TaxTMI 
TaxTMI 
2006 (7) TMI 258
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....imed by the appellant), nor capital expenditure (as treated by the Assessing Officer), without providing reasonable opportunity of being heard as provided in section 251(2) of the Act." The assessee has submitted that it had filed returns of income for both the assessment years declaring therein loss of Rs. 68,14,22,302 and Rs. 3,03,99,726 for the assessment years 2001-02 and 2002-03 respectively. In the return of income filed for the assessment year 2001-02, the assessee had claimed deduction of lump sum fee amounting to Rs. 28,67,00,000 paid to M/s. Honda Motor Company Ltd., Japan (in short 'HMCL') under a technical collaboration agreement (in short 'TMC') and royalty of Rs. 12,38,37,000 paid to HMCL at the rate of 4 per cent of the sale for the assessment year 2001-02. Similar deduction amounting to Rs. 29,20,07,000 towards instalment of lump sum fee and Rs. 15,60,93,000 being royalty was claimed as deduction for the assessment year 2002-03. The Assessing Officer disallowed the claim of the assessee on the ground that the technical know-how received by the assessee related to setting up its plant and, therefore, the impugned expenditure was capital in nature. ....
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.... this is jurisdictional defect and the enhancement made by the CIT(A) deserves to be quashed. He relied on the judgment of Delhi High Court in the case of Gedore Tools (P.) Ltd. v. CIT [1999] 238 ITR 268, where it has been held that the CIT(A) is required to issue a notice under section 251(2) before making enhancement of assessment. He also relied on the judgment of Hon'ble Supreme Court in the case of CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443. Thus, he submitted that the impugned orders of the CIT(A) for enhancing the income may be quashed. 6. The ld. CIT, DR vide his letter dated 25-5-2006 submitted that sub-section (2) of section 251 only provides that the CIT(A) shall not enhance an assessment unless the appellant had a reasonable opportunity of showing cause against such enhancement. There is no statutory notice prescribed under the Act for issuing a show-cause notice for enhancement of income. The law only requires that the assessee must be made aware of the proposed action and his reply must be considered before enhancing the income. He produced before us a copy of the order sheet entries made by the CIT(A) on 26-7-2005 and 10-8-2005, where the ....
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....Head & Son (India) Ltd. v. CIT 224 ITR 342 where the test of enduring benefit brought is, therefore, not a certain on conclusive test and it cannot be applied blindly and mechanically without reference to the particulars, facts and circumstances of a given case. Noted for 10-8-2005 Sd/- Honda Siel Cars India Limited 2001-02, 2002-03 10-8-2005 Shri Rupesh Jain (FCA) & Mr. Surender Agarwal, GM (Finance) Sh. K.L. Gupta, Sr. Manager, Taxation - Shri Chitresh Gupta attended filed the written submission on the point asked for. Supported by case laws and paper book. Argued that reasonableness of remittance according to TCA stand justified on the basis of approval given by Government of India. Agreed that TCA will be within the ambit of Indian Contract Act. Lump sum payment magnitude and proceeding of royalty was decided on the basis of commercial viability of the product even the cost price being higher to sale price. Further argued that due to restructure clause the benefit was of non-enduring nature. From the provisions for various expenses were to be made because bill were not raised in time. Regarding dispute custom payment the matter is in Hon'ble ITAT.....
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....f technical know-how fee and royalty paid to Honda Motor Company Ltd., Japan (HMCL), on a different ground than that taken by the Assessing Officer, thereby enhancing the assessment. 1.1 That on the facts and circumstances of the case the CIT(A) erred in alleging that payment of technical know-how fee and royalty to HMCL is neither revenue expenditure, as claimed by the appellant, nor capital expenditure as held by the Assessing Officer, but diversion of profit in favour of HMCL. 1.2 That on the facts and circumstances of the case the CIT(A) erred in alleging that relevant Articles of Technical Collaboration Agreement (TCA) between appellant and HMCL, relating to payment of technical know-how fee and royalty to HMCL are void, in terms of Contract Act and permission granted by Reserve Bank of India. 1.3 That on the facts and circumstances of the case the CIT(A) erred in not appreciating that since appellant by virtue of TCA merely acquired a right to use the technical information and know-how payment, therefore, in the nature of lump sum fee and royalty is revenue in nature and deductible business expenditure. 1.4 Without prejudice, that on the fa....
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....nufacturing facilities. The restrictions placed on the use of license, technical know-how, trademark etc. were simply by way of abundant precautions and legality as the affairs of the assessee-company were being supervised and monitored by the parent company i.e., HMCL, Japan. Thus, the Assessing Officer observed that by incurring expenditure in the nature of technical guidance fee, the assessee had obtained an advantage of enduring benefit and, therefore, such expenditure was capital in nature. He also relied on the two judgments of Hon'ble Supreme Court in the cases of CIT v. Ciba of India Ltd [1968] 69 ITR 692 and CIT v. Warner Hindus tan Ltd [1998] 9 SCC 534 and the judgment of Allahabad High Court in the case of Ram Kumar Pharmaceutical Works v. CIT [1979] 119 ITR 33. He further observed that the expenditure incurred on payment of royalty was also for acquisition of technical know-how, license etc. and, therefore, by incurring such expenditure, the assessee has obtained benefit of enduring nature. In this view of the matter, the Assessing Officer disallowed both the royalty payments and lump sum technical guidance fee being capital expenditure for both the assessment years....
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....partment of Industries by Ministry of Government of India under a policy guideline because the outflow of precious foreign exchange is a matter of greater concern to the Government. Reliance, was placed on the judgment of Hon'ble Supreme Court in the case of LIC of India v. Escorts Ltd [1986] 1 SCC 264, where it was observed that Reserve Bank of India was the authority under section 29(1) of the Foreign Exchange Regulation Act to grant permission for payments to foreign parties. It was also submitted that the mere fact that holding company i.e., HMCL held 99.9 per cent shares of the assessee-company did not mean that the payment was made to self because both HMCL, and Siel India were two distinct and separate legal entities. It was also submitted that if that were so, then the entire profit of the assessee should have been treated as income of the holding company and taxed in its hands in India. It was also argued that at the most, disallowance, if any, out of payments made to related party could be made under section 40A(2)(b), provided the payments are found as excessive or unreasonable, having regard to fair market value of the goods/services. But in this case, such situatio....
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....ign collaborators. 10. The ld. CIT(A) considered these submissions and referred to the article 14 of the TCA which provided payment of lump sum fee of US$ 30.5 million to HMCL payable in 5 equal instalments and also royalty payable at the rate of 4 per cent on internal sales and exports subject to taxes. He also referred to letter dated 13-11-1995 of Government of India, Ministry of Industry, where proposal for foreign collaboration subject to the terms and conditions mentioned therein was approved. The ld. CIT(A) noted that while granting the approval, Government of India had prescribed equity participation to HMCL to 60 per cent and by the assessee to 40 per cent. However, in the year 1996 the shareholding of HMCL went up to 90 per cent and in the year 2000, the same stood at 99 per cent. The shareholding of the assessee was 1 per cent. Subsequently in the year 2003, the equity holding of HMCL went up to 99.9 per cent and of the assessee stood at 0.01 per cent. The ld. CIT(A) observed that change in the equity ratio was not as per spirit of the permission given by the Government of India. Thus, he observed that the assessee became almost a complete subsidiary to HMCL. He also ....
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....ical Collaboration Agreement between the assessee and the HMCL. He referred to page 100 of the paper book where the assessee had entered into a TCA on 21-5-1996 with M/s. HMCL as per which the assessee had agreed to obtain license and technical assistance from M/s. HMCL for the manufacture and sale of certain automobiles. He referred to page 102 of the paper book, which defines the term "know-how" as to mean all secret and technical information, including but not limited to drawings, standards, specifications, material lists, process manuals and directions maps, which directly related to the products or the license parts themselves or was necessary for the manufacture of the products or the licensed parts. Clause (7) of the said agreement defines the term "Technical Information" as to mean the know-how and technical information, such as service materials and Japanese Industrial Standard, which directly related to the products or the licensed parts or was necessary for the manufacture of the products or the licensed parts. Article 2 of the said agreement provided that the assessee was granted to licensee an indivisible, non-transferable and exclusive right and license of manufacture....
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....repair or replacement. The agreement further pointed out that on termination, he shall discontinue the use of trademarks licensed by licenser. Article 19 on page 115 of the paper book provided that agreement was effective for a period of 10 years from the date of agreement or 7 years from the date of commencement of commercial production and shall thereafter be renewed subject to the prevailing laws. He referred to page 117 of the paper book where the assessee was required to discontinue the manufacture, sale and other disposition of the products and the parts, use of the Intellectual Property Rights, Technical Information licensed or furnished by the licenser under this agreement. The assessee was required to return all relevant documents and information belonging to HMCL. Article 23 of the agreement further prohibited the assessee from assigning any rights, directly or indirectly to any other party without prior written consent of the other parties. Thus, he submitted that expenditure incurred by the assessee by way of payment of lump sum fee and technical guidance and royalty for the right to use know-how and technical information for manufacture of automobiles was revenue expen....
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....f the paper book where such approval was granted by the Reserve Bank of India. Page 422 is the letter of Government of India, Ministry of Industries dated 25/29-6-1999 where HMCL was allowed to have 95 per cent equity of the assessee-company. Page 423 is the letter dated 20-10-2000 of the Government of India, where HMCL was allowed to have equity holding of 99 per cent. Page 424 is the letter of Reserve Bank of India for transferring 32,40,000 equity shares of HSCI in favour of HMCL at the rate of Rs. 31 per share. Similarly pages 426 and 427 is a letter dated 25-3-2000 of Reserve Bank of India for granting permission of transferring 1,44,00,000 equity shares of Rs. 10 each to HSCI in favour of HMCL at a price of Rs. 18.05 per share. Pages 428 and 429 is a letter dated 23-42003 of Government of India, Department of Economic Affairs where approval was granted for transfer of Rs. 32.4 lakhs equity shares to M/s. HSCI representing 0.9 per cent of the equity capital of the assessee. Thus, he submitted that the observations of the CIT(A) that equity ratio has been changed by flouting the conditions for granting approval to the joint venture was factually wrong and incorrect. He further ....
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....resented diversion of income. He relied on the following judgments: (i) Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC); (ii) Director of Income-tax (Exemption) v. Apparel Export Promotion Council (No.1) [2000] 244 ITR 734 (Delhi); (iii) CIT v. Kishan Lal (HUP) [2002] 258 ITR 359 (Delhi); (iv) CIT v. Neo Poly Pack (P.) Ltd. [2000] 245 ITR 492 (Delhi); (v) Sayaji Iron & Engg. Co. v. CIT [2002] 253 ITR 749 (Guj.); (vi) CIT v. Girish Mohan Ganeriwala [2003] 260 ITR 417 (Punj. & Har.); (vii) Vesta Investment & Trading Co. (P.) Ltd. v. CIT [1999] 70 ITD 200 (Chd.); (viii) Dy. CIT v. Guru Nanak Vidya Bhandar Trust [2004] 139 Taxman 308 (Delhi); (ix) Arihant Builders, Developers & Investors (P.) Ltd. v. ITAT [2005] 144 Taxman 121 (MP); (x) CIT v. ARJ Security Printers [2003] 264 ITR 276 (Delhi); (xi) Dy. CIT v. Jindal Photo films Ltd. [IT Appeal No. 1920 (Delhi) of 1998] (TM). He also made an alternative submission that once the Assessing Officer had disallowed the impugned expenditure on the ground that the same was capital in nature, he ought to have allowed depreciation thereon. 12. ....
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.... on the ground that the impugned payments related to setting up of plant and manufacture of automobile goods and, therefore, the expenditure was capital in nature. The ld. CIT(A) has not recorded any finding on the issue raised before him as to whether the impugned expenditure was capital in nature. However, he has held that the impugned payments represented diversion of profits to HMCL. Briefly stated, the conclusions drawn by the CIT(A) are based on the following facts: (i) M/s. HMCL has increased a shareholding from 60 per cent to 99.9 per cent after entering into the TCA which was against the approval granted by the Government of India to the proposal for setting up a joint venture with HMCL where the equity participation ratio of HMCL was supposed to be 60 per cent. This according to the ld. CIT(A) tantamounted to flouting the conditions laid down by the Government for according approval. (ii) The lump sum technical know-how fee and royalty were subject to tax and no tax was paid by HMCL in respect of the same. (iii) The lump sum technical know-how fee and royalty was payable only out of profits of the assessee and not immediately on entering into th....
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....) between India and Japan. The details regarding tax deducted at source and deposit of such tax have been placed before us at pages 430 to 440 of the paper book which have already been discussed in the preceding paragraphs. Thus, here also, the assessee has not violated any conditions laid down by the Government of India while according approval. In case, the tax was not deducted at source or the same was not paid, the revenue was free to take appropriate action under the relevant sections of the Act. However, there was due compliance on these conditions by the assessee. Therefore, the revenue did not feel any need to take such action against the assessee. 13.4 The other objection of the CIT(A) that the very fact that lump sum technical know-how fee was to be paid from 3rd year after the commencement of commercial production showed that the intention was to make payments out of profits of the assessee is again devoid of any merit. Obviously, the proposed project not only involved high level of technical know-how and technology, but was also capital intensive. Therefore, the condition for payment for a period of 3 years from the commencement of production was stipulated in the TC....
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....Japan, each having 28.56 per cent of the equity capital. Subsequently, in the assessment year 1995-96, equity contribution of foreign company was increased to 51 per cent. Royalty agreement was renewed for a period of 5 years. Taking into account the increase in shareholding of the foreign company, the revenue disallowed the claim. for royalty payment. On appeal before the Tribunal, the disallowance of royalty payment was deleted on the ground that the revenue cannot sit in judgment over the Ministry of Industries without any concrete evidence to the contrary which was neither fair nor in accordance with the Government Policy. Now once the Government had accorded approval after due consideration, it is not for the revenue to sit in judgment over such decisions. Such course of action by the revenue authorities would only discourage the foreign investments which are badly needed for the overall economic development of the country. Therefore, the approval granted by one wing of the Government i.e., Ministry of Industry and RBI, cannot be treated lightly. Thus, taking into account these facts, we are of the considered opinion that the ld. CIT(A) was not justified in holding that TCA ag....
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....102 was not allowed by the Assessing Officer on the ground that such expenditure related to research and development and was, therefore; capital in nature. 14.1 As regards the assessment year 2002-03, the Assessing Officer noticed that out of research and development expenses amounting to Rs. 2,05,36,000, the assessee had claimed expenses of Rs. 1,80,13,000 as revenue expenditure. When asked to explain, the assessee submitted that in view of the Memorandum of Exchange of Technicians which was part of TCA, the parent company had agreed to provide technical assistance through their technical experts from time to time to the company as and when required, for which payment on the basis of their stay and visit in India to the factory as well as for service taken by the company. The assessee also furnished complete details of these expenses which included salary, repair and maintenance, travelling, staff welfare which though form part of the respective heads of expenditure yet were shown by the auditors in accordance with the requirement of AS-8 (Accounting Standard-8). It was also explained that by virtue of the nature of business, the assessee was required to provide after-sales ser....
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.... solved by normal Automobile Engineers. This was also the part of customer care or after sale service function of the appellant. The assessee also submitted that though HMCL had undertaken to provide technical assistance to the assessee yet it was not possible and practicable to approach HMCL for each and every minor defect in the vehicle. The minor defects which might be dealt with by the technical staff of the assessee and the expenditure incurred in respect of the same was treated as research and development expenditure. It was also submitted that TRC acted as an interface between the assessee and HMCL on technical/engineering issues. It was also explained that TRC was engaged in Homologation of the vehicles according to Indian environment and is continuously in touch with developments taking place around the world in automobile market. It was also required to improve product quality, product appeal and localization of parts. The TRC was also responsible to ensure compliance to various statutory regulations like ARRAI and also takes part in the deliberations of enacting bodies of regulations and kept in constant touch with the development taking place around automobile market. T....
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....essee. As regards the claim of the assessee that the CIT(A) ought to have directed the Assessing Officer to allow depreciation on the same, the ld. CIT(DR) has submitted that to the extent expenditure is revenue in nature, no such depreciation is to be allowed. But in respect of the remaining amount, the assessee may be allowed the amount of depreciation. 18. We have heard both the parties at some length and given our thoughtful consideration to the rival submissions, gone through the evidence and material placed on record. From the facts discussed above, it is clear that the assessee has explained the purpose of setting up of Technical and Research Center (TRC) and its functioning was also explained by the assessee during the course of proceedings before the authorities below. From the facts discussed above, it is obvious that one of the reasons given by the authorities below for making impugned disallowance was that it was the responsibility of the HMCL to provide technical assistance and guidance as per TCA. However, the assessee has explained the purpose of setting up of TRC for analyzing the problems being encountered during the manufacturing as well as failures in the fiel....
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.... These expenses are also revenue in nature. In fact, technical guidance fee amounting to Rs. 63,58,287 was also paid to technicians for the TRC Department. These are not the payments made to HMCL. Considering the fact that the nature of expenses incurred by the assessee is revenue and the TRC looks after customers care for improvement and change with a view to cut the repetitive cost it cannot be said that the assessee has derived any benefit of enduring in nature. It also does not result in creation of new assets or advantage in the capital field. We are, therefore, of the opinion that the ld. CIT(A) was not justified in treating the impugned expenditure as capital in nature. The factum that assessee has incurred such expenditure for the purpose of assessee's business is not in doubt. Accordingly, we set aside the orders of the CIT(A) and allow the deduction of the impugned expenditure as revenue in nature. Since we have already allowed such expenditure as revenue in nature, the ground relating to the claim of depreciation has become redundant. Therefore, the same is dismissed as such. 19. The next ground of appeal for the assessment year 2001-02 is that the learned CIT(A) ....
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.... asset which provided enduring benefit to the assessee for the years to come and, therefore, the expenditure incurred on the same was certainly a capital expenditure. 19.4 We have heard both the parties and carefully considered the rival contentions, examined the facts, evidence and material placed on record. There is no doubt about the fact that the assessee is already engaged in the business of manufacture of cars and the production had commenced about three years before. The new model of the car relates to the same line of business which the assessee has been carrying on. The assessee has not set up a separate and independent unit to manufacture new model of the car. From the details of the expenses given, it is clear that the expenses related to travelling, training & seminar and advertisement, technical guidance fee etc. of the on going business. It is common knowledge and there is a cut through competition in the automobile market and the assessee is required to bring new models in the market in order to retain/capture market. Therefore, the expenditure incurred by the assessee in respect of on going business is a revenue expenditure. The marketability of the new model ent....
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....arlier years is a part payment towards Custom Duty on import of Drawing under the TCA with HMCL, Japan in response to the show-cause notice issued by the Custom Authorities claiming amount of Rs. 28,14,76,000 being duty and penalty. The payment of Rs. 3,00,00,000 was an advance. The assessee also filed an application with the Custom and Excise Settlement Commission after making said payment. Out of the payment of Rs. 3 crores, the assessee admitted custom duty of Rs. 1,16,63,000 and debited the expenses in the year under consideration. But in the revised computation, the assessee added back the Custom Duty of Rs. 84,00,257 and claimed deduction of Rs. 32,63,032, the amount which was paid in the assessment year 1999-2000 and adjusted in the assessment year under consideration. The Assessing Officer observed that the impugned amount was paid on 31-3-1999 under protest and, therefore, did not relate to the assessment year under consideration. He also observed that the payment was not in revenue account. He also observed that provisional payment does not become an ascertained liability until the same has become final. He also observed that the show cause notice issued by the Custom Aut....
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.... where it was held that advance payment of taxes or duty without incurring liability to pay such taxes or duty cannot be allowed as deduction under section 43B. 20.4 We have heard both the parties and carefully considered the rival contentions. No doubt from the facts discussed above, it is obvious that the assessee had made the payment of the amount on 31-3-1999 as an advance and had claimed deduction for the assessment year 1999-2000. The revenue did not allow the same on the ground that the amount in question was advance only and had not become final. The assessee's appeal for the assessment year 1999-2000 is pending with the Tribunal. In case, the matter is decided by the Tribunal in favour of the assessee by taking notice of the subsequent events that the liability had become final, the assessee would not be entitled to claim deduction for the same in the assessment year under consideration. However, if the disallowance made is upheld by the Tribunal for the reason that the amount paid was only an advance and was not otherwise payable and hence not allowable under section 43B, the assessee would be entitled to claim deduction in the assessment year under reference becau....
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....or the assessee submitted that the assessee as per regular method of accounting followed by it provided for warranty in respect of the car sold. The amount of provision for warranty for car per month is worked out on the basis of appellant's experience regarding warranty claimed and received for the earlier and is spread over the period of warranty commencing on the sale of car. The provision for warranty made on scientific basis and as per regular method of accounting followed by the assessee was allowable revenue expenditure. He relied on the recent decision of the ITAT, Delhi Bench in the case of Dy. Commissioner, Spl. Range-5, New Delhi v. Samtel Colours Ltd. [IT Appeal No. 3966 (Delhi) of 1996] for the assessment year 1991-92. He further stated that similar expenditure incurred has been allowed in the past. He referred to page 383 of the paper book which shows similar provision for warranty made for the assessment years 1998-99 to 2001-02, made on the similar basis were allowed. In fact, in the earlier assessment year, the claim of the assessee amounting to Rs. 58.30 lakhs as provision for warranty was allowed. He further drew our attention to page 125 of the paper book wh....
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....d the assessee estimated the cost of repairs at 2 per cent on sale value of transformers which were sold with warranty of 12 to 18 months and 6 per cent of sale cost of transformers which were sold with warranty of 60 months. On these facts, it was held that the liability to carry out repairs/replacements accrues on the date when the sale agreement is executed with warranty clause and such in-built liability cannot be ignored. The Tribunal held that such liabilities are to be treated as trading expense and must be allowed. It must be mentioned that while deciding this case, the Tribunal also took into account the fact that the Assessing Officer had made no efforts to find out whether the amount of provision exceeded the actual on repairs and replacement. But the fact remains that the expenses were allowed for the reason it was not a contingent liability and such liability arose as soon as assessee made the sale. In the case of CIT v. Indian Transformers Ltd [2004] 270 ITR 259 the Kerala High Court by relying on the judgment of Supreme Court in the case of Bharat Earth Movers allowed deduction in respect of provision for meeting warranty liability on the ground that the same was not....
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....ank at Rs. 70,000, Miscellaneous provisions at Rs. 9 lakhs and S/C & S/ Manager incentive provisions Rs. 26 lakhs. The Assessing Officer called upon the assessee to explain why these expenses were debited only on provisional basis. The assessee submitted that it was engaged in the business of manufacture and sale of highly competitive premium segment car. The company needed to do lot of advertisement and sales promotion activities on a continuous basis. The provision for sales promotion expenses were not a future and contingent liability. The same had already been incurred during the relevant previous year. But the invoices were not received till the date of finalisation of the accounts. Since this liability was recurring in nature and the accounts were being maintained in accordance with the method of accounting regularly employed by the assessee, it was contended that the deduction of the expenses should be allowed. However, the Assessing Officer observed that the liability was made only on estimate basis and, therefore, the same was contingent in nature. The Assessing Officer disallowed the same. 22.1 Aggrieved, the assessee impugned the disallowance in appeal before the CIT(....
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....bout the fact that the assessee is engaged in the business of manufacture and sale of highly competitive premium segment cars. The assessee was required to incur huge amount of expenses on advertisement on continuous basis. The fact that the assessee had not received the bills in the accounting year under reference has not been disputed by the revenue. In fact, out of the provisions made, the assessee has already incurred expenses of Rs. 2,70,23,000 for which the details are placed at page 126 of the paper book. Copies of the bills for the same have also been placed at pages 127 to 168 of the paper book. A perusal of those bills shows that the expenses have been incurred for the work done up to 31-3-2002 which shows that the expenditure related to the assessment year under reference. This also shows that the assessee had indeed incurred such expenditure, but the bills have been received subsequently. Looking into the details of actual expenditure incurred out of provisions in the subsequent assessment year, it cannot be said that the provisions so made were wide off the mark to reduce the tax liability of the assessee. However, considering the fact that the assessee claimed to have....
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....rket for its products which enable it to enhance its sale. Thus, it was contended that the expenditure incurred was wholly and exclusively for the purposes of its business. It was also stated that HMCL was a separate and legal entity and the transactions between the parties were at arm's length and this fact was not disputed by the Assessing Officer. The fact that assessee had indeed made payment was also not doubted by the Assessing Officer. Thus, it was contended that the assessee was entitled to deduction of its claim. However, these submissions did not find favour with the CIT(A), who observed that such payment of commission was because of undue influence of HMCL leading to diversion of profits. Thus, he upheld the disallowance. The assessee has now brought the matter in appeal before us. 23.2 The ld. counsel for the assessee reiterated the submissions which were made before the authorities below. He also drew our attention to article 3 of the TCA where the assessee was prohibited from exporting the cars, parts/components manufactured by it in India to any other country. The assessee could do so only with the prior approval of the HMCL. The assessee, therefore, entered i....
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....ts outside the country to export cars/components. Therefore, the ld. CIT(A) was not justified in sustaining the impugned disallowance. The order of the CIT(A) is set aside and the Assessing Officer is directed to allow deduction of the same. This ground of appeal is allowed. 24. The last ground of appeal relates to upholding an addition of Rs. 60,34,730 in respect of Excise Duty refund receivable by the assessee on behalf of purchaser of the goods. The facts relating to this ground are that the Assessing Officer observed that in the balance sheet, an amount of Rs. 79,63,384 was shown as receivable. When the assessee was asked to explain, it submitted that such amount receivable included excise duty of the car sold to India. Hotels at Rs. 5,96,726, excise duty of Rs. 3,61,303 on sale of car to Ambassador Hotel, Rs. 1,92,340 on sale of car to Leela Ventures and amount of Rs. 48,76,196 being excise duty refund of sale of 43 cars and export rebate of Rs. 8165. It was explained by the assessee that the amount in question was refunded to the car buyers. However, the Assessing Officer observed that the assessee failed to furnish any supporting evidence that the amount received was actu....
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.... when car was sold, the assessee charged full amount of excise duty and paid the same to the Government because at that time it was not known whether the car would be used by the buyer as a taxi or not. The excise duty so charged and paid has been treated as income and expenses respectively in the books of the assessee. Once it came to know that car was being run as taxi, it applied for refund of excise duty on behalf of the taxi operator. The amount received from the Excise Department towards the custom duty was recorded as excise duty receivable in the books of the assessee. Once the refund is received from the Excise Department, the same is passed on to the customers. As regards the car sold to Hotels, the assessee charged excise duty at full rate and accounted for the same as its income. Later on, the assessee applied for refund from the Excise Department. Hotels did not pay the assessee for the excise duty which was refundable and the assessee recovered the same from the Excise Department. Since the assessee was holding this amount in Trust for the customers and the same was passed on to them on receipt from the Excise Authorities, the amount did not constitute income of the a....