M/s. Motherson Sumi Systems Ltd., New Delhi v. Addl. CIT, New Delhi

ITA 5105/DEL/2010 | 2006-2007
Pronouncement Date: 21-01-2011 | Result: Allowed

Appeal Details

RSA Number 510520114 RSA 2010
Assessee PAN AADCM5685K
Bench Delhi
Appeal Number ITA 5105/DEL/2010
Duration Of Justice 2 month(s) 2 day(s)
Appellant M/s. Motherson Sumi Systems Ltd., New Delhi
Respondent Addl. CIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 21-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 21-01-2011
Date Of Final Hearing 18-01-2011
Next Hearing Date 18-01-2011
Assessment Year 2006-2007
Appeal Filed On 18-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E : NEW DELHI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI A.K. GARODIA ACCOUNTANT MEMBER ITA NO.5061/DEL/2010 ASSESSMENT YEAR : 2006-07 ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 5 (1) NEW DELHI. VS. M/S MOTHERSON TECHNO TOOLS LTD. 2 ND FLOOR F-7 BLOCK B-1 MOHAN COOPERATIVE INDUSTRIAL ESTATE MATHURA ROAD NEW DELHI 110 044. PAN : AADCM5685K ITA NO.5062 & 5060/DEL/2010 ASSESSMENT YEARS : 2006-07 & 2004-05 ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 5 (1) NEW DELHI. VS. M/S MOTHERSON SUMI SYSTEMS LTD. 2 ND FLOOR F-7 BLOCK B-1 MOHAN COOPERATIVE INDUSTRIAL ESTATE MATHURA ROAD NEW DELHI 110 044. PAN : AAACK0405A ITA NO.5105/DEL/2010 ASSESSMENT YEAR : 2006-07 M/S MOTHERSON SUMI SYSTEMS LTD. 2 ND FLOOR F-7 BLOCK B-1 MOHAN COOPERATIVE INDUSTRIAL ESTATE MATHURA ROAD NEW DELHI 110 044. PAN : AAACK0405A VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 5 (1) NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI Y.K. SHARMA CA REVENUE BY : SHRI PEEYUSH SONKAR SR. DR ITA NOS.5061 5062 5105&5060/DEL/10 2 ORDER PER I.P. BANSAL JUDICIAL MEMBER ITA NOS.5062/DEL/2010 AND 5105/DEL/2010 ARE CROSS APP EALS AND THEY ARE DIRECTED AGAINST THE ORDER OF THE CIT (A) D ATED 15 TH SEPTEMBER 2010 FOR ASSESSMENT YEAR 2006-07. ITA NO.50 60/DEL/2010 IS AN APPEAL IN RESPECT OF LEVY OF PENALTY U/S 271 (1) (C) AND IT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 14 TH SEPTEMBER 2010 FOR ASSESSMENT YEAR 2004-05. ITA NO.5061/DEL/2010 IS AN APPEAL DIRECTED AGAINST THE ORDER OF THE CIT (A) DATED 14 TH SEPTEMBER 2010 IN RESPECT OF ASSESSMENT YEAR 2006-07. 2. ITA NO.5061 5062 & 5105/DEL/2010 RAISE COMMON ISSUE S. ALL THESE FOUR APPEALS WERE HEARD TOGETHER AND FOR THE SA KE OF CONVENIENCE ALL THESE APPEALS ARE DISPOSED OFF BY THIS CONSOLIDATED ORDER. GROUNDS OF APPEAL IN EACH OF THE APPEAL ARE A S UNDER:- ITA NO.5061/DEL/2010. 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS ERRONEO US & CONTRARY TO FATS AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION MADE OF RS.8 79 913/- MADE BY THE A.O. CAPITALIZING 25% OF THE EXPENSES ON ACCOUNT OF ROYALTY PAID. 2.1 THE LD. CIT (A) IGNORED THE FINDINGS RECORDED B Y THE A.O. AND THE FACT THAT THE ASSESSEE WILL BE DERIVIN G LONG TERM BENEFITS BY PAYING ROYALTY AND THE FACT TH AT THE ASSESSEES CASE IS COVERED BY THE JUDGEMENT OF HONBLE APEX COURT IN THE CASE OF SOUTHERN SWITCH GEARS LTD. REPORTED IN 232 ITR 359. TPO AND ALSO THE FACT THAT THE CALCULATION HAS BEEN CORRECTLY DONE BY THE TPO. 3. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF HEARING. ITA NOS.5061 5062 5105&5060/DEL/10 3 TIME OF HEARING. ITA NO.5062/DEL/2010. 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS ERRONEO US & CONTRARY TO FATS AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (APPEALS) HAS ERRED IN RESTRICTING THE ADDITION MADE U/S 14A TO RS.16 59 876/- AS AGAINST RS.51 02 843/- MADE BY THE A.O AND ALSO IN DIRECTING THE A.O TO EXCLUDE CERTAIN ITEMS FOR CALCULATING DISALLOWANCE AS PER RULE 8D OF THE IT ACT. 2.1 THE LD. CIT (A) IGNORED THE FACT THAT THE DISALLOWANCE HAS BEEN CORRECTLY MADE BY THE A.O. U/S 14A OF THE AT AS PER THE PROVISIONS OF THE RULE 8D OF THE IT ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION MADE OF RS.73 96 638/- MADE BY THE A.O. CAPITALIZING 25% OF THE EXPENSES ON ACCOUNT OF ROYALTY PAID. 3.1 THE LD. CIT (A) IGNORED THE FINDING RECORDED B Y THE A.O. AND THE FAT THAT THE ASSESSEE WILL BE DERIVING LONG TERM BENEFIT BY PAYING ROYALTY AND THE FACT TH AT THE ASSESSEES CASE IS COVERED BY THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF SOUTHERN SWITCHGEARS LTD. REPORTED IN 232 ITR 359. 4. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF HEARING ITA NO.5060/DEL/2010 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS ERRONEO US & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT (APPEALS) HAS ERRED IN DELETING THE PENALTY RS.9 75 250/0 LEVIED BY THE A.O U/S 271(1)(C) OF THE IT AT. ITA NOS.5061 5062 5105&5060/DEL/10 4 2.1 THE LD. CIT (A) IGNORED THE FAT THAT THE ASSESSEE FURNISHED INACCURATE PARTICULARS OF ITS INCOME AND CONCEALED TAXABLE INCOME BY CLAIMING NON-ALLOWABLE DEDUCTION U/S 10B AND 80IB OF THE IT ACT. 3. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF HEARING. ITA NO.5105/DEL/2010 1. A) THAT ON THE FATS AND IN THE CIRCUMSTANCES OF TH E CASE AND UNDER THE PROVISIONS OF LAW THE LD. COMMISSIONER HAS ERRED IN DIRECTING THAT INTEREST ON PROPORTIONATE BASIS BE CALCULATED AND DISALLOWED AS HAVING BEEN INCURRED IN CONNECTION WITH NON TAXABLE INCOME FOR THE YEAR UNDER QUESTION. THIS IS THE METHOD PROVIDED U/R 8 D OF THE INCOME TAX RULES WHICH IS NOT APPLICABLE DURING THE YEAR UNDER APPEAL . B) THE ASSESSING OFFICER HAS ALSO ERRED IN DISALLOWING AN AMOUNT OF RS.8 05 331/- AS ADMINISTRATIVE EXPENSES WORKED OUT ON THE BASIS OF AVERAGE VALUE OF INVESTMENT (WITHOUT GIVING ANY COGENT REASON) WHILE NOTING THAT DISALLOWANCE IN TERMS OF RULE 8 D WAS NOT POSSIBLE IN VIEW OF THE HONBLE MUMBAI HIGH COURT DECISION. 3. THE ONE COMMON ISSUE RAISED IN ITA NO.5062 & 5105/D EL/2010 IS REGARDING DISALLOWANCE MADE ON ACCOUNT OF APPLICABIL ITY OF RULE 8D IN RESPECT OF EXEMPTED INCOME BY APPLYING SECTION 14A O F IT ACT 1961. THE FACTS RELATING TO THIS ISSUE ARE THAT DURING THE CO URSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE ASSESSING OFFICE R THAT THE ASSESSEE HAD CLAIMED EXEMPTION OF INCOME OF DIVIDEN D OF ` 2 63 97 698/-. THE ASSESSEE WAS REQUIRED TO EXPLAIN AS T O WHY THE DISALLOWANCE COULD NOT BE CALCULATED AS PER RULE 8D U /S 14A OF THE ACT. THE ASSESSEE OBJECTED TO THE SHOW CAUSE NOTICE GIVEN BY T HE ASSESSING OFFICER ON THE GROUND THAT THE DISALLOWANCE CO ULD NOT BE CALCULATED AS PER RULE 8D WHICH WAS INSERTED W.E.F. 24 TH MARCH 2008 HENCE COULD NOT BE APPLIED FOR ASSESSMENT YEAR 2006-07 AND WITHOUT ITA NOS.5061 5062 5105&5060/DEL/10 5 PREJUDICE TO SUCH ARGUMENT THE ASSESSEE SUBMITTED THE CAL CULATION UNDER RULE 8D AND THE SAID CALCULATION IS GIVEN AT PA GE 2 OF THE ASSESSMENT ORDER. CONSIDERING ALL THESE SUBMISSIONS THE ASSESSI NG OFFICER HAS WORKED OUT THE DISALLOWANCE BY APPLYING R ULE 8D AT ` 51 02 843/-. THE DISALLOWANCE MADE BY THE ASSESSING OF FICER WAS OBJECTED TO BEFORE THE CIT (A) AND REFERENCE WAS MAD E TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. 43 DTR 177 (BOM.) LD. CIT (A) AFTER CONSIDERING THE CONTENTIONS OF THE ASSESSEE AND ALSO CONSIDERING THE DECISION OF HONBLE BOMBAY HIGH COURT HAS COME TO THE CONCLUSION THAT THE DISALLO WANCE WAS NOT CALLED FOR SO FAR AS IT RELATES TO INTEREST OF ` 12 13 22 244/- AND ` 1 09 43 374/-. HOWEVER WITH REFERENCE TO OTHER PA YMENTS HE HAS OBSERVED THAT NO CLEAR EVIDENCE WAS FILED BY THE ASSESSEE COMPANY TO SUGGEST THAT THE SAME WAS ALSO INCURRED FOR THE REGULAR BUSINESS ACTIVITY AND NO PART THEREOF WAS RELATING TO EARNING OF INCOME NOT FORMING PART OF THE TAXABLE INCOME. THUS LEARNED C IT (A) HAS DIRECTED THE ASSESSING OFFICER TO RE-CALCULATE THE INTEREST ON PR OPORTIONATE BASIS AND DISALLOW THE SAME AS HAVING BEEN INCURRED IN CONNE CTION WITH NON- TAXABLE INCOME. SO AS IT RELATES TO INDIRECT EXPENSES LEARNED CIT (A) HAS OBSERVED THAT THE DISALLOWANCE OF ` 8 05 331/- REG ARDING INDIRECT EXPENSES IS NOT UNREASONABLE AND EXCESSIVE THEREFORE TH E SAID DISALLOWANCE IS SUSTAINED. THE ASSESSEE IN ITS APPEAL IS AGG RIEVED BY THE DIRECTION GIVEN BY THE CIT (A) TO UPHOLD THE PA RT ADDITION WITH RESPECT TO INTEREST AS WELL AS DISALLOWANCE UPHELD ON AC COUNT OF INDIRECT EXPENSES. THE DEPARTMENT IN ITS APPEAL IS AGG RIEVED WITH THE FINDINGS OF LD. CIT (A) IN WHICH IT HAS BEEN HELD THA T INTEREST OF ` 12 13 22 244/- AND ` 1 09 43 374/- IS NOT RELATED TO THE INVESTMENT MADE BY THE ASSESSEE FOR INVESTING IN SHARES FROM WHERE TH E INTEREST FREE INCOME HAS BEEN EARNED. ITA NOS.5061 5062 5105&5060/DEL/10 6 4. LD. DR AFTER NARRATING THE FACTS SUBMITTED BEFORE US THAT FOR ARRIVING AT A CONCLUSION THAT A SUM OF ` 12 13 22 244 /- AND ` 1 09 43 374/- WAS NOT RELATED TO INVESTMENT MADE BY T HE ASSESSEE IN THE SHARES FROM WHICH THE DIVIDEND WAS EARNED. THE LE ARNED CIT (A) HAS RELIED ON THE PROCEEDINGS FOR ASSESSMENT YEAR 1999-20 00 IN WHICH IT WAS FOUND THAT NO LOAN WAS UTILIZED FOR INVESTMENT IN SHARES. LEARNED DR STATED THAT THE PRESENT YEAR IS ASSESSMENT YEAR 2006-07 AND THEREFORE IT HAS NOT BEEN VERIFIED THAT WHETHE R DURING THE PERIOD FROM ASSESSMENT YEAR 1999-2000 TILL THE END OF THE PRESE NT YEAR WHETHER THERE WAS ANY CHANGE OR NOT. HE SUBMITTED TH AT THE DEPARTMENT IS OBJECTING TO SUCH FINDINGS OF LEARNED CI T (A) VIDE WHICH SUCH AMOUNT WAS HELD TO BE EXCLUDIBLE FROM CALCULATIN G THE DISALLOWANCE. HE SUBMITTED THAT IT WOULD HAVE BEEN B ETTER FOR CIT (A) IF THE MATTER WAS RESTORED BACK TO THE FILE OF ASSESSING OFFICER FOR RECALCULATION OF THE DISALLOWANCE INSTEAD OF SPECIFICA LLY EXCLUDING THE AFOREMENTIONED TWO AMOUNTS. 5. ON THE OTHER HAND IT WAS SUBMITTED BY LD. AR THAT AS PER THE FINDINGS RECORDED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1999-2000 THE INVESTMENT MADE BY THE ASSE SSEE IN SHARES WAS ALWAYS LESS THAN SHARE CAPITAL AND RESERVES OF TH E COMPANY TILL THE YEAR UNDER APPEAL AND A CHART WAS PRODUCED BEFORE THE CIT (A) TO SUBSTANTIATE SUCH CONTENTION. THEREFORE HE PLEADE D THAT THE VALUE OF INVESTMENT NEVER EXCEEDED ITS OWN FUNDS AND THERE W AS NO OCCASION TO UTILIZE BORROWED FUNDS FOR THE PURPOSE OF MAKING I NVESTMENT IN THE SHARES FROM WHERE THE ASSESSEE HAD EARNED EXEMPTED INCOME . THUS HE PLEADED THAT THE ORDER OF LEARNED CIT (A) THAT T O THE EXTENT OF THE AFOREMENTIONED TWO AMOUNTS ARE TO BE EXCLUDED SHOULD BE UPHELD. 6. SO AS IT RELATES TO ASSESSEES APPEAL LEARNED AR STATED THAT THE DISALLOWANCE TO THE EXTENT OF ` 8 05 331/- ON ACCOUN T OF INDIRECT ITA NOS.5061 5062 5105&5060/DEL/10 7 EXPENSES HAS WRONGLY BEEN UPHELD BY THE CIT (A) AND T HEREFORE THE SAID DISALLOWANCE SHOULD BE DELETED. 7. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENTI ONS HAVE CAREFULLY BEEN CONSIDERED. ACCORDING TO THE DECISION OF HONBLE BOMBAY HIGH COURT RULE 8D STRICTLY IS NOT APPLICABLE FOR THE ASSESSMENT YEAR 2006-07 BUT AT THE SAME TIME DISALLOWA NCE HAS TO BE MADE UNDER THE MAIN PROVISION I.E. SECTION 14A ( 1). THE ASSESSING OFFICER HAS CALCULATED THE DISALLOWANCE UNDER RULE 8D AND WHEN THE ASSESSING OFFICER FRAMED THE ASSESSMENT PROBABLY THE DECISI ON OF HONBLE BOMBAY HIGH COURT WAS NOT AVAILABLE. THE ISSU E THAT WHETHER OR NOT INVESTMENTS MADE BY THE ASSESSEE IN THE SHARES FROM WHERE THE DIVIDEND HAS BEEN EARNED COULD NOT BE EXAMINED BY TH E ASSESSING OFFICER AS HE HAS SIMPLY APPLIED RULE 8D. THIS MATTER REQUIRE EXAMINATION IN DEPTH TO CALCULATE THE DISALLOWANCE U /S 14A(1). THEREFORE WE ARE OF THE OPINION THAT NO RESTRICTION SHOULD BE IMPOSED UPON THE ASSESSING OFFICER FOR RE-ADJUDICATING THE DISAL LOWANCE. THEREFORE HE IS DIRECTED TO TAKE INTO ACCOUNT THE D ECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. (SUPRA) AND ALSO AVAILABLE CASE LAWS ON THE SUBJECT AND AFTER G IVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING RE-ADJUDICA TE THE ISSUE AS PER DIRECTIONS CONTAINED HEREIN. 8. FOR STATISTICAL PURPOSES THE APPEAL FILED BY THE ASSE SSEE AND GROUND NO.2 OF DEPARTMENTAL APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 9. GROUND NO.2 WHICH IS ONLY EFFECTIVE GROUND IN IT A NO.5061/DEL/2010 IS COMMON WITH THE GROUND NO.3 OF D EPARTMENTAL APPEAL I.E. ITA NO.5062/DEL/10. AT THE OUTSET IT W AS POINTED OUT THAT IN THE CASE OF MOTHERSON SUMI SYSTEMS LTD. FOR IMMEDIATE P RECEDING ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2005-06 VIDE ORDER D ATED 31 ST ITA NOS.5061 5062 5105&5060/DEL/10 8 AUGUST 2010 IN ITA NO.3728/DEL/2009 THIS TRIBUNAL H AS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND THE DISALLOWANCE WAS DE LETED. 10. THE BRIEF FACTS AS CULLED OUT IN THE SAID ORDER WA S THAT THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURING OF INTE GRATED WIRING HARNESS INCLUDING ITS COMPONENTS LIKE WIRES CONN ECTORS TERMINALS ETC AND ENGINE CABLES MAINLY FOR AUTOMOTIV E INDUSTRY IN INDIA. THE ASSESSEE IS ALSO ENGAGED IN THE MANUFACTURING OF INJECTION MOULDED AND BLOW MOULDED PLASTIC AND RUBBER COMPONEN TS FOR AUTOMOBILE INDUSTRY WHICH ARE USED FOR INTERIOR FINI SHING AND UNDER BONNET IN A CAR. IT WAS FOUND THAT THE ASSESSEE COMPANY ENTERED INTO A TECHNICAL ASSISTANCE AGREEMENT WITH SUMITOMO ON 3 RD DECEMBER 1986 WHICH WAS EXTENDED BY TECHNICAL ASSISTANCE AGREEMENT (E XTENSION) ON 20 TH DECEMBER 2001. THE OBJECT OF THE AGREEMENT WAS TH AT SUMITOMO WAS TO SUPPLY AND PROVIDE LICENCE TO MANUFACTURE AND SELL THE PRODUCTS AS DEFINED IN THE TECHNICAL ASSISTANCE AGREEMENT BY USIN G SUCH TECHNICAL INFORMATION KNOW HOW AND TECHNICAL ASSISTAN CE. THE ASSESSING OFFICER ON AN ANALYSIS OF SUCH AGREEMENT OBSERVED THAT TECHNICAL INFORMATION SHALL MEAN ALL KNOWLEDGE INCLU DING DESIGN RESEARCH FINDINGS KNOW HOW OWNED OR CONTROLLED BY SU MITOMO IN THE AREA OF MANUFACTURE OF THE PRODUCTS AS ON DATE AND AC QUIRED DURING THE CURRENCY OF THIS AGREEMENT. ACCORDING TO THE RE NEWED AGREEMENT THE ASSESSEE COMPANY WAS REQUIRED TO PAY SUMITOMO RUNNIN G ROYALTY OF 2% OF THE NET SELLING PRICE ON ALL MODELS OF WIRIN G HARNESSES SUBJECT TO TAXES. REFERRING TO THE JUDGEMENT OF HONBLE SUP REME COURT IN THE CASE OF SOUTHERN SWITCHGEAR LTD. 232 ITR 220 THE ASSE SSING OFFICER FORMED AN OPINION THAT THE ASSESSEE WILL HAVE CERTAIN B ENEFITS OF ENDURING NATURE OUT OF THE PAYMENT OF RUNNING ROYAL TY TO THE FOREIGN COLLABORATORS AND HE TREATED IT AS A CAPITAL EXPENDIT URE AND ALLOWED 25% AS DEPRECIATION OF THE SAID AMOUNT AND BALANCE AM OUNT WAS DISALLOWED. THE TRIBUNAL IN ITS AFOREMENTIONED ORDER AFTER CONSIDERING ITA NOS.5061 5062 5105&5060/DEL/10 9 BOTH THE PARTIES AND AFTER NOTING THAT IN THE CASE OF SISTER CONCERN OF THE ASSESSEE THE TRIBUNAL HAD TREATED THE SAID AMOUNT AS REVENUE EXPENDITURE AND THE SAID ORDER OF THE TRIBUNAL WAS AL SO UPHELD BY HONBLE DELHI HIGH COURT IN ITA NO.750 OF 2008 AND CONSIDERING ALL THESE THINGS THE TRIBUNAL HAS HELD THIS ISSUE IN FAVOUR OF THE ASSESSEE. LEARNED CIT (A) HAS ALSO DELETED THE DISALLOWANCE FOLL OWING THE SAID DECISION OF HONBLE DELHI HIGH COURT. IN THIS MANNER IT WAS CLAIMED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND TH E DEPARTMENTAL APPEAL RELATING TO THIS ISSUE SHOULD BE DI SMISSED. 11. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND WE HAVE GONE THROUGH THE ORDER PASSED BY THIS TRIBUNAL DATED 31 ST AUGUST 2010. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL WHILE DELET ING THE DISALLOWANCE ARE AS UNDER:- 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AND G ONE THROUGH THE RECORD CAREFULLY. ON DUE CONSIDERATION OF THE ORDER OF THE LD. CIT (A) WE FIND THAT LD. FIRST APPELLATE AUTHO RITY HAS MADE A DETAILED ANALYSIS OF THE FACTS AND POSITION OF L AW PROPOUNDED IN VARIOUS AUTHORITATIVE PRONOUNCEMENTS. LD . CIT (A) HAS ALMOST CONCURRED WITH THE CONTENTION OF ASSESSE E ON ALL ASPECTS EXCEPT ONE WHICH IS AVAILABLE AT SERIAL NO.1 O F THE CHART EXTRACTED SUPRA. IN THE CASE OF SOUTHERN SWITCHGEAR THE FIRST FACTOR CONSIDERED BY THE LD. CIT (A) IS THAT FACTORY WAS BEING SET UP WHEREAS IN THE CASE OF ASSESSEE IT IS A RUNNING FA CTORY FOR A NUMBER OF YEARS. LD. FIRST APPELLATE AUTHORITY FURTHER OBSERVED THAT PAYMENT FOR KNOW-HOW BY THE ASSESSEE INCLUDES FOR PLANT LAYOUT. THIS HE CONSTRUED ON AN APPRECIATION OF ANNEX URE 1 AND 2 ATTACHED WITH THE AGREEMENT. IN THE TECHNICAL AGREEMENT THE PARTIES HAVE EXPLAINED MEANINGS OF CERTAIN WORDS AND EXPRESSIONS USED IN THE AGREEMENT. ARTICLE 1 GIVES THO SE DEFINITIONS. TECHNICAL INFORMATION HAS BEEN EXPLAINE D WHICH READ AS UNDER:- 1.2 TECHNICAL INFORMATION. TECHNICAL INFORMATION SHALL MEAN ALL KNOWLEDGE INC LUDING DESIGNING RESEARCH FINDINGS KNOW-HOW OWNED CONTRO LLED AND LINCEMSABLE BY SUMITOMO AND DESCRIBED IN ANNEX 1 ATTACHED HERETO IN THE AREA OF MANUFACTURE OF THE PRODUCTS BOTH AS ON THE EFFECTIVE DATE AND ACQUIRED DURING THE CURRENCY OF THIS AGREEMENT. ITA NOS.5061 5062 5105&5060/DEL/10 10 8. IN ANNEXURE 1 13 ITEMS HAVE BEEN GIVEN BUT WE ARE CONCERNED WITH THE DETAILS AT S.NO.1 WHICH ARE IN RELATI NG TO BUILDING AND PLANT LAYOUT. THE EXPRESSION BUILDING A ND PLANT LAY OUT MEANS MACHINERY AND EQUIPMENT LAY OUT ENVIRONMENT SAFETY AND ANTI POLLUTION. ACCORDING TO THE LD. CIT (A) THIS PLANT LAYOUT WILL GIVE LONG TERM/ENDURING BENEFIT TO THE ASSES SEE AND IT DESERVES TO BE CONSIDERED FOR THE ISSUE WHETHER ASSESS EE MADE ANY PAYMENT FOR ACQUIRING CAPITAL ASSETS IN THE GARB OF ROYALTY PAYMENT. IN OUR OPINION LD. CIT (A) FAILED TO LOOK I T WITH THIS ANGLE. THE ASSESSEE HAS A RUNNING FACTORY. THE PLA NT LAY OUT CAN BE CONSIDERED AS UTILIZATION OF THE TECHNOLOGY PROV IDED BY SUMITOMO IN A BETTER WAY. IT IS NOT THE DESIGN AND DRAWI NG OF THE FACTORY BUT DEMONSTRATE THE LAY OUT OF THE MACHINERY WI THIN THE FACTORY PREMISES. SO IT IS NOT SUCH AN IMPORTANT FAC TOR WHICH CAN FORCE THE A.O. TO UNSETTLE THE FACTS BETWEEN THE DEPARTM ENT OF ASSESSEE SETTLED IN THE LAST 20 YEARS. THIS INFORMA TION MAY BE RELATING TO THE ARRANGEMENT OF THE MACHINERY FOR GIVI NG BETTER PRODUCTION IN THE LINE OF TECHNICAL ASSISTANCE AGR EEMENTS. HOW IT COULD BE SEGREGATED FROM THE OTHER TECHNICAL ASSI STANCE FOR WHICH A PAYMENT OF RUNNING ROYALTY IS BEING CONSI DERED AS A REVENUE IN NATURE. THE TRIBUNAL IN THE CASE OF SISTER CONCERN HAS DEALT THE ISSUE IN DETAIL. THE FINDING OF THE TRIBU NAL REPORT IN PARAGRAPH 16.2 READ AS UNDER;- WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. THE AGREEMENT IS PLACED IN PAPER BOOK-1 ON PAGES 158-165. IT IS SEEN THAT THE ASSESSEE WAS GRANTED A NON-EXCLUSIVE RIGHT AND LICENCE TO MANUFACTURE THE PRODUCTS IN THE MANUFACTURING TERRITORY AND TO SELL THE PRODUCTS IN THE SALES TERRITORY. AT THE SAME TIME IT BECOME ENTITLED TO TRAINING FACILITIES BY MUTUAL CONSENT FOR WHICH EXPENSES WERE TO BE BORNE BY THE ASSESSEE. THE ASSESSEE ALSO BECOME ENTITLED TO THE TECHNICAL ASSISTANCE FROM THE ENGINEERS OF M/S SUMITOMO THE EXPENDITURE FOR WHICH WAS TO BE BORNE BY THE ASSESSEE. THE ASSESSEE WAS NOT ENTITLED TO ANY RIGHT OR LICENSE TO USE THE NAME OF M/S SUMITOMO OR ANY TRADEMARK OWNED BY M/S SUMITOMO ETC. THE ASSESSEE WAS TO PAY A LUMP SUM CONSIDERATION OF US DOLLARS 50 000/- IN THREE INSTALLMENTS AND A RUNNING ROYALTY OF 3% OF NET SELLING PRICE IN RESPECT OF SALES TO SWS GROUP OR SAHGAL FAMILY CONCERNS AND 5% IN CASE OF OTHER SALES. THE TERM OF THE AGREEMENT WAS FIXED AT 5 YEARS. THE EFFECT OF THE TERMINATION WAS THAT ALL RIGHTS AND LICENSES WILL CEASE IMMEDIATELY BUT THE ASSESSEE WAS PERMITTED TO DISPOSE OFF THE PRODUCTS IN THE INVENTORIES OVER A PERIOD OF 150 DAYS AND M/S SUMITOMO WAS ENTITLED TO ROYALTIES ON SUCH SALES AS IF THE SALES WERE MADE ITA NOS.5061 5062 5105&5060/DEL/10 11 PRIOR TO THE TERMINATION OF THE AGREEMENT. ON THE BASIS OF THREE PROVISIONS IT BECOMES CLEAR THAT THE ASSESSEE WAS NOT LEFT WITH ANY ASSET OR RESIDUARY RIGHT ON TERMINATION OF AGREEMENT AND EVEN INVENTORIES WERE TO BE SOLD WITHIN 150 DAYS. IN THE CASE OF SOUTHERN SWITCH GEAR LTD. (SUPRA) THE HONBLE COURT FOUND THAT THE ASSESSEE DERIVED BENEFIT OF ENDURING NATURE BECAUSE IT WAS LEFT WITH THE TECHNICAL INFORMATION. HOWEVER IN THE CASE OF IAE PUMPS LTD. (SUPRA) IT WAS POINTED OUT THAT GENERAL TESTS APPLICABLE IN THIS MATTER HAVE TO BE APPLIED NAMELY WHETHER (I) THERE WAS ANY ACQUISITION OF ANY CAPITAL ASSETS (II) WHETHER ANY BENEFIT OF ENDURING NATURE ENSURED TO THE ASSESSEE OR (III) THE EXPENDITURE WAS IN CAPITAL FIELD. LOOKIN G TO THE TERMS OF AGREEMENT WE DO NOT FIND THAT ANY OF THESE TESTS WAS SATISFIED IN THE INSTANT CASE. THEREFORE WE ARE OF THE VIEW THAT THE LD. CIT (A) RIGHTLY HELD THAT THE EXPENDITURE TO BE REVENUE IN NATURE. THUS THIS GROUND IS ALSO DISMISSED. 9. THIS FINDING HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT IN ITA NO.750 OF 2008. ON DUE CONSIDERATION OF ALL THESE FACTS AND CIRCUMSTANCES PAST HISTORY OF THE ASSESS EE AND THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SISTER CONCERN WE ALLOW THE APPEAL OF ASSESSEE AND DELETE THE DISALLOWANCE. 12. IN THIS VIEW OF THE SITUATION RESPECTFULLY FOLLOW ING THE AFOREMENTIONED ORDER OF THE TRIBUNAL WE FIND NO ME RIT IN THE SOLE ISSUE RAISED BY THE REVENUE IN ITA NO.5061/DEL/2010 AND GR OUND NO.3 RAISED IN ITA NO.5062/DEL/2010. THESE GROUNDS ARE DISMISSED. 13. NOW COMING TO ITA NO.5060/DEL/2010 THE ASSESSEE H AD FILED RETURN AT NET INCOME OF `39 31 59 520/- IN WHICH IT CLAIMED EXEMPTION U/S 10B AND ALSO DEDUCTION U/S 80IB. THE ASSESSING OFFICE R REDUCED THE EXEMPTION U/S 10B TO THE EXTENT OF ` 26 14 775/- AS PER FOLLOWING CALCULATION:- ITA NOS.5061 5062 5105&5060/DEL/10 12 FOR CHAPTER 10B 1. NOIDA UNIT C-14A & B INTEREST RS.12421/- INTEREST RECEIVED ON LOANS TO EMPLOYEES 2. BANGALORE UNIT MISC. INTEREST RS.2319480/- RS.25681/- DUE TO SCRAP SALES INTEREST RECEIVED ON LOANS TO EMPLOYEES. 3. NOIDA D-3 SECTOR-1 INTEREST RS.16422/- INTT. RECEIVED ON LOANS TO EMPLOYEES MISC. RS.240771.43 SCRAPS SALES RS.2614775/- AND 80IB DEDUCTION WAS ALSO REDUCED TO A SUM OF ` 3 99 153/- WHICH AMOUNT WAS CALCULATED AS UNDER:- FOR CHAPTER VI READ WITH SECTION 80IB 1. BBJ NOIDA C-14A & B INTEREST RS.23310/- INTEREST RECEIVED ON LOANS TO EMPLOYEES MISC. RS.375843 OUT OF THIS 322343 IS DUE TO DUTY DRAWBACK AND REST OF 53500/- IS DUE TO SCRAP SALES. RS.399153/- 14. ACCORDINGLY THE INCOME OF THE ASSESSEE WAS COMPUTED AT A SUM OF ` 39 60 53 710/-. THE PENALTY PROCEEDINGS U/S 271 (1)(C) WERE INITIATED WITH REGARD TO DISALLOWANCE SO MADE. LEARN ED CIT (A) HAS DELETED THE PENALTY ON THE GROUND THAT THE ASSESSEE COM PANY CANNOT BE CHARGED WITH THE FURNISHING OF INACCURATE PARTICU LARS. THE CLAIMS OF THE ASSESSEE U/S 10B AND 80IB WITH RESPECT TO INTEREST INC OME AND SCRAP SALES WAS REJECTED PURELY ON LEGAL GROUNDS AND THE RE IS NO MENTION EITHER IN THE ASSESSMENT ORDER OR IN THE PENALT Y ORDER FROM WHERE IT CAN BE GATHERED THAT THE ASSESSEE COMPANY HAS D ELIBERATELY OR KNOWINGLY FURNISHED ANY PARTICULARS WHICH WERE NOT ACCURATE. THE RETURN OF INCOME WAS PREPARED BY THE ASSESSEE AS PER GUIDANCE/SUPERVISION AND LEGAL ADVICE EXTENDED TO IT BY THE TAX ITA NOS.5061 5062 5105&5060/DEL/10 13 CONSULTANTS AND THE SAME WAS DULY SUPPORTED WITH THE REQ UISITE AUDIT REPORT. THE SAID LEGAL ADVICE WAS NEITHER DISHONEST NO R OBTAINED IN COLLUSION WITH THE AUDITOR HENCE HE HAS HELD THAT P ENALTY LEVIED BY THE ASSESSING OFFICER AMOUNTING TO ` 9 75 255/- IS NOT L EVIABLE. THE DEPARTMENT IS AGGRIEVED HENCE IN APPEAL. 15. LD. AR HAS PRODUCED BEFORE US COPY OF THE ORDER O F THE TRIBUNAL DATED 18 TH JUNE 2010 IN ITA NO.3432/DEL/2008 VIDE WHICH THE TRIBUNAL HAS DECIDED THE DISALLOWANCE IN QUANTUM PROCEEDINGS IN AN APPEAL FILED BY THE CIT (A) AS THE DISALLOWANCE WERE UPHELD BY THE CIT (A). SO AS IT RELATES TO EXCLUSION SALE OF SCRAP FOR THE PURPOSE OF EXEMPTION U/S 10B THE TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER THA T THE SAME HAS TO BE ALLOWED IN PROPORTION AS REFERRED IN SECTION 1 0B (4) AND IT HAS BEEN HELD THAT SUCH PROPORTION OF SALE PROCEEDS OF SCRA P SHOULD BE ADDED TO THE TOTAL TURNOVER AND THEREAFTER THE AM OUNT OF DEDUCTION ALLOWABLE TO THE ASSESSEE SHOULD BE WORKED OUT AS PER SUB- SECTION (4) OF SECTION 10B. THUS SO AS IT RELATES TO EXCLUSION OF SCRAP CERTAIN RELIEF HAS BEEN GIVEN TO THE ASSESSEE. SO AS IT RELATES T O EXCLUSION OF INTEREST IT HAS BEEN HELD BY THE TRIBUNAL THAT THE SA ME HAS NECESSARILY TO BE TREATED AS A PROFIT NOT DERIVED FROM 100% EXPO RT ORIENTED UNDERTAKING. IT WAS OBSERVED THAT THE SAME HAS RIGHTLY BEEN EXCLUDED. SO AS IT RELATES TO THE ASPECT OF DUTY DRAWBACK APPLY ING THE RATIO LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA IT HAS BEEN HELD THAT THE SAME IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB. IT IS IN THIS MANNER THE QUANTUM APPEAL OF THE ASSESSEE HAS BEEN D ECIDED BY THE AFOREMENTIONED ORDER. 16. AFTER NARRATING THE FACTS IT WAS SUBMITTED BY LD. DR THAT THE ASSESSEE HAS MADE A CLAIM WHICH WAS NOT PERMISSIBLE IN LAW HENCE LEARNED CIT (A) WAS WRONG IN DELETING THE PENALTY. HE CONTENDED THAT THE PENALTY MAYBE REDUCED ONLY TO THE EXTENT OF THE DELETION MADE BY ITA NOS.5061 5062 5105&5060/DEL/10 14 THE ASSESSING OFFICER. LD. AR INFORMED THAT THE APPEAL EFFECT HAS NOT BEEN GIVEN BY THE ASSESSING OFFICER IN THE QUANTUM PROC EEDINGS AND THEREFORE THE EXACT AMOUNT OF DELETION IS NOT KNOWN . HOWEVER HE SUBMITTED THAT IT WAS THE LEGAL CLAIM MADE BY THE ASSESSE E AND THE ISSUE REGARDING ALLOWABILITY OF SUCH AMOUNT WAS DEBATAB LE HENCE LEARNED CIT (A) HAS RIGHTLY DELETED THE PENALTY AND HIS ORDER SHOULD BE UPHELD. HE REFERRED TO THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. 322 ITR 158 TO CLAIM THAT SUCH DELETION OF PENALTY BY CIT (A) IS IN ACCORD ANCE WITH THE LAW. 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. ACCORDING TO THE BON A FIDE BELIEF OF THE ASSESSEE THE SALE OF SCRAP INTEREST INCOME AND DEPB WERE RELATING TO BUSINESS INCOME THEREFORE WAS CONSIDERED TO BE ELIGIBL E FOR EXEMPTION U/S 10B AND 80IB. IT HAS BEEN RECORDED BY LD. CIT (A) THAT SUCH CLAIMS OF THE ASSESSEE WERE SUPPORTED BY THE AUDITORS. IF IT IS SO THEN ALL THE PARTICULARS HAS TO BE DISCLOSED BY THE ASSE SSEE IN THE ENCLOSED PAPERS WITH THE RETURN. THE CLAIM OF THE ASSE SSEE REGARDING SALE OF SCRAP WHICH IS THE MAJOR AMOUNT OF DISALLOWANCE HAS PARTLY BEEN ACCEPTED BY THE TRIBUNAL. THE RETURN OF INCOM E FILED BY THE ASSESSEE IS ALSO RUNNING INTO SEVERAL CRORES OF RUPEES. THE REFORE IT CANNOT BE SAID THAT THE ASSESSEE WITH AN INTENTION TO CO NCEAL THE PARTICULARS OF ITS INCOME HAS MADE SUCH CLAIMS. NO MATE RIAL HAS BEEN BROUGHT ON RECORD TO ASSAIL THE FINDINGS RECORDED BY T HE CIT (A) THAT THE ASSESSEE CANNOT BE CHARGED FOR FURNISHING INACCURATE PARTICULARS AND THE CLAIM OF THE ASSESSEE IS NOT SUPPORTED BY THE REP ORT SUBMITTED BY THE AUDITORS. IN THIS VIEW OF THE SITUATION WE FI ND NO INFIRMITY IN THE ORDER OF THE CIT (A) VIDE WHICH THE IMPUGNED PENALT Y HAS BEEN DELETED. WE DECLINE TO INTERFERE. THIS APPEAL OF T HE REVENUE IS DISMISSED. ITA NOS.5061 5062 5105&5060/DEL/10 15 18. IN THE RESULT ITA NOS.5061 & 5060/DEL/2010 ARE D ISMISSED AND ITA NOS.5062/D/2010 IS PARTLY ALLOWED FOR STATISTICAL P URPOSES AND ITA NO.5105/DEL/2010 IS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 21.01.20 11. SD/- SD/- [A.K. GARODIA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 21.01.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES ITA NOS.5061 5062 5105&5060/DEL/10 16 DATE OF DICTATION 18.01.2011 DATE OF PRESENTATION OF THE DRAFT ORDER TO THE MEMBER 19.01.2011 DATE OF RETURN FROM THE BENCH AFTER PRONOUNCEMENT &SIGNING DATE OF DISPATCH OF THE ORDER TO THE BENCH