PCIT Vs Montage Enterprises Pvt. Ltd. (Delhi High Court)
The matter concerned Assessment Years 2005-2006 and 2006-2007. The Revenue raised questions regarding the assessee’s reallocation of royalty-related expenditure and income from its Jammu Unit to the Corporate Division, entitlement to deduction under Section 80IB of the Income Tax Act, 1961 in respect of sub-licence fee, findings relating to additions under Section 68, and reduction of the licence fee disallowance concerning the Malanpur Unit.
Read SC Judgment in this case: SC Dismisses Revenue SLP on Section 68 Addition & Licence Fee Dispute
The assessee manufactured and traded flexible packaging material and had acquired technical know-how for manufacturing an improved sachet pouch. It paid royalty of Rs. 4.25 crores and received sub-licence income of Rs. 1.96 crores. The assessee had manufacturing units at Malanpur, Jammu, and Noida. Following a search and seizure operation on 23.02.2006 in the case of M/s. Flex Group of Companies, notice under Section 153A of the Income Tax Act was issued.
During the search assessment proceedings, the Assessing Officer made an addition of Rs. 2,32,13,640 under Section 68 on account of trade credits. The Commissioner of Income Tax (Appeals) deleted the addition after examining the records, observing that the parties were regular customers, ledger accounts had been produced, goods were supplied in the ordinary course of business, payments were received through account payee cheques, and the trade advances were adjusted against sales in the subsequent year. The Commissioner also noted that the advances were not outstanding for several years and were adjusted immediately in the following year. The ITAT affirmed these findings.
