TaxTMI 
TaxTMI 
2016 (5) TMI 1469
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent order, is illegal and bad in law. 1.2 That the DRP erred on facts and in law in not interfering with the draft order passed by the assessing officer holding that since appeals have been filed by the appellant and the Department on various issues, there is no warrant to interfere with the proposed additions/ disallowances. 1.3 That the DRP erred on facts and in law in not directing the assessing officer to delete various additions/ disallowance, which were squarely covered in favour of the appellant by the appellate orders for the earlier years. 2.0 That the assessing officer erred on facts of the case and in law in completing the impugned assessment at an income of Rs. 25,76,67,35,640 /- against income of Rs. 18,87,09,02,130/- declared by the appellant. 3.0 That the Assessing Officer erred on facts and in law in not allowing an aggregate claim of deduction of Rs. 118,83,44,986/- u/s 43B of the Act. 3.0.1 That the Assessing Officer erred in making disallowance under section 43B of the Act following the assessment orders for the earlier assessment years despite admitting that in the earlier year(s) most of the issues have been decided ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction of unutilized balance in RG23A was revenue neutral by virtue of the provisions of section 145A of the Act. 3.5 That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 17,76,35,117/- representing the custom duty paid and included in valuation of closing stock. 3.6 That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 28,48,36,339/- representing custom duty (CVD) paid to be adjusted against excise duty payable on finished products.. 3.7 That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 10,83,22,551/- representing custom duty in respect of the goods in transit/under inspection. 3.8 That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 42,30,367- being Customs Duty paid under protest. 3.9 That the Assessing Officer failed to appreciate that section 145A did not purport to nullify an allowable deduction available to an assessee and cannot be read as prevai....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on the basis of assumption of some expenditure having been incurred in relation to exempt income; (d) preconditions for applying Rule 8D as prescribed in sub-sections (2)/ (3) of section 14A of the Act were not satisfied. 6.2 That the Assessing Officer erred on facts and in law in not appreciating that there was no direct nexus between expenditure incurred and exempt dividend income. 6.3 That the Assessing Officer erred on facts and in law in not following the binding orders of the jurisdictional Tribunal in the appellant's own case for AY's 1999-2000 and AY 2000-2001 wherein the Tribunal deleted the disallowance made u/s 14A of the Act. 6.4 Without prejudice to above, that the assessing officer erred on facts and in law in computing the disallowance of expenditure under section 14A of the Act read with Rule 8D of the I.T. Rules. 6.5 That the assessing officer erred on facts and in law in disallowing part of the amount of interest paid on advances from dealers and other interest u/s 14A of the Act. 6.6 That the assessing officer erred on facts and in law in following the judgement in the case of M/s Daga Capital Managemen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cars and spares by the assessee company and if there is no production/ sale of cars and spares, there will be no royalty payable by MSIL to SMC. 10.3 That the Assessing Officer erred on facts and in law in not appreciating that royalty payment (including cess) was held to be revenue expenditure in all the preceding assessment years and that there being no change in facts during the year under consideration, there was no warrant or justification to take a totally contradictory view in holding the same to be capital expenditure. 10.4 That the Assessing Officer erred on facts and in law in not allowing the claim of the assessee that lumpsum royalty paid should also be considered as revenue expenditure. 10.5 Without prejudice to the above grounds, the Assessing Officer erred on facts and in law in making a computational error while determining the amount of disallowance of Rs. 142,61,00,000/-. 10.6 That the Assessing Officer erred on facts and in law in holding that cess on royalty also partook the character of royalty, without appreciating that royalty was paid to SMC whereas R&D cess on royalty, being a statutory payment, was paid to the Indian Gov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in not appreciating that the fact that assessee is a cash rich company or that it was granted subsidy under prestigious unit category or that the assessee could utilize the subsidy amount without any prerestricted object, had no bearing on deciding the issue in question. 11.6 That the Assessing Officer erred on facts and in law in not considering the Memorandum dated 18.10.01 issued by the Prohibition, Excise and Taxation Commissioner, Haryana, which was the competent authority and part of High Powered Committee, certifying the aforesaid amount retained as per entitlement certificate as capital subsidy. 12 That the Assessing Officer erred on facts and in law in not allowing the depreciation on written down value of software expenditures capitalized in earlier years. That the Assessing Officer further erred on facts and in law in not even adjudicating the said claim made by appellant during the course of assessment proceedings. 13 The AO has erred in law, on facts and in circumstances of the case in making disallowance of Rs. 34,83,64,435/- being the expenditure provided on estimated basis on account of foreseen price increase. 13.1 The AO complet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pellant was entitled to claim the said deduction of Rs. 77,00,000/- under section 43B, the only two questions, which had to be asked were; (a) whether the amount had actually been paid by the assessee; and (b) whether that payment had been made during the relevant previous year. The AO has failed to appreciate that, as in the present case, the answer to both these questions were in the affirmative, the deduction of Rs. 77,00,000/- under section 43B necessarily had to be allowed by the AO. 15 That the assessing officer erred on facts and in law in making addition to the income of the appellant to the extent of Rs. 463.12 on account of the alleged difference in the arm's length price of international transactions. 15.1 That the assessing officer erred on facts and in law in adopting a completely contradictory position of accepting Transactional Net Margin Method ('TNMM') as the most appropriate method on the one hand, and yet seeking to question appropriateness of individual elements of operating cost on the other, thereby failing to appreciate fundamental TP principles; 15.2 That the assessing officer erred on facts and in law in making transfer pricing ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all other grounds, AO failed to appreciate that full disallowance of excessive A&M expenditure is not appropriate as the excessive expenditure will lead to Brand building of both Maruti and Suzuki. That the assessing officer erred on facts and in law in holding that the appellant incurred extraordinary / non routine expenses of promotion and development of Suzuki brand and, therefore, helped in creation of marketing intangible in India. 15.12 That the assessing officer erred on facts and in law in not appreciating that the AMP expenses incurred by the appellant, did not result in creation of any marketing intangibles; much less on account of the AE. 15.13 That the assessing officer erred on facts and in law in not appreciating that the power of the TPO is restricted to the determination of arm's length price of international transactions by applying any of the prescribed method and not to make disallowance of business expenses incurred by the appellant. 15.14 That the assessing officer erred on facts and in law in applying Bright Line Test ("BLT") for computing adjustment on account of expenditure on advertisement and brand promotion expenses without appr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the appellant should have earned a mark-up in respect of the AMP expenses, alleged to have incurred for and on behalf of the associated enterprise. 15.23 That the assessing officer erred on facts and in law in adopting an inconsistent approach for computing the AMP expenses incurred by the appellant and by the comparable companies. 15.24 Without prejudice, the assessing officer erred on facts and in law by considering sales promotion expenses of appellant as contributory to the alleged brand building exercise. 15.25 Without prejudice that, the assessing officer erred on facts and in law in holding the AMP expenses incurred by the appellant to be "excessive" on the basis of a "bright line limit" arrived at by considering inappropriate comparables, not having similar product/ brand profile as the appellant. 15.26 Without prejudice that the assessing officer erred on facts and in law in not considering the following alternate set of comparable companies in passenger automobile industry identified by the appellant for benchmarking of advertisement and brand promotion expenses (Amounts in Rs. Crores) Name of the Company N Net Sales A A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l licensed product in India using SMC technology, all others rights vested in the license agreement are linked to the core right to manufacture and sell licensed products. 15.34 That the assessing officer erred on facts and in law in failed to appreciate that the methods used by the Ld. TPO to compute the arm's length royalty is not a method prescribed in TP regulations under Income tax Act,1961,therefore the addition made by TPO is void-ab -initio. 15.35 That the assessing officer erred on facts and in law in failing to appreciate that the decision to obtain the licensed trademarks was taken solely/ exclusively by the appellant for its business purposes since its inception [as against being imposed on it by SMC Motor Corporation ('AE' or 'SMC')]. 15.36 That the assessing officer erred on facts and in law in Failing to appreciate that the license agreement signed between the Assessee and its AE (i.e. SMC) was signed in 1982 when the Assessee was a wholly owned government company and thus the license agreement was entered into between two unrelated enterprises thereby complying with the arm's length standard as per the Comparable Uncontrolled Price (CUP) m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erred on facts and in law in not appreciating that if compensation for AMP expenses was to be received by the assessee from its AE, it will effectively transfer the economic ownership of the brand to the associated enterprise, and in which case it would be grossly unjustified to disallow the payment of royalty for use of brand name. 15.46 Computation Error 15.46.1 The Ld. AO/TPO erred in considering the incorrect figures of Running Royalty and Lump sum Royalty while calculating the disallowance in TP provisions 15.46.2 The Ld. AO/TPO erred in disregarding the observation of the DRP that on adjustment on account of Lumpsum royalty to be restricted to the depreciation charged to P/L account. 15.47 That the assessing officer erred on facts and in law in making various statements/ averments merely based on conjectures/ surmises and unsound presumptions, which were not in accordance with the facts of the case, thereby making a high pitched assessment disregarding judicial pronouncements undertaking the TP adjustment; 16 The Ld AO has grossly erred in initiating penalty under section 271(1)(c) of the Act mechanically and without recording any ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s (s). The duties so paid included excise duty, customs duty on import/purchase of inputs/components and also an amount of duty paid in PLA account. The Assessing Officer following the assessment orders of earlier years proposed disallowance of Rs. 1,18,83,44,986 on the ground that deduction under sec. 43B of the Act is allowable only where the amount claimed as deduction on actual payment basis is charged to the profit and loss account. He was of the view that amount paid by the assessee is in the nature of advance payment of duty, liability in respect of which has not accrued/crystallized and subsequently, such advance payments is not allowable as deduction. The Assessing Officer accordingly made disallowance of Rs. 8,30,39,046 (net of amount offered during the year by the assessee i.e. Rs. 1,18,83,44,986 - Rs. 1,10,53,05,940 in the final assessment order. The same has been upheld by the first appellate order which has been questioned by the assessee before the ITAT. 7. In support of the grounds, the Learned AR contended that as per the mandate, section 43 of the Act, any amount of duty paid by the assessee is allowable as deduction on payment basis irrespective of the method ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for the assessment year 1999-2000, the ITAT allowed the claim subject to incurring of liability on manufactured goods. The liability incurred by the assessee as on 31.3.07 was Rs. 42.98 Crores crores, which was much more than the amount deposited in PLA. Consequently, the balance in PLA was allowable deduction under section 43B of the Act. Further reliance is placed on the decision of Special Bench of the Tribunal in the case of DCIT v Glaxo Smith Kline Consumer Health Care Ltd reported in 107 ITD 343 (SB) (Chd.), wherein it has been held that PLA balance is an allowable deduction. Further, the issue stand covered in favour of the assessee, in view of Hon'ble Delhi High Court Decision in the case of CIT vs Modipon Ltd. (No. 2) (334 ITR 106). 8.3 The Learned CIT(DR) on the other hand tried to justify the orders of the authorities below and placed reliance upon them. 8.4 Having gone through the decisions relied upon, we find that under the similar set of facts in the case of assessee itself for the assessment years 1994-95, 1995-96, 1996-97, 1999-00, 2000-01, 2002-03, 2004-05, 2005-06 and 2006-07 an identical issue has been decided by the ITAT in favour of the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... deduction u/s. 43B. At the same time, the last year's unutilized PLA getting deduction in that year due to the application of section 43B, would be required to be added back to the income of the current year as determined above. We, therefore, set aside the impugned order and direct the A.O. to firstly recast the assessee's profit and loss account on inclusive basis and then make suitable deduction in respect of the amount of unutilized PLA at the end of the current year and also the preceding year." 8.5 We find that the ITAT under similar set of facts has decided an identical issue after discussing in detail and following the decision cited before it including the decision of special Bench of the ITAT in the case of DCIT vs. Glaxo Smith Klin Consumer Health Care Ltd. (supra) holding that the excess amount of excise duty reflected in the account-current is nothing but actual payment of excise duty even though mentioned as advance payment and hence allowable as deduction under sec. 43B of the Act in the year of payment. The special bench has further clarified that the allowing of deduction on payment basis could not result in double deduction under any circumstance. We thus resp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....losing stock, the provisions nowhere requires the appellant to go a step further and curtail the operation of Section 43B by not claiming the deduction of such duties, etc. in the year of payment but in the year in which such stocks are consumed by the appellant. Even if the aforesaid amount has to be added to purchases and closing stock by virtue of Section 145A, thereby being income neutral in so far as the P&L Account is concerned, even thereafter, the said amount will be separately deductible while computing the taxable income u/s 43B. It is submitted that the Hon'ble Supreme Court, in the case of Berger Paints ltd. v. CIT: 266 ITR 99(SC) held that customs and excise duties are allowable in the year of payment u/s 43B, and even if such duties are included in the value of closing stock, they would be separately allowable. In that case, the question before the Hon'ble Calcutta High Court for the AY 1984-85 was as follows: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in rejecting the appellant's claim for deduction of the excise and customs duties of Rs. 98,25,833/- paid in the year of account and debited in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ock and carried forward to the next year in the form of opening stock. Therefore it cannot be said that the expenditure on account of customs duty stands allowed to the appellant in the year under consideration.... Therefore following the decision of the Special Bench, the appellant is entitled to deduction of the aforesaid amount u/s 43B in the year under consideration." The Delhi Bench of the Tribunal in the case of Purolator India Ltd. v. DCIT: ITA No. 1441/Del/2003 decided similar issue in favour of appellant by accepting the valuation of closing stock on net of MODVAT basis. The Tribunal relied upon the decision of the Supreme Court in the case of CIT v. Indo Nippon Chemicals Ltd.: 261 ITR 275 (SC) wherein the non inclusive method of accounting for MODVAT followed by the appellant was approved by the Apex Court. The relevant findings are reproduced hereunder: "As agreed by the learned representatives of both sides this issue is squarely covered in favour of the appellant by the decision of the Hon'ble Supreme Court in the case of CIT v. Indo Nippon Chemicals Co. Ltd.: 261 ITR 275 (SC) wherein the non inclusive method of accounting for MODVAT followed by the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lusive method' as discussed above and then allow deduction in respect of the customs duty paid in accordance with section 43B, if not getting deducted in such recast. Customs duty paid on import of components for which exports had/had not been made by the year end under the inclusive method would now stand included in the value of imports and accordingly get deducted. Customs duty of Rs. 8,65,07,635/- paid on import of components for which exports had been made by the year end would not require any separate deduction as the same will be debited to the Profit and loss account and also get exhausted. As regards the other amount of customs duty for which exports had not been made by the year end would represent the amount though debited to the Profit and loss account by means of increased input cost but not getting exhausted as the same also appearing in the balance sheet through the enhanced value of closing stock. Separate deduction is required to this extent u/s 43B of the Act. At the same time, we also direct the AO to make sure that such amount separately getting deducted in this year does not get deduction once again in the next year. In the like manner, the last year's similar ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... rate is fixed by the competent authority after verification of claim of the assessee and amount is quantified and not in the year of export. Similar view has been held in the case of CIT v. Manav Tools (India) P. Ltd: 336 ITR 237 (P&H). 10.2 The Learned CIT(DR) on the other hand placed reliance on the orders of the authorities below. 10.3 We find that the ITAT has decided an identical issue in favour of the assessee in its appeal for the assessment year 2006-07 (supra) dealing with the same in para No. 5.1 and 5.2, reproduced hereunder: "5.1. Now, we take up the disallowances u/s 43B on items of customs duty. First is customs duty of Rs. 8,65,07,635/- paid on import of components for which exports had been made by the year end and Rs. 1,47,142/- for which exports had not been made by the year end. These amounts claimed by the assessee as allowable u/s 43B of the Act, were disallowed by the AO. It is common submission that the tribunal has allowed deduction in respect of these amounts in the preceding years. 5.2. Here again it is noticed that the assessee has also followed `Exclusive method'. In such circumstances, this method needs to be substitute....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n respect of the amount of Central Excise Duty so paid on raw-material and inputs purchase for manufacture of excisable goods. The said amount of duty paid to the supplier of the raw-material and inputs was regarded as amount of central excise duty actually paid by the assessee under the excise law, claimed the assessee. The Assessing Officer, however, disallowed the aforesaid amount following the assessment order for the assessment year 2005-06. 12. Before the ITAT, the Learned AR submitted that the issue raised is fully covered by the following decisions: i) Shri Ram Honda Power Equipment Ltd. (SLP No. 23461/2012); ii) Maruti Suzuki India Ltd. - 225 CTR 140 (Del.); iii) Maruti Suzuki India Ltd. vs. ACIT - ITA No. 5120/Del/2010 & Ors. (A.Y. 2006-07) - order dated 24.8.2015; 12.1 The Learned AR also furnished following submissions: The Special Bench of the Tribunal in the case of DCIT v Glaxo SmithKline Consumer Healthcare Ltd: 107 ITD 343/ 299 ITR (AT) 1 (Chd.) (SB), has held that, unutilized MODAT credit is not an allowable deduction, since such credit does not amount to payment of duty (paras 53 to 57 of the order). Following th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inished goods at the time of removal of goods from bonded warehouse. 4.15. We have noticed above that the assessee is also following `Exclusive method'. Under the `Exclusive method', the total amount of excise duty paid by the assessee on purchase of inputs does not get added to their purchase price, but appears as an asset with the nomenclature of Modvat credit. When goods using the excise duty paid raw material are manufactured, the manufacturer becomes entitled to use Modvat credit against his liability of excise duty on finished products. This utilized part of the Modvat credit goes to the Excise duty account in the same manner as utilized PLA discussed above. Suppose, an assessee has Modvat credit of Rs. 10 and has utilized duty paid raw material in its production during the year for corresponding sum of Rs. 9, out of which finished goods corresponding to Modvat utilized of Rs. 7 are sold and the finished goods corresponding to Modvat utilized of Rs. 2 are in stock. The assessee will get deduction for Rs. 9 under the exclusive method. Simultaneously the assessee will offer income of Rs. 7 embedded in thesale price. It is the remaining amount of Re. 1 which is unutiliz....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 43B. Caveat remains that deduction for a sum of Re. 1 in the current year, being the Modvat credit unutilized at the end of the year under the exclusive method, also requires enhancement of income of the succeeding year to this extent. In the like manner, the corresponding amount allowed as deduction u/s 43B in the preceding year, if any, also requires separate add back to the income of the current year. It is so because deduction for payment of tax or duty etc. can be allowed only once, and that too, at the time of payment. We, therefore, hold that the amount of unutilized Modvat credit is deductible in the computation of income for the current year under the exclusive method. But such amount also requires add back in the computation of income of the immediately next year and also the corresponding amount of unutilized Modvat credit of the preceding year, if allowed as deduction in such earlier year, requires a separate addition to the income of the current year. It is the treatment of Modvat credit under the `Exclusive method'. 4.18. We have noticed supra that the use of `Exclusive method' is no more permissible in the year under consideration. As such, there is a ne....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 4.21. We have understood Modvat credit in three parts in the example given above while discussing it under the exclusive method, viz., Rs. 7 which is utilized Modvat and finished goods sold; Rs. 2 which is utilized Modvat but finished goods in stock at the end of the year; and Re. 1 which is unutilized Modvat at the end of the year. Now under the `Inclusive method', the price of duty paid input/raw material will be taken at full price inclusive of Rs. 10. In that view of the matter, the assessee can be said to have initially claimed deduction for Rs. 10. Out of total Modvat credit of Rs. 10 received during the year, a sum of Rs. 3 has two components, viz., Rs. 2 as a part of purchases of raw materials and also simultaneously a part of the corresponding finished goods in closing stock; and Re. 1 as a part of purchases of raw materials and also simultaneously a part of the corresponding raw materials in closing stock. Though apparently it appears that the assessee gets deduction of Rs. 3 also by way of higher value of purchase of raw material, but the reality is different. When the figures of closing stock of finished goods and raw material also include Rs. 3, then in fact, there is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt amount of Modvat credit as represented by Rs. 3 in our example. The AO should also make sure that the equivalent of Rs. 3 allowed as deduction on payment basis u/s 43B in this year should not get deducted in the next year and further, the corresponding amount of deduction allowed u/s 43B in the preceding year, should also be separately added to the income of the current year". 12.4 Following the above decisions on the issue, we set aside the matter to the file of the Assessing Officer to decide the issue afresh in view of the above decision of the ITAT in the case of assessee itself in the appeal for the assessment year 2006-07 after affording opportunity of being heard to the assessee. The grounds are thus allowed for statistical purposes. 13. Ground No. 3.5: The Assessing Officer disallowed Rs. 17,76,35,117 holding the same as merely advance payment, liability in respect of which has not crystallized and, therefore, not allowable as deduction under sec. 43B of the Act. 13.1 The Learned AR pointed out that the issue is squarely covered in favour of the assessee in the decisions of the ITAT in the case of assessee itself for the assessment years 1999-00, 2000-01, 2001-0....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he authorities below. 13.4 Considering the above submissions, we find that an identical issue under similar set of facts has been decided by the ITAT in the appeal for the assessment year 2006-07 (supra). Relevant para Nos. 5.6 and 5.7 of the above order dated 24.8.2015 are being reproduced hereunder: "5.6. The last aspect of disallowance u/s 43B is customs duty included in closing stock amounting to Rs. 22,52,46,693/-. The assessee claimed deduction for this sum, which was denied by the AO. The ld. AR stated that the assessee followed `Inclusive method' of accounting on this issue. The claim of the assessee is that the amount of Rs. 22.52 crore, being the amount of customs duty paid on the import of raw material/inputs, was included in the cost of material and also as a part of closing stock, thereby levelling both the debit and the credit sides of the Profit & Loss Account. The ld. AR contended that such amount of customs duty is separately deductible in terms of section 43B of the Act. He also submitted that this issue is settled in the assessee's favour in earlier years. 5.7. We have elaborately discussed this aspect supra in the context of excise duty incl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....question is an admissible deduction u/s 43B. In our considered opinion, there can be no dispute on the otherwise availability of deduction of advance customs duty paid by the assessee, which has to be allowed in the year of payment. In this judgment also, the Hon'ble High Court has noticed vide para 3 that the provisions of section 145A were not applicable as the assessment year under consideration was 1995-96. In view of the detailed discussion supra with reference to the applicability of section 145A to the year in question, there can be no escape from valuation of purchase, sale and inventories under the inclusive method. We, therefore, direct the AO to recast Profit and loss account under `Inclusive method' as per the mandate of section 145A, thereby, inter alia, increasing the purchase value with the above customs duty. Then the AO will allow separate deduction for the above referred sums to the extent not getting eventually deducted separately by way of increased purchase price, as has been discussed above. At the same time, we also direct the AO to make sure that such amount separately getting deducted in this year does not get deduction once again in the next year. In the l....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case of Euro RSCG Advertising (P) Ltd v. ACIT : [2013] 154 TTJ 389 (Mum) held that wherein the service tax liability along with the interest was paid on the basis of show cause notice issued by the service tax authorities, the same was allowable under section 43B in the year in which the payment was made irrespective of the fact that such demand was paid under protest and the matter was subjudice before the authorities. The issue stands covered in favour of the appellant by the order of the Tribunal in the appellant's own case for A.Y's 1999-00, 2000-01, 2001-02, 2002-03, 2005-06 and 2006-07". 15.2 We find that an identical issue has been decided by the ITAT in its recent decision in the appeal for the assessment year 2006-07 (supra), relevant para No. 5.5 thereof is being reproduced hereunder: "5.5. Next item is Customs duty paid under protest amounting to Rs. 1,34,25,787. We have discussed similar issue supra while dealing with `Excise duty paid under protest' by holding that first the Profit and loss account be recast as per `Inclusive method' in terms of section 145A and then some adjustments as stated above be separately made. Such directions are fully ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e manufacturing process. - On daily basis, a consolidated entry is passed for consumption of various materials on the basis of Bill of Material (`BOM'), which basically contains the standard quantity of material required for manufacture of a vehicle. Accordingly, on the basis of the number of vehicles manufactured and the material required to manufacture each vehicle as per BOM, the consumption is booked in the books of the assessee. - However, in case of certain material, such as paint, consumption is recorded on actual basis as against consumption of other material being recorded on the basis of standard bills of material. - At the year end, actual physical verification of the inventories is carried out by the assessee. Thereafter, stock reconciliation is prepared for the variation between physical stock and the stock as per computerized books of account. For the purposes of financial accounting, the assessee debits to the profit and loss account figure of consumption at the year end, which is derived on the basis of the following formula: Opening stock (as per physical inventory) + purchases - closing stock (as per physical inventory)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Figures of consumption are fully verified by the Cost Auditor while conducting cost audit under section 233B of the Companies Act, 1956 and also the Statutory Auditor as well as the Tax Auditor pursuant to tax audit under section 44AB of the Act. (d) The difference between the stock as per the stock register and physical inventory may be on account of several reasons, such as posting errors, estimation of consumption based on standard BOM, etc. (e) The excise show cause notice issued by the excise authority was merely for the purpose of verifying the claim of CENVAT Credit, which was not at all relevant for the purpose of allowability of consumption of raw material/inputs for computing taxable income of the assessee. (f) The consumption actually debited to the profit & loss account represented the entire actual consumption of the assessee, which is clearly allowable as deduction while computing the business profits under the provisions of the Act. The difference between the stock as per book record and the inventory as per physical verification merely represented the difference between actual consumption as against standard consumption booked on the basis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....addition of Rs. 4.48 crore made by the AO on account of excess consumption of raw material and components. The facts apropos these grounds are that the assessee is following 'Just-in-time' system for management and reorder of inventory, in which inventories are ordered just in time when their requirement arises. The material so required is delivered straight to the shop floor in the relevant department. As a result of this, though the purchases are recorded as per actual bills upon the arrival of goods in the premises, the inventories are procured by considering the standard consumption of various raw materials for manufacture of vehicles. Due to this difference in the making of entry in the books of account and actual receipt of goods directly in the relevant department, which, in turn, is based on standard quantity of material required for manufacture of vehicles, sometimes there arises difference between the physical inventory taken and the inventory as per books of account at the end of the year. Some items of stock may be eventually under-consumed while others overconsumed. The net effect of under/over consumption is nothing, but, the deviation from the standard consumption. D....
X X X X Extracts X X X X
X X X X Extracts X X X X
....8,020/-, comprising of the following: Rs. Millions (i) proportionate interest as per Rule 8D (ii) 8.18 (ii) ½% of average investment as per Rule 8D(iii) 40.39 Total 48.57 The assessing officer, however, has failed to appreciate that in terms of section 14A of the Act only expenditure incurred in relation to exempt income can be disallowed under that section. 17.1 The Learned AR pointed out that the provisions of section 14A of the Act clearly postulates disallowance of expenditure only in a case where it is proved that the expenses incurred have a real relationship with the income which does not form part of the total income. Our attention was drawn on the decision of Supreme Court in the case of CIT vs. Walfort Share & Stock Brokers 326 ITR 1 wherein it has been held that by the apex Court that there must be a proximate relationship of expenditure with exempt income, for the purposes of making disallowance of same under section 14A of the Act. 17.2 In the case of Godrej & Boyce Mfg. Co. Ltd. v. DCIT: 328 ITR 81 the Bombay High Court, while deciding the issue of disallowance under section 14A of the Act, following the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....10 SOT 284 (Del.) D.J. Mehta v. ITO: 290 ITR 238 (Mum.)(AT) 17.5 On perusal of the aforesaid it will, thus, kindly be appreciated that disallowance under section 14A cannot be made unless there is proximate connection between the exempt income and the actual expenditure incurred. In order to justify disallowance of any part of the expenditure under the said section, the onus is on the Revenue to bring on record nexus between the expenditure and the exempt income. 17.6 Furthermore, Rule 8D of the Rules inserted w.e.f. 24.5.2008, has been held to be applicable prospectively from assessment year 2008-09 by the Bombay High Court in the case of Godrej Boyce (supra). 17.7 It is also pertinent to mention here that in the aforesaid decision in the case of Godrej Boyce (supra), Their Lordships of the Bombay high Court have reversed the decision of the Special Bench of the Tribunal in the case of Daga Capital management (supra) wherein Rule 8D of the Rules was held to be applicable retrospectively to all pending assessments. In this regard, it is further pleaded to the decision of the Division Bench of the Delhi High Court in the case of Maxopp Investment Ltd. : 347 ITR 272....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of utilization of borrowed funds or interest free funds can be made in favour of the assessee: East India Pharmaceutical Works Ltd. v. CIT: 224 ITR 627 (SC) Indian Explosives Ltd. V. CIT: 147 ITR 392 (Cal.), Woolcombers of India Ltd. v. CIT: 134 ITR 219 (Cal.) approved by Supreme Court in the case of East India Pharmaceutical Works Ltd. v. CIT: 224 ITR 627 CIT v. Reliance Utilities and Power Ltd.: 313 ITR 340 (Bom.) CIT v. M/s Ashok Commercial Enterprises: ITA No. 2985 of 2009 (Bom) Alkali & Chemical Corp. of India v. CIT (1986) 161 ITR 820 (Cal.) CIT v. Suzlon Energy Ltd.: 215 Taxman 272 (Guj.) 17.12 The Gujarat High Court in the case of CIT v. UTI Bank Ltd: 215 Taxman 8 held that where there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A of the Act. 17.13 The Supreme Court has dismissed the revenue's SLP vide order dated 07.02.2014 in Civil Appeal No. 468/2014 against the aforesaid decision. While following the ratio emanating from the aforesaid decisions, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e by the assessing officer as per Rule 8D based on the decision of Special Bench of the Tribunal in the case of Daga Capital (which now stands reversed by the Bombay High Court) was directed to be deleted in the absence of any positive finding by the assessing officer of incurring of any expense by the appellant: Minda Investments Ltd: 138 TTJ 240 (Del.) Om Era Engineering (P) Limited: ITA No. 3913/ Del/ 2010 17.17 The Bombay High Court in the case of CIT v. K. Raheja Corporation Ltd.: ITA No. 1260/2009 held that in the absence of any material or basis to hold that the interest expenditure directly or indirectly was attributable for earning the dividend income, the disallowance of interest on borrowed funds u/s 14A cannot be made. In the aforesaid circumstances, the assessing officer erred in disallowing Rs. 4,85,68,020/- in the proposed assessment order and the same, therefore, calls for being deleted. 17.18 On the other hand, Learned CIT(DR) supported the orders of the authorities below. 17.19 Considering the above submissions, there is no doubt that Rule 8D was not applicable during the year under consideration, however, the application of the provisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he IT Rules, 1962. In support of the grounds, the Learned AR submitted that the aforesaid issue of claim u/s 35DDA is covered in favour of assessee by the order of the ITAT for AY 2004-05, AY 2005-06 and AY 2006-07. 18.1 Further reliance is placed on the following decisions where it has been held that compliance with the conditions of rule 2BA is mandatory only to avail the exemption under section 10(10C) by employees and not for the purposes of deduction under section 35DDA: CIT v. Sony India (P.) Ltd. : 210 Taxman 149 (Del)(HC)(Mag.) State Bank of Mysore v. CIT: 356 ITR 468 (Kar.)(HC) 18.2 The Learned CIT(DR) on the other hand placed reliance on the orders of the authorities below. 18.3 We find that an identical issue has been decided by the ITAT in the earlier assessment years in the case of assessee itself and lastly in the appeal for the assessment year 2006-07 (supra), the ITAT has given following finding: 16.2. Succinctly, the facts of this ground are that the assessee claimed deduction for a sum of Rs. 38.63 crore u/s 35DDA being the aggregate of 1/5th of payments made to its employees under VR Scheme during the previous year relevant to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the recent decision of the Supreme Court in the case of Samtel Color Ltd (Civil appeal No 6449/2012) wherein the Court dismissed the SLP filed by Revenue against the order of Delhi High Court (referred infra) allowing the claim for deduction representing expenditure incurred on club membership. Reliance is placed on the following judicial pronouncements: Nestle India Limited: 296 ITR 682 (Del.) CIT v. Samtel Color Ltd.: 326 ITR 425 (Del.) Otis Elevators Co. (India) Ltd v CIT 195 ITR 682 (Bom); American Express International Banking Corporation v CIT 258 ITR 601 (Bom); CIT vs Citibank N.A.: 264 ITR 18 (Bom) CIT vs Force Motors Ltd.: ITA No. 5296 of 2010 (Bom) CIT v Sundharam Industries Ltd 240 ITR 335 (Mad); Gujarat State Export Corporation Ltd. vs. CIT: 209 ITR 649 (Guj.) CIT vs Infosys Technologies Ltd.: 205 Taxman 59 (Kar) Assam Brook Ltd. vs CIT: 267 ITR 121 (Cal) DCIT v Max India Ltd (2007) 112 TTJ (Asr.) 726 The aforesaid issue is also covered in favour of the assessee by the decisions of the Tribunal in the appellant's o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted the disallowance out of royalty payments as under: Total Royalty Rs.367.25 cr. Less: Adjustment proposed by TPO Rs.177.12 cr. Balance Rs.190.14 cr Depreciation on above Rs. 47.54 cr Proposed disallowance Rs. 142.61 cr. 20.3 In support of the grounds, the Learned AR made following submissions: The assessing officer has, however, failed to appreciate that on perusal of the agreements (refer paper book - V), it is patently clear that: the nature and purpose for which the royalty has been paid to SMC is only the use of licensed information for the engineering, design and development, manufacture, testing, quality control, sale and after sales service of Products and Parts. The duration of the agreement has been specified as 10 years (kindly refer clause 7.01 of the agreement) and was subject to Termination at earlier date for breach (refer clause 7.04 of the agreement). the license agreements between the assessee company (MSIL) and Suzuki Motor Corporation, Japan (SMC) does not transfer to MSIL any specific patents or copyrights or other secret or protected information or knowhow so as to make MSIL a p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ltd : [2013] 215 Taxman 80 (AP HC) CIT v. Essel Propack 325 ITR 185 (Bom-HC) CIT v. Eicher Motors Ltd : 293 ITR 464 (M.P.) Honda Siel Cars v. ACIT : 111 TTJ 630 (ITAT) ITO v. Shivani Locks : 118 TTJ 467 (Del ITAT) Goodyear India Ltd. v. ITO : 73 ITD 189 (Del ITAT) Hero MotoCorp Ltd v. ACIT : ITA No. 5130/Del/2010 (Del) Hero Honda Motors Limited v. DCIT : ITA Nos. 716 to 718/Del/2008 for the assessment years 2000-01 to 2002-03 Fenner (India) Ltd v. ACIT : [2012] 139 ITD 406 (Chennai) The assessing officer, in the proposed order, has disallowed the royalty as capital expenditure on the following grounds: Car is a fast moving consumer product with a life cycle of 5 years whereas the licence agreement is for 10 years, which is more than enduring benefit to the assessee; The License Agreement is for 10 years, extendable by 5 years and even thereafter the assessee can produce the said model of car, whereas int the aforesaid decisions, agreement was for 5 years; The licence Agreement led to the assessee setting up a new factory based on new technology ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee. Reference, in this regard, may be made to the following decisions of the jurisdictional Delhi High Court: ACIT v. Shama Engine Valves Ltd. : 138 ITR 216 @ 223 (Del) Triveni Engineering Works Ltd. v. CIT 136 ITR 340 (Del) Shriram Pistons and Rings Limited v CIT: 219 CTR 228 (Delhi) Shriram Pistons and Rings Limited v CIT 307 ITR 363 (Delhi) The Delhi High Court in the case of CIT v. J.K Synthetics: 309 ITR 371 @ pg 391, while culling out legal principles based on various decisions observed as under: "xxxx (vi) the fact that assessee could use the technical knowledge obtained during the tenure of the License for the purposes of its business after the agreement has expired, and in that sense, resulting in an enduring advantage, has been categorically rejected by the Courts. The Courts have held that this, by itself, cannot be decisive because knowledge by itself may last for a long period even though due to rapid change of technolody and huge strides made in the field of science, the knowledge may with passage of time become obsolete;" The SLP filed by the Revenue against the aforesaid decision has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ced reliance on the orders of the authorities below. He submitted that royalty paid by the assessee was capital in nature and consequently the Assessing Officer was justified in disallowing the entire royalty. 20.5 We find that under similar set of facts, an identical issue has been decided by the ITAT recently in the appeal for the assessment year 2006-07 in the case of assessee itself, relevant para numbers 8.1 to 8.6 are being reproduced hereunder for a ready reference: 8.1. The next issue is against the disallowance amounting to Rs. 95,98,09,735/- made by the AO on account of royalty paid. We have noticed above that out of total royalty of Rs. 254.39 crore paid by the assessee during the year, the TPO attributed Rs. 127.195 crore to the use of licensed trade marks, for which he made transfer pricing adjustment. This issue has been discussed hereinabove. The remaining amount of Rs. 127.195 crore was attributed by the TPO to the use of licensed information, which was accepted at ALP. However, the AO treated this amount as an expenditure of capital nature. After allowing suitable depreciation, the AO made disallowance of Rs. 95.98 crore. The assessee is aggrieved again....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ensed Information is for manufacturing of Product and Parts by the assessee and not for setting up of factory by the assessee. Article 2 of the Agreement gives `Scope of license'. As per this clause, Suzuki has agreed to provide technical assistance and licence necessary for engineering, design, development and manufacture, etc., of Products and Parts. It is further relevant to note that the use of the Licensed Information to the assessee is a 'nonexclusive right.' This Article further provides that Maruti shall have the right to sub-license the rights granted as per this Agreement to other entities, who will manufacture parts for supplying them only to Maruti for the manufacture of Products of Maruti, and, that too, with the prior written consent of Suzuki. This Article, therefore, makes it clear that the licence given by Suzuki for use of licensed information is on non-exclusive basis and further Maruti has no authority to sub-licence the same except for getting the parts manufactured by other entities for supply to Maruti alone for the manufacture of Products in accordance with this Agreement. Clause 2.02 of the Agreement states that : `Maruti recognizes and acknowledges Suzuki'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....factured to be used by it in manufacture of the Products. The assessee has been simply given a licence to use the Licensed Information for a period of ten years and the assessee recognizes Suzuki's ownership of the Licensed Information. The assessee is not entitled to use the Licensed Information for any products other than those stipulated in the Agreement and, further, there is a Confidentiality Clause which prevents the assessee from disclosing the Licensed Information to a third party. Upon termination, the assessee is not entitled to the use of Licensed Information and is obliged to return the same to Suzuki. All the above features of the Agreement make it unequivocal that what the assessee has acquired under this Agreement is a right to use the `Licensed Information'. There is no outright purchase by the assessee of the `Licensed Information'. In fact, such licensed information is required to be returned to Suzuki upon termination of the Agreement. The `right to use' the licensed information, has certain restrictions put on by Suzuki, which the assessee cannot violate. The assessee is under obligation to maintain confidentiality of the Licensed Information. A bird's eye view ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nformation as revenue expenditure, the quantification aspect becomes irrelevant. It is so because the TPO has held royalty for use of licensed information at ALP. We, therefore, hold that the amount of royalty considered by the AO as capital expenditure should be allowed as a revenue expenditure. At the same time, depreciation allowed by the AO on this amount should be taken back". 20.6 Respectfully following the above decision on an identical issue in the case of assessee itself for the assessment year 2006-07, we hold that the amount of royalty considered by the Assessing Officer as capital expenditure should be allowed as a revenue expenditure. At the same time, depreciation allowed by the Assessing Officer on this amount should be taken back. The Assessing Officer is directed accordingly. Ground Nos. 9 to 10.5 are thus allowed. 21. Ground Nos. 10.6 to 10.8: It is regarding disallowance of R & D Cess paid. The Learned AR submitted that the issue is fully covered by the recent decision of the ITAT in the appeal for the assessment year 2006-07. He submitted that as per provisions of Research & Development Cess Act, 1986, R&D cess is imposed on import of technology by the Gov....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ITAT in the appeal for the assessment year 2006-07 after affording opportunity of being heard to the assessee. The ground Nos. 10.6 to 10.8 are accordingly allowed. 22. Ground Nos. 11 to 11.6: It is regarding disallowance of sales-tax subsidy of Rs. 31,92,30,033 claimed as capital receipts from the total income. 23. The relevant facts are that during the year, sales tax concession amounting to Rs. 31,92,30,033 was received by the assessee and the same was shown in the profit and loss account. It was submitted before the Assessing Officer that the aforesaid receipt being in the nature of capital receipt, may be reduced from the total income. The Assessing Officer did not agree and made the disallowance. 24. In support of the grounds, the Learned AR furnished following submissions: "Section 25A of The Haryana General Sales Tax Act, 1973 empowers the State Government to grant sales tax concession and, also convert sales tax concession into capital subsidy. In pursuance to the above, Rule 28C of Haryana General Sales Tax Rules' 1975 (page 660 of paper book III) provided for concession of tax payable under the Act to an eligible industrial unit. The eligible ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....foresaid principle has been reiterated by the Supreme Court in the case of Sahney Steel and Press Works Ltd. and Others vs. CIT: 228 ITR 253 wherein the Court held that the character of a subsidy in the hands of the recipient, whether revenue or capital, is to be determined having regard to the purpose for which the subsidy is given. It was further held that if the purpose of the subsidy is to help the assessee to set up its business or complete a project, the subsidy is to be treated as having been received for capital purposes, whereas, if the subsidy is given to the assessee for assisting him in carrying out the business operations and is given only after and conditional upon commencement of production, such subsidy is to be treated as assistance for the purpose of the trade and would constitute revenue receipt. 24.5 The aforesaid principle has been reiterated by the Supreme Court in the case of Ponni Sugars (supra) wherein Their Lordship held that the purpose for which subsidy is given is only relevant for determining its nature. 24.6 It is, therefore, of the utmost importance to note that the object of grant of the subsidy by way of sales-tax concession under Rule 28C of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....India Ltd : ITA No.5577/ D/ 2004 (Del. ITAT) (n) Bhushan Steel & Strips Ltd v DCIT : 91 TTJ 108 (Del. ITAT) (o) DCIT v. Indo Rama Textiles Ltd : 53 SOT 515 (Del. ITAT) (p) PVR Limited V. ACIT: ITA No.1897/ Del/ 2010 (Del. ITAT) (q) Zenith Fibres Ltd v ITO : ITA Nos. 3325 & 3326/M/07 (Mum. ITAT) (r) Associated Cement Co. Ltd. vs. Addl. CIT: ITA No. 6289 & 6320 /Mum/2003 (Mum. ITAT) (s) Everest Industries Ltd vs. ACIT: ITA No.814/Mum/2007 (Mum. ITAT) (t) DCIT v. M/s Teesta Agro Industries Ltd. ITA No. 1237, 1053, 1753/Kol/2010 (Kol. ITAT) (u) ACIT v. Shree Cement Ltd. : ITA No. 614, 615 and 635/JP/2010 (Jpr. ITAT) (v) Ford India (P) Ltd. v. DCIT: 59 SOT 221 (Chennai ITAT) (w) ITO v. Shree Balaji Alloys: ITA No. 143(Asr)/2012 (Asr. ITAT) 24.11 Kind attention is invited to the decision of the Jammu and Kashmir High Court in the case of M/s Shree Balaji Alloys v. CIT: 239 CTR 70 wherein the High Court has decided the similar issue in favour of the assessee by holding the subsidy given for setting up unit in the state of Jammu for employment generation was in the nature of a capital receipt, not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in nature and hence taxable. The assessee is aggrieved against the treatment of sales-tax subsidy as revenue receipt. 12.2. We have heard the rival submissions and perused the relevant material on record. Primary question for deciding the nature of any subsidy, as a capital or revenue receipt, is to ascertain the object for which it was given. The mode of its quantification or manner of its disbursement, are irrelevant considerations. When the object of subsidy is to encourage an assessee to set up or expand industry, it assumes the character of a capital receipt. Such subsidy may be given in any form, may be by financing investment in capital asset or giving the amount in cash or by means of a waiver of sales-tax, etc. for a particular period. But, when the object is not to encourage industrialization but to facilitate the carrying on an existing business more efficiently post its set-up, then it becomes a revenue receipt, irrespective of the form of disbursement. The Hon'ble Supreme Court in Ponni Sugars (supra) has held that : `if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by capacity addition of 30000 vehicles as a result of second expansion.' When we consider section 25A along with Rule 28C of Haryana General Sales-tax Act/Rules, it becomes evident that the object of subsidy is in line with the Industrial Policy of Haryana Government, being 'attracting new investments and growth of existing industry.' In our considered opinion, such subsidy cannot be characterized as anything other than a capital receipt. It has been brought to our notice that the Tribunal, for the immediately preceding assessment year, has also treated similar subsidy as capital receipt. This ground is, therefore, allowed". 24.15A Respectfully following the above decision of the ITAT for assessment year 2006-07 (supra), we hold that the sales tax subsidy claimed as capital receipt from the total income cannot be characterized as anything other than a capital receipt. It is ordered accordingly to allow the claim as capital receipt. Ground Nos. 11 to 11.6 are thus allowed. 25. Ground No.12: It is regarding non-allowance of depreciation on written down value of software expense capitalized by the Assessing Officer in the preceding years. The relevant facts are that in AY 199....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in respect of the written down value of the software expenses capitalized in earlier years after affording opportunity of being heard to the assessee in this regard. The ground No. 12 is accordingly allowed. 26. Ground Nos. 13 to 13.5: These grounds relate to disallowance on account of provisional liability - Expenditure on account of FPI-OE Components (Current A/c code 05D0509). 26.1 The relevant facts of the case are that the assessee had accounted for liability on account of foreseen price increase (FPI) on an estimate basis. FPI of Rs. 34,83,64,435 was debited to consumption of raw material and components in the profit and loss account in accordance with mercantile system of accounting. The same was claimed as business deduction in the computation of income. 26.2 The assessing officer however, disallowed the aforesaid claim of the assessee on the ground that assessee has quantified the liability without acknowledging the quantified liability to the creditors. 26.3 In support of the above grounds, learned AR submitted that the aforesaid practice was in consonance with the provisions of the companies Act and generally accepted accounting principles and practices of I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....It is thus respectfully submitted that it is not a case of provisional liability/contingent liability incurring of which is dependent on happening of an event. The liability, in our respectful submission, is in fact in respect of such purchases already made by the assessee and duly debited in the books of accounts. Thus, the amount of FPI is a liability which accrues simultaneously with each purchase made by assessee and is allowable as deduction in determining the income of the relevant assessment year. The aforesaid is further in accordance with practice prevalent in motor vehicles industry. 26.3.7 The liability on account of FPI was an ascertained liability representing additional purchase price of the goods. Since the liability accrued during the relevant assessment year, even though was finally paid in the following assessment years, the same was allowable deduction. 26.3.8 Reliance in this regard has been placed on the following decisions wherein it has been held that liability which has arisen in the relevant accounting year is an allowable deduction even though its actual quantification and discharge is deferred to a future date: a) Assessee's own case decide....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etermined and that this quantum of increase would apply to re-compute the prices payable by assessee on all supplies made by the suppliers during the year. 26.3.12 The aforesaid method of accounting regularly and consistently followed does not lead to any loss of revenue, whatsoever. The liability estimated in a particular year finally settled in the subsequent year gets reflected in the profit & loss account. The income as well as the charge on settlement in the subsequent year is brought to the income or expenses statement of the assessee company to the extent of variation from the actual FPI liability. It is well settled that mere timing difference should not be used to disturb the method of accounting and books of accounts of a tax payer consistently maintained and accepted year after year. 26.3.13 It was further submitted that the aforesaid method of accounting has been regularly followed by assessee and claims were accordingly made which has been duly accepted by Revenue in all preceding except in assessment year AY 2003-04. There has been no change in method of accounting or estimation. 26.3.14 It was submitted that, as discussed supra, it is a well settled position....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eseen price increase was in respect of "purchases already made by the company at provisional prices and on which final price is yet to be settled with the supplier". It was further submitted before assessing officer that provision was made on a scientific basis in respect of the liability which had already arisen during the relevant year. The said factual contentions, it is noticed, have not at all been rebutted/disputed by the assessing officer in the assessment order. It is the case of the assessing officer that the assessee has quantified the liability without there being any liability and therefore, the case of the assessing officer appears to be that the provision had been made in respect of a contingent liability. 26.5.1 On perusal of sample copies of the invoices placed at pages 1876 to 1880 of the appellant's paper book, it is also noticed that the bills clearly contain the endorsement "the amount indicated is provisional as additional consideration will be received from buyer on account of price escalation". There is thus, clear commercial understanding between the appellant and the vendors that price mentioned in the invoices is merely provisional in nature and is subj....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amount of additional value in respect of the component. Thus, complete item wise and vendor wise of the additional price to be paid by the appellant is available on the basis of which provision had been made. 26.5.4 It is thus clear that additional provision for foreseen price increase/ escalation had been made by the appellant in respect of components actually supplied by the original equipment manufacturer/ vendor during the relevant year and such provision was made/ quantified item-wise as well as vendor wise, as per details placed on record. Thus, the provision so made, in our view, not only represents provision towards an accrued/crystallized liability for the material actually purchased, which cannot be regarded as continent liability inasmuch as there is no contingency with regard to such liability of the appellant towards the vendor, but such provision also represents amount quantified on a reasonable/ scientific basis. The law with regard to the accrual of liability is now fairly well settled. The Hon'ble Supreme Court in the case of Bharat Earthmovers vs. CIT: (2000) 245 ITR 428 (SC) held that the law is settled that if a business liability has definitely arisen in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vision made for warranty in respect of product sold on a scientific basis on the basis of the historical trend was allowable business deduction. While dilating on the concept of "provision"and "liability", the Hon'ble Supreme Court observed as under: "10. What is a provision? This is the question which needs to be answered. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision can be recognized. 11. Liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. 12. A past event that leads to a present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It is only those obligations a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llant for foreseen price increase has been calculated by taking into account components actually supplied by the vendor and the available price trend, which, in our considered view, clearly represents provision for accrued liability and is allowable as business deduction. The obligating event, as observed by the Hon'ble Supreme Court in the case of Rotork Control, in the present case is the supply of components by the vendor to the appellant. As noticed by us earlier, invoices initially raised clearly state that the price stated in the invoice is provisional and is subject to price escalation. There is thus a clear commercial understanding between the appellant and the vendor that the price stated in the invoice is subject to further escalation on the basis of the price prevailing the market. The provision towards foreseen price increase has been, as noticed above, made by the appellant on the basis of precise vendor-wise and item-wise calculation, which is placed in the appellant's paper book. The provision has thus been, in our view, not only been made in respect of the present obligation or an accrued liability but such provision has also been made with substantial degree of acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. ........................................." 26.5.8 The aforesaid observation fully apply in the present case inasmuch in the present case too, it is the case of appellant that consistent method of making provision for aforesaid price increase is being followed for last many assessment years. As noticed, the claim has always been allowed by the Revenue, except in assessment year 2003-04. It was therefore not appropriate on the part of the assessing officer to have disallowed claim for provision for the foreseen price increase in the year under consideration, despite similar claim being allowed in earlier assessment years. Taking into consideration the entirety of the circumstances, we are of the considered view that provision for foreseen price increase made by the appellant during the relevant year in respect of component/material supplied by the vendors for the escalation in price, which is clearly supported by detailed item-wise working placed in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee representing the reversal of the excise MODVAT availed in inputs on clearance of finished goods, it was fairly conceded by both the sides that this issue was squarely covered by the decision of the co-ordinate bench in assessee's own case for assessment year 2000-01 in ITA No. 678/Del/2004. Respectfully following the decision f the Co-ordinate Bench of this Tribunal in assessee's own case for assessment year 2000- 01, the findings of the CIT(A) on this issue stands confirmed. 23. It is also noticed that this Excise Duty is paid against the order of the Settlement Commission and is in the nature of reversal of MODVAT availed on the inputs and not in the nature of penalty or fines. In the circumstances, the ground of appeal as raised by the Revenue on this issue stands dismissed." 27.4 In view of the above finding of the ITAT on the issue and of the Excise Tribunal in the assessment year 2000-01 that shortage of stock of raw-material and the minor discrepancy was the result of accounting error due to use of large quantity of inputs procured from several hundred suppliers, we hold that the assessee was justified in claiming Rs. 77 lacs on account of expenditure on ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... noticed hereinbefore, what the Revenue has sought to do in the present case is to resort to a quantitative adjustment by first determining whether the AMP spend of the assessee on application of the BLP, is excessive, thereby evidencing the existence of an international transaction involving the A.E. The quantitative determination forms the very basis for the entire TP exercise in the present case. 72. As rightly pointed out by the assessee, while such quantitative adjustment involved in respect of AMP expenses may be contemplated in the taxing statutes of certain foreign countries like U.S.A., Australia and New Zealand, no provision in Chapter X of the Act contemplates such an adjustment. An AMP TP adjustment to which none of the substantive or procedural provisions of Chapter X of the Act apply, cannot be held to be permitted by Chapter X. In other words, with neither the substantive nor the machinery provisions of Chapter X of the Act being applicable to an AMP TP adjustment, the inevitable conclusion is that Chapter X as a whole, does not permit such an adjustment." 28.4 We thus find that the Hon'ble High Court has been pleased to hold that the AMP expenses uni....
X X X X Extracts X X X X
X X X X Extracts X X X X
....attributable to use of brand name shall be nil. Accordingly, the payment of royalty of Rs. 177,11,75,274 to SMC Japan for use of "Suzuki" brand is not found to be at arm's length. The arm's length price of payment of royalty for use of brand was held to be nil by applying the CUP method. On an identical issue, the ITAT in the appeal for the assessment year 2006-07 (supra) has given following finding: "B. ROYALTY I. Transfer pricing adjustment of Royalty for licensed trademark 7.1. The assessee has challenged the addition of Rs. 1,27,19,59,816/- made by the AO on account of transfer pricing adjustment. 7.2. Briefly stated, the facts of this ground are that the assessee chose Suzuki Motor Corporation, Japan (SMC) as its partner in 1982 with SMC acquiring 26% equity stake in the company Maruti Udyog Ltd. (MUL). In 1992, SMC increased its share to 50%. SMC held 54.2% in the company in the previous year relevant to the assessment year under consideration. The assessee, MUL, is engaged in manufacturing of passenger cars primarily for sale in Indian market. It also exports vehicles to other countries. The assessee reported certain international transact....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tween the assessee and SMC. After reproducing relevant clauses from this Agreement, he held that the assessee paid royalty to SMC towards license for manufacture, sale and after-sales services. He further noticed that clauses 3.02 and 3.03 of the Agreement stipulate that improvement and modification of the Products and Parts by the assessee shall be treated as licensed information whose legal ownership will get transferred to the SMC and the assessee will be compensated for such improvements and modifications. He noticed that no such compensation was given despite the assessee incurring huge R&D expenses. The TPO came to hold that 'Suzuki' trademark of the AE was piggybacked on `Maruti', the trademark of the assessee, without any compensation to the assessee. After going through all the relevant clauses of the Agreement, the TPO held that the total royalty of Rs. 254.39 crore paid by the assessee to SMC was for use of both the `Licensed Information' as well as `Licensed trademarks'. Since no bifurcation of royalty payment was given, he segregated it into two equal parts, viz., Rs. 127.195 crore towards manufacturing licence, that is for the use of `Licensed information' and Rs. 127....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... AR contended that in the preceding year also the TPO bifurcated total royalty payment into two parts, namely, 50.58% for use of technology and remaining 49.42% for use of brand name, which view has been turned down by the tribunal by holding that the entire payment of royalty under the licence agreement was a consideration for use of both. 7.4. Au contraire, the ld. DR vehemently justified the action of the TPO in drawing a conclusion that 50% of total royalty payment was for use of licensed information and the remaining 50% for use of licensed trademark. He also took us through the same Agreement dated 9.1.2001 and submitted that clause 1.06 provides that the 'Licensed Trademark' shall mean the trademarks owned by Suzuki listed in Exhibit-B and other Indian trademarks which Suzuki may, hereafter, obtain relating to the Products and Parts. It was contended that clause 2.03 of the Agreement provides for use of 'Licensed Trademarks' and co-branded trademark of 'Maruti-Suzuki.' It was, therefore, put forth that it is not only co-branded trade mark of `Maruti-Suzuki' which has been under the Agreement, but also the 'Licensed Trademarks', which exclusively belong to Suzuki. O....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the payment of Rs. 20.00 crore towards 'technical/other services' pertain exclusively to the use of `Licensed information' and Running royalty exclusively pertains to the use of `Licensed trademark'. He thus argued that the TPO was more than reasonable in apportioning royalty of Rs. 127.195 crore to the use of brand as against the actual running royalty of Rs. 250.81 crore paid by the assessee for use of licensed trademark. In the alternative, he argued that if the tribunal was not satisfied with 50:50 division of royalty by the TPO, then the matter may be sent back for apportioning royalty for use of licensed trademark on some rational basis. The ld. DR contended that since the assessee's own trade mark, namely, 'Maruti' has much higher brand value than the trade mark 'Suzuki' of SMC, which is relatively weak in India, the entire amount of royalty paid by the assessee to its AE towards the use of 'licensed trade marks' was rightly disallowed by the AO as having Nil ALP. 7.5. We have considered the rival submissions and perused the relevant material on record. It can be observed that the TPO has attributed a sum of Rs. 127.195 crore towards royalty for use of licensed trad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tiated by the Report of top 500 brands available on internet.' That is how in para 17, the Tribunal deleted the disallowance made by the AO on the basis of the TPO's conclusion that the payment of royalty towards use of licensed trademark was not warranted. 7.6. Thus it is manifest that the tribunal in the immediately preceding year has held two things. First that the payment of royalty under the Agreement is both for the use of licensed information and licensed trademark and there can be no division of royalty payment; and second that brand Suzuki is valuable and not worthless as was held by the TPO. In so far as the first aspect of bifurcation of royalty payment into two parts is concerned, although we find that the arguments put forth by the ld. DR are not absolutely without foundation, yet, the principle of consistency, laid down by the Hon'ble Supreme Court and Hon'ble High Courts in several judgments, persuades us to go with the view taken by the tribunal in its order for the A.Y. 2005-06, more specifically because the TPO has also relied on his finding given for the AY 2005-06 in arriving at the decision taken against the assessee in the extant year. As regards the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... licensed information. In view of our allowing deduction of royalty in full, this ground challenging the computation error made by the AO in making disallowance, becomes infructuous". 28.11 Respectfully following the above decision on an identical issue under similar set of facts as of the year under consideration, we hold that in view of our order for allowing deduction of royalty in full, the ground under consideration questioning the computation error made by the Assessing Officer in making disallowance does not survive as having become infructuous. The ground is accordingly rejected. 28.12 The ground Nos. 15.48 and 16 are general in nature, hence, do not need independent adjudication. 29. Ground No. 17: It is regarding disallowance of credit of TDS certificate claimed through revised return. In support of this ground, the Learned AR submitted that the claim was valid and justified and hence the Assessing Officer may be directed to allow the credit of TDS certificate claimed through the revised return of Rs. 3,55,99,213 and during the course of assessment proceedings amounting to Rs. 6,73,540. He submitted that appellate authority is empowered to direct the Assessing Of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....est leviable under section 234B of the Act on the basis of the assessed income. On the other hand, the assessee contended that the same needs to be computed with reference to the returned income and not the assessed income. 31.2 Accepting the contention of the assessee, the Tribunal observed as under: "3.6.2 We have heard both parties perused the records and considered the matter carefully. The factual and legal background relating to the issue has already been discussed in the preceding paras. The section 140A provides that in case payment made under the said section falls short of the tax payable including interest under the said section then the tax so paid shall be first attributed towards the interest and the balance amount shall be adjusted against the tax payable. In this case, the tax payable under section 140A also included interest payable under section 234B. The issue is whether the interest payable under section 234B which has to be first adjusted against the payment made under section 140A has to be calculated with respect to total income as declared in the return or total income determined in the regular assessment. We find that the section 140(1B) provide....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under sec. 234C of the Act on assessed income instead of returned income as per the provisions of the Act. The Learned AR submitted that an identical issue has been decided in favour of the assessee by the ITAT in its case for the assessment year 2006-07 (supra). 32.1 The Learned CIT(DR) on the other hand placed reliance on the orders of the authorities below. 32.2 Considering the above submissions, we agree that as per section 234C of the Act, interest is required to be calculated on the basis of returned income and not on the basis of assessed income. An identical issue has been adjudicated upon by the ITAT in the case of assessee itself for the assessment year 2006-07. We direct the Assessing Officer to decide the issue afresh in view of the finding of the ITAT on the issue in the appeal for the assessment year 2006-07 (supra) in para No. 19 thereof is reproduced below: "19. Next ground is against the charging of interest under sections 234B, 234C and 234D of the Income-tax Act, 1961. This ground is consequential and is, accordingly, allowed except the charging of interest under sec. 234C. The Learned AR argued that the Assessing Officer computed interest under se....