PCIT (Central-3) Vs Montage Enterprises Pvt. Ltd. (Supreme Court of India)
The matter arose from the Revenue’s appeal concerning the Assessment Years 2005-2006 and 2006-2007. The questions raised included whether the assessee was justified in reallocating expenditure and income on account of royalty from the Jammu Unit to the Corporate Division, whether the assessee was entitled to deduction under Section 80IB of the Income Tax Act, 1961 in respect of sub-licence fee if the first question was answered in the Revenue’s favour, and issues relating to additions under Section 68 and the reduction of the licence fee disallowance from Rs. 9 crores to Rs. 6 crores concerning the Malanpur Unit.
Read HC Judgment in this case: Delhi HC Upholds Deletion of Section 68 Addition on Genuine Trade Advances
The assessee manufactured and traded flexible packaging material in roll and pouch form. It had acquired technical know-how for manufacturing an improved sachet pouch and paid royalty of Rs. 4.25 crores while receiving sub-licence income of Rs. 1.96 crores. The assessee had manufacturing units at Malanpur, Jammu, and Noida. The original income declared for the relevant assessment years was Nil. Following a search and seizure operation conducted on 23.02.2006 in respect of M/s. Flex Group of Companies, proceedings were initiated against the assessee through a notice issued under Section 153A of the Income Tax Act.
During the search assessment proceedings, the Assessing Officer made an addition of Rs. 2,32,13,640 under Section 68, treating the amount claimed by the assessee towards trade credit as income. Before the Commissioner of Income Tax (Appeals), the assessee relied on the records, ledger accounts and other documents. The CIT(A) observed that although confirmations from certain trade customers had not been produced, the ledger accounts had been furnished before the Assessing Officer and during the remand proceedings. The CIT(A) recorded that the parties were regular customers, goods had been supplied in the normal course of business, payments had been received through account payee cheques, and the trade advances had been adjusted against sales made in the subsequent year. The CIT(A) also noted that it was not the Assessing Officer’s case that the advances had remained outstanding for several years and, on that basis, deleted the addition of Rs. 2,32,13,640.
The Income Tax Appellate Tribunal affirmed the findings of the CIT(A). When the matter reached the Delhi High Court, the Court held that the issue relating to the Section 68 addition was purely factual. Referring to the concurrent findings of the CIT(A) and the ITAT that the trade advances had been adjusted against subsequent sales, the High Court held that no question of law arose.
The High Court also considered the issue relating to enhancement of licence fee. The assessee had originally paid Rs. 50 lakhs per month as licence fee to M/s. Flex Group of Companies, which was revised during the relevant assessment years to Rs. 2 crores per month. The Assessing Officer had made an addition of Rs. 9 crores, considering the increase arbitrary. The CIT(A) deleted the entire addition, while the Revenue’s appeal succeeded substantially to the extent of Rs. 6 crores. The High Court observed that the findings of the ITAT on this issue were also factual and found no justification to interfere.
The Revenue challenged the High Court judgment before the Supreme Court by filing a Special Leave Petition. The Supreme Court first condoned the delay and thereafter dismissed the Special Leave Petition. No further reasons were recorded in the order.
As a result, the Supreme Court dismissed the challenge to the Delhi High Court judgment. The High Court’s decision declining interference with the concurrent factual findings relating to the Section 68 addition and the licence fee issue remained undisturbed.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Delay condoned.
The Special Leave Petition is dismissed.
