TaxTMI 
TaxTMI 
2018 (7) TMI 208
X X X X Extracts X X X X
X X X X Extracts X X X X
....it ratio of comparables companies, i.e., 10.79%, the international transactions entered into by the assessee were considered as having been entered at arm's length price, applying TNMM. The Transfer Pricing Officer (TPO) determined the arm's length price of international transaction of payment of model fee at Nil by holding as under:- (a) The assessee is equally responsible for the technology upgradation that has taking place in India; (b) The assessee pays model fee and royalty for the same set of service. The TPO determined the arm's length price of the transaction of payment of royalty at nil holding that such royalty is in respect of sales made to associated enterprises and with respect to such sales the assessee is operating as a contract manufacturer and accordingly no royalty was payable on such sales. The DRP confirmed the aforesaid adjustments made by the TPO. 3. The Ld. AR submitted that the aforesaid issues are decided in favour of the assessee by the consolidated order dated 24.10.2016 passed by the Delhi Bench of the Tribunal in assessee's own case for assessment year 2010-11 & 2011-12 [ITA No. 1545/DEL/2015 (Hero Moto Corp. Ltd. vs. JCI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gth pricing of payment of export commission of Rs. 15.91 crores, model fees payment of Rs. 15904 4986/- and payment of royalty on sales of Rs. 17.25 Lacs at Rs. nil. Therefore, ground no. 8 of the appeal of assessee is allowed." In the present Assessment Year, the assessee, for the purpose of its' business entered into international transactions of payment of model fee amounting to Rs. 1,720,872,877/- and Royalty of Rs. 35,282,665/-. Since the operating profit ratio of the assessee @ 10.99% is higher than the average of the operating profit ratio of comparables companies, i.e., 10.79%, the international transactions entered into by the assessee were considered as having been entered at arm's length price, applying TNMM. From the records it can be seen that the assessee has not sold any products to the associated enterprises on which royalty was payable and the entire amount of royalty was paid by the assessee on sales made to independent enterprises. Therefore, the TPO/AO as well as DRP were not correct in determining the arm's length pricing of model fees and payment of royalty. This issue is squarely covered by the earlier Assessment Years in assessee's favour. Therefore....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al available on record. The Tribunal in assessee's own case for A.Ys. 2010-11 & 2011-12 held as under: "11) We have carefully considered the rival contentions. The company is a corporate entity therefore it has to value its closing stock according to the accounting standard 2 'valuation of inventories' issued by the Ministry of corporate affairs and ICAI. According to that accounting standard the closing stock of the finished goods is required to be valued including all cost of the finished goods is required to be valued including all cost of purchases, cost of conversion and other cost incurred in bringing the inventory to their present location and conditions. The contentions of the appellant is that that it's all purchases are accounted for on CIF basis and therefore the suppliers are required to provide the goods at the factory location and therefore in the closing stock of inventory there cannot be any element of freight etc., this issue has been considered by the coordinate bench in appellant's own case for A Y 2007-08 where in it has been held that :- "7.13. We have considered the submissions and the material filed by both the parties. The issue in question....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... change in the facts, which is neither demonstrated by assessing officer nor DRP, the view which is taken earlier, should not be changed, as held by various courts. We now discuss some of the case laws. 7.17 The Hon'ble Supreme Court in the case of Radhasoami Satsang (supra), on the theory of consistency, has held as under: "....Strictly speaking, res judicata does not apply to the income tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year, where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to ne sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year." 7.18 This view has been followed by the Hon'ble Delhi High Court in the case of CIT vs. Neo Ploy Pack (P) Ltd. [2000] 245 ITR 492 and the Hon'ble Bombay High Court in the case of CIT vs. Gopal Purohit [2011] 336 ITR 287. 7.19 Further, the Hon'ble Supreme Court in the case of CIT vs. Realest Builders and Services Limited (2008) 307 ITR 202 held ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....issing the appeal, that the assessee had claimed prior period expenses on the ground that the vouchers for such expenses from the employees/ branch employees were received after March 31st of the financial year. It had branch offices throughout the country. It debited the expenditure spill over the subsequent years and the Assessing officer had been allowing it in the past. The accounting practice had been consistently followed by it and accepted by the Revenue. Nothing had been brought on record to show that there had been distortion of profits or that the books of account did not reflect the correct picture. In the absence of any reason whatsoever, there was no warrant or justification to depart from the previous accounting system which was accepted by the Department in respect of the previous years." 7.22 In the present case, the Revenue has rejected the method of accounting which is consistently followed by the assessee on the ground that there may be chance where in a particular year, the method adopted by the assessee may result in underestimation of profits. However, the Revenue failed to demonstrate with facts and figures that the impugned method of accounting may ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....feeling that the litigation between the parties could have been avoided since it was quite immaterial, whether full deduction was allowed in one year or partly in one year and partly in the next, since the assessee is a company and rate of tax is uniform. The gain to one and the loss to the other is illusory since what is deferred in one year, would have to be discharged in the next. In that sense, nobody has won and nobody has lost." 7.25 Even on this plea also, the assessee succeeds. We have dealt with this issue elaborately as, in a number of grounds, this issue would become applicable. In view of above discussion, we allow this ground of the assessee." 25) Before us, the Ld. Departmental representative could not point out any changes in the facts and circumstances of the case for this year compared to the year in which the tribunal has decided this issue. He also did not point out any contrary decision and therefore, respectfully following the decision of the coordinate bench we allow ground no. 2 of the appeal of the assessee." In the present Assessment Year, the AO/DRP held that proportionate amount of Rs. 170.01 lacs out of the total amount of frei....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 2007-08 and 2008-09 whereby similar adjustment made in that year was deleted on the same ground. The Ld. AR pointed out that the aforesaid issue has been decided in favour of the assessee by the order of the Hon'ble Tribunal in assessment year 2010- 11 and 2011-12 wherein the Tribunal held that only normal loss is to be loaded/added to the cost of closing inventory which was in consonance with the Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI). 12. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 13. We have heard both the parties and perused the material available on record. The Tribunal for A.Ys. 2010-11 & 2011-12 held as under: "16. We have carefully considered the rival contention and has also perused the relevant provisions of the accounting standard - 2 which has been relied by the Ld. assessing officer. We have carefully perused the decision of the coordinate bench in the appellant's own case for assessment year 2007-08 wherein the identical issue is dealt with as under:- "8.9 The issue in question is whether the cost of abnormal rejec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inventory, we are of the view the addition in question is uncalled for. The adjustment is not material adjustment. Further, for the reasons staged by us on the issue of consistency, while disposing around no. 2 to 2.2, we allow this ground of the assessee." Both the parties have admitted that there is no difference in the facts and circumstances of the case of the appellant in the assessment year before us as well as the year for which the order of the coordinate bench pertains to. On reading of the assessment order as well as the direction of the Ld. dispute resolution panel it was not found that how the loss of the assessee was found to be normal when the assessee submitted that it is an abnormal loss incurred by it during the course of manufacturing process. Further the Ld. dispute resolution panel has also stated that both the cost of normal and abnormal losses have to be loaded to the value of the closing stock is devoid of any merit as it is contrary to the accounting standard issued by the Institute of chartered accountants of India which has been mandated by the Ministry of corporate affairs, which only says that, only normal losses are required to be included and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 2,936.22 Lacs on the basis of actual PO issued to vendors for the change in prices during the year and it involved no estimation. (2) Provision made on best estimate basis of Rs. 3,128 lacs of which price amendments were not finalized by the end of the year: The provision for price increase of Rs. 3,128 Lacs was made on the basis of per vehicle increase / decrease in metal cost during 3rd/ 4th Quarter multiplied by actual dispatch during the corresponding period. In assessment year 2008- 09, the Tribunal deleted the disallowance holding that similar disallowance of provision was made by the assessing officer in complete disregard of the findings of the assessing officer in the preceding assessment year, viz. Assessment Year 2007-08 as also the consistent method followed by the assessee. In that year, the Delhi bench of the Tribunal, vide order dated 13.06.2014 passed in the assessee's own case for assessment year 2008-09 was pleased to delete the disallowance made by the assessing officer keeping in view the principle of materiality and consistency followed by the assessee. Further, the Ld. AR submitted that the Delhi bench of the Tribunal, vide consolidated order da....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is ascertained only during the year and hence the liability crystallizes during the year. Estimation of an expense has to be considered in contradiction to actual ascertainment of the expenses. Once the actual expense has been ascertained, the liability accrues in that year to the extent not provided in the earlier year and is to be allowed as revenue expenditure in the year of crystallization. Concepts of going concern, accrual and consistency have to be taken into account by the revenue authorities while evaluating such provisions and making such adjustments. The assessee is disputing the figures of disallowance and the DRP is also expressing its inability to correct the figures. In our view the DRP is not helpless and could have directed the assessing officer to verify the figures and correct the mistakes, if any. In view of the above discussion, we allow this ground of assessee for statistical purpose and direct the assessing officer to properly verify the figures and allow the claim of the assessee." Subsequently for the assessment year 2008-09 when the similar disallowance was made by the Ld. assessing officer the coordinate bench vide its order dated 13.04.2014 has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the company estimates the additional liability on account of price revision under negotiation and makes upward/downward provision, as the case may be, in relation to material supplied until the end of the relevant year. Thus, the Assessing Officer was incorrect in disallowing this claim. Therefore, Ground No. 18 to 18.2 are allowed in favour of the assessee. 18. As relates to Ground No. 19 regarding disallowance of cost of scrap material for Rs. 6.73 lacs, in the course of the business of manufacturing, the process generates some scrap on account of rejection of components, obsolescence of components, etc. In the course of manufacturing process, scrap is generated mainly on account of grinding scrap in machining process of various components. Such scrap generated in the course of manufacturing is not separately debited to the profit and loss account but is claimed as the part of cost of material consumed in the course of manufacturing. The wastage generated in the manufacturing process is negligible compared to the overall consumption of material during the year. Further, such wastage is normal and inherent in the manufacturing process and. in any case, within tolerable limits. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... size of the assessee company, it could not be expected to keep quantitative tally of miniscule items. The Ld. AR pointed out that the Tribunal in assessee's own case for the AY 2007-08 and 2008-09 had restored the matter back to the file of the assessing officer to compute the value of closing stock on consistent basis, as per method to be followed by the assessing officer in the set-aide order. The assessee had filed an appeal against the aforesaid order of the Tribunal, which was admitted by the High Court vide order dated 19.1.2015 as involving substantial question of law. The AO in the set aside proceedings for AY 2007-08 vide order dated 31.10.2014, confirmed such disallowance on an ad- hoc basis by estimating the average of scrap lying in the closing stock as a proportion of scrap sales for the last 15 days for the ended 31.03.20007 and the first 15 days of the subsequent CIT(A) vide order dated 01.02.2018 deleted the disallowance made by the AO in the set aside order. However, the Ld. AR pointed out that the aforesaid disallowance sustained by the Tribunal in assessment years 2007-08 and 2008-09 has been categorically distinguished by the ITAT in the AY 2010-11 (referred su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....would become opening stock of this year. There is, thus, no escapement of Revenue on the basis of the impugned addition made by the assessing officer in the assessment order. We have already held in multiple grounds supra that no adjustment should be made to returned income on issues, which are revenue neutral. Having held as above, it is difficult to take any different view for the issue under consideration, which is also purely revenue neutral, especially considering that if similar adjustment (which has not been carried out by the assessing officer) is made to the opening stock, no additional tax liability would delve upon the appellant It could also be seen that the addition of Rs. 3.02 lacs is miniscule having regard to the size of the company, which has declared turnover of Rs. 16,000 crores (approx.) during the year under consideration and net profit of Rs. 2232 crores. The aforesaid renders force in the arguments taken by the Ld. Counsel that an assesse engaged in the business of manufacturing, especially that of the size of the appellant, cannot be expected to keep quantitative tally of miniscule items like nuts and bolts lying in the scrap yard. In view of the aforesaid, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....een that the assessee is a large size manufacturing company which receives services from several vendors, running into hundreds. The assessee made reasonable attempt to quantify the liability incurred towards expenses during the relevant previous years and provide for it. It is not humanly possible to consider and provide for all expenses, in absence of relevant details/material/information for various reasons like, non-receipt of bills/invoices from the vendors, the contract terms with vendors not being settled, disputes in relation to bills received, services contracted by zonal/regional/branch officer not intimated to the head office, etc. Accordingly, the assessee claimed deduction for miscellaneous expenses aggregating to Rs. 18,01,39,937 pertaining to prior period. In the assessment order, the assessing officer has disallowed the aforesaid expenses, on the ground that same pertained to prior period and are not allowable revenue expenditure against income of the relevant year. The assessing officer further made following observations: * The practice/method of accounting of expenses in the succeeding year at the time of receipt of bills/claims is not a correct method o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s a question of excess/ short provision of discount in respect of sales effected, we are of the considered opinion that method of accounting followed by the assessee need not to be disturbed as it is being consistently followed over the years and as the revenue has accepted the same. The assessee's claim that the amount of Rs. 23.86 lakhs is not prior period expenses is not seriously disputed by the revenue. As to the balance amount Rs. 90,000 under the festival offer scheme, it was marginal variation that arose due to estimation of liability towards sales discount to be given to dealers. Thus the disallowance cannot be sustained both on the grounds of materiality as well as consistency. Similar issues were dealt by us while disposing of ground nos. 7 and 7.1. Consistent with the view taken therein, we allow this ground of the assessee for statistical purposes." 6. During the argument, both the parties fairly agreed that the assessee claimed deduction for following miscellaneous expenses aggregating to Rs. 7,09,31,076 but in the assessment order, the amount of Rs. 7,15,91,826 has been incorrectly reported on account of totaling expenses. From page no. 14-16 of DRP orde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ice, etc. Therefore, the assessee in our opinion has rightly claimed deduction for miscellaneous expenses aggregating to Rs. 18,01,39,937 pertaining to prior period. The facts are identical in the previous Assessment Year 2010-11 & 2011-12 and squarely covered in favour of the assessee. Therefore, Ground No. 20 to 20.1 are allowed in favour of the assessee. 26. As relates to Ground No. 21 to 21.2, regarding Advertisement provisions of Head Office for Rs. 22.84 crores, it can be seen that at the end of year, the assessee made provision for various expenses incurred during the year on the basis of reasonable estimate, since in the absence of receipt of bills/invoices from the vendors, which are received in the succeeding year, the exact amount payable thereagainst was not ascertainable. In the succeeding year, on receipt of bills from vendors, exact amount payable to vendors was ascertained. The amount of provision in excess of actual amount payable was reversed in the books of account. In case of shortfall, the profit and loss account was debited with the amount of shortfall. The aggregate provision for advertisement expenses incurred at the head office made at the end of the rel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tical issue by observing that the assessee had computed the provision on the basis of actual Purchase Orders, which was scientific and logical in nature. 28. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 29. We have heard both the parties and perused the material available on record. The Tribunal for A.Ys. 2010-11 and 2011-12 held as under: 1) "33. We have heard the rival contentions. We agree with the submissions of the Ld. Counsel of the appellant, which, in fact, have even been agreed by the DRP and endorsed by Tribunal in the order for AY 2008-09, that a provision made for expenses on a scientific and rational basis is allowable business deduction. The provisions so made cannot be disallowed merely because; part thereof was reversed in the subsequent year at the time of actual quantification of the liabilities. We also find that the appellant had given complete details in respect of the method followed in creating the aforesaid provisions, which were made on the basis of details / information available with the company as at the end of the relevant year. We further reiterate and follow th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oes not procure such components from any other vendor. The purchase price of components which are purchased from various suppliers are based upon negotiations with such vendors and are different due to various factors, like level of automation of vendor, amount of investment by vendor, age of the plant, capacity utilization (impacting fixed cost recovery), volume of supply, geographical differences (which could impact cost of freight, labour, power), lead time, indirect tax Costs (CST Vs VAT) etc. Further, the assessee also prefers purchasing material from certain suppliers, due to business/commercial expediency, viz., de-risking the supply chain to reduce dependence, inability of existing supplier to meet demand increase, etc. The said parties are not related to assessee, in terms of the provisions of section 40A(2)(b) of the Act. In addition to above, the assessee in the course of manufacturing two wheelers, places purchase orders on vendors of certain customized intermediary products like wheel assembly, seat assembly, etc. The assessee, while placing aforesaid purchase orders to the vendors, also specifies the specifications of the raw materials/components to be used in manufac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mercial expediency and when the recipients had paid tax on payments received from the assessee company, disallowance could not be made by applying provisions of section 40A(2) of the Act. The Ld. AR pointed out that similar disallowance made in the immediately preceding two Assessment Years, viz. AY 2010-11 and 2011-12 was also reversed by the Tribunal, following the aforementioned order of the Tribunal for assessment years 2007-08 and 2008-09. 32. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 33. We have heard both the parties and perused the material available on record. The Tribunal for A.Ys. 2010-11 and 2011-12 held as under: "55. We have carefully considered the rival contention and perused the relevant records placed before us. It was submitted by the parties that there is no change in the facts and circumstances of the case in the present assessment year compared to the assessment year for which the coordinate bench is decided this issue in the favour of the appellant for assessment year 2007 - 08 and 2008 - 09 wherein this issue has been decided by the coordinate bench as under:- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to evade tax. 13.18. In the present case, it was submitted by the learned AR of the assessee that the related parties are profit-making companies and are subject to tax to at some less or the same rate of tax. Thus, there is no loss of Revenue. This submission of the assessee has not been controverted before us by the learned DR. Tax benefit alleged is factually wrong as the other compared assesses are profit making companies/ assesses. There is no loss to the revenue if only the excess payment of price is taken, but this situation is not considered by the Revenue. Except for allegation that excess price is paid to reduce profit, no other evidence is gathered by assessing officer to prove that the assessee had in fact evaded or saved tax by such exercise. The argument of the Revenue fails. The allegation that the assessee has structured his associate concern so as to avoid sec. 40A (2) is also devoid of merit, as the revenue has failed to demonstrate as to how it has come to such a conclusion. The allegation means that profit is transferred to third parties, where the share holding of the assessee is not a major share holding. The allegation means that the assessee is di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y be the business of the assessee itself), the revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize his profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent business man would act. The authorities must not look at the matter from their own view point but that of a prudent businessman...." 13.25. It is a well settled principle that Commercial expediency cannot be judged by the Revenue from its point of view. In the present case, we are of the view that the assessing officer has made this disallowance based on surmises and conjectures without properly examining the facts on record and without bringing any evidence that the purchases were made at an excessive price compared to fair market value to evade tax. 13.26. In view of the above discussions, and bearing in mind entirety of the case, we are of the considered view that the impugned disallowance was indeed uncalled for on the facts of this case. Hence....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee company. The dealers on purchase of vehicles from the assessee, get the bill of purchase raised by the assessee, discounted from HFCL and remit payment to the assessee. The dealers are required to make payment of aforesaid discounted bills to HFCL on maturity thereof. Subsequently, when payments by dealers to HFCL are due to the dealers, due to convenience of facility of collection centers of the assessee available all over India, make payment into the assessee's bank account, for and on behalf of HFCL, which is in turn remitted by the assessee to HFCL in 2-3 days. The Assessing Officer held that the aforesaid amount received by assessee from dealers as loan/advance given by HFCL to assessee and consequently deemed the same as dividend under section 2(22)(e) of the Act. It was further observed that the aforesaid advances were not given by HFCL to the assessee in the ordinary course of business since the aforesaid payments were given by customers of HFCL and not by HFCL directly. 35. The Ld. AR submitted that in AY 2007-08, the Tribunal decided the issue in favour of the assessee by holding that assessee's intention did not reflect that the amount was received as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mption provided in clause (ii) of section 2(22)(e) of the Act, since the loan would be considered as given by HHFL, which is engaged in the business of money lending, in the ordinary course of its business. Therefore, the amount cannot be deemed as dividend in the hands of the assessee. The arguments of the Ld. DR that since no interest was charged/ chargeable thereon from the assessee, the aforesaid loan cannot be said to be given in the ordinary course of business of HHFL is taken to its logical conclusion, supporting our view that this is not a loan or advance. 16.29.Considering the decision of the Hon'ble Delhi High Court and the intent of the Legislature in introduction of Section 2(22)(e) of the Act, we are of the view that the transaction in question would not fall within the provisions of section 2(22)(e) of the Act. Accordingly, this ground of the assessee is allowed." The Ld. departmental representative could not point out any change in the facts and circumstances of the case of the appellant as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectfu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0-11 and 2011-12 held as under: "56) We have carefully considered the rival contentions. We have also noted the documents in relation to various services provided by HCSL, the necessity thereof was explained by the appellant in his submissions discussed above. We have also gone through the order of the Tribunal for AY 2007-08, wherein while following the settled legal propositions that an assessing officer cannot sit in the arm chair of the business man and decide the reasonableness of expenditure incurred or commercial expediency thereof, deleted the impugned disallowance made by the assessing officer as under :- "15.12. The assessing officer in this case made an ad hoc disallowance by allowing an amount of Rs. 20 lacs as expenditure for the services availed by the assessee from HCSL and disallowing the rest. The assessing officer has by observing in his order that various reports have been provided by HCSL admitted the fact that certain services were rendered in this case. His only doubt is how these services were needed in the business of the assessee. We also note that the parties are not related to each other in terms of sec. 40A(2)(b). While it is so, the ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct is identical with the earlier Assessment Years. The issue is squarely covered in favour of the assessee by the Tribunal's order for A.Ys. 2010-11 & 2011-12. Besides this the Revenue has accepted this issue and has not challenged the same in Hon'ble High Court. Thus, this issue attains finality. Therefore, Ground No. 24 to 24.1 are allowed in favour of the assessee. 42. As relates to Ground No. 25- 25.7 regarding disallowance of purchase u/s 40a(ia) for alleged failure to deduct TDS u/s 194C of the Act amounting to Rs. 5063.08 crores, it can be seen that in the course of business of manufacturing two wheelers, the assessee places purchase orders on vendors of certain customized intermediary products like wheel assembly, seat assembly, etc. While placing the aforesaid purchase orders to the vendors, the assessee also provides the specifications of the products to be purchased, as also the name of suppliers, from whom the vendor is required to purchase raw materials/components to be used in manufacture of customized intermediary products at the price negotiated by the assessee with such suppliers. The Assessing Officer held that the assessee by specifying the name of vendors of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t' and no part of the expenditure can he disallowed under the said section. The said provision was inserted w.e.f. 1-4-2013, i.e., A.Y. 2013-14 and onwards. The Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P.) Ltd. 377 1TR 635 held that the aforesaid amendment to be retrospective in nature and applicable in earlier year(s). Accordingly, in the present case since the recipient have discharged their tax liability and certificate of CA to that effect have been provided by the parties, no disallowance is even otherwise warranted under section 40(a)(ia) of the Act. 44. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decisions of the Tribunal and the Hon'ble High Court. 45. We have heard both the parties and perused the material available on record. The Tribunal for A. Ys. 2010-11 and 2011-12 held as under: "65) We note that the Ld. assessing officer had adopted the findings and reasons given in the assessment order for AY 2007-08, while repeating the disallowance in the assessment year under consideration. The Tribunal in the order for AY 2007-08 in appellant's own case has reversed the aforesaid fin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ses to the buyer on transfer of goods by the vendor, even though goods are manufactured according to the specifications and design supplied by the purchaser, the contract cannot be regarded as contract for carrying out work falling under section 194C of the Act. ................... 14.86. Whether a particular contract constitutes "contract for sale" or "contract for work" is based on facts of each case. The same would depend upon the intention and conduct of the parties as evidenced by the terms of the contract. It is a settled judicial preposition that the substance and not the form of the contract is material in determining the nature of transactions. 14.87. Applying the principals laid by the Courts to the facts of the present case, we now proceed to examine whether the contract in the case on hand is "contract for sale" or "contract for work". (1) All the nine parties are independent legal establishments engaged in the manufacturing of finished products and are not captive units of the assessee. (2) The vendors have their own manufacturing establishments, employing huge labour; utilize the raw materials purchased by them, for produci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hing but a presumption unsupported by facts. The assessing officer accepts that all the vendors purchase raw material and components from their supplier after paying sales tax, excise duty etc. wherever applicable. The purchases are made on a principal to principal basis. Title in the goods passes to the vendors from the supplier on delivery of the raw material and the assessee does not in any way acquire any title to the goods i.e. raw material. The argument of the Ld. DR that the nature of arrangement of the assessee is that of indirect supply of material to the vendor, which is in the nature of contract for carrying out work is farfetched, devoid of merit and not supported by evidence. It is not the case of revenue that there are any financial transactions between the assessee and the raw material suppliers of the vendors. The test is to see the fact whether the assessee acquired any title to the raw material purchased by the vendors from the suppliers. The answer to this is no. We are unable to understand as to how the assessing officer as well as the DRP has considered this as a deemed purchase by the assessee. The reason enunciated by the assessee w.r.t identifying the suppli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing out work shall not include contract for manufacturing or supplying of product according to the requirement or specification of a customer by using material purchased from a person other than such customer. 14.97. In case of the assessee, the finished goods are manufactured by the supplier as per the prescribed specifications of the assessee. The raw material and other ingredients required for manufacture are specified by the appellant, in order to ensure proper quality of the finished products. The rates are negotiated to achieve economy of scale and to leverage the position of the assessee, which leads to reduction in cost of production. Such raw-materials are however acquired by the vendor on their own account and not on behalf of the assessee. 14.98. The right of ownership passes to the assessee only after the goods come into existence, on manufacture and are supplied to the assessee as finished goods. Prior thereto, the risk in the goods vests with the vendor/supplier. All the other terms of purchase/sale between the vendor and supplier, like payment terms, period of delivery etc. is for acquisition of ascertained goods - the contract is thus one of sale a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e latter in accordance with sales incentive/discount scheme prevalent during the relevant previous year. The assessee has further given trade discount amounting to Rs. 40,80,92,460 to the dealers on the sales invoice at the time of sales. The Assessing Officer held that the assessee was liable to deduct tax from aforesaid discounts/incentives under section 194H of the Act since the payments made were on the basis of performance of dealers and targets achieved by dealers which was not in the nature of "discount" as the same was not given at the time of taking delivery of goods by the dealers but was given subsequently. The Assessing Officer held that incentive paid by the assessee to dealers was not in the nature of discount, but fell within the meaning of the term 'commission' as defined in section 194H of the Act and thus disallowed the entire expenditure under section 40(a)(ia) of the Act. Further, the Assessing Officer disallowed trade discount given to dealers on sales invoice at the time of sale while alleging that the same was based on achievement of turnover targets which represented commission on which TDS under section 194H was liable to be deducted. 47. The Ld. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....count in question is not in the nature of commission or the brokerage which attracts sec. 194H. In the case of CIT Vs. Mother Dairy Ltd. (ITA no. 1925/2010(Del) the Hon'ble Delhi High Court was considering similar case and held as follows: "3. The assessee explained in writing that it sold the products to the concessionaires on a principal to principal basis, that the concessionaires buy the products at a given price after making full payment for the purchases on delivery, that the milk and other products once sold to the concessionaires became their property and cannot be taken back from them, that any loss on account of damage, pilferage and wastage is to the account of the concessionaires and that in these circumstances the payment made to the concessionaires cannot be treated as "commission" for services rendered and consequently there was no liability on the part of the assessee to deduct tax. It is irrelevant that the concessionaires were operating from the booths owned by the Dairy and were also using the equipment and furniture provided by the Dairy. That fact is not determinative of the relationship between the Dairy and the concessionaires with regard to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e is allowed." This issue is covered in favour of the Assessee by the Tribunal order for A.Ys. 2010-11 and 2011-12 as well as, the decision of the Hon'ble High Court in case of Mother Dairy Ltd. (supra). Therefore, Ground No. 26 to 26.3 are allowed in favour of the assessee. 50. As relates to Ground No. 27- 27.4 regarding disallowance of legal and professional expenses u/s 40(a)(ia) of Rs. 3.60 lacs, it is seen that during the relevant year, the assessee incurred legal and professional expenses, amounting to Rs. 3,60,396. The details of said expenses were submitted before the authorities. The Assessing Officer disallowed the aforesaid expenses, invoking section 40(a)(ia), for the failure of the assessee to deduct tax at source there from under section 194J of the Act. 51. The Ld. AR submitted that the aforesaid issue is squarely covered in favour of the assessee by the decision of Delhi Bench of Tribunal in the assessee's own case for the Assessment Years 2007-08 and 2008-09, wherein disallowance of expenditure on account of re-imbursement of out-of-pocket expenses incurred by professionals/vendors under section 40(a)(ia) was deleted on the ground that same did not have any e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the revenue." In the present Assessment Year, the Assessing Officer disallowed the aforesaid expenses, invoking section 40(a)(ia), for the failure of the assessee to deduct tax at source there from under section 194J of the Act. But it is pertinent to note here that the Assessing Officer did not doubt that the payment was made by assessee towards reimbursement of expenses, it was still held that assessee was liable to deduct tax at source under section 194J of the Act. Thus, the issue is squarely covered by the order of the Tribunal for A.Ys. 2010-11 and 2011-12. Therefore, Ground Nos. 27 to 27.4 are allowed in favour of the assessee. 54. As relates to Ground No. 28- 28.5 regarding TDS at lower rate or wrong provision (Payment made to M/s. G2 RAMS India Pvt. Ltd. for event organization) of Rs. 44.85 Crores, it is seen that the assessee had incurred expenditure on account of display of hoardings for advertisements and arrangement of various events for publicity. All arrangements for this event were done by M/s G2 RAMS India Pvt. Ltd. which included arrangement for transfer to hotels from airport, refreshments, F&B etc along with arrangement of various artists, sound & light,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... referred in Section 194J of the Act. 56. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 57. We have heard both the parties and perused the material available on record. The Tribunal for A.Ys. 2010-11 and 2011-12 held as under: "132) We have carefully considered the rival contentions. The facts are not in dispute that the contract entered by the appellant with G2RAMS India Pvt. Ltd. involved composite services in relation to organizing an event, viz., arrangement of hotels, airport transfers, engagement of various artists, staging of events, etc. The issue that arises is whether such composite services fall within the meaning of contract for carrying out work u/s 194C or within the meaning of technical or professional services u/s 194J of the Act. Firstly, dwelling upon the applicability of section 194J, the words "professional or technical services" used in section 194J have been defined in Explanation thereto. The aforesaid Explanation provides an exhaustive definition of the word "professional services" as services provided in the course of carrying on legal, medical, engineering, architect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed with the running of business. Therefore, management as a process is practised throughout every organization from top management through middle management to operational management.' Recently this Court in CIT v. Bharti Cellular Ltd., [ 2009] 319 ITR 139/[2008] 175 Taxman 573 had observed:- 'The word "manager" has been defined, inter alia, as: "a person whose office it is to manage an organization, business establishment, or public institution, or part of one; a person with the primarily executive or supervisory function within an organization, etc., a person controlling the activities of a person or team in sports, entertainment, etc." It is, therefore, clear that a managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression "manager" and consequently "managerial service" has a definite human element attached to it. To put it bluntly, a machine cannot be a manager.' Reference can be also made to the decision of the Authority for Advance Rulings in Intertek Testing Services India (P.) Ltd., In re [2008] 307 ITR 418/175 Taxman 375, wherein it was elucidated:- &#....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... field would mean applied sciences or craftsmanship involving special skills or knowledge but not fields such as arts or human sciences (see paragraph 24 below)." "24. The OECD Report on e-commerce titled, Tax Treaty Characterisation Issues arising from e-commerce: Report to Working Party No.1 of the OECD Committee on Fiscal Affairs dated 01st February 2001, has elucidated:- 'Technical services 39. For the Group, services are of technical nature when special skills or knowledge related to a technical field are required for the provision of such services. Whilst techniques related to applied science or craftsmanship would generally correspond to such special skills or knowledge, the provision of knowledge acquired in fields such as arts or human sciences would not. As an illustration, whilst the provisions of engineering services would be of a technical nature, the services of a psychologist would not. 40. The fact that technology is used in providing a service is not indicative of whether the service is of a technical nature. Similarly, the delivery of a service via technological means does not make the service technical. This is especially i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....give a definition of management for that purpose but noted that this term should receive its normal business meaning. Thus, it would involve functions related to how a business is run as opposed to functions involved in carrying on that business. As an illustration, whilst the functions of hiring and training commercial agents would relate to management, the functions performed by these agents (i.e. selling) would not. 44. The comments in paragraphs 40 to 42 above are also relevant for the purposes of distinguishing managerial services from the service of making data and software (even if related to management), or functionality of that data or software, available for a fee. The fact that this data and software could be used by the customer in performing management functions or that the development of the necessary data and software, and the management of the business of providing it to customers, might itself require substantial management expertise is irrelevant as the service provided to the client is neither managing the client's business, managing the supplier's business nor developing that data and software (which may well be done by someone other than the su....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would therefore stand out in distinction to the former." On analysis of the aforesaid cases, the aforesaid three words used in section 9(1)(vii) can be understood in the following manner: (i) Managerial - Services essentially involving controlling, directing or administering the business of the service recipient (ii) Consultancy - Advisory services involving rendered by someone who has special skills and expertise in rendering such advisory (iii) Technical - Services provided through human intervention, involving or concerning applied and industrial science In other words, in short, the services provided by the vendors should predominantly involve specialized skills. Having reached the aforesaid conclusion, it would be pertinent to understand the meaning of co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ontract. In the present case, the services provided by the vendor, in our opinion, are predominantly physical or, in other words, predominantly not based on mental or intellectual attributes, being that of organizing an event involving booking of hotel, organizing airport transfers, organizing various artistes and professionals to stage the show, etc. The vendor has acted as a 'one-stop shop' for the appellant for coordinating with all the other thirty- party professionals or service providers. In our opinion, the predominant attributes in the service so provided by the vendor is that of contract for carrying out work, which would more appropriately be covered u/s 194C instead of section 194J of the Act. Accordingly, we hold that there was no error on the part of the appellant in deducting tax at source u/s 194C, instead of section 194J of the Act. In view of above, ground No. 28 of the appeal of the assessee is allowed holding that the Ld. assessing officer has wrongly held that take should be deducted on this payment under the provisions of section 194J of the act and according to us, the assessee has rightly rejected the tax under section 194C of the income tax act. Therefore, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d reliance upon the decision of the Hon'bre Gujarat High Court in the case of C1T v. Stratronics Enterprises Pvt. Ltd. 288 ITR 455. In all fairness, it is pointed that the aforesaid issue was decided against the assessee by the Delhi Tribunal in the assessee's own case for the assessment year 2007-08 and 2008-09. It would, however, be pertinent to point out that the aforesaid disallowance sustained by the Tribunal was challenged by the assessee in further appeal before the High Court, which has been admitted by the High Court, vide order dated 19.11.2015 in ITA No. 341/2014, as involving substantial question of law. 60. The Ld. DR relied upon the Assessment Order and Order of the TPO. 61. We have heard both the parties and perused the material available on record. Similar disallowance of additional depreciation on computers installed in factory premises made in the preceding assessment years, viz. AY 2010-11 and 2011-12, was set aside by the Tribunal to the file of assessing officer to determine if the computers were used for data processing at industrial premises. The Tribunal held as under: "90) We have heard the rival contentions. We find that there is no ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he purposes of this case, would read as under : 32.(1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed-. . . (iia) in the case of any new machinery or plant (other than ships and aircraft) which has been installed after the 31st day of March, 1980, but before the 1st day of April, 1985, a further sum equal to one-half of the amount admissible under clause (ii) (exclusive of extra allowance for double or multiple shift working of the machinery or plant and the extra allowance in respect of machinery or plant installed in any premises used as a hotel) in respect of the previous year in which such machinery or plant is installed or, if the machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year : Provided that no deduction shall be allowed under this clause in respect of- (a) any machinery or plant installed in any office premises or any residential accommodation ; . . . " 9. It is submitted ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed for data processing at industrial premises or not. We direct the Assessing Officer that after taking congnizance of the same pass appropriate order. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Therefore, Ground No. 29 to 29.2 are partly allowed for statistical purpose. 62. Ground No. 30- 30.2 is in regard to gains from sale of investments income treated as business income of Rs. 278 Crores. The assessee invests surplus funds arising in the course of business under various modes of investment like mutual funds/PMS, shares, etc. The gains realized from sale of such various instruments, amounting to Rs. 278.54 crores during the relevant previous year, were disclosed under the head 'capital gains.' The Assessing Officer held that, having regard to the magnitude/volume of total turnover from sale of investments, the aforesaid income was taxable under the head 'business income'. 63. The Ld. AR submitted that the aforesaid issue is squarely covered in favour of the assessee by the decision of the Delhi bench of the tribunal in the assessee's own case for the AY 2007-08 and 2008-09, wherein after considering the leg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ration is whether the gains that arose to the assessee from investment in debt mutual funds/PMS/ shares are to be taxed under the head "business income" or under the head "capital gains". .................... 65.28. Now, we proceed to analyze the facts of the present case in the light of the principles laid down by the Courts (Supra) for determining the nature of the transaction vis a vis capital gains vs. business income: Intention of the assessee at the time of the purchase of shares: 65.29. The business of the assessee is not to deal in shares and securities. The investment was made with a view to earn capital appreciation and to use the spare fund optimally instead of keeping it in the banks. For the year under appeal, the assessee earned dividend income of Rs. 22.61 crores from investments held in shares and mutual funds. Treatment in the books of accounts: 65.30. It is an undisputed fact that the assessee had treated the transaction as investment in its books of accounts and not as stock in trade. The assesse has shown the investments in shares both at the beginning and closing of the year as an investment only and not as stock in trade. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stematically. However, we observe that there is not much frequency in sale/purchase of investments, from analysis carried out at page 526 of objections in Form 35A. It is not the case that the assessee has indulged in regular trading in shares on day to day basis. 65.38. The Mumbai Bench of the ITAT in the case of Janak S. Rangwala (11 SOT 627) observed that mere volume and magnitude of transaction will not alter the nature of transaction if the intention was to hold the shares as investment and not in stock in trade. Investments in mutual funds - 65.39. Out of the total income earned from mutual funds, almost 67.34% of the total income earned from investments made in mutual funds was for a period of more than one year. Investments in shares - 65.40. Investment in shares was primarily made either through PMS or under Initial Public Offer. Under PMS, the company advances funds to the Portfolio Manager, who in turn makes investment in various shares. In substance the investments under PMS are similar to investment in mutual funds. The assessee, reiterated that it is only interested in the return on funds invested and does not act as a dealer/trader....
X X X X Extracts X X X X
X X X X Extracts X X X X
....11-12 wherein the Tribunal allowed this issue in favour of the assessee. Therefore, Ground No. 30 to 30.2 are allowed in favour of the assessee. 66. Ground No. 31 to 31.2 is regarding disallowance u/s 14A as per Rule 8D for Rs. 62.30 lacs. During the relevant previous year, the assessee company earned dividend/interest income of Rs. 11.02 crores from investments in shares, bonds, and mutual funds, which was exempt under section 10(34)/10(35)/10(15)(iv)(h) of the Act. In view of the provisions of section 14A of the Act, the assessee suo moto disallowed Rs. 70.76 lacs in the return of income, being salary of two employees of the company who were involved in treasury function along with portfolio management fee. In the assessment order, the Assessing Officer, did not accept the method of disallowance computed by the assessee under section 14A and made further disallowance of Rs. 62.30 lakhs (disallowing interest expense of Rs. 38.91 and administrative expense of Rs. 94.16 lacs) invoking provisions of Rule 8D of the Rules after reducing the suo moto disallowance of Rs. 70.77 lakhs made by the assessee in the return of income. 67. The Ld. AR submitted that as per section 14A(2), d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Taxman 238 (Cal) * CIT v. Kanoria Investment (P) Ltd.: 232 ITR 7 (Cal) * CIT vs. Hotel Savera: 239 ITR 795 (Mad) * Smt. Chanchal Katyal v. CIT: 298 ITR 182 (All.) * CIT v. Reliance Utilities and Power Ltd.: 313 ITR 340 (Bom) Reliance is also placed on the following cases, wherein, the Courts have repeatedly held that interest expenditure cannot be disallowed under section 14A of the Act, where the assessee had sufficient surplus funds and there was no finding by the assessing officer of any direct nexus of borrowed funds with investments: * Godrej & Boyce Manufacturing Co. Pvt. Ltd. VS DCIT 394 ITR 449(SC) * Pr. CIT vs. GMM Pfaulder Ltd.: ITA No. 506 of 2017 dated 31/7/2017(Guj) * CIT v. Max India Ltd.: 388 ITR 81 (P&H) * CIT vs. Suzlon Energy Ltd.:[2013J 215 Taxman 272 (Gujarat) CIT v. Reliance Utilities and Power Ltd.: 313 ITR 340. * CIT vs. M/s. Ashok Commercial Enterprises: ITA No. No.2985 of 2009 (Bom) * Lubi Submeribles Ltd.: ITA No.868 of 2010 (Guj) * CIT vs. K. Raheja Corporation Pvt. Ltd: ITA No.1260 of 2009/ * Gujarat State Fertilizers and Chemicals Ltd : Tax App....
X X X X Extracts X X X X
X X X X Extracts X X X X
....earning of exempt dividend income. The appellant has also given justification of nexus of such expenditure incurred at Treasury Department with portfolio management activity considering that the portfolio management is not the main business function of the appellant. The appellant is a company whose core business function is that of manufacturing and selling two-wheelers, having a turnover of Rs. 16,000 crores approximately. The investments are made by the appellant as part of its cash management policy in order to better utilize the idle / surplus funds. We have also decided on the aforesaid aspect in ground of appeal no. 20 that the investment activity as part of its cash management function does not constitute business. In view of the same, we are of the view that no additional expenditure is required to be incurred more specifically of the management in investing surplus funds as per the cash management policy. The assessing officer has also not, on the basis of any tangible evidence/findings, pointed out incurrence of such expenditure. The legal position qua recording of satisfaction or coming to a finding qua inaccuracy in the method of disallowance followed by an assessee be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....htly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as 'stock-intrade', it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en manufacturing two wheelers in India since 1985 on the basis of technology provided by M/s. Honda Motors Co. Ltd., Japan ("HM") and has thus far launched various models of motorcycles by obtaining the technology provided by that company. However, during AY 2011-12, on account of commercial considerations, HM decided to exit the joint venture. Consequently, a Memorandum of Understanding ('MOU') dated 16.12.2010 was entered into between the assessee and HM and the license agreement was mutually terminated. Further, in terms of the MOU two new license agreements dated 22.01.2011, License 'A' agreement and License 'B' agreement, were entered into between the assessee and HM. In terms of the license agreement for License 'A' Products, the assessee received the following rights: * Rights to use the technology, design and drawings for manufacture of 18 specific models of motor cycles till perpetuity * Right to make modifications to the technology, design and drawings * Unrestricted right to export such products in the overseas markets. Since the aforesaid right/license was acquired by the assessee in perpetuity, compensation by way of Royalty and Li....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... territory of India; * The assessee was entitled to continued use of information supplied by Honda even after termination of agreement; * The benefit under the agreement had a degree of perpetuity since the agreement was renewed and was extended year after year and did not. therefore, remain a short term agreement. * The assessee had acquired asset in the nature of intellectual property rights and patents from Honda. The assessing officer, accordingly, disallowed the entire expenditure of Rs. 190.96 crores (including cess) incurred towards royalty/technical guidance fee/model fee. However, since the assessing officer had considered expenditure to the extent of Rs. 3.53 crores towards royalty and Rs. 172.09 crores incurred towards model fee, to be not at ALP while making transfer pricing adjustment, challenged in GOA 1 supra, the assessing officer made the disallowance of the balance amount of Rs. 6.75 crores incurred towards royalty and TGF and Rs. 8.58 crores incurred towards cess on model fee, by treating the same to be capital expenditure. The AO observed that the assessee is to be allowed depreciation @ 25% on the expenditure treated as capital exp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not, acquired any capital asset, much less in the nature of intellectual property rights or patents belonging to Honda, which, in unequivocal terms, as provided in the agreement vested in absolute ownership of Honda at all times. Further, on perusal of Article 22 of the License B product agreement, it would be appreciated that on termination/expiration of the agreement, the assessee was required to return all the documents and materials to Honda and promptly discontinue the use of trademarks licensed by Honda and the assessee did not have any right to continue using such know-how. It is thus clear that there is no explicit or implied intention to transfer or create ownership in the technical knowhow/ technical information to the assessee. On the contrary, it is unequivocally agreed to between the parties that the know-how should at all times remain the property of Honda. Further, the conditions in the agreement as to non-assign ability, confidentiality and the secrecy of the know-how also indicate that the assessee merely obtained the right to use the know-how during the currency of the agreement. Reliance in this regard is placed on the following decisions wherein it has been hel....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... guidance fee was allowable revenue expenditure. It would be pertinent to note that he aforesaid orders of the Tribunal relating to assessment years 2000-01 to 2002-03 have been affirmed by the Delhi High Court in the assessee's own case reported as CIT v. Hero Honda Motors Ltd. 372 ITR 481. 74. The Ld. AR submitted that the Model fees has allowed as revenue expenditure in preceding years. In the assessee's own case for A.Y. 1996-97, the Tribunal allowed model fee paid to Honda under section 37( 1) of the Act as revenue expenditure on the ground that payment was only for right to use the technical know-how and there was no ownership of any intellectual property, which continued to remain with Honda. The said decision is reported as Hero Honda Motors Ltd. v. JCIT: 95 TTJ (Del) 782. The Delhi High Court did not entertain the appeal filed by the department on the same issue. The decision of the High Court was accepted by the Department and has become final, as no SLP has been filed there against. The Ld. AR further submitted that the Tribunal in the assessment years 1997-98 and 1999-00 allowed similar expenditure on payment of model fee, following the decision of the Tribunal f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee by the ITAT in assessee's own case for earlier assessment years 2000-01, 2001-02, 2002-03 and 2006-07. The ITAT Delhi Bench 'C' in assessee's own case for A.Y. 2006-07 in ITA no. 5130/Del/2010 vide order dated 23- 11-2012 has held that the annual payment of royalty was a revenue expenditure. In doing so the ITAT has relied on various judicial pronouncements including the decision of Jurisdictional High Court in the case of Climate Systems India Ltd. and Sharda Motors Industrial Ltd. No change in facts and circumstances has been pointed out by the ld. DR. Therefore, respectfully following the same, we allow this ground of the assessee." Therefore respectfully following the above decisions of the Tribunal and High Court in the appellant's own case, we reverse the order of the Ld. assessing officer in holding the above 3 payments as capital expenditure. In the result ground No. 19 of the appeal of the assessee is allowed." It is pertinent to note that no proprietary rights in the know how vested in the assessee, the assessee being a mere licensee with limited rights to use the technical assistance during the currency of the agreement, there is no explicit or implied ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....12) We have carefully considered the rival contentions. In absence of any change in the facts and circumstances of the case or any contrary decision, We have heard the rival contentions. We find that the similar issue was raised in the assessment order for AY 2008-09, which was decided in favour of the appellant by the Tribunal in appeal order for that year by observing as under96 "219. On careful consideration of above submissions of both the parties, we are of the view that if the closing stock of the year under consideration. is to be varied, then similar adjustments would need to be made in the opening stock also and corresponding adjustments would also need to be carried out in the opening stock of the succeeding year and if any addition is made in this regard, would be revenue neutral if seen in a macro perspective. From the orders of the authorities below, we clearly observe that the AO has not disputed the mode of valuation of inventory made by the assessee during preceding years and if any kind of adjustment is held to be attributable to the value of finished closing stock, then the said corresponding amount/adjustment would need to be made in the opening stock of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the opening stock of finished goods for the year under consideration. Thus, this issue is covered by the decision of the Tribunal for A.Ys. 2010-11 and 2011-12. Therefore, Ground No. 33 is allowed in favour of the assessee. 81. Ground No. 34, is regarding disallowance of reimbursement of foreign travelling expenses to directors/employees, on the ground of no evidence/proof of actual expense incurred by employees of Rs. 2.07 crores. In the course of discharge of official duties, the employees of the company are required to travel abroad and incur incidental expenses in foreign currency like local conveyance, boarding and lodging expenses, telephone expenses etc. The assessee had introduced a policy fixing per diem allowance payable to employees, depending upon the grade/category of the employees and the place/country of travel. The employees are not entitled to any extra allowance in the event actual expenditure incurred by the employee is in excess of such per diem allowance. For payment of per diem allowance, as per policy, the assessee does not require the expenses to be necessarily supported / backed by bills considering the practical difficulties/impossibilities in produci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s are followed by the assessee, in our view, the incurring of expenditure by the employees is not to be doubted. Even in cases where officers of the government of India travel abroad, daily allowance is given and vouchers for such expenditure are not insisted because of practical difficulties in submitting bills/ vouchers of petty expenses. In such circumstances, what is to be examined by the assessing officer is the reasonableness of the expenses incurred as compared to the general rates of expenses and allow the same. The assessee submits that the fixed per diem allowance payable to employees depending on the grade is reasonable. When such rates are reasonable the question of disallowance does not arise unless the revenue demonstrates that the rates are excessive. In this case it is not that the expenses are not incurred for the stated purpose nor is it that the rates are unreasonable. The disallowance in question in our view on the sole ground that vouchers are not produced by the employees cannot be sustained. In the result this ground of the assessee is allowed." The Ld. departmental representative could not point out any change in the facts and circumstances of the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er and Order of the TPO, but could not distinguish the decision of the Tribunal. 88. We have heard both the parties and perused the material available on record. The Tribunal held in A.Ys. 2010-11 and 2011-12 as under: "116) We have considered rival contentions. Under section 37(1) of the Act, expenditure is allowable as deduction if the same is incurred for the purpose of business out of commercial expediency. An expenditure which is personal in nature, is not an allowable business deduction. In the present case, the assessing officer has disallowed the expenditure incurred for making advertisement in newspapers to commemorate the death anniversary of late Shri Raman Munjal, being the founder and ex-managing director of the appellant, on the ground that he was family member of the promoters family, losing sight of the fact he was also ex-employee of the company who served in the capacity of managing director during his lifetime. He was, thus, simply not a distant family member of the promoters, but had strong nexus with the business of the appellant company. The expression "for the purpose of business" used in section 37(1) is not limited to earning of profit alone and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id to Managing Director & CEO, Shri Pawan Munjal and Joint Managing Director, Shri Sunil Kant Munjal u/s 36(1) (ii) of the Act. Sh. Pawan Munjal has been appointed as Managing Director & CEO of the assessee company and Sh. Sunil Kant Munjal as Joint Managing Director in the Annual General Meeting of the shareholders and continued to render services in that capacity. The consideration in lieu of services to be rendered by Executive Directors was payable, inter alia, as basic salary per month along with commission payable with reference to profits subject to the condition that the amount of commission shall not exceed 1 % of the net profits of the company in a particular financial year as computed in the manner provided in section 198 of the Companies Act, 1956. The assessee incurred expenditure of Rs. 47.98.25,000/- on account of commission paid to Managing Director and CEO. viz.. Shri Pawan Munjal and Joint Managing Director Shri Sunil Kant Munjal. The same was claimed as revenue deduction while computing the income for the relevant assessment year. AO disallowed the aforesaid total amount of commission paid to Shri Pawan Munjal under section 36(1 )(ii) of the Act on the ground tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s rendered by him in the capacity of Managing Director. There is no quarrel or doubt that Mr. Munjal had not been rendering services to the appellant company in the capacity as Managing Director. More so, since the other part of his remuneration package, i.e., basic salary and other benefits given to him have been accepted and allowed as revenue expenditure, there is no valid reason to differently treat the other part of his remuneration package given by way of 1% of net profit. It is not the case of the assessing officer that the total remuneration package comprising of 1% of net profit is unreasonable, having regard to the nature of services provided by Mr. Munjal in his capacity as Managing Director. Having not doubted the same, the assessing officer cannot disallow any part of the total remuneration package agreed between the assessee and an employee/director. Coming back to the provision of section 36(1)(ii), the said section, in fact, enabled deduction of any sum paid to an employee as bonus or commission for services rendered. The exception carved out in the aforesaid section for allowability of bonus or commission is, where such sum was otherwise payable to the employee, as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are as under: "19. The revenue's contention that the Tribunal erred in allowing the bonus payment to the directors cannot be accepted. It has not disputed the facts viz., (a) that the payment was supported by board resolutions and (b) that none of the directors would have received a lesser amount of dividend than the bonus paid to them, having regard to their shareholding. Further, the directors are full-time employees of the company receiving salary. They are all graduates from IIM, Bangalore. Taking all these facts into consideration, it would appear that the bonus was a reward for their work, in addition to the salary paid to them and was in no way related to their shareholding. The bonus payment cannot be characterized as a dividend payment in disguise. The Tribunal has found that having regard to the shareholding of each of the directors, they would have got much higher amounts as dividends than as bonus and there was no tax avoidance motive. The quantum of the bonus payment was linked to the services rendered by the directors. It cannot therefore be said that the bonus would not have been payable to the directors as profits or dividend had it not been paid as bon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsolidated order dated 24.10.2016. In the said order, the Tribunal held that the commission paid to directors with reference to percentage of profits of the company for the services rendered as per the terms of appointment, constitutes part of the remuneration package, and in the absence of any disallowance on other components of remuneration paid to such director, the commission cannot, ipso facto be classified as payment of profit/dividend covered within the exception provided under Section 36(1)(ii) of the Act. It is also pertinent to mention that no appeal has been filed by the department before the High Court. Thus, the Tribunal decision has attained the finality. Therefore, Ground No. 36 to 36.3 are allowed in favour of the assessee. 93. Ground No. 37 to 37.1, is regarding disallowance of expenses incurred on account of 'Corporate Social Responsibility (CSR) of Rs. 35.20 lacs. During the year the expenditure of Rs. 35.20 lacs was debited under the head "community development expenses" ("CSR activity') in the books of accounts. The AO disallowed the aforesaid expenses on the ground that it was not incurred wholly and exclusively for the purposes of earning business inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h were debited under the head "Corporate social responsibility" and elaborated in detail in the submissions made by the Ld. Counsel above. The said expenses although were not incurred towards earning profit, but were incurred out of commercial expediency and were directly/indirectly related to its business like earning goodwill/display of name, employee's welfare, etc. The said expenses therefore, in our view, satisfy the test of being allowable as business deduction under section 37(1) of the Act. We draw support for the aforesaid conclusion from the following decisions of the various Tribunals/High Courts : (i) In the case of Mysore Kirloskar Ltd. vs. CIT: 166 ITR 836 (Kar.), the assessee started school for education of children of its employees for attracting technocrats and men of managerial skill to its industry. Donations made by the company to the school were claimed as business expenditure under section 37(1) of the Act. The Tribunal sustained disallowance of the deduction claimed on the ground that the expenditure was not incurred wholly and exclusively for the purpose of business of the assessee. The Hon'ble High Court did not approve the approach of the ITAT....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Panchayat for upgrading the elementary school, the assessee-company was assured by the school management that it would give preference in the matter of admission to the children of the employees in the said school. The Tribunal placed reliance on a letter from the President of the Building Committee and Parents Teacher Association of the school. It is well settled that if a certain sum of money was expended for the education of the children of the employees of the assessee-company, it should be regarded as staff welfare expenditure, particularly in view of the fact that in these days it is very hard to get admission in educational institutions. The employees of the assessee are given the satisfaction by the donation made by the assessee that their employers have taken full care of the education of their ward and such a mental satisfaction on the part of the employees would generate good will and the expenditure can be regarded as staff welfare expenditure and allowable as business expenditure. The contribution made by the assessee to the Panchayat has resulted in the benefit of the assessee's business in the sense that the assessee's employees are the beneficiaries in getting ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the business is situated cannot be regarded as being wholly outside the ambit of the business concerns of the assessee, especially where the undertaking owned by the assessee is one which is to some extent a polluting industry. The Tribunal was right in allowing the deduction of the entire expenditure of Rs. 15,32,000 as business expenditure." (vi) In the case of Hindustan Petroleum Corpn. Ltd. Vs. DCIT 96 ITD 186 (Bom.), the assessee company incurred certain expenditure towards implementation of 20 point programme. The expenditure was incurred to improve the conditions of SC/ST in pursuance of national policies and to help acceleration of all round development of villages by providing assistance to educated unemployed to earn a living. The assessing officer held that since the expenditure was in the nature of donation, the same could not be allowed deduction. The CIT(A) upheld the order of the assessing officer by holding that the expenditure incurred did not have any direct connection with the business of the assessee because the beneficiaries of the expenditure were not employees of the assessee nor had the assessee any statutory obligation to incur such expenditure. O....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of care and concern for the Society at large and an expenditure to discharge the responsibilities of a 'good corporate citizen which brings goodwill of with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill' . Just because the expenditure was voluntary in nature and was not forced on the assessee by a statutory obligation, it could not cease to be a business expenditure. 236) Further, the insertion of explanation 2 to section 37(1) has been inserted w.e.f. 01/04/2015 and shall be applicable for the assessment year 2015 - 16 onwards and therefore same does not apply to the assessment year in question before us in this appeal. In view of the above we agree with the findings of the ld DRP and dismiss the ground no 11 of appeal raised by the department." The aforesaid disallowance made by the assessing officer in the preceding years, viz. AY 2010-11 and AY 2011-12 has been deleted by the Tribunal vide recent consolidated order dated 24.10.2016, wherein the Tribunal held that the expenditure incurred by the assessee company on Corporate Social Responsibilit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as the Tribunal while adjudicating upon the issue of disallowance u/s 80IC on account of job work/ outsourcing of manufacturing activity in the immediately preceding assessment years, i.e. AY 2010-11 and AY 2011-12, held that outsourcing of certain intermediary processes or procurement of finished components in the process of manufacture does not tantamount to outsourcing of manufacturing activities and thus would not hamper the claim of deduction of the assessee company under Section 80 IC of the Act. It is also pertinent to mention that no appeal has been filed by the Department before the Hon'ble Delhi High Court. 99. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 100. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: "150) We have heard the rival contentions. On query from the bench, the appellant had furnished the process chart for manufacturing of final products followed in all the three units. On perusal of the same, it was noted that since plant at Haridwar was a new plant and Gurgaon and Dharuhera were....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the present Assessment Years. The issue is squarely covered in favour of the assessee by the Tribunal's order for A.Ys. 2010-11 & 2011-12. Besides this the Revenue has accepted this issue and has not challenged the same in Hon'ble High Court. Thus, this issue attains finality. Therefore, Ground No. 38 to 38.1 are allowed in favour of the assessee. 101. Ground No. 39 to 39.1 is regarding disallowance of deduction u/s 80IC amounting to Rs. 540.65 crores. The part of the manufacturing activity(ies) at Haridwar were outsourced on the basis of lower consumption of power per unit at Haridwar plant vis-à-vis rate of power consumption at other two plants. The amount is Rs. 540.65 lacs. The assessee is engaged in the business of manufacturing two- wheelers, which, inter alia, involves various processes including assembly of certain components of two-wheelers like, gear, fuel tank, engine, etc. It is on completion of these processes including assembly of the aforesaid each components that a separate and distinct product, viz., twowheeler, comes into being. The only difference in the manufacturing activity carried on at Haridwar plant and other units is that in the latter units, cer....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... manufacture does not tantamount to outsourcing of manufacturing activities and thus would not hamper the claim of deduction of the assessee company under Section 80 IC of the Act. It is also pertinent to mention that no appeal has been field by the Department before the High Court. 103. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 104. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: "150) We have heard the rival contentions. On query from the bench, the appellant had furnished the process chart for manufacturing of final products followed in all the three units. On perusal of the same, it was noted that since plant at Haridwar was a new plant and Gurgaon and Dharuhera were old plants, certain initial processes, like press shop, heat treatment, etc., which was carried out at the latter unit were not carried out at the unit at Haridwar. The aforesaid lend support to the argument made by the appellant for justifying the lower consumption of electricity at Haridwar as compared to electricity consumed in other ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... order for A.Ys. 2010-11 & 2011-12. Besides this the Revenue has accepted this issue and has not challenged the same in Hon'ble High Court. Thus, this issue attains finality. Therefore, Ground No. 39 to 39.1 are allowed in favour of the assessee. 105. Ground No. 40 to 40.2 is regarding disallowance of deduction u/s 80IC of the Act on account of inter-unit transfer of goods of Rs. 5.32 Crores. The assessee is engaged in the business of manufacturing two- wheelers. For the aforesaid activity, the assessee purchases various components required to be used in the assembly of two- wheelers, like gear box, fuel tank, etc., from third party vendors. In the present transaction, the aforesaid components were first purchased by non-eligible units at Gurgaon or Dharuhera from third parties, due to proximity of location of such units with third parties, business relationship, etc. and were thereafter transferred at the same purchase price to the eligible unit at Haridwar. In such a transaction, no value addition in such components was carried out by the non-eligible units. In the books of accounts of the plant at Haridwar which is eligible for deduction under section 80IC of the Act. goods a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing assessment years, i.e. AY 2010-11 and AY 2011-12 wherein identical disallowance made by the assessing officer has been deleted. The Tribunal, in allowing the claim of the assessee under section 80-IC of the Act, held that for the purpose of computing market price of inter-unit transfer of goods, when the non-eligible units procured goods at market price from third party vendors and supplied the same to the eligible uni t at the same purchase price as increased by the applicable freight cost, no further substitution of such price is warranted in terms of section 80IA(8) of the Act and the transaction was a genuine business transaction borne out of commercial expediency. 107. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 108. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: "140) We have heard the rival contentions. We have observed that merely because there was inter-unit transfer of certain goods from non-eligible unit to eligible unit, the assessing officer automatically applied the provisions of section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with respect to components having value of Rs. 6.34 crores, which were transferred by the non-eligible unit to the eligible unit at Haridwar after nominal processing, too, in our opinion, does not result in enhancement of any market price of such goods; in other words, in a free market condition such goods would have also been sold at the same price at which they have been transferred by the non-eligible unit to the eligible unit. In that view of the matter, we find that the present issue was not decided by the assessing officer in correct perspective and, therefore, erred in disallowing deduction under section 80IC, by enhancing the purchase price by adding certain markup thereon. In view of this we allow ground No. 30 of the appeal of the assessee." The aforesaid issue stands squarely covered in favour of the assessee, by the order dated 24.10.2016 passed by Tribunal in the immediately preceding assessment years, i.e. AY 2010-11 and AY 2011-12 wherein identical disallowance made by the assessing officer has been deleted. The Tribunal, while allowing the claim of the assessee under section 80-IC of the Act, held that for the purpose of computing market price of inter-unit trans....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ordinary profits at Haridwar unit, which ought to be disallowed as per the provisions of section 801 A( 10) read with section 80IC(7) of the Act. In view of the above, the assessing officer proposed disallowance of deduction under section 801C of the Act by an amount of Rs. 812,63,13,802 being the amount of alleged extraordinary profits earned by Haridwar unit on account of higher sale price charged on sale of two-wheelers vis-a-vis price charged by other / non-eligible units. Since the assessing officer had disallowed upto Rs. 572,88,00,000 out of total deduction of Rs. 1129,63,47,649 as per Grounds of appeal 38 to 40 under section 801C on various grounds , therefore balance deduction under section 80IC of Rs. 556,75,47,649/- has been proposed to be disallowed on the aforesaid account in the assessment order. 110. The Ld. AR submitted that the aforesaid issue stands squarely covered in favour of the assessee, in as much as similar disallowance made by the assessing officer in the immediately preceding assessment years, i.e. AY 2010- 11 and AY 2011-12 has been deleted by the Tribunal vide consolidated order dated 24.10.2016. In the said order, the Tribunal, while allowing the cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en to the unit located at Haridwar. In view of the same, there was basic fallacy in the entire case made by the assessing officer, while disallowing deduction under section 80IC on the aforesaid ground. That apart, although the appellant had submitted, that no additional profits accrued to the eligible unit on account of exemption from excise duty and charging higher basic price vis-à-vis basic price at non-eligible unit due to non-availment of CENVAT credit of excise duty paid on purchases at the said unit, we hold that even assuming higher profits were earned by the eligible unit, the same cannot be disallowed by applying provisions of section 80IA(10) read with section 80IC(7) of the Act which reads as under: "(10) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in compu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... undertaking should have been charged and reduced from the profit of the industrial undertaking after valuing service of selling and distribution arm of the company at market rate. At present assessee has allocated it at cost. Therefore, ld. AO has invoked provisions of section 80 IA (8) of the act. It is not dispute that that products manufactured by these industrial units are sold by selling and distribution arm of the assessee and the cost incurred is allocated to these respective units on the basis of appropriate allocation key of sales. Ld. AR of the appellant relying on the decision of coordinate bench of Cadila Healthcare Ltd vs. ACIT 21 Taxmann.com 483 has submitted that there cannot be any specific demarcation between manufacturing and selling activities of the assessee and profit accrues only at the time of sales of the goods only. Therefore, the contention of the revenue that selling and distribution function of the assessee is a separate profit center is required to be rejected at threshold. We have carefully considered the argument of ld. AR and of the revenue on this point as well as the ld. AO and Ld. DRP. We are of the view that this argument is almost similar to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... manufacturing units and have been deducted, while computing profits of the unit eligible for claim of deduction under section 80IC of the Act. The price realized on sale of the products, i.e., two wheelers, is credited to the profit and loss account and direct and indirect expenses, including advertisement expenses, incurred in relation to sale of the products are reduced therefrom, for purpose of computing profits of the eligible unit and corresponding claim of deduction under section 80IC of the Act. The AO held that profits are derived by the assessee-company on account of three assets, viz., (1) manufacturing assets, (2) brand assets and (3) marketing assets whereas deduction under section 80IC is available only on profits derived from business of manufacturing of specified articles or things. It was further observed that the manufacturing and marketing activities were carried out at Head Office and. therefore, the brand developed was not owned by the eligible unit, which came into existence much later than the existence of the assessee- company as a whole. Thus, part of the profits earned by eligible unit should have been attributed to advertisement/marketing activities carri....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... raised in the aforesaid ground. Accordingly following our findings stated above, we reverse the action of the assessing officer and delete the disallowance made under section 80IC. Accordingly, the ground No. 33 of appeal is allowed." The issue is squarely covered in favor of the assessee by the order dated 24.10.2016 passed by the Tribunal for immediately preceding assessment years, i.e. AY 2010-11 and AY 2011 -12, wherein identical disallowance made by the AO has been deleted. The Tribunal, in coming to the aforesaid discussion, reiterated that the head office is not a separate profit centre and, therefore, no profit is to be separately attributed to such activity. It further observed that, for the purpose of working out eligible deduction under section 80-IC of the Act, actual expenses incurred at the head office are to be allocated between various profit centers on a rational and scientific basis. Therefore, Ground No. 42 to 42.6 are allowed in favour of the assessee. 117. Ground No. 43 to 43.1 is regarding disallowance of Rs. 198.23 crores in respect of certain income earned by the eligible unit. Such incomes were not derived from the business of manufacture of specifie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed with vendors establishing working capital support on sample basis were submitted before the Revenue authorities. 119. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 120. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: 158) We have heard the rival contentions. Our findings on the various issues raised by the assessing officer are given in seriatim hereunder: 1. Interest on loan given at subsidized rates to employees The Supreme Court in the case of Liberty India vs. CIT: 317 ITR 218, has held that source of income beyond the first degree nexus with the manufacturing operation cannot be considered as derived from such business/activity. Following the aforesaid decision, the Courts / Tribunal in certain cases have held that interest income earned from fixed deposits made by the eligible unit is not eligible for deduction under the relevant provisions of the Act. [Refer: Paswara Electronics (P) Ltd. v. ITO: ITA No. 71/D/2011; Reckit Benckiser India Ltd. v. Addl. CIT: 231 Taxman 585 (Cal.)] ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hed components also does not involve any income element inasmuch as semi-finished components are supplied to ancillary units for further processing and finished components procured there from are subsequently debited at cost in the books. There is no profit element in the aforesaid transaction and therefore the benefit of deduction under section 80IC cannot be denied on above. In that view of the matter, the action of the assessing officer is reversed on this ground. 5) Miscellaneous income - cash discounting from vendors The cash discount availed on early/prompt payment to creditors/supplies of material is also not an independent source of income but a discount towards the purchase price. The purchase price of goods is reduced from the profits of the eligible unit to arrive at profit derived from the manufacturing activity. Accordingly, any benefit towards purchase price would have direct nexus with the computation of the aforesaid profits. The aforesaid income is, thus, directly related to business of manufacturing. Accordingly the action of the assessing officer in disallowing deduction under section 80IC on above was not valid and therefore, the action of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arrying out manufacturing and thus eligible for deduction under that section. Accordingly, the aforesaid issue stands squarely covered in favour of the assessee. Therefore, Ground No. 43 to 43.1 are allowed in favour of the assessee. 121. Ground No. 44 to 44.6 is regarding disallowance of deduction u/s 80IC amounting to Rs. 1129.63 crors for non compliance of Rule 18BBB and nonadherence to condition specified in Industrial Policy of Rs. 1129 crores (restricted to NIL). The assessee company had during the financial year 2008-09 on 07.04.2008 started commercial production at new manufacturing facility at Plot No. 3, Sector 10, Integrated Industrial Estate, Ranipur. S1DCUL, Haridwar (UTTARAKHAND) at Khasra Number 545 Village Salempur Mehdood, Haridwar on 07.04.2008. The said plot was notified by Notification No. 177 dated 28.06.2004 as industrial Estate under section 80IC(2)(a)(ii). In this connection, following documents were enclosed by the assessee. - License and registration certificate - Direct tax Notification No. 177 dated 28.06.2004 (relevant extracts) - Khasra no. Certificate - Central Excise Registration Certificate Commercial Tax Regis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fulfilled all statutory conditions for the claim of deduction under Section 80IC of the Act. Further, the Tribunal held that even otherwise, entire claim of deduction could not be denied if some incomplete details are furnished by the assessee. It is also pertinent to mention that no appeal has been field by the Department before the High Court. 123. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 124. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: "136) We have heard the rival contentions. The case of the assessing officer was that the appellant is not eligible for claiming deduction u/s 80IC since it did not satisfy the following conditions: a) The appellant failed to comply with Rule 18BBB of the Rules inasmuch as the appellant did not obtain any approval for carrying on the business of manufacturing two-wheelers in the State of Uttaranchal; b) The appellant failed to comply with the condition of employment of natives of State of Uttaranchal at prescribed percentage as contained in the in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Such findings have, thus, become final, which could not have been overridden by the assessing officer in the assessment order. Accordingly, for the aforesaid additional reason also, we hold that deduction u/s 80IC cannot be denied for alleged failure to comply with the aforesaid three conditions specified in the assessment order. As regards compliance of conditions precedent for claiming deduction u/s 80IC, we note that the appellant during the course of set-aside proceedings had point-wise given entire details /information as to how it satisfied each condition precedent for claiming deduction under said section. The claim of deduction of the appellant is also duly supported with the audit report in Form 10CCB issued by the auditors, answering each question in the format and how the appellant satisfied all such conditions. In the final assessment order, the assessing officer has not pointed out violation of any such condition precedent. We agree with the submissions of the Ld. Counsel that the various errors (assuming without admitting) in submission of complete details/information by the appellant to the assessing officer, as noted in the assessment order, related to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase for assessment years 2010-11 and 201 1-12, wherein the Tribunal while dismissing the departmental appeal on the said issue, followed the order of the Tribunal for the preceding A.Y. 2008-09 and deleted the disallowance made by the Assessing Officer. It is also pertinent to mention that no appeal has been filed the department before the High Court. 127. The Ld. DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 128. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: 246) We have heard the rival contentions. We have seen the details of expenses incurred by the assessee. The same are routine expenses, which are quite reasonable having regard to the size and magnitude of the company. Such expenses are incurred year after year, which are always allowed deduction. We also note that similar issue was allowed in the assessee's own case for assessment year 2008-09. The relevant observations of the Tribunal for assessment year 2008-09 are as under: 247) "51. We have considered the submissions and arguments of both the parties ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Sl. No. Account Head Date of Expense Location Text Narration Total Amount 1 BuildingMaintenance 19.01.2008 HHHD Construction of Air Intake Room DG Set 3,60,409 2 Maintenance- Horticulture 31.03.2008 HHHD Provision for capital work 14,39,892 Total 18,00,301 From the above facts it is seen that in respect of building maintenance expenditure of Rs. 360409/- is in fact related to construction of Air Intake Room DG set. Expenditure is clearly capital in nature. As regard balance of the payment at Rs. 1439892, where the assessee claims them to be in the nature of repairs, the Auditor has reported that vouchers are not available. Only detail submitted by the assessee is a list the provision of capital nature work as on 31.03.08. Though the inner items appear to be in the nature of repairs but no vouchers were available to the Special Auditor during the course of audit or submitted to the AO in response to the reply of final show cause. Therefore, AO is inclined to go by the nature of these expenses as given by the assessee itself i.e. provision for capital nature work'. Entire amo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... there is no difference in the facts and circumstances of the present case and also the nature of expenditure involved in the present issue compared to the nature of expenses and issued decided by the coordinate bench in above order. Even before us, the revenue could not point out that any of the expenditure incurred by the assessee on account of repairs is not on the existing assets, but new assets have been purchased out of these expenses. In view of above facts we delete the disallowance made by the Ld. and assessing officer respectfully following the decision of the coordinate bench in assessee's own case for earlier years and consequent order of the Ld. and assessing officer after examining the complete details in the result, we direct the Ld. and assessing officer to delete the disallowance made of Rs. 1 825 5930/-by holding that expenditure incurred of Rs. 1 976 6172 is allowable repairs and maintenance expenditure on the existing assets of the company and is revenue in nature. In the result ground No. 14 of the appeal of the revenue is dismissed." This fact is identical with the earlier Assessment Years. The issue is squarely covered in favour of the assessee by the Trib....