2023 (8) TMI 718

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....lization of Engineering Research and Development cost incurred by the assessee during the year at Rs. 3,90,45,945/-, which was claimed as revenue expenditure. 3. Tersely, the factual matrix of the case is that the assessee is a Joint Venture between Lear Corporation, Mauritius and Tachi-S Company Ltd., Japan. The assessee is engaged in the manufacture and sale of Seats for Passenger cars. During the course of assessment proceedings, the AO observed that the assessee claimed deduction of Rs.3.90 crore towards Engineering and Development costs. On being called upon to substantiate the deductibility of the outgo, the assessee furnished a copy of the Engineering and Recovery Agreement under which such payment was made. Considering the releva....

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....33 units over the life span of X02A Nissan Seat Program. Subclause (b) of clause 2.3 further provides that the Engineering costs shall be borne by the assessee with effect from the start of production and the assessee will intimate the figures of quarterly sales to Lear and Tachi-S for enabling them to raise invoices towards the Engineering Costs accordingly. It further provides that: `In case there is a shortfall in the volumes, Tacle (the name of the assessee, as it then was) shall not be liable to pay any unrecovered Engineering Costs to Lear and/or Tachi- S'. Clause 3.1 of the Agreement dealing with `Technology rights' provides that "the rights and title to, and the interest in, the Technology are owned jointly by Lear and Tachi-S in th....

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....der this Agreement without the prior written consent of the other party". 5. A careful perusal of the relevant clauses of the Engineering Recovery Agreement clearly decipher that: - (i) the license to the assessee to use the Engineering Development work done by Lear and Tachi-S was non-exclusive; (ii) Payment by the assessee towards Engineering and Development cost each year was directly dependent upon the volume of production in such year using the technology; (iii) There was no obligation on the assessee to make any payment de hors the production in any later year in the eventuality of closing down of its business notwithstanding the fact that Lear and Tachi-S initially determined the amount payable per unit ....