Disallowance of INR 17.95 Lakh Royalty Expenses: ITAT Deletes Addition Applying Consistency Principle [Read Order]
The tribunal noted that in earlier years similar disallowances were already deleted by the CIT(A) and had attained finality, as no appeal was filed.
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The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) applying the consistency principle, deleted the disallowance of INR 17.95 lakh royalty expenses made by the Assessing Officer (AO).Travel Food Services Delhi Terminal 3 Pvt.Ltd.,appellant-assessee, operated food and beverage outlets at Terminal 3 of Indira Gandhi International Airport, Delhi. It filed its return of income on...
The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) applying the consistency principle, deleted the disallowance of INR 17.95 lakh royalty expenses made by the Assessing Officer (AO).
Travel Food Services Delhi Terminal 3 Pvt.Ltd.,appellant-assessee, operated food and beverage outlets at Terminal 3 of Indira Gandhi International Airport, Delhi. It filed its return of income on 07.11.2017, declaring total income of INR 93,65,220/-.
The case was selected for scrutiny, and the AO disallowed 25% of royalty expenses of INR 71,81,000/-, making an addition of INR 17,95,250/-, relying on the judgment in Southern Switchgear Ltd. vs CIT (SC).
The assessee’s appeal before the Commissioner of Income Tax (Appeals)[CIT(A)] was dismissed on 29.01.2024, and the disallowance was upheld. The matter was then taken before the tribunal.
The assessee counsel argued that the issue was the same as in earlier years, where similar disallowances had already been deleted by the CIT(A). It was submitted that the AO wrongly relied on the Southern Switchgear Ltd. case, whereas the CIT(A) in AYs 2012-13 to 2015-16 had held that the facts were closer to the Delhi High Court ruling in Sharda Motor Industrial Ltd. The counsel pointed out that those orders had attained finality as no appeal was filed, and therefore, the disallowance in the present year should also be deleted.
The Department representative, however, supported the lower authorities and maintained that the disallowance was correctly made by relying on the Supreme Court’s judgment in Southern Switchgear Ltd.
The two member bench comprising Mahavir Singh (Vice President) and Manish Agarwal (Accountant Member) heard both parties and reviewed the record. It noted that in AYs 2012-13 to 2015-16, the CIT(A) had deleted similar disallowances after holding that the Southern Switchgear Ltd. case did not apply and that the facts were closer to the Delhi High Court ruling in Sharda Motor Industrial Ltd., where royalty payments were treated as revenue expenditure.
It was also observed that the franchise agreements were for a limited period and did not give any enduring benefit.
Since there was no change in facts or legal position, the tribunal applied the principle of consistency and deleted the disallowance for the year under appeal. The appeal was allowed.
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