Mercedes - Benz India Private Ltd.,, Pune v. Deputy Commissioner of Income-tax,,

CO 58/PUN/2014 | 2003-2004
Pronouncement Date: 30-09-2016 | Result: Partly Allowed

Appeal Details

RSA Number 5824523 RSA 2014
Assessee PAN AABCM1789L
Bench Pune
Appeal Number CO 58/PUN/2014
Duration Of Justice 2 year(s) 5 month(s) 8 day(s)
Appellant Mercedes - Benz India Private Ltd.,, Pune
Respondent Deputy Commissioner of Income-tax,,
Appeal Type Cross Objection
Pronouncement Date 30-09-2016
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 30-09-2016
Date Of Final Hearing 27-06-2016
Next Hearing Date 27-06-2016
Assessment Year 2003-2004
Appeal Filed On 21-04-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH PUN E !'!! # $ % BEFORE SHRI R.K. PANDA AM AND SHRI VIKAS AWASTHY JM / ITA NO. 1081/PN/2013 $& ' !(' / ASSESSMENT YEAR : 2003-04 MERCEDES-BENZ INDIA PVT. LTD. (FORMERLY KNOWN AS DAIMLER CHRYSLER INDIA PVT. LTD.) E-3 MIDC CHAKAN PHASE-III CHAKAN INDUSTRIAL AREA KURULI & NIGHOJE TAL. KHED PUNE-410501 PAN : AABCM1789L ....... / APPELLANT )& / V/S. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 8 PUNE / RESPONDENT / ITA NO. 1082/PN/2013 $& ' !(' / ASSESSMENT YEAR : 2004-05 MERCEDES-BENZ INDIA PVT. LTD. (FORMERLY KNOWN AS DAIMLER CHRYSLER INDIA PVT. LTD.) E-3 MIDC CHAKAN PHASE-III CHAKAN INDUSTRIAL AREA KURULI & NIGHOJE TAL. KHED PUNE-410501 PAN : AABCM1789L ....... / APPELLANT )& / V/S. ADDITIONAL COMMISSIONER OF INCOME TAX RANGE - 8 PUNE / RESPONDENT 2 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 / ITA NOS. 1108 & 1109/PN/2013 $& ' !(' / ASSESSMENT YEARS : 2003-04 & 2004-05 DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 9 PUNE ....... / APPELLANT )& / V/S. MERCEDES-BENZ INDIA PVT. LTD. (FORMERLY KNOWN AS DAIMLER CHRYSLER INDIA PVT. LTD.) SECTOR 15A CHIKHLI PUNE-411018 PAN : AABCM1789L / RESPONDENT *+% / CO NOS. 58 & 59/PN/2014 $& ' !(' / ASSESSMENT YEARS : 2003-04 & 2004-05 MERCEDES-BENZ INDIA PVT. LTD. (FORMERLY KNOWN AS DAIMLER CHRYSLER INDIA PVT. LTD.) E-3 MIDC CHAKAN PHASE-III CHAKAN INDUSTRIAL AREA KURULI & NIGHOJE TAL. KHED PUNE-410501 PAN : AABCM1789L ....... / APPELLANT )& / V/S. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 9 PUNE / RESPONDENT ASSESSEE BY : SHRI R.R. VORA SHRI PRAMOD ACHUTHAN REVENUE BY : SHRI RAJEEV KUMAR / DATE OF HEARING : 26-09-2016 / DATE OF PRONOUNCEMENT : 30-09-2016 3 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 / ORDER PER VIKAS AWASTHY JM : ITA NOS. 1081 & 1082/PN/2013 FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 ARE DIRECTED AGAINST THE ORDER OF COMMISSION ER OF INCOME TAX (APPEALS)-IT/TP PUNE DATED 12-03-2013 COM MON FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05. THE DEPARTMEN T HAS FILED CROSS APPEALS IN ITA NOS. 1108 & 1109/PN/2013 FOR THE A SSESSMENT YEARS 2003-04 AND 2004-05 RESPECTIVELY AGAINST THE SA ME ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). THE ASSESSEE HAS A LSO FILED CROSS OBJECTIONS I.E. CO NOS. 58 & 59/PN/2014 AGAINST TH E APPEALS FILED BY THE REVENUE. SINCE THE ISSUES RAISED IN THE APPEALS AND CROSS APPEALS BY THE ASSESSEE AND THE REVENUE IN THE IMPUGNED ASSESSMENT Y EARS ARE COMMON AND ARE ARISING FROM THE SAME SET OF FACTS THESE APPEALS AND CROSS OBJECTIONS ARE TAKEN UP TOGETHER FOR ADJUDICATION AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. FOR THE SAKE OF CONVENIENCE WE ARE TAKING FACTS FROM ITA NO. 1081/PN/2013. THE BRIEF FACTS OF THE CASE AS EMANATING FR OM RECORDS ARE: THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE COMPANIES ACT 1956 AND IS ENGAGED IN MANUFACTURING AND SALE OF PASSENGE R CARS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 20 03-04 ON 31-10-2003 DECLARING INCOME OF RS.10 64 66 730/-UNDER THE P ROVISIONS OF SECTION 115JB OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT). THE CASE OF THE ASSESSEE WAS SELECTED FOR S CRUTINY AND ACCORDINGLY FIRST NOTICE U/S. 143(2) WAS ISSUED TO THE ASSE SSEE ON 4 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 18-10-2004. DURING THE COURSE OF SCRUTINY ASSESSMENT P ROCEEDINGS THE ASSESSING OFFICER MADE CERTAIN ADDITIONS/DISALLOWANCES IN THE INCOME RETURNED BY THE ASSESSEE AND ASSESSED THE TOTAL INCO ME AT RS.36 26 96 920/- UNDER THE NORMAL PROVISIONS OF THE ACT A ND ASSESSED BOOK PROFITS U/S. 115JB OF THE ACT AT RS.28 17 75 970/-. T HE ASSESSEE DURING THE PERIOD RELEVANT TO ASSESSMENT YEARS UNDER A PPEAL HAD UNDERTAKEN INTERNATIONAL TRANSACTIONS FOR WHICH REFERENCE WAS MADE TO TPO. THE TPO MADE UPWARD ADJUSTMENT OF RS.14 400 330/- ON ACCOUNT OF PAYMENT OF ROYALTY. THE ASSESSING OFFICER WHILE M AKING ASSESSMENT DISALLOWED ROYALTY PAYMENT AS WELL. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30-03-2006 T HE ASSESSEE PREFERRED APPEALS BEFORE THE COMMISSIONER OF INC OME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) PARTLY A CCEPTED THE CONTENTIONS OF THE ASSESSEE AND DELETED SOME OF THE ADDITIONS / DISALLOWANCES MADE BY THE ASSESSING OFFICER DURING THE ASSE SSMENT PROCEEDINGS. NOW THE ASSESSEE AND THE REVENUE BOTH A RE IN APPEAL BEFORE THE TRIBUNAL. 3. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN APPEAL FOR ASSESSMENT YEAR 2003-04. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED CIT(A) HAS ER RED ON THE FOLLOWING GROUNDS WHICH ARE INDEPENDENT OF AND WITHOUT PREJU DICE TO EACH OTHER: 1. IN COMPUTING THE BOOK PROFITS UNDER SECTION 115J B OF THE ACT THE LEARNED CIT(A) ERRED IN CONSIDERING THE PROVISION F OR COMPENSATION PAYABLE TO MODULE SUPPLIERS OF RS.1 11 33 418 AS NO T AN ASCERTAINED LIABILITY AND THEREBY UPHOLDING THE ADDITION MADE B Y THE LEARNED ASSESSING OFFICER FOR COMPUTATION OF THE BOOK PROFI TS UNDER SECTION 115JB OF THE ACT. 5 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 THE APPELLANT PRAYS THAT THE ABOVE ADDITION MADE I N COMPUTATION OF THE BOOK PROFIT OF THE APPELLANT BE DELETED FOR A.Y . 2003-04. 2. IN COMPUTING THE BOOK PROFITS UNDER SECTION 115J B OF THE ACT AFTER CORRECTLY ALLOWING THE DEDUCTION FOR OCTROI WRONGL Y ADDED BY THE LEARNED ASSESSING OFFICER THE LEARNED CIT(A) ERRED IN HOLDING THAT AN AMOUNT OF RS.1 39 78 291 REPRESENTING PROVISION / E XPENDITURE TOWARDS OCTROI HAS BEEN DEDUCTED TWICE BY THE APPEL LANT AND THEREBY DIRECTING THE LEARNED ASSESSING OFFICER TO ADD THE AMOUNT OF RS.1 39 78 291 ONCE IN THE BOOK PROFITS FOR A.Y. 20 03-04. THE APPELLANT PRAYS THAT THIS ERRONEOUS ADDITION IN COMPUTATION OF THE BOOK PROFITS OF THE APPELLANT FOR A.Y. 2003-04 BE DELETED. THE APPELLANT PRAYS LEAVE TO ADD ALTER VARY OMIT SUBSTITUTE AMEND OR DELETE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL SO AS TO ENABLE THE HON'BLE TRIBUNAL TO DECIDE THIS APPEAL ACCORDING TO THE LAW. IN ASSESSMENT YEAR 2004-05 ADDITIONS WERE MADE BY THE ASSESSING OFFICER IN THE INCOME RETURNED BY THE ASSESSEE ON SIMILAR GROUNDS. THE APPEALS OF THE ASSESSEE FOR ASSESSMENT YEARS 2003 -04 AND 2004-05 WERE DECIDED BY THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE COMMON ORDER. THE ASSESSEE IN ITS APPEAL FOR ASSE SSMENT YEAR 2004-05 BEFORE THE TRIBUNAL HAS RAISED SOLITARY ISSUE WHICH IS IDENTICAL TO GROUND NO. 1 RAISED IN THE APPEAL FOR ASSESSMENT YEAR 2003-04. THE APPEALS BY THE ASSESSEE AND THE REVENUE ARE TAKEN UP IN SERIATIM FOR ADJUDICATION. FIRST THE APPEALS OF THE ASSESSEE ARE TAKE N UP FOR ADJUDICATION FOLLOWED BY THE APPEALS BY THE REVENUE AND T HEN THE CROSS OBJECTIONS. 6 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 ITA NOS. 1081 & 1082/PN/2013 (APPEALS BY ASSESSEE) 4. SHRI R.R. VORA AND SHRI PRAMOD ACHUTHAN APPEARING ON B EHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH CERTAIN SUPPLIERS (FOUR IN NUMBERS) WHEREBY THE ASSESSEE WAS REQUIRED TO PURCHASE MINIMUM QUANTITY OF M ATERIAL USED FOR MANUFACTURING CARS. IN CASE OF ANY SHORTFALL IN PROCURING ASSURED MINIMUM QUANTITY THE ASSESSEE WAS REQUIRED TO COMPENSAT E THE SUPPLIERS FOR SHORTFALL. AS THE QUANTITY PURCHASED BY TH E ASSESSEE DURING ASSESSMENT YEARS 2003-04 AND 2004-05 WAS LESS THAN THE MINIMUM COMMITTED QUANTITY THE ASSESSEE MADE PROVISION FOR COMPENSATION PAYABLE TO THE SUPPLIERS. DURING SCRUTINY A SSESSMENT PROCEEDINGS THE ASSESSING OFFICER HELD THAT THE PROVISIONS CREATED FOR PAYMENT OF COMPENSATION TO MODULE SUPPLIERS IS CONTINGENT LIABILITY AND ADDED BACK THE AMOUNT WHILE CALCULATING BOOK PROFIT U/ S. 115JB OF THE ACT. DURING THE FIRST APPELLATE PROCEEDINGS THE COMM ISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ADDITION MADE BY ASSESS ING OFFICER ON THE GROUND THAT THE ASSESSEE HAS NOT SUBMITTED TH E DETAILS IN RESPECT OF ACTUAL PAYMENT MADE TO THE SUPPLIERS AND BAS IS FOR CREATING SUCH PROVISION. THE COMMISSIONER OF INCOME TAX (APPEALS) FUR THER OBSERVED THAT SUCH AMOUNTS ARE MOSTLY UNDER DISPUTE AND ARE PAID AFTER RESOLUTION OF THE DISPUTE. HENCE THE LIABILITY IS CONTING ENT IN NATURE. THE OBSERVATIONS MADE BY THE COMMISSIONER OF I NCOME TAX (APPEALS) ARE AGAINST THE FACTS OF THE CASE. THERE ARE FOU R SUPPLIERS AND THE ASSESSEE HAD GIVEN THE DETAILS OF PAYMENTS TO ALL THE SUPPLIERS. 4.1 THE LD. AR SUBMITTED THAT THE ASSESSEE WAS LIABLE TO PAY COMPENSATION TO THE MODULE SUPPLIERS AS PER THE TERMS O F THE 7 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 AGREEMENT ENTERED INTO WITH THE RESPECTIVE MODULE SUPPLI ERS. THE ASSESSEE WAS LIABLE TO COMPENSATE THE SUPPLIERS IN CASE O F SHORTFALL IN PROCURING MINIMUM AGREED QUANTITY. THUS THE LIABILITY WAS CONTRACTUAL. THE PAYMENT MADE BY THE ASSESSEE IN DISCHARGE OF LIAB ILITY HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER. THE AUDI TORS IN THE AUDIT REPORT HAVE NOT QUALIFIED THE LIABILITY AS CONTINGENT IN NATURE. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAD MADE PROVISION OF RS.1 11 33 418/-FOR ASSESSMENT YEAR 2003-04 RS.78 37 457/ - FOR ASSESSMENT YEAR 2004-05 AND RS.2 53 03 903/- FOR ASSES SMENT YEAR 2005-06 THUS TOTAL PROVISION FOR 3 YEARS CREATED BY THE ASSESSEE WAS RS.4 42 74 778/-. AGAINST THE SAID PROVISION THE ASSESSEE MADE ACTUAL PAYMENT OF RS.4 69 19 753/-. THUS THE ACTUAL PAYMENT MA DE IS HIGHER THAN THE PROVISION CREATED BY THE ASSESSEE. 4.2 THE LD. AR FURTHER REFERRED TO THE DEFINITION OF 'PROVIS ION' AND 'RESERVE' AS GIVEN IN ITEM 7(1) OF INTERPRETATIONS FORMING PART III TO SCHEDULE VI OF THE COMPANIES ACT 1956 AND ASSERTED TH AT THE PROVISIONS REPRESENT AMOUNT SET-ASIDE FOR A KNOWN LIAB ILITY EVEN IF THE AMOUNT FOR SAME CANNOT BE DETERMINED WITH SUBSTANTIAL AC CURACY. SUCH AMOUNT IS SPECIFICALLY EXCLUDED FROM THE DEFINITION OF 'RE SERVE'. IN THE LIGHT OF DEFINITION OF PROVISION AND RESERVE GIVEN UN DER THE PROVISIONS OF COMPANIES ACT 1956 THE PROVISION FOR COMPEN SATION TO MODULE SUPPLIER IS A PROVISION AS DEFINED IN COMPANIES ACT 1 956 AND NOT A CONTINGENT LIABILITY. THE LD. AR FURTHER SUBMITTED THA T IN CASE OF CONTRACTUAL LIABILITY WHERE THERE IS DISPUTE WITH RESPECT TO QUANTUM OF LIABILITY AND NOT WITH RESPECT TO INCURRENCE OF LIABILITY THE COURTS HAVE HELD THAT IF SUCH LIABILITY HAS BEEN ESTIMATED AT LEAST PROV ISIONALLY THE 8 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 SAME MAY BE ALLOWED FOR DEDUCTION IN THE YEAR OF CLAIM DES PITE THE DISPUTE IS NOT SETTLED. IN SUPPORT OF HIS SUBMISSIONS THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS : I. BHARAT EARTH MOVERS VS. CIT 245 ITR 0428 (SC); II. CIT VS. HEWLETT PACKARD INDIA (P) LTD. 314 ITR 55 (DEL. HC); III. CIT VS. H.P. TOURISM DEVELOPMENT CORPORATION LTD. 35 TAXMANN.COM 450 (HP). 4.3 THE LD. AR FURTHER POINTED THAT THE ASSESSING OFFICER HAS MADE SUCH DISALLOWANCE ONLY IN THE ASSESSMENT YEARS 2003-04 TO 2005-06 ONLY. THEREAFTER NO DISALLOWANCE HAS BEEN MADE IN THE SU BSEQUENT ASSESSMENT YEARS ON ACCOUNT OF PROVISION FOR COMPENSATIO N TO MODULE SUPPLIERS. 5. IN RESPECT OF GROUND NO. 2 RAISED IN THE APPEAL FOR TH E ASSESSMENT YEAR 2003-04 THE LD. AR CONTENDED THAT THE ASSESSEE HAD SET UP ITS MANUFACTURING UNIT IN AREA FALLING UNDER PIMPRI CHIN CHWAD MUNICIPAL CORPORATION (PCMC). WHEN THE ASSESSEE HAD ESTA BLISHED ITS UNIT THE AREA WAS BACKWARD AND THE PCMC GAVE OCTROI C ONCESSION TO THE ASSESSEE. THE ASSESSEE WAS PAYING OCTROI @ 1.25%. IN AUGUST 2001 PCMC ISSUED NOTICE TO THE ASSESSEE STATING THAT C LASSIFICATION OF GOODS BY THE ASSESSEE WAS INCORRECT AND HENCE OCTROI @ 2% IS LEVIABLE FROM 4 APRIL 2000. THE ASSESSEE DISPUTED THE EXCESS LIAB ILITY PROPOSED BY PCMC. HOWEVER THE ASSESSEE CREATED A PROVISION OF RS.1 32 06 642/- TILL 31-03-2002 AT THE RATES MENTIONED B Y THE PCMC. THE PROVISION WAS INCREASED TO RS.1 39 78 291/- BY CREA TING ADDITIONAL 9 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 PROVISION OF RS.7.71 LAKHS IN THE BOOKS OF ACCOUNT FOR ASS ESSMENT YEAR 2003-04. 5.1 DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICE R ADDED BACK THE AMOUNT OF PROVISION FOR OCTROI IN CALCULATING BOOK PROFITS U/S. 115JB OF THE ACT BY TREATING IT AS CONTINGENT LIABILITY. FURT HER THE ASSESSING OFFICER HAS SEPARATELY ADDED THE OCTROI EXPENS E RECORDED IN THE PROFIT AND LOSS ACCOUNT WHILE CALCULATING BOOK PROFITS U /S. 115JB AS THE SAME WAS NOT PAID TILL THE DATE OF FILING OF RETURN OF INCOME. THUS THERE WAS DOUBLE DISALLOWANCE OF THE SAME AMOUNT IN ASSESSMENT YEAR 2003-04. IN ASSESSMENT YEAR 2004-0 5 SAID PROVISION WAS REVERSED AND RE-RECORDED AT THE END OF YEAR. SUCH RE-RECORDED PROVISION WAS AGAIN DISALLOWED IN ASSESSMENT YEAR 2004-05. THUS THE SAME AMOUNT GOT DISALLOWED THRICE. THE ASSESSEE FILED A RECTIFICATION APPLICATION FOR THE ADDITION OF EXPENDITURE/ PROVISION OF OCTR OI MADE TWICE IN THE ASSESSMENT ORDER BEING A MISTAKE APPARENT FROM RECORD. HOWEVER THE ASSESSING OFFICER REJECTED THE PLEA OF THE ASSESSEE. IN FIRST APPEAL THE COMMISSIONER OF INCOME TAX (APPEALS) AGREED IN PRINCIPLE THAT LIABILITY IS ASCERTAINED BUT SOMEHOW GOT WRONG IMPRESS ION THAT THE ASSESSEE HAS CLAIMED DOUBLE DEDUCTION. THE COMMISSIONER O F INCOME TAX (APPEALS) FAILED TO CONSIDER THE FACT THAT THE ASSESSEE HAS PASSED REVERSE ENTRY. 5.2 THE LD. AR CONTENDED THAT IN VIEW OF THE FACT THAT TH E OCTROI EXPENDITURE HAS BEEN DEBITED TO THE PROFIT AND LOSS AC COUNT ONLY ONCE IN ASSESSMENT YEAR 2003-04 AND THE NET EFFECT OF ENTRIES PASSED BY THE ASSESSEE IN ASSESSMENT YEARS 2004-05 AND 2005-06 IS NIL NO 10 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 ADDITIONAL PROVISION WAS CREATED IN ASSESSMENT YEARS 2004 -05 AND 2005-06. THE LD. AR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY HELD THE PROVISION FOR OCTROI TO BE D EDUCTIBLE FOR THE PURPOSE OF CALCULATION OF MAT LIABILITY HOWEVER DUE TO S OME MISUNDERSTANDING DENIED BENEFIT TO THE ASSESSEE. 6. ON THE OTHER HAND SHRI RAJEEV KUMAR REPRESENTING T HE DEPARTMENT SUBMITTED THAT THE ASSESSEE HAD NOT FURNISH ED COMPLETE DETAILS IN RESPECT OF PROVISION OF COMPENSATION PAYABLE TO M ODULE SUPPLIERS. IN THE ABSENCE OF COMPETE DOCUMENTS THE ASS ESSING OFFICER WAS NOT IN A POSITION TO ASCERTAIN WHETHER THE LIABILITY IS CONTINGENT OR ASCERTAINED. FURTHER THERE IS NO SCIENTIFIC BASIS FOR ASCER TAINING THE LIABILITY. IN RESPECT OF GROUND NO. 2 RELATING TO PROVISION FOR OCTROI PAYMENT THE LD. DR FAIRLY ADMITTED THAT THERE SEEMS TO B E CERTAIN CONFUSION IN UNDERSTANDING THE GAMUT OF PAYMENT AND THE PROVISION CREATED BY THE ASSESSEE. THE LD. DR SUBMITTED THAT THE ISSUE CAN BE REMITTED BACK TO THE COMMISSIONER OF INCOME TAX (APPEALS) FOR VERIFICATION. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE LD. AR OF T HE ASSESSEE HAS PLACED RELIANCE TO SUPPORT HIS CONTENTIONS. THE FIRST GROUND RAISED BY THE ASSESSEE IN APPEAL IS WITH RESPECT TO PROVISION FOR COMPENSATION PAYABLE TO MODULE SUPPLIER. THE QUESTION THAT HAS BEEN R AISED BEFORE US FOR ADJUDICATION IS; WHETHER PROVISION FOR COMPENSATION MADE BY ASSESSEE FOR MAKING PAYMENTS TO MODULE SUPPLIER IS FOR CO NTINGENT OR 11 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 ASCERTAINED LIABILITY? IT HAS BEEN CONTENDED THAT THE AS SESSEE HAS CREATED PROVISION FOR COMPENSATION PAYABLE TO MODULE SUPP LIER ON THE BASIS OF AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE A ND THE MODULE SUPPLIER. AS PER AGREEMENT THE ASSESSEE WAS REQUIRED T O PURCHASE MINIMUM AGREED QUANTITY OF MATERIAL FROM THE SUPPLIER. IN CA SE OF ANY SHORT FALL IN PROCURING ASSURED MINIMUM QUANTITY THE ASSES SEE WAS REQUIRED TO COMPENSATE THE SUPPLIER FOR SHORTFALL. THE ASS ESSEE HAS GIVEN DETAILS OF ACTUAL PAYMENT MADE TO MODULE SUPPLIER AS COMPENSATION DURING THE PERIOD RELEVANT TO THE ASSESSME NT YEARS 2003-04 2004-05 AND 2005-06. THE DETAILS OF THE SAME ARE AS UNDE R : SR. NO. BANK PAYMENT DATE OF AMOUNT (RS.) DOCUMENT NO . PAYMENT 1 1304053 01 . 09 . 2003 22 20 003 2 1303138 10 . 07 . 2003 24 63 213 3 1303138 10 . 07 . 2003 8 73 932 4 1302550 10.06.2003 8 45 776 5 1303273 16 . 06 . 2003 3 82 436 6 1303937 03 . 09 . 2004 29 90 114 7 1304506 13 . 10 . 2004 10 95 708 8 1304930 04 . 11 . 2004 4 07 021 9 1302 1 50 17 . 05 . 2004 13 83 259 10 1302247 21 . 05 . 2004 19 90 739 11 1303282 30.07 . 2004 13 52 891 12 1303262 30.07.2004 17 56 553 13 1304688 28 . 10.2004 7 61 933 14 1302751 02 . 06.2005 45 33 741 15 1302805 07 . 06 . 2005 28 31 473 16 1303035 20 . 06.2005 73 19 702 17 1304166 30 . 08 . 2005 28 47 390 18 1305657 25 . 11 . 2005 3 35 550 19 1304450 13.09 . 2005 58 61 516 20 1304451 13.09 . 2005 42 52 793 21 1304166 30 . 08.2005 4 14 010 TOTAL PAYMENTS (1 TO 21) 4 69 19 753 THE ASSESSEE HAS CREATED THE PROVISION DURING THE ASSE SSMENT YEARS UNDER APPEAL ON ACCOUNT OF COMPENSATION PAYABLE TO MODULE SUPPLIERS AS UNDER : 12 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 ASSESSMENT YEAR AMOUNT 2003 - 04 RS. 1 11 33 418/ - 2004 - 05 RS. 78 37 457/ - 2005 - 06 RS. 2 53 03 903/ - THUS AS AGAINST THE PROVISION OF RS.4 42 74 778/- THE ASSE SSEE HAS MADE ACTUAL PAYMENT OF RS.4 69 19 753/-. 8. THE LD. AR OF THE ASSESSEE HAS DRAWN OUR ATTENTION TO THE DEFINITION OF PROVISION AND RESERVE AS DEFINED IN INTERPR ETATIONS FORMING PART III TO SCHEDULE VI OF COMPANIES ACT 1956. T HE SAME ARE REPRODUCED HERE-IN-BELOW : (A) THE EXPRESSION PROVISION SHALL SUBJECT TO S UB-CLAUSE (2) OF THIS CLAUSE MEAN ANY AMOUNT WRITTEN OFF OR RETAINED BY WAY OF PROVIDING FOR DEPRECIATION RENEWALS OR DIMINUTION IN VALUE OF ASS ETS OR RETAINED BY WAY OF PROVIDING FOR ANY KNOWN LIABILITY OF WHICH T HE AMOUNT CANNOT BE DETERMINED WITH SUBSTANTIAL ACCURACY; (B) THE EXPRESSION RESERVE SHALL NOT SUBJECT AS AFORESAID INCLUDE ANY AMOUNT WRITTEN OFF OR RETAINED BY WAY OF PROVIDING FOR DEPRECIATION RENEWALS OR DIMINUTION IN VALUE OF ASSETS OR RETAIN ED BY WAY OF PROVIDING FOR ANY KNOWN LIABILITY; A BARE PERUSAL OF THE DEFINITION OF PROVISION WOULD SHOW T HAT THE PROVISION INCLUDES ANY AMOUNT SET APART FOR ANY KNOWN LIAB ILITY. THE AMOUNT THEREOF MAY NOT HAVE BEEN DETERMINED WITH SUBS TANTIAL ACCURACY BUT INCURRENCE OF LIABILITY IS MUST. 13 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 9. IN THE PRESENT CASE THE LIABILITY FOR PAYMENT OF COMPEN SATION TO THE MODULE SUPPLIER HAS ARISEN OUT OF AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND MODULE SUPPLIER. THUS THE LIABILITY TO COM PENSATE IS CONTRACTUAL IN NATURE. FURTHER THE LIABILITY TO COMPENSAT E ARISES WHEN ASSESSEE FAILS TO PROCURE MINIMUM AGREED QUANTITY OF MATER IAL FROM THE SUPPLIER. THE COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMP UGNED ORDER HAS GIVEN A FINDING THAT THE ASSESSEE HAS NOT FUR NISHED THE BASE ON WHICH THE PROVISION WAS CREATED. WHEN THE LD. AR WAS CONFRONTED WITH THIS FINDING OF COMMISSIONER OF INCOME TAX (APPEALS) THE LD. AR ADMITTED THAT IF AN OPPORTUNITY IS AFFORDED THE ASSESSEE C AN PRODUCE ALL THE RELEVANT DOCUMENTS AVAILABLE IN SUPPORT OF ASSESSE ES CLAIM. THE LD. AR FAIRLY ADMITTED THAT AT THE TIME OF ASSESSMENT THE ASSESSEE COULD NOT FURNISH COMPLETE DETAILS IN RESPECT OF MODULE SUPP LIER. HOWEVER NOW THE ASSESSEE IS IN A POSITION TO FURNISH COMP LETE MATERIAL TO SUBSTANTIATE ITS CLAIM. WE FURTHER FIND THAT THE COMMISS IONER OF INCOME TAX (APPEALS) HAS REMARKED THAT SUCH AMOUNTS AR E MOSTLY UNDER DISPUTE AND ARE PAID AFTER RESOLUTION OF THE SAME. THE OBSERVATION MADE BY THE COMMISSIONER OF INCOME TAX (APPE ALS) IN THE PRESENT CASE ARE GENERIC AND OUT OF CONTEXT. THERE IS NOTHING ON RECORD TO SHOW THAT THERE WAS ANY DISPUTE BETWEEN THE ASSES SEE AND MODULE SUPPLIER. THE LIABILITY WAS ASCERTAINED AND HAD TO BE DISCHA RGED IN VIEW OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE MO DULE SUPPLIER. THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF BHARA T EARTH MOVERS VS. COMMISSIONER OF INCOME TAX (SUPRA) HAS HELD THAT IF A BU SINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR DEDUCTIO N SHOULD BE ALLOWED EVEN IF THE LIABILITY MAY NOT HAVE BEEN QUANTIFIED AND IS DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF 14 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 THE LIABILITY. ACTUAL QUANTIFICATION OF LIABILITY CAN BE DONE AT A LATER DATE. 10. THUS IN VIEW OF THE FACTS OF THE CASE WE ARE CONSIDERE D VIEW THAT THIS ISSUE NEEDS REVISIT TO THE FILE OF COMMISSIONER OF INCOME TAX (APPEALS) TO EXAMINE AGREEMENT BETWEEN THE ASSESSEE AND MODULE SUPPLIER AND DETERMINE THE VERACITY OF PAYMENTS MADE. IN SO FAR AS NATURE OF LIABILITY IS CONCERNED WE HAVE ALREADY HELD THAT IF IT IS ARISING FROM THE AGREEMENT THE SAME IS ASCERTAINED. ACCORDINGL Y GROUND NO. 1 RAISED IN THE APPEAL BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 11. IN GROUND NO. 2 THE ASSESSEE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN HOLDING THAT AN AMO UNT OF RS.1 39 78 291/- REPRESENTING PROVISION TOWARDS OCTROI HAS BEEN DEDUCTED TWICE. IT HAS BEEN ASSERTED THAT THE COMMISS IONER OF INCOME TAX (APPEALS) IN PRINCIPLE HAS HELD THAT LIABILITY IN RESPECT O F OCTROI PAYMENT IS ASCERTAINED AND IS DEDUCTABLE FOR CALCULATION OF MAT LIABILITY. THE OBSERVATIONS OF THE COMMISSIONER OF INCOME TAX (APPEALS) THAT THE ASSESSEE HAS CLAIMED THE SAME AMOUNT AS PROV ISION FOR OCTROI AS WELL AS EXPENDITURE FOR OCTROI ON APPROVAL BASIS ARE AG AINST FACTS ON RECORD. THE LD. AR HAS CONTENDED THAT THE ENTRY IN RES PECT OF OCTROI CREATING PROVISION IN THE BEGINNING OF THE FINANCIAL YEAR HAS BEEN REVERSED AT THE END OF THE FINANCIAL YEAR THUS THERE IS NO DOUBLE CLAIM. THE LD. DR HAS ALSO ADMITTED THAT THERE SEEMS TO BE SOM E ERROR IN UNDERSTANDING THE ISSUE BY THE COMMISSIONER OF INCOME TAX (APPEALS ). 15 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 11.1 IN VIEW OF SUBMISSIONS MADE BY RIVAL SIDES WE ARE OF CONSIDERED VIEW THAT THIS ISSUE NEEDS A REVISIT TO THE FILE OF COMMISSIO NER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APP EALS) SHALL DECIDE THE ISSUE DE NOVO AFTER VERIFICATION AND PROPER AP PRECIATION OF FACTS AND RECORDS. ACCORDINGLY GROUND NO. 2 RAISED IN TH E APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 2003-04 IS ALLOWED FOR STATISTICAL PURPOSE. 12. IN THE RESULT THE APPEALS OF THE ASSESSEE FOR IMPUGNED ASSESSMENT YEARS ARE ALLOWED FOR STATISTICAL PURPOS E. ITA NOS. 1108 & 1109/PN/2013 (REVENUES APPEAL) 13. NOW WE PROCEED ON TO DECIDE THE APPEALS FILED BY THE REVENUE. THE GROUNDS RAISED BY THE REVENUE IN APPEAL FOR ASSESS MENT YEAR 2003-04 ARE AS UNDER : ON THE ISSUE OF USE OF CONTROLLED TRANSACTION 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS CORRECT IN LAW I) WHEN HE IMPLICITLY REJECTED THE DIRECT METHOD OF COMPARABLE UNCONTROLLED PRICE UNDER RULE 10B(1)(A) FOR THE EVALUATION OF THE INTERNATIONAL TRANSACTION OF THE PAYMENT OF ROYALTY & SEEMS TO HAVE PREFERRED AGGREGATED TRANSACTION NET MARGIN METHOD UNDER RULE 10B(1)(E) A INDIRECT METH OD WHILE EVALUATING THE ARMS LENGTH PRICE WHICH WAS R EJECTED BY HIM FOR A.Y. 2005-06 (AND IN A.Y. 2008-09 AS PAR T OF THE DISPUTE RESOLUTION PANEL); II) BY REJECTING THE CUP A DIRECT METHOD FOR WORKI NG OUT THE ARM'S LENGTH OF THE INTERNATIONAL TRANSACTION AND UNCONTROLLED TRANSACTION; WHICH PROVIDES FOR INSTAN T COMPARISON OF THE PRICES OF THE PRODUCTS/SERVICES; 16 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 III) WHEN THE DECO GUIDELINES IN PARA 1.70 CLEARLY SUGGESTS THAT 'AN ATTEMPT SHOULD BE MADE TO REACH A REASONAB LE ACCOMMODATION KEEPING IN MIND THE IMPRECISION OF TH E VARIOUS METHODS AND THE PREFERENCE FOR HIGHER DEGRE ES OF COMPARABILITY AND A MORE DIRECT AND CLOSER RELATION SHIP TO THE TRANSACTION? ON THE ISSUE OF CONSISTENCY. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) WAS CORRECT IN LAW I) WHEN THE ASSESSEE COMPANY ITSELF HAS PROVIDED SE PARATE BENCHMARKING AND DETAILED INFORMATION REGARDING THE ROYALTY PAYMENT IN THE LATER YEARS; II) WHEN EACH YEAR SHOULD BE TREATED SEPARATELY BAS ED ON THE FACTS AND DOCUMENTATION SUBMITTED; (AS PER THE RATI O LAID DOWN IN THE CASE OF M/S. ONWARD TECHNOLOGIES VS. DC IT DATED 30.04.2013 APPEAL NO. ITA NO. 7985/MUM/2010 OF ITAT MUMBAI) 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) WAS JUSTIFIED IN TREATING THE ROYALTY PA YMENT OF RS.2 16 00 495/- AS REVENUE EXPENDITURE WHEN THE AS SESSEE HAS ACQUIRED ENDURING BENEFIT AS IT WAS CONFERRED MANUF ACTURING RIGHTS AS WELL AS COPYRIGHTS FOR TECHNICAL PRODUCT DOCUMENTATION ETC AND FURTHER WHEN THE HON'BLE DRP WHILE DECIDING THE CASE FOR AY. 2007-08 HAS ALSO UPHELD THIS TREATMENT GIVEN TO ROYALTY PAYMENT I.E. HAS HELD THAT ROYALTY PAYMENT IS OF CA PITAL NATURE. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) WAS JUSTIFIED IN DIRECTING THE A .O. TO ALLOW PROJECT ASSISTANCE TECHNICAL CHARGES AS DEDUCTIBLE EXPENDITURE U/S. 37(1) OF THE ACT WHEN THE ASSESSEE HAS NOT BE EN ABLE TO PROVE THE BASIS OF SUCH PAYMENT THE NATURE OF SERV ICE RENDERED BY THE EXPATRIATES AND ALSO WHEN THE PAYMENT WERE N OT MADE IN ACCORDANCE WITH THE PROJECT ASSISTANCE AGREEMENT DA TED 11/12/1994. 17 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) WAS JUSTIFIED IN DELETING ADDITION MADE ON ACCOUNT OF HOMOLOGATION EXPENSES WITHOUT CALLING FOR SUCH DET AILS IN SUPPORT OF ITS CLAIM AND REMANDING THE MATTER TO THE A.O. 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) WAS JUSTIFIED IN DIRECTING THE A.O. TO V ERIFY THE EVIDENCES FURNISHED BEFORE HIM AND DECIDE THE ADMIS SIBILITY OF THE CLAIM OF EXPENDITURE OF CAPITALIZED CARS WHEN THE ASSESSEE WAS GIVEN SUFFICIENT OPPORTUNITY TO FURNISH SUCH DETAIL S DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE ASSESSEE COULD NOT PRODUCE ANY MATERIAL EVIDENCE TO SUBSTANTIATE USE O F CAR WAS FULLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. 7. THE APPELLANT CRAVES LEAVE TO ADD AMEND OR ALTE R ANY OF THE ABOVE GROUNDS OF APPEAL. IN APPEAL FOR ASSESSMENT YEAR 2004-05 THE REVENUE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) BY RAISING SIMILAR GROUNDS. 14. THE LD. DR IN RESPECT OF GROUND NOS. 1 AND 2 SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN REJECTIN G CUP AS THE MOST APPROPRIATE METHOD FOR DETERMINING ARMS LENGT H PRICE OF INTERNATIONAL TRANSACTION IN RESPECT OF PAYMENT OF ROYALTY. THE TPO HAD REJECTED TNMM ADOPTED BY THE ASSESSEE TO BENCHM ARK ITS INTERNATIONAL TRANSACTIONS GIVING DETAILED REASONS. THE RE ASONS FOR REJECTING ASSESSEES WORKING OF ALP IN RESPECT OF RATE OF ROYALTY SUMMARIZED BY TPO ARE AS UNDER : (A) AS MENTIONED IN THE INTERNAL DOCUMENTS OF THE COM PANY SUBMITTED DURING THE HEARING OF THE CASE THE DC AG HAD PROPOSED A ROYALTY RATE OF 3%. 18 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 (B) MARUTI UDYOG LTD. IS PAYING ROYALTY @3%. (C) THE NET PROFIT MARGIN EARNED BY THE COMPANY IS LESS THAN THE AVERAGE OF THE NET PROFIT MARGINS EARNED BY THE COMPARABLE COMPANIES. (D) THE SUBMISSION OF THE COMPANY THAT THE REVISE D ROYALTY RATE @5% AS AGAINST 2.75% AS PER THE EARLIER AGRE EMENT RESULTED INTO SAVINGS IS NOT ACCEPTABLE FOR THE REASONS GIVE N IN THIS ORDER. (E) THE COMPANY DID NOT SUBMIT THE ROYALTY RATES C HARGED BY DCAG FROM OTHER ASSOCIATED ENTITIES/INDEPENDENT ENT ERPRISES. IT ALSO DID NOT SUBMIT THE TRANSFER PRICES TO OTHER EN TITIES IN RESPECT OF IMPORTED COMPONENTS. IN ABSENCE OF THESE DETAIL S FILED BY THE COMPANY IT IS NOT POSSIBLE TO VERIFY WHETHER DOUB LE DEDUCTION IS BEING ALLOWED BY DC INDIA FOR THE PROVISION OF TECH NOLOGY BY DCAG. THE COMPANY IS IMPORTING ITS MAJOR PORTION OF RAW MATERIAL/COMPONENT FROM ASSOCIATED ENTITIES ONLY. CONSIDERING THIS THE ARMS LENGTH ROYALTY RATE IS ADOPTED AT 3% AS AGAINST 5% OF THE ASSESSEE. THE ROYALTY PAYMENT @3% WORKS OUT TO RS.21 600 495/- AS AGAINST RS.36 000 825/-. UNDER THE PROVISIONS OF INCOME TAX ACT IT IS A WELL SETTLED LAW THAT THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY. EACH ASSESSMENT YEAR IS TO BE CONSIDERED SEPARATELY AND THE ASSESSMENT HAS TO BE MADE ON THE FACTS AND DOCUMENTS AVAILABLE ON RECORD FOR EACH ASS ESSMENT YEAR. THE LD. DR STRONGLY DEFENDED THE ORDER OF TPO AND PRAYE D FOR REVERSING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) WITH RESP ECT TO MOST APPROPRIATE METHOD FOR DETERMINING THE ALP IN THE C ASE OF ASSESSEE. IN RESPECT OF OTHER GROUNDS RAISED IN THE A PPEAL THE LD. DR VEHEMENTLY SUPPORTED THE FINDINGS OF TPO. 19 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 15. PER CONTRA THE LD. AR CONTENDED THAT THE ASSESSEE ADOPTED COMBINED APPROACH AND SELECTED TNMM AS THE MOST APPRO PRIATE METHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS INCLUDIN G PAYMENT OF ROYALTY. BEFORE SELECTING TNMM AS THE MOST APPROPRIATE METHOD THE ASSESSEE CONDUCTED RESEARCH FOR SELECTING COMPARABLE CO MPANIES ON WIDELY RECOGNIZED COMMERCIAL DATABASES AVAILABLE IN PUBLIC D OMAIN. AFTER SELECTING 7 COMPARABLES THE ASSESSEE COMPUTED WEIG HTED AVERAGE MARGINS OF COMPARABLE COMPANIES WHICH IS 3.38% AS AGAINST M ARGIN OF ASSESSEE AT 4.16%. SINCE THE NET PROFIT MARGIN EARNED BY THE ASSESSEE WAS HIGHER THAN THE WEIGHTED AVERAGE MARGIN OF COMPARAB LE COMPANIES THE TRANSACTIONS INCLUDING PAYMENT OF ROYALTY W ERE CONCLUDED TO BE AT ARMS LENGTH PRICE. THE LD. AR FURTHE R SUBMITTED THAT SIMILAR ADDITION WAS MADE IN ASSESSMENT YEAR 2002-03 . IN FIRST APPEAL THE COMMISSIONER OF INCOME TAX (APPEALS) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE DEPARTMENT CARRIED THE ISSU E IN APPEAL BEFORE THE TRIBUNAL IN ITA NO. 1107/PN/2013. THE TRIBUNAL DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE LD. AR FURTHER CO NTENDED THAT IN ASSESSMENT YEAR 2003-04 THE TPO HAS MADE DISALLOWANC E OF 2% OF ROYALTY BASED ON THE RATE OF ROYALTY PAID BY MARUTI UDYO G LTD. (MUL) FOR ASSESSMENT YEAR 2002-03. MUL PAID ROYALTY @3% TO SUZ UKI IN ASSESSMENT YEAR 2002-03. THE TPO USED ROYALTY RATE O F 3% PAID BY MUL IN ASSESSMENT YEAR 2002-03 TO COMPARE IT WITH THE RATE OF ROYALTY PAID BY ASSESSEE IN ASSESSMENT YEARS 2003-04 AND 2004 -05. THE TPO SHOULD HAVE USED COMPARABLE DATABASES FOR THE RESPECTIV E ASSESSMENT YEARS. USING DATA OF EARLIER YEARS FOR COMPARISON IS BREAC H OF TRANSFER PRICING RULES. THE LD. AR POINTED OUT IN THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEARS 2007-08 TO 2011-12 THE TPO AND DRP HAS 20 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 ACCEPTED TNMM ADOPTED BY THE ASSESSEE TO BENCHMARK INTERNATIONAL TRANSACTIONS INCLUDING PAYMENT OF ROYALTY. 16. IN RESPECT OF GROUND NO. 3 RELATING TO RECHARACTERIZA TION OF ROYALTY PAYMENT (POST TP ADJUSTMENT) AS CAPITAL EXPENDITURE TH E LD. AR SUBMITTED THAT THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR IN APPEAL BY THE DEPARTMENT IN ITA NO. 1107/PN/2013 (SUPRA) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL HELD THAT TH E ASSESSEE HAS NOT ACQUIRED ANY ENDURING ADVANTAGE BY MAKING ROYA LTY PAYMENT. THUS PAYMENT OF ROYALTY WAS HELD TO BE REVENUE EXPENDITURE. 17. IN RESPECT OF GROUND OF NO. 4 RELATING TO DELETION OF D ISALLOWANCE OF PROJECT TECHNICAL ASSISTANCE FEES. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD ENTERED INTO PROJECT ASSISTANCE AGREEME NT WITH MERCEDES- BENZ PROJECT CONSULT GMBH (IN SHORT MBPC). THE ASSESS EE PAID PROJECT TECHNICAL ASSISTANCE FEES OF RS.6 64 84 000/- IN AS SESSMENT YEAR 2003-04 AND RS.9 57 75 964/- IN ASSESSMENT YEAR 20 04-05 AS PER AGREEMENT. THE ASSESSING OFFICER HELD THAT TECHNICAL SERVIC ES CHARGES PAID BY ASSESSEE TO MBPC IS INFACT PAYMENT FOR TECHNICAL KNOW-HOW. THE PAYMENT MADE BY ASSESSEE TO MBPC ON ACCOUNT OF P ROJECT TECHNICAL ASSISTANCE FEES IS IN RESPECT OF DEPUTATION OF VA RIOUS EXPERTS TO ASSIST ASSESSEE IN DEVELOPMENT AND QUALITY ASSURANCE DESIGN ADOPTION QUALITY ASSURANCE SALES & MARKETING AFTER SALES S ERVICES ETC. IN A YEAR WHERE NO EXPERTS WERE DEPUTED TO ASSESSEE BY MBPC NO TECHNICAL SERVICE CHARGES WERE PAID. THUS THE PAYMENT O F TECHNICAL SERVICE CHARGES HAS CORRELATION TO THE SERVICES PROVIDED BY MBPC TO ASSESSEE IN A FINANCIAL YEAR. THE EXPENDITURE OF TECHNICAL S ERVICE 21 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 CHARGES IS NOT FOR ANY INITIAL OUTLAY OR EXTENSION OF BUSINES S BUT IS INCURRED IN ORDER TO CONDUCT BUSINESS MORE EFFECTIVELY AN D PROFITABLY. THE FIXED CAPITAL OF ASSESSEE DOES NOT GET INCREASED OR ALTERED DUE TO INCURRENCE OF THIS EXPENDITURE AND NO NEW ASSET OR ADVA NTAGE/BENEFIT OF ENDURING NATURE COMES INTO EXISTENCE. THE PROJECT TE CHNICAL ASSISTANCE FEES IS REGARDED AS FEE FOR TECHNICAL SERVICES FOR TAX WITHHOLDING PURPOSES. THE ASSESSEE DEBITS THE FEE PAID IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD TECHNICAL SERVICE CHAR GES IN THE MANUFACTURING EXPENSES SCHEDULE. THE EXPENDITURE ON TEC HNICAL SERVICE CHARGES IS NOT IN THE NATURE OF CAPITAL EXPENDITUR E AND THE AUDITORS IN THE AUDIT REPORT HAVE NOT QUALIFIED THE EXPEND ITURE AS CAPITAL. THE ASSESSEE IS PAYING SERVICE TAX ON THE TECH NICAL SERVICE CHARGES UNDER THE CATEGORY MANAGEMENT CONSULTANTS UNDER THE REVERSE CHARGE MECHANISM SINCE MARCH 2003. THE LD. AR FURTHER SUBMITTED THAT THE ISSUE RELATING TO PROJECT TECHNICAL ASSISTANCE FEES- WHETHER CAPITAL OR REVENUE IN NATURE WAS RAISED BY THE REVENUE BEFORE THE TRIBUNAL IN ITA NO.1107/PN/2003 IN ASSESSMENT YEAR 2002-03. THE TRIBUNAL HELD THE EXPENDITURE ON ACCOUNT OF PROJECT TECHNICAL ASSISTANCE FEES TO BE REVENUE IN NATURE. THE LD. AR FUR THER SUBMITTED THAT SIMILAR EXPENDITURE WAS ALLOWED BY THE DRP AS REVENU E IN ASSESSMENT YEAR 2007-08 IN ASSESSEES OWN CASE. THE DEPARTMENT HAS NOT PREFERRED ANY APPEAL AGAINST THE SAID ORDER OF DRP. FURTHER FROM THE ASSESSMENT YEAR 2008-09 ONWARDS NO DISALLOWANCE IN RESPECT OF PROJECT TECHNICAL ASSISTANCE FEES HAS BEEN MADE DURING ASSESSMENT PROCEEDINGS. 22 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 18. IN RESPECT OF GROUND NO. 5 RAISED IN THE APPEAL BY TH E DEPARTMENT THE LD. AR SUBMITTED THAT THE TPO HAD MADE AD HOC DISALLOWANCE OF RS.10 00 000/- FROM HOMOLOGATION EXPENDITURE BY CONSIDERING THE SAME TO BE OF NON-BUSINESS/INFLATED EXPEND ITURE. THE LD. AR CONTENDED THAT AS PER CENTRAL MOTOR VEHICLES RULE S IT IS MANDATORY FOR THE ASSESSEE TO SEEK APPROVAL FROM AN AG ENCY DESIGNATED BY THE GOVERNMENT OF INDIA BEFORE INTRODUCING ANY NEW V EHICLE/ UPGRADED VERSION OF THE VEHICLE IN THE MARKET FOR COMMERC IAL SALE. THE DESIGNATED AGENCY IN INDIA FOR GIVING SUCH APPROVALS IS A UTOMOTIVE RESEARCH ASSOCIATION OF INDIA (ARAI). THE PROCESS OF GE TTING APPROVAL FROM ARAI IS CALLED HOMOLOGATION OF VEHICLE. IN THE PROCE SS OF HOMOLOGATION AUTO COMPONENT AS WELL AS THE ENTIRE VEHICLE IS PROVIDED TO ARAI FOR TESTING PURPOSES. AFTER TESTING ARAI ISSUES CERTIFICATE OF HOMOLOGATION FOR THE PARTICULAR VEHICLE/MODEL. THE MATERIAL RETURNED BY ARAI IS SCRAPPED FROM SAFETY PERSPECTIVE AND ACCORD INGLY THE COST OF THE MATERIALS CONSUMED IN THE ABOVE PROCESS IS DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD HOMOLOGATION EXPENSES . THE ASSESSING OFFICER MADE AN AD HOC DISALLOWANCE OF RS.10 00 000 /- IN RELATION TO HOMOLOGATION EXPENSES WITHOUT SEEKING ANY DET AILS FROM THE ASSESSEE. THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADHOC ADDITION MADE BY ASSESSING OFFICER. 19. IN RESPECT OF GROUND NO. 6 RAISED IN THE APPEAL RELA TING TO EXPENDITURE ON CAPITALIZED CARS THE LD. AR SUBMITTED THAT TO PROMOTE SALE OF CARS IT IS REQUIRED TO KEEP CARS FOR DISPLAY IN VAR IOUS EVENTS PHOTO SHOOTS ROAD SHOWS TOURNAMENTS AND ADVERTISEMEN T CAMPAIGNS. FURTHER THE ASSESSEE PROVIDES CARS TO TOP MANAGEMENT EMPLOYEES AS 23 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 WELL AS FOR THE OFFICIAL USE BY OTHER EMPLOYEES (CAR POOL). TH E PERQUISITE VALUE OF SUCH FACILITY IS BROUGHT TO TAX IN THE HANDS OF RES PECTIVE TOP MANAGEMENT EMPLOYEES IN ACCORDANCE WITH THE PROVISIONS O F ACT. DURING THE ASSESSMENT YEAR 2003-04 THE ASSESSEE HAD CAPITALIZED 32 SUCH CARS FOR OWN USE. DURING THE ASSESSMENT PROCEEDIN GS THE ASSESSEE WAS ASKED TO PRODUCE DETAILS IN RESPECT OF THE CAPITALIZED CARS. THE ASSESSEE FURNISHED THE DETAILS. HOWEVER THE ASSESSIN G OFFICER OBSERVED THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROD UCE COMPLETE DETAILS OF THE USE AND UTILITY OF THE CAPITALIZED CARS FOR TH E BUSINESS PURPOSE. THE ASSESSING OFFICER FURTHER OBSERVED THAT SO MANY CARS ARE NOT NEEDED FOR TOP MANAGEMENT AND ADVERTISEMENT PURPO SES. THE ASSESSING OFFICER MADE AD HOC DISALLOWANCE OF RS.2 00 000/- O UT OF REPAIRS AND MAINTENANCE EXPENSES AND RS.5 00 000 OUT OF POWER AND FUEL EXPENSES. THE LD. AR CONTENDED THAT IT IS THE PREROG ATIVE OF THE ASSESSEE TO DECIDE THE NUMBER OF CARS REQUIRED FOR ADVE RTISEMENT PURPOSE AND FOR THE USE OF MANAGEMENT. THE ASSESSING O FFICER CANNOT SUBSTITUTE HIS COMMERCIAL JUDGMENT OVER THE NEEDS AND R EQUIREMENTS OF ASSESSEE. THE ASSESSING OFFICER IN AN IRRATIONAL AND UNJU STIFIED MANNER HAS MADE AD HOC DISALLOWANCE WHICH HAS BEEN RIGHT LY REVERSED BY THE COMMISSIONER OF INCOME TAX (APPEALS). THE LD. AR IN S UPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE FOLLOWING DECISIONS : I. SAYAJI IRON & ENGG. CO. VS. CIT 253 ITR 749 (GUJ.); II. ADOR TECHNOLOGIES LTD. VS. DCIT 112 TTJ 24 (PUNE ITAT); III. BAJAJ AUTO FINANCE LTD. VS. DCIT 112 TTJ 437 (PUNE ITAT); IV. BAJAJ FINANCE LTD. VS. DCIT ITA NO. 1175/PN/2012 (PUNE ITAT); 24 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 20. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AT LENGTH AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. AS HAS BEEN POINTED OUT EARLIER IN BOTH THE IMPUGN ED ASSESSMENT YEARS THE REVENUE HAS RAISED SIMILAR GROUNDS . THE FINDINGS GIVEN IN RESPECT OF GROUNDS RAISED IN ITA NO. 1108/ PN/2013 FOR ASSESSMENT YEAR 2003-04 WOULD MUTATIS MUTANDIS APPLY TO RESPECTIVE GROUNDS RAISED IN APPEAL BY THE REVENUE FOR A SSESSMENT YEAR 2004-05. 21. THE FIRST ISSUE RAISED BY THE DEPARTMENT IN APPEAL IS W ITH RESPECT TO TRANSFER PRICING ADJUSTMENT QUA PAYMENT OF ROYALTY. T HE ASSESSEE APPLIED TNMM AS THE MOST APPROPRIATE METHOD TO BENCHMA RK ITS INTERNATIONAL TRANSACTION INCLUDING PAYMENT OF ROYALTY. THE TPO REJECTED THE METHOD ADOPTED BY THE ASSESSEE AND SUB STITUTED TNMM WITH CUP AS THE MOST APPROPRIATE METHOD TO BENCHMARK ALP OF ROYALTY PAYMENT. THE LD. AR HAS POINTED THAT SIMILAR ADJUSTMENT W AS MADE BY THE TPO IN ASSESSMENT YEAR 2002-03. THE MATTER TRAVE LLED UP TO THE TRIBUNAL. THE TRIBUNAL IN APPEAL FILED BY THE REVENUE IN ITA NO. 1107/PN/2013 (SUPRA) DECIDED THE ISSUE IN FAVOUR OF THE AS SESSEE BY UPHOLDING TNMM ADOPTED BY THE ASSESSEE AS THE MOST A PPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTION. FURTHER THE TRIBUNAL ALSO EMPHASIZED ON THE RULE OF CONSISTENCY. THE RELEVANT EXTR ACT OF THE FINDINGS OF THE TRIBUNAL ON THE ISSUE ARE AS UNDER : 73. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAP ER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE IN THE INSTA NT CASE HAD ENTERED INTO AN AGREEMENT DATED 12-12-1994 WITH DCAG TO PAY ROYALTY FOR TECHNICAL KNOWHOW RECEIVED FROM DCAG IN THE FOLLOWI NG MANNER : 25 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 (A) LUMPSUM PAYMENT OF DM 56.6 MILLION NET OF TAX ES PAYABLE IN 4 INSTALMENTS PERIODICALLY FROM 1995 TO 1998. (B) RUNNING ROYALTY @2.75% ON VALUE ADDITION IN IND IA. 74. WE FIND THE ASSESSEE AND DCAG AMENDED THE ORIGI NAL AGREEMENT TO PAY ROYALTY FOR TECHNICAL KNOWHOW RECEIVED FROM DCAG. THE COPY OF THE REVISED AGREEMENT DATED 21-12-1999 IS ENCLOSED AT PAPER BOOK PAGE 557 TO 586 ACCORDING TO WHICH RUNNING ROYALTY @5% O N VALUE ADDITION IN INDIA TO BE PAID AND WAIVING OF THE REMAINING 2 INS TALMENTS OF LUMPSUM ROYALTY PAYMENT AS PER THE FIRST AGREEMENT AMOUNTIN G TO DM 19 MILLION. FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS P AID ROYALTY @5% TO DCAG AMOUNTING TO RS.4 61 06 328/- FOR THE TECHN ICAL KNOWHOW RECEIVED. THE ASSESSEE ADOPTED COMBINED APPROACH A ND SELECTED TNMM AS THE MOST APPROPRIATE METHOD TO BENCHMARK IT S INTERNATIONAL TRANSACTION INCLUDING THE PAYMENT OF ROYALTY IN ITS TP STUDY REPORT. FOR THE APPLICATION OF TNMM THE ASSESSEE HAD CONDUCTED SEARCH FOR COMPARABLE COMPANIES ON WIDELY RECOGNIZED COMMERCIA L INFORMATION DATABASE FOR OBTAINING PUBLICLY AVAILABLE FINANCIAL INFORMATION. FOR THE PURPOSE OF MARGIN OF COMPUTATION IN ADDITION TO FI NANCIAL DATA FOR THE RELEVANT FINANCIAL YEAR THE ASSESSEE ALSO USED DAT A FOR 2 PREVIOUS FINANCIAL YEARS AS PER THE TP STUDY CONDUCTED ON TH E SEARCH OF COMPARABLE. THE WEIGHTED AVERAGE MARGIN OF COMPARA BLE COMPANIES WAS 2.48% WHEREAS THE MARGIN OF THE ASSESSEE COMPAN Y WAS 4.30%. SINCE THE NET PROFIT MARGIN EARNED BY THE ASSESSEE WAS HIGHER THAN THE WEIGHTED AVERAGE MARGINS OF COMPARABLE COMPANIES T HE ASSESSEE CONCLUDED THAT THE TRANSACTIONS INCLUDING PAYMENT O F ROYALTY ARE AT ARMS LENGTH. WE FIND THE TPO DID NOT ACCEPT THE A PPLICATION OF TNM METHOD FOR BENCHMARKING THE PAYMENT OF ROYALTY TRAN SACTION AND CONSIDERED CUP AS THE MOST APPROPRIATE METHOD TO BE NCHMARK THE TRANSACTION BY COMPARING ROYALTY PAYMENT MADE BY TH E ASSESSEE @5% WITH THE ROYALTY PAYMENT MADE BY MARUTI UDYOG LTD. T O SUZUKI JAPAN @3%. ACCORDING TO THE TPO THE LETTER RECEIVED FROM DCAG SUBMITTED DURING THE ASSESSMENT PROCEEDINGS REFERRED TO ROYAL TY RATE OF 3% AND ANOTHER 5%. FURTHER MARUTI UDYOG LTD. IS PAYING RO YALTY @3%. THE NET PROFIT MARGIN EARNED BY THE ASSESSEE COMPANY IS LES S THAN THE AVERAGE NET PROFIT MARGIN EARNED BY THE COMPARABLE COMPANIE S. THE AO/TPO FURTHER HELD THAT THE ROYALTY RATES CHARGED FROM OT HER ASSOCIATED ENTERPRISES BY DCAG WAS NOT SUBMITTED. ACCORDINGLY THE TPO MADE DOWNWARD ADJUSTMENT OF RS.1 84 42 531/- FOR THE YEA R UNDER 26 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 CONSIDERATION. 75. WE FIND THE LD.CIT(A) DELETED THE ABOVE ADJUSTM ENT MADE BY THE TPO ON THE GROUND THAT THE TPO HAS COMPARED THE ROY ALTY PAID BY MARUTI UDYOG LTD. WHICH IS A CONTROLLED TRANSACTION . ACCORDING TO HIM THE TRANSFER PRICE DETERMINED BY BENCHMARKING CONTR OLLED TRANSACTION WITH ANOTHER CONTROLLED TRANSACTION CANNOT BE CONSI DERED THE ARMS LENGTH PRICE BECAUSE THE ARMS LENGTH SIGNIFIES TRA NSFER PRICE WITHOUT THE POSSIBILITY OF IT BEING INFLUENCED BY THE ASSOCIATE D ENTERPRISE. FURTHER HE NOTED THAT THE TPO IS INCONSISTENT IN HIS APPROA CH ON THIS ISSUE. HE OBSERVED THAT DURING ASSESSMENT YEAR 2007-08 AND 20 08-09 ROYALTY PAYMENT @5% WAS HELD TO BE AT ARMS LENGTH WHICH IS PAID AT THE SAME RATE AS THAT FOR THE YEARS UNDER CONSIDERATION. 76. WE DO NOT FIND ANY INFIRMITY IN THE ABOVE FINDI NG OF THE LD.CIT(A). FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE IN THE PAPER BOOK WE FIND IN CONSIDERATION OF THE USE OF TECHNOLOGY AND TECHNICAL INFORMATION RECEIVED FROM DCAG FOR MANUFACTURING ACTIVITY THE A SSESSEE HAS TO PAY RUNNING ROYALTY @5% OF THE NET VALUE ADDED FOR EACH CONTRACTUAL VALUE. THE ROYALTY IS COMPUTED BY CONSIDERING THE NET SALE S PRICE OF THE LICENCED VEHICLES WHICH IS EXCLUSIVE OF EXCISE DUT Y AND COST OF STANDARD BROUGHT OUT COMPONENTS AND LANDED COST OF THE IMPOR TED MATERIALS USED FOR THE MANUFACTURING PROCESS. THE ROYALTY IN THE INSTANT CASE IS INEXTRICABLY LINKED WITH PRODUCTION AND SALES ACTIV ITY. IN ABSENCE OF PRODUCTION AND SALES AND SALE OF PRODUCTS THERE WOU LD BE NO QUESTION ARISING REGARDING PAYMENT OF ROYALTY. WE FIND FORC E IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE THE ROY ALTY PAYMENT IS NOT INDEPENDENT OF SALES AND THEREFORE CANNOT BE EXAMIN ED ON STANDALONE BASIS. THEREFORE THE ASSESSEE HAS ADOPTED COMBINE D TRANSACTION APPROACH USING TNM METHOD AS THE MOST APPROPRIATE M ETHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTION INCLUDING P AYMENT OF ROYALTY. 77. WE FIND THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF LUMAX INDUSTRIES LTD. VS. ACIT VIDE ITA NO.5252/DEL/2011 HAS OBSERVED AS UNDER : 33. THE TPO HAS MADE THE DISALLOWANCE IN QUESTION MAINLY ON THE BASIS OF THE BENEFIT TEST. IN THIS REGARD I T IS SEEN THAT THE PAYMENT OF ROYALTY CANNOT BE EXAMINED DIVORCED FROM THE PRODUCTION AND SALES. ROYALTY IS INEXTRICABLY LINKE D WITH THESE ACTIVITIES . IN THE ABSENCE OF PRODUCTION AND SALE OF PRODUCTS 27 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 THERE WOULD BE NO QUESTION ARISING REGARDING PAYMEN T OF ANY ROYALTY. RULE 10A(D) OF THE IT RULES DEFINES 'TRANS ACTION' AS A NUMBER OF CLOSELY LINKED TRANSACTIONS. ROYALTY THE N IS A TRANSACTION CLOSELY LINKED WITH PRODUCTION AND SALE S. IT CANNOT BE SEGREGATED FROM THESE ACTIVITIES OF AN ENTE R PRISE BEING EMBEDDED THEREIN. THAT BEING SO ROYALTY CANNOT BE CONSIDERED AND EXAMINED IN ISOLATION ON A STANDALONE BASIS. RO YALTY IS TO BE CALCULATED ON A SPECIFIED AGREED BASIS ON DETER MINING THE NET SALES WHICH IN THE PRESENT CASE ARE REQUIRED TO BE DETERMINED AFTER EXCLUDING THE AMOUNTS OF STANDARD BOUGHT OUT COMPONENTS ETC . SI N CE SUCH NET SALES DO NOT STAND RECORDED BY THE ASSESSEE I N ITS BOOKS OF ACCOUNT. THEREFORE IT I S OUR CONSIDERED OPINION THAT THE ASSESSEE WAS CORRECT IN EMPLOYING AN OVERALL TNMM FOR EXAMINING THE ROYALTY. THE TPO WORKED OU T T HE DIFFERENCE IN THE PLI OF THE OUTSIDE PARTY (THE ASSESSEE) AT 4.09% AND THE COMPARABLES AT 7.05%. TH I S HA S NOT BEEN SHOWN TO FALL OUTSIDE THE PERMISSIBLE RANGE. 78. WE FIND THE HONBLE DELHI HIGH COURT IN THE CAS E OF SONI ERICSSON MOBILE COMMUNICATIONS PVT. LTD. (SUPRA) WHILE DECID ING ON THE ISSUE OF BUNDLING OF TRANSACTIONS AND USE OF TNM METHOD HAS OBSERVED THAT TH E EXPRESSION CLASS OF TRANSACTION FUNCTIONS PERFO RMED BY THE PARTIES IN SECTION 92C(1) OF THE ACT ILLUSTRATES THAT THE MEAN ING OR DEFINITION OF THE EXPRESSION TRANSACTION DOES NOT PROHIBIT CLUBBING OF CLOSELY CONNECTED OR CONTINUOUS TRANSACTIONS. THE HONBLE HIGH COURT HAS HELD THAT IN CASE THE TAX PAYER IS ENGAGED IN SINGLE LINE OF BUS INESS THERE IS NO BAR OR PROHIBITION FROM APPLYING THE TNMM ON ENTITY LEV EL BASIS. IT HAS FURTHER BEEN HELD THAT ONCE THE COMPARABLES PASS TH E FUNCTIONAL ANALYSIS TEST AND PROFIT MARGINS MATCHES WITH THE C OMPARABLES IT LEADS TO AN AFFIRMATION OF THE TRANSFER PRICE AS THE ARM S LENGTH PRICE. AFTER THIS IT IS NOT PERMISSIBLE TO MAKE A COMPARISON OF A PARTICULAR ITEM OF COSTS WITHOUT SEGREGATION OF PROFITS. 79. WE FURTHER FIND FORCE IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT FOR APPLICATION OF CUP IT IS NECESSAR Y THAT TRANSACTIONS BEING COMPARED SHOULD BE CONTROLLED. IN THE INSTAN T CASE THE TPO HAS COMPARED THE ROYALTY PAID BY MARUTI UDYOG LTD. TO S UZUKI VIS-A-VIS ROYALTY PAID BY THE ASSESSEE TO DCAG. HOWEVER MAR UTI UDYOG LTD. AND SUZUKI ARE ASSOCIATED ENTERPRISES AND A CONTROLLED TRANSACTION CANNOT BE USED FOR BENCHMARKING ARMS LENGTH PRICE. 28 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 80. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF M/S. BOBST INDIA PVT. LTD. VS. DCIT VIDE ITA NO.1380/PN/2010 ORDER DATED 09-10- 2014 HAS OBSERVED AS UNDER : 7.9 ..... WITHOUT PREJUDICE TO ABOVE WE FIND THAT ACCORDING TO TPO / AO HAS NOT GIVEN COGENT REASONING FOR REJECTING TNMM I DENTIFIED-BY THE APPELLANT AS THE MOST APPROPRIATE METHOD FOR BENCHM ARKING ITS INTERNATIONAL TRANSACTIONS PERTAINING TO DOMESTIC O PERATIONS. THE APPROACH ADOPTED BY THE TPO I.E. USING CONTROLLED T RANSACTION OF THE APPELLANT ITSELF (RECEIPT OF COMMISSION ON MARKETIN G OF SPARES) FOR BENCHMARKING THE INTERNATIONAL TRANSACTION PERTAINI NG TO RECEIPT OF COMMISSION FOR MARKETING OF MACHINES IS NOT APPROPR IATE AS PER THE INDIAN TP REGULATIONS. ACCORDINGLY INTERNATIONAL TR ANSACTION OF THE APPELLANT PERTAINING TO RECEIPT OF COMMISSION FOR M ARKETING OF MACHINES BENCHMARKED BY ASSESSEE BY AGGREGATING THE SAME WIT H OTHER INTERNATIONAL TRANSACTIONS PERTAINING TO DOMESTIC O PERATIONS USING TNMM SHOULD NOT BE-REJECTED.' 81. THE VARIOUS OTHER DECISIONS RELIED ON BY THE AS SESSEE ON THIS ISSUE ALSO SUPPORT ITS CASE TO THE PROPOSITION THAT TNM METHOD APPLIED BY THE ASSESSEE IS THE APPROPRIATE METHOD AND THE C UP METHOD APPLIED BY THE TPO IS NOT CORRECT WHERE HE HAS USED A CONTR OLLED TRANSACTION TO BENCHMARK THE PAYMENT OF ROYALTY. WE FURTHER FIND THE ASSESSEE HAS OBTAINED APPROVAL FROM THE FOREIGN INVESTMENT PROMOT ION BOARD FOR THE ORIGINAL AS WELL AS REVISED AGREEMENT. IT HAS ALSO OBTAINED SPECIFIC APPROVAL FROM DEPARTMENT OF INDUSTRIAL POLICY AND P ROMOTION (DIPP) FOR THE PAYMENT OF ROYALTY AS ROYALTY PAYMENT MADE BY M B INDIA IS NOT COVERED UNDER THE AUTOMATIC ROUTE. IT HAS BEEN HEL D IN VARIOUS DECISIONS THAT FIPB APPROVAL GOVERNMENT OF INDIA RBI APPROV AL ETC FOR THE ROYALTY RATES ITSELF IMPLIES THAT THE PAYMENTS ARE AT ARMS LENGTH. 82. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. THYSSENKRUPP INDUSTRIES PVT. LTD. VS. ACIT VIDE ITA NO.6460/MUM/2012 ORDER DATED 27-02-2013 FOR A.Y. 20 08-09 HAS HELD THAT WHEN A PAYMENT IS MADE AFTER OBTAINING DUE APP ROVAL FROM RBI THEN SUCH PAYMENT HAS TO BE CONSIDERED AT ALP. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 14.3 OF THE ORD ER READS AS UNDER : 14.3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE ASSESSEE ENTER ED INTO COLLABORATION AGREEMENT WITH ITS AE FOR PAYMENT OF 2% OF CONTRACT VALUE FOR 29 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 MANUFACTURING DRAWING AND ENGINEERING SERVICES AND 5% OF THE SELLING PRICE AS ROYALTY. THE ASSESSEE APPLIED TO THE RBI S EEKING APPROVAL IN RESPECT OF PAYMENT OF ROYALTY AND TECHNICAL FEE THR OUGH CENTRAL BANK OF INDIA. A COPY OF LETTER ADDRESSED BY THE CENTRAL BA NK OF INDIA TO THE RBI DATED 26.03.2008 IS AVAILABLE ON PAGE 240 OF THE PA PER BOOK. THROUGH THIS LETTER THE CENTRAL BANK OF INDIA FORWARDED RE LEVANT DOCUMENTS ALONG WITH A COPY OF THE AGREEMENT. THE RBI VIDE IT S LETTER DATED 21.04.2008 REQUESTED CENTRAL BANK OF INDIA TO CONSI DER THE ASSESSEES CASE IN ACCORDANCE WITH ITS AP(DIR SERIES) NO.76 DA TED 24.02.2007. IT IS IN PURSUANCE TO THE DEEMED APPROVAL BY RBI UNDER TH E AUTOMATIC APPROVAL SCHEME THAT THE ASSESSEE MADE PAYMENT OF R OYALTY AND TECHNICAL FEE TO ITS AE. IT IS RELEVANT TO NOTE THA T SUCH PAYMENT HAS BEEN APPROVED OR DEEMED TO HAVE BEEN APPROVED BY THE RBI . WHEN A PAYMENT IS MADE AFTER OBTAINING DUE APPROVAL FROM T HE RBI HOW ITS ALP CAN BE COMPUTED AT `NIL IS ANYBODYS GUESS. THE FA CT OF APPROVAL OF THE PAYMENT BY THE RBI HAS BEEN SUCCINCTLY RECORDED BY THE TPO IN HIS ORDER AS WELL. HE STILL CHOSE TO PROPOSE ADJUSTMENT IN RESPECT OF FULL PAYMENT. IN OUR CONSIDERED OPINION WHEN THE RATE O F ROYALTY PAYMENT AND FEE FOR DRAWINGS ETC. HAS BEEN APPROVED OR DEEM ED TO HAVE BEEN APPROVED BY THE RBI THEN SUCH PAYMENT HAS TO BE CO NSIDERED AT ALP. WE THEREFORE DIRECT TO DELETE ADDITION OF RS.4.29 CRORE MADE BY THE A.O. IN THIS REGARD. 83. WE FURTHER FIND IN SUBSEQUENT YEARS ALSO THE RO YALTY PAYMENT HAS BEEN BENCHMARKED CONSIDERING COMBINED TRANSACTION A PPROACH IN TNM METHOD. NO SEPARATE BENCHMARKING WAS UNDERTAKEN TO DETERMINE THE ALP OF ROYALTY. IN A.Y. 2007-08 TILL A.Y. 2011-12 THE PAYMENT OF ROYALTY WAS HELD TO BE AT ALP. WE THEREFORE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THE RU LE OF CONSISTENCY THE CIT(A) WAS JUSTIFIED IN REJECTING THE CUP METHOD AD OPTED BY THE AO AND ACCEPTING THE TNM METHOD FOLLOWED BY THE ASSESSEE. 84. IN VIEW OF THE ABOVE DISCUSSION AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE CIT(A) WE FIND NO INFIRMITY IN HIS ORDER. ACCORDINGLY THE SAME IS UPHELD AND THE GROUNDS RAI SED BY THE REVENUE ON THIS ISSUE ARE DISMISSED. 22. THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE FINDING S OF TRIBUNAL ON THE ISSUE. HOWEVER THE LD. AR CONTENDED THA T THE ISSUE CAN BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER TO RE- EXAMINE THE 30 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 FACTS IN THE LIGHT OF THE DECISION OF TRIBUNAL. THE LD. AR HAS FAIRLY ACCEPTED THE PROPOSAL MADE ON BEHALF OF THE DEPARTMENT. THUS IN VIEW OF THE STATEMENT MADE BY THE REPRESENTATIVES OF RIVAL SID ES WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO R E- EXAMINE THE ISSUE IN THE LIGHT OF DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2002-03. ACCORDINGLY GROU ND NOS. 1 AND 2 RAISED BY THE REVENUE IN APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. 23. THE GROUND NO. 3 IN APPEAL IS WITH RESPECT TO CHARACT ERIZATION OF ROYALTY PAYMENT WHETHER REVENUE OR CAPITAL IN NATURE. T HE ASSESSEE HAS TREATED THE PAYMENT OF ROYALTY AS REVENUE EXPENDIT URE WHEREAS THE ASSESSING OFFICER HAS HELD THE PAYMENT OF ROYALTY AS CAPITA L IN NATURE. IT HAS BEEN CONTENDED THAT PAYMENT OF ROYALTY HAS NOT SECURED ANY ENDURING ADVANTAGE TO THE ASSESSEE. THE LD. AR POINTED THAT THE TRIBUNAL IN ASSESSMENT YEAR 2002-03 IN ASSESSEES OWN C ASE HAS HELD PAYMENT OF ROYALTY AS REVENUE IN NATURE. WE OBSERVE T HAT THE TRIBUNAL IN ASSESSMENT YEAR 2002-03 HAS CONSIDERED THE ISSUE AT LENGTH AND AFTER EXAMINING THE FACTS ON RECORD AND VARIOUS CASE LAWS HAS HELD AS UNDER : 97. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAP ER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE IN THE INSTA NT CASE HAS PAID ROYALTY OF RS.4 69 06 328/- TO THE PARENT COMPANY D CAG @5%. THE AO RESTRICTED SUCH PAYMENT TO 3% BECAUSE OF THE TRANSF ER PRICING ADJUSTMENT. THE AO THEREAFTER TREATED THE BALANC E AMOUNT OF RS.2 84 63 797/- AS CAPITAL EXPENDITURE. HE WAS OF THE OPINION THAT THE ASSESSEE HAS ACQUIRED ABSOLUTE RIGHT OVER THE TECHN ICAL KNOWHOW FOR THE ASSEMBLY OR MANUFACTURING OF CARS AND PARTS THROUGH WHICH THE ASSESSEE HAS RECEIVED ENDURING BENEFITS. HENCE TH E AO HELD THAT SUCH 31 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 ROYALTY EXPENDITURE AS CAPITAL IN NATURE. WE FIND IN APPEAL THE LD.CIT(A) DELETED SUCH ADDITION MADE BY THE AO ON T HE GROUND THAT ASSESSEE HAS NOT ACQUIRED ANY OWNERSHIP OF ASSET OR RIGHTS FOR SUBSTANTIALLY LONG PERIOD AND IN ABSENCE OF THE SAM E PAYMENTS MADE BY THE ASSESSEE HAVE THE CHARACTER OF ROYALTY. SINCE THERE IS NO ENDURING BENEFIT RECEIVED FROM IT THE CIT(A) TREATED ROYALTY EXPENDITURE AS REVENUE AND ACCORDINGLY DELETED THE ADDITION MADE BY THE AO . 98. WE FIND NO INFIRMITY IN THE ABOVE DECISION OF T HE LD.CIT(A). FROM THE VARIOUS TERMS AND CONDITIONS OF THE AGREEMENT WE FIND THE ASSESSEE HAS NEITHER ACQUIRED ANY ASSET ON AN OUTRIGHT BASIS NOR SECURED ANY ENDURING ADVANTAGE. WE FIND FORCE IN THE ARGUMENT OF LD. COUNSEL FOR THE ASSESSEE THAT THE BENEFIT SECURED BY THE ASSESS EE IS ESSENTIALLY A LICENSED RIGHT TO USE KNOWHOW FOR THE PERIOD OF THE AGREEMENT. THEREFORE THE ROYALTY EXPENDITURE IN THIS REGARD IN OUR OPINION IS REVENUE IN NATURE. FURTHER ROYALTY BEING AN ANNUAL RECURRING EXPENDITURE DIRECTLY LINKED TO NUMBER OF VEHICLES SOLD IN A FINANCIAL YEAR IN OUR OPINION IS REVENUE EXPENDITURE FULLY DEDUCTIBLE IN COMPUTING THE TAXABLE INCOME OF THE ASSESSEE. 99. WE FIND THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. IAEC PUMPS LTD. REPORTED IN 232 ITR 316 HAS HELD THAT AM OUNT PAID BY THE ASSESSEE TO THE COLLABORATOR FOR USING ITS PATENTS AND DESIGN UNDER AN AGREEMENT WAS ONLY A LICENSE FEE AND CONSTITUTED RE VENUE EXPENDITURE. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . ESSEL PROPACK LTD. REPORTED IN 325 ITR 185 HAS HELD THAT THE ASSE SSEE DID NOT ACQUIRE AN ASSET OF A CAPITAL NATURE BY OBTAINING A NON-EXC LUSIVE LICENCE FOR FIVE YEARS RESTRICTED TO THE TERRITORY OF INDIA TO MANUF ACTURE AND USE TUBE MAKING MACHINES AS THE PROPRIETARY RIGHTS IN THE PA TENTS CONTINUED TO VEST IN THE LICENSOR AND THEREFORE THE TECHNICAL KN OWHOW FEES PAID BY THE ASSESSEE UNDER THE TERMS OF THE AGREEMENT IS AL LOWABLE AS REVENUE EXPENDITURE. 100. WE FIND THE HONBLE DELHI HIGH COURT IN THE CA SE OF CIT VS. G4S SECURITIES SYSTEM INDIA LTD. HAS HELD AS UNDER (HE AD NOTES) : BUSINESS EXPENDITURE CAPITAL OR REVENUE EXPENDIT URE PAYMENT OF ROYALTY FOR USE OF TRADE MARK TECHNICAL KNOW-HOW E TC. ASSESSEE COMPANY HAS PAID ROYALTY IN LIEU OF TECHNICAL KNOW- HOW AND TRADE MARK FOR EXCLUSIVE USE FOR FIVE YEARS WHICH WAS EXTENDA BLE BY FIVE YEARS ALL 32 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 RIGHTS AND KNOW-HOW CONTINUED TO VEST IN PROVIDER COMPANY AND IT WAS ONLY THE RIGHT TO USE KNOWHOW THAT WAS MADE AVAILAB LE TO THE ASSESSEE AND THAT TOO BASED ON ITS NET SALES AT NO POINT O F TIME THE ASSESSEE WAS ENTITLED TO BECOME THE EXCLUSIVE OWNER OF THE T ECHNICAL KNOW-HOW AND THE TRADEMARK EXPENDITURE WAS THEREFORE DEDUC TIBLE AS REVENUE EXPENDITURE. 101. WE FIND THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF ANTIFRICTION BEARINGS CORPORATION LTD. VS. CIT REPORTED IN 114 I TR 335 HAS HELD THAT ROYALTY PAID TO A FOREIGN COLLABORATOR FOR PROVISIO N OF TECHNICAL KNOW- HOW IN A RESTRICTED MANNER FOR A RESTRICTED USE DUR ING THE AGREEMENT PERIOD NOT RESULTING IN ABSOLUTE TRANSFER OF ANYTH ING OR ACQUISITION OF ANY ASSET OF ENDURING CHARACTER IS A REVENUE EXPEND ITURE. 102. IN VIEW OF THE ABOVE DECISIONS AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE CIT(A) WE FIND NO INFIRMITY IN HIS ORDER. ACCORDINGLY THE SAME IS UPHELD AND THE GROUND RAIS ED BY THE REVENUE ON THIS ISSUE IS DISMISSED. 24. THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE FINDING S OF CO- ORDINATE BENCH OF THE TRIBUNAL NOR THE LD. DR HAS BEEN AB LE TO SHOW THAT THERE HAS BEEN ANY CHANGE IN THE FACTS AND CIRCU MSTANCES IN THE ASSESSMENT YEARS UNDER APPEAL. THUS IN VIEW OF THE FIND INGS OF CO- ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN IMMEDIATELY PRECEDING ASSESSMENT YEAR WE FIND NO MERIT IN GROUND NO. 3 RAISED IN THE APPEAL BY THE REVENUE. ACCORDINGLY GROUND NO. 3 IS DISMISSED. 25. THE GROUND NO. 4 IN THE APPEAL BY THE DEPARTMENT R ELATES TO PAYMENT OF PROJECT TECHNICAL ASSISTANCE FEES. THE ASSES SEE HAS CLAIMED THE PAYMENT OF CHARGES AS DEDUCTABLE U/S. 37(1) OF THE ACT WHEREAS THE ASSESSING OFFICER HAS HELD THE SAME TO BE C APITAL IN NATURE. WE FIND THAT THIS ISSUE WAS ALSO CONSIDERED BY TH E CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 33 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 1107/PN/2013. THE CO-ORDINATE BENCH OF THE TRIBUNAL REJ ECTED THE GROUND RAISED BY THE DEPARTMENT AND UPHELD THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL ON THIS ISSUE READS AS UNDER : 49. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAP ER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS CITED BEFORE US. WE FIND THE AO DISALLOWED PART OF THE PROJECT ASSISTANCE TECHNICAL FEES OF RS.1 96 31 398/- ON THE GROUND TH AT SAME IS NON BUSINESS EXPENDITURE DUE TO NOT BEING IN CONSONANCE WITH THE ORIGINAL AGREEMENT. WE FIND THE LD.CIT(A) DELETED THE DISAL LOWANCE ON THE GROUND THAT THESE PAYMENTS ARE NEITHER CAPITAL EXPE NDITURE NOR PERSONAL IN NATURE AND THERE IS NO CASE FOR CONSIDERING IT T O HAVE BEEN MADE FOR NON BUSINESS PURPOSE. FURTHER HE HELD THAT THE AO HAS NOT QUESTIONED REGARDING THE GENUINENESS OF PAYMENTS MADE BY THE A SSESSEE. WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING TH E ADDITION. THE SUBMISSION OF THE ASSESSEE THAT THE DRP IN ASSESSEE S OWN CASE FOR A.Y. 2007-08 HAS ALLOWED SUCH PROJECT ASSISTANCE TECHNIC AL FEES AS DEDUCTIBLE BUSINESS EXPENDITURE COULD NOT BE CONTRO VERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE. WE ALSO FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT WHEN THE TPO HAS ACCEPTED THAT CERTAIN PAYMENT IS AT ALP THEN THE AO HAS NO POWER TO DISALLOW THE SAME DURING THE ASSESSMENT PROCEEDINGS. 50. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF CUSHMAN AND WAKEFIELD INDIA PVT. LTD. VS. ACIT REPORTED IN 13 5 ITD 242 HAS HELD THAT ONCE AN INTERNATIONAL TRANSACTION HAS BEEN MAD E SUBJECT TO DETERMINATION OF ALP BY THE TPO AND HE HAS FOUND TH AT THE TRANSACTION IS AT ALP THEN IT IS NOT PERMISSIBLE FOR THE AO TO RE-EXAMINE THAT TRANSACTION AND MAKE DISALLOWANCE UNDER THE NORMAL PROVISIONS OF THE ACT. 51. WE FURTHER FIND FROM THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN THE TP ASSESSMENT AND CORPORATE TA X ASSESSMENT PROCEEDINGS OF THE SUBSEQUENT YEARS THE TAX AUTHOR ITIES HAVE ACCEPTED THE REVISED AGREEMENT ENTERED INTO IN MAY 2005 WITH RETROSPECTIVE EFFECT FROM 01-01-2002 WHICH INCLUDED EVEN CATEGORY D EMPL OYEES AS WELL AS 34 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 THE REVISED CHARGES AS PER THE AGREEMENT FOR THE RE SPECTIVE YEARS. UNDER THESE CIRCUMSTANCES WHEN THE DRP IN ASSESSMEN T ORDER FOR A.Y. 2007-08 HAS DIRECTED TO ALLOW THE PROJECT ASSISTANC E TECHNICAL FEES AS DEDUCTIBLE BUSINESS EXPENDITURE AND THE REVENUE HAS ACCEPTED THE SAME AND WHEN IN SUBSEQUENT YEARS THE TAX AUTHORITIES HA VE ACCEPTED THE REVISED AGREEMENT ENTERED INTO IN MAY 2005 WITH RET ROSPECTIVE EFFECT FROM 01-01-2002 AND SINCE THE GENUINENESS OF THE PA YMENTS HAS NOT BEEN DOUBTED BY THE AO IN THE BODY OF THE ASSESSMEN T ORDER THEREFORE WE FIND NO REASON AS TO WHY PART OF SUCH PROJECT AS SISTANCE TECHNICAL FEE SHOULD BE DISALLOWED. IN VIEW OF THE ABOVE DISCUSS ION AND IN VIEW OF THE REASONING GIVEN BY CIT(A) WE UPHOLD THE ORDER O F THE CIT(A) ON THIS ISSUE. THE GROUND RAISED BY THE REVENUE IS ACCORDI NGLY DISMISSED. 26. WE OBSERVE THAT THE FACTS LEADING TO PAYMENT OF PROJ ECT TECHNICAL ASSISTANCE FEES ARE IDENTICAL IN ASSESSMENT YEARS UNDER APPEAL. THE ASSESSING OFFICER HAS NOT DISPUTED THE PAYMENT OF CHARGES . THE ONLY DISPUTE IS WITH REGARD TO THE NATURE OF EXPENDITURE. THE CO-ORDINATE BENCH OF THE TRIBUNAL HAS HELD EXPENDITURE AS REVENUE IN NATURE. THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF TRIB UNAL. THUS WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY THE DEP ARTMENT. BY APPLYING THE AFOREMENTIONED DECISION OF COORDINATE BENCH IN ASSESSEES OWN CASE WE DISMISS GROUND NO. 4 RAISED IN THE APPEAL BY THE REVENUE. 27. THE GROUND NO. 5 RAISED BY THE DEPARTMENT IN APPEAL IS WITH RESPECT TO DELETING OF ADDITION MADE ON ACCOUNT OF HOMO LOGATION EXPENSES. IN ASSESSMENT YEAR 2003-04 THE ASSESSEE H AS INCURRED EXPENDITURE OF RS.75 44 101/- TOWARDS HOMOLOGATION. THE A SSESSING OFFICER HAS MADE AD HOC DISALLOWANCE OF RS.10 00 000/-. SIM ILARLY IN ASSESSMENT YEAR 2004-05 THE ASSESSEE HAS INCURRED EX PENDITURE OF RS.63 10 716/- TOWARDS HOMOLOGATION. THE ASSESSING OFFICER MADE AD 35 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 NHOC DISALLOWANCE OF RS.10 00 000/- IN ASSESSMENT YEAR 200 4-05 AS WELL. THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFF ICER ON THE GROUND THAT THE ASSESSEE HAS NOT FURNISHED SPECIFIC BILLS E TC AND THE DETAILS OF STOCK SUBMITTED TO ARAI DURING THE COURSE OF A SSESSMENT PROCEEDINGS. ON THE OTHER HAND THE CONTENTION OF THE A SSESSEE IS THAT ALL RELEVANT DETAILS WERE FURNISHED BEFORE THE ASSESSING OFFICE R YET THE ASSESSING OFFICER MADE AD HOC DISALLOWANCE OF RS.10 00 000/- IN EACH OF IMPUGNED ASSESSMENT YEARS. THE COMMISSIONER OF INCOM E TAX (APPEALS) HAS OBSERVED THAT THERE WAS NO BASIS FOR MAKIN G AD HOC DISALLOWANCE WITHOUT GIVING ANY OPPORTUNITY OF HEARING TO TH E ASSESSEE TO FURNISH FURTHER DETAILS AND DELETED THE ADDITION. WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE NEEDS A REVISIT TO THE FILE OF ASSESSING OFFICER FOR RE-CONSIDERATION AND APPRECIATION OF THE RELEVANT MATERIAL RELATING TO HOMOLOGATION CHARGES. THE ASSESSING OFFICER AFT ER CONSIDERING THE MATERIAL FURNISHED AND AFFORDING SUFFICIENT OPPO RTUNITY OF HEARING TO THE ASSESSEE SHALL DECIDE THIS ISSUE AFRESH IN ACCORDANCE WITH LAW. ACCORDINGLY GROUND NO. 5 RAISED BY THE REVENUE IN APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 28. THE GROUND NO. 6 RAISED BY THE DEPARTMENT IN APPEA L IS WITH RESPECT TO CLAIM OF EXPENDITURE ON CAPITALIZED CARS. THE ASSESSEE IN CROSS OBJECTIONS FOR ASSESSMENT YEAR 2003-04 HAS FILED A N ADDITIONAL GROUND ON THIS ISSUE WHICH READS AS UNDER : THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) H AS ERRED IN NOT DELETING THE AD-HOC DISALLOWANCE MADE BY THE LEARNE D ASSESSING OFFICER IN RESPECT OF CERTAIN EXPENSES INCURRED ON CAPITALI ZED CARS AND INSTEAD REMANDING BACK THE MATTER TO THE LEARNED ASSESSING OFFICER. 36 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 29. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS REMITTED T HE MATTER BACK TO THE FILE OF ASSESSING OFFICER TO CONSIDER TH E ADDITIONAL EVIDENCE FILED BY THE ASSESSEE. THE RELEVANT EXTRACT OF THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ARE AS UNDER : 2.6.6 THE APPELLANT HAS SUBMITTED THAT THERE IS NO CASE FOR THE DISALLOWANCE IN CASE OF CARS WHICH WERE USED BY TH E TOP MANAGEMENT EXECUTIVES. THE COMPANY HAS TAXED THIS BENEFIT IN T HE HANDS OF RESPECTIVE EMPLOYEES. CONSIDERING THE EXPLANATION O FFERED I AGREE WITH THE APPELLANT THAT THERE IS NO CASE FOR THE DISALLO WANCE IN THE HANDS OF THE COMPANY AS FAR AS CARS USED TOP MANAGEMENT EXEC UTIVES ARE CONCERNED. THIS IS BECAUSE IN THE HANDS OF COMPANY THE EXPENDITURE ON CAPITALISED CAR HAS BEEN INCURRED FOR THE EMPLOY EES AND IS INCURRED FOR THE PURPOSE OF ITS BUSINESS AND HENCE DEDUCTIBL E. 2.6.7 WITH RESPECT EXPENDITURE INCURRED ON BALANCE CARS IT IS SUBMITTED THAT SUCH CARS WERE EITHER USED IN THE CAR POOL FOR ALL THE EMPLOYEES OR WERE USED FOR THE PURPOSE OF BUSINESS IN EVENTS SUC H AS EXHIBITION ETC. THE LEARNED AO HAS STATED THAT THE APPELLANT HAS NO T FURNISHED ANY DOCUMENTARY EVIDENCE TO SUBSTANTIATE THAT THE CARS WERE USED WHOLLY AND EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS. T HE APPELLANT HAS STATED BEFORE ME THAT IT HAS ALL NECESSARY EVIDENCE IN SUPPORT ITS CLAIM. IN VIEW OF THIS ASSERTION I DI RECT THE LEARNED AO TO VERIFY THE EVIDENCE -AND DECIDE ADMISSIBILITY OF TH E CLAIM ON THE BASIS OF EVIDENCE FURNISHED BEFORE HIM. I CONSIDER FIT TO RE MIT THE MATTER TO THE LEARNED AO RATHER THAN ADMITTING THE SAME AS ADDITI ONAL EVIDENCE BEFORE ME AND SENDING THE SAME TO THE AO FOR VERIFICATION UNDER THE IT RULE 46A. 30. AFTER CONSIDERING THE SUBMISSIONS OF RIVAL SIDES AND PERU SING THE IMPUGNED ORDER WE FIND NO ERROR IN THE FINDINGS OF CIT(A) IN R EMITTING THE MATTER BACK TO AO. WE ARE OF THE CONSIDERED VIEW THAT THE AO SHOULD REEXAMINE THE ISSUE DENOVO. HERE WE WOULD LIKE TO POINT OUT THAT THE AO SHALL NOT SUBSTITUTE HIS JUDGEMENT OVER THA T OF THE ASSESSEE TO DETERMINE THE NEED AND QUANTUM OF EXPENDITURE. THE ASSESSING OFFICER AFTER CONSIDERING THE DOCUMENTS FURNISHED BY THE AS SESSEE SHALL 37 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 DECIDE THIS ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDIN G OPPORTUNITY OF HEARING TO THE ASSESSEE. ACCORDINGLY GRO UND NO. 6 RAISED BY THE REVENUE IN APPEAL AS WELL AS ADDITIONAL GRO UND RAISED BY ASSESSEE IN CROSS OBJECTION FOR A.Y. 2003-04 ARE ALLOWED FO R STATISTICAL PURPOSE. 31. THE GROUND NO. 7 RAISED BY THE REVENUE IN ITS APPEAL IS GENERAL IN NATURE HENCE REQUIRES NO ADJUDICATION. 32. IN THE RESULT THE APPEALS OF THE REVENUE ARE P ARTLY ALLOWED FOR STATISTICAL PURPOSE. CO NOS. 58 & 59/PN/2014 (ASSESSEES APPEAL) 33. THE ASSESSEE HAS FILED CROSS OBJECTIONS CO NOS. 58 & 59/PN/2014 IN APPEALS FILED BY THE DEPARTMENT FOR ASSESSM ENT YEARS 2003-04 AND 2004-05 RESPECTIVELY. THE ASSESSEE HAS R AISED TWO GROUNDS IN CROSS OBJECTION FOR ASSESSMENT YEAR 2003-04 WHICH READS AS UNDER : ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE HON'BLE COMMISSIONER OF INCOME TAX-IT/TP (THE LEARNED CIT(A)): 1. HAS ERRED IN NOT ADJUDICATING THE GROUND ON THE ISSUE RELATING TO DENIAL OF DEDUCTION UNDER SECTION 80IB OF THE ACT INCLUDING THE ADMISSIBILITY IN RELATION TO CERTAIN ITEMS OF INCO ME IN THE CALCULATION. 2. WITHOUT PREJUDICE TO OUR CONTENTION THAT PAYMENT MADE FOR ROYALTY BE TREATED AS REVENUE EXPENDITURE IN CASE THE TAX DEPARTMENTS GROUND THAT THE SAME IS A CAPITAL EXPENDITURE SUCCE EDS THEN DEPRECIATION UNDER SECTION 32 OF THE ACT SHOULD BE ALLOWED ON CAPITALIZED ROYALTY. 38 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 THE RESPONDENT CRAVES TO CONSIDER EACH OF THE ABOV E GROUND OF CROSS OBJECTIONS WITHOUT PREJUDICE TO EACH OTHER AN D CRAVES LEAVE TO ADD ALTER DELETE OR MODIFY ALL OR ANY OF THE A BOVE GROUNDS OF CROSS OBJECTIONS. THE ASSESSEE HAS FILED ADDITIONAL GROUND IN CROSS OBJECT IONS WHICH HAS BEEN REPRODUCED IN PARA 29 ABOVE AND HAS BE EN ADJUDICATED ALONG WITH GROUND NO. 6 RAISED BY THE DEPARTMENT IN ITS APPEAL. 34. THE LD. AR OF THE ASSESSEE SUBMITTED AT THE OUTSET T HAT HE IS NOT PRESSING GROUND NO. 2 RAISED IN THE CROSS OBJECTIONS. IN SO FAR AS GROUND NO. 1 THE LD. AR CONTENDED THAT THE ASSESSEE CO MMENCED MANUFACTURE OF CARS IN 1995 AS A NEW INDUSTRIAL UNDERTAKIN G. THE ASSESSEE FULFILLED ALL THE CONDITIONS FOR CLAIMING DEDUCTION U/S. 80IB(3) OF THE ACT AND WAS THUS ELIGIBLE TO CLAIM DEDUCTION U/S. 80I B(3) FOR THE PERIOD OF 10 YEARS STARTING FROM ASSESSMENT YEAR 1995-9 6. THE ASSESSEE HAD NO TAXABLE INCOME DURING THE FINANCIAL YEAR ENDED ON 31-03-2002 AND HENCE NO DEDUCTION U/S. 80IB(3) WAS CLAIME D IN THE RETURN OF INCOME. IN THE NOTES TO RETURN OF INCOME FOR A SSESSMENT YEAR 2003-04 THE ASSESSEE HAD SPECIFICALLY MENTIONED THAT IF DU RING THE ASSESSMENT PROCEEDINGS POSITIVE INCOME IS DETERMINED THEN THE ASSESSEE WOULD CLAIM THE DEDUCTION U/S. 80IB OF THE ACT . THE LD. AR GIVING THE SEQUENCE OF EVENTS POINTED THAT ON 18-10-200 4 RETURN FILED BY THE BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND N OTICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE. THE ASSESSEE PARTICIPATED IN THE ASSESSMENT PROCEEDINGS AND FURNISHED THE REQUISITE DETAILS AS REQUIRED BY THE ASSESSING OFFICER FROM TIME TO TIME. THE ASSESSING O FFICER PASSED THE ASSESSMENT ORDER U/S. 143(3)ON 30-03-2006 D ISALLOWING CERTAIN EXPENDITURE AS WELL AS SET OFF OF BROUGHT FORWARD LO SSES CLAIMED 39 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 BY ASSESSEE IN THE RETURN OF INCOME FOR ASSESSMENT YEAR 2003-04 THEREBY DETERMINING POSITIVE TAXABLE INCOME OF THE ASSESSE E. FURTHER THE ASSESSING OFFICER REJECTED THE CLAIM OF DEDUCTION U/S. 80IB(3) ON THE BASIS THAT THE AUDIT REPORT IN THE PRESCRIBED FORM W AS NOT FILED IN THE RETURN OF INCOME. ON 30-08-2006 THE ASSESSEE FILED R ECTIFICATION APPLICATION U/S. 154 OF THE ACT. THE ASSESSING OFFICER PASS ED RECTIFICATION ORDER ON 28-02-2007 ACCEPTING THE CLAIM OF DE DUCTION U/S. 80IB OF THE ACT. HOWEVER WHILE ALLOWING THE APPLICATION FO R RECTIFICATION THE ASSESSING OFFICER RE-WORKED THE DEDUCTION CLAIMED BY THE ASSESSEE U/S. 80IB SEPARATELY. THEREAFTER REASSE SSMENT PROCEEDINGS WERE INITIATED VIDE NOTICE DATED 31-03-2009 A ND THE DEDUCTION GRANTED U/S. 80IB WAS DISALLOWED. THE ASSESSEE FILED APPEAL AGAINST THE INITIATION OF REASSESSMENT PROCEEDINGS. THE CO MMISSIONER OF INCOME TAX (APPEALS) DISMISSED THE SAME. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL QUAS HED THE REASSESSMENT PROCEEDINGS. ON APPEAL FILED BY THE ASSES SEE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) AGAINST THE ASSESSME NT ORDER DATED 30-03-2005 ASSAILING THE DEDUCTION U/S. 80IB DUE TO NON-FILING OF AUDIT REPORT ALONG WITH RETURN OF INCOME THE COMMISS IONER OF INCOME TAX (APPEALS) DID NOT GRANT DEDUCTION U/S. 80IB OF THE ACT. THE CIT(A) HELD THAT ISSUE RELATING TO GRANT OF DEDUCTION HAS B ECOME INFRUCTUOUS ON ACCOUNT OF SUBSEQUENT WITHDRAWAL OF DEDUCT ION UNDER REASSESSMENT PROCEEDINGS. THE COMMISSIONER OF INCOME TA X (APPEALS) HAS ERRED IN NOT CONSIDERING THE FACT THAT THE TRIBUNAL HAS ALREADY QUASHED REASSESSMENT PROCEEDINGS. THUS THE ORDER ALLOW ING DEDUCTION U/S.80IB BY THE ASSESSING OFFICER IN THE RECTIFICAT ION PROCEEDINGS STANDS CONFIRMED. FURTHER WHILE COMPUTING QU ANTUM OF 40 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 DEDUCTION IN RECTIFICATION PROCEEDINGS THE ASSESSING OFFICER H AS DISALLOWED THE DEDUCTION U/S. 80IB ON THE FOLLOWING INCOME : INCOME AMOUNT (RS) .: LEASE INCOME ON LEASE OF CARS 34 6 1 000 TRADING INCOME ON SALE OF SPARES AND CBU CARS 6 22 53 329 COMMISSION INCOME ON SALE OF CBU CARS 2 12 04 526 MISCELLANEOUS INCOME 1 48 74 203 INTEREST INCOME 14 70 09 346 35. THE LD. AR CONTENDED THAT THE DEDUCTION U/S. 80IB IS ALLOWABLE ON THE AFORESAID INCOMES EXCLUDING INTEREST INCOME FOR THE FOLLOWING REASONS : A. LEASE INCOME - MB INDIA IS IN THE BUSINESS OF MANUFACTURING CAR S FOR SALE AS WELL AS LEASE. HENCE THE LEASING INCOME IS 'DERI VED' FROM ITS INDUSTRIAL UNDERTAKING ONLY AND THE SAME SHOULD BE ELIGIBLE FO R DEDUCTION UNDER SECTION 80-IB. B . TRADING INCOME ON SALE OF SPARES AND CBU CARS - AS A PART OF MANUFACTURING ACTIVITY THE IMPORT OF SPARE PARTS I S NECESSARY TO ENSURE THE AVAILABILITY OF SPARE PARTS FOR PROVIDING AFTER SALE SERVICES AND WARRANTY COMMITMENTS TO CUSTOMERS. FURTHER YOUR HO NOURS WOULD APPRECIATE THE FACT THAT IF THE AFTER SALES SERVICE AND WARRANTY IS NOT PROVIDED BY MB INDIA THE CUSTOMERS WOULD NO LONGER BE WILLING TO PURCHASE THE CARS AND THERE IS PROBABILITY THAT MB INDIA MAY LOSE ITS MARKET SHARE. THEREFORE IMPORT OF SPARE PARTS IS I NTERLINKED WITH ITS MANUFACTURING ACTIVITY. FURTHER IMPORT AND SALE OF CBUS IS IMPORTANT FOR A SSESSING THE MARKET CONDITION FOR A PARTICULAR RANGE OF CARS WHICH COUL D BE TARGETED FOR MANUFACTURING BY MB INDIA IN FUTURE OR TO BRING IN NICHE MODELS WHICH WILL BE SOLD IN FEW NUMBERS AND WILL NEVER BE ECONO MICALLY VIABLE TO MANUFACTURE IN INDIA. FURTHER CBU IMPORTS ARE MADE TO BRING NEW PRODUCTS AVAILABLE WITH AE AS CBU BUT WILL TAKE TI ME TO SUPPLY THE SAME IN SKD/CKD/PARTS LEVEL AND ALSO SOME TIMES TO BRIDGE A SUDDEN GAP OF DEMAND AND MANUFACTURING CAPACITY. 41 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 HENCE THE TRADING INCOME IS 'DERIVED' FROM ITS INDU STRIAL UNDERTAKING ONLY AND THE SAME SHOULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IB. RELIANCE IN THIS REGARD IS PLACED ON ASHOK LEYLAND LTD [1997] 224 ITR 122 (SC) (REFER PAGE 821 TO 823 OF PAPER BOOK- II) WHICH HELD THAT PROFITS AND GAINS FROM TRADING OF SPARES CANNOT BE DISASSOC IATED FROM MAIN ACTIVITY CARRIED ON BY THE ASSESSEE VIZ MANUFACTU RE AND SALE OF TRUCK AND THE SAME IS INTIMATELY CONNECTED WITH ITS BUSIN ESS HENCE DEDUCTION UNDER SECTION 80EI 80-1 OF THE ACT. SEPARATELY IN RELATION TO TRADING OF SPARES THE A PPELLANT ALSO WISHES TO PLACE RELIANCE ON THE DECISION OF BANGALORE TRIBUNA L IN CASE OF TOYOTA KIRLOSKAR MOTORS PVT LTD VS ACIT (ITA NO 828/BANG/2 010) (REFER PAGE 824 TO 825 OF PAPER BOOK-II) WHEREIN IT WAS HELD T HAT: 'IN THE INSTANT CASE OF THE ASSESSEE THE SALE OF S PARES IS TRIGGERED AS A RESULT OF THE MANUFACTURING ACTIVITIES INCLUD ING WARRANTY COMMITMENTS. THEREFORE WE ARE OF THE VIEW THAT IT WOULD NOT BE IN THE FITNESS OF THINGS FOR THE SALE OF SPARE PART S AND COMPONENTS TO BE CONSIDERED IN ISOLATION FROM THE SALE OF MANU FACTURED GOODS'. C. COMMISSION INCOME ON SALE OF CBU CARS - AS A PART OF THE ABOVE TRADING ACTIVITIES AS PER THE ARRANGEMENT BETWEEN MB INDIA AND DAIMLER AG CERTAIN SALES IN INDIA (EG SALES TO GOVERNMENT OR F OREIGN EMBASSIES OR CERTAIN CUSTOMERS BASED ON THEIR SPECIFIC REQUEST) WERE UNDERTAKEN BY DAIMLER AG ONLY AND MB INDIA FACILITATES SUPPORT AC TIVITIES IN CONNECTION THERETO FOR WHICH IT RECEIVED COMMISSION INCOME. I N LINE WITH THE TRADING INCOME THE COMMISSION INCOME IS ALSO 'DERIVED' FRO M ITS INDUSTRIAL UNDERTAKING ONLY AND THE SAME SHOULD BE ELIGIBLE FO R DEDUCTION UNDER SECTION 80-IB. D. MISCELLANEOUS INCOME - IN SUPPORT OF ITS CLAIM FOR DEDUCTION UNDER SECTION 80-IB ON MISCELLANEOUS INCOME MB INDIA SUB MITS THAT THE MISCELLANEOUS INCOME COMPRISES OF SALE OF SCRAP WR ITE-BACK OF TRADING LIABILITIES INSURANCE RECEIPTS FOR DAMAGE IN TRANS IT ETC WHICH ARE ALL INTRICATELY RELATED TO THE BUSINESS OPERATIONS OF M B INDIA. DETAILED BREAK-UP OF THE MISCELLANEOUS EXPENSES IS PROVIDED BELOW: 42 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 DESCRIPTION TOTAL (RS.) SALE OF WOODEN AND OTHER SCRAP 41 62 458 INCOME FROM VEHICLE SERVICING AND ROYALTY RECEIPT 10 11 565 WRITE OFF OF SUNDRY BALANCES (HOUSING DEPOSIT CUSTOMS DUTY CLAIM NOT RECEIVED) (29 87 047) OTHER RECEIPTS (INTEREST ON INCOME-TAX SALES TAX REFUND ETC.) 31 92 264 CREDITORS WRITTEN BACK 62 96 491 INSURANCE CLAIM RECEIVED FOR LOSS IN TRANSIT CLAIMS AND MOTOR POLICIES 17 62 874 PROVISION FOR INTEREST PAYABLE ON BOOKING AMOUNT REVERSED 14 35 599 MISCELLANEOUS INCOME TOTAL 1 48 74 203 36. THE LD. DR SUBMITTED THAT THIS ISSUE CAN BE REMITTED BACK TO THE FILE OF ASSESSING OFFICER FOR RECONSIDERATION AS THE TRIBUNAL HAS ALREADY QUASHED THE REASSESSMENT PROCEEDINGS. 37. BOTH SIDES HEARD. IT IS AN ADMITTED FACT THAT REASSE SSMENT PROCEEDINGS INITIATED AGAINST THE ASSESSEE IN ASSESSMENT YEAR 2003-04 TO DISALLOW THE BENEFIT OF DEDUCTION U/S. 80IB OF THE ACT HA S ALREADY BEEN SET ASIDE BY THE TRIBUNAL IN THE APPEAL FILED BY THE ASSESSEE. THUS THE COMMISSIONER OF INCOME TAX (APPEALS) IGNORANT OF THE ORDER OF TRIBUNAL HAS ERRED IN HOLDING THAT IN REASSESSMENT PROC EEDINGS THE DEDUCTION GRANTED U/S. 80IB HAS BEEN DISALLOWED. WITHOUT COMMENTING ON MERITS WE ARE REMITTING THIS ISSUE BACK TO THE FILE OF COMMISSIONER OF INCOME TAX (APPEALS) FOR DENOVO ADJUDICATIO N IN THE LIGHT OF THE FACT THAT REASSESSMENT PROCEEDINGS HAVE ALRE ADY BEEN QUASHED BY THE TRIBUNAL AND THE POSITION AS OF NOW IS THA T THE ORDER 43 ITA NOS. 1081 1082 1108 & 1109/PN/2013 AND CO NOS. 58 & 59/PN/2014 PASSED BY THE ASSESSING OFFICER IN RECTIFICATION PROCEEDINGS IS LIVE. THEREFORE THE GROUND NO. 1 RAISED BY THE ASSESSEE IN CR OSS OBJECTIONS IS ALLOWED FOR STATISTICAL PURPOSE. 38. THE ASSESSEE HAS FILED CROSS OBJECTIONS IN ASSESSME NT YEAR 2004- 05 ON SIMILAR GROUNDS. THE FINDINGS GIVEN BY US IN ASSESSME NT YEAR 2003-04 WOULD MUTATIS MUTANDIS APPLY TO THE GROUNDS RAISED IN CROSS OBJECTIONS FOR ASSESSMENT YEAR 2004-05. 39. IN THE RESULT THE CROSS OBJECTIONS FILED BY TH E ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON FRIDAY THE 30TH DAY OF SEPTEMBER 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 30 TH SEPTEMBER 2016 RK -*$./'0'(. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-IT/TP PUNE 4. THE DIT (TP/IT) PUNE 5. !'( %%)* )* + -. / DR ITAT A BENCH PUNE. 6. ( / 01 / GUARD FILE. // ! % // TRUE COPY// #2 / BY ORDER %3 ). / PRIVATE SECRETARY )* / ITAT PUNE