TaxTMI 
TaxTMI 
2016 (6) TMI 1329
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....n amounting to Rs. 37,99,831/- based on the possibility that the same could be nonbusiness expenditure/inflated expenditure. The Appellant prays that the above addition made to the total income of the Appellant be deleted and the same be allowed as deductible expenditure under section 37(1)." 3. Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the assessee company has debited Homologation charges at Rs. 77.74 lakhs. From the details of Homologation charges submitted by the assessee the AO noted that the same includes Rs. 54,94,700/- as expenses pertaining to Homologation Transfer Account. On being asked by the AO to submit the complete details of Homologation transfer account of Rs. 54.24 lakhs the assessee explained that the same pertains to the materials supplied to ARAI. The AO asked the assessee to furnish the complete details of the accounts of material supplied to ARAI along with delivery challans. However, the assessee submitted that complete reconciliation of materials supplied to ARAI cannot be submitted. Subsequently, the assessee furnished only 13 challans in support of the transfer of materials to ARAI. The ....
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....ection if the matter is set aside to the file of the AO with a direction to the assessee to furnish the full details. 8. After hearing both the sides we find the AO disallowed an amount of Rs. 37,99,831/- on account of Homologation charges on the ground that the assessee could not substantiate with evidence to his satisfaction regarding the complete details of materials supplied to ARAI and their delivery challan. We find the CIT(A) upheld the action of the AO which has already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that given an opportunity the assessee is in a position to furnish the full details of Homologation charges before the AO. Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore this issue to the file of the AO with a direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction regarding the Homologation charges. Ground raised by the assessee on this issue is accordingly allowed for statistical purposes. 9. Ground of appeal No.2 by the assessee reads as under : "2. The Ld.CIT(A) has erred in upho....
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.... providing any reasons for the same. It was submitted that all reimbursement expenses vouchers are adequately accompanied by necessary supporting evidences. Relying on various decisions as mentioned at page 40 of order of Ld.CIT(A) it was submitted that the disallowance made by the AO should be deleted. 12. However, the CIT(A) was not fully satisfied with the explanation given by the assessee. He agreed with the assessee that there cannot be any disallowance in the hands of the company as there cannot be any element of personal use by it. Company cannot spend its money for personal use because company is an artificial juridical entity. However, the Ld.CIT(A) sustained an amount of Rs. 2,50,000/- out of Miscellaneous expenses and deleted the balance amount by observing as under : "Findings : 2.9.7 I have gone through the assessment order and arguments of the Appellant. I agree with the Appellant that there cannot be disallowance in the hands of the company as there cannot be any element of personal use by it. Company cannot spend money for its personal use because Company is an artificial juridical entity. Taxability of such expenses may be considered in the han....
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....T(A) and the ground raised by the assessee is dismissed. 15. Ground of appeal No.3 and 4 by the assessee reads as under : "3. The Ld.CIT(A) erred in considering the car repair charges of Rs. 69,876/- as a prior period expenditure crystallised in A.Y. 2001-02 and thereby upholding the addition made by the Ld. AO. The Appellant prays that the above addition made to the total income of the Appellant be deleted and the same be allowed as deductible expenditure under section 37(1). 4. Without prejudice to the above ground, the Ld.CIT(A) erred in not directing the Ld. AO to allow the expenditure of Rs. 69,876/- as a deductible expenditure in A.Y. 2001-02. The Appellant prays that the Ld. AO be alternatively directed to allow Rs. 69,876/- as deductible expenditure in A.Y. 2001-02." 16. Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the car repair expenses of Rs. 20,85,880/- includes the following prior period expenses : Amount Date Rs.17,140 28-03-01 Rs.19,636/- 02-02-01 Rs.33,100 28-02-01 Rs.69,876/- 17. He observed that even though these expenses are paid during the year ....
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....that allowance of these expenses in the current year in respect of the earlier year is a revenue neutral exercise and therefore the AO should allow deduction of these expenses in A.Y. 2002-03. He also relied on the following decisions : 1. CIT Vs. Excel Industries Ltd. reported in 358 ITR 295 (SC) 2. CIT Vs. Nagri Mills CO. Ltd. reported in 33 ITR 681 (Bom.) 3. CIT Vs. Vishnu Industrial Gases Pvt. Ltd. - ITR No.229/1988 order dated 06-05-2008 (Delhi High Court) 4. DCIT Vs. M/s. Sicom Ltd. - ITA No.8040/Mum/2010 order dated 15-01-2014 (Mumbai ITAT) 21. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). He submitted that an expenditure is deductible if its liability was crystallized during the year. Since the assessee company in the instant case is following mercantile system of accounting and has debited the expenditure of an earlier year during the current year, therefore, the same cannot be allowed as deduction from the income of the current year. He accordingly submitted that the order of the CIT(A) be upheld. 22. We have considered the rival arguments made by both the sides, perused the order....
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....course of assessment proceedings claimed that deduction u/s.80IB may be considered. During the course of assessment proceedings it was submitted that since there was no taxable income during the previous year ended 31-03-2002 the deduction u/s.80IB was NIL. However, if during the assessment proceedings positive income is determined, then the assessee submits its claim for deduction u/s.80IB. It was accordingly submitted that deduction u/s.80IB should be allowed to the assessee on account of the positive income, if assessed. 26. However, the AO held that assessee company has not filed audit report in Form 10CCA duly signed and certified by the auditors. He therefore rejected the claim. The assessee in appeal filed before the CIT(A) had challenged such denial. Subsequently, the AO in an order passed u/s.154 allowed the claim of deduction u/s.80IB. 27. Before CIT(A) the assessee submitted that since the deduction was initially denied for non filing of audit report in Form 10CCB along with return of income and now that the AO in the order passed u/s.154 has allowed such claim, therefore, the assessee does not press this ground. However, the CIT(A) noted that the AO had erroneousl....
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.... claimed deduction in its return of income because of loss. I also agree that law does not require a person to do impossible act. However, I do not agree with the Appellant that the deduction can be granted to it after the assessment is over. The reasons for my decision are as under: 2.7.9 Firstly, there is no legal provision, which provides for granting a deduction after the assessment is completed. Therefore, what i not expressively provided in the law cannot be done on the ground of justice or equity. It is held in Krishi Utpadan Mandi Samit Bulandshahar v Union of India (2004) 267 ITR 467 (All) that "It is a well-settled principle of interpretation of taxing statutes that there is no equity in tax, and hence considerations of hardship are irrelevant" This is true especially for the exemptions and deductions provisions. The Supreme Court in Liberty Oil Mills (P) Ltd v Collector of Excise(1995) 1 SCC 451 has held that the provisions granting exemption should be construed strictly. 2.7.10 Secondly, granting of deduction u/s 80 IB is subject to the satisfaction of certain mandatory conditions on part of the assesse. These mandatory conditions are provided in the S....
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....d 31-03- 2002. However, as a result of assessment proceedings, if there is a taxable income, then the company reserves its claim for deduction u/s.80IB. He submitted that in view of the above noting in the audited accounts filed along with the return of income the same is to be treated as part of the return of income. For the above proposition, he relied on the decision of the Mumbai Bench of the Tribunal in the case of State Bank of India Vs. DCIT vide ITA Nos. 6817, 6818, 6823 and 6824/Mum order dated 31-08-2015 for A.Yrs. 2001-02 to 2002- 03. Referring to the following decisions he submitted that in case the Ld.CIT(A) is of the view that deduction u/s.80IB was not claimed during assessment proceedings he should have admitted such claim made by the assessee during appellate proceedings : 1. Jute Corporation of India Vs. CIT reported in 187 ITR 688 (SC) 2. National Thermal Power Co. Ltd. Vs. CIT reported in 229 ITR 383 (SC) 3. Ahmedabad Electricity Co. Ltd. Vs. CIT reported in 199 ITR 351 (Bom.) 31. He submitted that the Ld.CIT(A) cannot enhance the tax liability of the assessee when the AO has already applied his mind and accepted the submission of t....
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....ction after the assessment is completed. Further granting of deduction u/s.80IB is subject to satisfaction of certain mandatory conditions on the part of the assessee. According to him filing of the audit report after the completion of the assessment is meaningless. Further, according to him the claim of deduction can only be made by filing a revised return. Although according to him purely a legal claim can be made without filing of revised return of income even before the appellate authority, however, the admissibility of such claim depends on verification of facts. It is the submission of the Ld. Counsel for the assessee that the claim was already there in the return of income when separate note was given and therefore it should be treated as part of return of income. Further, this ground being purely a legal one the CIT(A) could have admitted such claim filed by the assessee during appeal proceedings. Since the AO in the 154 order has granted the deduction u/s.80IB, therefore, the CIT(A) should not have withdrawn the same. We find merit in the above submission of the Ld. Counsel for the assessee on this issue. Since there was no positive income while filing the return of income....
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....s or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income tax Officer. This court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income tax (Appeals) takes too narr....
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....ent company Daimler Benz Project Consulat GmbH, Germany (DCPC in short). He examined the details of payments made to DCPC on account of services rendered by expatriates. From the various details furnished by the assessee he noted that the expatriates in category D named as Mr. Lino, Specialist, After Sales Service and Mr. Tonger, Senior Manager, Pre-owned cars were paid Rs. 33.79 lakhs each. He noted that the Project Assistance Agreement dated 11-12-1994 does not mention category D expatriates. Therefore, according to the AO, these payments have been made in violation of the agreement. On being asked by the AO, it was submitted by the assessee that the agreement was not amended so far and expressed its inability to furnish the details of the working of the payments made to the expatriates stating that the details of working is available with DCPC. Rejecting the various explanations given by the assessee the AO disallowed total amount of Rs. 67,59,428/- paid to both the expatriates u/s.37(1) for not being in compliance with the provisions of the Project Assistant Agreement dated 11-12-1994. 40. So far as payments made to the B category expatriates is concerned, the AO noted that ....
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....he assessee. Therefore, according to him, the payments made to expatriates were obviously made for the purpose of business of the assessee. Therefore, there cannot be any ground for making the disallowance u/s.37(1) of the I.T. Act. 44. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 45. The Ld. Departmental Representative heavily relied on the order of the AO. He submitted that the payments made to the various expatriates categorized as B and D are in violation of the terms and conditions of the Project Assistant Agreement. Similarly in respect of A and B category, the payments made are in excess of the payments prescribed in the agreement. Therefore, the CIT(A) was not justified in deleting the addition made by the AO. 46. The Ld. Counsel for the assessee on the other hand while supporting the order of the CIT(A) submitted that the expenses incurred under Project Assistance Technical Agreement are purely for the purpose of business of the assessee. He submitted that when the TPO has accepted that a certain payment is at Arm's Length Price, then the AO has no power to disallow the same during the assessment proceedings. He submitted that in the....
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....nsidering it to have been made for non business purpose. Further, he held that the AO has not questioned regarding the genuineness of payments made by the assessee. We find no infirmity in the order of the CIT(A) deleting the addition. The submission of the assessee that the DRP in assessee's own case for A.Y. 2007-08 has allowed such project assistance technical fees as deductible business expenditure could not be controverted by the Ld. Departmental Representative. We also find merit in the submission of the Ld. Counsel for the assessee that when the TPO has accepted that certain payment is at ALP, then the AO has no power to disallow the same during the assessment proceedings. 50. The Delhi Bench of the Tribunal in the case of Cushman and Wakefield India Pvt. Ltd. Vs. ACIT reported in 135 ITD 242 has held that once an international transaction has been made subject to determination of ALP by the TPO and he has found that the transaction is at ALP, then it is not permissible for the AO to reexamine that transaction and make disallowance under the normal provisions of the Act. 51. We further find from the submission of the Ld. Counsel for the assessee that in the TP assessme....
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....s provided separate benchmarking and detailed information regarding the Royalty payment in the later years. ii. when each year should be treated separately based on the facts and documentation submitted : (as per the ratio laid down in the case of M/s. Onward Technologies vs. DCIT dated 30-04-2013 (appeal No.ITA No.7985/Mum/2010 of ITAT Mumbai)." 53. Facts of the case, in brief are that the Assessee computed the ALP of the international transaction carried out by it by applying Transactional Net Margin Method(TNMM). The Assessee justified the royalty payment as having been paid at the arm's length by using TNMM. The TPO noted that the assessee was paying royalty to the parent company Daimler Chrysler AG @ 2.75% for using technical know-how vide agreement dated 12-12-1994. This agreement was revised and new agreement was entered into on 21-12-1999, which revised the rate of royalty payment to 5%. 54. The TPO did not accept the application of TNMM for benchmarking royalty payment transaction. According to him, CUP method is the most appropriate method in the facts of the case. Further, in his detailed Order he did not find any justification for the increase in roya....
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....ivate Limited vs. ACIT (122 TTJ 699) 7. ACIT vs. MSS India Private Limited (123 TTJ 657) 8. Bechtel India Private Ltd vs. DCIT (2010-TII-23-ITAT-DEL-TP) 57. The assessee further submitted that it had obtained approval from the Foreign Investment Promotion Board (FIPB). The revised agreement between the Assessee and the parent company was also approved by the FIPB. The decision of Kinetic Honda Motor Limited vs JCIT 771TD 393 Pune ITAT was relied upon wherein it has been held that the Government approvals cannot be lightly brushed aside. It was submitted that assessee had obtained specific approval from the Government of India for the payment of royalty as royalty payment made by the Assessee is not covered under the automatic route. 58. The assessee contended that the payment has resulted into substantial saving of about Rs. 25 crore because of the revised agreement even though the rate of royalty was increased. Therefore, transfer pricing adjustment is not required. It was stated that no CUP is available to benchmark the international transaction of the payment of royalty. It was submitted by applying the ratio in the case of B. C. Srinivas Shetty reported ....
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.... payments were at the arm's length. It was accordingly argued that the arm's length payment of the royalty paid by the Assessee should be calculated at 5% of the net value addition as calculated by the Assessee and the adjustment made by the learned TPO should be set aside. 62. Based on the arguments advanced by the assessee the Ld.CIT(A) deleted the adjustment made by the AO by observing as under : "2.3.11 I have considered the grounds on which the adjustment is made by the learned TPO and the arguments of the Appellant against it. I find myself in the agreement with the Appellant because in my view, there are two major fundamental flaws with respect to the adjustment made by the learned TPO. 2.3.12 Firstly, the learned TPO has used the rate of royalty paid by the MUL to Suzuki Japan @ 3% as a benchmark rate. As pointed out by the Appellant, this is a controlled transaction. It is fundamental principle of Transfer Pricing, which finds expression in the Income Tax Rules that, controlled transaction is to be compared with the uncontrolled transaction for benchmarking. The transfer price determined by benchmarking controlled transaction with another contr....
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....ch of the Tribunal in the case of LG Electronics India Pvt. Ltd. reported in 153 ITD 591. He submitted that the order of the CIT(A) be reversed and that of the AO/TPO be restored. 65. The Ld. Counsel for the assessee on the other hand heavily relied on the order of the CIT(A). He submitted that the assessee has paid lumpsum payment of Rs. 2.73 crores as royalty out of which 2 instalments are still pending. Referring to pages 375 to 481 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the detailed submissions made before the Ld.CIT(A) on account of this royalty payment. Referring to pages 497 to 556 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the copy of the original technical knowhow agreement according to which the technical knowhow fees are mentioned in Article 17. Referring to pages 557 to 586 of the paper book the Ld. Counsel for the assessee drew the attention of the Bench to the copy of the amended technical knowhow agreement dated 21-12-1999 wherein the technical knowhow fees are mentioned in Article 13. He submitted that the royalty to be paid by MB India is closely linked to the manufacturing....
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.... of closely connected or continuous transactions. In case the tax payer is engaged in single line of business, there is no bar or prohibition from applying the TNMM on entity level basis. Once the comparables pass the functional analysis test and profit margins matches with the comparables, it leads to an affirmation of the transfer price as the arm's length price. After this it is not permissible to make a comparison of a particular item of costs without segregation of profits. He accordingly submitted that since payment of royalty is depending upon the manufacturing and sales activity, same should be considered as continuous transactions and therefore use of combined transaction approach is appropriate. The TPO should not have segregated the cost (payment of royalty) without segregation of profits. He submitted that the TPO should not have rejected the TNMM method and applied CUP as the most appropriate method for benchmarking the payment of royalty transactions since for application of CUP, it is necessary that the transaction being compared should be uncontrolled. He submitted that the TPO has compared the royalty paid by MUL to Suzuki, vis-à-vis, royalty paid by the ass....
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....CIT - ITA No.31/PN/1999 order dated 23-03-2000 2. M/s. Cadbury India Ltd. Vs. Addl.CIT - ITA No.7408/Mum/2010 & 7641/Mum/2010 order dated 13-11-2013 3. Thyssenkrupp Industries India Pvt. Ltd. Vs. Addl.CIT - ITA No.6460/Mum/2012 order dated 27-02-2013 4. Sone Okegawa Precision Forgings Ltd. Vs. Dy.CIT ITA No.5386/Del.2010 order dated 16-12-2011 5. M/s. Hero MotoCorp. Ltd. Vs. Addl.CIT - ITA No.5130/Del/2010 order dated 23-11-2012 71. The Ld. Counsel for the assessee submitted that the TPO has applied the rate at which MUL has paid royalty to Suzuki based on the information available on the official website of the Department of Industrial Policy and Promotion (DIPP), however, in the absence of the agreement for the payment of royalty by MUL, it cannot be decided as to whether the terms and conditions based on which royalty is paid are similar and other relevant information. Referring to the chart filed at page 905 of the paper book the Ld. Counsel for the assessee submitted that Royalty and expenditure incurred on R&D by MUL as the percentage of net sales for A.Y. 2002-03 comes to 2.35% whereas the same is 1.67% in case of the assessee. Similarl....
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....aiving of the remaining 2 instalments of lumpsum royalty payment as per the first agreement amounting to DM 19 million. For the impugned assessment year the assessee has paid royalty @5% to DCAG amounting to Rs. 4,61,06,328/- for the technical knowhow received. The assessee adopted combined approach and selected TNMM as the most appropriate method to benchmark its international transaction including the payment of royalty in its TP study report. For the application of TNMM, the assessee had conducted search for comparable companies on widely recognized commercial information database for obtaining publicly available financial information. For the purpose of margin of computation, in addition to financial data for the relevant financial year, the assessee also used data for 2 previous financial years as per the TP study conducted on the search of comparable. The weighted average margin of comparable companies was 2.48% whereas the margin of the assessee company was 4.30%. Since the net profit margin earned by the assessee was higher than the weighted average margins of comparable companies, the assessee concluded that the transactions including payment of royalty are at Arm's length....
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....ayment of royalty. We find force in the submission of the Ld. Counsel for the assessee that since the royalty payment is not independent of sales and therefore cannot be examined on standalone basis. Therefore, the assessee has adopted combined transaction approach using TNM method as the most appropriate method to benchmark its international transaction including payment of royalty. 77. We find the Delhi Bench of the Tribunal in the case of Lumax Industries Ltd. Vs. ACIT vide ITA No.5252/Del/2011 has observed as under : "33. The TPO has made the disallowance in question mainly on the basis of the benefit test. In this regard, it is seen that the payment of royalty cannot be examined divorced from the production and sales. Royalty is inextricably linked with these activities. In the absence of production and sale of products, there would be no question arising regarding payment of any royalty. Rule 10A(d) of the IT Rules defines 'transaction' as a number of closely linked transactions. Royalty, then, is a transaction closely linked with production and sales. It cannot be segregated from these activities of an enterprise, being embedded therein. That being ....
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....ent reasoning for rejecting TNMM identified-by the Appellant as the most appropriate method for benchmarking its international transactions pertaining to domestic operations. The approach adopted by the TPO i.e. using controlled transaction of the Appellant itself (receipt of commission on marketing, of spares) for benchmarking the international transaction pertaining to receipt of commission for marketing of machines is not appropriate as per the Indian TP regulations. Accordingly international transaction of the appellant pertaining to receipt of commission for marketing of machines benchmarked by assessee by aggregating the same with other international transactions pertaining to domestic operations using TNMM should not be-rejected." 81. The various other decisions relied on by the assessee on this issue also support its case to the proposition that TNM method applied by the assessee is the appropriate method and the CUP method applied by the TPO is not correct where he has used a controlled transaction to benchmark the payment of royalty. We further find the assessee has obtained approval from the Foreign Investment Promotion Board for the original as well as revised agreem....
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....9 crore made by the A.O. in this regard." 83. We further find in subsequent years also the royalty payment has been benchmarked considering combined transaction approach in TNM method. No separate benchmarking was undertaken to determine the ALP of Royalty. In A.Y. 2007-08 till A.Y. 2011-12 the payment of royalty was held to be at ALP. We therefore find merit in the submission of the Ld. Counsel for the assessee that in view of the rule of consistency the Cit(A) was justified in rejecting the CUP method adopted by the AO and accepting the TNM method followed by the assessee. 84. In view of the above discussion and in view of the detailed reasoning given by the CIT(A) we find no infirmity in his order. Accordingly, the same is upheld and the grounds raised by the revenue on this issue are dismissed. 85. Ground of appeal No.4 by the Revenue reads as under : "Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in treating the royalty payment of Rs. 2,84,63,797/- as revenue expenditure when the assessee has acquired enduring benefit as it was conferred manufacturing rights as well as copyrights for technical product documentation et....
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....for A.Yrs. 2000-01 and 2001-02 where such royalty has been disallowed by his predecessor, the AO disallowed the balance royalty of Rs. 2,84,63,797/-. 88. Before the CIT(A) the assessee made elaborate submissions which has been summarized by the Ld.CIT(A) which read as under : "2.4.4. The Appellant's submission made against the action of the Learned AO is reproduced as under: i. MB India has not acquired know-how from Daimler AG on an outright basis. MB India has only acquired a license/right to use know-how of Daimler AG in respect of the licensed products. ii. The agreement clearly provides that Daimler AG will remain the sale and exclusive owner of the technical know-how, technical information, trade mark etc and that MB India is debarred from claiming any title to the said rights. Such license right cannot be equated with ownership rights. iii. No copyright has been transferred to MB India. In fact the agreement states that copyright of the technical product documentation, including any modifications as well as the knowhow and any patents contained therein would remain the property of Daimler AG. iv. The expenditure of technical se....
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....xii. MB India is also paying Service tax on the Royalty under the category "Intellectual Property" under the reverse charge mechanism since March 2003. 2.4.5 It was submitted that in view of the above explanation on the terms and conditions of the Agreement, it is clear that the Appellant has neither acquired any assets on outright basis nor has secured any enduring advantage. What the Appellant has essentially acquired is the license to use the technical know-how during the period of Agreement. Therefore, royalty payment is in the nature of revenue expenditure. Further, royalty expenditure is an annual recurring expenditure directly linked with the number of vehicles sold in the financial year and therefore it is an allowable deduction." 89. Various decisions were also cited before him and the decision relied on by the AO were distinguished. It was submitted that the assessee has entered into time bound agreement that gave it right to use technical know-how only during the specific time frame. The agreement does not give it any ownership rights overall technical know-how covered under the agreement. The lumpsum and running royalty payments are both revenue expenditure.....
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....be benefit of enduring in nature. Further, technical know-how in the present time become obsolete in short time due to fast changing technology. Therefore, normally even in the cases of transfer of technology, acquirer does not get benefit of enduring in nature. This is not even the case of transfer of technology. 2.4.13 In the absence of any ownership of assets, acquisition of right for very long period, the payment made by the Appellant has a character of royalty. If the royalty is treated as a payment giving enduring benefit, then the term 'royalty' would lose its meaning. In my view, Appellant's royalty payment has not given any enduring benefit to the Appellant. According to me, annual payment of the royalty made by the Appellant is revenue expenditure. Accordingly, I allow the expenditure of Rs. 2,84,63,797." 91. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 92. The Ld. Departmental Representative heavily relied on the order of the AO. 93. The Ld. Counsel for the assessee on the other hand while relying on the order of the CIT(A) submitted that MB India has not acquired know-how from Daimler AG on an outright basis. ....
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....required under the agreement. The same has also been appropriately considered for tax purposes in the relevant years. MB India has sought approval of all royalty agreements from the Central Government. There was no finding of the Central Government authorities approving this arrangement that the lump sum consideration was inadequate. Further, the royalty is regarded by MB India as royalties for tax withholding purposes. He submitted that the royalty is debited by MB India to its Profit & Loss Account under the head Royalty" in the Manufacturing Expenses Schedule. The technical service charges are not considered as expenses of capital nature by the auditors in the audited financial statements and the tax audit report filed by MB India along with its return of income. MB India is also paying Service tax on the Royalty under the category "Intellectual Property" under the reverse charge mechanism since March 2003 which would not have been payable if the expenditure resulted into acquisition of capital asset. 96. Referring to the following decisions he submitted that the payment of royalty to be allowed as revenue expenditure and the order of the CIT(A) be upheld on this issue. ....
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....e assessee has neither acquired any asset on an outright basis nor secured any enduring advantage. We find force in the argument of Ld. Counsel for the assessee that the benefit secured by the assessee is essentially a licensed right to use knowhow for the period of the agreement. Therefore, the royalty expenditure in this regard, in our opinion, is revenue in nature. Further royalty being an annual recurring expenditure, directly linked to number of vehicles sold in a financial year, in our opinion, is revenue expenditure fully deductible in computing the taxable income of the assessee. 99. We find the Hon'ble Supreme Court in the case of CIT Vs. IAEC Pumps Ltd. reported in 232 ITR 316 has held that amount paid by the assessee to the collaborator for using its patents and design under an agreement was only a license fee and constituted revenue expenditure. The Hon'ble Bombay High Court in the case of CIT Vs. Essel Propack Ltd. reported in 325 ITR 185 has held that the assessee did not acquire an asset of a capital nature by obtaining a non-exclusive licence for five years restricted to the territory of India to manufacture and use tube making machines as the proprietary rights ....
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....y year at a price lower than the market price. The AO asked the assessee to produce log book of all the capitalized cars. The assessee submitted that the log books are not maintained. The AO asked the assessee to submit the list of the names and designations of the persons using such capitalized cars. According to the list filed by the assessee, 12 cars were shown as specifically allotted to the executives of the company and other 14 cars have been shown as into car pool. However the assessee failed to produce documents and details in support of its contention that the cars from the car pool were being used wholly and exclusively for the purpose of business. The AO, therefore, was of the view that part of the expenditure incurred on maintaining these cars, their repairs and maintenance and depreciation has to be considered disallowable u/s 37(1). The AO accordingly disallowed 50% of repairs, fuel and depreciation totalling to Rs. 1,46,48,921 being for non-business expenditure. 105. Further, the AO also noted that total amount of expenditure capitalized on this account as per the tax audit report has been shown as Rs. 2,39,79,149. However, the assessee reduced only Rs. 1,90,59,97....
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....penditure incurred on balance cars, it is submitted that such cars were either used in the car pool for all the employees or were used for the purpose of business in events such as exhibition etc. The learned AO has stated that the Appellant has not furnished any documentary evidence to substantiate that the cars were used wholly and exclusively used for the purpose of business. The Appellant has stated before me that it has all necessary evidence in support its claim. In view of this assertion, I direct the learned AO to verify the evidence and decide admissibility of the claim on the basis of evidence furnished before him. I consider fit to remit the matter to the learned AO rather than admitting the same as additional evidence before me and sending the same to the AO for verification under the I.T. Rules 46A. 108. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 109. The Ld. Departmental Representative submitted that the matter may be set aside to the AO since order of the CIT(A) is very cryptic and does not touch upon the entire issue 110. The Ld. Counsel for the assessee on the other hand while heavily relying on the order of the CIT(A) subm....
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....ported in 253 ITR 749 he submitted that no disallowance out of motor car expenses can be made in the hands of company for personal use by the Directors. 115. So far as the amount of Rs. 49,19,176/- on account of difference between amounts of capitalized cars as per tax audit report and expenses on capitalized cars transferred from profit and loss account to fixed assets in the financial statements is concerned he submitted that all these details were provided to the AO during assessment proceedings. The difference of Rs. 49,19,176/- relates to the balance sheet items and not profit and loss items such as payment of RTO tax, CBU cars and preowned cars. Therefore, no disallowance is called for. He also relied on the following decisions : 1. Ador Technologies Ltd. Vs. DCIT reported in 112 TTJ 24 order dated 28-02-2007 2. Bajaj Auto Finance Ltd. Vs. DCIT reported in 112 TTJ 437 order dated 29-12-2006 3. Bajaj Finance Ltd. Vs. DCIT - ITA No.1175 and 1273/PN/2012 Order dated 30-06-2014 116. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also....