ITAT Upholds Deletion of Disallowance on Technical Know-How Fees Paid by Jindal Pipes Citing Expenses Genuine and Necessary for Business [Read Order]
The ITAT also noted that the disallowance amounted to double taxation and was a mere change of opinion without new material, violating the Principle of Consistency
ITAT – ITAT Upholds – Disallowance – Disallowance on Technical – taxscan
ITAT – ITAT Upholds – Disallowance – Disallowance on Technical – taxscan
The Delhi Bench of Income Tax Appellate Tribunal(ITAT) upheld the deletion of disallowance on technical know-how fees paid by Jindal Pipes Ltd to M/s Jindal Drilling and Industries Ltd., ruling the expense as genuine and necessary for business operations.
The Revenue-appellant, appealed against the order passed by CIT(A). In this case,Jindal Pipes Ltd.,respondent-assessee,manufactured ERW, black, and galvanized steel pipes and tubes. Their tax returns for the relevant years were scrutinized, leading to some disallowances. These disallowances were deleted by the Commissioner of Income Tax(Appeals)[CIT(A)].
The issue was about disallowing technical know-how fees paid to JDIL for AY 2016-17 under section 37(1). The assessee bid for ONGC contracts but lacked the required three years of experience in jack-up rig drilling. To meet this, the assessee entered a technical collaboration with JDIL, which had the experience. The assessee submitted all documents to the Assessing Officer(AO). However, the AO disallowed the fees of Rs. 4.08 crore, saying there was no proof of services received from JDIL’s technical staff.
Before the CIT(A), the assessee said JDIL provided only rig managers and operational support, not equipment. JDIL charged $850 per day, and ONGC accepted the invoices from the assessee, proving services were received. The assessee also showed that its Rig Division made a profit of Rs. 24.03 crore after spending Rs. 4.08 crore on JDIL’s technical services.
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The two member bench comprising Anubhav Sharma( Judicial Member) and S.Rifaur Rahman( Accountant Member) found that the CIT(A) reviewed the services provided by JDIL and noted that ONGC accepted the invoices and made payments. The technical fee deductions were supported by proper documents like Form 16A, proving that the services were actually received. The ITAT also saw that the Rig Division made a profit of Rs. 24.03 crore after spending Rs. 4.08 crore on these technical services, showing the expense helped generate profit.
The appellate tribunal agreed that disallowing the fees led to double taxation, as the amount was an expense for the assessee and income for JDIL. Both were in the same tax bracket, so no extra benefit was gained.
Read More:Expenditure on Technical Know-How Fees is Revenue Expenditure: ITAT deletes Disallowance made by AO
It was also noted that the AO had accepted this expense in earlier years without any disallowance. The current disallowance was made without new evidence and was just a change of opinion, which goes against the Principle of Consistency.
Therefore, the appeal of the Revenue was dismissed.
To Read the full text of the Order CLICK HERE
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