AI Drafter 
TaxTMI 
TaxTMI 
2023 (4) TMI 49
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....assessment completed vide order dated 20.01.2015 passed under section 143(3) read with section 144C of the Income-tax Act, 1961 ('the Act'), is illegal and bad in law. 1.1. That on the facts and circumstances of the case, the impugned assessment having been completed on the basis of directions issued by the Dispute Resolution Panel ("DRP") under section 144C(5) of the Act without judiciously and independently considering the factual and legal objections to the draft assessment 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. That the assessing officer erred on facts of the case and in law in completing the impugned assessment at an income of 4649,87....
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....vance payment of excise duty. 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.27,29,78,059/- representing custom duty (CVD) paid to be adjusted against excise duty payable on finished products. 3.9. That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs6,18,68,222/- representing custom duty in respect of the goods in transit/under inspection. 3.10. 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.30,48,61,320/- representing the custom duty paid and included in valuation o closing stock. 3.11. 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. 61,76,617/- being Customs Duty paid under protest. 3.12. 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. 4,51,200/- being Sales Tax paid under protest. 3.13. That the Assessing Officer erred in not following the binding d....
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....in law in disallowing expenditure of Rs.444,43,46,454/- (Net of depreciation for the year) incurred on account of royalty (both lumpsum and running), holding the same to be capital expenditure. 6.1 That the Assessing Officer erred, on facts and in law in not appreciating that royalty paid by the appellant to Suzuki Motor Corporation, Japan (hereinafter referred to as "SMC") was merely for the limited right/license to manufacture and sell the licensed product for a specified duration in India and was therefore, revenue in nature. 6.2 That the Assessing Officer erred on facts and in law in not appreciating that payment of royalty was directly linked and correlated with the production/ sales of cars and spares by the appellant and if there is no production/ sale of cars and spares, there will be no royalty payable to SMC. 6.3 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 preceeding assessment years till assessment year 2005-06 and that there being no change in facts during the year under consideration, there was no warrant or justification to take a....
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....ng that aforesaid amount had been paid by the assessee as excise duty and the same was duly certified by the tax auditors in the tax audit report. 9. That the Assessing Officer/ DRP has erred on facts and in law in making disallowance of Rs.33,00,89,403/-, being the expenditure provided on estimated basis on account of foreseen price increase (in short "FPI"), disregarding the consistent and accepted method followed by the appellant for last many years since inception. 9.1 That the Assessing Officer completely failed to appreciate that there was a clear contractual agreement/ understanding between appellant and suppliers under which the appellant was liable to pay additional amount of price for the supplies of various inputs received during the year and accordingly the said liability accrued during or before the end of that year and estimated amount thereof was accordingly allowable as deduction from assessable income. 9.2 That the Assessing officer failed to appreciate that mere fact that the exact amount of additional price payable to suppliers was not quantified until the end of relevant accounting year did not at all mean that there was no accrual of ....
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....scharging corporate social responsibility, without appreciating that such expenditure was incurred wholly and exclusively for the purposes of business. 11.1 That the assessing officer/ DRP erred on facts and in law in holding that the expenditure incurred on corporate social responsibility is, even otherwise, capital in nature on the ground that the same resulted in enduring benefit to the appellant. 11.2 Without prejudice, the assessing officer erred on facts and in law in not allowing depreciation under section 32 of the Act, consistent with his finding that the aforesaid expenditure is capital in nature. 12. That the Assessing officer/ DRP has erred on facts and in law in disallowing a sum of Rs.7,50,017/- being expenditure incurred on account of club membership fees, following the assessment orders for the earlier years, alleging that the appellant failed to justify the said commercial expediency. 13. That the assessing officer/ DRP has erred in law, on facts and in circumstances of the case in treating gains from sale and purchase of mutual funds as "business income" as against the same being declared under the head "capital gains" by the as....
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....h alleged PE, and was liable to tax in India. 15.3 That the assessing officer erred on facts and in law in alleging that SMC had a place of management in India and hence, a fixed place PE in India in terms of Article 5(1) and 5(2) of the Treaty, on the ground that the executive directors on the board of the assessee who were Japanese nationals nominated (nominee directors) by SMC and held significant influence over the affairs of the assessee were employees of SMC and were deriving salary from SMC. 15.4 That the assessing officer erred on facts and in law in alleging that the nominee directors were looking after the interests of SMC in India and carrying on business of SMC in India. 15.5 That the assessing officer erred on facts and in law in alleging that SMC also had dependent agent PE in India since the nominee directors were taking commercial decisions in the interest of SMC. 15.6 That the assessing officer erred on facts and in law in alleging that the assessee also had service PE in India alleging that the nominee directors were rendering managerial services on behalf of SMC to the assessee. 15.7 Without prejudice, the assessing of....
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.... 16.7. That the TPO / DRP erred on facts and in law in not appreciating that brand 'Maruti Suzuki' was used by the appellant from its inception. 16.8. That the TPO / DRP erred on facts and in law in not appreciating that the use of brand 'Suzuki' was in the commercial interest of the appellant 16.9. That the TPO / DRP erred on facts and in law in holding that 'Suzuki' brand has piggybacked the brand 'Maruti' owned by the appellant 16.10. .That the TPO / DRP erred on facts and in law in artificially splitting the single and inseverable license agreement entered into by the applicant with Suzuki Motor Corporation, Japan ('SMC'). 16.11. That the TPO / DRP erred on facts and in law in not appreciating that all rights vested in the license agreement are inseverable and linked to the core right to manufacture and sell licensed products. 16.12. That the TPO / DRP erred on facts and in law in holding that cobranding of "Maruti- Suzuki" has resulted in the reinforcement of value of "Suzuki" brand and simultaneous impairment of "Maruti" trademark. 16.13. That the TPO / DRP erred on facts and in law in holding that "Suzuki brand ....
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....reement [DTAA] between India and Japan, in case of dividend paid to Suzuki Motor Co., Japan and the DTAAs with the respective countries in case of other non-resident shareholders instead of 16.60875% charged in terms of section 115-O of the Act." BRIEF FACTS OF THE CASE 4. Brief facts of the case are that the assessee is a limited company duly incorporated under the Companies Act and is engaged in the business of manufacture, purchase and sale of automobiles and the other activities related to pre-owned car sales, insurance, fleet management and car financing. The return of income was filed through electronic mode on 11.10.2010 declaring total income of Rs.3255,35,58,940/- and the revised return was filed on 28.03.2012 at an income of Rs.3259,18,58,726/-. The case was processed u/s 143(1) of the Income Tax Act, 1961 ("the Act"). Thereafter, the case was taken up for scrutiny assessment. Having taken into account, the transfer pricing adjustments a draft assessment order u/s 144C of the Act was passed on 29.03.2014 determining income at Rs. 4896,58,43,555/-. Aggrieved against it the assessee company filed its objections against the draft assessment order before Ld. Dispute Res....
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....upon the assessee as to why Royalty payment should not be treated as capital expenditure. In response thereto, the assessee filed its reply which was rejected by the AO on the basis that the benefit derived by the assessee on such royalty payment was of enduring in nature. Thus, he disallowed payment of Rs.592,57,95,292/- and payment of R &D Cess of Rs.45,18,78,312/- being capital in nature. However, the AO granted partial relief of Rs.93,92,54,794/- rectifying the order u/s 154 of the Act qua depreciation allowance. Thus, the AO after allowing relief for depreciation, made addition of Rs.384,40,00,394/- in respect of royalty payment. The AO made further addition of Rs.442,92,00,000/- being the income determined by the Ld.TPO on account of royalty adjustment made by computing Arm's Length Price ("ALP"). The AO further made disallowance of Rs.43,11,000/- being expenditure claimed on account of payment of excise duty. The AO disallowed the provisional liability in respect of FPI as claimed by the assessee and made addition of Rs.33,00,89,403/-. The AO further made addition of Rs.21,83,04,695/- on account of disallowance of expenses on adhoc basis in respect of resources shared by the....
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.... of Rs.121,82,25,605/- deserves to be deleted. He drew our attention to page Nos.768 to 776, 907 to 909, 1032 to 1034 and 1181 to 1188 of the Paper Book to buttress the contention. He submitted that in the light of binding precedents, the impugned disallowance u/s 43B of the Act deserves to be deleted, as the facts are identical in this year as well. 9. On the other hand, Ld. Special Counsel for the Revenue, Shri G. C. Srivastava supported the order of authorities below. However, he could not controvert the submissions of Ld. Senior Counsel for the Assessee that the majority of the issues are covered in favour of the assessee by the decisions of the Co-ordinate Benches of this Tribunal in assessee's own case and also the decisions of the Tribunal on majority of issues related to deletion of impugned disallowances are now stood affirmed by the Hon'ble Jurisdictional High Court. 9.1. In re-joinder, Ld.Sr. Counsel for the assessee submitted that in the light of the binding precedents impugned additions made by AO deserve to be deleted. 10. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. We....
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....d the order of authorities below. However, he could not controvert that the issue in question had already been decided by the Co-ordinate Bench of the Tribunal in the earlier assessment year. 16. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. We find that the Co-ordinate Bench of the Tribunal in the earlier assessment year have considered the identical grounds raised by the assesses in respect of the disallowance in respect of excise duty and R & D Cess on vehicles u/s 43B of the Act and granted relief to the assessee. The Revenue has not brought to our notice any other binding precedents contrary to the decisions of the Tribunal in support of the impugned additions. We do not find any good reason to deviate from the decision of the Tribunal. Thus, Ground Nos.3.3 to 3.4 raised by the assessee are allowed and the AO is hereby, directed to delete the impugned disallowance. 17. Ground No. 3.5 raised by the assessee is against the disallowance of Rs.54,19,86,424/- made u/s 43B of the Act in respect of Custom duty paid in respect of inputs imported by the assessee company. 18. Ld. Sr. Couns....
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....drawback income amounting to Rs.54,19,86,424/- declared by the assessee itself, being the amount of duty drawback received in the instant year but which allegedly accrued in the previous year, as per the principle adopted by the AO, should not be taxable in the year under consideration. He contended that there is no justification for adopting two different and inconsistent methods while computing the income of the present year. The aforesaid sum was duly declared as the income of the immediately succeeding year on receipt of such amount, a method consistently adopted by the appellant company and accepted by the AO since inception. He contended that this issue has already been decided in favour of the assessee in the AYs 1999-2000, 2000-01, 200102, 2002-03, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 by the Tribunal. He further contended that the decisions of the Tribunal have been affirmed by the Hon'ble Delhi High Court in AY 1999-2000 (ITA No.250/2005), 2000-01 (ITA No.976/2005), 2005-06 (ITA nos. 171 and 172/2012) and 2006-07 (ITA No.381/2016). He further contended that the Hon'ble Punjab & Haryana High Court in the case of CIT vs Sriyansh Knitters P.Ltd. 336 ITR 235....
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....y be directed to allow deduction for amount forming part of RG 23A balance to the extent it has been directly paid to custom authorities. He further submitted that pursuant to the above orders of Hon'ble Delhi High Court, the Tribunal had restored the said issue to the file of AO to verify the claim as per the directions of Hon'ble High Court and held that deduction be allowed for the amount forming part of RG 23A to the extent it had been directly paid to custom authorities. He placed reliance on the order of Hon'ble Delhi High Court in assessee's own case in ITA No.31/2005 for AY 2009-10. 23. Ld. Special Counsel for the Revenue supported the order of authorities below. 24. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. We find that under the identical facts, the Co-ordinate Bench of this Tribunal in assessee's case for the Assessment Year 2009-10 had remanded back the issue to the file of the AO to verify the claim as per direction of the Hon'ble High Court and if found in order deduction be allowed for the amount forming part of RG 23A to the extent, it has been directly paid to custom....
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....ore, respectfully following the binding precedents as relied by the assessee(supra), Ground Nos. 3.8 to 3.9 raised by the assessee are allowed. The AO is hereby directed to delete the impugned disallowance of custom duty. 29. Ground No.3.10 raised by the assessee is against the sustaining the addition made by the AO in respect of disallowance of deduction under section 43B of the Act in respect of custom duty paid and included in valuation of closing stock. 30. Apropos to this Ground, Ld. Sr. Counsel for the assessee submitted that the issue is covered in favour of the assessee by the decision of Hon'ble Delhi High Court for AYs 1999-2000 (ITA No.250/2005), 2000-01 (ITA No.976/2005), 2001-02 (ITA No.519/2010) and also by the other decisions of the Co-ordinate Bench of the Tribunal pertaining to AYs 1999-2000, 2000-01, 2001-02, 200203, 2004-05, 2005-06. Ld. Sr. Counsel for the assessee submitted that in respect of custom duty paid on import of raw material/inputs, the assessee company followed inclusive method of accounting. Accordingly, the amount of custom duty paid on imported inputs/raw material is included in the purchase price, which is debited to the P&L Account. The sa....
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....45A does not in any manner dilute or nullify the effect of provisions of section 43B of the Act. Ld. Sr. Counsel for the assessee further submitted that the issue is also covered by the decision of Co-ordinate Bench of the Tribunal in assessee's own case for AYs 1999-2000, 2000-01, 2001-02, 2002-03, 200405, 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 and the decision of the Co-ordinate Bench of the Tribunal have been affirmed by the Hon'ble Delhi High Court. He therefore, contended that impugned disallowance deserved to be deleted. 31. On the other hand, Ld. Special Counsel for the Revenue supported the orders of the authorities below and submitted that the assessee cannot be allowed to take benefit of both the provisions. The intent of section 43B of the Act is clear thereby, the payment is related to a particular year of the statutory dues and then only such payments are allowable. 32. We have heard Ld. Authorized Representatives of the parties and perused the material available on record. The Revenue has not disputed the fact that similar issue also arose for consideration of the decision of the Co-ordinate Bench of the Tribunal in assessee's own case wherein the Tribun....
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.... the liability to pay custom duty and sales tax yet to attain finality therefore, the provision of section 43B of the Act, would not come to the rescue of the assessee. As per this provision, the statutory liabilities should have attained finality and paid by the assessee for the relevant assessment year. In the absence of such, the AO would be justified in making the additions. 36. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. There is not dispute with regard to the fact that the assessee has made payment of custom duty of Rs.61,76,617/- and sales tax of Rs.4,51,200/- under protest. Ld. Counsel for the assessee has relied on the judgement of the Hon'ble Delhi High Court in the case of CIT vs Dharampal Satyapal & Sons P.Ltd. (supra) wherein Hon'ble Delhi High Court has held as under:- 8. "Once this aspect is clarified, answer to the problem posed before us is no more liable to be sought. No doubt the Tribunal had directed the assessee to make aforesaid payment by way of pre-deposit for stay of the impugned demand and pre-addition for hearing the appeal. However, as mentioned above,....
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....sessee's own case related to AYs 1999-2000, 2000-01, 200102, 2002-03, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10. The Revenue has not disputed this fact. We therefore, do not see any reason to take a different view. The AO is therefore, directed to allow deduction of the custom duty amounting to Rs.61,76,617/- and sales tax amounting to Rs.4,51,200/- paid under protest by the assessee. Thus, Ground Nos. 3.11 to 3.12 raised by the assessee are allowed. 37. Ground Nos. 4 to 4.2 raised by the assessee are against the disallowing the claim of the assessee for withdrawal of add back of Rs.109,72,67,904/- as made in the computation of taxable income being the amounts disallowed in earlier years u/s 43B of the Act. 38. Ld. Sr. Counsel for the assessee reiterated the submissions as made in the chart. He contended that the appellant in the instant AY 2011-12 had offered an amount of Rs.109,72,67,904/- in its return of income. This amount represented received back/ adjusted the P&L Account which have already been claimed as deduction on payment basis u/s 43B of the Act in the preceding AYs. This amount was offered to tax by the appellant during the AY 2010-11 on the presumption that d....
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....ly allowed for statistical purposes." Therefore, taking a consistent view the issue is hereby restored to AO to decide the issue in the light of directions of the Tribunal in AY 2006-07 in Asseesse's own case. The grounds of appeal are allowed for statistical purpose. 41. Ground No.5 to 5.6 raised by the assessee are against the disallowance made by AO by invoking the provision of section 14A of the Act r.w.Rule 8D of the Income Tax Rules, 1962 ("the Rules") amounting to Rs.32,57,05,335/-. 42. Ld. Sr. Counsel for the assessee, Shri Ajay Vohra submitted that during the year under consideration, the assessee had earned dividend income of Rs.156,03,20,325/- which was claimed as exempt from tax u/s 10(34) & 10(35) of the Act. In the income tax return, the assessee had suo-moto offered for disallowance a sum of Rs.1,69,36,938/-. He contended that the sum was computed on a rational and scientific basis. However, the amount which was disallowed suo-moto was not actually incurred by the assessee company for earning of exempt income in view of the fact that the investments were made out of non interest bearing funds and other expenses were not required to be made as the investments....
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....m.); [ix] CIT vs Ms. Sushma Kapoor 319 ITR 299 (Del). 43. Ld. Counsel for the assessee submitted that looking to the facts of the present case, no disallowance u/s 14A of the Act would be warranted. Firstly, the AO has not recorded any satisfaction as mandated u/s 14A of the Act and Secondly, without prejudice to aforesaid, no part of the expenditure incurred by the assessee could be regarded as attributable to earning of income. Ld. Counsel for the assessee further reiterated the submissions as made in the written chart and placed reliance on the case laws refereed therein. In respect of the proposition that no disallowance could be made if the no satisfaction is recorded by the AO. Ld. Counsel for the assessee has placed reliance on the judgement of Hon'ble Madras High Court rendered in the case of CIT vs Chettinad Logistics (P.) Ltd. 248 Taxman 55 (Madras) and Revenue's SLP dismissed in CIT vs Chettinad Logistics (P) Ltd. 257 Taxman 2 (SC); Judgements of Hon'ble Delhi High Court in the cases of CIT vs DLF Hotels Holding Ltd. in SLP (Civil) No.37851/2017 (SC) and Cheminvest Ltd. vs CIT 378 ITR 33 (Del.). Ld. Counsel for the assessee contended that the only expenditure....
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....e first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year." (3) For the purpose of this rule, the "total assets" shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets." The disallowance will be made in respect of expenditure on interest relatable to exempt income, direct expenses and other expenses in accordance with the method provided under the Rules. * It is the primary submission of the Ld.AR for the assessee company that the AO did not record any satisfaction before making the disallowance under section 14A of the Act. In this regard, it humbly submitted that the AO at in his final assessment order dated 20.01.2015 has e....
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.... assessment years. This contention of the Ld.AR has also been dealt with by the Ld.AO in his order by stating that the judgements relied upon by the assessee company pertain to assessment year prior to A.Y.2008-09 when Rule 8D was introduced in the Statute and therefore, cannot be relied upon in the present case. Moreover, the Hon'ble ITAT in the case pertaining to A.Y 2009-10 has relied upon the decision for A.Y 2008-09 wherein it was held as under:- 6.15.......In these circumstances, we are of the considered opinion that the AO is justified in taking the view that the plea of the assessee that no expenditure was incurred or earning the exempt income cannot be accepted, and to proceed with the application of the formula prescribed under Rule 8D of the Rules, which is in force from the AY 2008-09. 6.16. Adverting to the arguments of the Ld.AR on the aspects of interest expenses relevant under Rule B(ii) of the Rules and the reckoning of the investment amount relevant for BD(iii), on a consideration of the same in the light of the principles of law laid down by the Court, as stated supra, we agree with the submission made on behalf of the assessee that insofar as t....
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.... the assessee claimed exempt dividend income amounting to Rs.156,03,20,325/- u/s 10(34) and 10(35) of the Act and incurred interest expenses of Rs.21.7 crores, interest of 10.20 crores on foreign currency loans and interest of Rs.1.6 crores on export credits. The assessee itself has disallowed Rs.1,69,36,938/- u/s 14A of the Act r.w. Rule 8D of the Rules in computation of income. Before AO, it was stated that investments were made out of the internal resources therefore, no expenditure was incurred in relation to the investments. Similar disallowance was made by the AO in AYs 1999-2000, 2000-2001 have been deleted by the Tribunal. However, alternatively as a matter of abundant precaution and to avoid further litigation, the assessee had disallowed an amount of salary and administrative expenses of Rs.1,69,36,938/- incurred indirectly relatable for exempt income by way of dividend income following the objective method of computation. The AO has recorded that the assessee made investments in equity shares of Indian companies, the dividend income from whom is exempt under section 10(34) and investment in Mutual Fund, the dividend income from which was exempted u/s 10(35) of the Act. T....
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....sidered view, should not be the basis for making disallowance by the AO. It is the assessee who has to take a call for making investments out of its own funds. The AO is not empowered to regulate business behavior of the assessee. Therefore, in our considered view, the AO was not justified in making the disallowance of interest expenses under Rule 8D of the Rules. 45.1. Ld. Sr. Counsel for the assessee during the course of hearing, pointed out from the balance sheet of the company that it was having sufficient interest free funds to make investment if we take the interest expenditure as NIL then the computation would be ½ % of average value of investment as on first day and last day of previous year which is computed at Rs.18,65,15,000/-. However, the assessee has made disallowance to the extent of Rs.1,69,36,938/-. We do not agree to this submission of Ld. Counsel for the assessee regarding disallowance of administrative expenses as per Rule 8D. Looking to the volume of investment made by the assessee company, the assessee company was required to give justification for the suo-moto disallowance made in this regard as to why the disallowance as per Rule 8D of the Rules, s....
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....n 37 of the Act, expenditure which has been incurred wholly and exclusively for the purposes of business is allowable deduction while computing business income, if the expenditure is, inter alia, not in the nature of capital expenditure. He contended that in the present case since the payment of royalty by the assessee under the aforesaid agreement does not result in acquisition of any new assets or benefit of enduring nature in the capital field, the same cannot be regarded as in the nature of capital expenditure. He contended that there is no ownership rights-only limited right to use technology provided by SMC. In terms of Articles 2.02, 2.03 and 2.04, the ownership/proprietary rights in the technical know-how, at all times, continued and still continues to vest in SMC and the appellant was not authorized to transfer, assign or convey the licensed/know how/technical information to any third party and therefore, the appellant only acquired limited right to use and exploit the know-how, for carrying on manufacturing/business operations. Further, the conditions in the agreement stipulated in Article 3.10 as to non-partibility, confidentiality and the secrecy of the know-how also in....
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....TR 692 (SC); CIT vs IAEC (pumps) Ltd. 232 ITR 316 (SC); Shriram Refrigeration Industries Ltd. vs CIT 127 ITR 746 (Del.); Triveni Engineering Works Ltd. vs CIT 136 ITR 340 (Del.); CIT vs Bhai Sunder Dass & Sons (P.) Ltd. 158 ITR 195 (Del.); CIT vs Hero Honda Motors Ltd. 372 ITR 481 (Del.) apart from other case laws. Further submission was made that there was no enduring benefit in the capital field. He contended that the appellant only had the right to use the trademark on non-exclusive basis. In terms of Article 7.04 and 7.05, the appellant is always exposed to the risk of premature termination of the agreement by the licensor. On termination of the agreement, the appellant carries the risk of not getting the upgraded technology from owner i.e. SMC in the present case. The mere fact that the agreement with the licensor did not specifically debar the appellant from using the knowledge after the termination of the agreement does not, it is respectfully submitted, mean that the appellant acquired any advantage of capital in nature so as to be treated as capital expenditure, considering the rapid stride in technological advancement and the fast technological obsolescence. The advantage....
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....ional High Court in CIT vs. Hero Honda Motors Ltd. (2015) 372 ITR 481 (Del), are considerably matching with the Agreement under consideration. On the face of this observation, without the same being disturbed by the higher forums, we find it difficult to countenance the argument of the Ld. DR that the ratio decidendi of the Delhi High Court decision in Hero Honda Motors Ltd. (supra) would not be applicable in the facts of the instant case. We, therefore, respectfully following the same hold that the amount of royalty considered by the Assessing Officer as capital expenditure should be allowed as a revenue expenditure, and at the same time, depreciation allowed by the Assessing Officer on this amount should be taken back. Grounds No 9 to 9.3 are, accordingly, allowed." Thus, this issue is squarely covered in favour of the assessee by the decision of the Tribunal for the earlier Assessment year i.e. A.Y. 2008-09. Therefore, in absence of any contrary material brought to our notice by the Ld. DR against the order of the Tribunal, we allow these grounds. Hence Ground No. 7 to 7.3 are allowed. 59. In result, Ground No. 7 to 7.3 are allowed." 50. The facts are identi....
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.... double disallowance to the extent of Rs.1,04,58,885/-. It was further submitted that if it is held that royalty payment paid by the assessee is a revenue expenditure, the R&D cess should also be considered as revenue expenditure. Further, he pointed out that the similar issue was decided in favour of the assessee by the decision of the Delhi Bench of the Tribunal in AY 2006-07 reported in Maruti Suzuki India Ltd. vs ACIT 173 TTJ 513 [AYs 200708, 2008-09, 2009-10]. He further pointed out that the Department appeal filed against the order of Tribunal for AY 2006-07 was not admitted by the Hon'ble Delhi High Court in ITA No.381/Del/2016. Against the said order of High Court, the Department has not gone into appeal before Hon'ble Supreme Court on this issue. Hence, this issue has attained finality in favour of the assessee. 53. On the other hand, Ld. Special Counsel for the Revenue opposed these submissions and supported the orders of the authorities below. 54. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. We find that identical ground was raised by the assessee in the earlier AY in ITA No.....
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....ed the amount of royalty and cess on royalty as revenue expenditure. The AO disallowed a sum of Rs.9.68 crore after proportionately allowing deduction to the extent of depreciation allowed by him on royalty. There is no dispute on the nature of cess, which is on royalty and has been treated both by the assessee as well as the AO as part and parcel of royalty and accordingly claimed/disallowed in line with the treatment of royalty. Since we have allowed deduction for the entire amount of royalty paid by the assessee during the year by deleting the TP adjustment and also overturning the action of the AO in treating the remaining half part as capital expenditure, the consequential amount of cess on royalty payment automatically becomes deductible. We, therefore, direct to allow deduction of Rs.9.68 crore." 10.3. This Tribunal followed the above reasoning for the AY 2007-08 also. Since the related facts of the present assessment year are similar to those in the assessment year 2006- 07 and 2007-08 on an identical issue, we, while respectfully following the same direct the Assessing Officer to allow the deduction as directed by the ITAT in the appeal for the assessment year 200....
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....ers of the authorities below. He contended that every year is an independent year and needs to be viewed independently. 59. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. We find that the identical ground was raised by the assessee in earlier assessment year except change into figures and the Co- Ordinate Bench of this Tribunal in ITA No.467/Del/2014 had decided the issue in favour of the assessee by observing as under:- 66. "We have heard both the parties and perused the relevant material available on record. We find that in assessee's own case for A.Y. 2008-09, the Tribunal held as under: Ground Nos.13 to 13.3 disallowance Rs.58,61,136/- on account of Expenditure on Excise duty: 13. In respect of disallowance Rs.58,61,136/- on account of Expenditure on Excise duty, case of the assessee is that during the relevant assessment year, the assessee paid excise duty of Rs.58,61,136/-, being provision for MODVAT on quantity difference on inputs disallowed in earlier years now claimed on payment basis u/s 43B of the Act, but the assessing officer disallowed the aforesaid ....
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....h is against the action of CIT(A) in deleting the disallowance of the Excise Duty paid by the 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 of the Co-ordinate Bench of this Tribunal in assessee's own case for assessment year 2000- 1, 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 su....
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.... and practices of Institute of Chartered Accountants of India. He submitted that the AO 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. He further submitted that liability for FPI was provided in the books of accounts on a scientific analysis of increase in price of components due to change in input cost. He contended that liability of FPI was estimated by the purchase department with substantial degree of accuracy as they are in constant touch with suppliers and have knowledge of the claims of suppliers, trend of the cost of inputs, etc. He contended that since the liability on account of FPI was an ascertained liability representing additional purchasing 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. In support of this contention Ld. Senior Counsel for the assessee relied upon the various case laws. He submitted that the aforesaid method of accounting regularly followed by the assessee and claims were accordingly made ....
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....te from the reasoning of Co-ordinate Bench the AO is hereby directed to delete the disallowance. Thus, Ground Nos. 9 to 9.6 raised by the assessee are allowed. 66. Ground Nos.10 to 10.3 raised by the assessee are against the adhoc disallowance of Rs.21,83,04,695/- in respect of sharing of resources. 67. Ld. Sr. Counsel for the assessee submitted that the AO was not justified in making the adhoc disallowance purely on the basis of conjectures and surmises. He submitted that under the identical facts, the Tribunal had disallowed the disallowance made by the AO in AY 2009-10 in ITA No.467/Del/2014. 68. On the contrary, Ld. Special Counsel for the Revenue opposed these submissions and supported the orders of the authorities below. He submitted that the AO has pointed out that there was sharing of resources. Therefore, it cannot be concluded that there was no expenditure related to other entity, was shown in Profit & Loss Account by the assessee. 69. We have heard Ld. Authorized Representatives of the parties and perused the material available on record. The identical ground was raised by the assessee in the AY 2009-10 and the Tribunal after following the order of earlier AY....
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....ve better training to the students. The appellant through ITI, Gurgaon and Maruti Driving School, Gurgaon provided training and vocational programmes to the villagers. He submitted that this expenditure is allowable as a business deduction under the provisions of section 37(1) of the Act. he took us through the provision of section 37(1) of the Act and also made submission regarding history of legislation. Ld. Counsel for the assessee placed reliance on the judgement of the Hon'ble Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co vs. CIT 223 ITR 101 (SC) and the judgement of Hon'ble Delhi High Court rendered in the case of CIT vs Ranbaxy Laboratories Ltd. in ITA No.743/2008 (Del.) and the decision of Co-ordinate Bench of the Tribunal in assessee's own case pertaining to AY 2009-10. 72. On the other hand, Ld. Special Counsel for the Revenue opposed these submissions and supported the orders of the authorities below. He submitted that there is no infirmity into the orders of the authorities below as the expenditure should be related to the business of the assessee but the expenditure as claimed by the assessee does not relate to and is not for the pu....
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....e Tax statute. But at the same time, it can be seen that Explanation 2 has been inserted in section 37 of the Act by the Finance (No.2) Act, 2014 w.e.f. 1.04.2015 to provide that CSR expenses referred in section 135 of the Companies Act, 2013 shall not be deemed to be incurred for the purpose of business. The aforesaid Explanation inserted w.e.f. 1.04.2015. Therefore, in the present assessment year the said explanation will not be applicable. Hence, the expenditure has to be allowed because ultimately the assessee was publicizing its product at the prominent places by maintaining them such as parks and this has direct impact on the sales promotions of the assessee company. Therefore, Ground No. 11 to 11.12 are allowed." 74. The facts are identical and there is no change into facts and circumstances of the present case. We therefore, respectfully following the binding precedent, direct the AO to delete the disallowance. 75. Ground No.12 raised by the assessee is against the disallowance of club expenditure amounting to Rs.7,50,017/-. 76. Ld. Counsel for the assessee submitted that this issue is also covered by the decision of the Tribunal in assessee's own case for AYs 2001....
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..... He contended that during the year under consideration, the gains arising from purchase and sale of investment in mutual funds were covered under the head "capital gains", either as "long term" or "short term" on the basis of period of holding. He further contended that the assessee claimed long term capital gain of Rs.3.32 crores, net of short term capital loss of Rs.5,41,404/-. The AO however, in the impugned assessment order for the AY 2010-11 without appreciating the facts in right perspective and considering the case laws treated the capital gains as "business income" by following the assessment order of the earlier years wherein the disallowance was made on the ground that the investments were made as a systematic business activity and not with an intention to earn dividend income of capital appreciation. He contended that the AO determined taxable business income of Rs.125,66,52,966/- in respect of units of mutual fund held for more than 12 months as against long term capital loss of Rs.68,16,79,305/- declared by the assessee after claiming benefit of indexation. Similarly, short term capital gain of Rs.3.38 crores has also assessed as business income by the AO. However, th....
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....ight of the various case laws and the CBDT instructions, the AO is required to determine the nature of capital gain arising on transfer of an asset is the intention at the time of purchase. If the intention at the time of purchase was to merely resell at profit, the asset would be in the nature of stock-in-trade. On the other hand, if the intention at the time of acquisition is to hold the asset for use and/or earn income therefrom, then the character of such asset would be "capital asset"/ "investment" and income from its sale would be "capital gains" and not business income. He further placed reliance on the judgement of Hon'ble Gujarat High Court in the case of CIT vs Rewashankar A.Kothari 283 ITR 338. He then submitted that important fact to be taken into account are that the appellant is a pure investor and the appellant is not registered with any authority or body as being engaged in the business of dealing in shares/securities. This goes to demonstrate that the assessee is an investor and not trader. He further contended that investment in shares/mutual funds is always reflected under the head "investment"/ "Capital asset" in the books of account as opposed to "stock in trad....
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....nce on various case laws rendered in the case of Radhasoami Satsang vs CIT 193 ITR 321 (SC) and CIT vs Excel Industries Ltd. 358 ITR 295 (SC). He submitted that in view of the principles of consistency, transaction of sale of shares/mutual fund must be accepted under the head "capital gains". 82. On the contrary, Ld. Special Counsel for the Revenue opposed these submissions and supported the orders of the authorities below. He further reiterated the submissions as made in the written note. The sum and substance of the submissions of Ld. Counsel for the Revenue are that the assessee had entered into frequent and large transactions for the purchase and sale of quoted and unquoted mutual funds during the assessment year. Accordingly, an amount of Rs.3,38,38,845/- as short term capital gain and Rs.68,16,79,305/- as long term capital loss has been claimed. The AO has examined the transactions in detail. He submitted that a detailed examination of the claim of long term capital loss against a gain of Rs.125,66,52,966/- and the claim of short term capital gain was rejected by the AO after considering the submissions of the assessee and has made an elaborate discussion for disallowing s....
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....e is out of non-interest bearing fund. The AO did not accept the contention of assessee made during the course of assessment proceedings on the basis that most of the investments were held for a period of 13 months in respect of long term capital gain and in respect of short term capital gain also there was frequent sale and purchases. He was also view of the fact that looking to the volume of transaction, the total purchase price of mutual fund is Rs.1004,58,57,202/- in respect of long term capital gain and Rs.1587,10,65,228/- in respect of short term capital gain which is substantial by any standard. Hence, he treated the transaction as the business activity of the assessee. Law is well settled now that intent is required to be examined whether it is for investment or otherwise for business of course to arrive at any conclusion certain factors need to be kept in mind. If such factors point towards business activity certainly then any surplus arising would partake character of business profit however, if it for parking surplus fund or is mandatorily made under government policy or otherwise then it will fall in category of investment. Therefore, Considering the totality of the fac....
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.... and provision for product recall claim on accrual basis in respect of sales made during the year. He submitted that the AO however, accepting the settled law that "warranty provision" cannot be disallowed u/s 37(1) of the Act, disallowed the said expenditure on the premise that there is no scientific basis for estimation adopted by the appellant. He submitted that the provision for warranty had been made: (a) as per mercantile system of accounting; and (b) scientifically on the following basis in respect of unexpired portion of warranty. In order to calculate the warranty provision for the period, the average warranty cost per vehicle is calculated keeping in view the past experience and on the basis of actual warranty claims lodged during the period divided by the average number of vehicles dispatched during the warranty period. Actual warranty claims received from the customers during the year are directly debited to warranty cost account. He submitted that provision for the estimated expenditure to be incurred over the years is necessarily to be made in order to match the costs of rendering services/cost of goods supplied with the revenues. Matching costs with revenues is a fun....
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....f the assessee and delete the addition. 89. Ground Nos. 15 to 15.10 raised by the assessee are against the disallowance of purchases of Rs.195,67,83,751/- on account of non-deduction of tax from payment made to SMC by invoking the provision of section 40(a)(i) of the Act. 90. Ld. Counsel for the assessee submitted that these disallowances were made first payment aggregating to Rs.1956.78 crores to SMC on account of purchase of goods outside India on FOB basis. He contended that the appellant vide reply dated 19.03.2014, submitted that all purchases made by the appellant from SMC are on FOB basis and the property therein transfer to the appellant outside India. Further, such purchases were are at arm's length. In the absence of any PE of SMC in India, income arising to SMC in relation to sale of goods to the appellant is not liable to tax in India. Therefore, the question of deducting tax at source by the appellant from payment thereof, does not arise. Further, without prejudice, the TDS provisions are not applicable in respect of payments of purchase price in view of the nondiscrimination provisions contained in Article 24 of Indo-Japan tax Treaty. He further submitted that A....
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....sessee submitted that finding of the AO are misconceived and contrary to the settled position of law. Ld. Counsel for the assessee submitted that admittedly there is no fixed place of business of SMC. He submitted that it had been consistently held that employees of foreign parent company seconded to the Indian subsidiary and working under the direction, control and supervision of the Indian company do not constitute a PE of the foreign company in India. Reliance was placed on the judgement of Hon'ble Supreme Court in the case of Carborandum Co. vs CIT 108 ITR 335 (SC). Further, reliance was placed on the decision of Coordinate Bench of the Tribunal in HCL Infosys Systems Ltd. vs DCIT 76 TTJ 505 and the judgement of Hon'ble Delhi High Court in the case of Director of Income Tax vs HCL Infosys Systems Ltd. 274 ITR 261 (Del.). He submitted that the Directors have been nominated in the Board of Directions of the appellant by SMC to ensure that the commercial interest of the appellant are looked after. The nominee Directors and senior management personnel are paid salary in Japan to retain lien over their employment by SMC and are not working under the direction, supervision and contro....
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....n the ordinary course of business in respect of transaction with SMC and its activities are not devoted wholly or almost wholly on behalf of SMC. He further submitted that no income arose in India as sale of goods was made outside India. Ld. Counsel for the assessee submitted that without prejudice, in terms of section 5(2) of the Act, a non-resident is liable to tax in India in respect of, inter alia, income which accrues or arises or which is deemed to accrue or arise in India. He drew our attention to the provision of section 9 of the Act defines the concept of income deemed to accrue or arise in India. To buttress the contention that there was accrual of income in India as the entire transactions took place in India. The delivery of goods was made outside India hence, the entire transaction was executed outside the territory of India. He further submitted that in view of the facts and circumstances of the present case and judicial pronouncements, no disallowance is called for. 92. Ld. Senior Counsel submitted that moreover the action of the AO in disallowing the purchase to the extent of Rs.195,67,83,751/- and not the sum chargeable to tax in relation thereto merely because ....
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.... impugned disallowance by invoking the provision of section 40(a)(i) of the Act. Ld. Counsel for the assessee further reiterated the submissions as made in the consolidated chart of submissions. 94. On the other hand, Ld. Special Counsel for the Revenue opposed these submissions and supported the orders of the authorities below. He submitted that it is wrong to submit on the part of the assessee that it does not have PE in India, as can be seen from the admitted fact that the SMC is holding shares of the assessee company to the extent of more than 50% and SMC has also nominated Directors on the Board of the assessee company. Hence, it cannot be inferred that decision making by the Board could not have been influenced in favour of the SMC. Therefore, he submitted that the authorities below were justified in invoking the provisions of section 40(i)(a) of the Act. 95. In re-joinder, Ld. Counsel for the assessee submitted that the issue is well settled by the decisions as rendered by the various judicial pronouncements as related by the assessee. He further contended that without prejudice, it is submitted that the profit of the PE comes out to Rs.1.82 crores and at the most of t....
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....ed that there was PE even then correct attribution of profit is required to be made. To meet the ends of justice we hereby set aside the issue to the file of AO. The impugned disallowance is hereby set aside. The AO is hereby directed to decide the issue afresh after adjudicating all the objections of the assessee. The Ground Numbers 15 to 15.10 are allowed for statistical purpose only. 99. Ground Nos. 16 to 16.17 raised by the assessee are against the adjustment proposed by TPO and made by the AO in respect of the royalty payment transfer pricing adjustment amounting to Rs.442,92,00,000/- on account of the alleged difference in the arm's length price of international transactions of payment of royalty entered into by the appellant on the basis of the order under section 92CA(3) of the Act. 100. At the outset, Ld. Counsel for the assessee submitted that this issue is also covered by the decision of the Tribunal in assessee's own case for AY 2005-06 in ITA No.5237/Del/2011, AY 2006-07 in ITA No.5120/Del/2010, AY 2007-08 in ITA No.5720/Del/2011; AY 2008-09 in ITA No.6021/Del/2012 and AY 2009-10 in ITA No.467/Del/2014. Ld. Counsel for the assessee submitted that during the y....
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....e supported the orders of the authorities below. He contended that looking to the facts and the substance of matter is that on account of share holding and directors being nominated by SMC it can be very well construed that it has PE in India therefore, any payment of any kind by such PE needs to be at Arms Length. He therefore, strongly relied on the findings of AO. 102. We have heard the rival contentions and perused the material available on record. The identical ground was also raised by the assessee in ITA No.467/Del/2014 pertaining to AY 2009-10. For the sake of clarity, Ground No.16 raised by the assessee in ITA No.467/Del/2014 [AY 2009-10] is reproduced as under:- "That the Assessing Officer erred on facts and in law in making transfer pricing adjustment amounting to Rs.311,73,59,562/- in relation to the international transaction of payment of royalty entered into by the appellant." 103. The Tribunal after considering the submissions made by the parties, decided the issue in favour of the assessee by observing as under:- 88. "We have heard both the parties and perused all the relevant material available on record. The Tribunal held that there is a di....
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....ssessee submitted that a sum of Rs.1,80,84,092/- is required to be deleted on account of the fact that the AO did not give credit of this amount. He drew our attention to para 18 to 18.1 of the AO's order. 107. Ld. Special Counsel for the Revenue opposed these submissions and supported the orders of the authorities below. 108. We have heard Ld. Authorized Representatives of the parties and perused the material available on record. The AO is hereby directed to verify the claim of the assessee regarding additional TDS certificate and give credit of the same in accordance with law. Thus ground of appeal raised by the assessee is hereby, allowed. 109. Ground Nos. 18 to 18.1 raised by the assessee are against the charging of interest u/s 234B, 234C and 234D of the Act. 110. Ld. Sr. Counsel for the assessee submitted that this issue is covered in favour of the assessee by the decision of the Tribunal for AYs 2007-08, 2008-09 and 2009-10. He submitted that the AO had computed interest u/s 234B of the Act incorrectly. He submitted that the interest u/s 234B of the Act is firstly, computed on the assessed income upto the date of payment of first self assessment tax prior to fili....
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.... appeal either before or at the time of hearing of the appeal." 115. The only effective ground in this appeal is against the deduction of claim made u/s 35(2AB) of the Act. 116. Ld. Standing Counsel for the Revenue supported the assessment order and contended that Ld.DRP grossly erred in directing the allowance of deduction u/s 35(2AB) of the Act. He contended that Ld.DRP failed to appreciate the fact that the requisite approval for in house R&D facilities was signed by Scientist "G" for or on behalf of Secretary, Department of Scientific & Industrial Research. He contended that Scientist "G" was not a competent person. Therefore, the AO was justified in declining the claim of deduction u/s 35(2AB) of the Act. 117. Ld. Sr. Counsel for the assessee opposed these submissions and supported the direction of Ld.DRP. He reiterated the submissions as made in the written submissions filed on behalf of the assessee company. It was contended that notwithstanding that the approval of Form No.3CM is not granted by the Secretary, DSIR but by some Nodal Officer on/or behalf of the Secretary. Therefore, the weighted deduction u/s 35(2AB) of the Act could not have been denies as the asses....
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....m No.3CM. He contended that a perusal of the provision of law, it can be conclusively inferred that the only requirement in the aforesaid provision is that R&D facilities should be approved by DSIR and such approval should be granted in Form 3CM. In support of this contention, Ld. Counsel for the assessee relied upon the judgement of Hon'ble Gujarat High Court in the case of CIT vs Claris Lifesciences Ltd. [2010] 326 ITR 251 (Guj.). Further reliance was placed on the judgement of Hon'ble Delhi High Court in the case of CIT vs Sandan Vikas (India) Ltd. [2011] 335 ITR 117 (Del). He contended that in the case in hand, there is no dispute that R&D facilities have been approved. The only dispute was in respect of the requisite certificate was not signed by the Secretary, DSIR but it was signed by the Scientist "G", DSIR i.e. head of R&D. He contended that the aforesaid reasoning for disallowing R&D expenses is not legally sustainable. He contended that the assessee fulfilled all requisite conditions. Ld. Sr. Counsel for the assessee contended that the AO referred to the settled legal position that if any Act was required to be done in law by a particular authority then such Act can only....
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....ncome Tax Rules, 1962 (the "Rules") lays down the procedure for making application and obtaining approval in the prescribed form, which is Form No.3CK and the prescribed authority is required to grant approval in form No.3CM. It is thus, clear that for the purpose of claiming deduction on scientific research expenditure under section 35(2AB) of the Act, the R&D facility of the assessee was to be approved by the prescribed authority and for that purpose, the rules provide that application should be made by the assessee in prescribed form. Thereafter, on consideration of the application filed by the assessee, approval is to be granted in the prescribed form. In the present case, there is no dispute that the R&D facility has been approved; the only dispute being that the certificate issued on behalf of DSIR is not proper inasmuch as the same is not signed by the Secretary, DSIR, but is signed by Scientist 'G', DSIR (Head of RDI), for and behalf of DSIR. The above, submissions were duly considered by the DRP. The applicant was, in law, required to file application for approval in the prescribed form, which was undisputedly complied with by the applicant. Furt....
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....hat the DSIR has granted order of approval in form No. 3CM which has been signed by the Scientist-G for and on behalf of the Secretary, DSIR. Once the DSIR has authorized any of its Nodal Officer to issue order of approval on or behalf of the Secretary, then for the purpose of section 35(2AB), it can be taken that the approval has been granted by the prescribed authority itself. Whether the order has been signed by the Secretary or by any of the Nodal Officer on his behalf will not make any difference because it is not the fault of the assessee. In such a case, claim for deduction cannot be denied to the assessee. 11. In the present case, however, the assessee could not show us whether, any approval of in house R & D facilities has been issued in prescribed form by the DSIR, even if it is signed by any authority like Scientist-G for on/or behalf of the Secretary, DSIR. In the subsequent years, if such an order is available, then the assessee has to show that the order of the approval for in house R & D facility has been granted by the DSIR covering the present assessment year. Therefore, we set aside the impugned order passed by the learned Commissioner (Appeals) and resto....