Expenditure on technical know-how fees is revenue expenditure, Income Tax Appellate Tribunal (ITAT), Delhi bench consisting of Anil Chaturvedi, Accountant Member and N K Choudhary, Judicial Member deleted disallowance made by Assessing Officer (AO).
The assessee, M/s. Voith Paper Fabrics India Ltd. is a Company stated to be engaged in the business of manufacturing of industrial felts which are used for paper making, manufacturing and selling of paper machine clothing for pulp, paper and board industry. The assessee filed its return of income for the A.Y. 2016-17 on 30.11.2016 declaring total income of Rs.21,94,03,760/-. The case was selected for scrutiny and thereafter, assessment was framed under section 143(3) of the I.T. Act, 1961 and the total income of the assessee was determined at Rs.25,54,52,295/-. Aggrieved by the order of the AO, assessee carried the matter in appeal before the Ld. CIT(A) who allowed the appeal of the assessee. Aggrieved by the order of the CIT(A), the Revenue is in appeal before the Tribunal.
During the course of assessment proceedings, A.O. noticed that assessee had debited Rs.3,60,48,535/- on account of “Technical know-how Fees Royalty”. According to AO the expenses appeared to be of capital in nature. AO noted that the expenses incurred in the form of royalty was termed as “Technical Know-How Fees” in the P & L A/c and was claimed as deductible expenditure.
AO was of the view that assessee had derived benefits of enduring nature as well as increase in functional capacity of the manpower which ultimately increases the production of the company and was further of the view that acquisition of know-how under a license was capital expenditure and it would fall within the ambit of amended section 32 of the IT Act, 1961. The AO further noted that identical expenditure was disallowed by the AO in A.Y. 2010-11 to 2014-15 and therefore, held the expenditure incurred by the assessee on technical know-how fees be not a revenue expenditure and therefore, made a net disallowance of Rs.3,60,48,535/- after allowing the claim of depreciation.
The CIT(A) decided the issue in favour of the assessee by noting that similar disallowances made by the A.O. for the A.Ys. 2009-10 to 2014-15 were deleted by his predecessor and further noted that the order of the CIT(A) for A.Y. 2009-10 to 2010-11 was confirmed by ITAT. Therefore, following the order of the Tribunal held that A.O. was not justified in making disallowance of Rs.3,60,48,535/-.
The Tribunal observed that “We find that AO had disallowed the expenditure considering it to be a capital expenditure and following the decision of his predecessor for earlier assessment years. Before us, no fallacy in the findings of the CIT(A) has been pointed-out by Revenue nor has Revenue placed on record any material to demonstrate that the order of Tribunal in assessee’s own case for earlier years has been set aside, overruled or modified by higher judicial forum.”
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