOSS DUE TO SUCH REPRESENTATION. FINALLY IT WAS ALSO SUBMISSIONS OF THE LEARNED AR OF THE ASSESSEE THAT SECTIONS 37 AND SECTION 40A(2) ARE MUTUALLY EX CLUSIVELY AS SECTION 40A BEGINS WITH NOTWITHSTANDING ANYTHING T O THE CONTRARY CONTAINED IN THE ACT. THUS WHERE THE AO INVOKES THE PROVISIONS OF SECTION 40A(2) FOR MAKING DISALLOWANC E THE ASSESSEE CROSSES THE HURDLE OF SECTION 37 OF THE I. T.ACT. HE SUBMITTED THAT IN THIS CASE THE AO HAS DISALLOWED THE ENTIRE EXPENSES CLAIMED BY THE ASSESSEE WHEREAS THE AO IS REQUIRED TO FIND OUT THE MARKET VALUE OF THE GOODS AND SERVICES AND ONLY THE EXCESS AMOUNT PAID OVER THE MARKET VALUE OF SUCH GO ODS AND SERVICES DISALLOWANCE CAN BE MADE BY THE AO. ITA NO.210 AND 657/AHD/2010 -8- 7. ON THE OTHER HAND THE LEARNED DR FULLY JUSTIFIE D THE ACTION OF THE AO AND SUBMITTED THAT SINCE THE LOGO WAS NOT REGISTERED IN THE NAME OF THE PARTY TO WHOM THE ASSESSEE HAD PAID LOGO FEE THEREFORE THE ASSESSEE WAS FREE TO USE THE LOGO AN D PAYMENT MADE BY THE ASSESSEE WAS NOT FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. HE FURTHER ARGUED THAT BY USE OF THE LOGO THE AO HAS NOT SHOWN ANY WINDFALL PROFIT. HE FURTHER ARGU ED THAT THE ASSESSEE WAS PAYING COMMISSION TO THE SAID PARTY A TE ENTERPRISES PVT. LTD. TO WHOM LOGO FEE WAS PAID. SINCE THE ASSESSEE WAS PAYING THE COMMISSION TO THE SAID PART Y FOR SELLING ITS PRODUCTS THERE WAS NO NECESSITY FOR MAKING THE PAYMENT FOR USE OF LOGO OF THE SAID COMPANY ATE ENTERPRISE PVT . LTD. THEREFORE THE DISALLOWANCE MADE BY THE AO WAS JUST IFIED. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE THE ASSESSEE HAS CLAIMED DEDUCTION OF ` 30 88 359/- ON ACCOUNT OF MAKING PAYMENT OF LOGO CHARGES TO A.T .E. ENTERPRISES P. LTD. THE AO DISALLOWED THE ABOVE EX PENDITURE IN ITS ENTIRETY BY OBSERVING THAT LOGO WAS NOT REGISTE RED LOGO OF THE PAYEE-COMPANY. THE PAYEE-COMPANY IS ENGAGED IN MAR KETING PRODUCTS OF THE ASSESSEE-COMPANY FOR WHICH COMMISS ION WAS PAID TO THAT COMPANY AND THE ASSESSEE-COMPANY HAS NOT DERIVED ANY WINDFALL INCOME BY USE OF LOGO. AS THE PAYEE C OMPANY BEING A HOLDING COMPANY OF THE ASSESSEE-COMPANY TH E AO INVOKED THE PROVISIONS OF SECTION 40A(2) AND DISALL OWED THE ENTIRE EXPENDITURE. ON APPEAL THE LEARNED CIT(A) CONFIRMED THE ITA NO.210 AND 657/AHD/2010 -9- ACTION OF THE AO BY OBSERVING THAT PAYEE COMPANY WA S DERIVING INCOME FROM ROYALTIES INTEREST DIVIDEND ETC. BES IDES EARNING THROUGH SALE OF CAPITAL ASSETS AND THE SAME DOES N OT SHOW LOGO HAD ANY BRAND VALUE. WE FIND THAT THE GENUINENESS OF THE PAYMENT OF ` 30 88 359/- FOR USE OF LOGO BRAND IS NOT IN DISPUT E. IT IS ALSO NOT IN DISPUTE THAT LOGO WAS USED IN THE BUSINESS OF THE ASSESSEE-COMPANY AND SUCH USER WAS UNDER AN AGREEME NT WITH A.T.E. ENTERPRISES P. LTD. WHICH IS ALSO HOLDING C OMPANY OF THE ASSESSEE. WE FIND FORCE IN THE ARGUMENTS OF THE LE ARNED AR THAT FOR MAKING PAYMENT OF LOGO BRAND WHICH WAS USED BY THE ASSESSEE IN ITS BUSINESS IT IS NOT NECESSARY THAT THE ASSESSEE MUST HAVE WINDFALL INCOME. FURTHER MERELY BECAUSE THE COMMISSION WAS PAID TO THE PAYEE-COMPANY FOR MARKETING THE PRO DUCTS OF THE ASSESSEE IT COULD NOT BE HELD THAT THE ASSESSEE WA S NOT LIABLE TO PAY LOGO BRAND CHARGES WHEN SUCH LOGO WAS USED IN T HE BUSINESS OF THE ASSESSEE. FURTHER WE AGREE WITH THE CONT ENTION OF THE LEARNED AR THAT IT IS NOT NECESSARY THAT LOGO MUST HAVE BEEN REGISTERED BY THE COMPANY TO WHOM THE LOGO BRAND CH ARGES HAS BEEN PAID. IF THE LOGO BRAND WAS USED BY THE COMPA NY FROM AN EARLIER PERIOD AND VERY SAME LOGO WAS USED BY THE ASSESSEE- COMPANY ON PAYMENT OF CHARGES UNDER AN AGREEMENT W ITH THAT COMPANY THEN THERE IS NOTHING ILLEGAL IN SUCH PAYM ENT. HONBLE SUPREME COURT IN THE CASE OF SKYLINE EDUCATION INST ITUTE P. LTD. VS. SL VASWANI & ANR.(SUPRA) AT PARA NO.20 OF THE O RDER HAS STATED AS UNDER: ITA NO.210 AND 657/AHD/2010 -10- 20. SHRI SUDHIR CHANDRA MAY BE RIGHT IN HIS SUBMIS SION THAT EVEN AN UNREGISTERED PRIOR USER OF A NAME CAN INSTITUTE ACTION FOR PASSING OFF AND SEEK INJUNCTION AGAINST THE SUBSEQUENT USER OF THE SAME NAME BY PROVING THAT MISREPRESENTATION BY THE DEFENDANT TO THE PUBLIC TH AT THE GOODS/SERVICES OFFERED BY HIM ARE THAT OF THE PLAIN TIFF AND SUCH MISREPRESENTATION HAS CAUSED HARM TO THE GOODW ILL AND REPUTATION OF THE PLAINTIFF OR THE PLAINTIFF DE MONSTRATES THAT IT HAS SUFFERED LOSS DUE TO SUCH REPRESENTATIO N . IN THE INSTANT CASE WE FIND THAT NO MATERIAL WAS BROUGHT TO SHOW THAT THE LOGO BRAND HAD NO MARKET VALUE RATHER IT IS OBSERVED THAT LOGO BRAND CHARGES WAS PAID AT THE RA TE OF 1% OF THE TOTAL SALE VALUE OF THE PRODUCTS WHICH WAS SOLD WITH THAT LOGO BRAND. THE LEARNED DR COULD NOT CONTROVERT THE SUB MISSIONS OF THE ASSESSEE THAT SIMILAR LOGO BRAND CHARGES AT VER Y SIMILAR RATE OF 1% WAS PAID BY THE ASSESSEE-COMPANY TO THE VERY SAM E PAYEE IN EARLIER YEARS 2004-2005 AND 2005-2006 WHICH WAS AC CEPTED AND ALLOWED BY THE DEPARTMENT IN THE ASSESSMENT OF EARL IER ASSESSMENT YEAR 2005-2006 WHICH WAS ALSO COMPLETED UNDER SECTION 143(3) OF THE ACT. IN THE ABOVE CIRCUMSTAN CES THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF T HE CASE IN OUR CONSIDERED OPINION THERE WAS NO REASONS TO TAKE EN TIRELY A DIFFERENT DECISION IN THE YEAR UNDER CONSIDERATION AND DISALLOW THE ENTIRE LOGO BRAND CHARGES PAID BY THE ASSESSEE. IN THE ABSENCE OF ANY MATERIAL BEFORE US TO SHOW THAT LOGO CHARGES PAID AT THE RATE OF 1% OF THE SALE VALUE WAS EXCESSIVE OR UNREA SONABLE COMPARED TO THE MARKET RATE AND KEEPING IN VIEW THE FACTS THAT SIMILAR LOGO BRAND CHARGES WAS ALLOWED AS DEDUCTION IN ITS ENTIRETY DURING THE EARLIER YEARS TO THE ASSESSEE WE FIND NO REASON ITA NO.210 AND 657/AHD/2010 -11- IN DISALLOWING THE LOGO BRAND CHARGES PAID DURING T HE YEAR UNDER CONSIDERATION. WE THEREFORE DELETE THE DISALLOWA NCE OF ` 30 88 359/- AND ALLOW THIS GROUND OF THE APPEAL OF THE ASSESSEE. 9. THE GROUND NO.3 OF THE ASSESSEES APPEAL IS DIRE CTED AGAINST THE ORDER OF THE LEARNED CIT(A) CONFIRMING THE DISA LLOWANCE OF RS.72 000/- MADE BY THE AO OUT OF EXPENDITURE ON PA YMENT OF INTEREST ON THE DEPOSIT RECEIVED FROM MR. AMOL P. B HAGWATI BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B). 10. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ASSESSEE HAS PAID INTEREST TO VARIOUS PERSONS RANGI NG FROM 8.5% TO 9% PER ANNUM EXCEPT IN THE CASE OF DEPOSIT FROM AMOL BHAGWATI A DIRECTOR OF THE COMPANY ON WHICH THE I NTEREST AT THE RATE OF 14% WAS PAID. HE OBSERVED THAT THE RATE OF INTEREST IN THE MARKET DURING THE SAME PERIOD WAS OF 10% TO 12% PER ANNUM. ACCORDINGLY THE AO TREATED THE INTEREST RATE AT 14 % PAID TO AMOL P. BHAGWATI TO BE EXCESSIVE AND UNREASONABLE WITHIN THE MEANING OF SECTION 40A(2)(B) OF THE ACT AND RESTRICTED THE SAME TO 10% PER ANNUM. THE AO ACCORDINGLY DISALLOWED RS.72 0 00/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 11. ON APPEAL BEFORE THE LEARNED CIT(A) THE ASSESS EE SUBMITTED THAT THE ACTION OF THE AO IN DISALLOWING AN AMOUNT OF RS.72 000/- OUT OF EXPENDITURE INCURRED ON PAYMENT OF INTEREST WAS MISCONCEIVED AND MISDIRECTED. THE ASSESSEE HAD SUBMITTED BEFORE THE AO THAT THE LOAN OF RS.18.00 LACS WAS CO NTRACTED FROM ITA NO.210 AND 657/AHD/2010 -12- MR.AMOL P. BHAGWATI DIRECTOR IN AUGUST 2002. AT THAT MATERIAL POINT OF TIME WHEN LOAN WAS CONTRACTED THE PREVAILING RATE OF INTEREST AS AT 14%. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD PAID INTEREST AT CONTRACTED RATE. THE INTEREST SO PAID CANNOT BE SAID TO BE UNREASONABLE OR EXCESSIVE . IT IS FURTHER SUBMITTED THAT THE RATE OF INTEREST IN MONEY MARKET RANGED FROM 15% TO 18% DURING THE RELEVANT PREVIOUS YEAR. EVEN SBI HAS BEEN CHARGING INTEREST OF MORE THAN 35% ON THE AMOU NT DUE ON CREDIT CARDS AND WHEN PREMIER FINANCIAL INSTITUTIO N LIKE SBI WHICH IS OWNED AND CONTROLLED BY THE GOVT. OF INDIA WAS CHARGING INTEREST MORE THAN 35% ON THE UNPAID BALAN CE OF CREDITS IT CANNOT BE SAID THAT INTEREST PAID EXCESSIVE OR U NREASONABLE. 12. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE CONFIRMED THE ACTION OF THE AO BY OBSE RVING THAT IT WAS NOT IN DISPUTE THAT THE PERSON TO WHOM THE INTE REST WAS PAID ON SPECIFIED PERSON UNDER SECTION 40A(2)(B) OF THE ACT WAS PAID INTEREST AT THE RATE OF 14% ON THE DEPOSITS WHEREA S TO OTHER PERSONS INTEREST ON DEPOSITS PAID RANGED BETWEEN 8 .5% TO 9%. THE CIT(A) HAS FURTHER OBSERVED THAT THERE WERE THR EE ALTERNATIVE TESTS TO DETERMINE REASONABLENESS OF EXPENDITURE A S PER CBDTS CIRCULAR NO.6P(LXXVI-66) DATED 6 TH JULY 1968 VIZ. (A) FAIR MARKET VALUE OF GOODS SERVICES OR FACILITIES FOR W HICH THE PAYMENT IS MADE (B) THE LEGITIMATE NEEDS OF THE BUS INESS OR PROFESSION (C) THE BENEFIT DERIVED BY OR ACCRUING TO THE TAX PAYER FROM THE EXPENDITURE. THEREFORE UNDER THE GIVEN C IRCUMSTANCES THE AO CAN DISALLOW SUCH OF THE EXPENDITURE WHICH A S PER HIS ITA NO.210 AND 657/AHD/2010 -13- SUBJECTIVE SATISFACTION IS EXCESSIVE OR UNREASONABL E. THE CIT(A) HAS HELD THAT THE ASSESSEE HAS FAILED TO BRING ON R ECORD SPECIAL CIRCUMSTANCES UNDER WHICH HIGHER RATE OF INTEREST W AS ALLOWED TO THE PERSON SPECIFIED UNDER SECTION 40A(2)(B) OF THE ACT AS COMPARED TO THE MARKET RATE. THEREFORE HE HELD T HAT UNDER THE GIVEN CIRCUMSTANCES THE AO HAS RIGHTLY DISALLOWED THE INTEREST IN EXCESS OF 10% PAID BY THE ASSESSEE TO SHRI AMOL P. BHAGWATI AND CONFIRMED HIS ACTION. 13. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A) AND SUBM ITTED THAT THE RATE OF INTEREST AT THE RATE OF 14% TO SHRI AMO L P. BHAGWATI DIRECTOR OF THE ASSESSEE-COMPANY WAS REASONABLE AS LOAN WAS TAKEN IN THE YEAR 2002 AND WHEN THE PREVAILING RAT E IN THE MARKET WAS WITHIN 15% TO 18%. IT WAS ALSO SUBMITTED THAT THE INTEREST PAID IN THE EARLIER YEARS HAS BEEN ALLOWED BY THE D EPARTMENT AND THEREFORE THERE WAS NO JUSTIFICATION IN CONSIDERIN G THE SAID AMOUNT AS UNREASONABLE IN THE YEAR UNDER APPEAL. 14. THE LEARNED DR ON THE OTHER HAND SUPPORTED TH E ORDER OF THE AO. 15. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE THE AO DISALLOWED THE INTEREST PAYMEN T OF ` 72 000/- OUT OF THE TOTAL INTEREST PAYMENT MADE TO SHRI AMOL P. BHAGWATI AT THE RATE 14% PER ANNUM BY INVOKING THE PROVISIONS ITA NO.210 AND 657/AHD/2010 -14- OF SECTION 40A(2)(B) OF THE ACT ON THE GROUND THAT THE INTEREST PAID TO OTHER PERSONS RANGED BETWEEN 8.5% TO 9%. O N APPEAL THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE AO. THE CONTENTION OF THE ASSESSEE IS THAT LOAN FROM SHRI A MOL P. BHAGWATI WAS TAKEN IN THE YEAR AUGUST 2002 AND NO T DURING THE ASSESSMENT YEAR UNDER APPEAL AND DURING THAT TIME THE PREVAILING RATE OF INTEREST WAS RANGING FROM 15% TO 18%. WE F IND THAT THE GENUINENESS OF THE PAYMENT OF INTEREST MADE TO THE DIRECTORS IS NOT IN DISPUTE. FURTHER NO MATERIAL HAS BEEN BROU GHT ON RECORD BY THE REVENUE TO SHOW THAT THE PREVAILING RATE OF INTEREST DURING THE PERIOD AUGUST 2002 WHEN THE SAID AMOUNT WAS BO RROWED BY THE ASSESSEE FROM THE DIRECTOR WAS NOT BETWEEN 14% TO 18%. FURTHER THE RATE OF INTEREST DEPENDS ON THE AMOUNT BORROWED AND THE PERIOD FOR WHICH IT WAS BORROWED. IN A CASE WH ERE THE AMOUNT IS BORROWED FOR LONGER PERIOD AND THE AMOUNT OF BORROWAL IS ALSO LARGER THE RATE OF INTEREST IS HIGHER. IN THE INSTANT CASE THE INTEREST WAS PAID TO THE PERSONS FROM WHOM SMALLER AMOUNTS WERE BORROWED AND ALSO BORROWALS WERE FOR A SHORTER DURATION AND THEREFORE NOT STRICTLY COMPARABLE WITH THE NAT URE OF THE BORROWINGS FROM THE DIRECTOR. MOREOVER WE FIND TH AT THE RATE OF INTEREST TO 14% IN RESPECT OF UNSECURED LOAN CANNOT BE HELD TO BE SO HIGH AS TO WARRANT ANY DISALLOWANCE UNDER SECTIO N 40A(2)(B) OF THE ACT KEEPING IN VIEW THE RATE OF INTEREST W HICH IS CHARGED BY THE BANK IN RESPECT OF UNSECURED LOAN AND EVEN THE RATE OF INTEREST CHARGED BY THE INCOME-TAX DEPARTMENT UNDER CERTAIN PROVISIONS ARE OF 15% PER ANNUM. HENCE WE DELETE THE ITA NO.210 AND 657/AHD/2010 -15- DISALLOWANCE OF ` 72 000/- AND ALLOW THIS GROUND OF THE APPEAL OF THE ASSESSEE. ITA NO.657/AHD/2010 (REVENUES APPEAL) 16. THE GROUND NO.1 OF THE REVENUES APPEAL IS DIRE CTED AGAINST THE ORDER OF THE CIT(A) IN DELETING THE DISALLOWANC E OF RS.7 84 948/- MADE OUT OF TRAVEL EXPENSES. 17. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-C OMPANY HAS CLAIMED FOREIGN TRAVELING EXPENSES OF RS.14 51 471/ -. OUT OF THE SAID EXPENSES RS.5 81 179/- HAS BEEN SPENT IN FORE IGN CURRENCY AND RS.8 70 292 IS SPENT IN INDIAN RUPEES. ACCORDI NG TO THE AO A FOREIGN TOUR UNDERTAKEN BY THE PERSONS WERE SUBST ANTIATED BY ADDUCING NECESSARY EVIDENCES THAT WERE INCURRED FO R THE BUSINESS PURPOSE OF THE ASSESSEE. THE AO OBSERVED THAT SHRI A.S.DESAI CEO OF THE COMPANY INCURRED RS.1 13 663/- ON TRIP T O INDONESIA. ACCORDING TO THE AO IN THIS AGE OF REVOLUTION IN F ORMATION TECHNOLOGY FLOOD OF INFORMATION GENERAL AND SPECI FIC INFORMATION OF ANY COUNTRY OR ANY TRADE OR INFORMA TION OF PROSPECTS OF ANY INDUSTRY IN ANY COUNTRY WAS ONLY A CLICK OF MOUSE AWAY. THEREFORE ACCORDING TO THE AO THE SA ID EXPENDITURE CANNOT BE ALLOWED AS BUSINESS EXPENDITU RE OF THE ASSESSEE. FURTHER ACCORDING TO THE AO SHRI PRAKA SH K. BHAGWATI DIRECTOR OF THE COMPANY HAS SPENT RS.87 165/- MR.AMOL BHAGAWATI SPENT RS.87 773/- AND SHRI AMUL BHAGWATI OF RS.82 780/- FOR VISIT TO GERMANY. ACCORDING TO THE AO THESE ITA NO.210 AND 657/AHD/2010 -16- PERSONS CLAIMED TO HAVE VISITED GENERAL IN ORDER TO NEGOTIATE FOR THE ORDERS PRODUCTS SPECIFICATIONS ETC. THE TOTAL EXPORTS TO GERMANY DURING A.Y.2006-2007 AND 2007-2008 WAS RS.1 53.12 LACS AND RS.268.19 LACS RESPECTIVELY. ACCORDING T O THE AO THE SUBMISSION IS GENERAL AND NO ENOUGH EVIDENCE WAS PR ODUCED WITH REGARD TO THE PERSONS CONTACTED BUSINESS NEGOTIATE D AND ORDERS RECEIVED OR MOU SIGNED AND THEREFORE THE EXPEND ITURE CANNOT BE CONSIDERED AS INCURRED FOR THE PURPOSE OF BUSINE SS OF THE ASSESSEE AND ACCORDINGLY DISALLOWED THE SAME. H E FURTHER OBSERVED THAT SHRI P.K. BHAGWATI DIRECTOR OF THE C OMPANY SPENT RS.42 1255/- ON TOUR TO EUROPE AND THE ASSESSEE-COM PANY FAILED TO PRODUCE ANY EVIDENCES WITH REGARD TO THE OUTCOME OF THE VISIT AND THEREFORE THE AO CONSIDERED THE EXPENDITURE HA VING NOT BEEN INCURRED FOR THE BUSINESS OF THE ASSESSEE. FURTHER THE AO FOUND THAT SHRI A.S.DESAI CEO HAD MADE TRIP TO CHINA WHI CH ALSO SUPPORTED BY ANY EVIDENCE TO SHOW THAT EXPENSES INC URRED FOR THE BUSINESS PURPOSE OF THE ASSESSEE-COMPANY AND DISAL LOWED THE SAME. 18. ON APPEAL BEFORE THE LEARNED CIT(A) THE ASSESS EE CONTENDED THAT THE EXPENDITURE ON FOREIGN TRAVELLIN G WERE INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E AND THAT IT WAS FOR THE BUSINESSMAN TO DECIDE THE PRUDENCY AND NECESSITY OF THE EXPENSES AND THAT THE AO CANNOT STEPS INTO SHO ES OF THE BUSINESSMAN AND DECIDE WHAT EXPENDITURE BUSINESSMAN SHOULD AND SHOULD NOT INCUR FOR THE BUSINESS PURPOSE. ITA NO.210 AND 657/AHD/2010 -17- 19. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING THAT DETAILS FILED BEFORE THE AO CONTAINED THE NAME OF THE COUNTRY VIS ITED BY THESE PERSONS AND THE PURPOSE OF UNDERTAKING SUCH TOURS. THE AO WITHOUT BRINGING ANY INFIRMITY IN THE DETAILS FILED BY THE ASSESSEE CAME TO THE CONCLUSION THAT PART OF SUCH EXPENSES W ERE MADE FOR THE PURPOSES OTHER THAN THE BUSINESS. THE DISALLOW ANCE MADE BY THE AO IN THE GIVEN SET OF CIRCUMSTANCES CANNOT BE HELD JUSTIFIED. 20. THE LEARNED DR SUPPORTED THE ORDER OF THE AO W HEREAS THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDE R OF THE CIT(A). 21. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILA BLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE CLAIMED DEDUCTION ON ACCOUNT OF TRAVELING EXPENSES OF ` 14 51 471/- OUT OF WHICH ` 5 81 179/- WAS DISALLOWED BY THE AO ON THE GROUND THAT THERE WAS N O INCREASE IN THE SALES OF THE ASSESSEE-COMPANY BY INCURRING SUCH EXPENDITURE AND THEREFORE THE EXPENDITURE WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE-COMPANY. ON APPEAL THE CIT(A) DELETED THE DISALLOWANCE BY OBSERVING THAT THE DETA ILS WERE FILED BEFORE THE AO CONTAINING NAMES OF THE COUNTRIES VIS ITED BY THE PERSONS AND THE PURPOSE OF UNDERTAKING THE VISITS TO FOREIGN COUNTRIES. THE AO WITHOUT POINTING OUT ANY INFIRMI TY IN THE DETAILS FILED BY THE ASSESSEE HAS MADE PART DISALLO WANCE OF THE EXPENDITURE HOLDING THAT THEY WERE NOT INCURRED FOR THE PURPOSE ITA NO.210 AND 657/AHD/2010 -18- OF BUSINESS OF THE ASSESSEE WHICH IS NOT JUSTIFIED . IN OUR CONSIDERED OPINION IT IS NOT NECESSARY THAT EVERY EXPENDITURE INCURRED BY THE ASSESSEE SHOULD RESULT IN A CORRESP ONDING INCREASE IN THE REVENUE OF THE ASSESSEE. FURTHER THE AO HI MSELF HAS ALLOWED A PART OF THE EXPENDITURE INCURRED BY THE A SSESSEE FOR FOREIGN TRAVEL WHICH SHOWS THAT THE GENUINENESS OF THE EXPENDITURE IS NOT DOUBT. AS NO INFIRMITY IN THE O RDER OF THE CIT(A) COULD BE POINTED OUT BY THE LEARNED DR DURIN G THE COURSE OF HEARING WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) WHICH IS CONFIRMED AND THE GROUND OF THE A PPEAL OF THE REVENUE IS DISMISSED. 22. THE GROUND NO.2 OF THE REVENUES APPEAL IS DIRE CTED AGAINST THE ORDER OF THE LEARNED CIT(A) IN DELETING THE DIS ALLOWANCE OF RS.27 125/- OUT OF COMMISSION PAID. 23. BRIEF FACTS OF THE CASE ARE THAT THE AO DISALLO WED THE COMMISSION PAID TO EASTEX TRADING CO. TAIWAN ON TH E GROUND THAT THE ASSESSEE PAID AT THE RATE OF 28.72% ON THE SALE PROCEEDS AS AGAINST 12.5% TO 15% IN SOME OTHER CASES. 24. ON APPEAL BEFORE THE LEARNED CIT(A) THE ASSESS EE SUBMITTED THAT IT HAD CLARIFIED BEFORE THE AO THAT THE COMMISSION WAS PAID ON THE SALE MADE TO M/S.NIENSHING TEXTILE CO. LTD. TAIWAN WHICH INCLUDED SALES OF ACS FLYERS THE UNIT SELLING PRICE OF WHICH WAS US DOLLAR 95. THE PRICES REALISED BY THE COMPANY ON THE SAME PRODUCTS FROM OTHER CUSTOMERS IN THE EX PORT MARKET ITA NO.210 AND 657/AHD/2010 -19- WAS IN THE RANGE OF USD 70 TO 80. HOWEVER THE AGE NT HELPED THE COMPANY TO FETCH HIGHER PRICES FOR WHICH ADDITIONAL COMMISSION WAS AGREED TO BE PAID. 25. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE DELETED THE ADDITION BY OBSERVING THA T THE DISALLOWANCE WAS MADE BY THE AO WITHOUT APPRECIATIN G THE FACTS OF THE CASE WHICH CANNOT BE SUSTAINED. 26. THE LEARNED DR SUPPORTED THE ORDER OF THE AO W HILE THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDE R OF THE LEARNED CIT(A). 27. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSE SSEE HAS PAID COMMISSION TO EASTEX TRADING CO. AT THE RATE OF 28. 72% ON SALE AS AGAINST 12.5% TO 15% PAID IN SOME OTHER CASES. THE AO THEREFORE DISALLOWED ` 27 125/- OUT OF THE COMMISSION PAYMENT MADE BY THE ASSESSEE CONSIDERING THE SAME TO BE EX CESSIVE. BEFORE THE AO AS WELL AS THE CIT(A) THE ASSESSEE C ONTENDED THAT THE COMMISSION WAS PAID ON SALES MADE TO M/S.NIENSH ING TEXTILE CO. LTD. WHICH INCLUDES SALES OF ACS FLYERS THE U NIT SELLING PRICE OF WHICH WAS US DOLLAR 95 AND THE PRICE REALI ZED BY THE COMPANY ON THE SAME PRODUCTS FROM OTHER CUSTOMERS I N THE EXPORT MARKET WAS IN THE RANGE OF USD 70 TO 80. SI NCE THE AGENT HELPED THE COMPANY TO FETCH HIGHER PRICES FOR WHICH ADDITIONAL COMMISSION WAS PAID. THE LEARNED CIT(A) HAS DELETE D THE ITA NO.210 AND 657/AHD/2010 -20- DISALLOWANCE BY OBSERVING THAT THE DISALLOWANCE WAS MADE BY THE AO WITHOUT APPRECIATING THE FACTS OF THE CASE AND THEREFORE CANNOT SUSTAINED. WE FIND THAT NO MATERIAL WAS BRO UGHT ON RECORD BY THE REVENUE TO SHOW THAT THE ASSESSEE HAS IN FAC T NOT REALIZED HIGHER SALE PRICE OF USD 95 ON ACS FLYERS THAN THE SALE MADE TO OTHER PERSONS WHERE THE SALE PRICE RANGED FROM USD 70 TO 80. SINCE THE ASSESSEE-COMPANY REALIZED HIGHER SALE PRI CES FOR WHICH THE ASSESSEE MADE HIGHER COMMISSION PAYMENT IN OUR CONSIDERED OPINION THE AO WAS NOT JUSTIFIED IN MAKING THE DIS ALLOWANCE OF COMMISSION PAYMENT. WE THEREFORE FIND NO INFIRMI TY IN THE ORDER OF THE CIT(A) WHICH IS CONFIRMED AND THE GRO UND OF THE APPEAL OF THE REVENUE IS DISMISSED. 28. THE GROUND NO.3 OF THE REVENUES APPEAL IS DIRE CTED AGAINST THE ORDER OF THE LEARNED CIT(A) IN DELETING THE DIS ALLOWANCE OF RS.3 80 764/- BEING THE PAYMENT MADE TO ADVOCATE FO R REGISTRATION OF PATENT RIGHTS IN FOREIGN COUNTRIES. 29. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.3 80 764/- IN FOREIGN CURRENCY PAID TOWARDS LEGAL FEES FOR REGISTRATION O F PATENT IN FOREIGN COUNTRY. ACCORDING TO THE AO THE EXPENDIT URE ON ACQUISITION OF PATENT WAS CAPITAL IN NATURE AND TH EREFORE DISALLOWED THE SAME. ON APPEAL BEFORE THE LEARNED CIT(A) THE ASSESSEE SUBMITTED THAT THE EXPENDITURE ON ACCOUNT OF PAYMENT OF FEES PAID TO ADVOCATE FOR REGISTRATION OF ASSESSEE S PATENT HAS NOT BEEN RESULTED IN BRINGING ABOUT A NEW CAPITAL ASSET OR BENEFIT OF ITA NO.210 AND 657/AHD/2010 -21- ENDURING NATURE. THE EXPENDITURE HAS BEEN INCURRED FOR PRESERVING AND MAINTAINING THE ASSESSEES EXISTING INTELLECTUAL PROPERTY RIGHT OF PATENT IN RESPECT OF ITS PRODUCTS THEREFORE THE EXPENDITURE IN QUESTION IS ELIGIBLE IN FULL. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE DISALLOWANCE BY OBSERVING THAT THE AO HAS DISALLOWE D THE EXPENDITURE WITHOUT APPRECIATING THE NATURE OF EXPE NSES THAT THESE WERE INCURRED FOR ACQUISITION OF INTELLECTUAL PROPERTY IN THE FORM OF PATENT COPY RIGHT AND TRADE MARK. THE AS SESSEE HAS NOT ACQUIRED ANY CAPITAL ASSET OUT OF THE EXPENSES UNDE R REFERENCE AND THEREFORE THE DISALLOWANCE WAS NOT JUSTIFIED T O HOLD THAT THE SAME TO BE CAPITAL IN NATURE. 30. THE LEARNED DR SUPPORTED THE ORDER OF THE AO W HEREAS THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECI SION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. C ADILA HEALTHCARE LTD. 312 TAXMANN.COM 300 (GUJ) WHEREIN IT WAS HELD THAT FACT THAT A TRADE MARK AFTER REGISTRATION COULD BE SEPARATELY ASSIGNED AND NOT AS A PART OF THE GOODW ILL OF THE BUSINESS ONLY DOES NOT ALLOW MAKE THE EXPENDITURE FOR REGISTRATION A CAPITAL EXPENDITURE. THAT IS ONLY A N ADDITION AND INCIDENTAL FACILITY GIVEN TO THE OWNER OF THE TRADE -MARK AND IT ADDS NOTHING TO THE TRADE MARK ITSELF. 31. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILA BLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE INCURRED EXPENDIT URE BY WAY OF ITA NO.210 AND 657/AHD/2010 -22- ADVOCATE FEE FOR REGISTRATION OF PATENT IN FOREIGN COUNTRIES OF ` 3 80 764/-. THE ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEE WAS DISALLOWED BY THE AO ON THE GROUND THAT IT WAS A CA PITAL EXPENDITURE. ON APPEAL FILED BY THE ASSESSEE THE CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT THE AO WITHOUT APPRECIATING THE NATURE OF THE EXPENSES INCURRED FOR ACQUISITION OF THE INTELLECTUAL PROPERTY IN THE FORM OF PATENT AND TRA DE MARK HAD MADE DISALLOWANCE. THE ASSESSEE HAS NOT ACQUIRED A NY CAPITAL ASSET OUT OF THE EXPENSES INCURRED BY THE ASSESSEE AND THEREFORE THERE WAS NO JUSTIFICATION IN DISALLOWING THE EXPEN DITURE AS CAPITAL IN NATURE. WE FIND THAT THE ISSUE IS NOW C OVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS. CADILA HEALTHCARE LTD. (SUPRA) WHERE THE HONB LE HIGH COURT DECIDED THE FOLLOWING QUESTION OF LAW: C. WHETHER THE APPELLATE TRIBUNAL HAS SUBSTANTIALL Y ERRED IN HOLDING THAT TRADEMARK REGISTRATION FEE AN D PATENT FEE (RS.37 92 606/0 AND RS.1 15 49 880) ARE REVENUE EXPENSES WHEN THE EXPENSES INCURRED FOR REGISTRATI ON OF TRADEMARK IN THAT COUNTRY AND ALSO FOR REGISTRATION OF PATENT WHICH ARE INTANGIBLE ASSETS UNDER SECTION 3 2(1)(II) OF THE ACT ? HELD THAT THE FACT THAT A TRADE MARK AFTER REGISTR ATION COULD BE SEPARATELY ASSIGNED AND NOT AS A PART OF THE GO OD WILL OF THE BUSINESS ONLY DOES NOT ALSO MAKE THE EXPENDITURE F OR REGISTRATION A CAPITAL EXPENDITURE THAT IS ONLY AN ADDITION AND INCIDENTAL FACILITY GIVEN TO THE OWNER OF THE TRADE MARK. IT ADDS NOTHING TO THE TRADE MARK ITSELF. THUS WE FIND THAT THE ISSU E IS SQUARELY ITA NO.210 AND 657/AHD/2010 -23- COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CADILA HEALTHCARE LTD. (SUPRA). WE THEREF ORE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 32. THE GROUND NO.4 OF THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A) IN DELETING THE DISALLOWANCE OF RS.92 144/- BEING ROYALTY PAID UNDE R SECTION 40A(2)(B) OF THE ACT. 33. THE BRIEF FACTS OF THE CASE ARE THAT THE AO OBS ERVED THAT THE ASSESSEE HAS PAID ROYALTY TO STOVEC INDUSTRIES LTD. ON SALE OF END- RINGS. THE ASSESSEE EXPLAINED THAT THE RATE OF ROY ALTY WAS RS.4/- PER END-RING OF ITS AVERAGE SELLING PRICE AND AS T HE STOVEC INDUSTRIES LTD. WAS THE ORIGINAL DEVELOPER OF THIS PRODUCT AND THE COMPANY HAD OBTAINED KNOW-HOW FOR MANUFACTURE OF EN D-RINGS THE ROYALTY WAS PAID TO M/S.STOVEC. THE AO DID NOT FIND THE EXPLANATION OF THE ASSESSEE AS ACCEPTABLE AND MADE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 34. ON APPEAL BEFORE THE LEARNED CIT(A) THE ASSESS EE HAS REITERATED THE SUBMISSIONS WHICH WERE MADE BEFORE THE AO. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE DELETED THE DISALLOWANCE ON THE GROUND THAT THE AO WITHOUT BRING COGENT FACTS ON RECORD MADE THE IMPUGNED DISALLOWANCE. HE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT HOW THE PAYMENTS WERE EXCESSIVE OR UNREASONABLE WITHIN THE MEANING O F SECTION ITA NO.210 AND 657/AHD/2010 -24- 40A(2)(B) OF THE ACT. THEREFORE THE LEARNED CIT(A ) DELETED THE ADDITION. 35. THE LEARNED DR RELIED ON THE ORDER OF THE AO W HEREAS THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORDE R OF THE CIT(A). 36. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. THE AO DISALLOWED ROYALTY PAYMENT OF ` 92 144/- TO M/S.STOVEC INDUSTRIES LTD. BY INVOKING THE PROVISIONS OF SECTI ON 40A(2)(B) OF THE ACT. ON APPEAL THE LEARNED CIT(A) VACATED THE DISALLOWANCE ON THE GROUND THAT THE DISALLOWANCE WAS MADE BY THE AO WITHOUT BRINGING COGENT MATERIAL ON RECORD. THE CIT(A) OBS ERVED THAT THERE WAS NO MATERIAL ON RECORD BROUGHT BY THE AO T O SHOW THAT HOW THE PAYMENTS WERE EXCESSIVE OR UNREASONABLE WIT HIN THE MEANING OF SECTION 40A(2) OF THE ACT. WE FIND THAT THE CONTENTION OF THE ASSESSEE IS THAT ROYALTY AT THE R ATE OF ` 4/- PER RING ON ITS AVERAGE SELLING PRICE WAS PAID TO M/S.S TOVEC INDUSTRIES WHO WAS THE ORIGINAL DEVELOPER OF THIS PRODUCT AND THE COMPANY HAD OBTAINED KNOWN-HOW FOR MANUFACTURE OF E ND-RINGS. IN THE ABSENCE OF ANY MATERIAL BEING BROUGHT ON REC ORD BY THE AO TO SHOW THAT THE PAYMENT OF ROYALTY BY THE ASSESSEE TO M/S.STOVEC INDUSTRIES IS HIGHER THAN THE MARKET VALUE OF THE S ERVICES RECEIVED BY THE ASSESSEE IN OUR CONSIDERED OPINION NO DISA LLOWANCE UNDER SECTION 40A(2)(B) CAN BE MADE BY THE AO. HENCE W E FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) WHICH IS CONF IRMED AND THE GROUND OF THE REVENUE IS DISMISSED. ITA NO.210 AND 657/AHD/2010 -25- 37. THE GROUND NO.5 OF THE REVENUES APPEAL IS DIRE CTED AGAINST THE ORDER OF THE LEARNED CIT(A) IN DELETING THE DIS ALLOWANCE OF COMMISSION OF RS.17 09 248/- PAID TO DIRECTORS. 38. THE BRIEF FACTS OF THE CASE ARE THAT THE AO HAS FOUND THAT THE ASSESSEE HAS MADE COMMISSION PAYMENT OF RS.17 0 9 248/- TO THE DIRECTORS. ACCORDING TO THE AO THE COMPANY WA S MAKING THE PAYMENT TO ATE MARKETING PVT. LTD. WHO WAS THE SOL E SELLING AGENT OF THE ASSESSEE COMPANY AND THEREFORE THE C OMMISSION PAYMENT MADE TO ITS DIRECTOR IS EXCESSIVE OR UNREAS ONABLE AND ACCORDINGLY THE AO DISALLOWED THE SAME BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 39. ON APPEAL BEFORE THE LEARNED CIT(A) THE ASSESS EE SUBMITTED THAT THE COMMISSION WAS PAID TO THE DIREC TORS KEEPING IN VIEW THEIR EXPERIENCE AND THEIR CONTRIBUTION FOR THE BUSINESS OF THE ASSESSEE. IT WAS ARGUED THAT SUCH COMMISSION PAYMENTS WERE MADE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMEN T YEAR 2005- 2006 AND NO SUCH DISALLOWANCE WAS MADE AND EVEN THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT AND IN SUPPORT OF THIS CONTENTION HE RELIED ON THE DEC ISION OF THE CIT VS. UDAIPUR DISTILLERY COMPANY LTD. 17 DTR 270 AND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F J.K. WOODEN MANUFACTURERS VS. CIT 72 ITR 612. THE LEAR NED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE DELETED THE DISALLOWANCE BY OBSERVING THAT THE AO WHILE MA KING THE ITA NO.210 AND 657/AHD/2010 -26- DISALLOWANCE UNDER REFERENCE HAS NOT BROUGHT ON RE CORD HOW THE COMMISSION PAID TO THE PERSON SPECIFIED U/S.40A(2)( B) WAS EXCESSIVE AND UNREASONABLE. THE LEARNED CIT(A) OB SERVED THAT IT WAS SETTLED LAW THAT BEFORE INVOKING THE PROVISI ONS OF SECTION 40A(2)(B) THE AO HAS TO ESTABLISH THAT HOW THE EXP ENSES MADE BY THE ASSESSEE ARE EXCESSIVE KEEPING IN VIEW THE M ARKET VALUE OF GOODS SERVICES OR FACILITIES FOR WHICH PAYMENT WAS MADE THE LEGITIMATE NEEDS OF THE BUSINESS AND BENEFIT DERIVE D ACCRUED TO THE ASSESSEE. THE LEARNED CIT(A) RELIED ON THE DE CISION OF THE ITAT DELHI BENCH IN THE CASE OF METAL ROLLING MILL S P. LTD. VS. DCIT 107 PTJ 336 WHEREIN IT WAS HELD THAT REASONA BLENESS WAS TO BE DECIDED ON THE BASIS OF FAIR MARKET VALUE OF THE GOODS SERVICES OR FACILITIES. THE EXPRESSION USED IN SE CTION 40A(2) IS ANY EXPENDITURE WHICH MEANS THAT EACH EXPENDITURE HAS TO BE JUDGED IN RELATION TO ITS MARKET RATE ON THE DATE O F EXPENDITURE. THE CIT(A) OBSERVED THAT BEFORE INVOKING SECTION 40 A(2)(B) IT MUST BE ESTABLISHED THAT THE PAYMENT MADE BY THE AS SESSEE IN EXCESS OF THE FAIR MARKET PRICE OF GOODS ON THE DA TE OF PURCHASE. THEREFORE THE CIT(A) HELD THAT IN THE GIVEN FACTS AND LEGAL POSITION THERE WAS NO JUSTIFICATION FOR THE DISALL OWANCE MADE BY THE AO OUT OF THE COMMISSION PAID TO ITS DIRECTORS AND DELETED THE DISALLOWANCE. 40. THE LEARNED DR SUPPORTED THE ORDER OF THE AO W HEREAS THE LEARNED AR JUSTIFIED THE ACTION OF THE LEARNED CIT( A) IN DELETING THE DISALLOWANCE AND JUSTIFIED THAT THE COMMISSION WAS PAID TO THE DIRECTORS AS PART OF THE SALARY AND ACCORDING TO THE ITA NO.210 AND 657/AHD/2010 -27- COMPANIES ACT THE COMPANY CAN PAY COMMISSION TO TH E DIRECTORS UPTO 5% AND THEREFORE SUBMITTED THAT TH E ORDER OF THE LEARNED CIT(A) SHOULD BE UPHELD. 41. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE THE ASSESSEE COMPANY CLAIMED COMMISSI ON PAYMENT TO DIRECTORS OF ` 17 09 248/- AND THE SAME WAS DISALLOWED BY THE AO ON THE GROUND THAT THE ASSESSEE WAS MAKING PAYME NT TO M/S.ATE MARKETING PVT. LTD. WHO WAS SOLE SELLING A GENT OF THE ASSESSEE-COMPANY AND THEREFORE THE COMMISSION PAY MENT MADE TO ITS DIRECTOR WAS EXCESSIVE AND UNREASONABLE UNDE R THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. ON APP EAL THE CIT(A) HAS VACATED THE DISALLOWANCE BY OBSERVING TH AT THE REASONABLENESS OF THE EXPENDITURE HAS TO BE DECIDED ON THE BASIS OF FAIR MARKET VALUE OF THE GOODS AND SERVICES OR T HE FACILITIES. THE AO MUST ESTABLISH THAT THE PAYMENT MADE BY THE ASSESSEE WAS IN EXCESS OF THE FAIR MARKET VALUE OF THE GOODS ON THE DATE OF PURCHASE. THUS THERE WAS NO JUSTIFICATION IN MAKI NG THE DISALLOWANCE OF PAYMENT OF COMMISSION TO THE DIRECT ORS. WE FIND THAT MERELY BECAUSE COMMISSION PAYMENT WAS MAD E TO ATE MARKETING PVT. LTD. CANNOT BE A GROUND FOR MAKING THE DISALLOWANCE OF COMMISSION PAYMENT MADE TO THE DIRE CTORS OF THE ASSESSEE-COMPANY. IT IS NOT THE CASE OF THE DEPART MENT THAT THE DIRECTORS OF THE COMPANY HAD NOT RENDERED ANY SERVI CE FOR THE BUSINESS OF THE COMPANY FOR WHICH THE PAYMENT OF CO MMISSION WAS MADE. AS NO MATERIAL WAS BROUGHT ON RECORD TO S HOW THAT THE ITA NO.210 AND 657/AHD/2010 -28- EXPENDITURE INCURRED ON COMMISSION PAYMENT TO DIREC TORS BY THE ASSESSEE COMPANY WAS EXCESSIVE OR UNREASONABLE WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) WHICH IS CONFIRMED AND THE GROUND OF THE APPEAL OF THE REVENUE IS DISM ISSED. 42. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- (( /MUKUL KR. SHRAWAT) /JUDICIAL MEMBER . .. . . . . . ! ! ! ! /N.S. SAINI '# '# '# '# /ACCOUNTANT MEMBER C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER DR/AR ITAT AHMEDABAD