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2016 (5) TMI 869
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....t assessing officer erred on facts and in law in computing the income of the appellant at Rs. 39,11,70,920 against the returned total income of Rs. 23,08,71,683. Transfer Pricing Issues: 2. That the assessing officer erred on facts and in law in making addition to the income of the appellant to the extent of Rs. 5,25,76,004 on account of the alleged difference in the arm's length price of international transactions. Advertisement, marketing and sales promotion expenses: 3. That the assessing officer erred on facts and in law in making transfer pricing adjustment in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as 'the AMP expenses') incurred by the appellant. 3.1. That on the facts and in the circumstances of the case, the DRP erred in law in upholding, in principle, transfer pricing adjustment made by the assessing officer / TPO in respect of expenditure incurred on AMP expenses. 3.2. The Assessing Officer / TPO erred on facts and in law in not appreciating that the only Transfer Pricing adjustment permitted by Chapter X of the Act was in respect of the difference between the arm's length price (ALP) and the contra....
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....ot appreciating that in absence of any understanding / arrangement between the appellant and the associated enterprise, the associated enterprise was under no obligation to reimburse AMP expenses incurred by the appellant for sale of its products in India. 3.10. The DRP/TPO erred on facts and in law in not appreciating that the advertisement and marketing expenses were incurred by the appellant wholly and exclusively for purposes of its business and not on behalf of or for the benefit of the AE; any benefit to the AE being only incidental. 3.11 That the assessing officer erred on facts and in law in not appreciate the A&M expenses incurred by the Assessee were towards the products manufactured and owned by the assessee and not towards the brand, per se; 3.12 That the assessing officer erred on facts and in law in not appreciating that the AMP expenses incurred by the appellant, did not result in creation of any marketing intangibles; much less on account of the AE. 3.13 Without prejudice that the assessing officer erred on facts and in law in ignoring the fact that, since the appellant earns return commensurate with other brand owners, the appellant is adequately compen....
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....for sale in designated territories are taken by the appellant and consequently, the appellant is responsible / eligible for the related risks and reward. 3.22 That the assessing officer/TPO erred on facts and in law in holding that the appellant should have earned a mark-up in respect of the AMP expenses, alleged to have incurred for and on behalf of the associated enterprise. 3.23 Without prejudice that, the assessing officer/TPO erred on facts and in law in holding the AMP expenses incurred by the appellant to be "excessive" on the basis of a "bright line limit" arrived at by considering inappropriate comparables, not having similar product/ brand profile as the appellant. 3.24 Without prejudice that the assessing officer/TPO erred on facts and in law in considering selling and distribution expenses for the purpose of calculating alleged AMP expenditure of the appellant. 3.25 Without prejudice that the assessing officer/TPO erred on facts and in law in considering the following companies as comparable for benchmarking advertisement and publicity expenses: Companies Advertisement expenses (% of sales) 1.Jyoti Ltd. 0.02 2.Powerica Ltd. (in lacs). 0.37 ....
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....Company, Japan as per the 'Technical Collaboration Agreement' ("TCA") as capital expenditure incurred for acquisition of intangible asset and instead allowing depreciation @25%. 5.1 Without prejudice, that the assessing officer erred on facts in disallowing technical guidance fee of Rs. 1,36,21,453 in place of Rs. 1,00,56,950. 5.2. That the assessing officer erred on facts and in law in holding that in terms of the Technical Collaboration Agreement, intellectual property right developed by Honda, Japan has been transferred to the appellant. 5.3. That the assessing officer erred on facts and in law in holding that in terms of TCA, patent for the new developed project has been transferred to the licensor, i.e., appellant. 5.4. That the assessing officer erred on facts and in law in holding the payment of royalty and technical guidance fee to be capital expenditure on the ground that- (i) In the event of the expiration of the contract, the assessee may continue to use the know-how and the Industrial Property Rights for the purposes of manufacture, assembly, procurement, sale, delivery and service of the products and the parts. (ii) The terms of agreement ....
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.... services'. 6.5 That the assessing officer erred on facts and in law in not appreciating that the payment of export commission was not consideration for use of trade mark or provision of technical assistance, for which separate royalty payment was being made on which tax is duly deducted under section 195 of the Act. 6.6. Without prejudice that the assessing officer erred on facts and in law in not appreciating that payment of export commission being for earning income from source outside India, cannot be characterized as royalty or fee for technical service as per section 9(1)(vi)(b) or section 9(1)(vii)(b) of the Act respectively. 7. That the assessing officer erred on facts in not allowing credit for tax deducted at source amounting to Rs. 71,407 from the tax payable without assigning any reason thereof. 8. That the assessing officer erred on facts and in law in levying interest under section 234B of the Act." Grounds raised in A.Y. 2010-11: "General: 1. That the impugned order of assessment framed by the assessing officer in pursuance of the directions of the Dispute Resolution Panel (hereinafter referred to as 'DRP') under Section 143(3) read with Section ....
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....g that since the appellant was performing the key people/critical decision making functions with regard to advertisement and marketing activity, the risk related to such activity ought to have been borne by the appellant. 3.6 That the DRP/TPO erred on facts and in law in not appreciating the fact that since the appellant was bearing the risk related to the marketing activity and was also entitled to retain the profit attributable to such activity, the appellant had rightly borne the expenditure relatable to such marketing function. 3.7 That the DRP/TPO erred on facts and in law in re-characterizing the appellant, a licensed manufacturer, as a limited risk service provider entitled to cost plus remuneration for its marketing efforts. 3.8 The DRP/TPO erred on facts and in law in holding thatexpenditure incurred by the appellant which incidentally resulted in brand building for the foreign AE, was a transaction of creating and improving marketing intangibles for and on behalf of its foreign AE and further that such a transaction was in the nature of provision of a service by the appellant to the AE. 3.9 That the assessing officer erred on facts and in law in not appreciati....
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....A&M expenses incurred by the Assessee were towards the products manufactured and owned by the assessee and not towards the brand, per se; 3.18 That the assessing officer erred on facts and in law in not appreciating that the AMP expenses incurred by the appellant, did not result in creation of any marketing intangibles; much less on account of the AE. 3.19 Without prejudice that the assessing officer erred on facts and in law in ignoring the fact that, since the appellant earns return commensurate with other brand owners, the appellant is adequately compensated for its functions and AMP expenses. 3.20 Without prejudice that the assessing officer erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm's length applying Transactional Net Margin Method (TNMM). 3.21 The DRP/TPO erred on facts and in law in applying Bright Line Test ("BLT") for computing adjustment on account of expenditure on advertisement and brand promotion expenses, without appreciating that in absence of specific provision in the Transfer Pricing statutory provisions in India., adjustment on account of the arm's length pri....
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....ps Ltd 2.74% 8. Southern Agro Engines Pvt Ltd NA 9. SudhirGensets Ltd 0.28% 10. Supernova Engineers Ltd 0.51% Average 1.00% 3.30 Without prejudice, that on facts and circumstances of the case the DRP/TPO ought to have considered the following companies as comparable for benchmarking the advertisement and publicity expenses: Name of the Company AMP/Sales Kirloskar Brothers Ltd. 4.70% Kirloskar Oil Engines Ltd. 4.04% Best and Crompton Engg Ltd 4.42% Average 4.39% 3.31 Without prejudice that the assessing officer/TPO erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm's length applying Transactional Net Margin Method (TNMM).. 3.32 That the assessing officer/TPO erred on facts and in law in holding that incurring of AMP expenses was a separate transaction and is to be evaluated separately. 3.33 That the assessing officer / TPO erred on facts and in law in holding that the appellant has rendered service to the AEs by incurring the AMP expense and by holding that markup has to be earned by the appellant in respect o....
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.....1 That the assessing officer/ DRP erred on facts and in law in holding that the aforesaid payment was towards cost of plant and machinery and therefore, the same should be capitalized along with plant and machinery. 5.2 That the assessing officer/ DRP erred on facts and in law in holding that the professional and consultancy charges incurred towards shifting of plant and machinery are an integral part of the business of the appellant, and therefore, the same should be treated as Capital in nature. 5.3 That the assessing officer/ DRP erred on facts and in law in holding that the appellant would secure an advantage of enduring nature on account of relocation of the appellant's factory. Re: Disallowance of provision on account of slow moving inventories 6. That the assessing officer/ DRP erred in disallowing provision for slow moving inventory debited in the Profit and Loss statement, amounting to Rs. 11,76,382, being the amount of expenses estimated by the appellant to be incurred on account of obsolescence/ slow moving inventory. 6.1 That the assessing officer/DRP erred on facts and in law in holding the provision for slow moving inventory, estimated by the appellant....
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.... price of subsidy received from the associated enterprises. The AO further made disallowance of royalty payment of Rs. 45,67,000 on account of sales made to associated enterprises. 3.4. The assessee carried the matter in appeal before the DRP. The DRP-1, New Delhi in it's order has sustained the various additions/ disallowances made in the assessment order. 4. Similarly, for Assessment Year 2010-11, the assessee company filed its return for the assessment year 2010-11 on 29.09.2010 declaring total income of Rs. 31,80,76,602. During the course of assessment proceedings, the AO noted that the assessee is paying royalty of Rs. 9,19,05,000 and a technical guidance fee of Rs. 2,00,87,000 to Honda Motor Co. Japan. The AO came to the conclusion that royalty and technical guidance fee were to be capitalised, after allowing depreciation of 25% on the same. 4.1 The AO further made addition of Rs. 1,11,47,000 towards relocation expenses towards shifting of factory of the assessee company, on the ground that such expenditure was capital in nature and had resulted in benefit of enduring nature to the assessee company. The AO also noted that the amount of Rs. 11,76,382 debited in the pr....
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.... 3. Import of Finished Goods 258,942,760 TNMM 4. Export of Finished Goods 114,376,442 TNMM 5. Payment of Royalty 91,905,263 TNMM 6. Payment of Technical Assistance Fee 20,092,761 TNMM 7. Payment of Export Commission 47,054,017 TNMM 8. Reimbursement of Expenses by AEs 1,065,607 Cost Recharges 9. Reimbursement of Expenses to AEs 33,447 Cost Recharges In the Transfer Pricing study report, the international transactions have been benchmarked using Transactional Net Margin Method ("TNMM") as the most appropriate method with Operating Profit/Operating Revenue (OP/OR) ratio as profit level indicator. For the purpose of selecting comparables the appellant has selected companies engaged in manufacturing of engine and generators and the following filters were used for rejecting non-comparable companies: a. Companies for which sufficient information is not available b. Companies that do not have significant (less than 25%) foreign exchange earnings; c. Companies that have substantial (excess of 25%) related party transactions; d. Companies incurring persistent loss....
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....er solutions 1.43% Greaves Cotton 0.32% Gujarat Forgings Ltd 1.61% Jaksons Ltd 0.60% Kirloskar Brother Ltd 1.25% Powerica Ltd 0.22% Shakti Pumps Ltd 2.74% SudhirGensets Ltd 0.28% Supernova Engineers Ltd 0.51% Arithmetic Mean 1.00% The TPO accordingly, held that, since the ratio of AMP expenses as a percentage of sales in case of the appellant at 4.13% was higher than AMP expenses of 1% incurred by the above comparable companies, the appellant had incurred non-routine AMP expenses to the extent of the differential, which resulted in creation of marketing intangibles on account of promotion and development of brand, viz., 'Honda' owned by the associated enterprise. The Transfer Pricing Officer, accordingly, in the order passed under section 92CA(3) of the Act made an adjustment of Rs. 10,98,88,464 on account of the alleged difference in advertisement and promotion expenditure incurred by the appellant and the arm's length price of subsidy received from the associated enterprises (AEs) as follows: Computation of TP adjustment Amount (Rs. In lacs) Value of sales 3,058,005,000 AMP / Sales of the comp....
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....of the OECD Transfer Pricing Guidelines. It is of vital importance to note that the Guidelines apply only to limited risk distributors and not to full risk manufacturers like the appellant Further, at para 124 of the order, the Hon'ble High Court has distinguished between the functional profile of a limited risk distributor and a full risk distributor. The Hon'ble High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd (supra) has further held that no transfer pricing adjustment in respect of AMP expense can be made where the assessee (Indian entity) has economic ownership of the brand/logo/trademark in question, in the case of long term right of use of the same. This principle also squarely covers the present case. The appellant has a long term agreement for the use of the trademark 'Honda' in India. This clearly evidences the fact that the economic benefit arising out of the alleged promotion of the AE's logo is being enjoyed by the appellant. There is a clear opportunity and reasonable anticipation for the appellant to benefit from the marketing activities undertaken by it. This is clearly evidenced by the significantly higher profits made by assessee c....
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.... - Raw material procurement - Specifications of the final product - Quality Testing - Technology and legal compliance - Selling and Distribution - Marketing and promotional strategy - Annual advertisement spends - Choice of media - Scope of marketing - Product recall - Risk of product expiry/loss - Consumer complaints - Financial Risks (Working capital, Inventory, Credit risk/bad debt, etc.) - Employment of assets (land, building, plant & machinery, Information technology, Finance, Office equipments, etc.) Hence it would be appreciated that the appellant, being a full-fledged manufacturer and not a distributor, the entire AMP expense is incurred at its own discretion and for its own benefit for sale of Honda products in India. In such circumstances, there does not result an international transaction and the appellant cannot be expected to seek compensation for the allegedly excess AMP expenditure incurred by it. The appellant, being a full-fledged manufacturer and not a distributor, entire AMP expense is incurred at its own discretion and for its own b....
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....has no mandate under the Act. In view of the aforesaid, it is respectfully submitted that the Bright Line Test has no mandate under the Act and accordingly the same cannot be resorted to for the purpose of ascertaining if there exists an international transaction of brand promotion services between the appellant and the associated enterprise. The Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd vs CIT (ITA No 16/2014) held that if the Indian entity has satisfied Transactional Net Margin Method (TNMM), i.e., as long as the operating margins of the Indian enterprise are higher than the operating margins of comparable companies, no further/separate compensation for AMP expenses is warranted. In the present case, the operating profit margin of the appellant at 10.67% is higher than that of the comparable companies at 7.67% and TNMM has undisputedly been satisfied and accepted by the TPO. Since the operating margins of the appellant are in excess of the selected comparable companies, no adjustment on account of AMP expenses is warranted in the case of the appellant. 4. Without prejudice - Selling expenses not to be considered while co....
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.... upon the orders of the authorities below. The ld. DR also relied on the orders of ITAT in the case of Cranes Software International Ltd. vs. DCIT 52 Taxman.com 19 (Bang. Tribunal) and of Delhi High Court in CIT vs. Amadues India Pvt. Ltd. in ITA No. 535/2014 and 729/2014 dated 15.04.2015 and ITA No. 23/2015 & 55/2015 dated 21.09.15 in the case of Rebok India Co. vs. CIT 10. We have considered the rival submissions in the light of material available on record and we find that the Delhi bench of the Tribunal in the assessee's case for assessment year 2008-09, bearing ITA No. 6023/Del/2012 has remitted the similar addition made on account of Transfer Pricing adjustment in respect of AMP expenses to the TPO for deciding as per the decision of the Special Bench of the Tribunal in the case of the LG Electronics. It was also submitted that the decision of the Special Bench in the case of LG Electronics has been considered and over-ruled by the Hon'ble Delhi High Court in the case of Sony Erickson. Relevant portion of the said order reads as follows: "5.2 It is seen that the Special Bench in L.G. Electronics case in para 17.4 has given certain directions on the basis of which the AM....
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....ecision in Sassoon J David & Co Pvt. Ltd. v. CIT (1979) 118 ITR 26 (SC). The Supreme Court in the said decision emphasised that the expression 'wholly and exclusively' used in Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) did not mean 'necessarily1. It said: "The fact that somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law." 39. The OECD Transfer Pricing Guidelines, para 7.13 emphasises that there should not be any automatic inference about an AE receiving an entity group service only because it gets an incidental benefit for being part of a larger concern and not to any specific activity performed. Even paras 133 and 134 of the Sony Ericsson judgment makes it clear that AMP adjustment cannot be made in respect of a full-risk manufacturer. 40. Certain additional facts have been mentioned by the Assessee in its written note of submissions. It is pointed out that during the financial year 2007-2008 relevant to the AY in question, ....
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....ubmissions have been made by the Ld. AR, through synopsis filed at the time of hearing, which are reproduced hereunder from the appeal for A.Y. 2010-11 for ready reference: "The appellant is engaged in the manufacture and distribution/sale of power products like generator sets, engines, tillers etc and in India as well as outside India, including to its overseas related parties. It performs all manufacturing, selling & distribution, and other management functions in this regard and assumes typical entrepreneurial risks associated with the carrying on its business of manufacturing of the power products. The TPO however held that the appellant, while making sales to its associated enterprises, is acting in the capacity of a contract manufacturer and accordingly no royalty should have been paid by the appellant on such sales. In this regard it is respectfully submitted that the TPO has failed to distinguish between the functional profile of a licensed manufacturer and a contract manufacturer. In the case of a licensed manufacturer such as the applicant, the seller is entitled to compensation which includes returns attributable to exploitation of intangibles such technical kno....
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....er, in our opinion, is without any basis and in fact contrary to the facts on record. The raw materials have been purchased by the assessee in its own right. It is not the case of the TPO that the raw materials have been supplied by the AE. The assessee has sold the goods to AE on principal to principal basis and has received the sale consideration. In view of the above, in our opinion, there is no justification for disallowance of the royalty on the export." Further, the Hon'ble Delhi Bench of the Tribunal in the case of Honda Motorcycle and Scooters India Pvt Ltd vs ACIT (ITA No 132/Del/2013) while deleting a similar adjustment held as under: "The finding of the TPO that the position of the assessee with regard to export was that of a contract manufacturer, is without any basis and is contrary to the facts on record. It is evident from the financial results of the assessee that it has independent sales both domestic as well as exports. The assessee has sold the goods to the AEs on principal to principal basis and has received the sales consideration. The royalty is payable on the basis of manufacture of goods. Based on the submissions made before us and also the chart showi....
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....while dismissing the appeal of the department with respect to a similar addition made by the TPO, held as under: "As such, the fee was paid on the sales made to the AE also. There was no material brought by the TPO to demonstrate that the price on sales made to the AE was not at an arm's length . That being so, it was at market determined prices that the sales were made by the assessee. Moreover, it goes unchallenged that the fees paid under the Technology Agreement comprises an integral part of the cost of production, which was recovered from the sale price. It was thus, that so far as regards the sales made to the AE, the amount of fees paid under the Technology Agreement was recovered by the assessee from the AE as part of sale price. This being so, such fee paid became revenue neutral, that is to say, in case the assessee did not pay the fees on the sales made to the AE, a corresponding reduction in the price charged to the AE would have to be given by the assessee, lest the cost for the sale come down. Such latter methodology was not advisable, for it would create problems in the accounting. Also, the impact on the taxable profits would be nil. 17. It was on taking into ....
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....rpose of computing the royalty, the value of imported components and export commission is reduced from the sales price. Accordingly, the payment of royalty is only on the value addition done by the applicant utilizing the technical know provided by the associated enterprises and no royalty is being paid on the cost of components imported from the AEs. In view of the aforesaid, it is submitted that the addition made by the TPO is bad in law and is liable to be deleted. Re: Benchmarking of international transactions of payment of royalty applying TNMM: It is submitted that the appellant has applied Transactional Net Margin Method (TNMM) for determining arm's length price of payment of royalty to HMCL, Japan, being the most appropriate method in the facts and in the circumstances of the case. The aforesaid payments are established to be at arm's length applying such method. Under the Transfer Pricing regulations contained in sections 92 to 92F of the Act, the mandate of the TPO is to determine the arm's length price of the international transaction, applying the most appropriate method, out of the five methods prescribed. The law does not empower the Transfer Pricing Offic....
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.... manner in which the A.L.P. is to be determined by any of the method prescribed in Sec. 92C in provided in Rule 10B of the I.T. Rules, 2961. After examining the parameters prescribed in Rule 10B, it can be seen that bad debts written off cannot be factor to determine the arm's length price of any international transaction. In our opinion, the TPO has exceeded his limitation by following the method which is not authorized under the Act or rules. We, therefore, hold that the Arm's Length Price determined by the TPO and adopted by the Assessing Officer to the extent of royalty payable to the CA Inc Management, USA is not as per the procedure prescribed and same cannot be sustained. We, therefore, direct the Assessing Officer to adopt the Arm's Length Price of the royalty payable to CA Inc Management, USA as declared by the assessee in both the years." The aforesaid decision of the Hon'ble Tribunal has been upheld by the Hon'ble Bombay High Court in CIT vs CA Computer Associates India Pvt Ltd (ITA no 20/2011). It is pertinent to note here that the royalty constitutes an essential part of the cost of sales relatable to export of products. Accordingly, since the exports of the appe....
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.... Mobile Communications India Pvt Ltd vs CIT (ITA No 16/2014) held that clubbing of closely linked (including continuous transactions) is permissible in appropriate cases. The assessee, too benchmarked the transaction of payment of royalty applying TNMM and aggregating the same with closely linked transactions. The Hon'ble Court further held that once the Revenue accepts the TNMM as the most appropriate method, then it would be inappropriate for the Revenue to treat a particular expenditure as a separate international transaction. Such an exercise, the Hon'ble Court held, would lead to unusual and absurd results. Reliance is also placed in this regard on the decision of the Hon'ble Pune Bench of the Tribunal in the case of Demag Cranes & Components (India) Pvt. Ltd. Vs. DCIT. Your Honour's attention is invited to recent decision of the Hon'ble Pune Bench of the Tribunal in the case of Cummins India Ltd vs Addl CIT (ITA No 1616/PN/2011), wherein, interpreting Rule 10A(d) of the Rules, it was held as under: "26. In view of the ratio laid down by Pune Bench of the Tribunal in Demag Cranes & Components (India) Pvt. Ltd. Vs. DCIT (supra), it is held that where number of tr....
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.... for manufacture and sale of two wheelers and parts. Royalty is to be paid for the goods manufactured by the assessee, whether sold within India or outside India. It is not in dispute that the motorcycles which were exported by the assessee, were manufactured by using the technical know-how provided by HMCL under the technical know-how agreement dated 02-06-2004. Therefore, royalty is payable on such manufacturing of goods. The contention of the learned TPO that the goods are exported to subsidiaries of the Associated Enterprise, i.e. AE of Honda Japan and the assessee also paid export commission, would be no ground for disallowance of the royalty or determining arm's length price of the royalty at nil. The assessee is exporting goods to AE of Honda on principal to principal basis and the price at which export is made is higher than the domestic price. While discussing the disallowance of export commission, we have discussed this issue at length and have noted that even after reducing the export commission, the assessee derived the benefit of Rs. 13.05 crores by export. At the cost of repetition, we would like to mention that the export sale value was more than the domestic sale ra....
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....adjustment of Rs. 45,67,000 and Rs. 37,79,000 in A.Yrs. 2009- 10 and 2010-11 are, therefore, set aside to the file of the TPO to consider the claim of the assessee in the light of the findings of the co-ordinate bench in assessment year 2008-09 (supra). These grounds are, therefore, allowed for statistical purposes. 14. The next issue raised by assessee by way of grounds Nos. 5 to 5.4 in appeal for A.Y. 2009-10 relate to disallowance of payment of royalty and technical guidance fee holding the same to capital expenditure. The relevant facts are that the assessee paid royalty of Rs. 6,78,03,514 and technical guidance fee of Rs. 1,81,61,938 to Honda Motor Co., Japan. The AO held the expenditure to be capital in nature and disallowed the same after allowing depreciation at the rate of 25%. 15. The Ld. AR, at the outset, stated that the aforesaid issue is squarely covered by the decision of the Co-ordinate benches of the Tribunal in the assessee's own case for assessment year 2007-08 and 2008-09 in ITA Nos. 5713/Del/2011 and ITA No. 6023/Del/2012, wherein the Co-ordinate benches, after considering the decision rendered in the case of Hero Moto Corp Ltd. v. DCIT in ITA No. 716/Del....
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....der of the Co-ordinate bench in assessee's own case for assessment years 2007-08 and 2008-09. 20. The Ld. CIT DR has placed reliance upon the orders of the authorities below. The ld. DR also relied on the order of Authority for Advance Rulings in the case of Gaunghou Usha International Ltd., Chia(coply placed on record) in AAR No. 1508 of 2013. 21. We have heard the rival submissions. We find that the aforesaid issue is covered by the orders of Co-ordinate bench of the Tribunal in assessment years 2007-08 and 2008-09 wherein referring to the earlier detailed findings that the technical collaboration agreement in the case of Hero Honda Motors (supra) are parimateria to the case of assessee, the Coordinate bench was pleased to hold that the export commission was neither royalty nor fees for technical services and as such the assessee was not required to deduct tax at source on payment of export fee and thus, no disallowance under section 40(a)(i) could be sustained. Respectfully following the order of the Coordinate bench in assessee's own case where no change in facts or circumstances has been pointed out, the additions made by applying section 40(a)(i) are directed to be dele....
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....ture had resulted in benefit of enduring nature to the appellant: S. No. Particulars Amount (in Rs.) 1. Freight on transfer of machines 34,55,000 2. Professional Charges 10,24,000 3. Stores, spares and tools 6,36,000 Total 51,15,000 The assessing officer, however, allowed depreciation @ 15% on the aforesaid amount, thereby restricting the disallowance on account of shifting expenditure to Rs. 43,47,750. In this regard, it is submitted that the aforesaid expenses incurred by the appellant represent expenses incurred in dismantling the existing plant, transportation cost of machines at new site and reinstallation cost of such machines at new premises, comprising of civil works cost, cost of new stores and spare parts, and professional and consultancy charges incurred for the purposes of relocation. The shifting expenses were, therefore, indirect expenses, which were incurred at the time of shifting of factory from Rudrapur to Greater Noida. The expenses were incurred for the purpose of running the business of the appellant company as a more technically viable, efficient and profitable unit. The said expenses were ....
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.... in the course of business are allowable revenue expenditure and cannot be treated as capital in nature: • CIT v. Karanpura Development Co. Ltd.: 144 ITR 538 (Cal.) • CIT v. Brakes India Ltd.: 161 Taxman 47 (Chenn.) • CIT v. Loyal Super Fabrics: 304 ITR 78 (Chenn.) • Madura Coats Ltd. v. ITO: 26 ITD 152 (Mad.) • Hindustan Times Ltd. v. ITO: 3 ITD 525 (Del.) • JCIT v. ITC Ltd.: 299 ITR(Trib.) 341 (Kol.)(SB)(AT) The decision in the case of Bimetal Bearings(supra), relied upon by the assessing officer, has been distinguished in the subsequent decision of the Hon'ble Madras High Court in the case of CIT v. Loyal Super Fabrics: 304 ITR 78 (Mad.). Further, it is respectfully submitted that the decision of Bombay High Court in the case of Otis Elevator (supra), also relied upon by the assessing officer, is per incuriam, since the same has been rendered without considering the decision of the apex Court in the case of Empire Jute Co. v. CIT: 124 ITR 1. The decision of the Patna High Court in the case of Jamshedpur Engg. (supra) has also been duly considered and distinguished by the Third Member of the Madras b....
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....e AO/ DRP are distinguishable from the facts canvassed by the assessee company and have been duly considered and distinguished by Courts subsequently. We are in agreement with the decisions relied upon by the Ld. AR in the case of Karanpura Development (Cal.), Loyal Super Fabrics (Mad.) and Madura Coats (Mad.) which, according to us, are similar to the case of the assessee. Accordingly, we hold that the expenses on relocation and shifting are revenue in nature and would be allowed as business deduction and the disallowance made by the AO on this count is deleted. 29. The last issue raised in appeal for A.Y. 2010-11 by way of ground Nos. 6 to 6.2 relate to disallowance of Rs. 11,76,382 on account of provision for slowmoving inventory. The Ld. AR has submitted as under: "During the relevant year under consideration, the appellant had, in its books of accounts, debited a sum of Rs. 11,76,382 on account of slow and non-moving inventory under the head 'other expenses'. The method of valuation of inventory was duly reflected at paragraph 12(a) of the Tax audit report and reference to the accounting policy for inventories was also made in Schedule 12 in paragraph (vii) of the audite....
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....ele Tube and Components Limited: 175 Taxman 286 (Del. HC) • CIT v. Hughes Communication India Ltd.: 215 Taxman 136 (Del. HC) • CIT v Becton Dickinson India (P.) Ltd.: 214 Taxman 636 (Del. HC) • CIT v Bharat Commerce & Industries Ltd.: 107 Taxman 135 (Del. HC) • JetAirways India (P) Ltd. vs CIT (in 4228/M/2000 for assessment year 1997-98 and other years) (Mum. ITAT) • Emersons Process Management India (P) Ltd. vs Addl. CIT: IT Appeal No. 8118 (Mum.) of 2010 (Bom. Trib.) • Digital Equipment India Ltd. vs CIT: ITA No. 6623 and 6624(Bom.)/2008 (Bom. Trib.) • CIT v Nuware India Ltd.: 118 ITD 70 (Del. Trib.) In view of the above, it is respectfully submitted, that the action of the assessing officer in disallowing the aforesaid provision on account of slow moving expenses is erroneous and based on incorrect appreciation of facts and the settled legal principles. That apart, and without prejudice to the aforesaid, it is respectfully submitted that even otherwise no disallowance is warranted under the provisions of the Act inasmuch as the provision for slow moving inventory of Rs. 11,76,382, de....