Maruti Suzuki India Ltd., New Delhi v. Addl. CIT, New Delhi

ITA 6021/DEL/2012 | 2008-2009
Pronouncement Date: 09-11-2017 | Result: Partly Allowed

Appeal Details

RSA Number 602120114 RSA 2012
Assessee PAN AAACM0829Q
Bench Delhi
Appeal Number ITA 6021/DEL/2012
Duration Of Justice 4 year(s) 11 month(s) 5 day(s)
Appellant Maruti Suzuki India Ltd., New Delhi
Respondent Addl. CIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 09-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Partly Allowed
Bench Allotted I1
Tribunal Order Date 09-11-2017
Date Of Final Hearing 04-07-2017
Next Hearing Date 04-07-2017
First Hearing Date 04-07-2017
Assessment Year 2008-2009
Appeal Filed On 04-12-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SHRI N.K. SAINI ACCOUNTANT MEMBER & SHRI K.N. CHARRY JUDICIAL MEMBER ITA NO.-6021/DEL/2012 (ASSESSMENT YEAR: 2008-09) MARUTI SUZUKI INDIA LTD. PLOT NO. 1 NELSON MANDELA ROAD VASANT KUNJ NEW DELHI. PAN-AAACM0829Q (APPELLANT) VS ADDL. CIT RANGE-6 C.R. BUILDING NEW DELHI. (RESPONDENT) ASSESSEE BY SH. AJAY VOHRA REVENUE BY SH. APRENDER KUMAR ORDER PER SHRI K.N. CHARY JUDICIAL MEMBER THIS IS AN APPEAL CHALLENGING THE ORDER DATED 29.10 .2012 PASSED BY THE ASSESSING OFFICER U/S 143(3) READ WITH SECTI ON 144C OF THE INCOME TAX ACT 1961 (FOR SHORT HEREINAFTER CALLED THE ACT) PURSUANT TO THE DIRECTIONS GIVEN BY THE LD. DISPUTE RESOLUTI ON PANEL-1 NEW DELHI VIDE ORDER DATED 24.09.2012 PASSED U/S 144C( 5) OF THE ACT. 2. BRIEFLY STATED FACTS RELEVANT FOR THE DISPOSAL OF THIS APPEAL ARE THAT THE ASSESSEE COMPANY I.E. MARUTI SUZUKI INDIA LTD. WAS INCORPORATED ON 24.02.1981 AS A FULLY OWNED GOVERNM ENT COMPANY FOR THE MODERNIZATION OF INDIAN AUTOMOBILE INDUSTRY AND PRODUCTION OF FUEL-EFFICIENT VEHICLES IN LARGE VOLUMES PRIMARILY FOR SALE IN THE INDIAN MARKET BESIDES ALSO FOR EXPORT OF VEHICLES TO VARI OUS COUNTRIES AND IS DATE OF HEARING 21.08.2017 DATE OF PRONOUNCEMENT 09.11.2017 ITA NO.-6021/DEL/2012 2 IN THE PROCESS OF ESTABLISHING ITSELF IN THE INTERN ATIONAL MARKETS OF SOUTH & CENTRAL AMERICA AFRICA ASIA ETC. THEY H AVE VARIOUS MODELS CURRENTLY PLYING ON THE INDIAN ROADS WHICH SHALL IN CLUDE MARUTI 800 OMNI ESTEEM ALTO GYPSY ZEN VERNA WAGON-R VIT ARA AND SWIFT ETC. FOR THE AY 2008-09 THEY HAVE FILED THEIR RETU RN OF INCOME ON 29.09.2008 DECLARING A TOTAL INCOME OF RS. 20 92 03 70 320/- AND ALSO DISCLOSING LONG TERM CAPITAL LOSS OF RS. 15 39 21 1 83/-. REVISED RETURN WAS FILED ON 27.03.2010 AT AN INCOME OF RS. 20 96 66 30 740/- AND IN THAT REVISED RETURN ASSESSEE CLAIMED CREDIT OF ADDITIONAL TDS OF RS. 25 66 500/- EXCLUDING INCOME FROM THE SALES TAX SUBSIDY BEING CAPITAL RECEIPT AND EXPENDITURE/LOSS ON MARK-TO-MAR KET OF DERIVATIVE CONTRACTS AND INCLUDING EXPENDITURE ON LUMPSUM ROYA LTY PAID DURING THE YEAR. 2.1. IN RESPECT OF ROYALTY FOR USE OF BRAND NAME AND AM P SERVICES REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER U/S 92CA(1) OF THE ACT AND THE TPO MADE THE ADJUSTMENT ON ACCOUNT OF R OYALTY FOR USE OF BRAND NAME TO A TUNE OF RS. 2 37 24 42 202/- AND IN RESPECT OF AMP SERVICE TO A TUNE OF RS. 1 95 16 00 000/- THUS TO TALING TO RS. 4 32 40 42 202/-. DRAFT ASSESSMENT ORDER U/S 144C WAS FORWARDED TO THE ASSESSEE VIDE LETTER DATED 30.12.2011 PROPOSIN G AN ADDITION OF RS. 9 19 89 85 227/-. ASSESSEE FILED OBJECTIONS AG AINST THE DRAFT ASSESSMENT ORDER WITH THE DISPUTE RESOLUTION PANEL AND PURSUANT TO THE DIRECTIONS DATED 24.09.2012 PASSED BY THE DISPU TE RESOLUTION PANEL AO PASSED THE IMPUGNED ORDER MAKING THE ADDIT IONS IN THE FOLLOWING MANNER: SL. NO. PARTICULARS OF INCOME AMOUNT (IN RS.) I. BUSINESS INCOME AS PER RETURN OF INCOME (AS PER REVISED RETURN) 20 25 23 96 841 II. DISALLOWANCE OF DEDUCTION U/S 43B 66 23 77 487 ITA NO.-6021/DEL/2012 3 III. DISALLOWANCE ON ACCOUNT OF EXCESS CONSUMPTION CLAIMED 1 70 45 000 IV. DISALLOWANCE ON ACCOUNT OF CLAIM U/S 35DDA 23 9 1 54 836 V. DISALLOWANCE U/S 14A OF THE ACT 7 43 27 349 VI. DISALLOWANCE ON ACCOUNT OF CLUB MEMBERSHIP 10 0 6 470 VII. DISALLOWANCE ON ACCOUNT OF SALES TAX CONCESSION TREATED AS CAPITAL SUBSIDY IN REVISED RETURN 13 55 68 826 VIII. DISALLOWANCE ON ACCOUNT OF ROYALTY PAYMENT TO SMC 1 92 77 00 000 IX. DISALLOWANCE ON ACCOUNT OF CESS ON ROYALTY TO BE CAPITALIZED 16 93 68 741 X. DISALLOWANCE ON ACCOUNT OF ARMS LENGTH PRICE AS PER TPOS ORDER 4 32 40 42 202 XI. DISALLOWANCE ON ACCOUNT OF EXPENDITURE ON EXCISE DUTY PAID 58 61 136 XII. DISALLOWANCE ON ACCOUNT OF PROVISIONAL LIABILI TY 32 11 63 153 XIII. NON DEDUCTION OF TAX ON ROYALTY FOR PURCHASE OF SOFTWARE NIL XIV. DEPRECIATION ON SOFTWARE CAPITALIZED (-) 1 48 228 XV. DEPRECIATION ON ROYALTY AND R&D CESS (-) 55 33 16 812 XVI. DISALLOWANCE ON ACCOUNT OF SHARING OF RESOURCE S 12 87 88 243 XVII. TOTAL ASSESSED BUSINESS INCOME 27 70 53 35 244 XVIII. INCOME FROM SHORT TERM CAPITAL GAIN 6 88 30 877 XIX. INCOME FROM OTHER SOURCES 64 54 03 021 XX. TOTAL INCOME 28 41 95 69 142 2.2. CHALLENGING THE SAME ASSESSEE IS BEFORE US ON AS MANY AS 19 GROUNDS OF APPEAL. GROUND NOS. 1 2 3.9 AND 16 AR E GENERAL IN NATURE WHICH DO NOT REQUIRE ANY SPECIFIC ADJUDICAT ION. LD. AR ITA NO.-6021/DEL/2012 4 SUBMITTED THAT WHILE ENUMERATING THE GROUNDS BY IN ADVERTENCE NUMBERING OF GROUND NO 19 MISSED THEIR ATTENTION. GROUND NO 3 DISALLOWANCE OF DEDUCTION OF THE STATUTORY DUTIES 3. ISSUE INVOLVED IN GROUNDS NO 3 TO 3.0.2 RELATES TO THE ALLOWABILITY OR DISALLOWABILITY OF DEDUCTION OF THE STATUTORY DU TIES ON PAYMENT BASIS UNDER SECTION 43B OF THE INCOME-TAX ACT 1961 (THE ACT). ACCORDING TO THE ASSESSMENT ORDER THE FOLLOWING AR E SUCH STATUTORY DUTIES CLAIMED BY THE ASSESSEE FOR DEDUCTION BUT D ISALLOWED BY THE ASSESSING OFFICER: ITEM NO. ITEM PARTICULARS AMOUNT (RS.) 1(A) PLA BALANCE OF EXCISE DUTY ON VEHICLES 28 21 6 16 1(B) PLA BALANCE R&D CESS ON VEHICLES 23 02 815 1(C) PLA BALANCE EXCISE DUTY ON SPARE PARTS 90 04 7 52 2 CUSTOMS DUTY PAID ON IMPORT OF COMPONENTS FOR EXPORTS FOR PURPOSES FOR WHICH EXPORT HAD NOT BEEN MADE BY YEAR END 42 961 3 CUSTOMS DUTY PAID ON IMPORT OF COMPONENTS FOR EXPORTS PURPOSES FOR WHICH EXPORT HAD BEEN MADE BY YEAR END 12 64 98 615 4 EXCISE DUTY ON INPUTS BALANCE IN RG 23A PART-II 1 8 47 40 688 5A CVD (MODVAT) PAID ON GOODS IN TRANSIT TO BE ADJUSTED AGAINST EXCISE DUTY PAYABLE ON FINISHED PRODUCTS COMPONENTS 10 73 21 757 5B CVD (MODVAT) PAID ON GOODS IN TRANSIT TO BE ADJUSTED AGAINST EXCISE DUTY PAYABLE ON FINISHED PRODUCTS STEEL COILS 2 78 71 332 6 CUSTOMS DUTY ON GOODS IN TRANSIT/UNDER INSPECTION 1 93 27 627 7 CUSTOMS DUTY ON INVENTORY IN CLOSING STOCK 18 23 52 893 8 CUSTOMS DUTY PAID UNDER PROTEST 92 431 TOTAL 66 23 77 487 ITA NO.-6021/DEL/2012 5 3.1. ACCORDING TO THE ASSESSEE THE ASSESSEE IN THE RE TURN OF THEIR INCOME HAS CLAIMED DEDUCTION OF RS.66 23 77 487 IN RESPECT OF THE ABOVE STATUTORY DUTIES PAID DURING THE YEAR UNDER C ONSIDERATION UNDER SECTION 43B OF THE ACT AND SIMULTANEOUSLY OFF ERED FOR TAX RS.117 72 92 005 CLAIMED AS DEDUCTION IN EARLIER YE ARS. THE DUTIES SO PAID INCLUDE EXCISE DUTY CUSTOM DUTY ON IMPORT/ PU RCHASE OF INPUTS/COMPONENTS AND ALSO AMOUNT OF DUTY PAID IN P LA ACCOUNT. HOWEVER THE ASSESSING OFFICER FOLLOWING THE ASSES SMENT ORDER FOR THE EARLIER YEARS DISALLOWED RS.66 23 77 487 ON THE GR OUND THAT DEDUCTION UNDER SECTION 43B OF THE ACT IS ALLOWABLE ONLY WHERE THE AMOUNT CLAIMED AS DEDUCTION ON ACTUAL PAYMENT BASIS IS CHARGED TO THE P&L ACCOUNT. IT IS PRIMARILY THE CASE OF THE AS SESSING OFFICER THAT THE AMOUNT PAID BY THE ASSESSEE IS IN THE NATURE OF ADVANCE PAYMENT OF DUTY LIABILITY IN RESPECT OF WHICH HAS NOT ACCR UED/ CRYSTALLIZED AND CONSEQUENTLY SUCH ADVANCE PAYMENT IS NOT ALLOWABLE AS DEDUCTION. DISPUTE RESOLUTION PANEL (DRP) ALSO APPROVED THE FINDINGS OF THE ASSESSING OFFICER ON THE GROUND THAT SIMILAR ISSUES ARISING IN THE PRECEDING YEARS IS PENDING BEFORE THE ITAT AS WELL AS THE HONBLE HIGH COURT. 3.2. IT IS THE SUBMISSION OF THE LD. AR THAT THE ASSESS ING OFFICER/ DRP FAILED TO APPRECIATE THAT AS PER THE MANDATE O F SECTION 43B OF THE ACT ANY AMOUNT OF DUTY PAID BY THE ASSESSEE IS ALLO WABLE AS DEDUCTION ON THE BASIS OF PAYMENT ITSELF IRRESPECTIVE OF THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND SUCH A DUTY CAN ONLY B E CLAIMED IN THE YEAR OF PAYMENT BUT NOT IN ANY OTHER YEAR AND THER EFORE IRRESPECTIVE OF THE TREATMENT GIVEN BY THE ASSESSEE TO THE VARIO US AMOUNT OF DUTIES PAID DURING THE YEAR UNDER CONSIDERATION THE DUTIE S PAID WERE ALLOWABLE AS DEDUCTION UNDER SECTION 43B OF THE ACT . ITA NO.-6021/DEL/2012 6 3.3. WHILE PLACING RELIANCE ON THE DECISIONS REPORTED I N BERGER PAINTS INDIA LTD. V. CIT (2004) 266 ITR 99 (SC) CIT V. SH RI RAM HONDA POWER EQUIPMENT CORPORATION : 258 CTR 329 / 352 ITR 481 ( SC) CIT V. MODIPON LTD.:334 ITR 106 (DEL) LAKHANPAL NATIONAL LTD. V. ITO : 162 ITR 240 (GUJ) BHARAT PETROLEUM CORPORATION LTD.: 2 52 ITR 43 (BOM) CIT V. NCR CORPORATION INDIA (P) LTD. : 240 TAXMAN 598 (KAR.) CHEMICALS AND PLASTICS INDIA LTD. V. CIT : 260 ITR 193 (MAD) CIT V. C.L. GUPTA: 259 ITR513 (ALL.) CIT V. RAJ AND SANS DEEP LTD: 293 ITR 12 (P&H) INDIAN COMMUNICATION NETWORK 206 ITR 96 ( ITAT SB) DCIT V. GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD: 1 07 ITD 343 (SB) (CHD.) HIND LAMPS LTD. DCIT: ITA NO. 283/D/92 (AGR A) EURO RSCG ADVERTISING (P) LTD V. ACIT : 154 TTJ 389 (MUM) HE SUBMITTED THAT THE AGGREGATE AMOUNT OF RS.66 23 77 487 WAS ALLOWAB LE AS DEDUCTION TO THE ASSESSEE UNDER SECTION 43B OF THE ACT. LD. A R FURTHER SUBMITTED THAT THIS ISSUE IS IN PRINCIPLE ALSO COVERED BY T HE ORDER OF THE DELHI HIGH COURT IN ASSESSEES OWN CASE FOR THE ASSESSMEN T YEARS 1994-95 1995-96 AND 1996-97 REPORTED IN 255 CTR 140. 3.4. IN THE LIGHT OF THESE SUBMISSIONS AND DETAILED EXP LANATION OFFERED BY BOTH THE PARTIES NOW WE SHALL PROCEED TO DEAL WITH THE ITEM WISE SUBMISSIONS UNDER GROUND NO.3. 3.5. ADVERTING TO GROUNDS NO 3.1 AND 3.1.1 WE FIND IN THE RETURN OF INCOME THE ASSESSEE CLAIMED DEDUCTION OF DUTY PAID AMOUNTING TO RS. 1 41 29 183 BEING CLOSING BALANCE IN THE PLA UNDER SECTION 43B OF THE ACT AS UNDER: ITEM NO. ITEM PARTICULARS AMOUNT (RS.) 1(A) PLA BALANCE OF EXCISE DUTY ON VEHICLES 28 21 6 16 1(B) PLA BALANCE R&D CESS ON VEHICLES 23 02 815 1(C) PLA BALANCE EXCISE DUTY ON SPARE PARTS 90 04 7 52 ITA NO.-6021/DEL/2012 7 3.5.1. LD. AR SUBMITTED THAT THE AFORESAID AMOUNT WAS PA ID BY THE ASSESSEE UNDER RULE 4 OF THE EXCISE RULES 2002 IN ORDER TO COVER THE DUTY REQUIRED TO BE PAID ON THE GOODS TO BE REMOVED FROM BONDED WAREHOUSE. AT THE TIME OF REMOVAL OF THE GOODS EXC ISE DUTY/R&D CESS PAYABLE ON THE GOODS IS DEBITED TO THE PLA AND THE AMOUNT WAS CLAIMED AS DEDUCTION IN THE RETURN OF INCOME AS PER THE MANDATE OF SECTION 43B OF THE ACT. HOWEVER THE ASSESSING OFF ICER DISALLOWED THE SAME FOLLOWING THE ASSESSMENT ORDER FOR THE ASSESSM ENT YEAR 2005-06 IGNORING THE FACT THAT IN THE ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 1999-2000 THE ITAT ALLOWED THE CLAIM SUBJECT TO INCURRING OF LIABILITY ON MANUFACTURED GOODS. ACCORDING TO THE A SSESSEE THE LIABILITY INCURRED BY THE ASSESSEE AS ON 31.3.2008 WAS RS. 97.81 CRORES WHICH WAS MUCH MORE THAN THE AMOUNT DEPOSIT ED IN PLA AND CONSEQUENTLY THE BALANCE IN PLA WAS ALLOWABLE DEDU CTION UNDER SECTION 43B OF THE ACT. IN SUPPORT OF HIS CONTENTIO N THAT THAT PLA BALANCE IS AN ALLOWABLE DEDUCTION HE PLACED RELIAN CE IS PLACED ON THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CA SE OF DCIT V GLAXO SMITH KLINE CONSUMER HEALTH CARE LTD REPORTED IN 10 7 ITD 343 (SB) (CHD.). LD. AR SUBMITTED THAT SIMILAR VIEW HAS BEE N TAKEN BY THE DELHI BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN C ASE FOR THE ASSESSMENT YEARS 1994-95 1995-96 1996-97 1999-00 2000-01 2002-03 2004-05 2005-06 2006-07 AND 2007-08 AND ALSO THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS MODIPON LTD. (NO. 2) (334 ITR 106). HE FURTHER SUBMITTED THAT THE FI NDINGS OF THE TRIBUNAL ON THIS ASPECT HAVE BEEN CONFIRMED BY DELH I HIGH COURT FOR THE ASSESSMENT YEARS 1994-95 1995-96 AND 1996-97 REPORTED IN 255 CTR 140. ITA NO.-6021/DEL/2012 8 3.5.2. PER CONTRA IT IS THE ARGUMENT OF LD. DR THAT THE COORDINATE BENCH OF THIS TRIBUNAL HAS INTERPRETED THE USE OF T HE WORDS IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE OCCURRING IN SECTION 43B TO MEAN THAT WHETHER OR NO T THE LIABILITY TO PAY SUCH SUM WAS INCURRED IS IMMATERIA L AND THAT IF AN AMOUNT OF TAX OR DUTY IS PAID IN THE FIRST YEAR AS ADVANCE THEN THE DEDUCTION IS TO BE ALLOWED IN THAT YEAR ITSELF BUT ONE OF THE PRIMARY CONDITIONS FOR THE OPERATION OF SECTION 43B IS THAT THE LIABILITY TO PAY TAX OR DUTY MUST NECESSARILY HAVE BEEN INCURRED. HE SUBMITTED THAT THIS HAS ALSO BEEN OBSERVED BY THE HONBLE SUPREME COURT IN ALLIED MOTORS (P) LTD. V. CIT (1997) 224 ITR 677 (SC) WHICH IS REPRODUCED BELOW: 'AS IS EVIDENT FROM THE BUDGET SPEECH OF THE FINANC E MINISTER FOR THE YEAR 1983-84 AND THE MEMORANDUM EXPLAINING THE PROV ISIONS IN THE FINANCE BILL 1983 THAT SECTION 43B WAS CLEARLY AIM ED AT CURBING THE ACTIVITIES OF THOSE TAXPAYERS WHO DID NOT DISCHARG E THEIR STATUTORY LIABILITY OF PAYMENT OF EXCISE DUTY EMPLOYER'S CON TRIBUTION TO PROVIDENT FUND ETC. FOR LONG PERIODS OF TIME BUT CLAIMED DED UCTIONS IN THAT REGARD FROM THEIR INCOME ON THE GROUND THAT THE LIA BILITY TO PAY THESE AMOUNTS HAD BEEN INCURRED BY THEM IN THE RELEVANT P REVIOUS YEAR. IT WAS TO STOP THIS MISCHIEF THAT SECTION 43B WAS INSE RTED... 3.5.3. ACCORDING TO HIM VIDE PARA 4.1 ON PAGE 3 OF ITS ORDER FOR A.Y. 2006-07 THE COORDINATE BENCH OF THIS TRIBUNAL HAS ITSELF AGREED THAT THE AMOUNTS PAID UNDER PLA ARE NOTHING BUT EXCISE DUTY PAID AS ADVANCE INASMUCH AS IN INDIAN MOLASSES CO. (P.) LTD. 37 ITR 66 THE HONBLE SUPREME COURT STATED THAT SPENDING IN THE SENSE OF PAYING OUT OR AWAY OF MONEY IS THE PRIMARY MEANING OF EXPENDITURE AND EXPENDITURE IS WHAT IS PAID OUT OR AWAY AND IS GONE IRRETRIEVABLY. BASING ON THIS HE ARGUED THAT THE EXPENDITURE WHICH IS DEDUCTIBLE FOR INCOME TAX PURPOSES IS ONE WHICH IS TOWARDS A LIABILITY EXISTING AT THE TIME BUT THE PUTTING A SIDE OF MONEY WHICH MAY BECOME EXPENDITURE ON THE HAPPENING OF AN EVENT IS NOT AN EXPENDITURE AND ON THIS ANALOGY HE SUBMITTED THAT ANY ADVANCE ITA NO.-6021/DEL/2012 9 PAYMENT OF TAX OR DUTY CANNOT BE CONSIDERED AS EXPE NDITURE SINCE IT IS NEITHER IRRETRIEVABLY GONE NOR DOES IT RELATE TO ANY EXISTING LIABILITY. IN REPLY TO THE SUBMISSION ON BEHALF OF THE ASSESSEE THAT THE ISSUE WAS COVERED IN THE ASSESSEES OWN CASE FO R THE ASSESSMENT YEARS 1994-95 1995-96 1996-97 1999-00 2000-01 2002-03 2004-05 2005-06 2006-07 AND 2007-08 LD. DR SUBMI TS THAT THESE ARE CONTINUOUS ISSUES FORMING PART OF THE ASS ESSMENT ORDER FOR AY 2005-06 AND 2006-07 ALSO AND ARE AT PRESENT PENDING ADJUDICATION BEFORE HONBLE DELHI HIGH COURT. 3.5.4. ON THIS ISSUE FOR A.Y. 2006-07 A COORDINATE BENCH OF THIS TRIBUNAL VIDE 4.13 OF ITS ORDER: '4.13 UNDER THE INCLUSIVE METHOD THE FIGURE OF P URCHASE SALE AND INVENTORIES ARE REQUIRED TO BE TAKEN WITH THE ELEME NT OF TAX OR DUTY ETC. SINCE THE AMOUNT OF UNUTILIZED BALANCE OF EXCI SE DUTY UNDER PLA DOES NOT FORM PART OF PURCHASE THIS AMOUNT WILL BE ELIGIBLE FOR SEPARATE DEDUCTION U/S. 43 B. AT THE SAME TIME THE LAST YEARS UNUTILIZED PLA GETTING DEDUCTION IN THAT YEAR DUE T O THE APPLICATION OF SECTION 43B WOULD BE REQUIRED TO BE ADDED BACK TO THE INCOME OF THE CURRENT YEAR AS DETERMINED ABOVE. WE THEREFORE SE T ASIDE THE IMPUGNED ORDER AND DIRECT THE A.O. TO FIRSTLY RECAS T THE ASSESSEE'S PROFIT AND LOSS ACCOUNT ON INCLUSIVE BASIS AND THEN MAKE SUITABLE DEDUCTION IN RESPECT OF THE AMOUNT OF UNUTILIZED PL A AT THE END OF THE CURRENT YEAR AND ALSO THE PRECEDING YEAR. 3.5.5. WHILE REPRODUCING THE ABOVE PARAGRAPH FOR AY 2007-0 8 WHILE REPRODUCING THE ABOVE OBSERVATIONS FOR THE EARLIER YEAR HAS HELD AS UNDER: 8.5 WE FIND THAT THE ITAT UNDER SIMILAR SET OF FACTS HAS DECIDED AN IDENTICAL ISSUE AFTER DISCUSSING IN DET AIL AND FOLLOWING THE DECISION CITED BEFORE IT INCLUDING THE DECISION OF SPECIAL BENCH OF THE ITAT IN THE CASE OF DCIT VS. GLAXO SMITH KLIN CONSUMER H EALTH CARE LTD. (SUPRA) HOLDING THAT THE EXCESS AMOUNT OF EXCISE DU TY REFLECTED IN THE ACCOUNT-CURRENT IS NOTHING BUT ACTUAL PAYMENT OF EXCISE DUTY EVEN THOUGH MENTIONED AS ADVANCE PAYMENT AND HENCE AL LOWABLE AS DEDUCTION UNDER SEC. 43B OF THE ACT IN THE YEAR OF PAYMENT. THE SPECIAL BENCH HAS FURTHER CLARIFIED THAT THE ALLOWING OF DE DUCTION ON PAYMENT BASIS COULD NOT RESULT IN DOUBLE DEDUCTION UNDER AN Y CIRCUMSTANCE. WE ITA NO.-6021/DEL/2012 10 THUS RESPECTFULLY FOLLOWING THE ABOVE DECISION SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISS UE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER T HE DECISION CITED ABOVE IN THE CASE OF ASSESSEE ITSELF FOR THE ASSESS MENT YEAR 2006-07 (SUPRA). GROUND NOS. 3 3.0.1 TO 3.1.1 ARE A CCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 3.5.6. THERE IS NO CHANGE IN THE CIRCUMSTANCES THAT ARE DI SCUSSED IN PARA NO 8.5 OF THE ABOVE ORDER SO AS TO ENABLE US T O TAKE ANY CONTRA VIEW. PLEA OF THE REVENUE THAT THESE ARE CONTINUOU S ISSUES FORMING PART OF THE ASSESSMENT ORDER FOR AY 2005-06 AND 200 6-07 ALSO AND ARE AT PRESENT PENDING ADJUDICATION BEFORE HONBLE DELHI HIGH COURT IS NOT A GROUND FOR US TO DEVIATE FROM THE CONSISTENT VIEW TAKEN BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER YEA RS. WE THEREFORE WHILE RESPECTFULLY FOLLOWING THE VIEW TAKEN FOR THE EARLIER YEARS SET ASIDE THE IMPUGNED ORDER AND DIRECT THE A.O. TO FIR STLY RECAST THE ASSESSEE'S PROFIT AND LOSS ACCOUNT ON INCLUSIVE BAS IS AND THEN MAKE SUITABLE DEDUCTION IN RESPECT OF THE AMOUNT OF UNUT ILIZED PLA AT THE END OF THE CURRENT YEAR AND ALSO THE PRECEDING YEAR . GROUNDS NO 3.1 AND 3.1.1 ARE ACCORDINGLY ALLOWED FOR STATISTICAL P URPOSE. 3.5.7. GROUNDS NO. 3.2 AND 3.3 DEAL WITH THE CUSTOMS DUTY OF RS 42 961/- AND RS. 12 64 98 615/- PAID ON IMPORT OF C OMPONENTS FOR EXPORT PURPOSES FOR WHICH EXPORTS HAVE NOT AND HAVE BEEN MADE. CASE OF THE ASSESSEE IS THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING IN RESPECT OF CUSTOM DUTY PAID ON IMPORT OF COMPONENTS FOR EXPORT PURPOSE AN D ACCORDINGLY DUTIES PAID ON PURCHASES ARE NOT INCLUDED IN THE CO ST OF PURCHASES AND THE VALUE OF CLOSING STOCK IN THE PROFIT AND LO SS ACCOUNT. ADDITION OF THE DUTY BOTH IN THE PURCHASES AS WELL AS THE C LOSING STOCK AS PER THE REQUIREMENT OF SECTION 145A IS TAX NEUTRAL INA SMUCH AS THE SAME AMOUNT IS BOTH DEBITED AS WELL AS CREDITED TO THE P ROFIT AND LOSS ACCOUNT. BUT TO GIVE EFFECT TO THE PROVISIONS OF SE CTION 43B WHICH ITA NO.-6021/DEL/2012 11 MANDATES THAT DUTIES PAID BY THE ASSESSEE ARE ALLOW ABLE ONLY ON PAYMENT BASIS CUSTOM DUTY PAID BY THE ASSESSEE ON IMPORT OF COMPONENTS FOR EXPORT PURPOSES WHETHER OR NOT EXPO RT AGAINST THE SAME HAD ACTUALLY TAKEN PLACE DURING THE RELEVANT Y EAR IS CLAIMED AS DEDUCTION IN THE RETURN OF INCOME. THE ASSESSING OF FICER HOWEVER DISALLOWED THE SAME FOLLOWING THE ASSESSMENT FOR TH E ASSESSMENT YEAR 2005-06. ON THIS ASPECT A COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1999-0 0 2000-01 2005-06 2006-07 AND 2007-08 HAS HELD THAT SINCE T HE DUTY IS PAID DEDUCTION CLAIMED U/S 43B OF THE ACT HAS TO BE ALLO WED. LD. AR SUBMITTED THAT SECTION 145A PROVIDES FOR UNIFORMITY IN THE METHOD OF VALUATION OF INVENTORY PURCHASES AND SALES THEREB Y MANDATING THE INCLUSION OF DUTIES ACTUALLY PAID IN THE INVENTORY AND ONLY OPERATES NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145 WHICH RELATES TO THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE INTRODUCTION OF THE P ROVISIONS OF SECTION 145A DOES NOT IN ANY WAY AFFECT THE CLAIMS OF THE A SSESSEE UNDER SECTION 43B AS THERE IS NO CONFLICT BETWEEN THE PRO VISIONS OF SECTION 145A AND SECTION 43B OF THE ACT. THOUGH THE PROVISI ONS OF SECTION 145A MANDATE THE ASSESSEE TO INCLUDE THE VALUE OF T AX DUTY CESS OR FEE IN THE VALUE OF ITS CLOSING STOCK NOWHERE IT R EQUIRES THE ASSESSEE TO GO A STEP FURTHER AND CURTAIL THE OPERATION OF SECT ION 43B BY NOT CLAIMING THE DEDUCTION OF SUCH DUTIES ETC. IN THE YEAR OF PAYMENT BUT IN THE YEAR IN WHICH SUCH STOCKS ARE CONSUMED BY TH E ASSESSEE. HE SUBMITS THAT EVEN IF THE SAID AMOUNT HAS TO BE ADDE D TO PURCHASES AND CLOSING STOCK BY VIRTUE OF SECTION 145A THEREB Y BEING INCOME NEUTRAL IN SO FAR AS THE P&L ACCOUNT IS CONCERNED THE SAID AMOUNT WILL BE SEPARATELY DEDUCTIBLE WHILE COMPUTING THE T AXABLE INCOME U/S 43B OF THE ACT. ITA NO.-6021/DEL/2012 12 3.5.8. HE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BERGER PAINTS LTD. V. CIT: 26 6 ITR 99(SC) IN SUPPORT OF HIS CONTENTION THAT CUSTOMS AND EXCISE D UTIES ARE ALLOWABLE IN THE YEAR OF PAYMENT U/S 43B AND EVEN IF SUCH DU TIES ARE INCLUDED IN THE VALUE OF CLOSING STOCK THEY WOULD BE SEPARA TELY ALLOWABLE. HE SUBMITTED THAT IN THAT CASE THE QUESTION BEFORE TH E HONBLE CALCUTTA HIGH COURT FOR THE AY 1984-85 WAS THAT WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS RIGHT IN LAW IN REJECTING THE ASSESSEE S CLAIM FOR DEDUCTION OF THE EXCISE AND CUSTOMS DUTIES OF RS.98 25 833/- PAID IN THE YEAR OF ACCOUNT AND DEBITED IN THE PROFIT & LOS S ACCOUNT ON THE GROUND THAT THE CREDITING OF THE PROFIT & LOSS ACCO UNT BY THE VALUE OF THE CLOSING STOCK WHICH INCLUDED THE AFORESAID DUTI ES DID NOT HAVE THE EFFECT OF WIPING OUT THE DEBIT TO THE PROFIT & LOSS ACCOUNT? AND THE HONBLE SUPREME COURT DECIDED THE QUESTION IN FAVOUR OF THE ASSESSEE AND HELD THAT BY MERELY DEBITING THE DUTIE S TO THE P&L ACCOUNT AND CREDITING THEM TO THE P&L ACCOUNT AS PA RT OF THE VALUE OF THE CLOSING STOCK THEY COULD NOT BE SAID TO HAVE B EEN ALLOWED AS DEDUCTION AND WOULD BE SEPARATELY ALLOWABLE U/S 43B AND HENCE IN VIEW OF THE AFORESAID JUDGMENT OF THE HONBLE SUPRE ME COURT THE MATTER HAS BEEN LAID TO REST AND IT CAN NO LONGER B E DISPUTED THE ASSESSEE OUGHT TO BE ALLOWED DEDUCTION OF DUTIES AN D TAXES IN THE YEAR OF PAYMENT AND IN CASE SUCH DUTIES AND TAXES HAVE B EEN CREDITED TO THE P&L ACCOUNT AS PART OF THE VALUE OF THE CLOSING STOCK THEY OUGHT TO BE SEPARATELY ALLOWED AS DEDUCTION IN SUCH YEAR WHILE DETERMINING THE TAXABLE INCOME OF THE ASSESSEE UNDER THE ACT. 3.5.9. LD. AR FURTHER SUBMITTED THAT THE PROVISIONS OF SE CTION 43B WHILE OVERRIDING ALL THE OTHER PROVISIONS OF THE AC T ALSO OVERRIDE SECTION 145A. SECTION 145A DOES NOT IN ANY MANNER PREVAIL OVER OR IN ANY WAY LIMIT THE OPERATION OF SECTION 43B OF THE A CT AND THAT IN THE BERGER PAINTS CASE THE CLOSING STOCK VALUATION OF THE ASSESSEE ITA NO.-6021/DEL/2012 13 INCLUDED THE AMOUNT OF DUTIES. IN OTHER WORDS THE POSITION WAS AS IF THE PROVISIONS OF SECTION 145A HAD BEEN GIVEN EFFEC T TO AND IMPLEMENTED. THEREFORE PROVISIONS OF SECTION 145A D O NOT ADVERSELY AFFECT THE JUDGMENT IN THE CASE OF BERGER PAINTS. 3.6. FURTHER RELIANCE IS PLACED ON A DECISION IN THE CA SE OF SONA STEERING SYSTEMS LTD. VS. DCIT ITA NOS. 103/DEL AND 948/DEL OF 1996 WHEREIN WHEREIN WHILE ALLOWING THE CLAIM OF T HE ASSESSEE UNDER SECTION 43B OF THE AMOUNT OF CUSTOMS DUTY PAID BY T HE ASSESSEE WHICH WAS INCLUDED IN THE CLOSING STOCK AND CREDITE D TO THE P&L ACCOUNT A COORDINATE BENCH OF THIS TRIBUNAL OBSERVE D THAT ACCORDING TO THE ACCOUNTING PRINCIPLES WHENEVER TH E RAW MATERIAL PURCHASED IS SHOWN IN THE CLOSING STOCK AND CARRIED FORWARD TO THE NEXT YEAR IN THE FORM OF OPENING STOCK IT CANNOT B E SAID THAT THE COST OF PURCHASE HAS BEEN ALLOWED. FOR THE SIMILAR REASON T HE CUSTOM DUTY PAID BY THE ASSESSEE HAS BEEN ADDED TO THE COST OF RAW MATERIAL AND THE SAME HAS BEEN SHOWN IN THE CLOSING STOCK AND CA RRIED FORWARD TO THE NEXT YEAR IN THE FORM OF OPENING STOCK. THEREFO RE IT CANNOT BE SAID THAT THE EXPENDITURE ON ACCOUNT OF CUSTOMS DUTY STA NDS ALLOWED TO THE ASSESSEE IN THE YEAR UNDER CONSIDERATION.THEREFORE FOLLOWING THE DECISION OF THE SPECIAL BENCH THE ASSESSEE IS ENTI TLED TO DEDUCTION OF THE AFORESAID AMOUNT U/S 43B IN THE YEAR UNDER CONS IDERATION. 3.7. HE BROUGHT TO OUR NOTICE THAT A COORDINATE BENCH O F DELHI TRIBUNAL IN THE CASE OF PUROLATOR INDIA LTD. V. DCI T: ITA NO. 1441/DEL/2003 DECIDED SIMILAR ISSUE IN FAVOUR OF AS SESSEE BY ACCEPTING THE VALUATION OF CLOSING STOCK ON NET OF MODVAT BASIS BY FOLLOWING THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. INDO NIPPON CHEMICALS LTD.: 261 ITR 275 (SC) WHEREIN THE NON INCLUSIVE METHOD OF ACCOUNTING FOR MODVAT FOLLOWED BY THE ASS ESSEE WAS APPROVED BY THE APEX COURT WITH THE OBSERVATIONS TH AT AS AGREED BY THE LEARNED REPRESENTATIVES OF BOTH S IDES THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. INDO NI PPON CHEMICALS CO. LTD.: 261 ITR 275 (SC) WHEREIN THE NON INCLUSIVE ME THOD OF ACCOUNTING FOR MODVAT FOLLOWED BY THE ASSESSEE WAS APPROVED BY THE HONBLE APEX COURT. FURTHER AS HELD BY THE DELHI BENCH OF I TAT IN THE CASE OF ITA NO.-6021/DEL/2012 14 DCIT V. HCL INFO SYSTEM LTD. (ITA NO. 1314(D)/2003) THE INSERTION OF SECTION 145A IN THE STATUTE BY THE FINANCE ACT 1998 W.E.F 01.04.1999 HAS ALSO NOT MADE ANY DIFFERENCE TO THIS PROPOSITIO N LAID DOWN BY THE HONBLE SUPREME COURT. AS SUCH RESPECTFULLY FOLLOWI NG THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF INDO NIPPON CH EMICALS CO. LTD. (SUPRA) WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSES SEE AND ALLOW GROUND NO. 2. A ND THE DECISION OF THE TRIBUNAL HAS BEEN AFFIRMED B Y THE DELHI HIGH COURT IN ITA NO. 999/2007 WHEREIN THE HIGH COURT T AKING INTO ACCOUNT THE PROVISIONS OF SECTION 145A OF THE ACT HAS OBSERVED THAT THE AFORESAID ISSUE WILL NOT AFFECT THE INCOME OF T HE ASSESSEE AND MATTER WAS TAX NEUTRAL IN AS MUCH AS WHETHER THE AS SESSEE FOLLOWS INCLUSIVE OR EXCLUSIVE METHOD OF ACCOUNTING THE SAM E WOULD NOT MAKE ANY IMPACT ON THE PROFIT AND LOSS. APART FROM THAT HE SUBMITS THAT RECENTLY THE KARNATAKA HIGH COURT IN THE CASE OF CI T V. NCR CORPORATION INDIA (P) LTD. 240 TAXMAN 598 REITERA TED THE PRINCIPLE LAID DOWN BY THE APEX COURT IN THE CASE OF BERGER P AINTS (SUPRA) AND HELD THAT THE ENTIRE AMOUNT OF EXCISE DUTY AND CUST OMS DUTY PAID BY THE ASSESSEE IN A PARTICULAR YEAR ARE ALLOWABLE AS DEDUCTION IRRESPECTIVE OF THE FACT THAT SUCH DUTIES ARE INCLU DED IN THE VALUE OF CLOSING STOCK. IT WAS FURTHER HELD THAT PROVISIONS OF SECTION 43B WHILE OVERRIDING ALL THE OTHER PROVISIONS OF THE ACT ALS O OVERRIDE SECTION 145A AND FURTHER THAT PROVISIONS OF SECTION 145A DO ES NOT IN ANY MANNER DILUTE OR NULLIFY THE EFFECT OF PROVISIONS O F SECTION 43B OF THE ACT. 3.8. INSOFAR AS CUSTOM DUTY PAID ON IMPORT OF COMPONEN TS IN RESPECT OF WHICH EXPORTS WERE MADE DURING THE YEAR UNDER CO NSIDERATION THE ASSESSING OFFICER FURTHER HELD THAT SINCE THE ASSES SEE IS ENTITLED FOR DUTY DRAWBACK WHICH BECOMES IMMEDIATELY DUE ON THE DATE OF EXPORT THE AMOUNT OF CUSTOM DUTY ON IMPORT AS REVENUE NEUT RAL AS A RESULT OF WHICH NO DEDUCTION IS ALLOWABLE TO THE ASSESSEE IN RESPECT OF THE SAME. ACCORDING TO THE ASSESSEE THE ASSESSING OFFI CER FAILED TO ITA NO.-6021/DEL/2012 15 APPRECIATE THAT THE DUTY DRAWBACK DOES NOT ACCRUE A UTOMATICALLY ON EXPORT OF GOODS SINCE THE EXPORTER IS REQUIRED TO F ULFILL VARIOUS ADDITION/REQUIREMENTS IN ORDER TO CLAIM THE SAME B UT IT ACCRUES ONLY WHEN THE CLAIM OF THE EXPORTER-ASSESSEE IS SANCTION ED BY THE CUSTOM AUTHORITIES AND ALSO THAT DUTY DRAWBACK RECEIVABLE IS SEPARATELY CHARGEABLE TO TAX AS INCOME OF THE ASSESSEE UNDER S ECTION 28 OF THE ACT. HE EXPLAINED THAT THE RECEIPT OF DUTY DRAWBACK IS ALTOGETHER DIFFERENT FROM ALLOWABILITY OF DEDUCTION IN RESPECT OF WHICH DUTY PAID BY THE ASSESSEE ON PAYMENT BASIS UNDER SECTION 43B OF THE ACT. WITHOUT PREJUDICE TO THIS CONTENTION HE ARGUED THA T IN CASE THE ASSESSING OFFICERS CONTENTION WERE TO BE ACCEPTED THEN DUTY DRAWBACK INCOME AMOUNTING TO RS. 12 12 31 609/-DECL ARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION SHOULD BE DIRECTED TO BE EXCLUDED. 3.9. HE SUBMITTED THAT APART FROM A COORDINATE BENCH OF THIS TRIBUNAL DECIDING THE AFORESAID ISSUE IN FAVOUR OF ASSESSEE IN THE ASSESSMENT YEARS 1999-00 2000-01 2001-02 2002-03 2004-05 2005-06 AY 2006-07 AND 2007-08 THE ISSUE STANDS C OVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF PUNJAB AND HARYANA HIGH COURT IN THE CASES OF CIT V. MANAV TOOLS (INDIA) P. LTD: 336 ITR 237 (P&H) AND CIT V. SRIYANSH KNITTERS P. LTD. 336 ITR 235 WHEREIN T HE HIGH COURT WHILE AFFIRMING THE FINDING OF THE TRIBUNAL HELD TH AT DUTY DRAWBACK ACCRUES IN THE YEAR IN WHICH RATE IS FIXED BY THE C OMPETENT AUTHORITY AFTER VERIFICATION OF CLAIM OF THE ASSESSEE AND AMO UNT IS QUANTIFIED AND NOT IN THE YEAR OF EXPORT. 3.10. PER CONTRA IT IS THE CONTENTION OF THE LD. DR THA T IT IS PERTINENT TO NOTE THAT IN CASE OF CUSTOMS DUTY PAID ON IMPORT S OF COMPONENTS FOR WHICH EXPORTS HAD BEEN MADE BY THE YEAR END TH E ASSESSEE RECEIVES DUTY DRAWBACK ON ACCRUAL BASIS I.E. THE A SSESSEE IS ENTITLED ITA NO.-6021/DEL/2012 16 TO RECEIVE DUTY DRAWBACK THE MOMENT EXPORTS ARE MAD E AND CERTIFIED TO HAVE BEEN MADE. THEREFORE THE AMOUNT UNDER THIS HEAD WILL BE REVENUE NEUTRAL AND HENCE NO DEDUCTION WOULD BE AL LOWABLE TO THE ASSESSEE WHEREAS AS REGARDS THE AMOUNT OF RS. 42 96 1/- BEING CUSTOMS DUTY PAID ON IMPORT OF COMPONENTS FOR WHICH EXPORTS HAD NOT BEEN MADE BY THE YEAR END EVEN THE ITAT HAS NO TED THAT UNDER THE 'INCLUSIVE METHOD THIS AMOUNT WOULD BE INCLUD ED IN THE COST OF PURCHASES IN THE P & L ACCOUNT AND WOULD ALSO BE RE FLECTED IN THE CLOSING STOCK IN THE BALANCE SHEET. THIS AMOUNT WOU LD ALSO THEREFORE BE REVENUE NEUTRAL AND HENCE NO DEDUCTION WOULD BE ALLOWABLE ON IT AND THIS PROPOSITION WAS ACCEPTED BY THE HONBIE SU PREME COURT IN CHAINRUP SAMPAT RAM (1953) 24 ITR 481 (SC) WHEREIN IT HAS OBSERVED THAT CLOSING STOCK SHOWN TO THE CREDIT SIDE OF THE TRA DING ACCOUNT HAS THE EFFECT OF CANCELLING PURCHASES TO THAT EXTENT D EBITED TO SUCH TRADING ACCOUNT.' FURTHER THESE ARE CONTINUOUS IS SUES FORMING PART OF THE ASSESSMENT ORDER FOR AY 2005-06 2006-07 AND 2007-08 ALSO AND ARE AT PRESENT PENDING ADJUDICATION BEFORE HON BLE DELHI HIGH COURT. 3.11. ON THE CUSTOMS DUTY PAID ON IMPORT OF COMPONENTS FO R WHICH EXPORTS HAD AND HAD NOT BEEN MADE A COORDINATE BEN CH OF THIS TRIBUNAL IN THE ORDER FOR A.Y. 2006-07 VIDE PARA 5 .1 AND 5.2 HELD THAT - 5.1. NOW WE TAKE UP THE DISALLOWANCES U/S 43B ON ITEMS OF CUSTOMS DUTY. FIRST IS CUSTOMS DUTY OF RS.8 65 07 635/- PAI D ON IMPORT OF COMPONENTS FOR WHICH EXPORTS HAD BEEN MADE BY THE Y EAR END AND RS.1 47 142/- FOR WHICH EXPORTS HAD NOT BEEN MADE B Y THE YEAR END. THESE AMOUNTS CLAIMED BY THE ASSESSEE AS ALLOWABLE U/S 43B OF THE ACT WERE DISALLOWED BY THE AO. IT IS COMMON SUBMIS SION THAT THE TRIBUNAL HAS ALLOWED DEDUCTION IN RESPECT OF THESE AMOUNTS IN THE PRECEDING YEARS. 5.2. HERE AGAIN IT IS NOTICED THAT THE ASSESSEE HAS ALSO FOLLOWED `EXCLUSIVE METHOD'. IN SUCH CIRCUMSTANCES THIS MET HOD NEEDS TO BE SUBSTITUTED WITH `INCLUSIVE METHOD' AS MANDATORILY REQUIRED U/S 145A. WE THEREFORE DIRECT THE AO TO RECAST PROFIT AND L OSS ACCOUNT AS PER ITA NO.-6021/DEL/2012 17 `INCLUSIVE METHOD' AS DISCUSSED ABOVE AND THEN ALLO W DEDUCTION IN RESPECT OF THE CUSTOMS DUTY PAID IN ACCORDANCE WITH SECTION 43B IF NOT GETTING DEDUCTED IN SUCH RECAST. CUSTOMS DUTY PAID ON IMPORT OF COMPONENTS FOR WHICH EXPORTS HAD/HAD NOT BEEN MADE BY THE YEAR END UNDER THE INCLUSIVE METHOD WOULD NOW STAND INCLUDED IN THE VALUE OF IMPORTS AND ACCORDINGLY GET DEDUCTED. CUSTOMS DUTY OF RS.8 65 07 635/- PAID ON IMPORT OF COMPONENTS FOR W HICH EXPORTS HAD BEEN MADE BY THE YEAR END WOULD NOT REQUIRE ANY SEP ARATE DEDUCTION AS THE SAME WILL BE DEBITED TO THE PROFIT AND LOSS ACCOUNT AND ALSO GET EXHAUSTED. AS REGARDS THE OTHER AMOUNT OF CUSTOMS D UTY FOR WHICH EXPORTS HAD NOT BEEN MADE BY THE YEAR END WOULD REP RESENT THE AMOUNT THOUGH DEBITED TO THE PROFIT AND LOSS ACCOUN T BY MEANS OF INCREASED INPUT COST BUT NOT GETTING EXHAUSTED AS T HE SAME ALSO APPEARING IN THE BALANCE SHEET THROUGH THE ENHANCED VALUE OF CLOSING STOCK. SEPARATE DEDUCTION IS REQUIRED TO THIS EXTEN T U/S 43B OF THE ACT. AT THE SAME TIME WE ALSO DIRECT THE AO TO MAKE SUR E THAT SUCH AMOUNT SEPARATELY GETTING DEDUCTED IN THIS YEAR DOES NOT G ET DEDUCTION ONCE AGAIN IN THE NEXT YEAR. IN THE LIKE MANNER THE LAS T YEAR'S SIMILAR DEDUCTION SEPARATELY ALLOWED SHOULD BE TAXED IN THE COMPUTATION OF INCOME OF THE CURRENT YEAR. 3.12. WHILE FOLLOWING THE ABOVE REASONING GIVEN FOR THE AY 2006-07 AND SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFIC ER TO DECIDE THE ISSUE AFRESH AS PER THE DIRECTIONS GIVEN ABOVE AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. FACTS ARE SIMILAR FOR THIS ASSESS MENT YEAR ALSO AND EXCEPT STATING THAT AN APPEAL IS FILED AND PENDING AGAINST THE ABOVE ORDERS NOTHING NEW IS BROUGHT TO OUR NOTICE TO DEVIATE FROM THIS C ONSISTENT VIEW. WE THEREFORE RESPECTFULLY FOLLOWING THE ABOVE DECISIO N SET ASIDE GROUNDS 3.2 AND 3.3 TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN VIEW OF THE ABOVE FINDINGS ON THESE GROUNDS AFTER AFFORDING OPPORTUNITY OF BEING TO THE ASSESSEE. 3.13. NOW ADVERTING TO THE DISALLOWANCE OF A SUM OF RS 18 47 40 688/- REPRESENTING THE AMOUNT OF EXCISE DUTY ACTUALLY PAI D ON PURCHASED INPUTS INCLUDED IN RG 23A PART II CHALLENGED UNDER GROUND S NO 3.4 TO 3.4.1 IT IS THE CASE OF THE ASSESSEE THAT THEY HAD CLAIMED DEDU CTION U/S 43B OF THE ACT AMOUNTING TO RS.18 47 40 688/- REPRESENTING BALANCE IN RG23A AS ON 31.03.2008 AND SUCH AMOUNT REPRESENTS EXCISE DUTY PAID ON RAW MATERIAL AND INPUTS PURCHASED BY THE ASSESSEE FOR USE IN THE MANUFACTURE OF AUTOMOBILES. UNDER THE CENTRAL EXCISE LAW THE ASSE SSEE IS ENTITLED TO CLAIM ITA NO.-6021/DEL/2012 18 MODVAT CREDIT IN RESPECT OF THE AMOUNT OF CENTRAL E XCISE DUTY SO PAID ON RAW MATERIAL AND INPUTS PURCHASED FOR MANUFACTURE O F EXCISABLE GOODS. THE SAID AMOUNT OF DUTY PAID TO THE SUPPLIER OF RAW MAT ERIAL AND INPUTS IS REGARDED AS AMOUNT OF CENTRAL EXCISE DUTY ACTUALLY PAID BY THE ASSESSEE UNDER THE EXCISE LAWS. SINCE THE AFORESAID AMOUNT OF EXCISE DUTY WAS ACTUALLY PAID BY THE ASSESSEE AS PART OF PURCHASE P RICE OF RAW MATERIAL AND INPUTS THE SAME HAS BEEN CLAIMED AS DEDUCTION UNDE R SECTION 43B OF THE ACT. THE ASSESSING OFFICER HOWEVER DISALLOWED THE AFORESAID AMOUNT FOLLOWING THE ASSESSMENT ORDER FOR THE ASSESSMENT Y EAR 2005-06. 3.14. IT IS THE SUBMISSION OF THE LD. AR THAT THE SPECIA L BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V GLAXO SMITHKLINE CON SUMER HEALTHCARE LTD: 107 ITD 343/ 299 ITR (AT) 1 (CHD.) (SB) HAS HELD T HAT UNUTILIZED MODAT CREDIT IS NOT AN ALLOWABLE DEDUCTION SINCE SUCH CR EDIT DOES NOT AMOUNT TO PAYMENT OF DUTY AND FOLLOWING THIS ORDER OF THE SP ECIAL BENCH THE ITAT IN ASSESSEES OWN CASE HAD DECIDED THE ISSUE AGAINST T HE ASSESSEE TILL AY 2005- 06. HOWEVER SUPREME COURT HAS ALLOWED THE DEDUCTIO N U/S 43B FOR THE AMOUNT LYING CREDITED IN THE MODVAT ACCOUNT AT THE END OF THE ACCOUNTING YEAR THEREBY DISMISSING THE SLP (NO. 23461/2012) FI LED BY THE DEPARTMENT AGAINST THE ORDER OF HC IN THE CASE OF SHRI RAM HO NDA POWER EQUIPMENT LTD. : 352 ITR 481 (SC) AND WHILE FOLLOWING THE THI S JUDGMENT IN SHRI RAM HONDA POWER EQUIPMENT CASE THE ITAT IN AY 2006-07 AND AY 2007-08 DECIDED THE AFORESAID ISSUE IN FAVOUR OF ASSESSEE. 3.15. PER CONTRA LD. DR SUBMITTED THAT THE COORDINATE B ENCH OF THIS TRIBUNAL VIDE PARA 4.16 (REPRODUCED ON PAGE 49) OF ITS ORDER FOR A.Y. 2006- 07 HAS ACKNOWLEDGED THAT THE SPECIAL BENCH OF THE CHANDIGARH TRIBUNAL IN GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD. (2007) 10 7 ITD 343 (SB) (CHD.) HAS HELD THAT MODVAT CREDIT AVAILABLE TO THE ASSESSEE AS ON THE LAST DATE OF THE PREVIOUS YEAR DOES NOT AMOUNT TO PAYMENT OF EXCISE DUTY AND IS HENCE NOT ALLOWABLE U/S. 43B. HOWEVER IT HAS THEN PROCEEDED TO ALLOW THE UNUTILIZED MODVAT CREDIT TO THE ASSESSEE BY RELYING ON THE JUD GEMENT OF THE HONBLE SUPREME COURT IN SHRI RAM HONDA POWER EQUIPMENT LTD . (2013) 352 ITR 481 (SC)WHEREIN IT HAS BEEN HELD THAT THE AUTHORITIES BELOW ARE RIGHT IN COMING TO THE ITA NO.-6021/DEL/2012 19 CONCLUSION THAT MODVAT CREDIT IS EXCISE DUTY PAID. IN THIS REGARD HE PLACED RELIANCE ON THE FOLLOWING PORTION OF THE JUDGEMENT OF THE SPECIAL BENCH IN GLAXO SMITHKLINE (SUPRA) : 56. IN FACT THE UNEXPIRED MODVAT CREDIT AVAILABL E TO AN ASSESSEE IS IN THE NATURE OF A FUTURE ENTITLEMENT WHICH CANNOT BE CONSIDERED AS EQUIVALENT TO ADVANCE PAYMENT OF DUTY. 57. ...IN THE SCHEME OF MODVAT THERE IS NO SUCH PA YMENT OF EXCISE DUTY. THE CREDIT IS AVAILABLE TO AN ASSESSEE UNDER THE SCHEME OF MODVAT IN ORDER TO MINIMISE THE ESCALATION EFFECT O F PAYMENT TO EXCISE DUTY BY SUCCESSIVE MANUFACTURERS. THEREFORE THE EX CISE DUTY PAID AT THE EARLIER POINT IS SET OFF AGAINST THE CENTRAL EX CISE LIABILITY AT THE NEXT POINT. TILL THE SET OFF IS AVAILED AT THE NEXT POINT THE DUTY AVAILABLE FOR SET OFF BY THE ASSESSEES IS NOTHING BUT PART OF THE COST OF THE MATERIALS PURCHASED BY HIM. THAT IS NOT A PA YMENT PER SE MADE TOWARDS EXCISE DUTY BUT IT WAS IN FACT A PAYME NT MADE TOWARDS PURCHASE COST. 59. PAID MEANS MONEY ACTUALLY PAID BY AN ASSESSEE OR INCURRED BY THE ASSESSEE AND NOT ANYTHING ELSE. IN S. 43B THE DEDUCTION IS GIVEN ONLY FOR THOSE SUMS ACTUALLY PAID' BY THE ASSESSEE ...UNEXPIRED MODVAT CREDIT DOES NOT AMOUNT TO ACTUAL PAYMENT OF CENTRAL EXCISE DUTY. 60. THE CREDIT BALANCE AS SUCH DOES NOT AMOUNT TO PAYM ENT. THE CREDIT BALANCE BECOMES EQUIVALENT TO PAYMENT ONLY A T THE POINT OF TIME THE ASSESSEE EXERCISES HIS OPTION TO SET OFF THE CR EDIT BALANCE AGAINST THE CENTRAL EXCISE LIABILITY AND NOT BEFORE. 61. THEREFORE WE HOLD THAT THE MODVAT CREDIT AVAILABL E TO THE ASSESSEE AS ON THE LAST DAY OF THE PREVIOUS YEAR DO ES NOT AMOUNT TO THE PAYMENT OF CENTRAL EXCISE DUTY UNDER S. 43B... ' 3.16. HE FURTHER SUBMITTED THAT IN SHRI RAM HONDA POWER EQUIPMENT LTD.(SUPRA) THE HON'BLE APEX COURT HAS MERELY RELIED ON THE JUD GEMENT OF HONBLE BOMBAY COURT IN CIT V. INDO NIPPON CHEMI CAL CO. LTD.(2000) 245 ITR 384 (BOM.) WHICH WAS SUBSEQUENTLY UPHELD BY IT. HOWEVER THE F ACTS OF THE MATTER IN INDO NIPPON (SUPRA) ARE DISTINGUIS HABLE INASMUCH AS THE ISSUE THEREIN DEALT WITH THE METHOD OF VALUATION OF STOCK OF INPUTS WORK IN PROGRESS AND FINISHED GOODS WITH RESPECT TO THE INCLUSION OF MODVAT CREDIT THE HONBLE BOMBAY HIGH COURT AS WEL L AS THE HONBLE SUPREME COURT MADE NO COMMENTS AS TO THE NATURE ALL OWABILITY OF ITA NO.-6021/DEL/2012 20 UNUTILISED MODVAT CREDIT IN INDO NIPPON (SUPRA) AS SUCH IN VIEW OF THIS SITUATION UNUTILISED MODVAT CREDIT DOES NOT AMOUNT TO ACTUAL PAYMENT OF CENTRAL EXCISE DUTY AND THEREFORE CANNOT ATTRAC T THE PROVISIONS OF SECTION 43B. LASTLY HE SUBMITTED THAT THESE ARE CO NTINUOUS ISSUES FORMING PART OF THE ASSESSMENT ORDER FOR AY 2005-06 2006-07 AND 2007-08 ALSO AND ARE AT PRESENT PENDING ADJUDICATI ON BEFORE HONBLE DELHI HIGH COURT. 3.17. IN THE ORDER FOR THE AY 2006-07 THIS ISSUE WAS CO NSIDERED AND WAS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD T O THE ASSESSEE AND FOR THE AY 2007-08 A COORDINATE BENCH OF THIS TRIB UNAL RELIED UPON THE FOLLOWING FINDINGS RECORDED IN RESPECT OF THE A Y 2006-07. 4.14. NOW WE COME TO THE NEXT ITEM OF DISALLOWANC E BEING A SUM OF RS. 48.53 CRORE TOWARDS EXCISE DUTY ON INPUTS BALAN CE IN RG 23A. THIS AMOUNT IS UNUTILIZED MODVAT CREDIT AVAILABLE TO THE ASSESSEE AT THE END OF THE YEAR. UNDER THE CENTRAL EXCISE LAW A MANUFA CTURER IS ENTITLED TO CLAIM MODVAT CREDIT OF THE AMOUNT OF EXCISE DUTY PA ID BY HIM ON RAW MATERIALS AND INPUTS PURCHASED FOR CONSUMPTION IN T HE MANUFACTURE OF EXCISABLE GOODS. THE AMOUNT OF DUTY PAID TO THE SUP PLIER OF RAW MATERIAL IS CONSIDERED AS THE AMOUNT OF CENTRAL EXC ISE DUTY ACTUALLY PAID BY THE ASSESSEE. THUS A MANUFACTURER OF FINAL PRODUCT UNDER MODVAT/CENVAT SCHEME IS ALLOWED TO GET ADJUSTMENT O F EXCISE DUTY PAID BY HIM ON ANY INPUTS RECEIVED IN THE FACTORY T O BE USED IN THE MANUFACTURE OF FINAL PRODUCT. IN THE YEAR UNDER CON SIDERATION THE ASSESSEE PURCHASED EXCISE DUTY PAID RAW MATERIAL AN D OTHER INPUTS AND AS PER THE EXCISE RULES BECAME ENTITLED TO MODV AT CREDIT OF THE EXCISE DUTY PAID ON RAW MATERIAL ELIGIBLE FOR SET O FF AGAINST LIABILITY OF EXCISE DUTY ON THE FINISHED GOODS AT THE TIME OF RE MOVAL OF GOODS FROM BONDED WAREHOUSE. 4.15. WE HAVE NOTICED ABOVE THAT THE ASSESSEE IS AL SO FOLLOWING `EXCLUSIVE METHOD'. UNDER THE `EXCLUSIVE METHOD' T HE TOTAL AMOUNT OF EXCISE DUTY PAID BY THE ASSESSEE ON PURCHASE OF INP UTS DOES NOT GET ADDED TO THEIR PURCHASE PRICE BUT APPEARS AS AN AS SET WITH THE NOMENCLATURE OF MODVAT CREDIT. WHEN GOODS USING THE EXCISE DUTY PAID RAW MATERIAL ARE MANUFACTURED THE MANUFACTURER BEC OMES ENTITLED TO USE MODVAT CREDIT AGAINST HIS LIABILITY OF EXCISE D UTY ON FINISHED PRODUCTS. THIS UTILIZED PART OF THE MODVAT CREDIT G OES TO THE EXCISE DUTY ACCOUNT IN THE SAME MANNER AS UTILIZED PLA DISCUSSE D ABOVE. SUPPOSE AN ASSESSEE HAS MODVAT CREDIT OF RS. 10 AND HAS UTI LIZED DUTY PAID RAW MATERIAL IN ITS PRODUCTION DURING THE YEAR FOR CORRESPONDING SUM OF ITA NO.-6021/DEL/2012 21 RS.9 OUT OF WHICH FINISHED GOODS CORRESPONDING TO MODVAT UTILIZED OF RS.7 ARE SOLD AND THE FINISHED GOODS CORRESPONDING TO MODVAT UTILIZED OF RS.2 ARE IN STOCK. THE ASSESSEE WILL GET DEDUCTI ON FOR RS.9 UNDER THE EXCLUSIVE METHOD. SIMULTANEOUSLY THE ASSESSEE WILL OFFER INCOME OF RS.7 EMBEDDED IN THE SALE PRICE. IT IS THE REMAINING AMO UNT OF RE.1 WHICH IS UNUTILIZED MODVAT CREDIT APPEARING AS AN ASSET IN T HE BALANCE SHEET AT THE END OF THE YEAR FOR WHICH THE ASSESSE IS NOW S EEKING DEDUCTION. 4.16. AT THE OUTSET WE WANT TO MENTION THAT THE SP ECIAL BENCH OF THE TRIBUNAL IN GLAXO SMITHKLINE CONSUMER HEALTHCARE (S UPRA) HAS HELD THAT UNEXPIRED MODVAT CREDIT BEFORE IT IS SET OFF CANNOT BE TREATED AS TAX PAID. ACCORDINGLY THE SPECIAL BENCH HELD THAT T HE MODVAT CREDIT AVAILABLE TO THE ASSESSEE AS ON THE LAST DATE OF TH E PREVIOUS YEAR DOES NOT AMOUNT TO PAYMENT OF EXCISE DUTY AND IS HENCE NOT ALLOWABLE U/S 43B. IN EARLIER YEARS THE TRIBUNAL HAS FOLLOWED TH E DICTUM OF THIS SPECIAL BENCH VERDICT AND UPHELD THE DISALLOWANCE. THE LD. AR SUBMITTED THAT THERE HAS BEEN FURTHER ARTICULATION OF LAW ON THIS POINT. REFERRING TO THE JUDGMENT OF THE HON'BLE SUPREME CO URT IN THE CASE OF CIT VS. SHRI RAM HONDA POWER EQUIPMENT LTD. (2013) 352 ITR 481 (SC) THE LD. AR SUBMITTED THAT THE AMOUNT LYING CR EDITED IN THE MODVAT ACCOUNT AT THE END OF THE ACCOUNTING YEAR HAS NOW B ECOME DEDUCTIBLE U/S 43B AS PER ITS RATIO. WE FIND THAT THE HON'BLE APEX COURT IN SHRIRAM HONDA POWER EQUIPMENT LTD. (SUPRA) HAS HELD THAT : `THE AUTHORITIES BELOW ARE RIGHT IN COMING TO THE CONCLUSION THAT MO DVAT CREDIT IS EXCISE DUTY PAID'. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE ASSESSEE'S OWN CASE IN CIT VS. MARUTI SUZUKI INDIA LTD . (2013) 255 CTR 140 (DEL) AFTER TAKING NOTE OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SHRI RAM HONDA POWER EQUIPMENT CORPORATION (SUPRA) HAS HELD THAT : `THIS COURT ALSO NOTICES TH AT THE SUPREME COURT HAS UPHELD THE VIEW WHICH ALLOWS ASSESSES TO CLAIM CREDITS SUCH AS MODVAT ETC FALLING WITHIN THE DESCRIPTION OF LIAB ILITY PAID TO ESCAPE THE MISCHIEF OF SECTION 43-B .' IN VIEW OF THIS LATER DEVELOPMENT OF LAW THE EARLIER CONTRARY VIEW TAKEN BY THE SPECIAL BENCH IN GLAXO (SUPRA) ON THE QUESTION OF UNUTILIZED MODVAT CREDIT NOW NEEDS TO B E PROPERLY ALIGNED WITH THE RATIO DECIDENDI OF THE JUDGMENT IN SHRI RA M HONDA (SUPRA). 4.17. ARMED WITH THE ABOVE LEGAL POSITION NOW THE REMAINING AMOUNT OF RE.1 IN OUR ABOVE EXAMPLE UNDER THE `EXCLUSIVE M ETHOD' WHICH IS UNUTILIZED MODVAT CREDIT IN THE BALANCE SHEET AT TH E END OF THE YEAR NEEDS TO BE TREATED AT `EXCISE DUTY PAID'. SINCE TH IS AMOUNT IS CONSIDERED AS EXCISE DUTY PAID THE SAME HAS TO BE ALLOWED AS DEDUCTION DURING THE YEAR OF PAYMENT AS PER SECTION 43B . CAVEAT REMAINS THAT DEDUCTION FOR A SUM OF RE.1 IN THE CUR RENT YEAR BEING THE MODVAT CREDIT UNUTILIZED AT THE END OF THE YEAR UND ER THE EXCLUSIVE METHOD ALSO REQUIRES ENHANCEMENT OF INCOME OF THE SUCCEEDING YEAR TO THIS EXTENT. IN THE LIKE MANNER THE CORRESPONDING AMOUNT ALLOWED AS DEDUCTION U/S 43B IN THE PRECEDING YEAR IF ANY AL SO REQUIRES SEPARATE ADD BACK TO THE INCOME OF THE CURRENT YEAR. IT IS S O BECAUSE DEDUCTION FOR PAYMENT OF TAX OR DUTY ETC. CAN BE ALLOWED ONLY ONCE AND THAT TOO AT THE TIME OF PAYMENT. WE THEREFORE HOLD THAT TH E AMOUNT OF ITA NO.-6021/DEL/2012 22 UNUTILIZED MODVAT CREDIT IS DEDUCTIBLE IN THE COMPU TATION OF INCOME FOR THE CURRENT YEAR UNDER THE EXCLUSIVE METHOD. BUT SU CH AMOUNT ALSO REQUIRES ADD BACK IN THE COMPUTATION OF INCOME OF T HE IMMEDIATELY NEXT YEAR AND ALSO THE CORRESPONDING AMOUNT OF UNUTILIZE D MODVAT CREDIT OF THE PRECEDING YEAR IF ALLOWED AS DEDUCTION IN SUCH EARLIER YEAR REQUIRES A SEPARATE ADDITION TO THE INCOME OF THE C URRENT YEAR. IT IS THE TREATMENT OF MODVAT CREDIT UNDER THE `EXCLUSIVE MET HOD'. 4.18. WE HAVE NOTICED SUPRA THAT THE USE OF `EXCLUS IVE METHOD' IS NO MORE PERMISSIBLE IN THE YEAR UNDER CONSIDERATION. A S SUCH THERE IS A NEED TO GIVE EFFECT TO SECTION 145A READ WITH SECTION 43B UNDER THE `INCLUSIVE METHOD'. 4.19. BEFORE TAKING UP THIS ASPECT WE WOULD LIKE T O DEAL WITH THE JUDGMENT OF THE HON'BLE SUPREME COURT IN SHRI RAM H ONDA (SUPRA) RELIED BY THE LD. AR FOR SUPPORTING THE CLAIM OF PE R SE DEDUCTION WITHOUT ANY FURTHER ADJUSTMENTS AS PER SECTION 145A . IT IS RELEVANT TO NOTE THAT THE HON'BLE SUPREME COURT IN SHRI RAM HONDA (SUPRA) WAS DEALING WITH A.Y. 1995-96. WHILE GRANTING DEDUCTION FOR MOD VAT CREDIT THE HON'BLE SUMMIT COURT FOLLOWED THE JUDGMENT OF THE H ON'BLE BOMBAY HIGH COURT IN CIT VS. INDO NIPPON CHEMICAL CO. LTD . (2000) 245 ITR 384 (BOM) AS AFFIRMED BY THE HON'BLE APEX COURT IN (2003) 261 ITR 275 IN HOLDING THAT THE SAME WAS SQUARELY APPLICAB LE AND HENCE THE AMOUNT WAS DEDUCTIBLE. THE ASSESSMENT YEAR INVOLVED IN THE CASE OF INDO NIPPON (SUPRA) WAS 1989-90 WHICH IS AGAIN BEF ORE THE INSERTION OF SECTION 145A . IT IS INTERESTING TO NOTE THAT DURING THE COURSE OF ARGUMENTS BEFORE THE HON'BLE BOMBAY HIGH COURT THE LD. COUNSEL FOR THE DEPARTMENT BROUGHT TO THE NOTICE OF THEIR LORDS HIPS THAT SECTION 145A STOOD INSERTED AND HENCE THE EXCLUSIVE (NET) MET HOD FOLLOWED BY THE ASSESSEE WAS IMPERMISSIBLE. THE HON'BLE HIGH CO URT CONSIDERED THIS ASPECT IN THE LAST PARA OF ITS JUDGMENT AND OB SERVED THAT THE INSERTION OF SECTION 145A W.E.F. THE AY 1999-2000 HAD NO BEARING AS THE ASSESSMENT YEAR UNDER THEIR CONSIDERATION WAS 1 989-90. IN THE LIGHT OF THIS POSITION IT BECOMES IMPERATIVE TO GI VE EFFECT TO THE PROVISIONS OF SECTION 145A OF THE ACT WHICH ARE APPLICABLE TO THE YEAR UNDER CONSIDERATION AND ARE BINDING WITHOUT ANY EXC EPTION. 4.20. NOW WE COME TO GIVING EFFECT TO SECTIONS 145A AND 43B UNDER THE `INCLUSIVE METHOD'. IN LINE WITH OUR DISCUSSION MAD E ABOVE WHILE DEALING WITH PLA COMPONENT OF EXCISE DUTY WE DIREC T THE AO TO FIRST RECAST PROFIT AND LOSS ACCOUNT OF THE ASSESSEE BY T AKING THE FIGURES OF PURCHASE SALE AND OPENING AND CLOSING STOCKS AT TH E VALUE INCLUSIVE OF TAX OR DUTY ETC. SO AS TO GIVE EFFECT TO THE MANDA TE OF SECTION 145A . ONCE THIS IS DONE THEN IT WILL BE THE TURN OF GIVI NG EFFECT TO THE MANDATE OF SECTION 43B WHICH REQUIRES THE GRANTING OF DEDUCTION OF TAX O R DUTY ETC. ON PAYMENT BASIS. THIS CAN BE DONE BY ALLOWING DEDUCTION FOR THAT PART OF THE MODVAT CREDIT SEPARATELY U/S 43B OF THE ACT WHICH HAS NOT BEEN FINALLY DEDUCTED. 4.21. WE HAVE UNDERSTOOD MODVAT CREDIT IN THREE PAR TS IN THE EXAMPLE GIVEN ABOVE WHILE DISCUSSING IT UNDER THE EXCLUSIVE METHOD VIZ. RS.7 ITA NO.-6021/DEL/2012 23 WHICH IS UTILIZED MODVAT AND FINISHED GOODS SOLD; R S. 2 WHICH IS UTILIZED MODVAT BUT FINISHED GOODS IN STOCK AT THE END OF THE YEAR; AND RE.1 WHICH IS UNUTILIZED MODVAT AT THE END OF THE Y EAR. NOW UNDER THE `INCLUSIVE METHOD' THE PRICE OF DUTY PAID INPUT/RA W MATERIAL WILL BE TAKEN AT FULL PRICE INCLUSIVE OF RS.10. IN THAT VIE W OF THE MATTER THE ASSESSEE CAN BE SAID TO HAVE INITIALLY CLAIMED DEDU CTION FOR RS.10. OUT OF TOTAL MODVAT CREDIT OF RS.10 RECEIVED DURING THE YEAR A SUM OF RS.3 HAS TWO COMPONENTS VIZ. RS. 2 AS A PART OF PURCHA SES OF RAW MATERIALS AND ALSO SIMULTANEOUSLY A PART OF THE CORRESPONDING FINISHED GOODS IN CLOSING STOCK; AND RE. 1 AS A PART OF PURCHASES OF RAW MATERIALS AND ALSO SIMULTANEOUSLY A PART OF THE CORRESPONDING RAW MATERIALS IN CLOSING STOCK. THOUGH APPARENTLY IT APPEARS THAT TH E ASSESSEE GETS DEDUCTION OF RS.3 ALSO BY WAY OF HIGHER VALUE OF PU RCHASE OF RAW MATERIAL BUT THE REALITY IS DIFFERENT. WHEN THE FI GURES OF CLOSING STOCK OF FINISHED GOODS AND RAW MATERIAL ALSO INCLUDE RS.3 THEN IN FACT THERE IS NO DEDUCTION OF RS.3 BECAUSE DEBIT TO THE PROFIT A ND LOSS ACCOUNT THROUGH INCREASED PURCHASE VALUE GETS NEUTRALIZED W ITH THE CREDIT TO THE PROFIT AND LOSS ACCOUNT WITH INCREASED VALUE OF CLO SING STOCK. THIS ENHANCED VALUE OF CLOSING STOCK INCLUSIVE OF RS.3 W ILL BECOME OPENING STOCK OF THE SUCCEEDING YEAR THEREBY OBLITERATING THE EFFECT OF DEDUCTION OF RS.3. WHEN SUCH GOODS ARE SOLD OR UTILIZED AND S OLD IN THE NEXT YEAR THE SALE PRICE WILL BE REALIZED WHICH WILL BE INCLU SIVE OF RS.3 EXCISE DUTY COMPONENT ALSO. SO IN FACT THERE IS NO ACTUAL DEDU CTION OF RS.3 DURING THE YEAR UNDER CONSIDERATION BECAUSE OF THE INCREAS ED PURCHASE PRICE GETTING COUNTERBALANCED WITH THE EQUAL AMOUNT OF LO ADING IN THE VALUE OF CLOSING STOCK. AFTER HAVING INCREASED THE VALUE OF PURCHASE AND CLOSING STOCK IN TERMS OF SECTION 145A WITH THE AMOUNT OF MODVAT CREDIT NOW THERE IS A SEPARATE REQUIREMENT OF GIVING EFFEC T TO THE MANDATE OF SECTION 43B WHICH REQUIRES THE GRANTING OF DEDUCTI ON OF RS.10 IN THE YEAR OF PAYMENT. A SUM OF RS.7 INCLUDED IN PURCHASE VALUE AS A PART OF RS.10 GETS EVENTUAL DEDUCTION BECAUSE IT IS EXHAUS TED AS THE SAME IS NOT TAKEN AS AN ASSET TO THE BALANCE SHEET EITHER DIRECTLY AS UNUTILIZED MODVAT OR INDIRECTLY AS PART OF CLOSING STOCK. BUT IN SO FAR AS THE AMOUNT OF RS.3 IS CONCERNED IT DOES NOT GET FINAL DEDUCTION BECAUSE OF THE SAME BEING A PART OF ASSETS IN BALANCE SHEET. D EDUCTION FOR MODVAT CREDIT BY MEANS OF ITS INCLUSION IN PURCHASE VALUE OF RAW MATERIALS CAN BE TREATED AS ALLOWED BY WAY OF DEBIT TO THE PROFIT AND LOSS ACCOUNT ONLY WHEN IT ALSO GETS EXHAUSTED. IF EVEN AFTER A DEBIT TO THE PROFIT AND LOSS ACCOUNT THE AMOUNT APPEARS IN BALANCE SHEET IN ONE FORM OR THE OTHER THE DEDUCTION CANNOT BE SAID TO HAVE BEEN AC TUALLY ALLOWED ON PAYMENT TILL IT IS EXHAUSTED AND GETS REMOVED FROM THE BALANCE SHEET ALSO. IN SUCH CIRCUMSTANCES THE AMOUNT OF UNEXHAUS TED (NOT NECESSARILY ONLY UNUTILIZED) MODVAT CREDIT - I.E. W HICH APPEARS IN BALANCE SHEET EITHER IN THE FORM OF INCREASED VALUE OF CLOSING STOCK (RS.2 IN OUR EXAMPLE) AND INCREASED VALUE OF RAW MATERIAL REPRESENTING UNUTILIZED MODVAT CREDIT (RE.1 IN OUR EXAMPLE) - CA LLS FOR SEPARATE DEDUCTION IN TERMS OF SECTION 43B . WE THEREFORE SET ASIDE THE IMPUGNED ORDER AND DIRECT THE AO TO FIRST RECAST TH E ASSESSEE'S PROFIT AND LOSS ACCOUNT ON INCLUSIVE BASIS THEN ALLOW DED UCTION FOR THE ITA NO.-6021/DEL/2012 24 EQUIVALENT AMOUNT OF MODVAT CREDIT AS REPRESENTED B Y RS.3 IN OUR EXAMPLE. THE AO SHOULD ALSO MAKE SURE THAT THE EQUI VALENT OF RS.3 ALLOWED AS DEDUCTION ON PAYMENT BASIS U/S 43B IN TH IS YEAR SHOULD NOT GET DEDUCTED IN THE NEXT YEAR AND FURTHER THE CORR ESPONDING AMOUNT OF DEDUCTION ALLOWED U/S 43B IN THE PRECEDING YEAR SH OULD ALSO BE SEPARATELY ADDED TO THE INCOME OF THE CURRENT YEAR. 3.18. FACTS BEING REMAINED THE SAME WE ARE NOT LEFT WIT H ANY CLUE AS TO WHY SHOULD WE DEVIATE FROM THIS CONSISTENT VIEW TAKEN FOR SUCCESSIVE YEARS AS SUCH WE THEREFORE RESPECTFU LLY FOLLOWING THE SAME LINE OF REASON WE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN VIEW OF THE A BOVE DECISIONS IN THE CASE OF ASSESSEE ITSELF IN THE APPEAL FOR THE ASSES SMENT YEAR 2006-07 AND 2007-08 AFTER AFFORDING OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. THESE GROUNDS NO 3.4 TO 3.4.1ARE THUS ALL OWED FOR STATISTICAL PURPOSES. GROUND NO 3.5: CUSTOMS DUTY INCLUDED IN CLOSING INV ENTORY 3.19. IN RESPECT OF DISALLOWANCE OF CUSTOM DUTY PAID ON IMPORT OF RAW MATERIAL/INPUTS CHALLENGED UNDER GROUND NO 3.5 C ASE OF THE ASSESSEE IS THAT THEY HAVE FOLLOWED INCLUSIVE METHO D OF ACCOUNTING AND ACCORDINGLY THE AMOUNT OF CUSTOM DUTY PAID ON IMPORTED INPUTS/ RAW MATERIAL IS INCLUDED IN THE PURCHASE PRICE WHI CH IS DEBITED TO THE PROFIT & LOSS ACCOUNT. ACCORDING TO THEM THE SAID DUTY IS ALSO INCLUDED AND CONSIDERED AS PART OF THE VALUE OF CLO SING STOCK WHICH IS SHOWN IN THE CREDIT SIDE OF THE PROFIT & LOSS ACCOU NT. ASSESSEE SUBMITS THAT THE CUSTOM DUTY OF RS.18 23 52 893/- R EPRESENTS CUSTOM DUTY ON IMPORT OF RAW MATERIAL/INPUTS WHICH IS INCLUDED IN THE VALUE OF CLOSING STOCK AS PER THE AFORESAID INC LUSIVE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND SUCH A METH OD IS IN LINE WITH THE PROVISIONS OF SECTION 145A OF THE ACT. INCLUSI ON OF CUSTOM DUTY BOTH IN THE VALUE OF PURCHASE AS WELL AS IN THE VAL UE OF CLOSING STOCK IS TAX NEUTRAL INASMUCH AS THE VERY SAME AMOUNT IS BOTH DEBITED AND ITA NO.-6021/DEL/2012 25 CREDITED TO THE PROFIT & LOSS ACCOUNT BUT AS PER T HE MANDATE UNDER SECTION 43B OF THE ACT THE CUSTOM DUTY SO ACTUALLY PAID BY THE ASSESSEE IS SEPARATELY CLAIMED AS DEDUCTION ON PAYM ENT BASIS IN THE RETURN OF INCOME. IT IS BROUGHT TO OUR NOTICE THAT IN THE EARLIER YEARS THE ASSESSING OFFICER DISALLOWED THE AFORESAID AMOU NT HOLDING THE SAME TO MERELY ADVANCE PAYMENT LIABILITY IN RESPEC T OF WHICH HAS NOT CRYSTALLIZED AND THEREFORE NOT ALLOWABLE AS DEDUCT ION UNDER SECTION 43B OF THE ACT. 3.20. WHILE PLACING RELIANCE ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF BERGER PAINTS INDIA LIMITED V CIT (2004) 266 ITR 99 LD. AR ARGUED THAT CUSTOMS AND EXCISE DUTIES AR E ALLOWABLE IN THE YEAR OF PAYMENT U/S 43B OF THE ACT AND EVEN IF SUC H DUTIES ARE INCLUDED IN THE VALUE OF CLOSING STOCK THEY WOULD BE SEPARATELY ALLOWABLE; AND THE AFORESAID ISSUE IS COVERED BY TH E DECISION OF THE SUPREME COURT IN THE CASE OF SAMTEL COLOR LTD WHERE IN THE COURT DISMISSED THE SLP FILED BY DEPARTMENT AGAINST THE O RDER OF DELHI HIGH COURT(CIVIL APPEAL NO 6449/2012)HOLDING THAT CUSTOM DUTY PAID IS ALLOWABLE DEDUCTION U/S 43B OF THE ACT. HE FURTHER SUBMITTED THAT THE KARNATAKA HIGH COURT IN THE CASE OF CIT V. NCR CORPORATION INDIA (P) LTD. : 240 TAXMAN 598 REITERATED THE PRINCIPLE LAID DOWN BY THE APEX COURT IN THE CASE OF BERGER PAINTS (SUPRA) AND HELD THAT THE ENTIRE AMOUNT OF EXCISE DUTY AND CUSTOMS DUTY PAID BY THE ASSESSEE IN A PARTICULAR YEAR ARE ALLOWABLE AS DEDUCTION IRR ESPECTIVE OF THE FACT THAT SUCH DUTIES ARE INCLUDED IN THE VALUE OF CLOSI NG STOCK. IT WAS FURTHER HELD THAT PROVISIONS OF SECTION 43B WHILE OVERRIDING ALL THE OTHER PROVISIONS OF THE ACT ALSO OVERRIDE SECTION 145A AND FURTHER THAT PROVISIONS OF SECTION 145A DOES NOT IN ANY MAN NER DILUTE OR NULLIFY THE EFFECT OF PROVISIONS OF SECTION 43B OF THE ACT. ITA NO.-6021/DEL/2012 26 3.21. HE FURTHER SUBMITTED THAT THE ISSUE STANDS COVERED BY THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASS ESSMENT YEARS 1999- 00 TO 2002-03 2004-05 2005-06 2006-07 AND 2007-0 8 WHEREIN TRIBUNAL HAS HELD THAT SINCE THE DUTY IS PAID DED UCTION CLAIMED U/S 43B OF THE ACT HAS TO BE ALLOWED. 3.22. PER CONTRA IT IS THE SUBMISSION OF THE LD. DR THAT SINCE THE ASSESSEE HAS INCLUDED CUSTOMS DUTY ON INVENTORY IN CLOSING STOCK IT HAS ALREADY RECEIVED DEDUCTION ON THESE ITEMS WHICH ARE ALSO DEBITED TO THE P&L ACCOUNT. FURTHER ACCORDING TO HIM THE C OMPUTATION OF INCOME STARTS FROM THE NET FIGURE OF P&L ACCOUNT WH ICH MEANS THAT THE DEDUCTION IS AUTOMATICALLY ALLOWED TO THE ASSES SEE AS SUCH NO INDEPENDENT DEDUCTION CAN BE ALLOWABLE TO THE ASSES SEE UNDER THIS HEAD. ON THIS PREMISE HE SUBMITS THAT THE DECISION OF ITAT WAS NOT ACCEPTABLE FOR AY 2006- 07 AND 2007-08 ON THIS ISSU E. HOWEVER THESE ARE CONTINUOUS ISSUES FORMING PART OF THE ASS ESSMENT ORDER FOR AY 2005-06 2006-07 AND 2007-08 ALSO AND ARE AT PR ESENT PENDING ADJUDICATION BEFORE HONBLE DELHI HIGH COURT. 3.23. VIDE PARA 5.6 AND 5.7 OF THE ORDER DATED 24.8.2015 FOR A.Y. 2006-07 IN ASSESSEES OWN CASE A COORDINATE BENCH O F THIS TRIBUNAL DEALT WITH THIS ASPECT IN THE FOLLOWING MANNER:- 5.6. THE LAST ASPECT OF DISALLOWANCE U/S 43B IS C USTOMS DUTY INCLUDED IN CLOSING STOCK AMOUNTING TO RS. 22 52 46 693/-. THE ASSESSEE CLAIMED DEDUCTION FOR THIS SUM WHICH WAS DENIED BY THE AO. THE LD. AR STATED THAT THE ASSESSEE FOLLOWED `INCLU SIVE METHOD' OF ACCOUNTING ON THIS ISSUE. THE CLAIM OF THE ASSESSEE IS THAT THE AMOUNT OF RS.22.52 CRORE BEING THE AMOUNT OF CUSTOMS DUTY PAID ON THE IMPORT OF RAW MATERIAL/INPUTS WAS INCLUDED IN THE COST OF MATERIAL AND ALSO AS A PART OF CLOSING STOCK THEREBY LEVELLING BOTH THE DEBIT AND THE CREDIT SIDES OF THE PROFIT & LOSS ACCOUNT. THE LD. AR CONT ENDED THAT SUCH AMOUNT OF CUSTOMS DUTY IS SEPARATELY DEDUCTIBLE IN TERMS OF SECTION 43B OF THE ACT. HE ALSO SUBMITTED THAT THIS ISSUE IS S ETTLED IN THE ASSESSEE'S FAVOUR IN EARLIER YEARS. 5.7. WE HAVE ELABORATELY DISCUSSED THIS ASPECT SUPR A IN THE CONTEXT OF EXCISE DUTY INCLUDED IN THE VALUE OF CLOSING STOCK. IN PRINCIPLE WE HOLD ITA NO.-6021/DEL/2012 27 THAT THE AMOUNT OF CUSTOMS DUTY OF RS.22.52 CRORE I S ALLOWABLE IN THE YEAR IN QUESTION BUT THE AO IS DIRECTED TO FIRST VERIFY THE ARGUMENT OF FOLLOWING THE `INCLUSIVE METHOD' AND THEN ALLOW DED UCTION U/S 43B IN THE MANNER DISCUSSED ABOVE IF THE SAME DID NOT GET EVENTUALLY ALLOWED. THE AO SHOULD FURTHER MAKE IT IS SURE THAT NO DOUBL E DEDUCTION IS ALLOWED ON THIS SCORE EITHER IN THE CURRENT YEAR W ITH THE LAST YEAR'S AMOUNT GETTING SEPARATELY DEDUCTED U/S 43B OR IN TH E NEXT YEAR WITH THE CURRENT YEAR'S AMOUNT GETTING SEPARATE DEDUCTIO N. 3.24. TO SET ASIDE THE MATTER TO THE FILE OF THE ASSESSI NG OFFICER TO DECIDE THE ISSUE AFRESH AS DIRECTED ABOVE AFTER AFF ORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND VIDE PARA 13.5 IN THE ORDER FOR AY 2007-08 THE ABOVE DIRECTION WAS FOLLOWED. IN VIEW OF NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE ADOPT THE SAME VIEW AND SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING O FFICER TO DECIDE THE ISSUE AFRESH AS DIRECTED ABOVE AFTER AFFORDING OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO 3.5 IS THEREFORE ALLOWED FOR STATISTICAL PURPOSE. GROUND NO 3.6 TO 3.7 DISALLOWANCE OF DEDUCTION UNDE R SECTION 43B OF THE ACT THE PAYMENT REPRESENTING CUSTOM DUTY 3.25. INSOFAR AS THE DISALLOWANCE OF DEDUCTION UNDER SE CTION 43B OF THE ACT FOR A SUM OF RS 13 51 93 089/- REPRESENTING CUSTOM DUTY (CVD) PAID TO BE ADJUSTED AGAINST EXCISE DUTY PAYAB LE ON FINISHED PRODUCTS AND A SUM OF RS 1 93 27 627/- REPRESENTI NG CUSTOM DUTY IN RESPECT OF THE GOODS IN TRANSIT/UNDER INSPECTION IS CONCERNED THE CASE OF THE ASSESSEE IS THAT THESE AMOUNTS REPRESEN T CUSTOM DUTY/CVD PAID BY THE ASSESSEE DURING THE FINANCIAL YEAR 2007-08 AND SINCE THE AFORESAID AMOUNT REPRESENTS ACTUAL CU STOM DUTY/ CVD PAID BY THE ASSESSEE DURING THE YEAR UNDER CONSIDER ATION THE SAME WAS CLAIMED AS DEDUCTION UNDER SECTION 43B OF THE A CT. BUT THE ASSESSING OFFICER DISALLOWED THE AFORESAID FOLLOWIN G ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2005-06. LD. AR SUBMITTED THAT THIS ISSUE ITA NO.-6021/DEL/2012 28 WAS ALSO DECIDED IN FAVOUR OF ASSESSEE BY THE SUPRE ME COURT IN CIVIL APPEAL NO. 6449/2012 WHEREIN THE SLP FILED BY THE D EPARTMENT AGAINST THE ORDER OF THE DELHI HIGH COURT IN THE CA SE OF CIT VS. SAMTEL COLOR LTD : 184 TAXMAN 120 WAS DISMISSED HOLDING TH AT CUSTOM DUTY PAID IS ALLOWABLE DEDUCTION U/S 43B OF THE ACT. H E FURTHER SUBMITS THAT APART FROM THIS THE ISSUE STANDS COVERED IN F AVOUR OF THE ASSESSEE BY THE ORDER OF A COORDINATE BENCH OF THIS TRIBUNAL FOR THE ASSESSMENT YEARS 1999-00 2000-01 AY 2002-03 AY 2 005-06 AY 2006-07 AND 2007-08 WHEREIN IT WAS HELD THAT SINCE THE DUTY IS PAID DEDUCTION CLAIMED U/S 43B OF THE ACT HAS TO BE ALLO WED. 3.26. PER CONTRA ON THESE GROUNDS 3.6 AND 3.7 LD DR SUBMITTED THAT IN RESPECT OF THE AMOUNT OF RS. 13 51 93 089/- BEING CUSTOMS DUTY (CVD) PAID TO BE ADJUSTED AGAINST EXCISE DUTY PAYABLE ON FINISHED PRODUCTS A COORDINATE BENCH OF THIS TRIBU NAL HAS ALSO ACCEPTED THAT UNDER THE INCLUSIVE METHOD IT WILL BE INCLUDED IN PURCHASES SALES AND OPENING AND CLOSING STOCK OF INVENTORIES AS A RESULT OF WHICH THE ULTIMATE IMPACT IS REVENUE NEUT RAL AND NO DEDUCTION WILL BE ALLOWABLE TO THE ASSESSEE UNDER T HIS HEAD. AS REGARDS THE AMOUNT OF RS. 1 93 27 627/-BEING CUSTOM S DUTIES ON GOODS IN TRANSIT/ UNDER INSPECTION HE CONTENDS THA T IT IS BE NOTED THAT THE DUTY PAID IS NOT TAX DEDUCTIBLE AS GOODS I N TRANSIT ARE NOT EXPENDITURE OF THE YEAR AND ARE NOT ROUTED THROUGH THE P&L ACCOUNT. FURTHER ACCORDING TO HIM THE LIABILITY TO PAY CUST OMS DUTY IS INCURRED ONLY AFTER THE GOODS HAVE REACHED THE CUSTOMS BARRI ER AND SINCE THE ASSESSEE HAS CLAIMED DEDUCTION ON THIS ACCOUNT THE ONUS OF PROVING THIS FACT WAS ON THE ASSESSEE. HE POINTS OUT THAT I T IS NOT ON RECORD WHETHER THE ASSESSEE HAS DISCHARGED THIS RESPONSIBI LITY AS SUCH IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN IN DIAN MOLASSES CO. (P.) LTD. 37 ITR 66 THIS AMOUNT HAS TO BE TREATED AS AN ADVANCE PAYMENT WHICH IS NOT AN ALLOWABLE DEDUCTION. LASTLY HE CON TENDED THAT THESE ITA NO.-6021/DEL/2012 29 ARE CONTINUOUS ISSUES FORMING PART OF THE ASSESSMEN T ORDER FOR AY 2005-06 2006-07 AND 2007-08 ALSO AND ARE AT PRESE NT PENDING ADJUDICATION BEFORE HONBLE DELHI HIGH COURT. 3.27. SUBSTANTIALLY THIS QUESTION HAD FALLEN FOR CONSIDE RATION BEFORE A COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2006-07 AND 2007-08 AND BY PARA NOS. 5.3 AND 5.4 OF ITS ORDER FOR A.Y. 2006-07 A COORDINATE BENCH OF THIS TRIBUNAL R ESOLVED THE ISSUE IN THE FOLLOWING MANNER '5.3. NEXT ITEM IS CUSTOMS DUTY (CVD) PAID TO BE AD JUSTED AGAINST EXCISE DUTY PAYABLE ON FINISHED PRODUCTS AMOUNTING TO RS. 15 59 44 832/-. SIMULTANEOUS WITH THIS THERE IS AN OTHER ITEM OF RS.5 40 40 258/- WHICH IS THE AMOUNT OF CUSTOMS DU TIES ON GOODS IN TRANSIT/UNDER INSPECTION. THE ASSESSEE CLAMED DEDUC TION FOR THE ABOVE AMOUNTS U/S 43B OF THE ACT WHICH THE AO DENIED. 5.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIAL ON RECORD. THE ID. AR CONTENDED THAT THIS ISSUE HAS BEEN DECIDED IN EARLIER YEARS IN THE ASSESSEES FAVOUR B Y THE TRIBUNAL. HE FURTHER REFERRED TO THE JUDGMENT OF THE HON'BLE DEL HI HIGH COURT IN CIT VS. SAMTEL COLOUR LTD. (2009) 184 TAXMAN 120 (DEL) IN WHICH IT HAS BEEN HELD THAT ADVANCE CUSTOMS DUTY PAID IN THE YEA R IN QUESTION IS AN ADMISSIBLE DEDUCTION U/S 43B. IN OUR CONSIDERED OPI NION THERE CAN BE NO DISPUTE ON THE OTHERWISE AVAILABILITY OF DEDUCTI ON OF ADVANCE CUSTOMS DUTY PAID BY THE ASSESSEE WHICH HAS TO BE ALLOWED IN THE YEAR OF PAYMENT. IN THIS JUDGMENT ALSO THE HON BL E HIGH COURT HAS NOTICED VIDE PARA 3 THAT THE PROVISIONS OF SECTION 145A WERE NOT APPLICABLE AS THE ASSESSMENT YEAR UNDER CONSIDERATI ON WAS 1995-96. IN VIEW OF THE DETAILED DISCUSSION SUPRA WITH REFER ENCE TO THE APPLICABILITY OF SECTION 145A TO THE YEAR IN QUESTI ON THERE CAN BE NO ESCAPE FROM VALUATION OF PURCHASE SALE AND INVENTO RIES UNDER THE INCLUSIVE METHOD. WE THEREFORE DIRECT THE AO TO R ECAST PROFIT AND LOSS ACCOUNT UNDER 'INCLUSIVE METHOD AS PER THE MANDATE OF SECTION 145A THEREBY INTER ALIA INCREASING THE PURCHASE VALUE WITH THE ABOVE CUSTOMS DUTY. THEN THE AO WILL ALLOW SEPARATE DEDUC TION FOR THE ABOVE REFERRED SUMS TO THE EXTENT NOT GETTING EVENTUALLY DEDUCTED SEPARATELY BY WAY OF INCREASED PURCHASE PRICE AS HAS BEEN DIS CUSSED ABOVE. AT THE SAME TIME WE ALSO DIRECT THE AO TO MAKE SURE T HAT SUCH AMOUNT SEPARATELY GETTING DEDUCTED IN THIS YEAR DOES NOT G ET DEDUCTION ONCE AGAIN IN THE NEXT YEAR. IN THE LIKE MANNER THE LAS T YEAR'S SIMILAR DEDUCTION SEPARATELY ALLOWED SHOULD BE TAXED IN THE COMPUTATION OF INCOME OF THE CURRENT YEAR ITA NO.-6021/DEL/2012 30 AND BY FOLLOWING THE SAME FOR AY 2007-08 VIDE PARA 14.1 THE MATTER WAS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AS PER THE ABOVE DIRECTION OF THE ITAT IN TH E APPEAL FOR THE ASSESSMENT YEAR 2006-07 AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE ABSENCE OF ANY CHANGE OF CIRCU MSTANCES OR LAW WE THINK IT FIT TO FOLLOW THE SAME LINE OF REASONING A ND SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AS PER THE ABOVE DIRECTION IN THE APPEAL FOR THE ASSESSMENT YEAR 200 6-07 AND 2007-08 AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE A SSESSEE. GROUND NOS 3.6 AND 3.7 ARE ACCORDINGLY ALLOWED FOR STATISTIC AL PURPOSES. GROUND NO 3.8 CUSTOMS DUTY PAID UNDER PROTEST 3.28. WITH REGARD TO THE DISALLOWANCE OF CLAIM FOR DEDU CTION UNDER SECTION 43B OF THE ACT FOR A SUM OF RS. 92 431 /- B EING CUSTOMS DUTY PAID UNDER PROTEST ASSESSEE SUBMITS THAT THE CUSTOM DUTY PAID UNDER PROTEST REPRESENTED THE DUTIES PAID AS PER THE ADDI TIONAL DEMAND RAISED BY THE STATUTORY AUTHORITIES I.E. THE CUSTO MS DEPARTMENT AND THOUGH THEY HAVE DISPUTED SUCH ADDITIONAL DEMAND AN D PAID THE AMOUNT UNDER PROTEST IN VIEW OF THE DEMAND BEING I N THE NATURE OF A STATUTORY LIABILITY THE SAME REPRESENTED ACCRUED/ CRYSTALLIZED LIABILITY. ACCORDING TO THE ASSESSEE AS PER THE MANDATE OF SE CTION 43B OF THE ACT THE AFORESAID ADDITIONAL CUSTOM DUTY SO ACTUAL LY PAID UNDER PROTEST WAS CLAIMED AS DEDUCTION ON PAYMENT BASIS W HICH HAS BEEN DISALLOWED BY THE ASSESSING OFFICER. HOWEVER THE ASSESSING OFFICER DISALLOWED THE AFORESAID FOLLOWING ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2005-06. LD. AR INVITED OUR ATTENTION TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF EURO RS CG ADVERTISING (P) LTD V. ACIT : 154 TTJ 389 (MUM) WHEREIN IT WAS HELD THAT WHEREIN THE SERVICE TAX LIABILITY ALONGWITH THE INTEREST WA S PAID ON THE BASIS OF SHOW CAUSE NOTICE ISSUED BY THE SERVICE TAX AUTHORI TIES THE SAME WAS ALLOWABLE UNDER SECTION 43B IN THE YEAR IN WHICH TH E PAYMENT WAS ITA NO.-6021/DEL/2012 31 MADE IRRESPECTIVE OF THE FACT THAT SUCH DEMAND WAS PAID UNDER PROTEST AND THE MATTER WAS SUBJUDICE BEFORE THE AUTHORITIES . HE FURTHER SUBMITTED THAT IN SIMILAR CIRCUMSTANCES THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. DHARAMPAL SATYAPAL SONS (P.) LTD.: 50 DTR 287 HELD THAT THE AMOUNT PAID BY THE ASSESSEE AGAINST E XCISE DUTY DEMAND RAISED BY EXCISE AUTHORITIES WAS ALLOWABLE DEDUCTIO N AS IT WAS STATUTORY LIABILITY WHICH WAS ALLOWABLE ON PAYMENT BASIS UNDER SECTION 43B OF THE ACT AND ALSO SUBMITTED THAT IN ASSESSEE S OWN CASE FOR A.YS 1999-00 2000-01 2001-02 2002-03 2005-06 2006-07 AND 2007-08 COORDINATE BENCHES OF THIS TRIBUNAL HAVE H ELD THAT SINCE THE DUTY IS PAID DEDUCTION CLAIMED U/S 43B OF THE ACT HAS TO BE ALLOWED. 3.29. THIS ASPECT OF DISALLOWANCE OF CLAIM FOR DEDUCTION UNDER SECTION 43B OF THE ACT FOR THE AMOUNT OF CUSTOMS DUTY PAID UNDER PROTEST HAS BEEN ONE OF THE SUBJECT OF MATTERS IN ASSESSEE S OWN CASE FOR THE AY 2006-07 AND 2007-08 SUCCESSIVELY AND FOR THE AY 2006-07 VIDE PARA 5.5 OF THE ORDER DATED 24.8.2015 THE FOLLOWI NG FINDING WAS RETURNED BY THE TRIBUNAL 5.5. NEXT ITEM IS CUSTOMS DUTY PAID UNDER PROTEST AMOUNTING TO RS.1 34 25 787. WE HAVE DISCUSSED SIMILAR ISSUE SUP RA WHILE DEALING WITH `EXCISE DUTY PAID UNDER PROTEST' BY HOLDING TH AT FIRST THE PROFIT AND LOSS ACCOUNT BE RECAST AS PER `INCLUSIVE METHOD' IN TERMS OF SECTION 145A AND THEN SOME ADJUSTMENTS AS STATED ABOVE BE SEPAR ATELY MADE. SUCH DIRECTIONS ARE FULLY APPLICABLE PRO TANTO TO T HE CUSTOMS DUTY PAID UNDER PROTEST. THE AO IS DIRECTED TO FOLLOW THE SAM E. 3.30. WHILE FOLLOWING THE SAME FOR AY 2007-08 TRIBUNAL SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECI DE IT AFRESH AS DECIDED ABOVE BY THE ITAT AFTER AFFORDING OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE. 3.31. LD. DR FAIRLY CONCEDES THAT THE DECISION OF THE TR IBUNAL ON THE ISSUE OF EXCISE DUTY PAID UNDER PROTEST IN A.Y. 2006-07 AND 2007- 08 WAS ACCEPTABLE TO THE REVENUE AND ACCORDINGLY NO FURTHER APPEAL ITA NO.-6021/DEL/2012 32 WAS PREFERRED ON THIS ISSUE. IN THESE CIRCUMSTANCE S WHILE FOLLOWING THE SAME WE SET ASIDE GROUND NO 3.8 TO THE FILE OF THE ASSESSIN G OFFICER TO DECIDE IT AFRESH AS DECIDED BY THE ITAT FOR THE AYS 2006-07 A ND 2007-08 AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. GROUNDS NO. 4 TO 4.2 NOT ALLOWING WITHDRAWAL OF ADD BACK U/S 43B: 4. ADVERTING TO GROUND NO 4 TO 4.2 IN THE AY 2008-09 THE ASSESSEE COMPANY OFFERED AN AMOUNT OF RS. 117 72 92 005/- IN ITS RETURN OF INCOME REPRESENTING THE AMOUNTS RECEIVED BACK OR AD JUSTED IN THE PROFIT AND LOSS ACCOUNT DURING FY 2007-08 OUT OF TH E AMOUNTS WHICH HAVE ALREADY BEEN CLAIMED AS DEDUCTION ON PAYMENT B ASIS U/S 43B OF THE ACT IN THE PRECEDING ASSESSMENT YEARS AND THIS AMOUNT WAS OFFERED TO TAX BY THE ASSESSEE DURING AY 2008-09 ON THE PRESUMPTION THAT DEDUCTION WOULD BE ALLOWED IN PRECEDING YEARS ON PAYMENT BASIS. IT IS PLEADED THAT THE AFORESAID TOTAL AMOUNT OF RS .117 72 92 005/- HAS NOT BEEN ALLOWED TO THE ASSESSEE ON PAYMENT BAS IS IN THE PRECEDING ASSESSMENT YEARS AND THUS THE ASSESSEE HA S PRAYED THAT IT BE ALLOWED TO WITHDRAW THE ADD BACK OF THE SAID AMO UNT AND NOT ALLOWING WITHDRAWAL OF ADD BACK HAS RESULTED IN THE CLAIM NOT BEING ALLOWED IN ANY YEAR. LD. AR BROUGHT TO OUR NOTICE THAT ASSESSEES CLAIM UNDER SECTION 43B DEDUCTION WAS ALLOWED IN TH E EARLIER ASSESSMENT YEARS AS SUCH SAID AMOUNT OF RS. 117 7 2 92 005/- WOULD CERTAINLY BE LIABLE TO BE ADDED TO THE ASSESS ABLE INCOME OF THE PRESENT YEAR. IT IS SUBMITTED ON BEHALF OF THE ASSE SSEE THAT THE WITHDRAWAL OF WRITE-BACK HAS BEEN ALLOWED BY AO FOR AY2007-08 WHICH HAS BEEN CONFIRMED BY DRP. HE SUBMITTED THAT IDENTICAL CLAIMS HAVE BEEN ALLOWED IN THE ASSESSEES OWN CASE BY ITAT IN AY 1999-2000 2000-01 AY 2005-06 AND AY 2006-07 AND BY CIT(A) IN AY 2001-02 AND 2002-03. ITA NO.-6021/DEL/2012 33 4.1. AS SUBMITTED BY THE LD. AR IN THE ORDER DT 24.08.2 015 FOR THE AY 2006-07 THIS TRIBUNAL IN ASSESSEES OWN CASE V IDE PARAGRAPH NO 6.3 AND 6.4 DEALT WITH THIS ISSUE IN THE FOLLOWING MANNER: 6.3. GROUND NOS. 4 TO 6.1 DEAL WITH A SUM OF RS. 1 41 59 08 897 WHICH HAS BEEN STATED TO BE A TOTAL OF CERTAIN AMOU NTS CLAIMED BY THE ASSESSEE AS DEDUCTIBLE IN THE PRECEDING YEAR U/S 43 B AS EXCISE DUTY AND CUSTOMS DUTY AND VOLUNTARILY OFFERED FOR TAXATI ON IN THE CURRENT YEAR'S INCOME. THE LD. AR CONTENDED THAT SINCE SUCH DEDUCTIONS HAVE BEEN DENIED BY THE AO THE CORRESPONDING OFFERING O F THE SAME TO TAX IN THE CURRENT YEAR BE ELIMINATED. 6.4. WE AGREE WITH THE LD. AR THAT ONE AMOUNT CANNO T BE TAXED TWICE. IT IS BUT NATURAL THAT IF AN AMOUNT CLAIMED AS DEDUCTI ON BY THE ASSESSEE IN THE EARLIER YEAR HAS NOT BEEN ALLOWED THEN ON T HE ASSESSEE'S SUO MOTU OFFERING OF IT AS AN ITEM OF INCOME FOR THE CU RRENT YEAR ON THE STRENGTH OF DEDUCTION CLAIMED IN THE EARLIER YEAR WHICH FINALLY STANDS DENIED SHOULD NOT BE CHARGED TO TAX. ON BEING CALL ED UPON TO FURNISH THE DETAIL OF SUCH AMOUNT IT WAS STATED THAT IT I NTER ALIA INCLUDES A SUM OF RS.71 63 89 449 WHICH IS SUBJECT MATTER OF GROUND NO. 3.5 THAT WE HAVE DISCUSSED IMMEDIATELY HEREINBEFORE. WE NOTE THAT APART FROM THE SUSTENANCE OF DISALLOWANCE OF RS.71.63 CRORE IN THE PRECEDING YEAR THERE IS NO OTHER DISALLOWANCE U/S 43B WHICH HAS BE EN UPHELD BY THE TRIBUNAL. IT IS OVERT THAT ALL OTHER DISALLOWANCES MADE BY THE AO U/S 43B HAVE BEEN DELETED BY THE TRIBUNAL. THE LD. AR C OULD NOT FURNISH ANY DETAIL OF THE REMAINING AMOUNT OF RS.69.96 CRORE (R S.141.59 CRORE MINUS RS.71.63 CRORE) ALLEGEDLY FINALLY DISALLOWED U/S 43B OF THE ACT BY THE TRIBUNAL IN THE PRECEDING YEAR. IT IS SIMPLE AND PLAIN THAT IF THE TRIBUNAL HAS ALLOWED DEDUCTION FOR THE AMOUNTS DISA LLOWED BY THE AO IN THE PRECEDING YEAR THEN THE SAME ARE RIGHTLY CH ARGEABLE TO TAX IN THE CURRENT YEAR. THIS GROUND IS THEREFORE DISMISSED SUBJECT TO OUR DECISION ON GROUND NO. 3.5 IN GRANTING DEDUCTION OF RS.71 63 89 449 REPRESENTING LAST YEAR'S UNUTILIZED MODVAT CREDIT W HICH WAS CLAIMED BY THE ASSESSEE AS DEDUCTIBLE U/S 43B BUT DISALLOWED B Y THE AO AND ALSO THE TRIBUNAL. 4.2. FOR THE AY 2007-08 THOUGH THE AO REFUSED TO ALLOW THE DEDUCTIONS CLAIMED BY THE ASSESSEE UNDER SECTION 43 B OF THE ACT BY ORDER DATED 20-05-2016 THE TRIBUNAL CONSIDERED THE CASE OF THE ASSESSEE AND SET ASIDE THE MATTER TO THE FILE OF AO AND THE RELIEF ON THIS ASPECT IS DEPENDENT UPON THE FINDINGS OF THE A O WHILE IMPLEMENTING THE SAID ORDER AS SUCH WE DEEM IT JUS T AND PROPER TO DIRECT THE AO TO CONSIDER THIS ASPECT ALSO IN THE L IGHT OF IMPLEMENTING ITA NO.-6021/DEL/2012 34 THE ORDER OF THIS TRIBUNAL FOR THE AY 2007-08. THE SE GROUNDS ARE THEREFORE ALLOWED FOR STATISTICAL PURPOSE. GROUND NO 5 TO 5.4 ADDITION OF RS.1.7045 CRORES IN RESPECT OF PURPORTED ALLEGED EXCESS CONSUMPTION OF RAW MATERIA L AND COMPONENTS 5. IN RESPECT OF DISALLOWANCE TO A TUNE OF RS.1 70 45 000/- ON ACCOUNT OF ALLEGED EXCESS CONSUMPTION OF RAW MATERI ALS AND COMPONENTS IT IS THE ARGUMENT OF THE LD. AR THAT I N THE MANUFACTURING PROCESS OF AUTOMOBILES THE ASSESSEE PROCURES AND UTILIZES MORE THAN 12000 ITEMS OF RAW MATERIAL AND COMPONENTS FOR MANUFACTURING THE RANGE OF AUTOMOBILES AND DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2008-09 THE YEAR U NDER CONSIDERATION THE TURNOVER OF THE ASSESSEE (EXCLUD ING EXCISE DUTY) AMOUNTED TO RS.17 860 CRORES. HE EXPLAINED THAT THE ASSESSEE FOLLOWED THE ELABORATE SYSTEM OF BOOK KEEPING FOR R ECEIPT AND ISSUE OF RAW MATERIAL AND COMPONENT AS ALSO MANUFACTURE OF F INISHED GOODS. THE ASSESSEE FOLLOWED JUST IN TIME SYSTEM FOR MAN AGEMENT AND REORDER OF INVENTORY WHEREBY THE INVENTORIES ARE O RDERED JUST IN TIME WHEN THE REQUIREMENT FOR SAID INVENTORY ARISES IN R ESPECT OF PRODUCTION SHOPS IN THAT PROCESS THE MATERIAL SO R EQUIRED IS DELIVERED STRAIGHT TO THE SHOP FLOOR IN THE RELEVANT DEPARTME NT AND AT A TIME THERE REMAIN ONLY A FEW HOUR INVENTORIES EXCEPT FOR CERTAIN ITEMS AND ON DAILY BASIS A CONSOLIDATED ENTRY IS PASSED FOR CONSUMPTION OF VARIOUS MATERIALS ON THE BASIS OF BILL OF MATERIAL (`BOM) WHICH BASICALLY CONTAINS THE STANDARD QUANTITY OF MATERIA L REQUIRED FOR MANUFACTURE OF A VEHICLE ON THE BASIS OF THE NUMBER OF VEHICLES MANUFACTURED. HOWEVER IN CASE OF CERTAIN MATERIAL SUCH AS PAINT CONSUMPTION IS RECORDED ON ACTUAL BASIS AS AGAINST CONSUMPTION OF OTHER MATERIAL BEING RECORDED ON THE BASIS OF STAND ARD BILLS OF MATERIAL AND AT THE YEAR END ACTUAL PHYSICAL VERIFICATION O F THE INVENTORIES IS CARRIED OUT BY THE ASSESSEE FOLLOWED BY PREPARATION OF STOCK ITA NO.-6021/DEL/2012 35 RECONCILIATION IN RESPECT OF VARIATION BETWEEN PHYS ICAL STOCK AND THE STOCK AS PER COMPUTERIZED BOOKS OF ACCOUNT. HE SUBM ITTED THAT FOR THE PURPOSES OF FINANCIAL ACCOUNTING THE ASSESSEE DEBI TS TO THE PROFIT AND LOSS ACCOUNT FIGURE OF CONSUMPTION AT THE YEAR END WHICH IS DERIVED ON THE BASIS OF OPENING STOCK (AS PER PHYSICAL INVE NTORY) ENHANCED BY PURCHASES AND REDUCED BY CLOSING STOCK (AS PER PHY SICAL INVENTORY). IN THIS PROCESS FOR THE AY 2008-09 AS PER STOCK R ECONCILIATION IT WAS FOUND THAT THE VALUE OF ITEMS AS PER STOCK REGISTER WAS MORE THAN PHYSICAL STOCK VARIATION BY RS.1.7045 CRORES WHICH MERELY WORKED OUT AS 0.013% OF TOTAL CONSUMPTION OF RS.13 034 CRO RES. HE SUBMITTED THAT IN THE ASSESSMENT ORDER THE ASSESSI NG OFFICER HAS ACCEPTED THE SYSTEM OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE AS SUCH SINCE THERE IS NO DISPUTE AS REGARDS THE FIGU RE OF OPENING STOCK PURCHASES CLOSING STOCK AND ALSO THE SALES IN THE ABSENCE OF ANY ALLEGATION OF ANY SUPPRESSION OF SALES EXCESS CONS UMPTION IF ANY WITHOUT ANYTHING MORE CANNOT LEAD TO ADDITION TO IN COME. HE FURTHER SUBMITS THAT THE ALLEGED WASTAGE IS ONLY 0.013% OF THE CONSUMPTION OF RS.13 034 CRORES DEBITED TO PROFIT AND LOSS ACCO UNT WHICH IS BELOW THE NORM OF 1% FIXED BY THE GOVERNMENT OF INDIA AS A TOLERANCE LEVEL OF PRODUCTION LOSSES FOR ALLOWING IMPORT AGAINST AD VANCE LICENSES HAVING REGARD TO NATURE AND SKILL OF THE OPERATION AND THAT SIMILAR ISSUE RAISED BY THE EXCISE AUTHORITIES IN THE EARLI ER YEAR(S) HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE CESAT IN F INANCIAL YEARS 2000-01 2001-02 AND 2002-03. HE PLACED RELIANCE O N A DECISION OF THE HONBLE APEX COURT IN COMMNR. OF CENTRAL EXCISE VS. M/S MARUTI SUZUKI INDIA LTD IN CIVIL APPEAL NO 7829/2004 DECID ED ON 3.4.2015 WHEREIN THE HONBLE APEX COURT HELD THAT WHEN THE S HORTAGE OF IN- PUTES AS CORRECTED IS ONLY 0.24% THAT WOULD BE IMM ATERIAL AND CORRECTION OF THE TOTAL INPUT IS IN USE. BESIDES P LACING RELIANCE ON THE DECISIONS REPORTED IN SETIA PLASTIC INDUSTRIES: 316 ITR 133(DEL.) R.B. ITA NO.-6021/DEL/2012 36 BANSILAL ABHIRCHAND SPNG & WVNG MILLS V. CIT: 75 IT R 260 (BOM.) SURAT DISTRICT CO-OPERATIVE MILK PRODUCERS UNION LT D: 99 TTJ 390 (AHD.) GEETANJALI WOOLLENS PVT.LTD.V. ACIT: (1991) 121 CTR (TRIB) (AHD.) AND ITO VS. HIMALAYA DRUG COMPANY : 17 TTJ 9 (DEL.) LD. AR SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAV OUR OF APPELLANT BY ITAT ORDERS FOR ASSESSMENT YEARS 1999-2000 TO 2002- 03 AY 2005-06 2006-07 AND 2007-08. 5.1. PER CONTRA IT IS THE ARGUMENT OF THE LD. DR THAT THOUGH AO HELD THAT WHILE THE SYSTEM OF ACCOUNTING EMPLOYED BY THE ASSESSEE IS NOT BEING CHALLENGED AT THE SAME TIME IT IS NOTED THA T THE SYSTEM HAS PRODUCED AN ERROR WHICH HAS ALSO BEEN ACCEPTED BY THE ASSESSEE AS SUCH THERE IS NO REASON WHY REVENUE AUTHORITIES SH OULD CONTINUE WITH THE ERROR AND ALLOW THE ASSESSEE EXCESS CONSUM PTION. FURTHER ACCORDING TO HIM EVEN IF THE AMOUNT OF VARIATION IS INSIGNIFICANT AND ARISES OUT OF A SYSTEMATIC PROBLEM THERE IS NO REA SON FOR THE SAME TO BE ACCEPTED ONCE IT IS NOTICED. HE URGES THAT ONE NEEDS TO UNDERSTAND THE REASONING BEHIND THE DISALLOWANCE MA DE IN THE ASSESSMENT. ACCORDING TO HIM SINCE THE COORDINATE BENCH OF THIS TRIBUNAL HAS NOT CONTROVERTED THE STAND TAKEN BY TH E AO IT WAS AN ERROR TO DIRECT THE AO TO ALLOW THE EXCESS CONSUMP TION ON THE GROUND OF ITS BEING INSIGNIFICANT. HE FURTHER SUBMITTED TH AT THE DECISION OF THE ITAT FOR THE IMMEDIATELY PRECEDING AY IS AT PRESENT PENDING ADJUDICATION BEFORE THE HONBLE HIGH COURT. 5.2. THERE IS NO DENIAL OF THE FACT THAT THE ISSUE IS S QUARELY COVERED IN FAVOUR OF ASSESSEE BY ITAT ORDERS FOR ASSESSMENT YEARS 1999-2000 TO 2002-03 AY 2005-06 2006-07 AND 2007-08. THIS ISSUE WAS COVERED BY GROUNDS NOS. 7 TO 7.4 OF THE ASSESSEES APPEAL FOR THE AY 2006-07 AND VIDE PARA 14.1 AND 14.2 OF ITS ORDER A COORDINATE BENCH OF THIS TRIBUNAL HAS HELD AS UNDER: ITA NO.-6021/DEL/2012 37 14.1. GROUND NOS. 7 TO 7.4 ARE AGAINST THE ADDITIO N OF RS.4.48 CRORE MADE BY THE AO ON ACCOUNT OF EXCESS CONSUMPTI ON OF RAW MATERIAL AND COMPONENTS. THE FACTS APROPOS THESE GR OUNDS ARE THAT THE ASSESSEE IS FOLLOWING JUST-IN-TIME SYST EM FOR MANAGEMENT AND REORDER OF INVENTORY IN WHICH INVEN TORIES ARE ORDERED JUST IN TIME WHEN THEIR REQUIREMENT ARISES. THE MATERIAL SO REQUIRED IS DELIVERED STRAIGHT TO THE SHOP FLOOR IN THE RELEVANT DEPARTMENT. AS A RESULT OF THIS THOUGH THE PURCHAS ES ARE RECORDED AS PER ACTUAL BILLS UPON THE ARRIVAL OF GO ODS IN THE PREMISES THE INVENTORIES ARE PROCURED BY CONSIDERI NG THE STANDARD CONSUMPTION OF VARIOUS RAW MATERIALS FOR M ANUFACTURE OF VEHICLES. DUE TO THIS DIFFERENCE IN THE MAKING O F ENTRY IN THE BOOKS OF ACCOUNT AND ACTUAL RECEIPT OF GOODS DIRECT LY IN THE RELEVANT DEPARTMENT WHICH IN TURN IS BASED ON ST ANDARD QUANTITY OF MATERIAL REQUIRED FOR MANUFACTURE OF VE HICLES SOMETIMES THERE ARISES DIFFERENCE BETWEEN THE PHYSI CAL INVENTORY TAKEN AND THE INVENTORY AS PER BOOKS OF A CCOUNT AT THE END OF THE YEAR. SOME ITEMS OF STOCK MAY BE EVE NTUALLY UNDER-CONSUMED WHILE OTHERS OVER CONSUMED. THE NET EFFECT OF UNDER/OVER CONSUMPTION IS NOTHING BUT THE DEVIATI ON FROM THE STANDARD CONSUMPTION. DURING THE YEAR IN QUESTION THE VARIATION BETWEEN PHYSICAL STOCK AND STOCK REGISTER WAS RS. 4.48 CRORE NEGATIVE WHICH MEANS ITEMS WHERE STOCK AS PER STOCK REGISTER WAS MORE THAN PHYSICAL STOCK AND RS. 2.86 CRORE POSITIVE I.E. ITEMS WHERE STOCK AS PER STOCK REGIS TER WAS LESS THAN THE PHYSICAL STOCK LEAVING THE NET DIFFERENCE OF RS.1.62 CRORE. THE AO DISALLOWED RS.4.48 CRORE IGNORING THE EXCESS AMOUNT OF RS.2.86 CRORE. THE ASSESSEE IS AGGRIEVED AGAINST THIS ADDITION. 14.2. IT IS MANIFEST THAT THE NET DIFFERENCE OF RS.1.62 C RORE IS NOTHING BUT EXCESS CONSUMPTION OVER THE STANDARD CONSUMPTION. SUCH SHORTAGE OF RS.1.62 CRORE IS ONLY 0.018% OF TOTAL CONSUMPTION OF MATERIAL DEBITED TO THE PROFIT & LOSS ACCOUNT. IN VIEW OF THE FACT THAT THIS AMOUNT HAS A CTUALLY BEEN CONSUMED IN THE MANUFACTURING OF GOODS IT CANNOT C ALL FOR ANY DISALLOWANCE. THERE MAY BE PRODUCTION EFFICIENCIES OR INEFFICIENCIES LEADING TO UNDER OR OVER CONSUMPTION OF INPUTS VIS- A-VIS STANDARD CONSUMPTION. SUCH UNDER OR OVER CONS UMPTION BECOMES A PART OF THE COST OF PRODUCTION. IN OUR CO NSIDERED OPINION THERE CAN BE NO LOGIC IN DISALLOWING SUCH AMOUNT WHICH IS NOTHING BUT EXCESS CONSUMPTION OF INPUTS. SIMILA R VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE ASSESSEE S OWN C ASE FOR EARLIER ASSESSMENT YEARS INCLUDING THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THIS GROUND IS ALLOWED'. 5.3. FOLLOWING THE ABOVE DECISION THIS TRIBUNAL FOR AY 2007-08 DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALL OWANCE. FURTHER THE ITA NO.-6021/DEL/2012 38 LD. AR BROUGHT TO OUR NOTICE A DECISION OF THE HONBLE APEX COURT IN COMMNR. OF CENTRAL EXCISE VS. M/S MARUTI SUZUKI IND IA LTD IN CIVIL APPEAL NO 7829/2004 DECIDED ON 3.4.2015 WHEREIN THE HONBLE APEX COURT HELD THAT WHEN THE SHORTAGE OF IN-PUTES AS CO RRECTED IS ONLY 0.24% THAT WOULD BE IMMATERIAL AND CORRECTION OF T HE TOTAL INPUT IS IN USE. IT IS THEREFORE CLEAR THAT FOR THE SUCCESSI VE AYS 2006-07 AND 2007-08 THE ASSESSING OFFICER WAS DIRECTED TO DELE TE THE DISALLOWANCE IN RESPECT OF THE EXCESS CONSUMPTION BY A COORDINAT E BENCH OF THIS TRIBUNAL WHILE PLACING RELIANCE ON TWO FACTORS NAM ELY THAT THE NET DIFFERENCE OF STOCK IS NEGLIGIBLE IN TUNE WITH THE OBSERVATIONS OF THE HONBLE APEX COURT (SUPRA) AND THAT THE TRIBUNAL H AS TAKEN SIMILAR VIEW IN THE ASSESSEES OWN CASE IN THE EARLIER ASSE SSMENT YEARS INCLUDING THE IMMEDIATELY PRECEDING YEAR. WE THERE FORE RESPECTFULLY FOLLOWING THE SAME DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION RS.1 70 45 000/- ON ACCOUNT OF ALLEGED EXCESS CONSU MPTION OF RAW MATERIALS AND COMPONENTS. GROUNDS NO 5 TO 5.4 ARE ALLOWED ACCORDINGLY. GROUND NO 6.0 TO 6.4 DISALLOWANCE OF RS. 7 43 27 34 9/- UNDER SECTION 14A OF THE ACT 6. ADVERTING TO THE ASPECT OF DISALLOWANCE U/S 14A OF THE ACT WE FIND FROM THE RECORD AND CONTENTIONS OF THE PARTIES THAT DURING THE YEAR UNDER CONSIDERATION THE APPELLANT EARNED DIVI DEND INCOME OF RS.166 83 50 967/- WHICH WAS CLAIMED AS EXEMPT FRO M TAX UNDER SECTIONS 10(34) AND 10(35) OF THE ACT ON THE BASIS OF WHICH THE ASSESSING OFFICER CONCLUDED THAT PROVISIONS OF SECT ION 14A OF THE ACT BECOMES APPLICABLE TO THE ASSESSEE AND CONSEQUENTLY EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS REQUIRED T O BE DISALLOWED WHILE COMPUTING TAXABLE INCOME AND BY PLACING RELIA NCE UPON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD: 312 ITR (AT) 01(MUM.) THE ASSESSING ITA NO.-6021/DEL/2012 39 OFFICER APPLIED THE METHOD PRESCRIBED IN RULE 8D OF THE INCOME-TAX RULES 1962 (THE RULES) AND DETERMINED THE AMOUNT DISALLOWABLE UNDER SECTION 14A OF THE ACT AT RS.7 43 27 349/- C OMPRISING OF THE FOLLOWING: S.NO. PARTICULARS AMOUNT IN RS. (IN MILLIONS) 1 DIRECT EXPENDITURE NIL 2 INTEREST EXPENDITURE INCURRED DURING THE YEAR (RS.128.46MILLIONS) ATTRIBUTED IN THE RATIO OF AVERAGE VALUE OF INVESTMENTS RESULTING IN EXEMPT INCOME TO AVERAGE VALUE OF TOTAL ASSETS 13.73 3 % OF AVERAGE VALUE OF INVESTMENTS 60.59 TOTAL 74.32 6.1. IT IS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE DISALLOWANCE MADE ON THIS COUNT IN THE FINAL ASSESSMENT ORDER IS WITHOUT JUDICIOUS APPRECIATION OF THE FACTS AND CORRECT POSITION OF L AW AND IS LIABLE TO BE DELETED. LD. AR BASED HIS ARGUMENTS ON THREE REASO NS: 1. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS NOT POINTED OUT EVEN A SINGLE EXPENDITURE BEING INCURRED BY THE APP ELLANT DURING THE YEAR HAVING RELATION/ PROXIMATE NEXUS WITH EXE MPT DIVIDEND INCOME EARNED DURING THE YEAR; 2. NO INVESTMENTS WERE MADE FROM BORROWED FUNDS; 3. WHILE COMPUTING DISALLOWANCE AS PER RULE 8D ENTIRE INVESTMENTS HAVE BEEN CONSIDERED WITHOUT EXCLUDING THE STRATEG IC LONG-TERM BUSINESS INVESTMENTS NOT FOR THE PURPOSE OF EARNIN G DIVIDEND BUT FOR FURTHERING THE OPERATIONS/ BUSINESS OF THE COMP ANY; AND INVESTMENTS NOT RESULTING IN ANY EXEMPT INCOME DURI NG THE YEAR UNDER CONSIDERATION; 6.2. ON THE FIRST ASPECT BASING ON THE PROVISIONS OF S ECTION 14A IT IS CONTENDED THAT EVEN FOR ASSESSMENT YEARS 2008-09 AN D ONWARDS DISALLOWANCE UNDER SECTION 14A AS PER PROVISIONS O F RULE 8D OF THE RULES CAN BE MADE ONLY IF THE ASSESSING OFFICER HA VING REGARD TO THE ITA NO.-6021/DEL/2012 40 ACCOUNTS OF THE ASSESSEE REACHES A FINDING THAT AS SESSEE HAS INCURRED ACTUAL EXPENSES WHICH HAVE PROXIMATE NEXUS WITH EA RNING OF EXEMPT INCOME. LD. AR SUBMITTED THAT THE ONUS IS ON THE AS SESSING OFFICER TO FIND PROXIMATE NEXUS OF EXPENSES WITH EARNING OF EX EMPT INCOME BEFORE REJECTING THE CLAIM OF ASSESSEE AND COMPUTIN G DISALLOWANCE UNDER SECTION 14A OF THE ACT AND THE PROVISIONS OF SUB-SECTION (2) AND (3) TO SECTION 14A WHICH EMPOWERS THE ASSESSING OF FICER TO COMPUTE DISALLOWANCE AS PER PROVISIONS OF RULE 8D OF THE RU LES W.E.F. ASSESSMENT YEAR 2008-09 ALSO PROVIDES THAT DISALLO WANCE AS PER PROVISIONS OF RULE 8D CAN BE COMPUTED ONLY IF THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF ASSESSEE IS NOT SA TISFIED WITH THE CLAIM OF ASSESSEE THAT NO EXPENDITURE IN RELATION T O EXEMPT INCOME HAS BEEN INCURRED BY ASSESSEE. IN OTHER WORDS EVEN FROM ASSESSMENT YEAR 2008-09 AND ONWARDS THE ASSESSING OFFICER CAN COMPUTE DISALLOWANCE UNDER SECTION 14A AS PER THE PROVISION S OF RULE 8D ONLY IF ASSESSING OFFICER HAVING REGARD TO ACCOUNTS OF ASSESSEE REACHES A FINDING THAT ASSESSEE HAS INCURRED EXPENSES HAVIN G PROXIMATE NEXUS WITH EARNING OF EXEMPT DIVIDEND INCOME. ACCORDING T O THE LD. AR IN THE ABSENCE OF SUCH FINDING AS IS HELD IN CIT VS. WALFORT SHARE & STOCK BROKERS: 326 ITR 1 (SC) GODREJ & BOYCE MFG. CO. LTD. V. DCIT : 394 ITR 449 (SC) AFFIRMING GODREJ & BOYCE MFG. CO . LTD. V. CIT: 328 ITR 81 (BOM.) MAXOPP INVESTMENT LTD. VS. CIT: 347 ITR 272 (DEL.) AND PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES: 323 ITR 518 ASSESSING OFFICER DOES NOT HAVE POWER TO COMPUTE DISALLOWANCE UNDER SECTION 14A AS PER PROVISIONS OF RULE 8D EVEN FOR ASSESSMENT YEARS 2008-09 AND ONWARDS. HE SUBMITTED THAT SIMILAR VIEW IS TAKEN IN CIT V. METALMAN AUTO P. LTD.: 336 ITR 434 (P&H) CIT V. RELIANCE UTILITIES AND POWER LTD.: 313 ITR 3 40 (BOM) CIT V. TORRENT POWER LTD.: 363 ITR 474 (GUJ). ITA NO.-6021/DEL/2012 41 6.3. REFERENCE CAN ALSO BE MADE TO THE DECISIONS IN CHE MICAL & METTALLURGICAL DESIGN CO. LTD : ITA NO. 803/2008 (D ELHI) CIT VS MS. SUSHMA KAPOOR : 319 ITR 299 (DELHI) ACIT V. EICHER LIMITED: 101 TTJ 369 (DEL.) MARUTI UDYOG LIMITED V. DCIT: 92 I TD 119 (DEL.) ON THE ASPECT OF SECTION 14A OF THE ACT WHEREIN IT HA S BEEN HELD THAT WITHOUT ANY COGENT BASIS AND MATERIAL ON RECORD NO ARTIFICIAL/ AD-HOC DISALLOWANCE IS PERMISSIBLE FOR EXPENSES INCURRED B Y THE ASSESSEE AND THE LEGAL POSITION THAT EMERGES FROM THE THESE DECI SIONS IS THAT: (A) THERE MUST BE SOME ACTUAL EXPENDITURE INCURRED; AND (B) SUCH EXPENDITURE MUST BE INCURRED IN RELATION TO THE E ARNING OF EXEMPT INCOME WHICH MEANS THAT THERE MUST BE SOME NEXUS B ETWEEN THE ACTUAL EXPENDITURE AND THE EXEMPT INCOME. IN THIS REGARD HE PLACED RELIANCE ON SIL INVESTMENT LTD. VS ACIT: 148 TTJ 21 3 (DEL.) M/S MULTI COMMODITY EXCHANGE OF (INDIA) LTD. VS. DCIT: ITA NO.1050/MUM/2010 (MUM.) M/S. AUCHTEL PRODUCTS LTD. VS ACIT: I.T.A. NO. 3183 /MUM/2011 (MUM.) OM ERA ENGINEERING (P) LTD. VS ITO: ITA NO. 3913/D/2010 (DEL.) MINDA INVESTMENTS LTD. V. DCIT: 138 TTJ 240 (DEL.) PUNJAB NATIONAL BANK V. DCIT: 1 03 TTJ 908 (DEL.) VIDYUT INVESTMENT LTD: [2006] 10 SOT 284 (D EL.) IMPULSE (INDIA) PVT. LTD.: (2008) 22 SOT 368 (DEL.) D.J. MEHTA V. ITO: 290 ITR 238 (MUM.)(AT) JINDAL PHOTO LTD VS. DCIT: ITA NO. 814 (DEL) 2011 DISHMAN PHARMACEUTICALS & CHEMICALS LTD. V. DY. CIT : 45 SOT 37 (AHD.) MINDA INVESTMENTS LTD. VS. DY. CIT: 138 TTJ 240 (DEL) BUNGE AGRIBUSINESS (INDIA) (P.) LTD. V. DY. CIT: 132 ITD 549 (MUM.) ALSO. 6.4. IN THE PRESENT CASE OF THE ASSESSEE THE ASSESSING OFFICER HAS SIMPLY APPLIED THE PROCEDURE PRESCRIBED IN RULE 8D OF THE RULES TO COMPUTE THE AMOUNT DISALLOWABLE UNDER SECTION 14A O F THE ACT WITHOUT APPRECIATING THAT IN THE PRESENT CASE NO P ART OF INTEREST AND/OR ADMINISTRATIVE EXPENDITURE WAS INCURRED IN R ELATION TO EXEMPT INCOME. ITA NO.-6021/DEL/2012 42 6.5. FURTHER THE ASSESSING OFFICER IN THE ASSESSMENT O RDER HAS NOT POINTED OUT EVEN A SINGLE EXPENDITURE BEING INCURRE D BY THE APPELLANT DURING THE YEAR HAVING RELATION/ PROXIMATE NEXUS W ITH EXEMPT DIVIDEND INCOME EARNED DURING THE YEAR. THE ASSESSI NG OFFICER IT IS SUBMITTED INVOKED THE PROVISIONS OF SECTION 14A RE AD WITH RULE 8D OF THE RULES IN A MECHANICAL MANNER WHICH IT IS RESP ECTFULLY SUBMITTED IS BEYOND JURISDICTION. 6.6. FOR THE PRINCIPLE THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT CANNOT BE SUSTAIN WITHOUT ANY SATISFACTION BEING RE CORDED BY THE ASSESSING OFFICER BEFORE APPLYING RULE 8D OF THE RU LES RELIANCE IS PLACED ON THE DECISIONS REPORTED IN PR.CIT VS. U.K. PAINTS (INDIA) (P.) LTD.: 244 TAXMAN 309 (DEL.) JOINT INVESTMENTS P. L TD. V. CIT: 275 CTR 471 (DEL.) MINDA INVESTMENTS LTD. VS. DCIT: 13 8 TTJ 240 ( DEL.) ACIT VS. MMTC LIMITED: ITA NO. 724/DEL/2014 (DEL. T RIB.) REI AGRO LTD VS. DCIT: 144 ITD 141 (REVENUE APPEAL DISMISSED BY CALCUTTA HIGH COURT IN APPEAL NO. GA NO.3581 OF 2013). CIT V. ABHISHEK INDUSTRIES LTD - 231 TAXMAN 85 (P&H) 6.7. SECOND CONTENTION RAISED ON BEHALF OF THE ASSESSEE IS THAT THE ASSESSEE IS AN OPERATING COMPANY ENGAGED IN MANUFAC TURE OF AUTOMOBILES AND THE ENTIRE EXPENDITURE INCURRED WAS IN RELATION TO THE MANUFACTURING OPERATIONS OF THE ASSESSEE AND THE AS SESSING OFFICER HAS FAILED TO BRING ON RECORD ANY EVIDENCE/ MATERIA L TO DEMONSTRATE THAT ANY PART OF SUCH EXPENDITURE WAS RELATABLE TO THE EXEMPT INCOME. IT IS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE WAS ACTUALLY RELATED TO TH E MANUFACTURING OPERATIONS ALL THE BORROWED FUNDS AVAILABLE WITH T HE APPELLANT WERE UTILIZED FOR BUSINESS OPERATIONS AND NOT USED FOR M AKING THE INVESTMENTS AND THAT THE INTEREST FREE OWN FUNDS AV AILABLE WITH THE APPELLANT FAR EXCEEDS THE INVESTMENT MADE IN SHARES /SECURITIES ON ITA NO.-6021/DEL/2012 43 WHICH EXEMPT DIVIDEND INCOME WAS RECEIVED. DURING T HE YEAR INTEREST PAID BY THE APPELLANT WAS ON ACCOUNT OF THE FOLLOWI NG: PARTICULARS AMOUNT (RS. MILLIONS) INTEREST ON- (A) ADVANCES FROM DEALERS (B) OTHERS INCLUDING INTEREST ON CASH CREDIT/OVERDRAFT 67 61 TOTAL : 128 6.8 . WHEREAS AS IS EVIDENT FROM THE BALANCE SHEET THE FOLLOWING INTEREST FREE FUNDS WERE AVAILABLE AT DISPOSAL OF T HE ASSESSEE: (A) SHARE CAPITAL RS . 144 CRORES (B) RESERVES AND SURPLUS RS. 8 27 1 CRORES RS. 8 415 CRORES 6.9. LD. AR SUBMITTED THAT IN CASE OF MIXED POOL OF FUN DS THE CORRECT METHOD TO ESTABLISH SOURCE OF INVESTMENT WOULD BE T O CONSIDER THE MACRO FUND/ CASH FLOW POSITION DURING THE YEAR AND BASING ON THE DECISIONS IN EAST INDIA PHARMACEUTICAL WORKS LTD. V . CIT: 224 ITR 627 (SC) INDIAN EXPLOSIVES LTD. V. CIT: 147 ITR 392 (C AL.) WOOLCOMBERS OF INDIA LTD. V. CIT: 134 ITR 219 (CAL.) - APPROVED BY SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT: 224 ITR 627 ALKALI & CHEMICAL CORP. OF INDIA V. CIT: (1986 ) 161 ITR 820 (CAL.) CIT V. RELIANCE UTILITIES AND POWER LTD.: 3 13 ITR 340 (BOM.) CIT VS. M/S. ASHOK COMMERCIAL ENTERPRISES: ITA NO. NO.2985 OF 2009 (BOM) GUJARAT STATE FERTILIZERS AND CHEMICALS LTD : 358 ITR 323 (GUJ) HERO HONDA FINLEASE LTD VS. ACIT: ITA NO. 37 26 & 6102/DEL/2012 (DEL) HE SUBMITTED THAT IF THE ASSESS EE HAD SUFFICIENT SURPLUS FUNDS AVAILABLE PRESUMPTION SHOULD BE DRAW N IN FAVOUR OF THE ASSESSEE THAT SURPLUS FUNDS HAVE BEEN UTILIZED FOR MAKING INVESTMENTS. HE SUBMITTED THAT THE GUJARAT HIGH CO URT IN THE CASE OF CIT V. UTI BANK LTD: 215 TAXMAN 8 (MAG.) HELD THAT WHERE THERE ARE ITA NO.-6021/DEL/2012 44 SUFFICIENT INTEREST FREE FUNDS TO MEET TAX FREE INV ESTMENTS THEY ARE PRESUMED TO BE MADE FROM INTEREST FREE FUNDS AND NO T LOANED FUNDS AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A O F THE ACT AND THE HONBLE APEX COURT HAS DISMISSED THE REVENUES SLP IN CIVIL APPEAL NO. 468/2014 AGAINST THE AFORESAID DECISION. 6.10. HE CONTENDED THAT IN THE CASE OF MIXED FUNDS THE O PTION IS WITH THE ASSESSEE TO APPROPRIATE FUND AND EXPENDITURE IN A MANNER MOST FAVORABLE TO THE ASSESSEE AND BY PLACING RELIANCE ON GODREJ & BOYCE MFG. CO. LTD. V. DCIT : 394 ITR 449 (SC) HDFC BANK LTD V. DCIT: 366 ITR 505 (BOM) HDFC BANK LTD V. DCIT: 383 ITR 529 ( BOM) CIT V. K. RAHEJA CORPORATION PVT. LTD: ITA NO.1260 OF 2009 (B OM.) BRIGHT ENTERPRISES PVT LTD. V. CIT: 381 ITR 107 (P&H) CIT V. MAX INDIA LTD: 388 ITR 81 (P&H) GURDAS GARG V. CIT: ITA NO.413 OF 2014 (P&H) CIT V. MICROLABS LTD. : 383 ITR 490 (KAR.) LUBI SUBMER SIBLES LTD.: ITA NO.868 OF 2010 (GUJ.) CIT V. GUJARAT POWER CORPORA TION LTD.: 352 ITR 583 (GUJ) GUJARAT STATE FERTILIZERS AND CHEMICALS LTD: TAX APPEAL NO. 82 OF 2013 (GUJ HC) CIT V. TORRENT POWER LTD.: 363 ITR 474 (GUJ) CIT VS. SUZLON ENERGY LTD.: 215 TAXMAN 272 (GUJ) M/S G OGREJ AGROVET LTD. V. ACIT: ITA NO. 1629/MUM/09 (MUM.) DY.CIT V. EIMCO ELECON (INDIA) LTD.: 142 ITD 52 (AHD) DY.CIT V. JAMMU & K ASHMIR BANK LTD.: 142 ITD 553(ASR.) T AND T MOTORS LTD. V. ADD L. CIT : 154 ITD 306 (DELHI) HERO HONDA FINLEASE LTD VS. ACIT: ITA NO. 3726/DEL/2012 (DEL) ACIT VS. CHAMPION COMMERCIAL C O LTD: 152 TTJ 241 (KOL) TML DRIVE LINES LTD VS. ACIT : ITA N O. 6064/MUM/2010 (MUM) KULGAM HOLDINGS PVT. LTD. VS. ACIT : ITA NO. 1259/AHD/2006 (AHD) HE SUBMITTED THAT THAT INTERES T EXPENDITURE CANNOT BE DISALLOWED UNDER SECTION 14A OF THE ACT WHERE THE ASSESSEE HAD SUFFICIENT SURPLUS FUNDS AND THERE WAS NO FINDI NG BY THE ASSESSING OFFICER OF ANY DIRECT NEXUS OF BORROWED F UNDS WITH INVESTMENTS: ITA NO.-6021/DEL/2012 45 6.11. LASTLY IT IS CONTENDED ON BEHALF OF THE ASSESSEE T HAT THE DISALLOWANCE COMPUTED UNDER SECTION 14A OF THE ACT IS INCORRECT SINCE WHILE COMPUTING DISALLOWANCE AS PER RULE 8D ENTIRE INVESTMENTS HAVE BEEN CONSIDERED WITHOUT EXCLUDING THE FOLLOWING: (A) STRATEGIC LONG-TERM BUSINESS INVESTMENTS NOT FOR T HE PURPOSE OF EARNING DIVIDEND BUT FOR FURTHERING THE OPERATIONS/ BUSINESS OF THE COMPANY; AND (B) INVESTMENTS NOT RESULTING IN ANY EXEMPT INCOME DURI NG THE YEAR UNDER CONSIDERATION. 6.12. RELIANCE IS PLACED ON THE DECISIONS IN CIT V. ORIEN TAL STRUCTURAL ENGINEERS PVT. LTD.: 216 TAXMAN 92 (DEL.) CHEMINV EST LTD V. CIT : 379 ITR 33 (DEL HC) EICHER GOODEARTH LTD. V. CIT: 378 ITR 28 (DEL.) VA TECH ESCHER WYSS FLOVEL (P) LTD. V. ACIT: [2014] 147 ITD 678 (DEL TRIB.) CIT V. KNORR BREMSE INDIA(P) LTD.: ITA NO 1676/2002 (DEL TRIB.) INTERGLOBE ENTERPRISES V. DCIT: ITA NO. 136 2 & 1032/D/2013 (DEL TRIB.) GARWARE WALL ROPES V. ACIT: ITA NO. 54 08/2012 (MUM.) ACIT VS. M/S SPRAY ENGINEERING DEVICES LTD: ITA NO. 646/CHD/2009 (CHD.) J.M. FINANCIAL LTD. V. ACIT: ITA NO. 4521/ MUM/2012 (MUM. TRIB.) PIEM HOTELS LIMITED V. DCIT: I.T.A NO. 240/ MUM/2012 (MUM TRIB.) DCIT V. MORGAN STANLEY INDIA SECURITIES PVT . LTD: ITA NO.114/MUM/2013 (MUM.TRIB.) IN SUPPORT OF THE CONT ENTION THAT WHILE COMPUTING AVERAGE INVESTMENTS STRATEGIC LONG -TERM BUSINESS INVESTMENTS NOT FOR EARNING DIVIDEND BUT FOR PROMOT ING MANUFACTURING OPERATIONS OUGHT TO HAVE BEEN EXCLUDED. IN VIEW OF THE ABOVE WITHOUT PREJUDICE TO THEIR CONTENTION THAT NO DISALLOWANCE IS WARRANTED UNDER SECTION 14A OF THE ACT LD. AR PRAYED THAT THE ASS ESSING OFFICER MAY BE DIRECTED TO RE-COMPUTE DISALLOWANCE UNDER THAT S ECTION AFTER REDUCING THE STRATEGIC LONG-TERM TRADE INVESTMENTS. 6.13. FOR THE PRINCIPLE THAT DISALLOWANCE UNDER SECTION 1 4A OF THE ACT IS ONLY TO BE MADE ONLY IF THERE IS EXEMPT INCOME A ND NOT OTHERWISE SUPPORT IS DERIVED FROM THE DECISIONS IN ACB INDIA LTD. V. ACIT: 374 ITA NO.-6021/DEL/2012 46 ITR 108 (DEL.) CHEMINVEST LTD. V. CIT : 379 ITR 33 (DEL.) CIT V. HOLCIM INDIA (P) LTD.: 272 CTR 282 (DEL.) ACIT V. VIREET INVESTMENTS (P.) LTD: 165 ITD 27 (DEL SB) CIT V. C ORRTECH ENERGY PVT. LTD.: 372 ITR 97 (GUJ.) CIT V. WINSOME TEXTILE IND USTRIES LTD.: 319 ITR 204 (P&H) CIT V. M/S LAKHANI MARKETING: 272 CT R 265 (P&H) CIT V. M/S. SHIVAM MOTORS (P) LTD.: 272 CTR 277 (AL L) INTERGLOBE ENTERPRISES V. DCIT: ITA NO.1362 & 1032/DEL./2013 ( DEL. TRIB.) AFFIRMED BY DELHI HIGH COURT IN ITA NO.456 OF 2016 REI AGRO LTD VS. DCIT: 144 ITD 141 (KOL. TRIB.) DEPARTMENT APPEAL DISMISSED IN CIT V. REI AGRO LTD. : I.T.A.T NO.220 OF 2013 (CAL. HC) DCIT V. MORGAN STANLEY INDIA SECURITIES PVT. LTD. : ITA NO. 114/MU M/2013 (MUM.) ACIT V. M. BASKARAN: 152 ITD 844 (CHN. TRIB.) AND IT IS SUBMITTED THAT THE ASSESSING OFFICER ERRED IN CONSIDERING THE ENTIRE INVESTMENTS WHILE COMPUTING DISALLOWANCE U/S 14A READ WITH RULE 8D. THE DISALLOWANCE U/S 14A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTME NT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. 6.14. BASING ON THE CONTENTIONS AND SUBMISSIONS MADE FOR THE AY 2006-07 AND 2006-07 LD. DR ARGUED ON THE ASPECTS W HETHER EARNING OF EXEMPT INCOME IS NECESSARY FOR DISALLOWANCE U/S 14A RELATIONSHIP OF EXPENDITURE WITH EXEMPT INCOME DOMINANT OBJECT OR PURPOSE TEST WHAT DOES IT MEAN BY EXPENDITURE INCURRED ETC BY PL ACING EXTENSIVE RELIANCE ON THE DECISIONS IN MAXOPP INVESTMENTS WA LFORT SHARE AND STOCK BROKERS P LTD. DBDT CIRCULAR NO 5/2014 ETC. 6.15. IN THIS MATTER ASSESSEE EARNED DIVIDEND INCOME OF RS.166 83 50 967/- WHICH WAS CLAIMED AS EXEMPT FRO M TAX UNDER SECTIONS 10(34) AND 10(35) OF THE ACT. HOWEVER AC CORDING TO THE ASSESSEE THEY DID NOT INCUR ANY EXPENDITURE IN EAR NING THIS. MAKING INVESTMENT MAINTAINING OR CONTINUING WITH ANY INVE STMENT IN A ITA NO.-6021/DEL/2012 47 PARTICULAR SHARE/MUTUAL FUND ETC. AND THE TIME WHEN TO EXIT FROM ONE INVESTMENT TO ANOTHER ARE ALL THE ACTIVITIES REQUIR ING WELL COORDINATED AND WELL INFORMED MANAGEMENT DECISIONS INVOLVING N OT ONLY INPUTS FROM VARIOUS SOURCES BUT IT ALSO INVOLVES ACUMEN OF SENIOR MANAGEMENT FUNCTIONARIES. THERE ARE INCIDENTAL ADM INISTRATIVE EXPENSES ON COLLECTING THE INFORMATION RESEARCH E TC. WHICH HELPS IN ARRIVING AT PARTICULAR INVESTMENT DECISIONS AND THE SE EXPENSES RELATING TO EARNING OF INCOME ARE EMBEDDED IN THE I NDIRECT EXPENSES WITHOUT WHICH IT WOULD NOT BE POSSIBLE TO CARRY OUT THIS HERCULEAN TASK. IT THEREFORE CANNOT BE SAID THAT NO EXPEND ITURE AT ALL INCURRED TO EARN RS.166 83 50 967/- WHEN HUGE AMOUNTS TO A TUNE OF RS. 8 415 CRORES WAS AVAILABLE WITH THE ASSESSEE. BY L OOKING INTO THESE FACTORS LD. AO PROCEEDED TO HOLD THAT RULE 14A IS APPLICABLE. IN THESE CIRCUMSTANCES WE ARE OF THE CONSIDERED OPINI ON THAT THE AO IS JUSTIFIED IN TAKING THE VIEW THAT THE PLEA OF THE A SSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING THE EXEMPT INC OME CANNOT BE ACCEPTED AND TO PROCEED WITH THE APPLICATION OF TH E FORMULA PRESCRIBED UNDER RULE 8D OF THE RULES WHICH IS IN FORCE FROM THE AY 2008-09. 6.16. ADVERTING TO THE ARGUMENTS OF THE LD. AR ON THE AS PECTS OF INTEREST EXPENSES RELEVANT UNDER RULE 8(II) OF THE RULES AND THE RECKONING OF THE INVESTMENT AMOUNT RELEVANT FOR 8D( III) ON A CONSIDERATION OF THE SAME IN THE LIGHT OF THE PRINC IPLES OF LAW LAID DOWN BY THE COURT AS STATED SUPRA WE AGREE WITH T HE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE THAT INSOFAR AS THE INTEREST EXPENSE UNDER RULE 8D(II) IS CONCERNED IT HAS TO BE DETERM INED AFTER EXAMINATION OF THE MACRO FUND/ CASH FLOW POSITION D URING THE YEAR AND IF THE ASSESSEE HAD SUFFICIENT SURPLUS FUNDS AV AILABLE PRESUMPTION SHOULD BE DRAWN IN FAVOUR OF THE ASSESS EE THAT SURPLUS FUNDS HAVE BEEN UTILIZED FOR MAKING INVESTMENTS AN D WHILE ITA NO.-6021/DEL/2012 48 CALCULATING THE DISALLOWANCE UNDER RULE 8D(III) HAS TO BE CALCULATED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERAT ION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AFTER REDUCING THE STRATEGIC LONG-TERM TRADE INVESTMENTS. WE THEREFORE DEEM IT JUST AND PROPER TO SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND SEND THE MATTER TO THE FILE OF AO FOR MAKING DISALLOWANCE U/S 14A IN ACCORDANCE WITH THE VIEW T AKEN ABOVE. GROUND NO 7.0 TO 7.3 DISALLOWANCE OF DEDUCTION UNDE R SECTION 35DDA 7. NOW TURNING TO THE DISALLOWANCE OF RS.23 91 54 836 /- DEDUCTION CLAIMED BY THE ASSESSEE U/S 35DDA OF THE ACT THE A SSESSEE COMPANY HAD DURING THE ASSESSMENT YEAR 2008-09 CLAIMED DED UCTION OF RS.23 91 54 836/- U/S 35DDA OF THE ACT BEING 1/5 TH OF THE PAYMENT OF RS.119.58 CRORES MADE BY THE ASSESSEE COMPANY DU RING AY 2004- 05 TO ITS EMPLOYEES UNDER VRS SCHEME AND THE AO HA S HELD THAT PAYMENTS UNDER VRS MADE IN EARLIER YEARS IS VIOLA TIVE OF SECTION 35DDA OF THE ACT AND AS SUCH ALL CLAIMS MADE AS A C ONSEQUENCE OF THE ORIGINAL CLAIM ARE ALSO VIOLATIVE OF THAT SECTI ON. LD. AR SUBMITTED THAT THIS ISSUE OF CLAIM U/S 35DDA IS COVERED IN FA VOUR OF ASSESSEE BY THE ORDER OF THE ITAT FOR AY 2002-03 AY 2004-05 A Y 2005-06 AY 2006-07 AND AY 2007-08. FURTHER RELIANCE IS PLACE D ON CIT VS. SONY INDIA (P) LTD : 210 TAXMAN 149 (DEL) AND STATE BANK OF MYSORE VS. CIT 139 ITD 526 (BANG) WHERE IT HAS BEEN HELD THAT COMPLIANCE WITH THE CONDITIONS OF RULE 2BA IS MANDATORY ONLY TO AVA IL THE EXEMPTION UNDER SECTION 10(10C) BY EMPLOYEES AND NOT FOR THE PURPOSES OF DEDUCTION UNDER SECTION 35DDA. 7.1. PER CONTRA IT IS THE ARGUMENT OF THE LD. DR THAT THIS ISSUE WAS ALSO ADJUDICATED UPON BY THE COORDINATE BENCH OF TH IS TRIBUNAL IN FAVOUR OF THE ASSESSEE BASED ON THE FINDINGS IN THE DECISION IN THE ITA NO.-6021/DEL/2012 49 ASSESSEES OWN CASE FOR AY 2004-05 2006-07 AND AY 2007- O8 AND THE DEPARTMENT IS IN APPEAL AGAINST SUCH ORDERS. 7.2. IN STATE BANK OF MYSORE VS. CIT 139 ITD 526 (BANG ) IT WAS HELD AS FOLLOWS: IT IS CLEAR FROM THE PROVISO TO S. 10(10C) THAT IN ORDER TO CLAIM AN EXEMPTION UNDER THIS SECTION IN RESPECT OF ANY PAYM ENTS RECEIVED/RECEIVABLE BY AN EMPLOYEE UNDER ANY VOLUNT ARY RETIREMENT SCHEME/SCHEMES SUCH SCHEME/SCHEMES MUST COMPLY WITH THE GUIDELINES PRESCRIBED IN THIS REGARD I.E. GUIDELINES PRESCRIBED UNDER RULE 2BA. IN OTHER WORDS THE EMPL OYEE IS ENTITLED TO EXEMPTION U/S. 10(10C) OF THE ACT ONLY IF THE VOLUNTARY RETIREMENT SCHEME FULLY COMPLIES WITH THE CONDITION S AS PRESCRIBED IN RULE 2BA. THERE ARE NO SUCH PROVISION S IN S. 35DDA OF THE ACT SIMILAR TO PROVISO TO S. 10(10C) SO AS TO INCLUDE THE CONDITIONALITIES OF RULE 2BA INTO S. 35DDA OF THE A CT. A PLAIN READING OF PROVISIONS OF S. 35DDA OF THE ACT IT IS CLEAR THAT COMPLIANCE WITH THE CONDITIONS OF RULE 2BA IS MANDA TORY ONLY TO AVAIL EXEMPTION U/S. 10(10C) OF THE ACT BY THE EMPL OYEES AND THUS THE SAID RULE IS NOT RELEVANT TO DEDUCTION U/S . 35DDA OF THE ACT. IN THE FINANCE BILL 2001 THE DEDUCTION U/S. 35DDA WAS LINKED TO THE PROVISIONS OF RULE 2BA. IN OTHER WORD S COMPLIANCE WITH RULE 2BA WOULD BE MANDATORY IN ORDER TO AVAIL DEDUCTION U/S. 35DDA. HOWEVER WHEN THE BILL WAS FINALLY ENAC TED THE LINK BETWEEN S. 35DDA AND RULE 2BA WAS DELETED. ACCORDIN GLY THE DELETION OF CONDITIONALITIES ORIGINALLY INCORPORATE D IN THE BILL SHOWS THAT LEGISLATIVE INTENDMENT WAS NOT TO INCORP ORATE ALL THE CONDITIONS OF S. 10(10C) IN S. 35DDA. THUS THE LEG ISLATURE HAS FINALLY LEFT THE SCHEME OF VOLUNTARY RETIREMENT OPE N-ENDED AND DID NOT PLACE ANY RESTRICTION ON THE SCHEME 7.3. FURTHER ON THIS ISSUE A COORDINATE BENCH OF THIS TRIBUNAL WHILE DEALING WITH THE SAME ISSUE FOR THE AY 2006-07 NOTI CED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE ITAT IN THE EARLIER ASSESSMENT YEARS IN THE CASE OF ASSESSEE ITSELF AND LASTLY IN THE APPEAL FOR THE ASSESSMENT YEAR 2006-07 (SUPRA) HELD THAT - AFTER MAKING A THOROUGH DISCUSSION ON THE ISSUE TH E TRIBUNAL HAS HELD THAT RULE 2BA IS RELEVANT ONLY FOR THE PURPOSE OF AVAILING EXEMPTION U/S 10 BY EMPLOYEES AND NOT FOR THE PURPO SE OF ALLOWING DEDUCTION TO THE EMPLOYER U/S 35DDA OF THE ACT. RES ULTANTLY THE DISALLOWANCE MADE BY THE AO CAME TO BE KNOCKED DOWN BY THE TRIBUNAL. IN THE ABSENCE OF ANY DISTINGUISHING FACT OR HAVING BEEN POINTED OUT BY THE LD. DR RESPECTFULLY FOLLOWING T HE PRECEDENT WE ITA NO.-6021/DEL/2012 50 DIRECT TO ALLOW DEDUCTION U/S 35DDA FOR A SUM OF RS .38.63 CRORE. 7.4. FOLLOWING THE SAME FOR THE AY 2007-08 ALSO THIS TR IBUNAL DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIMED DEDUCTION UNDER SEC. 35DDA OF THE ACT AT RS.23 91 54 586. SINCE FA CTS ARE SIMILAR IN ASSESSEES OWN CASE WE FOLLOW THE DECISIONS ABOVE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION UNDER SEC TION 35DDA OF RS.23 91 54 836/- (BEING 1 /5 TH OF THE TOTAL EXPENDITURE OF RS. 119.58 CRORES INCURRED BY THE APPELLANT COMPANY IN RESPECT OF PAYMENT MADE TO ITS EMPLOYEES UNDER THE VOLUNTARY R ETIREMENT SCHEME DURING THE F.Y. 2003- 04). GROUND NOS 7 TO 7.3 ARE ALLOWED ACCORDINGLY. GROUND NO 8 DISALLOWANCE OF EXPENDITURE INCURRED ON CLUB MEMBERSHIP 8. ON THE ASPECT OF DISALLOWANCE OF RS. 10 06 470/- E XPENDITURE INCURRED ON CLUB MEMBERSHIP CASE OF THE ASSESSEE I S THAT THE ASSESSEE COMPANY HAS DEBITED RS. 10 06 470/- TO PRO FIT & LOSS ACCOUNT THE EXPENDITURE WAS INCURRED ON SUBSCRIPTI ON TO CLUBS PROVIDED TO VARIOUS EMPLOYEES AND DIRECTORS ON ACCO UNT OF CLUB MEMBERSHIP FEES AND THE ASSESSING OFFICER HAS IN T HE IMPUGNED ASSESSMENT ORDER DISALLOWED THE SAID EXPENDITURE OF RS.10 06 470/- BY HOLDING THAT THE SAME CANNOT BE CONSIDERED AS BU SINESS EXPENDITURE. LD. AR ARGUED THAT THIS EXPENDITURE H AS BEEN INCURRED FOR BUSINESS PURPOSES ON THE GROUNDS OF COMMERCIAL EXPEDIENCY AND THERE IS NO ELEMENT OF ANY PERSONAL BENEFIT BEING G RANTED EITHER TO THE EMPLOYEE OR DIRECTOR AND THE TAX AUDITORS HAVE AMPL Y CLARIFIED THIS POSITION VIDE CLAUSE 17(B) OF THE TAX AUDIT REPORT. BASING ON THE DECISION OF THE SUPREME COURT IN THE CASE OF SAMTEL COLOR LTD (CIVIL APPEAL NO 6449/2012) BY WAY OF WHICH THE HONBLE AP EX COURT DISMISSED THE SLP FILED BY REVENUE AGAINST THE ORDE R OF DELHI HIGH COURT IN CIT V. SAMTEL COLOR LTD.: 326 ITR 425 (DEL .) ALLOWING THE ITA NO.-6021/DEL/2012 51 CLAIM FOR DEDUCTION REPRESENTING EXPENDITURE INCURR ED ON CLUB MEMBERSHIP HE ARGUED THAT THIS EXPENDITURE IS ALLO WABLE AS DEDUCTION. HE SUBMITTED THAT BESIDES BEING COVERED BY THE DECISIONS IN NESTLE INDIA LIMITED:296 ITR 682 (DEL.) CIT V. SAMTEL COLOR LTD.: 326 ITR 425 (DEL.) OTIS ELEVATORS CO. (INDIA) LTD V. CIT 195 ITR 682 (BOM); AMERICAN EXPRESS INTERNATIONAL BANKING CORP ORATION V CIT 258 ITR 601 (BOM); CIT V. CITIBANK N.A.: 264 ITR 1 8 (BOM) CIT V. FORCE MOTORS LTD.: ITA NO. 5296 OF 2010 (BOM) CIT V. SUNDHARAM INDUSTRIES LTD 240 ITR 335 (MAD); GUJARAT STATE E XPORT CORPORATION LTD. V. CIT: 209 ITR 649 (GUJ.) CIT V. INFOSYS TEC HNOLOGIES LTD.: 205 TAXMAN 59 (KAR) ASSAM BROOK LTD. V CIT: 267 ITR 12 1 (CAL) DCIT V. MAX INDIA LTD (2007) 112 TTJ (ASR.) 726 THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE TRIB UNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2001-0 2 2002-03 2004-05 2005-06 2006-07 AND 2007-08. 8.1. ON THIS ASPECT LD. DR SUBMITTED THAT IN VIEW OF T HE DECISION OF HONBLE SUPREME COURT CITED ABOVE THE DECISION OF THE ITAT WAS ACCEPTED AND FURTHER APPEAL BEFORE THE HONBLE HIGH COURT U/S. 260A WAS NOT PREFERRED ON THIS ISSUE FOR AY 2006-07 AND 2007-08. IN VIEW OF THIS SUBMISSION OF LD. DR THIS GROUND IS ALLOWED AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW A SUM OF RS. 10 06 470 /- BEING EXPENDITURE INCURRED ON ACCOUNT OF CLUB MEMBERSHIP FEES. GROUND NO 9 TO 9.3 DISALLOWANCE OF EXPENDITURE OF R S. 192.77 CR OUT OF THE TOTAL AMOUNT OF RS.495.15 CR INCURRED ON ACCOUNT OF ROYALTY. 9. INSOFAR AS THE DISALLOWANCE OF RS.192.77 CRORES RO YALTY PAID TO SUZUKI MOTOR CORPORATION JAPAN (SMC) IS CONCERN ED ACCORDING TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE PAID ROYALTY OF RS.495 15 40 443/- TO SUZUKI MOTOR CORPO RATION JAPAN (SMC) FOR USE OF LICENSED INFORMATION FOR THE ENG INEERING DESIGN AND ITA NO.-6021/DEL/2012 52 DEVELOPMENT MANUFACTURE TESTING QUALITY CONTROL SALE AND AFTER SALES SERVICE OF PRODUCTS AND PARTS BUT THE ASSESS ING OFFICER IN THE IMPUGNED ASSESSMENT ORDER HAS HELD THAT INASMUCH A S THE LIFE CYCLE OF A CAR IS ONLY 5 YEARS WHEREAS THE LICENCE AGREEM ENT IS FOR 10 YEARS EXTENDABLE BY 5 YEARS AND EVEN THEREAFTER THE ASSES SEE CAN PRODUCE THE SAID MODEL OF CAR AND THE LICENCE AGREEMENT LE D TO THE ASSESSEE SETTING UP A NEW FACTORY BASED ON NEW TECHNOLOGY A ND FOR THESE REASONS THE ASSESSEE HAD ENDURING BENEFIT AS SUCH R OYALTY PAID BY THE ASSESSEE WAS CAPITAL IN NATURE AND CONSEQUENTLY H ELD THAT THE ENTIRE ROYALTY IS DISALLOWABLE. ON THIS PREMISE BASING ON THE ADJUSTMENT OF RS.237.24 CRORES MADE BY TPO THE ASSESSING OFFICER HAS COMPUTED THE DISALLOWANCE OUT OF ROYALTY PAYMENTS TO A TUNE OF RS. 192.77 CR. 9.1. IT IS THE ARGUMENT OF THE LD. AR THAT THE ASSESSIN G OFFICER FAILED TO APPRECIATE THE FACT THAT THE NATURE AND PURPOSE FOR WHICH THE ROYALTY HAS BEEN PAID TO SMC IS ONLY THE USE OF LIC ENSED INFORMATION FOR THE ENGINEERING DESIGN AND DEVELOPMENT MANUFA CTURE TESTING QUALITY CONTROL SALE AND AFTER SALES SERVICE OF PR ODUCTS AND PARTS AND AS PER CLAUSE 7.01 OF THE AGREEMENT THE DURATION OF THE AGREEMENT HAS BEEN SPECIFIED AS 10 YEARS AND VIDE CLAUSE 7.04 OF THE AGREEMENT IT WAS SUBJECT TO TERMINATION AT EARLIER DATE FOR BREA CH. HE SUBMITTED THAT AS EVIDENCED BY CLAUSE 2.02 OF THE AGREEMENT S MC DOES NOT TRANSFER TO MSIL ANY SPECIFIC PATENTS OR COPYRIGHTS OR OTHER SECRET OR PROTECTED INFORMATION OR KNOWHOW SO AS TO MAKE MSIL A PROPRIETOR OF THE SAME OR SO AS TO ENABLE MSIL TO EXERCISE PROPRI ETARY RIGHTS SUCH AS UNRESTRICTED RIGHTS OF TRANSFER TO THIRD PARTY EITHER BY WAY OR ASSIGNMENT OR LICENSE. 9.2. ACCORDING TO HIM IN ORDER TO DETERMINE THE NATURE OF THE ROYALTY PAYMENT WHETHER CAPITAL OR REVENUE WHAT IS MATERI AL IS THE UNDERLYING PURPOSE FOR WHICH PAYMENT IS MADE AND NO T THE TENURE OR ITA NO.-6021/DEL/2012 53 ITS EXTENDIBILITY OR THE LIFE CYCLE OF THE PRODUCT THAT IS MANUFACTURED WITH THE HELP OF THE TECHNOLOGY THAT IS ACCESSED FR OM SMC. IF THE PAYMENT IS FOR USE OF TECHNICAL KNOWHOW SIMPLICITO R THEN THE PAYMENT HAS TO BE REGARDED AS REVENUE IRRESPECTIVE OF THE TENURE FOR WHICH PERMISSION IS GRANTED FOR SUCH USE. SINCE IN THE PRESENT CASE UNDER THE LICENSE AGREEMENT THE ASSESSEE WAS MEREL Y GRANTED PERMISSION TO ACCESS THE TECHNICAL KNOWHOW FOR THE LIMITED PURPOSE OF USING THE TECHNOLOGY RELATING TO THE NEW MODELS DUR ING THE CURRENCY OF THE AGREEMENT AND THE PROPRIETARY RIGHTS FOR THE KNOW-HOW AND THE INTELLECTUAL PROPERTY RIGHTS IN RELATION THERETO CO NTINUE TO BE OWNED BY SMC ALONE THE PAYMENT IS UNDOUBTEDLY REVENUE IN NA TURE. 9.3. WHILE PLACING RELIANCE ON CIRCULAR NO. 21 OF 1969 ISSUED BY CBDT HE ARGUED THAT IF IN TERMS OF THE AGREEMENT ONLY A LICENSE IS OBTAINED FOR USER OF TECHNICAL KNOWLEDGE FROM A FOR EIGN PARTICIPANT FOR A LIMITED PERIOD TOGETHER WITH OR WITHOUT THE RIGHT TO USE THE PATENTS AND TRADEMARKS OF THE FOREIGN PARTY THE PAYMENT WO ULD NOT BRING INTO EXISTENCE AN ASSET OF ENDURING ADVANTAGE TO THE IND IAN PARTY. HE FURTHER SUBMITTED THAT WHILE FOLLOWING THE AFORESAI D CIRCULAR THE JURISDICTIONAL DELHI HIGH COURT IN CASE OF CIT V LU MAX INDUSTRIES LIMITED: 173 TAXMAN 390 HELD THAT SIMILAR ROYALTY P AYMENT WAS ALLOWABLE AS REVENUE DEDUCTION. 9.4. HE SUBMITTED THAT IN A HOST OF DECISIONS NAMELY CIT V. CIBA INDIA LTD: 69 ITR 692 (SC) ALEMBIC CHEMICAL WORKS CO. LTD. V. CIT: 177 ITR 377 (SC) CIT V. SHRIRAM PISTONS AND RINGS LIMITED -CC 12154/2009 (SC) (DISMISSING THE SLP FILED BY THE RE VENUE AGAINST THE ORDER OF THE DELHI HIGH COURT IN ITA NO. 167/2008) SHRIRAM REFRIGERATION INDUSTRIES LTD. V. CIT: 127 ITR 746(D EL) TRIVENI ENGINEERING WORKS LTD. V. CIT 136: ITR 340 (DEL) C IT V. SHARDA MOTOR INDUSTRIAL LIMITED: 319 ITR 109 (DEL) CLIMATE SYST EMS INDIA LIMITED ITA NO.-6021/DEL/2012 54 V. CIT: 319 ITR 113 (DEL) SHRIRAM PISTONS AND RING S LIMITED V. CIT: 307 ITR 363 (DEL) CIT V LUMAX INDUSTRIES LIMITED 1 73 TAXMAN 390 (DEL) CIT V. J.K. SYNTHETICS LTD. 309 ITR 371 (DEL ) CIT V. MUNJAL SHOWA LTD. : 329 ITR 449 (DEL) CIT V. HERO HONDA M OTORS LTD.: 372 ITR 481 (DEL.) CIT V. DENSO INDIA P. LTD.: 232 TAX MAN 437 (DEL.) CITV . MODI REVLON (P) LTD : 210 TAXMAN 161(MAG.) (DEL.) CIT V. PREM HEAVY ENGINEERING WORKS P. LIMITED: 282 ITR 11 (ALL .) CIT V. ARTOS BREWERIES LTD : [2013] 215 TAXMAN 80 (AP) CIT V. E SSEL PROPACK 325 ITR 185 (BOM) CIT V. EICHER MOTORS LTD : 293 ITR 4 64 (M.P.) ITO V. SHIVANI LOCKS : 118 TTJ 467 (DEL ITAT) GOODYEAR IN DIA LTD. V. ITO : 73 ITD 189 (DEL ITAT) HERO MOTOCORP LIMITED V. ACI T : ITA NOS. 5130/DEL/2010 FOR ASSESSMENT YEAR 2006-07 (DEL. ITA T) FENNER (INDIA) LTD V. ACIT : [2012] 139 ITD 406 (CHENNAI) GLAXO SMITHKLINE CONSUMER HEALTHCARE LIMITED : ITA NO. 1324/CHD/2012 (CHD) GLAXOSMITHKLINE CONSUMER HEALTHCARE LTD. V DCIT : 1 75 TTJ 552 (CHD. TRIB.) THE ISSUE OF ALLOWABILITY OF ROYALTY PAYMENTS AS REVENUE EXPENDITURE IS COVERED IN FAVOUR OF THE ASSESSEE CO MPANY. 9.5. HE FURTHER RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. J.K SYNTHETICS: 30 9 ITR 371@ PG 391 WHEREIN WHILE CULLING OUT LEGAL PRINCIPLES BASED ON VARIOUS DECISIONS IT WAS HELD THAT THE FACT THAT ASSESSEE COULD USE THE TECHNICAL KNOWLEDGE OBTAINED DURING THE TENURE OF THE LICENSE FOR THE P URPOSES OF ITS BUSINESS AFTER THE AGREEMENT HAS EXPIRED AND IN TH AT SENSE RESULTING IN AN ENDURING ADVANTAGE HAS BEEN CATEGORICALLY RE JECTED BY THE COURTS AND THAT THIS BY ITSELF CANNOT BE DECISIV E BECAUSE KNOWLEDGE BY ITSELF MAY LAST FOR A LONG PERIOD EVEN THOUGH DU E TO RAPID CHANGE OF TECHNOLOGY AND HUGE STRIDES MADE IN THE FIELD OF SC IENCE THE KNOWLEDGE MAY WITH PASSAGE OF TIME BECOME OBSOLETE. LD. AR DISPUTED THE FACTUAL CORRECTNESS OF THE OBSERVATION OF THE ASSESSING OFFICER THAT THE LICENSE AGREEMENT LED TO THE ASSES SEE SETTING UP A NEW ITA NO.-6021/DEL/2012 55 FACTORY BASED ON NEW TECHNOLOGY AND SUBMITTED THAT NO NEW PLANT/ FACTORY WAS SETUP BY THE ASSESSEE ON THE BASIS OF T HE AGREEMENT ENTERED INTO FOR USE OF TECHNICAL KNOWLEDGE/ INFORM ATION. ACCORDING TO HIM THE ASSESSING OFFICER FAILED TO APPRECIATE T HAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF AUTOMOBIL ES AND VARIOUS MODELS OF THE CARS INTRODUCED BY THE ASSESSEE FROM TIME TO TIME ARE NOTHING BUT PART OF THE SAME BUSINESS OF THE ASSESS EE AS SUCH THE MERE FACT THAT NEW MODELS/ VARIANTS OF CAR ARE INTR ODUCED BY THE ASSESSEE BASED ON THE LICENSE AGREEMENT DOES NOT ME AN THAT AN ALTOGETHER NEW PRODUCT WAS MANUFACTURED. HE MADE A REFERENCE TO THE DECISIONS OF THE DELHI HIGH COURT IN CASE OF CIT V. HERO HONDA MOTORS LTD.: 372 ITR 481 AND DECISION OF THE DELHI BENCH O F THE TRIBUNAL IN THE CASE OF HERO HONDA MOTORS LIMITED V. DCIT: ITA NO. 5130/DEL/2010 FOR A.Y. 2006-07 AND ALSO TO THE DEC ISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF HERO HONDA MOT ORS LIMITED V. DCIT IN ITA NOS. 716 TO 718/DEL/2008 FOR THE ASSESS MENT YEARS 2000-01 TO 2002-03 WHEREIN A COORDINATE BENCH OF T HIS TRIBUNAL AFTER ANALYZING ALL THE DECISIONS HELD ROYALTY TO BE IN THE NATURE OF REVENUE EXPENDITURE EVEN THOUGH ROYALTY WAS PAID FO R EXCLUSIVE USE OF TECHNICAL KNOWHOW/ INFORMATION THE AGREEMENT WAS F OR 10 YEARS AND EXTENDABLE THE ASSESSEE WAS PERMITTED TO CONTINUE TO MANUFACTURE MOTORCYCLES EVEN AFTER TERMINATION OF THE AGREEMENT . LASTLY HE SUBMITTED THAT THE AFORESAID ISSUE HAS NOW BEEN DEC IDED IN FAVOUR OF THE ASSESSEE BY THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY2006-07 AND AY 2007-08HOLDING THAT A MOUNT OF ROYALTY CONSIDERED BY AO AS CAPITAL EXPENDITURE SHO ULD BE ALLOWED AS REVENUE EXPENDITURE. FOR THESE REASONS HE PRAYED T HAT THE ASSESSING OFFICER MAY BE DIRECTED TO ALLOW THE ENTIRE ROYALTY PAYMENT AS ALLOWABLE REVENUE DEDUCTION. 9.6. PER CONTRA LD. DR VEHEMENTLY DEFENDED THE OBSERVAT IONS OF THE ITA NO.-6021/DEL/2012 56 AO WHILE SUBMITTING THAT IN THE SCENARIO OF A NEW MODEL COMING EVERY 2 ND OR 3 RD YEAR AND THE OLD MODELS GETTING PHASED OUT LICENS E AGREEMENT IS FOR 10 YEARS EXTENDABLE BY 5 YEARS AN D EVEN THEREAFTER MSIL CAN PRODUCE THE SAID MODEL OF CAR IS MORE THA N ENDURING. FURTHER THERE HAS BEEN TECHNOLOGY TRANSFER FOR MAN UFACTURING THE PRODUCT AND THE PERSONNEL OF THE COMPANY HAVE BEEN TECHNICALLY TRAINED. THE TRANSFER OF TECHNOLOGY IS AS PER THE L ICENSE AGREEMENT BUT THE SKILL WHICH HAS BEEN ACQUIRED YEAR AFTER YE AR DUE TO TRAINING OF THE COMPANIES PERSONNEL HAS BEEN ABSORBED IN THE COMPANY AND CAN BE USED ACROSS THE OTHER PRODUCTS. THIS IS AGAI N AN ENDURING BENEFIT. REFERRING TO THE CASES CITED BY THE LD. A R IT IS THE ARGUMENT OF THE LD. DR THAT IN ALL THE CASES WHERE THE COURT S HAVE HELD THAT THE ROYALTY PAYMENT IS REVENUE AND NOT CAPITAL ARE THE ONES WHERE THE LICENSE AGREEMENT WAS ONLY TO APPROACH OR ACCESS TH E TECHNOLOGY WITHOUT IMPARTING ANY TRADE SECRETS AND ABOVE ALL T HE TIME PERIOD WAS MUCH SHORT SAY 5 YEARS OR LESS COUPLED WITH THE FA CT THAT THE PRODUCT WAS DIFFERENT AND THE RIGHT GIVEN WAS NOT E XCLUSIVE. HE SUBMITTED THAT THE TRIBUNALS ORDER IN ASSESSEES O WN CASE FOR AY 2007-08 CANNOT BE RELIED UPON BECAUSE ON THIS ASPEC T THE TRIBUNAL WAS SWAYED BY THE ASSESSEE CONTENTION THAT TPO HAS DISALLOWED THE ROYALTY BUT AS A MATTER OF FACT TPO HAD DETERMIN ED THE VALUE OF THE ALP OF THE CO-BRANDING DONE BY SUZUKI. THE VALUE OF THE SAME IS DETERMINED BY EQUATING THE TRADE MARK ROYALTY MARUT I WAS PAYING TO SUZUKI FOR ITS BRAND. THE LOGIC IS SIMPLE IF MARUTI WAS PAYING LICENSED TRADE NAME ROYALTY TO SUZUKI THEN SUZUKI SHOULD ALS O BE PAYING BACK THE TRADE NAME ROYALTY TO MARUTI. WHEREAS IT IS A F ACT THAT ROYALTY BEING PAID IS A COMPOSITE ROYALTY INCLUDING THE USA GE OF TRADEMARK AND TECHNICAL INFORMATION. IT IS SUZUKI WHO HAS BEE N CHARGING THIS ROYALTY EVEN IF ITS NAME WAS USED ONLY ON THE REAR OF THE VEHICLE. BUT NOW AFTER TAKING OVER THE MANAGEMENT OF THE COMPANY IT HAS ITA NO.-6021/DEL/2012 57 REPOSITIONED ITS NAME AND BRAND AND LOGO ON THESE V EHICLES. THE QUESTION IS WHETHER ANY INDEPENDENT PARTY THAT HAD ASSIDUOUSLY OVER THE YEARS HAVE BUILT UP A NAME AND REPUTATION WOULD HAVE ALLOWED SO? AND THAT TOO ABSOLUTELY FREE WHEN THE OTHER PAR TY HAD BEEN THROUGHOUT CHARGING IT FOR WHATEVER IT WAS PROVIDIN G IT BE IT MACHINERY TECHNOLOGY SPARE PARTS TECHNICAL ASSIS TANCE CORPORATE GUARANTEE TRADE NAME TRADE MARK. THAT DOES NOT SE EM TO BE A SITUATION IN NORMAL AND INDEPENDENT CIRCUMSTANCES A ND THIS WAS NOT APPRECIATED BY THE TRIBUNAL AS A CONSEQUENCE OF WH ICH THE REVENUE PREFERR3D AN APPEAL ON THIS ISSUE ALSO. ACCORDING T O HIM THE TRIBUNAL HAD MERELY RELIED ON ITS ORDER FOR EARLIER YEARS WH ICH IN TURN RELIED MERELY ON DECISION OF HONBLE DELHI HIGH COURT IN HERO HONDA MOTORS LTD. (2015) 372 ITR 481 (DEL) AND NOT DISCUSSED THE FACTS THAT ARE RECORDED IN THE ASSESSMENT ORDER. IT IS SUBMITTED T HAT ON THE BASIS OF THE FACTS MENTIONED IN THE ASSESSMENT ORDER THE RATIO DECIDENDI OF THE DELHI HIGH COURT DECISION IN HERO HONDA MOTORS LTD. (SUPRA) WOULD NOT BE APPLICABLE IN THE INSTANT CASE. LASTLY IT IS ARGUED BY THE LD. DR THAT THESE ARE CONTINUOUS ISSUES FORMING PART OF TH E ASSESSMENT ORDER FOR AY 2005-06 2006-07 AND 2007-08 ALSO AND ARE A T PRESENT PENDING ADJUDICATION BEFORE HONBLE DELHI HIGH COURT. 9.7. ON THIS ISSUE A COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2007-08 VIDE PARA 20.5 AND 20.6 ON PAGE 91-93 OF ORDER REFERRED TO ORDER FOR AY 2006-07 AND HELD AS UNDER: 8.5. THE LD. DR HAS RELIED ON CERTAIN DECISIONS W HICH CATEGORIZE PAYMENT FOR USE OF TECHNICAL KNOW-HOW ETC. AS A CAP ITAL EXPENDITURE. SIMILARLY THE LD. AR HAS ALSO RELIED ON CERTAIN DE CISION WHICH MARK SUCH PAYMENT AS A REVENUE EXPENSE. IN ALL THESE DEC ISIONS THE DIVIDING LINE IS WHETHER THE CONSIDERATION IS FOR PURCHASE O F TECHNICAL INFORMATION KNOW-HOW INFORMATION DESIGNS AND DRAW INGS ETC. OR FOR ITS USE. IF IT IS FOR USE ALONE THEN IT IS REVENUE AND VICE VERSA. RECENTLY THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT VS. HERO HONDA MOTORS LTD . (2015) 372 ITR 481 (DEL) ON CONSIDERATION OF THE R ELEVANT CLAUSES OF THE AGREEMENT BEFORE IT WHICH CONSIDERABLY MATCH WITH THE AGREEMENT ITA NO.-6021/DEL/2012 58 UNDER CONSIDERATION HAS HELD THAT THE PAYMENTS MAD E FOR MODEL FEE (WHICH IS EQUIVALENT OF LUMPSUM ROYALTY IN OUR CASE ) AND RUNNING ROYALTY ARE REVENUE EXPENSES. IN THIS JUDGMENT THE HON'BLE JURISDICTIONAL HIGH COURT HAS CONSIDERED SEVERAL JU DGMENTS OF THE HON'BLE SUPREME COURT AND HON'BLE HIGH COURTS AND O N CONSIDERATION OF THEIR CUMULATIVE EFFECT IT HAS COME TO THE CONC LUSION THAT BOTH THE AMOUNTS ARE REVENUE IN NATURE. THE HON'BLE DELHI HI GH COURT IN AN EARLIER JUDGMENT IN SHRIRAM REFRIGERATION INDUSTRIES LTD. VS. CIT (1981) 127 ITR 746 (DEL) HAS HELD THAT THE LUMPSUM ROYALT Y IS A REVENUE EXPENDITURE. AFTER GOING THROUGH THE RELEVANT CLAUS ES OF THE AGREEMENT WE HAVE NOTED THAT ROYALTY PAID BY THE ASSESSEE IS FOR USE OF LICENSED INFORMATION AND NO PART OF THE SAME IS TOWARDS ITS ACQUISITION AS AN OWNER. IN THE LIGHT OF THE ABOVE DISCUSSION IT IS ABSOLUTELY CLEAR THAT THE VIEW CANVASSED BY THE AO IN TREATING THIS AMOUNT AS CAPITAL EXPENDITURE IS NOT SUSTAINABLE. 8.6. OUR ABOVE FINDING DECIDES THE NATURE OF ROYALT Y PAYMENT FOR USE OF LICENSED INFORMATION AS REVENUE EXPENDITURE AND NOT ITS QUANTUM PART. WE HAVE NOTICED ABOVE THAT THE TRIBUNAL IN ITS ORDE R FOR THE IMMEDIATELY PRECEDING YEAR HAS ALSO GIVEN SOME OBSERVATIONS WH ICH PRIMA FACIE INDICATE THAT THE ENTIRE AMOUNT OF ROYALTY IS FOR T HE USE OF LICENSED INFORMATION. SINCE WE HAVE HELD THE ROYALTY FOR USE OF LICENSED INFORMATION AS REVENUE EXPENDITURE THE QUANTIFICAT ION ASPECT BECOMES IRRELEVANT. IT IS SO BECAUSE THE TPO HAS HELD ROYAL TY FOR USE OF LICENSED INFORMATION AT ALP. WE THEREFORE HOLD THAT THE AM OUNT OF ROYALTY CONSIDERED BY THE AO AS CAPITAL EXPENDITURE SHOULD BE ALLOWED AS A REVENUE EXPENDITURE. AT THE SAME TIME DEPRECIATION ALLOWED BY THE AO ON THIS AMOUNT SHOULD BE TAKEN BACK. 9.8. FOLLOWING THE ABOVE DECISION FOR AY 2006-07 WHICH IS ON AN IDENTICAL ISSUE IN THE CASE OF ASSESSEE ITSELF THI S TRIBUNAL FOR THE AY 2007-08 HOLD THAT THE AMOUNT OF ROYALTY CONSIDERED BY THE ASSESSING OFFICER AS CAPITAL EXPENDITURE SHOULD BE ALLOWED AS A REVENUE EXPENDITURE AND AT THE SAME TIME DEPRECIATION ALL OWED BY THE ASSESSING OFFICER ON THIS AMOUNT SHOULD BE TAKEN BA CK. THIS TRIBUNAL SPECIFICALLY HELD THAT THE TERMS OF THE AG REEMENT CONSIDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. HERO HONDA MOTORS LTD. (2015) 372 ITR 481 (DEL) ARE CONSIDERA BLY MATCHING WITH THE AGREEMENT UNDER CONSIDERATION. ON THE FACE OF THIS OBSERVATION WITHOUT THE SAME BEING DISTURBED BY THE HIGHER FORU MS WE FIND IT DIFFICULT TO COUNTENANCE THE ARGUMENT OF THE LD. DR THAT THE RATIO ITA NO.-6021/DEL/2012 59 DECIDENDI OF THE DELHI HIGH COURT DECISION IN HERO HONDA MOT ORS LTD. (SUPRA) WOULD NOT BE APPLICABLE IN THE FACTS OF THE INSTAN T CASE. WE THEREFORE RESPECTFULLY FOLLOWING THE SAME HOLD THAT THE AMOUNT OF ROYALTY CONSIDERED BY THE ASSESSING OFFICER AS C APITAL EXPENDITURE SHOULD BE ALLOWED AS A REVENUE EXPENDITURE AND AT THE SAME TIME DEPRECIATION ALLOWED BY THE ASSESSING OFFICER ON TH IS AMOUNT SHOULD BE TAKEN BACK. GROUNDS NO 9 TO 9.3 ARE ACCORDINGL Y ALLOWED. GROUND NO 10 TO 10.2 DISALLOWANCE OF RS.16 93 68 74 1/- ON ACCOUNT OF R&D CESS ON ROYALTY 10. CASE OF ASSESSEE IN RESPECT OF DISALLOWANCE OF R&D CESS PAID IS THAT AS PER PROVISIONS OF RESEARCH AND DEVELOPMENT CESS ACT 1986 R&D CESS IS IMPOSED ON IMPORT OF TECHNOLOGY BY THE GOVERNMENT OF INDIA WHICH IS DEFINITELY NOT A RELATED PARTY OF T HE APPELLANT COMPANY AND THE ASSESSEE HAS BEEN INSTRUCTED BY THE GOVERNM ENT OF INDIAS APPROVAL FOR REMITTANCE OF ROYALTY TO PAY R&D CESS ON THE PAYMENT OF ROYALTY. R&D CESS BEING A STATUTORY PAYMENT IS GO VERNED BY SECTION 43B WHICH IS A SEPARATE CODE IN ITSELF AND OVERRID ES THE OTHER PROVISIONS OF THE ACT. FURTHER ACCORDING TO THE AS SESSEE THIS ISSUE IS DEPENDENT AND INTERLINKED TO THE ISSUE OF ROYALTY E XPENDITURE AND IF IT IS HELD THAT ROYALTY PAYMENTS BY ASSESSEE ARE REVEN UE EXPENDITURE THEN THE R&D CESS SHOULD ALSO BE CONSIDERED AS A RE VENUE EXPENDITURE. LD. DR SUBMITTED THAT THE ISSUE OF R&D CESS PAID BY THE ASSESSEE IS DECIDED IN FAVOUR OF THE ASSESSEE B Y THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2006 -07 AND AY 2007- 08. 10.1. THIS ISSUE IS BASED ON GROUND NO. 9 ABOVE I.E. CAP ITALISATION OF ROYALTY EXPENDITURE. THE ITAT HAS ALSO DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE ON THE BASIS OF ITS DECISION ON GROUND NO. 9. SINCE THE DECISION OF THE ITAT IN GROUND NO. 9 IS NOT ACCEPTA BLE THEREFORE ITS DECISION ITA NO.-6021/DEL/2012 60 ON THIS ISSUE IS ALSO NOT ACCEPTABLE. IT IS FURTHER AVERRED THAT THESE ARE CONTINUOUS ISSUES FORMING PART OF THE ASSESSMENT OR DER FOR AY 2006-07 AND 2007-08 ALSO AND ARE AT PRESENT PENDING ADJUDICATI ON BEFORE HONBLE DELHI HIGH COURT. 10.2. IN THE ORDER FOR THE AY 2007-08 A COORDINATE BENC H OF THIS TRIBUNAL FOUND THAT THIS ISSUE HAS BEEN DECIDED IN THE CASE OF ASSESSEE ITSELF IN THE APPEAL BEFORE THE ITAT FOR T HE ASSESSMENT YEAR 2006-07 AND IN THAT CASE IT WAS HELD THAT: 9. THE NEXT GROUND IS DISALLOWANCE OF R&D CESS PAID AMOUNTING TO RS.9 68 47 294/-. RELEVANT DISCUSSION HAS BEEN MADE BY THE AO ON PAGE 26 OF HIS FINAL ORDER. THE ASSESSEE TREATED TH E AMOUNT OF ROYALTY AND CESS ON ROYALTY AS REVENUE EXPENDITURE. THE AO DISALLOWED A SUM OF RS.9.68 CRORE AFTER PROPORTIONATELY ALLOWING DED UCTION TO THE EXTENT OF DEPRECIATION ALLOWED BY HIM ON ROYALTY. THERE IS NO DISPUTE ON THE NATURE OF CESS WHICH IS ON ROYALTY AND HAS BEEN TR EATED BOTH BY THE ASSESSEE AS WELL AS THE AO AS PART AND PARCEL OF RO YALTY AND ACCORDINGLY CLAIMED/DISALLOWED IN LINE WITH THE TRE ATMENT OF ROYALTY. SINCE WE HAVE ALLOWED DEDUCTION FOR THE ENTIRE AMOU NT OF ROYALTY PAID BY THE ASSESSEE DURING THE YEAR BY DELETING THE TP ADJUSTMENT AND ALSO OVERTURNING THE ACTION OF THE AO IN TREATING THE RE MAINING HALF PART AS CAPITAL EXPENDITURE THE CONSEQUENTIAL AMOUNT OF CE SS ON ROYALTY PAYMENT AUTOMATICALLY BECOMES DEDUCTIBLE. WE THERE FORE DIRECT TO ALLOW DEDUCTION OF RS.9.68 CRORE. 10.3. THIS TRIBUNAL FOLLOWED THE ABOVE REASONING FOR THE AY 2007-08 ALSO. SINCE THE RELATED FACTS OF THE PRESENT ASSES SMENT YEAR ARE SIMILAR TO THOSE IN THE ASSESSMENT YEAR 2006- 07 AN D 2007-08 ON AN IDENTICAL ISSUE WE WHILE RESPECTFULLY FOLLOWIN G THE SAME DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION AS DIR ECTED BY THE ITAT IN THE APPEAL FOR THE ASSESSMENT YEAR 2006-07 AND 2 007-08 AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. GROUNDS 10 TO 10.2 ARE ALLOWED ACCORDINGLY. GROUND NO 11 TO 11.5 NOT ACCEPTING THE CLAIM OF THE APPELLANT THAT SALES TAX SUBSIDY ITA NO.-6021/DEL/2012 61 11. GROUNDS NO 11 TO 11.5 RELATE TO THE SALES TAX SUBS IDY CLAIMED AS CAPITAL RECEIPT FROM THE TOTAL INCOME. BRIEFLY STATED RELEVANT FACTS ON THIS GROUND AS APPARENT FROM RECORD AND THE IND USTRIAL POLICY 1999 NOTIFIED ON 11.11.1999 BY THE STATE GOVERNMEN T OF HARYANA HAVING A BEARING ON THE CLAIM OF THE ASSESSEE ARE THAT THE ASSESSEE HAD FOR THE RELEVANT YEAR UNDER CONSIDERATION REC EIVED SALES TAX CONCESSIONS AMOUNTING TORS.13 55 68 826/- FROM THE GOVERNMENT OF HARYANA UNDER RULE 28C OF THE HARYANA GENERAL SALES TAX RULES 1975 AND CLAIMED IT TO BE A CAPITAL RECEIPT NOT LI ABLE FOR TAX. HOWEVER AO DENIED THE SAME AND BROUGHT IT TO TAX B Y TREATING THE SAME AS REVENUE RECEIPT. 11.1. IT IS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE INCENTIVE/ SUBSIDY WAS GRANTED TO THE ASSESSEE FOR UNDERTAKING SUBSTANTIAL EXPANSION OF EXISTING INDUSTRYIN LINE WITH THE LARG ER PUBLIC OBJECTIVE OF THE POLICY TO PROMOTE INDUSTRIALIZATION AND EMPLOYMENT GENERATION AND NOT TO SUPPLEMENT TRADING RECEIPTS WHICH IS I T IS RESPECTFULLY SUBMITTED CLEARLY IN THE NATURE OF A CAPITAL RECEI PT NOT LIABLE TO TAX. LD. AR SUBMITS THAT THE ISSUE REGARDING TAXABILITY OF SALES TAX INCENTIVE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE DECISIONS REPORTED IN CIT VS PONNI SUGARS AND CHEMICALS LTD: 306 ITR 392 (SC) SAHNEY STEEL AND PRESS WORKS LTD. V. CIT: 228 ITR 2 53 (SC) V.S. S.V. MEENAKSHI ACHI: 60 ITR 253 (SC) CIT V. JOHNSON MAT THEY INDIA PVT. LTD. : ITA NO. 193/2015 (DEL.) BOUGAINVILLEA MULTI PLEX ENTERTAINMENT CENTRE (P.) LTD.: 373 ITR 14 (DEL) CIT VS. NATIONA L CO-OPERATIVE CONSUMER FEDERATION LTD.: 254 ITR 599 (DEL) SHREE BALAJI ALLOYS VS. CIT: 198 TAXMAN 122 (J&K) REVENUES APPEAL DISMIS SED BY THE SUPREME COURT IN CIVIL APPEAL NO. 10061 OF 2011 [28 7 CTR 459 (SC)] CIT VS. RUBY RUBBER WORKS LTD. 178 ITR 181 (KER. F B) AFFIRMED BY THE SUPREME COURT IN KALPETTA ESTATES LTD. VS. CIT : 260 ITR 601 CIT VS. SHAM LAL BANSAL IN ITA: 472 OF 2010 (P&H) CIT VS. SIYA RAM GARG ITA NO.-6021/DEL/2012 62 (HUF): 237 CTR 21 (P&H) CIT VS. TALBROS ENGINEERIN G LTD. : 386 ITR 154 (P&H) CHAPHALKAR BROTHERS: 351 ITR 309 (BOM.) SADICHHA CHITRA VS. CIT: 189 ITR 774 (BOM.) CIT VS RASOI LT D.: 335 ITR 438 (CAL.) CIT VS. BALARAMPUR CHINI MILLS LTD.: 238 IT R 445 (CAL.) CIT VS. MADURANTAKAM CO-OPERATIVE SUGAR MILLS LTD.: 263 ITR 388 (MAD) GARDEN SILK MILLS LTD. V. CIT AND ANR. : 394 ITR 19 2 (GUJ.) DCIT VS. INOX LEISURE LTD.: 351 ITR 314 (GUJ) CIT VS. BIRLA VXL LTD.: 215 TAXMAN 117 (GUJ.) DCIT VS. MUNJAL AUTO INDUSTRIES LTD.: 218 TAXMAN 135 (GUJ.) DCIT VS. RELIANCE INDUSTRIES LIM ITED: 88 ITD 273 (MUM SB.). 11.2. HE DREW SUPPORT FROM THE DECISION OF THE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT V. BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (P.) LTD.: 373 ITR 14. LD. AR FURTHER SUBMIT TED THAT A COORDINATE BENCH OF DELHI BENCH OF THE TRIBUNAL CON SIDERED ALL RELEVANT FACTS AND DECIDED THE ISSUE IN FAVOUR OF T HE ASSESSEE IN ASSESSEES OWN CASES IN ITA NO.1927/DEL/2010 (AY 20 05-06) ITA NO.5120/DEL/2010 (AY 2006-07) ITA NO.5720/DEL/2011 (AY 2007- 08) AND THE DECISION IN ITA NO.1927/DEL/2010 FOR AS SESSMENT YEAR 2005-06 WAS FOLLOWED BY THE DELHI BENCH OF THE TRIB UNAL IN THE CASE OF JOHNSON MATTHEY INDIA (P) LTD.V. ADDL. CIT IN IT A NO.952/DEL/2011 WHEREIN THE TRIBUNAL IN THE CONTE XT OF THE AFORESAID SALES TAX INCENTIVE IN THE STATE OF HARYA NA HELD THE INCENTIVE TO BE CAPITAL RECEIPT NOT LIABLE TO TAX MOST IMPORTANTLY THE HONBLE DELHI HIGH COURT AFFIRMED THE SAID DECISION IN THE CASE TITLED AS CIT VS. JOHNSON MATTHEY INDIA PVT. LTD. IN ITA N O. 193/2015. 11.3. BASING ON THIS SET OF FACTS AND LAW LD. AR SUBMIT TED THAT THE ISSUE OF TAXABILITY OF SALES TAX SUBSIDY PURSUANT T O THE HARYANA GOVERNMENTS SCHEME IS SQUARELY COVERED IN FAVOUR O F THE ASSESSEE BY ITA NO.-6021/DEL/2012 63 THE AFORESAID BINDING DECISION OF THE JURISDICTIONA L DELHI HIGH COURT IN THE CASE OF JOHNSON MATTHEY (SUPRA). 11.4. PER CONTRA LD. DR PLACED RELIANCE ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS BHUSHAN STEEL AND STRIPES LTD. DT. 13.7.2017 ITA NO. 315/03 316/03 317/03 349/03 AND 434/05 AND SUBMITTED THAT IN THIS DECISION AFTER CONSIDERING A LL THE DECISIONS SPECIALLY SAHNEY STEEL AND PONNI SUGARS AND CHEMICA LS LTD. OF HONBLE SUPREME COURT IT WAS CONCLUDED BY THE HON BLE DELHI HIGH COURT THAT THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE AS REVENUE RECEIPT. THE INDUSTRIAL POLICY AND SALES TAX SUBSIDY POLICY HAVE DISCUSSED IN DETAIL FOR CONSIDERATION OF SUCH RECEI PTS IN THE HANDS OF THE ASSESSEE WHEREAS THE STATE GOVERNMENT IS OF THE OPINION THAT FOR PROMOTING OF CERTAIN INDUSTRIES AND EXPANSION OF DI VERSIFICATION OR MODERNIZATION EXISTING UNITS (PAGE NO. 15 OF THE AB OVE SAID ORDER OF THE HON'B!E DELHI HIGH COURT). PAGE NO. 23 OF THE A BOVE SAID ORDER ALSO MENTIONS THAT THE OBJECT OF PROVIDING SUBSIDY BY WAY OF PERMISSION TO NOT DEPOSIT AMOUNTS COLLECTED (AS SAL ES TAX LIABILITY) - WHICH MEANT THAT THE CUSTOMER OR SERVICER USER CONC ERNED HAD TO PAY SALES TAX BUT AT THE SAME TIME THE COLLECTOR (I.E THE ASSESSEE) COULD RETAIN THE AMOUNT SO COLLECTED UNDOUBTEDLY WAS TO ACHIEVE THE LARGER GOAL OF INDUSTRIALIZATION. THIS HAS BEEN THE BASIS OF SALES TAX SUBSIDY RECEIVED DURING THE YEAR. IN PRINCIPLE THERE HAS NO T BEEN ANY DIFFERENCE IN HARYANA SALES TAX SUBSIDY POLICY AND UP SALES TAX POLICY. THE LTD. AR OF THE ASSESSEE HAS BEEN GAS LIGHTING T HE ISSUES OF SALES TAX SUBSIDY SIMPLY BIFURCATING IT IN THE NAME OF TH E STATES. THE DIFFERENT FORMS CANNOT BE TAKEN AWAY THE SUBSTANCE FROM THE ISSUES OF SALES TAX SUBSIDY. ACCORDING TO HIM THE JURISPRUDE NCE KEEPS INVOLVING AND ACCORDINGLY THE DELHI HIGH COURT HA S DECIDED THE ISSUES OF SALES TAX SUBSIDY AS REVENUE RECEIPTS IN THE CASE OF BHUSHAN STEEL AND STRIPES LTD. STATING VERY CLEARLY AT PAGE NO. 26 OF ITS ITA NO.-6021/DEL/2012 64 JUDGMENT. 11.5. ACCORDING TO THE LD. DR THE ASSESSEES CASE ALSO EN CIRCLES THE ISSUES OF SALES TAX SUBSIDY IN THE SIMILAR WAYS TH EREBY THE SALES TAX SUBSIDY RECEIVED IN THE HANDS OF THE ASSESSEE NEEDS TO BE TREATED AS REVENUE RECEIPTS AND THE ASSESSEES RELIANCE ON BO UGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE PVT. LTD. 373 ITR 14 (DEL) AND JOHNSON MATTHEY INDIA PVT. LTD. ITANO. 192/2015(DE L) ARE MISPLACED. LD. DR EMPHASIZES THAT THE HONBLE DELH I HIGH COURTS DECISION IN THE CASE OF M/S BHUSHAN STEEL AND STRIP ES LTD. DT. 13.7.2017 BEING THE RECENT DECISION AFTER CONSIDERA TION OF ALL THE CASE LAWS WHEREIN THE WISDOM OF THE DELHI HIGH COURT HA S REACHED IN THE PROCESSES OF ADVANCEMENT OF JURISPRUDENCE AS TO TR EAT THE SALES TAX SUBSIDY AS REVENUE RECEIPT HAS TO BE PREFERRED TO OTHER EARLIER DECISIONS. THIS IS BEING RECENT SPEAKING AND THE WELL REASONED ORDER NEEDS TO BE FOLLOWED BY THE HONBLE BENCH ITAT WHI CH FALLS UNDER THE JURISDICTION OF THE HONBLE DELHI HIGH COURT. 11.6. ON THIS PREMISE LD. DR THEREFORE PRAYED TO CONS IDER THE RECENT DECISION OF THE HONBLE DELHI HIGH COURT REACHED IN THE CASE OF BHUSHAN STEEL & STRIPES LTD. FOR CONSIDERING THE SA LES TAX SUBSIDY AS THE REVENUE RECEIPT WITHOUT CONSIDERING THE DECISIO N AS PER INCURIAM WHICH IS A SUBJECT MATTER OF HONBLE SUPREME COURT. 11.7. IN REPLY LD. AR SUBMITTED THAT IN THE CASE OF THE BHUSHAN STEEL & STRIPS LIMITED THE HONBLE DELHI HIGH COURT CONS IDERED THE CASE OF SALES-TAX SUBSIDY RECEIVED UNDER AN ALTOGETHER DIFF ERENT INDUSTRIAL POLICY OF THE GOVERNMENT OF UP AND IN THAT DIFFERE NT CONTEXT OF THE POLICY OF THE GOVERNMENT OF UP THE COURT HELD THAT THE SALES TAX SUBSIDY WAS IN THE NATURE OF A REVENUE RECEIPT AND NOT A CAPITAL RECEIPT. ITA NO.-6021/DEL/2012 65 11.8. LD. AR REFERRED TO THE PARAGRAPH NO 25 AND 26 OF TH E DECISION IN BHUSHAN STEEL & STRIPS LIMITED (SUPRA) IN SUPPORT O F HIS SUBMISSION THAT THIS DECISION OF THE DELHI HIGH COURT IN THE C ASE OF BHUSHAN STEEL (SUPRA) IS CONFINED TO THE PECULIAR FACTS OF THE UT TAR PRADESH INDUSTRIAL POLICY 1990 AS WOULD BE EVIDENT FROM THE FOLLOWING OBSERVATIONS : 25PARAS 6 (A) AND 6(B) OF THAT SCHEME SPECIFIC ALLY PROVIDED FOR CAPITAL SUBSIDY TO SET UP PRESTIGE UNITS; THE AMOUN TS INDICATED (RUPEES FIFTEEN LAKHS) WERE TO BE TOWARDS CAPITAL EXPENDITU RE. NOW IF THAT WAS THE SCHEME UNDER WHICH THE ASSESSEES SET-UP THEIR U NITS UNDOUBTEDLY IT CONTAINED SPECIFIC PROVISIONS THAT ENABLED CAPIT AL SUBSIDIES. WHETHER THE ASSESSEES WERE ENTITLED TO IT OR NOT IS NOT R ELEVANT. THE ASSESSEES ARE NOW CONCERNED WITH THE SALES TAX AMOUNTS THEY W ERE PERMITTED TO RETAIN UNDER THE AMENDED SCHEME (DATED 27.07.1991) WHICH ALLOWED THE FACILITY OF SUCH RETENTION AFTER THE UNIT (EST ABLISHED AND WHICH COULD POSSIBLY CLAIM BENEFIT UNDER THE FIRST SCHEME) WAS ALREADY SET UP. THIS SUBSIDY SCHEME HAD NO STRINGS ATTACHED. IT MERELY S TATED THAT THE COLLECTION COULD BE RETAINED TO THE EXTENT OF 100% OF CAPITAL EXPENDITURE. WHILST IT MIGHT BE TEMPTING TO READ THE LINKAGE WIT H CAPITAL EXPENDITURE AS NOT ONLY APPLYING TO THE LIMIT BUT ALSO IMPLYIN G AN UNDERLYING INTENTION THAT THE CAPITAL EXPENDITURE WOULD THEREB Y BE RECOUPED THE ABSENCE OF ANY SUCH CONDITION SHOULD RESTRAIN THE C OURT FROM SO CONCLUDING. 26. HOW A STATE FRAMES ITS POLICY TO ACHIEVE ITS O BJECTIVES AND ATTAIN LARGER DEVELOPMENTAL GOALS DEPENDS UPON THE EXPERIE NCE VISION AND GENIUS OF ITS REPRESENTATIVES. THEREFORE TO SAY TH AT THE INDICATION OF THE LIMIT OF SUBSIDY AS THE CAPITAL EXPENDED MEANS THA T IT REPLENISHED THE CAPITAL EXPENDITURE AND THEREFORE THE SUBSIDY IS C APITAL WOULD NOT BE JUSTIFIED. THE SPECIFIC PROVISION FOR CAPITAL SUBSI DY IN THE MAIN SCHEME AND THE LACK OF SUCH A SUBSIDY IN THE SUPPLEMENTARY SCHEME (OF 1991) MEANT THAT THE RECIPIENT I.E. THE ASSESSEE HAD THE FLEXIBILITY OF USING IT FOR ANY PURPOSE. UNLIKE IN PONNI SUGARS (SUPRA) TH E ABSENCE OF ANY CONDITION TOWARDS CAPITAL UTILIZATION MEANT THAT TH E POLICY MAKERS ENVISIONED GREATER PROFITABILITY AS AN INCENTIVE FO R INVESTORS TO EXPAND UNITS FOR RAPID INDUSTRIALIZATION OF THE STATE EN SURING GREATER EMPLOYMENT. CLEARLY THE SUBSIDY WAS REVENUE IN NAT URE. 11.9. BASING ON THE ABOVE OBSERVATIONS HE SUBMITTED THAT THE HONBLE COURT GAVE MUCH EMPHASIS TO THE FACT THAT THE UP IN DUSTRIAL POLICY SPECIFICALLY PROVIDED FOR CAPITAL SUBSIDIES AND CO NSIDERING THE FACT THAT THE IN THAT CASE ASSESSEE WAS NOT GRANTED CAPI TAL SUBSIDY AS SPECIFICALLY CONTAINED IN THE SAID POLICY THE COUR T CONCLUDED THAT THE ITA NO.-6021/DEL/2012 66 SUBSIDY RECEIVED WAS NOT IN THE NATURE OF A CAPITAL SUBSIDY BUT ONLY A REVENUE SUBSIDY; WHEREAS ACCORDING TO THE LD. AR UNLIKE IN THE UP INDUSTRIAL POLICY THERE IS NO SPECIFIC PROVISION I N THE HARYANA INDUSTRIAL POLICY FOR CAPITAL SUBSIDY AND HENCE TH E DECISION IN THE CASE OF BHUSHAN IS NOT APPLICABLE. AS REGARDS OBSER VATIONS OF THE HONBLE COURT REGARDING NO STRINGS BEING ATTACHED T O THE INCENTIVES LD. AR SUBMITTED THAT SUCH OBSERVATIONS HAVE TO BE READ IN THE AFORESAID CONTEXT/ DISCUSSION WHEREIN THE COURT HEL D THAT THE CASE OF BHUSHAN WAS NOT FALLING IN CAPITAL SUBSIDY SCHEME A S CONTAINED IN THE UP POLICY. 11.10. LD. AR POINTED OUT THAT IN FACT IN JOHNSON MATTHE Y (SUPRA) AND BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE ( P) LIMITED: 373 ITR 14 THE HONBLE DELHI HIGH COURT HELD THAT DESPI TE NO STRINGS BEING ATTACHED THERETO THE SUBSIDY OR INCENTIVE AS THE CASE MAY BE WAS IN THE NATURE OF CAPITAL SUBSIDY. HE SUBMITTED THAT I N SIMILAR VIEW HAS BEEN TAKEN IN SHREE BALAJ ALLOYS : 198 TAXMAN 122 ( J&K) AFFIRMED BY SC IN 287 CTR 459 CIT V. CHAPHALKAR BROTHERS: 3 51 ITR 309 (BOM) CIT V. RASOI LIMITED : 335 ITR 438 (CAL) CIT V. BIRLA VXL LTD: 215 TAXMAN 117 (GUJ) DCIT V INOX LEISURE LTD. : 3 51 ITR 314 (GUJ) CIT V.SAMTA CHAVIGARH: 268 CTR 199 (RAJ.). 11.11. LD. AR EMPHATICALLY SUBMITTED THAT THE ISSUE OF TA XABILITY OF SALES TAX SUBSIDY PURSUANT TO THE HARYANA GOVERNMEN TS SCHEME IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE B INDING DECISION OF THE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF JOHNSON MATTHEY (SUPRA) WHEREAS THE DECISION IN THE CASE OF BHUSHA N STEEL (SUPRA) RENDERED IN THE CONTEXT OF AN ALTOGETHER DIFFERENT INDUSTRIAL POLICY OF THE GOVERNMENT OF UP AS SUCH IT IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. ITA NO.-6021/DEL/2012 67 11.12. ACCORDING TO THE LD. AR THERE IS NO CONFLICT BETWE EN THE JUDGEMENTS OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASES OF JOHNSON MATTHEY (SUPRA) AND BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (P) LIMITED: 373 ITR 14 ON ONE HAND AND BHU SHAN STEEL (SUPRA) ON THE OTHER INASMUCH THEY DEALT WITH TWO DIFFERENT INDUSTRIAL POLICIES SURROUNDED BY DIFFERENT FACTS AND CIRCUMST ANCES. HOWEVER ACCORDING TO HIM EVEN IF IT IS CONSTRUED THAT THER E IS A CONFLICT BETWEEN TWO JUDGEMENTS OF THE DIVISION BENCH OF THE JURISDICTIONAL HIGH COURT THEN IT HAS TO BE SEEN THAT THE DECISIO N OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF JOHNSON MA TTHEY (SUPRA) HAVING BEEN RENDERED IN THE CONTEXT OF THE VERY SAM E SCHEME HARYANA INDUSTRIAL POLICY 1999 IN THE CONTEXT OF W HICH THE CASE OF ASSESSEE FALLS HAS TO BE PREFERRED OVER THE DECISI ON OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF BHUSHAN ST EELS (SUPRA) BECAUSE IT HAS BEEN RENDERED IN CONTEXT OF AN ALTOG ETHER DIFFERENT INDUSTRIAL POLICY. 11.13. PLACING RELIANCE ON THE DECISIONS RENDERED IN GOVE RNMENT OF ANDHRA PRADESH AND ANR. VS. B. SATYA NARAINA RAO(DE AD) BY LRS. AND OTHERS (2000) : 4 SCC 262(SC) A.R. ANTULEYVS. R.S. NAIK: AIR 1988 SC 1531 (SC) R. THIRUVIRKOLAM V. PRESIDING OFFICER AN D ANOTHER : 1 SCC 9 (SC) STATE OF ASSAM V. RIPASARMA : 3 SCC 63 (SC) PUNJAB DEVELOPMENT AND RECLAMATION CORPORATION LIMITED VS. PRESIDING OFFICER LABOUR COURT : 1990 : 3SCC 682 (SC) CIT V . THANA ELECTRICITY SUPPLY LTD.: 206 ITR 727 (BOM.) CIT V. CASCADE HOL DINGS (P) LTD.: 365 ITR 84 (BOM.) LD. AR SUBMITTED THAT EVEN IF TH ERE IS A CONFLICT BETWEEN THE JUDGEMENTS OF JURISDICTIONAL HIGH COURT VIZ. BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (SUPRA ) AND JOHNSON MATTHEY (SUPRA) ON THE ONE HAND AND BHUSHAN STEELS (SUPRA) ON THE OTHER THE JUDGMENT RENDERED IN CASE OF JOHNSON MAT THEY (SUPRA) HAS TO BE PREFERRED BECAUSE THE DECISION IN THE CASE OF BHUSHAN STEEL ITA NO.-6021/DEL/2012 68 (SUPRA) WAS RENDERED WITHOUT CONSIDERING THE EARLIER DECISIONS RENDERED BY THE BENCH OF CO-EQUAL STRENGTH IN CASE OF JOHNSON MATTHEY (SUPRA) AND BOUGAINVILLEA MULTIPLEX ENTERTA INMENT CENTRE (P.) LTD. (SUPRA). SAYING SO HE SUBMITTED THAT THE CONTENTION OF THE LD. DR THAT IN THE PROCESSES OF ADVANCEMENT OF JURI SPRUDENCE THE HONBLE HIGH COURT HAS EVOLVED THE LAW TO TREAT THE SALES TAX SUBSIDY AS REVENUE RECEIPT CANNOT BE ACCEPTED. 11.14. LASTLY LD. AR CONTENDED THAT IN SANDEEP KUMAR BAF NA V. STATE OF MAHARASHTRA AND ANR. : AIR (2014) SC 1745; AND MAMALESHWAR PRASAD V. KANHAIYALAL (DEAD) THROUGH L. RS. : AIR (1975) SC 907 IT HAS BEEN HELD THAT WHERE TWO JUDICIAL PRE CEDENTS OF CO-EQUAL STRENGTH ARE AVAILABLE ON THE ISSUE AND THE LATER J UDGMENT DOES NOT CONSIDER THE EARLIER ONE THEN THE LOWER COURT SHA LL FOLLOW THE JUDICIAL PRECEDENT RENDERED EARLIER IN POINT OF TIME. 11.15. WE HAVE CAREFULLY GONE THROUGH THE RIVAL CONTENTION S IN THE LIGHT OF THE DECISIONS OF THE HONBLE JURISDICTIONA L HIGH COURT IN CIT V. BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (P.) L TD.: 373 ITR 14 AND CIT VS BHUSHAN STEEL AND STRIPES LTD . AND THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF JOHNSON MATTHEY INDIA (P) LTD.V. ADDL. CIT IN ITA NO.952/DEL/2011 AND UPHELD BY THE HONBLE DELHI HIGH COURT IN THE CASE TITLED AS CIT VS. JOHN SON MATTHEY INDIA PVT. LTD. IN ITA NO. 193/2015. IN ALL THESE CASES THE GUIDANCE IS TAKEN AND STRENGTH IS DERIVED FROM THE DECISIONS OF THE HONBLE APEX COURT IN SAHNEY STEEL AND PRESS WORKS LTD. V. CIT: 228 ITR 253 (SC) AND CIT VS PONNI SUGARS AND CHEMICALS LTD: 306 ITR 392 (SC). PURPOSIVE TEST IS THE KEY PRINCIPLE THAT IS APPLIED FOR DETERMINATION OF THE NATURE OF THE SUBSIDY. THOUGH IT IS AN UNDISPU TED FACT THAT A COORDINATE BENCH OF THIS TRIBUNAL CONSIDERED ALL RE LEVANT FACTS AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN ASSE SSEES OWN CASES IN ITA NO.-6021/DEL/2012 69 ITA NO.1927/DEL/2010 (AY 2005-06) ITA NO.5120/DEL/ 2010 (AY 2006-07) ITA NO.5720/DEL/2011 (AY 2007-08) SUBMIS SION OF THE DR THAT THE LAW IS KEPT ON EVOLVING BY THE HONBLE JUR ISDICTIONAL HIGH COURT INASMUCH AS THE HONBLE COURT IN A SUBSEQUEN T AND LATEST JUDGEMENT IN BHUSHAN STEELS CASE (SUPRA) HELD THAT THE SUBSIDY GIVEN AT POST PROJECT STAGE WITHOUT MANDATING FOR ANY SPE CIFIC USE OF SUCH SUBSIDY FUND IS ONLY A REVENUE RECEIPT NECESSITAT ES THIS BENCH TO LOOK AFRESH AT THE ISSUE IN THE LIGHT OF THE MARCH OF LAW. FOR PROPER APPRECIATION OF THE CONTENTIONS OF THE PARTIES IT IS BUT NECESSARY TO FIND OUT THE PRINCIPLES OF LAW LAID DOWN IN THESE D ECISIONS. 11.16. IN SAHNEY STEEL AND PRESS WORKS LTD ( SUPRA) FACTS INVOLVE THE NOTIFICATION ISSUED BY THE ANDHRA PRADESH GOVERNMEN T WHERE UNDER CERTAIN FACILITIES AND INCENTIVES WERE TO BE GIVEN TO ALL THE NEW INDUSTRIAL UNDERTAKINGS WHICH COMMENCED PRODUCTION ON OR AFTER 1ST JAN. 1969 WITH INVESTMENT CAPITAL (EXCLUDING WORKI NG CAPITAL) NOT EXCEEDING RS. 5 CRORES. THE INCENTIVES WERE TO BE A LLOWED FOR A PERIOD OF FIVE YEARS FROM THE DATE OF COMMENCEMENT OF PROD UCTION. CONCESSION IS ALSO AVAILABLE FOR SUBSEQUENT EXPANSI ON OF 50 PER CENT AND ABOVE OF EXISTING CAPACITIES PROVIDED IN EACH C ASE THE EXPANSION WAS LOCATED IN A CITY OR TOWN OR PANCHAYAT AREA OTH ER THAN THAT IN WHICH THE EXISTING UNIT IS LOCATED. THE INCENTIVES WERE REFUND OF SALES-TAX ON RAW MATERIALS MACHINERY AND FINISHED GOODS LEVIED BY THE STATE GOVERNMENT SUBJECT TO A MAXIMUM OF 10 PER CENT OF THE EQUITY CAPITAL PAID UP IN THE CASE OF PUBLIC LIMITE D COMPANIES AND THE ACTUAL CAPITAL IN THE CASE OF OTHERS; SUBSIDY ON PO WER CONSUMED FOR PRODUCTION TO THE EXTENT OF 10 PER CENT IN THE CASE OF MEDIUM AND LARGE SCALE INDUSTRIES ETC; EXEMPTION FROM PAYMENT OF WATER RATE LIABILITY ON ACCOUNT OF ASSESSMENT OF LAND REVENUE OR TAXES ON LAND USED FOR ESTABLISHMENT OF ANY INDUSTRY SHALL BE LI MITED TO THE AMOUNT OF SUCH TAXES PAYABLE IMMEDIATELY BEFORE THE LAND I S SO USED. ITA NO.-6021/DEL/2012 70 11.17. IN SAHNEY STEELS CASE IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE SUBSIDY GIVEN WAS UP TO 10 PER CE NT OF THE CAPITAL INVESTMENT CALCULATED ON THE BASIS OF THE QUANTUM O F INVESTMENT IN CAPITAL AND THEREFORE RECEIPT OF SUCH SUBSIDY WA S ON CAPITAL ACCOUNT AND NOT ON REVENUE ACCOUNT. IT WAS ALSO URGED IN TH AT CASE THAT SUBSIDY GRANTED ON THE BASIS OF REFUND OF SALES TAX ON RAW MATERIALS MACHINERY AND FINISHED GOODS WERE ALSO OF CAPITAL N ATURE AS THE OBJECT OF GRANTING REFUND OF SALES TAX WAS THAT THE ASSESS EE COULD SET UP NEW BUSINESS OR EXPAND HIS EXISTING BUSINESS. HOWEVER HONBLE APEX COURT ON EXAMINATION OF THE DECISIONS IN THE CASE O F SEAHAM HARBOUR DOCK CO. VS. CROOK 16 TAX CASES 333 (HL) LINCOLNSH IRE SUGAR CO. LTD. VS. SMART 20 TAX CASES 643 AND A CANADIAN CASE ST. JOHN DRY DOCK & SHIP BUILDING CO. LTD. VS. MINISTER OF NATIO NAL REVENUE 4 DLR 1 AND WHILE AFFIRMING THE PRINCIPLE LAID DOWN IN O STIME VS. PONTYPRIDD & RHONDDA JOINT WATER BOARD 28 TAX CASES 262 HELD THAT THE CONTENTION THAT THE SUBSIDIES WERE OF CAPITAL N ATURE AND WERE GIVEN FOR THE PURPOSE OF STIMULATING SETTING UP AND EXPANSION OF INDUSTRIES IN THE STATE CANNOT BE UPHELD BECAUSE OF THE SUBSIDY SCHEME ITSELF. HONBLE COURT OBSERVED THAT NO FINAN CIAL ASSISTANCE WAS GRANTED TO THE ASSESSEE FOR SETTING UP OF THE INDUS TRY AND IT WAS ONLY WHEN THE ASSESSEE HAD SET UP ITS INDUSTRY AND COMME NCED PRODUCTION VARIOUS INCENTIVES WERE GIVEN FOR THE L IMITED PERIOD OF FIVE YEARS. THE HONBLE COURT FURTHER OBSERVED THAT THAT THE ENDEAVOUR OF THE STATE WAS TO PROVIDE THE NEWLY SET UP INDUSTRIE S A HELPING HAND FOR 5 YEARS TO ENABLE THEM TO BE VIABLE AND COMPETI TIVE SALES-TAX REFUND AND THE RELIEF ON ACCOUNT OF WATER RATE LAN D REVENUE AS WELL AS ELECTRICITY CHARGES WERE ALL INTENDED TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY AS SUCH THE AMOUNT PAID T O THE ASSESSEE WAS IN THE NATURE OF SUBSIDY FROM PUBLIC FUNDS TO A SSIST IT IN CARRYING ON ITS TRADE OR BUSINESS. HAVING REGARD TO THE SCHE ME OF THE ITA NO.-6021/DEL/2012 71 NOTIFICATION IT WAS HELD THAT THERE CAN BE LITTLE DOUBT THAT THE OBJECT OF VARIOUS ASSISTANCES UNDER THE SUBSIDY SCHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY SINCE THE PAYMENTS WERE MADE ONLY AFTER THE INDUSTRIES HAVE BEEN SET UP. PA YMENTS ARE NOT BEING MADE FOR THE PURPOSE OF SETTING UP OF THE IND USTRIES. BUT THE PACKAGE OF INCENTIVES WAS GIVEN TO THE INDUSTRIES T O RUN MORE PROFITABLY FOR A PERIOD OF FIVE YEARS FROM THE DATE OF THE COMMENCEMENT OF PRODUCTION. IN OTHER WORDS A HELPI NG HAND WAS BEING PROVIDED TO THE INDUSTRIES DURING THE EARLY D AYS TO ENABLE THEM TO COME TO A COMPETITIVE LEVEL WITH OTHER ESTABLISH ED INDUSTRIES. IN SUCH CIRCUMSTANCES THE HONBLE COURT HELD THAT THE PAYMENTS WERE NOTHING BUT SUPPLEMENTARY TRADE RECEIPTS THOUGH TH E ASSESSEE COULD NOT USE THIS MONEY FOR DISTRIBUTION AS DIVIDEND TO ITS SHAREHOLDERS BUT THE ASSESSEE WAS FREE TO USE THE MONEY IN ITS BUSINESS ENTIRELY AS IT LIKED AND WAS NOT OBLIGED TO SPEND THE MONEY FOR A PARTICULAR PURPOSE AS SUCH BY NO STRETCH OF IMAGINATION CAN THE SUBSIDIES WHETHER BY WAY OF REFUND OF SALES-TAX OR RELIEF OF ELECTRICITY CHARGES OR WATER CHARGES CAN BE TREATED AS AN AID TO SETTING U P OF THE INDUSTRY OF THE ASSESSEE. IF ANY SUBSIDY IS GIVEN THE CHARACTE R OF THE SUBSIDY IN THE HANDS OF THE RECIPIENTWHETHER REVENUE OR CAPIT ALWILL HAVE TO BE DETERMINED BY HAVING REGARD TO THE PURPOSE FOR W HICH THE SUBSIDY IS GIVEN. IF IT IS GIVEN BY WAY OF ASSISTANCE TO TH E ASSESSEE IN CARRYING ON OF HIS TRADE OR BUSINESS IT HAS TO BE TREATED A S TRADING RECEIPT. THE SALES-TAX UPON COLLECTION FORMS PART OF THE PUBLIC FUNDS OF THE STATE. IN THIS SENSE IT WAS HELD THAT THE SOURCE OF THE FU ND IS QUITE IMMATERIAL. IF THE PURPOSE IS TO HELP THE ASSESSEE TO SET UP ITS BUSINESS OR COMPLETE A PROJECT THE MONIES MUST BE TREATED AS TO HAVE BEEN RECEIVED FOR CAPITAL PURPOSE. BUT IF MONIES A RE GIVEN TO THE ASSESSEE FOR ASSISTING HIM IN CARRYING OUT THE BUSI NESS OPERATION AND THE MONEY IS GIVEN ONLY AFTER AND CONDITIONAL UPON COMMENCEMENT OF ITA NO.-6021/DEL/2012 72 PRODUCTION SUCH SUBSIDIES MUST BE TREATED AS ASSIS TANCE FOR THE PURPOSE OF THE TRADE. IN SAHNEYS CASE SUBSIDIES H AVE NOT BEEN GRANTED FOR PRODUCTION OF OR BRINGING INTO EXISTENC E ANY NEW ASSET BUT WERE GRANTED YEAR AFTER YEAR ONLY AFTER SETTING UP OF THE NEW INDUSTRY AND COMMENCEMENT OF PRODUCTION AND SUCH A SUBSIDY C OULD ONLY BE TREATED AS ASSISTANCE GIVEN FOR THE PURPOSE OF CARR YING ON OF THE BUSINESS OF THE ASSESSEE. THESE SUBSIDIES ARE OF RE VENUE CHARACTER AND WILL HAVE TO BE TAXED ACCORDINGLY. HONBLE APE X COURT ALSO NOTED MANY DECISIONS OF INDIAN COURTS ON THIS ASPECT VIZ . V.S.S.V. MEENAKSHI ACHI & ANR. VS. CIT (1966) 60 ITR 253 (SC ) CIT VS. RUBY RUBBER WORKS LTD. (1989) 78 CTR (KER) 75 SADICHHA CHITRA VS. CIT (1990) 90 CTR (BOM) 135 KESORAM INDUSTRIES & COTTO N MILLS LTD. VS. CIT (1991) 191 ITR 518 (CAL) CIT VS. DUSAD INDUSTR IES (1986) 51 CTR (MP) 217 ETC. 11.18. IN THIS CONTEXT IT IS PERTINENT TO NOTE THAT THE M ADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS. DUSAD INDUSTRIES (1986) 51 CTR (MP) 217 : (1986) 162 ITR 784 (MP) : TC 13R.622 DEALT W ITH A CASE WHERE GOVERNMENT HAD FRAMED A SCHEME FOR GRANTING SALES-T AX SUBSIDIES TO INDUSTRIES SET UP IN BACKWARD AREAS TOOK THE VIEW T HAT THE OBJECT OF THE SCHEME WAS NOT TO SUPPLEMENT THE PROFITS MADE B Y INDUSTRIES. IN THAT VIEW OF THE MATTER THE HIGH COURT HELD THAT T HE SUBSIDIES GIVEN UNDER THE SAID SCHEME BY THE GOVERNMENT TO NEWLY SE T UP INDUSTRIES WERE CAPITAL RECEIPTS IN THE HANDS OF THE INDUSTRIE S AND COULD NOT BE TAXED AS REVENUE RECEIPTS. IN THAT CASE 75 PER CEN T OF THE SALES-TAX PAID IN A YEAR FOR A PERIOD OF FIVE YEARS FROM THE DAY OF STARTING OF PRODUCTION WAS TO BE GIVEN BACK BY THE GOVERNMENT T O THE INDUSTRY CONCERNED. THE HIGH COURT WAS OF THE VIEW THAT OBVI OUSLY THE SUBSIDY WAS GIVEN BY WAY OF AN INCENTIVE FOR CAPITAL INVEST MENT AND NOT BY WAY OF ADDITION TO THE PROFITS OF THE ASSESSEE AS W AS CLEAR FROM THE FACTS AND CIRCUMSTANCES OF THE CASE. WHILE REFERRIN G TO THESE FACTS ITA NO.-6021/DEL/2012 73 HONBLE APEX COURT HELD THAT THE MADHYA PRADESH HIG H COURT HOWEVER FAILED TO NOTICE THE SIGNIFICANT FACT THAT UNDER THE SCHEME FRAMED BY THE GOVERNMENT NO SUBSIDY WAS GIVEN UNTI L THE TIME PRODUCTION WAS ACTUALLY COMMENCED MERE SETTING UP OF THE INDUSTRY DID NOT QUALIFY AN INDUSTRIALIST FOR GETTING ANY SU BSIDY AND THE SUBSIDY WAS GIVEN AS HELP NOT FOR THE SETTING UP OF THE INDUSTRY WHICH WAS ALREADY THERE BUT AS AN ASSISTANCE AFTER THE IN DUSTRY COMMENCED PRODUCTION. HONBLE APEX COURT THEREFORE HELD THA T THE VIEW TAKEN BY THE MADHYA PRADESH HIGH COURT IS ERRONEOUS. 11.19. LAW LAID DOWN BY THE HONBLE APEX COURT IN SAHNEY S TEEL AND PRESS WORKS LTD ( SUPRA) IS THEREFORE THAT THE CH ARACTER OF THE SUBSIDY IN THE HANDS OF THE RECIPIENTWHETHER REVEN UE OR CAPITAL WILL HAVE TO BE DETERMINED BY HAVING REGARD TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. IF THE PURPOSE IS TO HELP THE ASSESSEE TO SET UP ITS BUSINESS OR COMPLETE A PROJECT THE MONIES MUST BE TREATED AS TO HAVE BEEN RECEIVED FOR CAPITAL PURPOSE AND IF IT IS GIV EN BY WAY OF ASSISTANCE TO THE ASSESSEE IN CARRYING ON OF HIS TR ADE OR BUSINESS IT HAS TO BE TREATED AS TRADING RECEIPT. THE SOURCE OF THE FUND IS QUITE IMMATERIAL. IN A CASE WHERE 75 PER CENT OF THE SALES-TAX PAID IN A YEAR FOR A PERIOD OF FIVE YEARS FROM THE DAY OF STARTING OF PRODUCTION WAS TO BE GIVEN BACK BY THE GOVERNMENT TO THE INDUSTRY CON CERNED T HE VIEW TAKEN BY THE MADHYA PRADESH HIGH COURT THAT THE SUBSIDY WAS GIVEN BY WAY OF AN INCENTIVE FOR CAPITAL INVESTMENT AND N OT BY WAY OF ADDITION TO THE PROFITS OF THE ASSESSEE WAS EXPRESS LY DISAPPROVED BASING ON THE SIGNIFICANT FACT THAT UNDER THE SCHEM E FRAMED BY THE GOVERNMENT NO SUBSIDY WAS GIVEN UNTIL THE TIME PRO DUCTION WAS ACTUALLY COMMENCED. 11.20. IN PONNI SUGARS CASE (SUPRA) FOUR FACTORS EXIST IN THE INCENTIVE SCHEMES WERE (I) BENEFIT OF THE INCENTIVE SUBSIDY WAS AVAILABLE ONLY ITA NO.-6021/DEL/2012 74 TO NEW UNITS AND TO SUBSTANTIALLY EXPANDED UNITS N OT TO SUPPLEMENT THE TRADE RECEIPTS; (II) THE MINIMUM INVESTMENT SPE CIFIED WAS RS. 4 CRORES FOR NEW UNITS AND RS. 2 CRORES FOR EXPANSION UNITS; (III) INCREASE IN THE FREE SALE SUGAR QUOTA DEPENDED UPON INCREASE IN THE PRODUCTION CAPACITY. IN OTHER WORDS THE EXTENT OF THE INCREAS E OF FREE SALE SUGAR QUOTA DEPENDED UPON THE INCREASE IN THE PRODUCTION CAPACITY; (IV) THE BENEFIT OF THE SCHEME HAD TO BE UTILIZED ONLY FOR R EPAYMENT OF TERM LOANS. THE IMPORTANT POINT NOTED BY THE HONBLE APE X COURT IN THIS CASE IS THAT GOVERNMENT OF INDIA FINANCIAL INSTITU TIONS AS WELL AS THE SUGAR INDUSTRIES ARE PARTIES TO THE SCHEME IN THE S ENSE THAT BUT FOR THE SCHEME THE FINANCIAL INSTITUTIONS WOULD NOT HAV E GIVEN TERM LOANS TO SET UP NEW UNITS/EXPANSION OF THE EXISTING UNITS . KEEPING IN MIND THE OBJECT BEHIND THE PAYMENT OF THE INCENTIVE SUBS IDY SUCH PAYMENT RECEIVED BY THE ASSESSEE UNDER THE SCHEME WAS NOT I N THE COURSE OF A TRADE BUT WAS OF CAPITAL NATURE WHILE REITERATING THE PRINCIPLE OF PURPOSIVE TEST ENUNCIATED IN SAHNEY STEEL & PRESS W ORKS LTD. HONBLE APEX COURT HELD THAT THE RECEIPT OF THE SU BSIDY BY THE ASSESSEE IN THAT CASE WAS CAPITAL IN NATURE AS THE ASSESSEE WAS OBLIGED TO UTILIZE THE SUBSIDY ONLY FOR REPAYMENT O F TERM LOANS UNDERTAKEN BY THE ASSESSEE FOR SETTING UP NEW UNITS /EXPANSION OF EXISTING BUSINESS. 11.21. IN BOUGAINVILLE CASE (SUPRA) FACTS SUBMITTED TO TH E COURT ARE THAT AGAINST THE BACKDROP OF STEEP DECLINE OF VIEWE RSHIP DUE TO VARIOUS REASONS INCLUDING ONSLAUGHT OF CABLE TELEVISION LEA DING TO EROSION IN ENTERTAINMENT TAX COLLECTIONS AND WITH A VIEW TO EN COURAGE SETTING UP OF MULTIPLEX CINEMA HALLS AND MALLS IN ORDER TO PR OMOTE THE VIEWERSHIP IN CINEMA HALLS VARIOUS STATE GOVERNMEN TS BEING AWARE THAT SETTING UP AN OPERATION OF SUCH MULTIPLEXES IN VOLVES VARIOUS PROBLEMS INCLUDING HUGE CAPITAL INVESTMENTS HAD CO ME UP WITH SCHEMES OFFERING INCENTIVES TO CINEMA INDUSTRY AND THE GOVERNMENT OF ITA NO.-6021/DEL/2012 75 THE STATE OF UTTAR PRADESH FORMULATED A PROMOTIONAL SCHEME TO SUCH EFFECT AND NOTIFIED IT BY GOVERNMENT ORDER ISSUED O N 13.07.1999. HONBLE JURISDICTIONAL HIGH COURT AFTER NOTICING TH E DECISIONS OF THE HONBLE APEX COURT IN SAHNEY STEEL AND PRESS WORKS LTD. V. CIT: 228 ITR 253 (SC) AND CIT VS PONNI SUGARS AND CHEMICALS LTD: 306 ITR 392 (SC) FOUND VIDE PARA NO 32 THAT THE UP SCHEME UNDER WHICH THE ASSESSEE CLAIMS EXEMPTION TO THE EXTENT OF ENTERTAI NMENT TAX SUBSIDY CLAIMING IT TO BE CAPITAL RECEIPT IS CLEARLY DESIG NED TO PROMOTE THE INVESTORS IN THE CINEMA INDUSTRY ENCOURAGING ESTABL ISHMENT OF NEW MULTIPLEXES. SINCE THE SUBSIDY OF SUCH NATURE CANNO T POSSIBLY BE GRANTED BY THE GOVERNMENT DIRECTLY THE ENTERTAINME NT TAX IS LEVIABLE ON THE ADMISSION TICKETS TO CINEMA HALLS ONLY AFTER THE FACILITY BECOMES OPERATIONAL AND SINCE THE SOURCE OF THE SU BSIDY IS THE PUBLIC AT LARGE WHICH IS TO BE ATTRACTED AS VIEWERS TO THE CINEMA HALLS THE FUNDS TO SUPPORT SUCH AN INCENTIVE CANNOT BE GENERA TED UNTIL AND UNLESS THE CINEMA HALLS BECOME FUNCTIONAL BY APPLY ING THE PURPOSE TEST REFERRED TO IN PONNI SUGARS (SUPRA) HELD THAT THE ASSISTANCE IN THE FORM OF ENTERTAINMENT TAX EXEMPTION CAME IN THE HANDS OF ASSESSEE TO ENABLE IT TO SET UP THE NEW UNIT WHICH RENDERS IT A RECEIPT ON CAPITAL ACCOUNT. THE PERIODICITY (YEAR TO YEAR) OF THE SUBSIDY ITS SOURCE (COLLECTIONS FROM THE PUBLIC AT LARGE) AND T HE FORM (DEEMED DEPOSIT) ARE IRRELEVANT CONSIDERATIONS. 11.22. IN CIT VS. JOHNSON MATTHEY INDIA PVT. LTD. WHILE R EFERRING TO THE DECISIONS IN SAHNEY (SUPRA) PONNI SUGARS (SUPRA) AND BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (SUPRA ) HONBLE JURISDICTIONAL HIGH COURT OBSERVED AS UNDER: THIS COURT HAS CONSIDERED THE SUBMISSIONS AND IS O F THE OPINION THAT THE ITATS IMPUGNED ORDER HAS NOTED THE RELEVANT LA W. CRUCIALLY PONNI SUGARS (SUPRA) IS A LATER DECISION OF THE SUPREME C OURT WHICH HAD GONE TO DEAL WITH VARIOUS AUTHORITIES INCLUDING SAHNEY (SUPRA). THE SUPREME COURT HAS EMPHASIZED IN EACH CASE THE PURPOSE FOR W HICH SUBSIDY OR ASSISTANCE IS GIVEN BY THE STATE GOVERNMENT OR A PU BLIC AGENCY. IF THAT ITA NO.-6021/DEL/2012 76 IS TO PROMOTE AN INDUSTRY ESPECIALLY WITH SPECIAL INTEREST OF DEVELOPMENT OF CAPITAL INFRASTRUCTURE THE AMOUNTS RECEIVED ARE TO BE TREATED AS CAPITAL AND NOT REVENUE. THIS COURT TOO HAD THE OCCASION TO DEAL WITH THE ISSUES IN CIT V. BOUGAINVILLEA MULTIP LEX ENTERTAINMENT CENTRE PVT. LTD. (ITA 586/2013 DECIDED ON 30.01.20 15) WHERE THE DECISION IN PONNI SUGARS (SUPRA) AND PREVIOUS AUTHO RITIES WERE DISCUSSED AND APPLIED IN GIVEN FACTS OF THE CASE. WE ARE OF THE OPINION THAT THE IMPUGNED ORDER OF TH E ITAT DOES NOT DISCLOSE ANY INFIRMITY. NO SUBSTANTIAL QUESTION OF LAW ARISES. IT IS ACCORDINGLY DISMISSED. 11.23. RECENTLY THE HONBLE DELHI HIGH COURT IN THE CASE O F CIT VS BHUSHAN STEEL AND STRIPES LTD. DT. 13.7.2017 ITA NO. 315/03 316/03 317/03 349/03 AND 434/05 AFTER CONSID ERING ALL THE DECISIONS SPECIALLY SAHNEV STEEL AND PONNI SUGARS A ND CHEMICALS LTD. OF HONBLE SUPREME COURT AND BOUGAINVILLE CASE (SU PRA) OF HIGH COURT REACHED A CONCLUSION THAT THE SALES TAX SUBS IDY RECEIVED BY THE ASSESSEE AS REVENUE RECEIPT. 11.24. IN THIS CASE THE HONBLE COURT OBSERVED THAT THE O BJECT OF PROVIDING SUBSIDY BY WAY OF PERMISSION TO NOT DEPOS IT AMOUNTS COLLECTED (AS SALES TAX LIABILITY)- WHICH MEANT THA T THE CUSTOMER OR SERVICER USER CONCERNED HAD TO PAY SALES TAX BUT A T THE SAME TIME THE COLLECTOR (I.E. THE ASSESSEE) COULD RETAIN THE AMOUNT SO COLLECTED UNDOUBTEDLY WAS TO ACHIEVE THE LARGER GOAL OF INDUS TRIALIZATION AND THE ACHIEVEMENT OF A QUANTITATIVE LIMIT (OF 125% OF CAPITAL EXPENDITURE IN THE CASE OF SMALL SCALE UNITS AND 100% IN THE CA SE OF OTHER UNITS) MEANT THAT THE SUBSIDY COULD NO LONGER BE CLAIMED. HOWEVER IT WAS FURTHER OBSERVED THAT WHILST IT MIGHT BE TEMPTING T O READ THE LINKAGE WITH CAPITAL EXPENDITURE AS NOT ONLY APPLYING TO TH E LIMIT BUT ALSO IMPLYING AN UNDERLYING INTENTION THAT THE CAPITAL E XPENDITURE WOULD THEREBY BE RECOUPED THE ABSENCE OF ANY SUCH CONDIT ION SHOULD RESTRAIN THE COURT FROM SO CONCLUDING. IN THIS MATT ER IT WAS STATED THAT IN SAHNEY STEEL (SUPRA) AND PONNI SUGARS (SUPR A) THE ISSUE DECIDED WAS - WHAT WAS THE TRUE PURPOSE OF THE INCE NTIVE OR THE ITA NO.-6021/DEL/2012 77 SUBSIDY WHEREAS THE END USE OF THE FUNDS WAS CONSI DERED AS AN ADDITIONAL ARGUMENT TO DECIDE THE MATTER EITHER WAY . FURTHER MORE BASING ON THE AMENDMENT TO SECTION 2(24) OF THE ACT BY THE FINANCE ACT 2015 IT WAS CONTENDED BEFORE THE HONBLE JURI SDICTIONAL HIGH COURT THAT .. THE FINANCE ACT OF 2015 WHICH CAME INTO FORCE ON 01.04.2016 AMENDED SECTION 2(24) OF THE INCOME TAX ACT AND INS ERTED CLAUSE (XVI). IT IS STATED THAT ASSISTANCE IN THE FORM OF SUBSIDY OR GRANT OR CASH INCENTIVE OR DUTY DRAWBACK OR WAIVER BY CENTRAL OR STATE GOVERNMENTS OR ANY AUTHORITY IN CASH OR KIND TO THE ASSESSEE OT HER THAN SUBSIDY OR GRANT OR REIMBURSEMENT WHICH IS TAKEN INTO ACCOUNT DETERMINING THE ACTUAL COST OF THE ASSET IS DEEMED TO BE INCOME. I T WAS SUBMITTED THAT THIS AMENDMENT CLARIFIES THE INTENT OF PARLIAMENT W HICH IS THAT THE ASSISTANCE RECEIVED OTHERWISE THAN TOWARDS CAPITAL AUGMENTATION OR CREATION IS DEEMED TO BE INCOME. THIS AMENDMENT IS PROSPECTIVE WHICH MEANS THAT THE LAW IS TO BE INTERPRETED IN THE LIGH T OF THE JUDGMENTS APPLICABLE NOTABLY PONNI SUGARS (SUPRA) IN THE PRE SENT CASE. 11.25. AFTER CONSIDERING THE ENTIRE CASE LAW ON THIS ASPE CT VIDE PARAGRAPH NO 26 THE HONBLE COURT HELD - 26. HOW A STATE FRAMES ITS POLICY TO ACHIEVE ITS OB JECTIVES AND ATTAIN LARGER DEVELOPMENTAL GOALS DEPENDS UPON THE EXPERIE NCE VISION AND GENIUS OF ITS REPRESENTATIVES. THEREFORE TO SAY TH AT THE INDICATION OF THE LIMIT OF SUBSIDY AS THE CAPITAL EXPENDED MEANS THA T IT REPLENISHED THE CAPITAL EXPENDITURE AND THEREFORE THE SUBSIDY IS C APITAL WOULD NOT BE JUSTIFIED. THE SPECIFIC PROVISION FOR CAPITAL SUBSI DY IN THE MAIN SCHEME AND THE LACK OF SUCH A SUBSIDY IN THE SUPPLEMENTARY SCHEME (OF 1991) MEANT THAT THE RECIPIENT I.E. THE ASSESSEE HAD THE FLEXIBILITY OF USING IT FOR ANY PURPOSE. UNLIKE IN PONNI SUGARS (SUPRA) TH E ABSENCE OF ANY CONDITION TOWARDS CAPITAL UTILIZATION MEANT THAT TH E POLICY MAKERS ENVISIONED GREATER PROFITABILITY AS AN INCENTIVE FO R INVESTORS TO EXPAND UNITS FOR RAPID INDUSTRIALIZATION OF THE STATE EN SURING GREATER EMPLOYMENT. CLEARLY THE SUBSIDY WAS REVENUE IN NAT URE. 11.26. A READING OF ALL THESE DECISIONS THEREFORE MAKES THE GOLDEN PRINCIPLE THAT RUNS THROUGH THEM VERY CLEAR. WHILE FRAMING ITS POLICY TO ACHIEVE ITS OBJECTIVES AND ATTAIN LARGER DEVELOP MENTAL GOALS DEPENDING UPON THE EXPERIENCE VISION AND GENIUS OF ITS REPRESENTATIVES IT IS ALWAYS OPEN FOR THE STATE TO PROVIDE INCENTIVES WHICH RESULTS IN CAPITAL AND REVENUE RECEIPTS IN TH E HANDS OF THE ITA NO.-6021/DEL/2012 78 RECEIVER DEPENDING UPON THE PURPOSE FOR WHICH THEY ARE GIVEN . IF ANY SUBSIDY IS GIVEN THE CHARACTER OF THE SUBSIDY IN T HE HANDS OF THE RECIPIENTWHETHER REVENUE OR CAPITALWILL HAVE TO B E DETERMINED BY HAVING REGARD TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. IF THE PURPOSE IS TO HELP THE ASSESSEE TO SET UP ITS BUSIN ESS OR COMPLETE A PROJECT THE MONIES MUST BE TREATED AS TO HAVE BEEN RECEIVED FOR CAPITAL PURPOSE. BUT IF MONIES ARE GIVEN TO THE AS SESSEE FOR ASSISTING HIM IN CARRYING OUT THE BUSINESS OPERATION AND THE MONEY IS GIVEN ONLY AFTER AND CONDITIONAL UPON COMMENCEMENT OF PRO DUCTION SUCH SUBSIDIES MUST BE TREATED AS ASSISTANCE FOR THE PUR POSE OF THE HOWEVER ANY STIPULATION PLACING THE ASSESSEE IS UN DER OBLIGATION TO UTILIZE THE SUBSIDY ONLY FOR REPAYMENT OF TERM LOAN S UNDERTAKEN BY THE ASSESSEE FOR SETTING UP NEW UNITS/EXPANSION OF EXIS TING BUSINESS OR TO LIQUIDATE THE COST INCURRED IN CREATING THE CAPI TAL ASSET MAKES THE RECEIPT A CAPITAL RECEIPT AND RENDERS THE TIME OF P ROVIDING THE SUBSIDY IRRELEVANT. MERE INDICATION OF THE LIMIT OF SUBSIDY AS THE CAPITAL EXPENDED DOES NOT JUSTIFY THE CONCLUSION THAT IT RE PLENISHED THE CAPITAL EXPENDITURE AND THEREFORE THE SUBSIDY IS C APITAL. IT IS THEREFORE NEITHER THE LOFTY IDEALS/OBJECTIVES OF T HE POLICY DOCUMENT NOR THE PRESUMED END USE OF THE SUBSIDY AMOUNT THAT DETERMINES THE NATURE OR SUBSIDY IN THE HANDS OF THE RECIPIENT BU T THE PURPOSE ENVISAGED BY THE POLICY DOCUMENT THAT SATISFIES THE PURPOSE TEST FORMULATED UNDER SAHNEYS CASE. UNLESS THE INTENTI ON OF THE POLICY MAKERS IS EXPRESS AND CLEAR DISCERNIBLE FROM THE PO LICY DOCUMENT TO LINK UP THE UTILIZATION OF SUBSIDY AMOUNT IRRESPEC TIVE OF THE TIME OF RECIPIENT GETTING IT WITH LIQUIDATION OF THE CAPIT AL COST AS COULD BE GATHER FROM THE DECISIONS OF SAHNEY STEELS AND PONN I SUGARS CASES NO INFERENCE IS PERMISSIBLE TO BE DRAWN THAT THE SUBSI DY RESULTS IN CAPITAL RECEIPT IN THE HANDS OF THE RECIPIENT. DEVELOPMENT AL OBJECTIVES OF THE SUBSIDY POLICY DOCUMENT IPSO FACTO DO NOT DETERMI NE THE NATURE OF ITA NO.-6021/DEL/2012 79 SUBSIDY. PURPOSE AS COULD BE CULLED OUT FROM THE F RAMEWORK OF THE POLICY DOCUMENT IS THE SOLE DETERMINATIVE FACTOR. HAVING NOTED THE CONTEXT OF RELEVANCY OR OTHERWISE OF THE SOURCE FO RM AND TIME OF SUBSIDY IN DETERMINING ITS NATURE NOW WE SHALL PRO CEED TO EXAMINE THE NATURE OF RECEIPT IN THE HANDS OF THE ASSESSEE IN THIS MATTER. 11.27. MAIN OBJECTIVES OF THE HARYANA INDUSTRIAL POLICY A RE TO INCREASE THE SHARE OF INDUSTRY IN THE NET/GROSS STATE DOMEST IC PRODUCT BY ATTRACTING NEW INVESTMENTS AND GROWTH OF EXISTING I NDUSTRY; TO INCREASE THE EMPLOYMENT IN INDUSTRIAL AND ALLIED SE CTOR BY 20% IN THE NEXT FIVE YEARS; TO ATTAIN SUSTAINABLE ECONOMIC DEV ELOPMENT THROUGH CATALYSIS OF INVESTMENTS IN ALL SECTORS OF THE ECON OMY; TO ACHIEVE LARGER VALUE ADDITION WITHIN THE STATE THEREBY CONTRIBUTIN G TO A HIGHER QUALITY OF LIFE ETC. ACCORDING TO THE ASSESSEE A P ERUSAL OF THE AFORESAID INDICATES THAT THE OBJECTIVES OF THE POLICY INTER-A LIA INCLUDED GROWTH OF EXISTING INDUSTRY AND INCREASING THE EMPLOYMENT OPP ORTUNITIES. FOR ACHIEVING THE AFORESAID OBJECTIVE THE STATED APPRO ACH INTER ALIA WAS TO RATIONALIZE THE PACKAGE OF INCENTIVES MAKING IT MORE EFFECTIVE AND MEANINGFUL FOR SPEEDY DEVELOPMENT OF THE STATE. TH E POLICY SPECIFICALLY PROVIDED FOR CUSTOMISED PACKAGE OF INC ENTIVES AND CONCESSIONS FOR PRESTIGIOUS PROJECTS TO BE DECIDED BY A HIGH POWER COMMITTEE. 11.28 POLICY DOCUMENT SAYS SCHEME OF INCENTIVES CUSTOMISED PACKAGE OF INCENTIVES CUSTOMISED PACKAGE OF INCENTIVES AND CONCESSIONS WI LL BE PROVIDED FOR PRESTIGIOUS PROJECTS HAVING INVESTMENT OF RS.30 CRO RES AND ABOVE. A HIGH POWERED COMMITTEE WILL BE CONSTITUTED UNDER TH E CHAIRMANSHIP OF THE CHIEF MINISTER TO DECIDE THE PACKAGE IN INDI VIDUAL CASES 11.29. ACCORDINGLY SALES TAX CONCESSIONS WERE TO BE PROV IDED TO NEW UNITS AND ALSO INDUSTRIAL UNITS UNDERGOING EXPANSIO N/ DIVERSIFICATION. PURSUANT TO THE AFORESAID POLICY CHAPTER IV-C WAS INSERTED IN JULY ITA NO.-6021/DEL/2012 80 2000 IN THE HARYANA GENERAL SALES TAX RULES 1975 CONTAINING RULE 28C DEALING WITH TAX CONCESSIONS CLASS OF INDUSTR IES PERIOD AND OTHER CONDITIONS. THE SALIENT FEATURES OF THE SAID RULE 28C TO THE EXTENT RELEVANT ARE AS UNDER: (A) CONCESSIONS SHALL BE AVAILABLE TO AN ELIGIBLE INDU STRIAL UNIT; (B) THE EXPRESSION ELIGIBLE INDUSTRIAL UNIT WAS DEFIN ED IN SUB-CLAUSE (C) OF RULE 28C(3) OF HARYANA GENERAL SALES TAX RULES1975 TO INCLUDE A NEW INDUSTRIAL UNIT OR UNIT UNDERTAKING EXPANSION OR DI VERSIFICATION SUBJECT TO FULFILLMENT OF OTHER CONDITIONS. THE RELEVANT EX TRACT OF THE SAID DEFINITION IS AS UNDER: RULE 28-C (3)(C) ELIGIBLE INDUSTRIAL UNIT MEANS- (1) A NEW INDUSTRIAL UNIT OR A UNIT UNDERTAKING EXPANSION OR DIVERSIFICATION WHICH ON THE DATE OF COMMERCIAL PR ODUCTION OF NEW/EXPANDED/DIVERSIFIED UNIT FULFILLS THE FOLLOWI NG CONDITIONS (EMPHASIS SUPPLIED) (C) THE TERM EXPANSION WAS DEFINED IN CLAUSE (F) OF R ULE 28C(3) OF HARYANA GENERAL SALES TAX RULES1975 AS UNDER: EXPANSION MEANS AN INDUSTRIAL CAPACITY SET UP OR INSTALLED DURING THE OPERATIVE PERIOD WHICH CREATES ADDITIONAL PRODUCTION FACILITIES FOR MANUFACTURE OF THE SAME PRODUCT (S) AS OF THE UNIT BEFORE EXPANSION IN WHICH THE ADDITIONAL FIXED CAPITAL INVESTMENT IN PLANT AN D MACHINERY MADE DURING THE OPERATING PERIOD IN ONE G O NOT EXCEEDING THE PERIOD OF ONE YEAR EXCEEDS 25% OF THE FIXED CAPITAL INVESTMENT (GROSS BLOCK) OF THE UNIT BEFORE EXPANSION AT THE SAME OR NEW LOCATION. (EMPHASIS SUPPLIED) (D) ELIGIBILITY OF PRESTIGIOUS UNITS DEFINED IN CLAUSE (M) AS UNIT HAVING FIXED CAPITAL INVESTMENT EXCEEDING RS.30 CRORES SHALL BE DETERMINED BY THE HIGH POWERED COMMITTEE; (E) CLAUSE 5(B) PROVIDES THAT DECISION TO GRANT TAX CO NCESSION TO PRESTIGIOUS UNIT SHALL BE TAKEN BY THE HIGH POWERED COMMITTEE ON THE BASIS OF FACTORS LIKE EMPLOYMENT GENERATION LIKELY REVENUE GROWTH OF ANCILLARIES IMPACT ON OVERALL INDUSTRIAL GROWTH E TC. [ALSO REFER CLAUSE 6(E)].; ITA NO.-6021/DEL/2012 81 (F) CLAUSE 8(A) PROVIDES FOR ISSUANCE OF THE ENTITLEMEN T CERTIFICATE IN FORM ST-72B. 11.30. IN TERMS OF SUB-RULE (5)(B) OF RULE 28C IT IS PRO VIDED THAT THE DECISION TO GRANT TAX CONCESSION TO A PRESTIGIOUS U NIT IS GIVEN ON THE BASIS OF FACTORS LIKE EMPLOYMENT GENERATION IMPACT ON OVERALL INDUSTRIAL GROWTH ETC. ACCORDING TO THE LD. AR AS SESSEE IN THIS CASE FALLS IN THE CATEGORY OF PRESTIGIOUS UNIT. HE EM PHASIZED THAT THE UNDERLYING OBJECTIVE OF CONFERRING THE BENEFIT UNDE R RULE 28C CLEARLY PROVES BEYOND ANY DOUBT THE FACT THAT THE AVOWED IN TENT/ PURPOSE OF GRANTING THE CONCESSION IS INDUSTRIAL DEVELOPMENT O F THE STATE AND EMPLOYMENT GENERATION. 11.31. IN THIS BACKGROUND THE ASSESSEE HAD UNDERTAKEN IN DUSTRIAL EXPANSION IN TERMS OF THE RULE 28C OF HARYANA GENER AL SALES TAX RULES 1975. THE HIGH POWERED COMMITTEE THEREAFTER IN ITS MEETING HELD ON 14.06.2001 GRANTED SALES TAX CONCESSION TO THE ASSESSEE WHEREBY THE ASSESSEE WAS REQUIRED TO PAY 50% OF THE SALES TAX COLLECTED ON SALES OF FINISHED PRODUCTS FROM EXPAND ED UNIT AND RETAIN BALANCE 50% OF THE TAX SO COLLECTED SUBJECT TO MAX IMUM PERMISSIBLE BENEFIT OF RS.564.35 CRORES. THE LETTER/ COMMUNICAT ION RECEIVED FROM DIRECTOR OF INDUSTRIES HARYANA INTIMATING THE AFOR ESAID DECISION CLEARLY REFERRED TO CONCESSION BEING GRANTED ONLY IN RESPECT OF VEHICLES ROLLED OUT OF PRODUCTION CAPACITY OF 70 000 VEHICLE S ADDED AS A RESULT OF FIRST EXPANSION. PURSUANT THERETO THE ASSESSE E WAS ISSUED ENTITLEMENT CERTIFICATE DATED 01.08.2001 UNDER RULE 28C OF HARYANA GENERAL SALES TAX RULES 1975 TO AVAIL SALES TAX CO NCESSION TO THE EXTENT OF RS.564.35 CRORES DURING THE PERIOD 01.08. 2001 TO 31.07.2015. 11.32. LD. AR SUBMITTED THAT IN THE CASE OF THE BHUSHAN S TEEL & STRIPS LIMITED THE HONBLE DELHI HIGH COURT CONSIDE RED THE CASE OF SALES-TAX SUBSIDY RECEIVED UNDER AN ALTOGETHER DIFF ERENT INDUSTRIAL ITA NO.-6021/DEL/2012 82 POLICY OF THE GOVERNMENT OF UP AND IN THAT DIFFERE NT CONTEXT OF THE POLICY OF THE GOVERNMENT OF UP THE COURT HELD THAT THE SALES TAX SUBSIDY WAS IN THE NATURE OF A REVENUE RECEIPT AND NOT A CAPITAL RECEIPT. 11.33. A COMPARATIVE ANALYSIS OF THE BOTH THE POLICIES N AMELY UTTAR PRADESH INDUSTRIAL POLICY 1990 (APPLICABLE TO THE FACTS OF BHUSHANS CASE (SUPRA)) AND HARYANA INDUSTRIAL POLICY 1999 ( APPLICABLE TO THE CASE OF THE APPELLANT) IS TABULATED BY THE LD. AR AS FOLLOWS: SALIENT FEATURES BHUSHANS CASE APPELLANT/ JOHNSON MATTHEY CASE POLICY UTTAR PRADESH INDUSTRIAL POLICY 1990 HARYANA INDUSTRIAL POLICY 1999 GOVERNING ACT AND SECTION SECTION 4A OF THE UP SALES TAX ACT 1948 READ WITH RULE 25 OF THE UP SALES TAX RULES. RULE 28C OF THE HARYANA SALES TAX RULES. OBJECT OF SUBSIDY (SEE PREAMBLE) TO ENCOURAGE THE CAPITAL INVESTMENT AND ESTABLISHMENT OF NEW INDUSTRIAL UNITS IN THE STATE OF UTTAR PRADESH TO PROMOTE INDUSTRIAL GROWTH IN THE CONTEXT OF OVERALL ECONOMIC DEVELOPMENT OF THE STATE BY CREATING AN INVESTOR FRIENDLY ENABLING ENVIRONMENT THAT FACILITATES THE INDUSTRY TO MOVE STRONGLY TO THE FRONT RANKS OF GLOBAL COMPETITION. ELIGIBILITY CRITERIA FOR A PRESTIGIOUS UNIT 'STATE CAPITAL SUBSIDY SCHEME . '6 ( A ) :SPECIAL CAPITAL SUBSIDY FOR THE PRESTIGE UNITS: ANY DISTRICT WHERE ANY INDUSTRY OF FIXED CAPITAL INVESTMENT OF 25 CRORE IS NOT ALREADY ESTABLISHED THE FIRST INDUSTRIAL UNIT TO BE ESTABLISHED FROM THE SCHEME OF INCENTIVES CUSTOMISED PACKAGE OF INCENTIVES CUSTOMISED PACKAGE OF INCENTIVES AND CONCESSIONS WILL BE PROVIDED FOR PRESTIGIOUS PROJECTS HAVING INVESTMENT OF RS.30 CRORES AND ABOVE. A HIGH POWERED COMMITTEE WILL BE CONSTITUTED UNDER THE CHAIRMANSHIP OF THE CHIEF MINISTER TO DECIDE THE PACKAGE IN ITA NO.-6021/DEL/2012 83 CAPITAL INVESTMENT OF RS.25 CRORE OR MORE WITHIN THE PERIOD OF 1.4.90 TO 31.3.95 SHALL BE TREATED AS 'PRESTIGE' UNIT AND THE SPECIAL STATE CAPITAL SUBSIDY WORTH RS.15 LAKH SHALL BE GRANTED TO THIS UNIT. IF PRESTIGE UNIT INCENTIVE TO THE ANCILLARY UNITS FOR THE SUPPLY OF REQUIREMENT OF MORE THAN 30% OF ITS OWN PURCHASED PARTS AND COMPONENTS THEN THE FURTHER ADDITIONAL SPECIAL CAPITAL SUBSIDY OF RS.15 LAKH SHALL BE AVAILABLE TO IT. THIS SCHEME SHALL BE APPLIED WITH EFFECT FROM 1.4.90 AND THE FACILITY OF SUBSIDY SHALL NOT BE ADMISSIBLE IN THE DISTRICT UNDER THE SCHEME WHERE ANY UNIT OF THE CAPITAL INVESTMENT OF RS.25 CRORE HAS ALREADY BEEN ESTABLISHED PRIOR TO 1.4.90. INDIVIDUAL CASES RULE 28-C (3)(C)ELIGIBLE INDUSTRIAL UNIT MEANS- (1) A NEW INDUSTRIAL UNIT OR A UNIT UNDERTAKING EXPANSION OR DIVERSIFICATION WHICH ON THE DATE OF COMMERCIAL PRODUCTION OF NEW/EXPANDED/DIVERSIFIED UNIT FULFILLS THE FOLLOWING CONDITIONS . (F) EXPANSION MEANS AN INDUSTRIAL CAPACITY SET UP OR INSTALLED DURING THE OPERATIVE PERIOD WHICH CREATES ADDITIONAL PRODUCTION FACILITIES FOR MANUFACTURE OF THE SAME PRODUCT (S) AS OF THE UNIT BEFORE EXPANSION IN WHICH THE ADDITIONAL FIXED CAPITAL INVESTMENT IN PLANT AND MACHINERY MADE DURING THE OPERATING PERIOD IN ONE GO NOT EXCEEDING THE PERIOD OF ONE YEAR EXCEEDS 25% OF THE FIXED CAPITAL INVESTMENT (GROSS BLOCK) OF THE UNIT BEFORE EXPANSION AT THE SAME OR NEW LOCATION. (M) PRESTIGIOUS UNIT MEANS AN ELIGIBLE UNIT HAVING FIXED CAPITAL INVESTMENT EXCEEDING RS.30 CRORES. .. (5)(B) DECISION ABOUT THE TAX CONCESSION TO PRESTIGIOUS UNIT SHALL BE TAKEN BY THE HIGH POWERED COMMITTEE ON THE BASIS OF FACTORS LIKE EMPLOYMENT GENERATION LIKELY REVENUE GROWTH OF ANCILLARIES IMPACT ON OVERALL ITA NO.-6021/DEL/2012 84 INDUSTRIAL GROWTH ETC. A PRESTIGIOUS UNIT SHALL NOT BE AS A MATTER OF RIGHT ENTITLED TO BENEFITS AVAILABLE TO OTHER UNITS. 11.34. BASING ON THIS HE SUBMITTED THAT THE UTTAR PRADESH INDUSTRIAL POLICY 1990 AND THE HARYANA INDUSTRIAL POLICY 1999 ARE ALTOGETHER DIFFERENT INDUSTRIAL POLICIES WITH ALTOGETHER DIFFE RENT ELIGIBILITY CRITERIA. HE SUBMITTED THAT THE UP INDUSTRIAL POLICY SPECIFIC ALLY PROVIDED FOR CAPITAL SUBSIDY SCHEME WHICH IS NOT THERE IN THE CASE OF HARYANA POLICY. 11.35. HOWEVER ON A CAREFUL PERUSAL OF THE SCHEMES IN QU ESTION WE FIND THAT BUT FOR CERTAIN CHANGES IN THE FORM AND EXPRESSION THERE IS NO MATERIAL DIFFERENCE BETWEEN THESE SCHEMES IN SUB STANCES. THEY ARE SIMILAR IN RESPECT OF THE TIME ITS SOURCE AND THE FORM OF SUBSIDY IN THE HANDS OF THE ASSESSEE. TIME OF ASSESSEE GETTIN G SUBSIDY AS IS ADVERTED TO IN SAHNEYS CASE OR THE STIPULATION OF UTILIZATION OF SUBSIDY AS IS IN PONNIS CASE ARE SIMILAR IN BOTH THE SCHEM ES. IN THE CASE ON HAND THE FACT REMAINS THAT THE CONCESSION IS GRANTE D ONLY IN RESPECT OF VEHICLES ROLLED OUT OF PRODUCTION CAPACITY OF 70 00 0 VEHICLES ADDED AS A RESULT OF FIRST EXPANSION. EXCEPT MAKING SOME SP ECIFIC PROVISION FOR CAPITAL SUBSIDY IN THE MAIN SCHEME AND THE LACK OF SUCH A SUBSIDY IN THE SUPPLEMENTARY SCHEME (OF 1991) IN RESPECT OF TH E UP SCHEME UNDER BOTH THE SCHEMES THERE IS NO DIFFERENCE. UNDE R BOTH THE SCHEMES NO STRINGS ATTACHED IN RESPECT OF THE UTILI ZATION OF FUNDS AND THE ASSESSEES HAVE THE FLEXIBILITY OF USING IT FOR ANY PURPOSE. THERE IS NO STIPULATION AS TO HOW THE SUBSIDY MONEY HAS TO B E UTILIZED WHICH MEANS THAT THE ASSESSEE HAD THE FLEXIBILITY OF USIN G IT FOR ANY PURPOSE. SPECIFIC PROVISION FOR CAPITAL SUBSIDY IN THE MAIN SCHEME AND THE LACK OF SUCH A SUBSIDY IN THE SUPPLEMENTARY SCHEME (OF 1 991) IN RESPECT OF THE UP SCHEME ONLY CORROBORATED THE CONCLUSION THAT THE RECIPIENT OF ITA NO.-6021/DEL/2012 85 THE SUBSIDY I.E. THE ASSESSEE HAD THE FLEXIBILITY OF USING IT FOR ANY PURPOSE. PER SE THE EXISTENCE OR OTHERWISE OF PRO VISIONS FOR CAPITAL SUBSIDY DOES MAKE ANY DIFFERENCE IN THE NATURE OF S UBSIDY FUNDS IN THE HANDS OF THE ASSESSEE INSOFAR AS THEY ARE ALLOW ED ONLY AFTER THE COMPLETION OF THE FORMATION OF CAPITAL ASSET AND TH E ABSENCE OF ANY CONDITION TOWARDS CAPITAL UTILIZATION MEANT THAT TH E POLICY MAKERS ENVISIONED GREATER PROFITABILITY AS AN INCENTIVE FO R INVESTORS TO EXPAND UNITS FOR RAPID INDUSTRIALIZATION OF THE STATE EN SURING GREATER EMPLOYMENT WHICH FACT DISTINGUISHES THE PRESENT CAS E FROM THE FACTS OF PONNI SUGARS CASE. WHEN THE PURPOSE OF THE SUBS IDY IS CLEARLY REVENUE IN NATURE END USE OF THE FUNDS BY THE ASSE SSEE TO LIQUIDATE THE COST INCURRED IN THE EXPANSION ACTIVITY REMAINS IRRELEVANT HAVING REGARD TO THE FACT THAT THE SUBSIDY WAS NOT EXPRESS LY FOR MEETING THE CAPITAL EXPENSES EITHER IN THE PRESENTI OR OF PAST AS WAS THE CASE IN PONNI SUGARS CASE. THOUGH THE CASE IN BOUGAINVILL E WAS REFERRED TO IN THE CASE OF JOHNSON MATTHEY THE HONBLE COURT N OTICED THE SAID CASE IN BOUGAINVILLE WHILE RENDERING THE DECISION I N BHUSHAN STEELS CASE ALSO. THOUGH THE FINDINGS OF THE TRIBUNAL IN J OHNSON MATTHEYS CASE WERE UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. JOHNSON MATTHEY INDIA PVT. LTD. WE FIND IT DIFFIC ULT TO AGREE WITH THE ARGUMENT OF THE LD. AR THAT THE OBSERVATIONS OF THI S TRIBUNAL MADE IN ASSESEES CASE WERE APPROVED BY THE HONBLE HIGH CO URT INASMUCH AS THE HONBLE COURT HAS NOT SPECIFICALLY CONSIDERED THE SAME. AS HAS BEEN CONSISTENTLY HELD IN ALL THE DECISIONS FROM SA HNEY STEELS TO BHUSHAN STEELS THAT INSOFAR AS THE SUBSIDY BENEFITS INURE TO THE BENEFIT OF THE ASSESSEE AFTER THE ACCOMPLISHMENT OF THE EXPANSION WITHOUT ANY BURDEN OF ANY CONDITION TOWARDS CAPITAL UTILIZATION OF THE SUBSIDY AMOUNT MEANT THAT THE POLICY MAKERS ENVISIO NED GREATER PROFITABILITY AS AN INCENTIVE FOR INVESTORS TO EXPA ND UNITS FOR RAPID INDUSTRIALIZATION OF THE STATE ENSURING GREATER EM PLOYMENT. IN THIS ITA NO.-6021/DEL/2012 86 CONTEXT WE FIND IT DIFFICULT TO AGREE WITH THE SUB MISSION OF THE LD. AR THAT THE DECISION IN CIT VS. JOHNSON MATTHEY INDIA PVT. LTD. HAS TO BE PREFERRED TO THE LATEST DECISION OF THE JURISDICTIO NAL HIGH COURT IN CIT VS BHUSHAN STEEL AND STRIPES LTD. ON THE GROUND THA T THE HARYANA STATE SCHEME WAS CONSIDERED IN THE LATER WHEREAS I N THE LATER ONE UP SCHEME WAS CONSIDERED. FOR THAT MATTER IN BOTH BOU GAINVILLES CASE AND BHUSHAN STEELSS CASE THE VERY SAME UP SCHEME WAS CONSIDERED BUT WITH DIFFERENT RESULT. NO CONFLICT COULD BE SEE N IN THE PRINCIPLE APPLIED OR LAID DOWN BUT WHAT WE UNDERSTAND IS THA T THE CHANGE IN RESULT IS OCCASIONED BY THE VARIANCE OF FACTS. 11.36. FOR THE REASONS STATED IN THE PRECEDING PARAGRAPHS WE ARE OF THE CONSIDERED OPINION THAT ANY SUBSIDY GIVEN TO TH E ASSESSEE POST ACCOMPLISHMENT OF THE PROJECT OR EXPANSION THERE W ITHOUT ANY OBLIGATION TO UTILIZE THE SUBSIDY ONLY FOR REPAYMEN T OF TERM LOANS UNDERTAKEN BY THE ASSESSEE FOR SETTING UP NEW UNITS /EXPANSION OF EXISTING BUSINESS OR TO LIQUIDATE THE COST INCURRE D IN CREATING THE CAPITAL ASSET OR ITS EXPANSION IS ONLY IN THE NATU RE OF THE REVENUE RECEIPT AND IS LIABLE TO BE BROUGHT TO TAX. WE TH EREFORE UPHOLD THE ADDITION ON THIS COUNT AND ACCORDINGLY DISMISS THE GROUNDS 11 TO 11.5. GROUND NO 12 TO 12.5 DISALLOWANCE ON ACCOUNT OF PROVISIONAL LIABILITY RELATING TO EXPENDITURE ON ACCOUNT OF FPI -OE COMPONENTS 12. ON THE ASPECT OF DISALLOWANCE OF RS.32 11 63 153 ON ACCOUNT OF PROVISIONAL LIABILITY RELATING TO EXPENDITURE ON AC COUNT OF FPI-OE COMPONENTS CASE OF THE ASSESSEE IS THAT THE ASSESS EE HAD ACCOUNTED FOR LIABILITY ON ACCOUNT FORESEEN PRICE INCREASE (F PI) ON AN ESTIMATE BASIS THIS FPI OF RS.32 11 63 153 WAS DEBITED TO C ONSUMPTION OF RAW MATERIAL AND COMPONENTS IN THE PROFIT AND LOSS ACCO UNT IN ACCORDANCE WITH MERCANTILE SYSTEM OF ACCOUNTING AND THE SAME WAS CLAIMED AS ITA NO.-6021/DEL/2012 87 BUSINESS DEDUCTION IN THE COMPUTATION OF INCOME. G RIEVANCE OF THE ASSESSEE IS THAT THE ASSESSING OFFICER HOWEVER DIS ALLOWED THE AFORESAID CLAIM OF THE ASSESSEE ON THE GROUND THAT ASSESSEE H AS QUANTIFIED THE LIABILITY WITHOUT ACKNOWLEDGING THE QUANTIFIED LIAB ILITY TO THE CREDITORS. HOWEVER ACCORDING TO THE ASSESSEE THE CHANGE IN PR ICE OF THE COMPONENTS TAKES PLACE TO GIVE EFFECT TO THE INCREA SE IN THE COST OF THE INPUTS REQUIRED FOR MANUFACTURING OF THE COMPONENTS . THE SAME IS AS PER THE AGREEMENT WITH THE SUPPLIERS TO ENSURE UNI NTERRUPTED SUPPLY OF COMPONENTS EVEN WHEN THEIR COST HAS INCREASED. ACCORDING TO THE ASSESSEE FPI IS AN EXISTING LIABILITY AS PER THE UN DERSTANDING ARRIVED AT WITH THE SUPPLIERS OF THE COMPONENTS WHO ARE ORIGI NAL MANUFACTURERS OF THE COMPONENTS. IT IS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE LIABILITY OF FPI WAS ESTIMATED BY THE PURCHASE DEPA RTMENT WITH SUBSTANTIAL DEGREE OF ACCURACY AS THEY ARE IN CONST ANT TOUCH WITH SUPPLIERS AND HAVE KNOWLEDGE OF THE CLAIMS OF SUPPL IERS TREND OF THE COST OF INPUTS ETC. THE PERSONNEL IN THE PURCHASE DEPARTMENT UPDATES THE FORESEEN PRICE OF EACH COMPONENT FOR EACH SUPPL IER AND EFFECTIVE DATE BASED ON THEIR INPUT AND AVAILABLE INFORMATIO N IN COMPUTER SYSTEM REGARDING QUANTITY PURCHASED AND PRICE PAID . THE LIABILITY IN RESPECT OF EACH COMPONENT WAS WORKED OUT CONSIDERIN G THE WEIGHT OF EACH MATERIAL THE QUANTITY PROCURED THE OLD RATE AND NEW RATE WORKED BY THE ASSESSEE CONSIDERING THE PRICE CHANGE S OCCURRED DURING THE PERIOD. IT IS ON THE BASIS OF ANALYSIS OF THE C LAIMS PRICE TREND AND CORRESPONDENCES/ DISCUSSIONS/NEGOTIATIONS WITH THE SUPPLIERS DURING THE YEAR AND PAST DEALINGS THAT THE ASSESSEE HAD CO MPUTED THE IMPACT OF CHANGE IN PRICE OF COMPONENTS AND THEREFORE I T IS NOT A CASE OF PROVISIONAL LIABILITY/CONTINGENT LIABILITY INCURRI NG OF WHICH IS DEPENDENT ON HAPPENING OF AN EVENT BUT IN FACT IT IS IN RESPECT OF SUCH PURCHASES ALREADY MADE BY THE ASSESSEE AND DUL Y DEBITED IN THE BOOKS OF ACCOUNTS RESULTING IN THAT THE AMOUNT OF F PI IS A LIABILITY ITA NO.-6021/DEL/2012 88 WHICH ACCRUES SIMULTANEOUSLY WITH EACH PURCHASE MAD E BY ASSESSEE AND IS ALLOWABLE AS DEDUCTION IN DETERMINING THE IN COME OF THE RELEVANT ASSESSMENT YEAR. THE ACCOUNTING OF FPI WA S JUSTIFIED BY THE ASSESSEE ON ACCOUNT OF THE LIABILITY THAT WAS DETER MINED AND COMPUTED WITH A SUBSTANTIAL DEGREE OF ACCURACY ON A CCOUNT OF MATERIALS ALREADY SUPPLIED BY SUPPLIERS AT THE TIM E OF DETERMINING AND BOOKING THE AMOUNT AS PER INFORMATION AVAILABLE TILL DATE OF FINALIZATION OF ACCOUNTS AND SUCH A LIABILITY WAS R EQUIRED TO BE BOOKED AS PER ACCRUAL SYSTEM OF ACCOUNTING AS THE GOODS WE RE ALREADY RECEIVED. ACCORDING TO THE LD. AR THIS PRACTICE OF PROVISION FOR FPI IS IN ACCORDANCE WITH PRACTICE PREVALENT IN MOTOR VEHICLE S INDUSTRY. REFERENCE IN THIS REGARD IS INVITED TO A NOTIFICATI ON DATED 28.7.2003 ISSUED BY THE EXCISE AUTHORITIES ON THE SUBJECT OF CHARGING OF INTEREST UNDER SECTION 11AB WHEREIN THE EXCISE AUTHORITIES R ECOGNIZED PREVAILING COMMERCIAL PRACTICE OF SUPPLEMENTARY INV OICES BEING MADE IN ADDITION TO THE ORIGINAL INVOICES. 12.1. PLACING RELIANCE ON THE DECISION IN ASSESSEES OWN CASE DECIDED IN FAVOUR BY CIT (A) FOR AY 2003-04 AND BY ITAT FOR AY 2007-08 AND ALSO THE DECISIONS REPORTED IN CALCUTTA DISCOUNT CO . LTD.: 37 ITR 1 (SC) METAL BOX INDIA (P) LIMITED (1969): 73 ITR 53 (SC) UNITED COMMERCIAL BANK V. CIT 240 ITR 355 (SC) BHARAT EA RTH MOVERS: 245 ITR 428 (SC) CIT V VINITEC CORPN. (P) LTD.: 278 I TR 337 (DELHI) NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. V JCI T: 98 ITD 278 (HYD. ITAT) LD. AR ARGUED THAT THAT LIABILITY WHIC H HAS ARISEN IN THE RELEVANT ACCOUNTING YEAR IS AN ALLOWABLE DEDUCTION EVEN THOUGH ITS ACTUAL QUANTIFICATION AND DISCHARGE IS DEFERRED TO A FUTURE DATE. IN RESPECT OF THE VENDOR-WISE AND ITEM-WISE DETAILS OF TOTAL PROVISION OF RS.32 11 63 153 MADE DURING THE RELEVANT YEAR IN TH E PAPER BOOK IT IS SUBMITTED THAT THE SAID DETAILS CONTAIN NAME OF THE VENDOR THE AMOUNT OF ADDITIONAL VALUE IN RESPECT OF THE COMPON ENT THE INVOICES ITA NO.-6021/DEL/2012 89 RAISED BY THE SUPPLIERS WERE PROVISIONAL AND EACH INVOICE WAS LIABLE TO BE REVIEWED/ AMENDED ONCE THE QUANTUM IS DETERMI NED AND THAT THIS QUANTUM OF INCREASE WOULD APPLY TO RE-COMPUTE THE PRICES PAYABLE BY ASSESSEE ON ALL SUPPLIES MADE BY THE SUP PLIERS DURING THE YEAR AND THE LIABILITY FOR FPI WAS PROVIDED IN THE BOOKS OF ACCOUNTS ON A SCIENTIFIC ANALYSIS OF INCREASE IN PRICE OF COMPO NENTS DUE TO CHANGE IN INPUT COST REPRESENTING ADDITIONAL PURCHASE PRI CE OF THE GOODS. IT IS SUBMITTED THAT SINCE THE LIABILITY ACCRUED DURING T HE RELEVANT ASSESSMENT YEAR EVEN THOUGH WAS FINALLY PAID IN TH E FOLLOWING ASSESSMENT YEARS THE SAME WAS ALLOWABLE DEDUCTION. 12.2. LD. AR PLACED RELIANCE ON THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA (P) LTD.: 312 ITR 254 WHEREIN IT IS HELD THAT:- 21. IN CONCLUSION WE MAY STATE THAT IN ORDER TO F IND OUT IF AN EXPENDITURE IS DEDUCTIBLE THE FOLLOWING HAVE TO BE TAKEN INTO ACCOUNT (I) WHETHER THE SYSTEM OF ACCOUNTING FOLLOWED BY THE AS SESSEE IS MERCANTILE SYSTEM WHICH BRINGS INTO DEBIT THE EXPE NDITURE AMOUNT FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED AND BRINGS INTO CREDIT WHAT IS DUE IMMEDIATELY IT BECOMES DUE AND BEFORE IT IS ACTUALLY RECEIVED; (II) WHETHER THE SA ME SYSTEM IS FOLLOWED BY THE ASSESSEE FROM THE VERY BEGINNING AND IF THER E WAS A CHANGE IN THE SYSTEM WHETHER THE CHANGE WAS BONA FIDE; (III) WHETHER THE ASSESSEE HAS GIVEN THE SAME TREATMENT TO LOSSES CLA IMED TO HAVE ACCRUED AND TO THE GAINS THAT MAY ACCRUE TO IT; (IV ) WHETHER THE ASSESSEE HAS BEEN CONSISTENT AND DEFINITE IN MAKING ENTRIES IN THE ACCOUNT BOOKS IN RESPECT OF LOSSES AND GAINS; (V) W HETHER THE METHOD ADOPTED BY THE ASSESSEE FOR MAKING ENTRIES IN THE B OOKS BOTH IN RESPECT OF LOSSES AND GAINS IS AS PER NATIONALLY ACCEPTED A CCOUNTING STANDARDS; (VI) WHETHER THE SYSTEM ADOPTED BY THE ASSESSEE IS FAIR AND REASONABLE OR IS ADOPTED ONLY WITH A VIEW TO REDUCING THE INCI DENCE OF TAXATION. 12.3. FURTHER RELIANCE IS ALSO PLACED ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD. VS CIT: 314 ITR 62 WHEREIN IT HAS BEEN HELD THAT:- 17. AT THIS STAGE WE ONCE AGAIN REITERATE THAT A LIABILITY IS A PRESENT OBLIGATION ARISING FROM PAST EVENTS THE SETTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUTFLOW OF RESOURCES AND IN RESPECT OF WHICH A RELIABLE ESTIMATE IS POSSIBLE OF THE AMOUNT OF OBLIGATION. ITA NO.-6021/DEL/2012 90 12.4. LD. AR SUBMITTED THAT THIS PRACTICE IS IN CONSONAN CE WITH THE PROVISIONS OF THE COMPANIES ACT AND GENERALLY ACCEP TED ACCOUNTING PRINCIPLES AND PRACTICES OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND HAS BEEN REGULARLY FOLLOWED BY ASSESSEE AND CLA IMS WERE ACCORDINGLY MADE WHICH HAS BEEN DULY ACCEPTED BY RE VENUE IN ALL THE PRECEDING YEARS EXCEPT IN ASSESSMENT YEAR AY 2003-0 4 AND AY 2007- 08. THERE HAS BEEN NO CHANGE IN METHOD OF ACCOUNTIN G OR ESTIMATION. IT IS SUBMITTED THAT THIS METHOD OF ACCOUNTING REGU LARLY AND CONSISTENTLY FOLLOWED DOES NOT LEAD TO ANY LOSS OF REVENUE WHATSOEVER AND THE LIABILITY ESTIMATED IN A PARTICULAR YEAR FI NALLY SETTLED IN THE SUBSEQUENT YEAR GETS REFLECTED IN THE PROFIT & LOSS ACCOUNT WHEREBY THE INCOME AS WELL AS THE CHARGE ON SETTLEMENT IN T HE SUBSEQUENT YEAR IS BROUGHT TO THE INCOME OR EXPENSES STATEMENT OF T HE ASSESSEE COMPANY TO THE EXTENT OF VARIATION FROM THE ACTUAL FPI LIABILITY. LD. AR ARGUED THAT IT IS WELL SETTLED THAT MERE TIMING DIF FERENCE SHOULD NOT BE USED TO DISTURB THE METHOD OF ACCOUNTING AND BOOKS OF ACCOUNTS OF A TAX PAYER CONSISTENTLY MAINTAINED AND ACCEPTED YEAR AFTER YEAR. IN SUPPORT OF HIS ARGUMENT THAT WHILE THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME-TAX PROCEEDINGS THE COURTS HAVE EMPHASIZED THERE MUST BE CONSISTENCY IN THE POSITION THAT THE REVENUE TAKES ON AN ISSUE IN DIFFERENT ASSESSMENT YEARS LD. AR CITE D THE DECISIONS REPORTED IN CIT VS. EXCEL INDUSTRIES (P) LIMITED: 3 58 ITR 295 (SC) RADHASOAMI SATSANG V. CIT 193 ITR 321(SC) DIT (E) V. APPAREL EXPORT PROMOTION COUNCIL: 244 ITR 734 (DEL) CIT V. NEO POLYPACK (P) LTD: 245 ITR 492 (DEL.) CIT V. GIRISH MOHAN GANERI WALA: 260 ITR 417 (P&H) CIT V. DALMIA PROMOTERS DEVELOPERS (P) LTD: 200 CTR 426 (DEL.) ESCORTS CARDIAC DISEASES HOSPITAL: 300 ITR 75 (DEL). SINCE THE ISSUE NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEE OWN CASE FOR THE ASSESSMEN T YEAR 2007-08 ITA NO.-6021/DEL/2012 91 WHEREIN THE TRIBUNAL HELD THAT PROVISION FOR FORESE EN PRICE INCREASE MADE BY THE APPELLANT REPRESENTED AN ACCRUED/CRYSTA LLIZED LIABILITY WHICH IS AN ALLOWABLE BUSINESS DEDUCTION LD. AR SU BMITS THAT THE ADDITION ON THIS ACCOUNT MAY BE DELETED. 12.5. PER CONTRA LD. DR SUBMITTED THAT THE DECISION OF ITAT FOR AY 2007-08 IS NOT ACCEPTABLE BECAUSE THE ASSESSEES ME THODOLOGY IS UNIQUE AND NO CASE LAW APPLIES TO THE MODUS OPERAND I ADOPTED BY THE ASSESSEE. FURTHER ACCORDING TO HIM ASSESSEES RELI ANCE ON THE CASE OF HONBLE SUPREME COURT IN THE CASE OF RADHA SAOMI SA TSANG V. CIT REPORTED IN 193 ITR 321 AND BERGER PAINTS V. CIT R EPORTED IN 266 ITR 199 IS ALSO MISPLACED BECAUSE IN THESE CASES HONB LE SUPREME COURT WAS CONSIDERING THE SITUATION WHERE THE LIABILITY W AS CERTAIN BUT WHAT WAS NOT CERTAIN WAS THE QUANTUM OF SUCH LIABILITY. IN THE CASE OF THE ASSESSEE THE ASSESSEE HAS QUANTIFIED THE LIABILITY WITHOUT BEING SURE OF THE LIABILITY AND AT THE SAME TIME NOT ACKNOWLED GING THE QUANTIFIED LIABILITY TO THE CREDITORS AND NOT LEAVING ANY NOTE IN THE AUDIT REPORT. HE PLACED RELIANCE ON THE DECISIONS REPORTED IN IT O VS. EMCO TRANSFORMERS LTD. (ITAT BOM) 32 1TD 260 SRINIVASA COMPUTERS LTD. VS. ACIT (ITAT CHENNAI) 107 1TD 357 AND CIT VS. ROTORK CONTROLS INDIA LTD. (MAD) 293 ITR 311. ACCORDING TO HIM LATER ON THE HONBLE SUPREME COURT HAS LAID DOWN GENERAL PRINCIP LE ON THIS ISSUE WHEREIN IT WAS STATED THAT T HE VALUE OF CONTINGENT LIABILITY LIKE WARRANTY EXPENSE IF PROPERLY ASCERTAINED AND DISCO UNTED ON ACCRUAL BASIS CAN BE AN ITEM OF DEDUCTION UNDER SECTION 37 THE PRINCIPLE OF ESTIMATION IS NOT THE NORMAL RULE IT WOULD DEPEND O N THE NATURE OF BUSINESS NATURE OF SALE NATURE OF PRODUCT AND SCI ENTIFIC METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE AND IT WOULD AL SO DEPEND UPON THE HISTORICAL TREND AND NUMBER OF ARTICLES PRODUCE D . 12.6. ON A PERUSAL OF THE ORDER OF THE TRIBUNAL FOR THE A Y 2007-08 ON ITA NO.-6021/DEL/2012 92 THIS ISSUE WE FIND THAT THIS ISSUE COVERED BY THE GROUND NOS. 13 TO 13.5 AND BY NOTICING THAT SIMILAR DISALLOWANCE WA S DELETED BY THE FIRST APPELLATE AUTHORITY AND REVENUE DID NOT PREFE R ANY APPEAL THEREON AND THE TRIBUNAL OBSERVED AS FOLLOWS: 26.5 CONSIDERING THE ABOVE SUBMISSIONS WE FIND THAT SIMILAR DISALLOWANCE WAS MADE IN THE ASSESSMENT YEAR 2003-0 4 AND THE FIRST APPELLATE ORDER HAD DELETED THE DISALLOWANCE WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE AGAINST WHICH REVENUE DID NOT PREFER ANY APPEAL BEFORE THE ITAT. THEREAFTER ONLY DURING THE YEAR UNDER CONSIDERATION SUCH DISALLOWANCE HAS BEEN MADE. OF COURSE PRINCIPLES OF RES-JUDICATA IS NOT APPLICATION IN THE INCOME-TA X MATTERS BUT RULE OF CONSISTENCY IS APPLICABLE AS PER WHICH UNDER THE SI MILAR FACTS AND CIRCUMSTANCES DEPARTMENT OUGHT TO FOLLOW SAME APPR OACH ON AN ISSUE IN OTHER ASSESSMENT YEARS. IT IS AN ESTABLISHED PRO POSITION OF LAW THAT A METHOD OF ACCOUNTING REGULARLY AND CONSISTENTLY F OLLOWED DOES NOT LEAD TO ANY LOSS OF REVENUE WHATSOEVER. THE LIABIL ITY ESTIMATED IN A PARTICULAR YEAR FINALLY SETTLED IN THE SUBSEQUENT Y EAR GETS REFLECTED IN THE PROFIT AND LOSS ACCOUNT. WE THUS SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO DECIDE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E AS PER THE FIRST APPELLATE ORDER ON THE ISSUE IN THE ASSESSMENT YEAR 2003-04 AGAINST WHICH NO APPEAL WAS PREFERRED BY THE REVENUE BEFORE THE ITAT. 12.7. WHEN A SIMILAR QUESTION WAS DEALT WITH BY THE FIRS T APPELLATE AUTHORITY AND THE REVENUE ACCEPTED THE SAME WITHOUT PREFERRING ANY APPEAL THEREON IT IS NOT OPEN FOR THE REVENUE NOW TO CONTEND THAT ASSESSEES RELIANCE ON THE CASE OF HONBLE SUPREME COURT IN THE CASE OF RADHA SAOMI SATSANG V. CIT REPORTED IN 193 ITR 3 21 AND BERGER PAINTS V. CIT REPORTED IN 266 ITR 199 IS ALSO MISP LACED BECAUSE IN THESE CASES HONBLE SUPREME COURT WAS CONSIDERING T HE SITUATION WHERE THE LIABILITY WAS CERTAIN BUT WHAT WAS NOT C ERTAIN WAS THE QUANTUM OF SUCH LIABILITY. THERE IS NO DISPUTE THA T THE SAME METHOD OF ACCOUNTING IS REGULARLY AND CONSISTENTLY FOLLOWE D BY THE ASSESSEE AS SUCH RULE OF CONSISTENCY IS APPLICABLE AS PER WH ICH UNDER THE SIMILAR FACTS AND CIRCUMSTANCES DEPARTMENT OUGHT T O FOLLOW SAME APPROACH ON AN ISSUE IN OTHER ASSESSMENT YEARS. WE THEREFORE RESPECTFULLY FOLLOWING THE REASONING ADOPTED BY THE COORDINATE BENCH ITA NO.-6021/DEL/2012 93 OF THIS TRIBINAL FOR THE AY 2007-08 SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO DECIDE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E AS PER THE FIRST APPELLATE ORDER ON THE ISSUE IN THE ASSESSMENT YEAR 2003-04 AS FOLLOWED BY THIS TRIBUNAL FOR THE AY 2007-08 ALSO. GROUNDS 12 TO 12.5 ARE DISPOSED OF ACCORDINGLY. GROUND NOS 13 TO 13.3 DISALLOWANCE RS.58 61 136/- O N ACCOUNT OF EXPENDITURE ON EXCISE DUTY: 13. IN RESPECT OF DISALLOWANCE RS.58 61 136/- ON ACCOU NT OF EXPENDITURE ON EXCISE DUTY CASE OF THE ASSESSEE IS THAT DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEE PAID EXCISE DUTY OF RS.58 61 136/- BEING PROVISION FOR MODVAT ON QUANT ITY DIFFERENCE ON INPUTS DISALLOWED IN EARLIER YEARS NOW CLAIMED O N PAYMENT BASIS U/S 43B OF THE ACT BUT THE ASSESSING OFFICER DISAL LOWED THE AFORESAID CLAIM ON THE GROUND THAT ASSESSEE WOULD NOT HAVE BE EN LIABLE TO MAKE THE AFORESAID PAYMENTS OF RS.58 61 136/- TO THE EXC ISE DEPARTMENT IF IT HAD BEEN ABLE TO ESTABLISH THAT ALL CONSUMPTIONS CLAIMED BY IT WERE FOR THE PURPOSES OF MANUFACTURING. ASSESSEE SUBMIT S THAT THE PAYMENT MADE BY THEM IS CLEARLY IN THE NATURE OF EX CISE DUTY WHICH IS ADMISSIBLE AS DEDUCTION ON PAYMENT BASIS UNDER S ECTION 43B OF THE ACT. 13.1. LD. AR SUBMITS THAT THE ISSUE IS ALSO COVERED IN F AVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL IN THE ASSES SEES OWN CASE FOR AYS 2000-01 2001-02 AY 2002-03 AND AY 2007-08. 13.2. PER CONTRA IT IS THE ARGUMENT OF THE LD. DR THAT THIS ISSUE IS RELATED TO THE DISALLOWANCE U/S. 43B FOR THE YEAR I MMEDIATELY PRECEDING THE PREVIOUS YEAR AND THE ITAT HAS ALLOW ED THIS EXPENDITURE FOLLOWING THE SAME PRINCIPLE LAID DOWN EARLIER TO ALLOW RELIEF TO THE ASSESSEE ON THE ISSUE OF EXCISE DUTY AND CUSTOMS DUTY. ITA NO.-6021/DEL/2012 94 ACCORDING TO THE LD. DR IF THIS PROPOSITION IS ACC EPTED IN THE CURRENT YEAR IT SHALL DEFEAT THE VERY PURPOSE OF MAKING TH E DISALLOWANCE IN THE PREVIOUS YEAR AND MOREOVER REVENUE HAS NOT ACCEPTE D THE PROPOSITION OF ITAT IN ALLOWING RELIEF TO THE ASSES SEE AND IN THAT SENSE IS A LIVE ISSUE. ACCEPTING THE DECISION OF TRIBUNAL ON THIS ISSUE SHALL GIVE FINALITY TO THIS ISSUE FOR THAT PARTICULAR YEA R ONLY. IT IS FURTHER AVERRED THAT THESE ARE CONTINUOUS ISSUES FORMING PART OF THE ASSESSMENT ORDER FOR AY 2005-06 2006-07 AND 2007-0 8 ALSO AND ARE AT PRESENT PENDING ADJUDICATION BEFORE HONBLE DELH I HIGH COURT. 13.3. ON A PERUSAL OF THE DECISION WE FIND THAT THIS IS SUE IS SUBSTANTIALLY INVOLVED IN GROUND NOS. 14 TO 14.3 IN THE ASSESSEES APPEAL FOR AY 2007-08 AND ON THIS ASPECT A COORDI NATE BENCH OF THIS TRIBUNAL HELD AS UNDER: 27.3 WE FIND THAT IN ITS ORDER DATED 16.10.2012 IN THE CASE OF ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 2002-03 AN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE I TAT FOLLOWING ITS EARLIER ORDERS. RELEVANT PARA NO. 50 THEREOF IS BEING REPRODUCED HEREUNDER: 50. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. THI S ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2000-01 AN D 2001- 02. THE RELEVANT PARA OF THE ORDER FOR ASSESSMENT Y EAR 2001-02 IS REPRODUCED HEREUNDER: 22. IN REGARD TO GROUND NO. 9 WHICH IS AGAINST T HE ACTION OF CIT(A) IN DELETING THE DISALLOWANCE OF TH E EXCISE DUTY PAID BY THE ASSESSEE REPRESENTING THE REVERSAL OF THE EXCISE MODVAT AVAILED IN INPUTS ON CLEARANCE OF FIN ISHED GOODS IT WAS FAIRLY CONCEDED BY BOTH THE SIDES THA T THIS ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE C O- ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMEN T YEAR 2000-01 IN ITA NO. 678/DEL/2004. RESPECTFULLY FOLLOWING THE DECISION F THE CO-ORDINATE BENCH OF T HIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000- 01 THE FINDINGS OF THE CIT(A) ON THIS ISSUE STANDS CONFIRMED. 23. IT IS ALSO NOTICED THAT THIS EXCISE DUTY IS PAID ITA NO.-6021/DEL/2012 95 AGAINST THE ORDER OF THE SETTLEMENT COMMISSION AND IS IN THE NATURE OF REVERSAL OF MODVAT AVAILED ON TH E INPUTS AND NOT IN THE NATURE OF PENALTY OR FINE S. IN THE CIRCUMSTANCES THE GROUND OF APPEAL AS RAISED BY TH E REVENUE ON THIS ISSUE STANDS DISMISSED. 27.4 IN VIEW OF THE ABOVE FINDING OF THE ITAT ON THE ISSUE AND OF THE EXCISE TRIBUNAL IN THE ASSESSMENT YEAR 2000-01 THAT SHORTAGE OF STOCK OF RAW-MATERIAL AND THE MINOR DISCREPANCY WAS THE RESULT OF ACCOUNTING ERROR DUE TO USE OF LARGE QUANTITY OF IN PUTS PROCURED FROM SEVERAL HUNDRED SUPPLIERS WE HOLD THAT THE ASSESSE E WAS JUSTIFIED IN CLAIMING RS.77 LACS ON ACCOUNT OF EXPENDITURE ON EX CISE DUTY ON PAYMENT BASIS UNDER SEC. 43B OF THE ACT. THE ASSESS ING OFFICER IS ACCORDINGLY DIRECTED TO ALLOW THE CLAIM. GROUND NOS . 14 TO 14.3 ARE THUS ALLOWED. 13.4. WHEN THE FACTS ARE SIMILAR AND A PARTICULAR VIEW I S TAKEN BY A COORDINATE BENCH OF THIS TRIBUNAL FOR THE EARLIER Y EARS IT IS NOT DESIRABLE TO DEVIATE FROM THE SAME IN A SUBSEQUENT YEAR IN THE ABSENCE OF ANY CHANGE OF CIRCUMSTANCES AS SUCH BY RESPECTFULLY FOLLOWING THE SAME WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF RS.58 61 136/- REPRESENTING THE EXCISE DUTY PAID BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR. GROUN DS NO 13 TO 13.3 ARE ALLOWED ACCORDINGLY. GROUNDS NO 14 TO 14.4 SHARING OF RESOURCES WITH OTH ER GROUP COMPANIES/ SUBSIDIARY COMPANIES 14. SUCCINCTLY STATED FACTS RELATING TO THIS GROUND AR E THAT DURING FY 2007-08 THE SUBSIDIARY COMPANIES OF MSIL WERE OPER ATING AS CORPORATE INSURANCE AGENTS OF DIFFERENT INSURANCE C OMPANIES AND IN AN ERA OF INCREASING COMPETITION AND CONSUMER EXPEC TATIONS IT WAS THE ENDEAVOUR OF MSIL TO PROVIDE MAXIMUM SERVICES T O ITS CUSTOMERS UNDER ONE-ROOF TO IMPROVE CUSTOMER EXPERIENCE AND D ELIGHT WITH COMPANY PRODUCTS. THE COMPANY TRANSFORMED ITS DEAL ERSHIPS TO ONE- STOP SHOP FOR SALE OF ITS PRODUCTS AND PROVIDING AL L RELATED FACILITIES OF FINANCING INSURANCE AUTO-CARD PURCHASE AND SALE OF USED CARS ETC. ASSESSEE SUBMITS THAT ALL THESE ADDED FACILITIES AR E INTEGRALLY LINKED TO THE MAIN BUSINESS OF THE COMPANY TO SELL PASSENGER CARS AND ALTHOUGH ITA NO.-6021/DEL/2012 96 THE EARNINGS FROM THESE ACTIVITIES PER-SE MAY NOT B E VERY SIGNIFICANT THE ACTIVITIES CONTRIBUTE SIGNIFICANTLY IN GENERATI NG THE DEMAND FOR THE PRODUCTS OF THE COMPANY. LOOKING AT THIS THE ASSES SING OFFICER MADE AN AD-HOC DISALLOWANCE OF RS.12 87 88 243 IN THE FI NAL ASSESSMENT ORDER HOLDING THE SAME TO BE RELATABLE TO/ TOWARDS SHARING OF APPELLANTS RESOURCES WITH OTHER GROUP COMPANIES AN D 14.1. LD. AR SUBMITTED THAT IN VIEW OF THE STRINGENT PROV ISIONS OF THE MOTOR VEHICLES ACT 1988 IT IS MANDATORY THAT EVER Y VEHICLE SHOULD HAVE A VALID INSURANCE TO DRIVE ON THE ROAD AT THE TIME OF TAKING DELIVERY ITSELF FROM THE DEALERSHIP AND UNDER THE G OVERNING INSURANCE LAWS IT IS NOT PERMISSIBLE FOR THE COMPANY TO OBTA IN INSURANCE AGENCY NECESSITATING THE ASSESSEE TO PROMOTE THE G ROUP COMPANIES. ACCORDING TO HIM THIS PROMOTES THE ASSESSEE TO PROV IDE ONE STOP SHOP FOR THE COMPANYS PRODUCTS WHICH ENABLES THE COMPA NY TO NOT ONLY PROMOTE SALES BUT ALSO FACE THE EVER INCREASING COM PETITION FROM RIVAL AUTOMOBILE COMPANIES; TO ENSURE SMOOTH AND TIMELY D ELIVERY OF THE VEHICLES; TO PROVIDE SMOOTH AFTER SALE SERVICES BY TAKING CARE OF POST- SALES INSURANCE NEEDS OF THE CUSTOMERS; SALE OF SPA RE PARTS AND ACCESSORIES; AND SERVICE INCOMES OF THE COMPANY AND ITS DEALERS. HE FURTHER SUBMITTED THAT THE SIMPLISTIC BUSINESS STRU CTURE OF THE INSURANCE COMPANY REQUIRED NEGLIGIBLE ADMINISTRATIV E AND MANPOWER SUPPORT FOR ITS FUNCTIONING WHICH HAS BEEN PROVIDE D BY THE EXISTING SET-UP OF MSIL. SINCE THE ASSESSEE PROVIDED THE SUP PORT TO THE INSURANCE SUBSIDIARIES DUE TO ITS BUSINESS EXIGENCY THE RELATED COST IS ALLOWABLE BUSINESS EXPENDITURE FOR THE COMPANY IN VIEW OF THE FACT THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS A S USED IN SECTION 37(1) OF THE ACT IS MUCH WIDER THAN FOR THE PURPOS E OF EARNING INCOME. ITA NO.-6021/DEL/2012 97 14.2. HE RELIED ON THE DECISIONS OF THE SUPREME COURT IN THE CASE OF CIT VS. MALAYALAM PLANTATIONS LTD.:53 ITR 140 WHER EIN IT WAS HELD THAT THE EXPRESSION ' FOR THE PURPOSE OF THE BUSINESS ' IS WIDER IN SCOPE THAN THE EXPRESSION ' FOR THE PURPOSE OF EARNING PR OFITS '. ITS RANGE IS WIDE : IT MAY TAKE IN NOT ONLY THE DAY TO DAY RUNNI NG OF A BUSINESS BUT ALSO THE RATIONALIZATION OF ITS ADMINISTRATION AND MODERNIZATION OF ITS MACHINERY; IT MAY INCLUDE MEASURES FOR THE PRESERVA TION OF THE BUSINESS AND FOR THE PROTECTION OF ITS ASSETS AND P ROPERTY FROM EXPROPRIATION COERCIVE PROCESS OR ASSERTION OF HOS TILE TITLE ; IT MAY ALSO COMPREHEND PAYMENT OF STATUTORY DUES AND TAXES IMPO SED AS A PRE- CONDITION TO COMMENCE OR FOR CARRYING ON OF A BUSIN ESS ; IT MAY COMPREHEND MANY OTHER ACTS INCIDENTAL TO THE CARRYI NG ON OF A BUSINESS. HOWEVER WIDE THE MEANING OF THE EXPRESSIO N MAY BE ITS LIMITS ARE IMPLICIT IN IT. THE PURPOSE SHALL BE FOR THE PURPOSE OF THE BUSINESS THAT IS TO SAY THE EXPENDITURE INCURRED SHALL BE FOR THE CARRYING ON OF THE BUSINESS AND THE ASSESSEE SHALL INCUR IT IN HIS CAPACITY AS A PERSON CARRYING ON THE BUSINESS. IT C ANNOT INCLUDE SUMS SPENT BY THE ASSESSEE AS AGENT OF A THIRD PARTY WH ETHER THE ORIGIN OF THE AGENCY IS VOLUNTARY OR STATUTORY; IN THAT EVENT HE PAYS THE AMOUNT ON BEHALF OF ANOTHER AND FOR A PURPOSE UNCONNECTED WITH THE BUSINESS (EMPHASIS SUPPLIED) 14.3. HE SUBMITTED THAT THE SAID APPROACH IS REITERATED B Y THE HONBLE APEX COURT IN CIT VS. BIRLA COTTON SPINNING. & WEAV ING MILLS LTD.: 82 ITR 166 (SC) AND MADHAV PRASAD JATIA VS. CIT : 118 ITR 200 (SC) ALSO. 14.4. BY PLACING RELIANCE ON THE DECISIONS IN SASSOON J. DAVID AND CO. P. LTD. VS. CIT : 118 ITR 261 (SC); CIT V NESTLE INDIA LTD. 337 ITR ITR 103 (DEL. HC) (AFFIRMED BY THE SUPREME COURT) CIT VS ADIDAS INDIA MARKETING (P) LTD: 195 TAXMAN 256 (DEL) CIT VS AGRA BEVERAGES CORPORATION (P) LTD: 200 TAXMAN 43 (DEL. MAG.) (HC) ; SONY INDIA (P) LTD VS. DY. CIT : 315 ITR 150 (DEL ITAT) STAR INDI A (P) LTD.: 103 ITD 73 TM (MUM.) HE ARGUED THAT SINCE THE ENTIRE EXPEND ITURE AS INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR PURPOSES OF ITS BUSINESS ANY INCIDENTAL/ INDIRECT BENEFIT TO THE GROUP COMPA NY(IES) IT IS SETTLED ITA NO.-6021/DEL/2012 98 LAW CANNOT BE THE BASIS FOR DISALLOWING THE EXPEND ITURE IN THE HANDS OF THE ASSESSEE. 14.5. AS A MATTER OF FACT LD. AR SUBMITTED THAT EVEN IF THE COMPANY WERE TO RECOVER THE COST OF CHARGES PROVIDED TO THE INSURANCE SUBSIDIARIES IT SHALL BE A VERY SMALL AMOUNT COMPA RED TO WHAT HAS BEEN CONSIDERED BY THE AO IN THE IMPUGNED ASSESSMEN T ORDER. ASSESSEE ESTIMATED THE ANNUAL COST OF SERVICES/FACI LITIES PROVIDED TO THE DIFFERENT INSURANCE COMPANIES AT RS.1.31 CRORES AS BELOW: SALARIES OF EMPLOYEES 10 250 000 TRAVELLING COST 918 000 OFFICE INFRASTRUCTURE COST 946 800 IT SYSTEM/ APPLICATION COST 985 000 TOTAL COST 13 099 800 14.6. HE FURTHER SUBMITTED THAT THE SAID EXPENDITURE BEI NG THE BUSINESS EXPENDITURE WILL HAVE TO BE ALLOWED AS DE DUCTION UNDER SECTION 37(1) OF THE ACT EITHER IN THE HANDS OF TH E APPELLANT COMPANY OR TO THE GROUP COMPANIES IN THAT SENSE THE ENTIRE EXERCISE OF SEEKING TO TAX THE NORMAL BUSINESS EXPENDITURE IS IN ANY C ASE REVENUE NEUTRAL AS SUCH IN VIEW OF THE DECISIONS IN CIT V. EXCEL INDUSTRIES LTD AND MAFATLAL INDUSTRIES (P) LTD.: 358 ITR 295 (SC) CIT V. BILAHARI INVESTMENT P. LTD.: 299 ITR 1 (SC) CIT V. SHRI RAM PISTONS & RINGS LTD.: 220 CTR 404 (DEL.) CIT V. TRIVENI ENGG. & IN DUSTRIES LTD.: 336 ITR 374 (DEL.) CIT V. NAGRI MILLS CO. LTD.: 33 ITR 681 (BOM.) AND CIT VS. M/S VISHNU INDUSTRIAL GASES: ITA NO. 229/1988 ( DEL.) REVENUE SHOULD NOT AGITATE ISSUES OR MAKE ADJUSTMENT ON ISS UES WHICH ARE REVENUE NEUTRAL AND DO NOT AFFECT OVERALL TAXES LIK ELY TO BE COLLECTED BY THE GOVERNMENT. LD. DR VEHEMENTLY RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 14.7. ON A CAREFUL READING OF THE RECORD IN THE LIGHT OF THE ABOVE ARGUMENTS OF THE LD. COUNSEL WE FIND THAT THERE IS NO MATERIAL THAT IS ITA NO.-6021/DEL/2012 99 BROUGHT ON RECORD TO CONTROVERT THE PLEA OF THE ASS ESSEE THAT THEY HAVE PROVIDED THE SUPPORT TO THE INSURANCE SUBSIDIARIES DUE TO ITS BUSINESS EXIGENCY RATHER THAN SUPPORTING THE SAID COMPANIES AND IT IS IT IS IN THE BEST INTERESTS OF MSIL TO DO SO FOR MAXIMIZING THEIR PROFITS AS SUCH THE RELATED COST IS ALLOWABLE BUSINESS EXPENDI TURE FOR THE COMPANY. IT ALSO FURTHER GOES UNDISPUTED THAT THIS BEING THE BUSINESS EXPENDITURE WILL HAVE TO BE ALLOWED AS DEDUCTION UN DER SECTION 37(1) OF THE ACT EITHER IN THE HANDS OF THE APPELLANT CO MPANY OR TO THE GROUP COMPANIES. IN THESE CIRCUMSTANCES WHILE RES PECTFULLY FOLLOWING THE DECISIONS OF THE HONBLE APEX COURT AND THE JUR ISDICTIONAL HIGH COURT WE FIND THAT THE ADDITION ON THIS SCORE CANN OT BE SUSTAINED. ACCORDINGLY WHILE ALONG GROUND NOS 14 TO 14.4 WE DIRECT THE LD. AO TO DELETE THE SAME. GROUNDS NO 15.1 TO 15.1.37 ADJUSTMENT ON ACCOUNT OF ALLEGEDLY EXCESSIVE AMP EXPENSES 15. ON THE ASPECT OF ADJUSTMENT ON ACCOUNT OF ALLEGEDL Y EXCESSIVE AMP EXPENSES RELEVANT FOR GROUND NOS 15.1 TO 15.1.3 7 CASE OF THE ASSESSEE IS THAT MARUTI SUZUKI INDIA LIMITED (APPE LLANT OR MSIL OR THE COMPANY) WAS INCORPORATED IN FEBRUARY 1981 AN D IS ENGAGED IN THE MANUFACTURE OF PASSENGER CARS IN INDIA. MSIL IS THE SUBSIDIARY SUZUKI MOTOR CORPORATION (SMC OR THE ASSOCIATED ENTERPRISES). DURING THE RELEVANT PREVIOUS YEAR THE APPELLANT INC URRED EXPENSES ON ADVERTISING MARKETING SALES PROMOTION AND DISTRIB UTION AMOUNTING TO RS 373 CRORES WHICH CONSTITUTES 2.09% OF THE SALES OF THE APPELLANT. THE TPO HELD THAT SINCE THE AMP EXPENSES TO SALES R ATIO OF THE APPELLANT AT 2.09% WAS HIGHER THAN THE AMP/SALES RA TIO OF 0.57% OF THE COMPARABLE COMPANIES THE APPELLANT HAD INCURRE D NON ROUTINE AMP EXPENSES FOR PROMOTION OF THE BRAND NAME SUZUK I IN INDIA. ACCORDINGLY THE TPO APPLYING THE BRIGHT LINE TEST (BLT) COMPUTED AN ADJUSTMENT OF RS 311.88 CRORE ON ACCOUNT OF ALLEGED LY EXCESSIVE AMP ITA NO.-6021/DEL/2012 100 EXPENSES INCURRED BY THE APPELLANT. THE DRP DIRECTE D THE TPO TO CONSIDER ONLY AMP EXPENSES INCURRED BY THE APPELLAN T AND NOT TO INCLUDE SALES PROMOTION EXPENSES WITHIN THE AMBIT O F AMP EXPENSES FOR THE PURPOSE OF APPLYING THE BLT. THE TPO ACCORD INGLY RESTRICTED THE ADJUSTMENT TO RS 195.16 CRORES. ASSESSEE IS CHA LLENGING THE ADJUSTMENT MADE BY THE TPO AS NOT SUSTAINABLE BROAD LY ON THE GROUNDS FIRSTLY THAT THERE IS NO INTERNATIONAL TRA NSACTION SECONDLY THAT THE BRIGHT LINE TEST IS NOT THE PRESCRIBED MET HOD THIRDLY THAT THE APPELLANT IS THE ECONOMIC OWNER OF THE TRADEMARK M ARUTI SUZUKI FOURTHLY THAT THE EXPENDITURE ON AMP INCURRED WHOLL Y AND EXCLUSIVELY FOR BUSINESS OF THE APPELLANT AND THAT THE BENEFIT TO AE ARE ONLY INCIDENTAL AND LASTLY THAT THE AMP EXPENDITURE CLO SELY LINKED WITH THE BUSINESS OF MANUFACTURE AND SALE OF MOTOR CARS. WE SHALL PROCEED TO DEAL WITH THESE ASPECTS IN THE LIGHT OF THE SUBMISS IONS MADE BEFORE US. 15.1. COMING TO THE FIRST CONTENTION OF THE ASSESSEE THA T THERE IS NO INTERNATIONAL TRANSACTION AS COULD BE SEEN FROM TH E RECORD THE TPO HELD THAT SINCE THE APPELLANT HAD INCURRED EXPENDIT URE ON ADVERTISEMENT MARKETING AND PROMOTION (AMP) EXPE NSES IN EXCESS OF THE BRIGHT LINE THE EXCESS WOULD BE TREATED A S INDEPENDENT INTERNATIONAL TRANSACTION OF RENDERING SERVICE OF B RAND BUILDING BY THE APPELLANT TO SUZUKI MOTOR CORPORATION JAPAN (SUZU KI OR THE ASSOCIATED ENTERPRISE) FOR WHICH THE APPELLANT NEED ED TO BE COMPENSATED AT ARMS LENGTH. LD. AR SUBMITTED THAT IN THE CASE OF THE APPELLANT THE TPO HAS INFERRED THE EXISTENCE OF AN INTERNATIONAL TRANSACTION ON THE BASIS OF BRIGHT LINE TEST WITHOU T PLACING ON RECORD ANY EVIDENCE OR MATERIAL TO SUBSTANTIATE THE EXISTE NCE OF SUCH A TRANSACTION AS SUCH THE BENCHMARKING ANALYSIS UND ERTAKEN BY THE TPO WITHOUT FIRST ESTABLISHING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION IS BAD IN LAW AND IS LIABLE TO BE DELET ED. IN THIS RESPECT LD. AR SUBMITTED THAT THE ONUS IS ON THE REVENUE TO DEMONSTRATE THE ITA NO.-6021/DEL/2012 101 EXISTENCE OF AN INTERNATIONAL TRANSACTION ON THE BA SIS OF TANGIBLE MATERIAL OR EVIDENCE AND THE EXISTENCE OF SUCH A TR ANSACTION CANNOT BE A MATTER OF INFERENCE. IT IS SUBMITTED THAT IN THE ABSENCE OF AN INTERNATIONAL TRANSACTION BETWEEN THE APPLICANT AND THE ASSOCIATED ENTERPRISE THERE IS NO QUESTION OF UNDERTAKING A B ENCHMARKING ANALYSIS TO DETERMINE THE ARMS LENGTH PRICE. HE SU BMITTED THAT FOR CONSTRUING TRANSACTION OF RENDERING SERVICE IT NEE DS TO BE DEMONSTRATED WITH EVIDENCE THAT THERE WAS AN OFFER AND ACCEPTANCE FOR SUCH TRANSACTION OF RENDERING SERVICE I.E. THE SER VICE MUST BE SHOWN TO HAVE BEEN RENDERED AT THE INSTANCE OF THE AE AND SUCH AMP EXPENSES HAVE BEEN INCURRED ON BEHALF OF THE AE REQ UIRING COMPENSATION BY THE AE TO THE INDIAN ASSESSEE AND THE TPO HAS NOT ESTABLISHED EXISTENCE OF ANY MUTUAL AGREEMENT OR AR RANGEMENT FOR ALLOCATION OF APPORTIONMENT OF SUCH AMP EXPENSES IN CURRED BY THE APPELLANT FOR BENEFIT OF THE ASSOCIATED ENTERPRISE. 15.2. BY PLACING RELIANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF WHIRLPOOL OF INDIA LTD VS DCIT 381 ITR 154 LD. AR SUBMITTED THAT IN THIS CASE TOO IT WAS HELD THAT TH ERE SHOULD BE SOME TANGIBLE EVIDENCE ON RECORD TO DEMONSTRATE THAT THE RE EXISTS AN INTERNATIONAL TRANSACTION IN RELATION WITH INCURRIN G OF AMP EXPENSES FOR DEVELOPMENT OF BRAND OWNED BY THE ASSOCIATED EN TERPRISES AND IN THE ABSENCE OF SUCH TRANSACTION THERE IS NO QUESTIO N OF UNDERTAKING ANY BENCHMARKING OF AMP EXPENSES. HE FURTHER SUBMIT TED THAT THE HONBLE DELHI HIGH COURT IN THE APPELLANTS OWN CAS E FOR ASSESSMENT YEAR 2005-06 & 2006-07 381 ITR 117 WHILE DISTINGUI SHING THE DECISION IN THE CASE OF SONY ERICSSON MOBILE COMMUN ICATIONS (SUPRA) HELD THAT THE EXISTENCE OF INTERNATIONAL TRANSACTIN G RELATING TO AMP EXPENSES WAS NOT IN DISPUTE AND THEREFORE THE FIND INGS OF THE HONBLE HIGH COURT IN THE CASE OF SONY ERICSSON TO THE EXTE NT IT UPHOLDS THE EXISTENCE OF AN INTERNATIONAL TRANSACTION CANNOT BE APPLIED IN CASES ITA NO.-6021/DEL/2012 102 WHERE THE TAXPAYER RAISES A DISPUTE AS TO THE EXIST ENCE OF SUCH A TRANSACTION AND THAT THE REVENUE NEEDS TO ESTABLISH THE EXISTENCE OF AN INTERNATIONAL TRANSACTION BEFORE UNDERTAKING BEN CHMARKING OF AMP EXPENSES AND SUCH TRANSACTION CANNOT BE INFERRED ME RELY ON THE BASIS OF BRIGHT LINE TEST. 15.3. NOW TURNING THE OTHER GROUND OF CHALLENGE STATING THAT BRIGHT LINE TEST IS NOT THE PRESCRIBED METHOD LD. AR SUBM ITS THAT THE TPO IN FACT HAS FOUNDED THE ENTIRE CASE ON THE BRIGHT L INE TEST OF ALLEGED EXCESSIVE AMP EXPENDITURE INCURRED BY THE APPELLANT VIS--VIS COMPARABLES TO ASSUME INFER OR IMPLY EXISTENCE OF AN INTERNATIONAL TRANSACTION AND SUCH APPLICATION OF BLT HAS NO STA TUTORY MANDATE AND HAS BEEN REJECTED BY THE HONBLE DELHI COURT IN THE CASE OF SONY ERICSSON (SUPRA). 15.4. ADVERTING TO THE CONTENTION THAT THE ASSESSEE IS T HE ECONOMIC OWNER OF THE TRADEMARK MARUTI SUZUKI LD. AR SUBM ITTED THAT THE HONBLE HIGH COURT IN THE CASE OF SONY ERICSSON MOB ILE COMMUNICATIONS INDIA PVT LTD (SUPRA) HAS FURTHER HE LD THAT NO TRANSFER PRICING ADJUSTMENT IN RESPECT OF AMP EXPEN SE CAN BE MADE WHERE THE ASSESSEE (INDIAN ENTITY) HAS ECONOMIC OWN ERSHIP OF THE BRAND/LOGO/TRADEMARK IN QUESTION IN THE CASE OF LO NG TERM RIGHT OF USE OF THE SAME AND THIS PRINCIPLE ALSO SQUARELY C OVERS THE PRESENT CASE. HE FURTHER STATED THAT THE APPELLANT HAS A LO NG TERM AGREEMENT FOR THE USE OF THE TRADEMARK MARUTI SUZUKI IN IND IA WHICH CLEARLY EVIDENCES THE FACT THAT THE ECONOMIC BENEFIT ARISIN G OUT OF THE ALLEGED PROMOTION OF THE AES LOGO IS BEING ENJOYED BY THE APPELLANT. ACCORDING TO HIM THE ECONOMIC OWNERSHIP OF THE TRAD EMARK MARUTI SUZUKI RESTS WITH THE APPELLANT AND THE HONBLE H IGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA P VT LTD VS CIT (SUPRA) DISAGREED WITH THE FINDING OF THE SPECIAL B ENCH THAT THE ITA NO.-6021/DEL/2012 103 CONCEPT OF ECONOMIC OWNERSHIP IS NOT RECOGNIZED UND ER THE ACT. HE SUBMITTED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF THE APPELLANT FOR AY 2005-06 & 2006-07 ACCEPTED THE CON TENTION OF THE APPELLANT THAT IT HAS BEEN USING THE BRAND MARUTI SUZUKI FOR A LONG PERIOD OF TIME AND THE SAID BRAND IS NEITHER OWNED NOR COULD BE USED BY SMC. BASING ON THIS HE SUBMITTED THAT THE ECONO MIC OWNERSHIP OF THE BRAND RESTS WITH THE APPELLANT AND ACCORDINGLY THE APPELLANT CANNOT BE EXPECTED TO SEEK COMPENSATION FOR THE EXP ENDITURE INCURRED ON THE ASSET ECONOMICALLY OWNED BY IT. 15.5. NEXT CONTENTION OF THE ASSESSEE IS THAT THE EXPEND ITURE ON AMP WAS INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS OF THE APPELLANT WHEREAS THE BENEFIT TO AE IS ONLY INCIDENTAL. RELY ING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SASSOON J. DAVID AND CO. (P.) LTD. VS CIT : 118 ITR 261 HE ARGUED THAT EXPEN DITURE INCURRED WHOLLY AND EXCLUSIVELY FOR PURPOSE OF BUSINESS OF A N ASSESSEE WOULD BE ALLOWABLE DEDUCTION NOTWITHSTANDING THAT SUCH EXPEN DITURE MAY INCIDENTALLY BENEFIT THIRD PARTY. RELIANCE IN THIS REGARD IS ALSO PLACED ON PARA 7.12 AND 7.13 OF THE OECD GUIDELINES ON TRA NSFER PRICING. ACCORDING TO HIM IN THE PRESENT CASE THE EXPENSES HAVE BEEN INCURRED BY THE APPELLANT HEREIN FOR PROMOTION OF I TS BUSINESS IN INDIA WHICH IS REFLECTED IN THE FORM OF HIGHER TURNOVER A ND INCREASED PROFITABILITY. THE EXPENDITURE IN QUESTION ENSURES DIRECTLY FOR THE BENEFIT OF BUSINESS OF APPELLANT IN INDIA. THE BEN EFIT IF ANY TO THE AE IS ONLY INCIDENTAL AND IT IS FOR THIS REASON THAT N O PART OF THE EXPENDITURE HAVE BEEN DISALLOWED BY THE REVENUE IN TERMS OF SECTION 37(1) OF THE ACT. 15.6. LAST CONTENTION OF THE ASSESSEE ON THIS ASPECT IS THAT THE AMP EXPENDITURE IS CLOSELY LINKED WITH THE BUSINESS OF MANUFACTURE AND SALE OF MOTOR CARS AND ON THIS ASPECT IT IS THE SU BMISSION OF THE LD. ITA NO.-6021/DEL/2012 104 AR THAT THE AMP EXPENDITURE INCURRED BY THE APPELLA NT IS CLOSELY LINKED WITH THE BUSINESS OF MANUFACTURE AND SALE OF MODELS OF MOTOR CARS UNDERTAKEN BY THE APPELLANT AND THAT THE AMP EXPENDITURE RELATES TO THE ENTIRE TURNOVER/PRODUCTION OF THE AP PELLANT AND CONSTITUTES AN ESSENTIAL PART OF THE COST OF SALES. ACCORDING TO HIM WITHOUT THESE EXPENSES THE APPELLANT WOULD NOT BE ABLE TO COMPETE EFFECTIVELY AS SUCH THE AMP EXPENSES BEING CLOSELY LINKED WITH `THE BUSINESS OF MANUFACTURE AND SALE OF MODELS OF MOTOR S CARS THE SAME HAS TO BE BENCHMARKED ON AGGREGATE BASIS BY APPLYIN G ENTITY LEVEL TNMM. 15.7. IN THIS REGARD RELIANCE IS PLACED ON BEHALF OF TH E ASSESSEE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF SONY ERICSSON MOBILE COMMUNICATIONS (SUPRA) WHEREIN THE HONBLE C OURT HELD THAT CLUBBING OF CLOSELY LINKED INCLUDING CONTINUOUS TRA NSACTIONS IS PERMISSIBLE IN APPROPRIATE CASES. THE HONBLE COURT FURTHER HELD THAT ONCE THE REVENUE ACCEPTS THE TNMM AS THE MOST APPRO PRIATE METHOD THEN IT WOULD BE INAPPROPRIATE FOR THE REVENUE TO T REAT A PARTICULAR EXPENDITURE AS A SEPARATE INTERNATIONAL TRANSACTION . SUCH AN EXERCISE THE HONBLE COURT HELD WOULD LEAD TO UNUSUAL AND A BSURD RESULTS. RELIANCE IS ALSO PLACED IN THIS REGARD ON THE DECIS ION OF THE HONBLE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF DEMAG CRA NES & COMPONENTS (INDIA) PVT. LTD. VS. DCIT AND CUMMINS I NDIA LTD VS ADDL CIT (ITA NO 1616/PN/2011) WHEREIN THE TRIBUNAL UPHE LD THE AGGREGATION OF CLOSELY LINKED TRANSACTIONS. 15.8. IT IS SUBMITTED ON BEHALF OF THE ASSESSEE THAT IN THE PRESENT CASE THE OPERATING PROFIT MARGIN OF THE APPELLANT AT 13. 17% IS HIGHER THAN THAT OF THE COMPARABLE COMPANIES AT 0.36% AND TNMM HAS UNDISPUTEDLY BEEN SATISFIED AND ACCEPTED BY THE TPO AND SINCE THE OPERATING MARGINS OF THE APPELLANT ARE IN EXCESS OF THE SELECTED ITA NO.-6021/DEL/2012 105 COMPARABLE COMPANIES NO ADJUSTMENT ON ACCOUNT OF A MP EXPENSES IS WARRANTED IN THE CASE OF THE APPELLANT. 15.9. PER CONTRA WHILE PLACE HEAVY RELIANCE ON THE COMME NTS OF THE TPO ON THIS ISSUE FOR AY 2007-08 WHICH ARE AS HERE UNDER 4.2 ISSUE OF AMP 4.2.1 AS PER CLAUSE 5.01 AND 5.02 OF THE AGREEMENT THE ASSESSEE WAS RESPONSIBLE TO DEVELOP PROMOTE AND EXPAND THE SALE OF PRODUCT AND PARTS MANUFACTURED BY THE AE WITHIN INDIA. THE RESP ONSIBILITY TO PROMOTE TRADE MARK AND TO DEVELOP AND EXPAND MARKE T FOR SALE OF MOTOR CAR AND ITS PARTS WAS ON THE ASSESSEE AS PER AGREEMENT. THEREFORE IT WAS PROPOSED BY THE TPO THAT THE ASSES SEE SHOULD HAVE BEEN COMPENSATED FOR THE SERVICES RENDERED BY IT IN BUILDING DEVELOPING AND PROMOTING THE BRAND NAME OF SUZUKI ON BEHALF OF SMC JAPAN. 4.2.2 IT CAN BE SEEN THAT ASSESSEE WAS A LEADER IN THE P AST AS IT IS TODAY. IT IS BEYOND ANY RATIONAL LOGIC TO UNDERSTAN D HOW BRAND LOGO OF A FOREIGN COMPANY WHICH WAS RELATIVELY UNKNOWN AS COM PARED TO MARUTI'' TRADE MARK HAD ESTABLISHED THE MARKET SHA RE OR ASSISTED IN RETAINING THE MARKET SHARE. THE ASSESSEE WAS A LICE NSED MANUFACTURER AND IT HAD PAID LUMP SUM ROYALTY AS WELL AS RUNNING ROYALTY. ALSO THE COST OF THE AE WAS EMBEDDED IN IMPORTS OF 'M '. FUR THER THERE WERE RESTRICTIONS PUT BY THE AE IN USE OF BRAND LOGO S' . SINCE BEGINNING THE ASSESSEE HAD NURTURED ITS OWN BRAND MARUTI AND E STABLISHED ITSELF AS A MARKET LEADER WITHOUT ANY ASSISTANCE FROM ITS A.E. IT IS PERTINENT TO MENTION THAT ASSESSEE WAS A MARKET LEADER PRIOR TO THE YEAR 2003-2004 ALSO. THEREFORE THE CONTENTION OF THE ASSESSEE THA T THE USE OF TRADE MARK (S) HAD BENEFITED ASSESSEE IS WITHOUT ANY ECON OMIC LOGIC. THE ASSESSEE HAS INCURRED HUGE EXPENDITURE ON ADVERTISE MENT FOR DOMESTIC SALES AND EXPORTS MADE. THEREFORE ASSESSEE CANNOT TAKE CLAIM THAT THE USE OF (S) TRADE MARK HAD HELPED IN EXPORT OF GOODS . THE ASSESSEE WAS GETTING THE BENEFIT OF THE GLOBAL BRAND OF AE. IT W AS CAREFULLY PERUSED BY THE TPO BY THE CLAIM OF ASSESSEE AND HAVE NOTED THA T ASSESSEE HAD EXPORTED GOODS AS A FULL RISK BEARING ENTITY. IT HA D USED DISTRIBUTORS APPOINTED BY AE AND HAD ALSO INCURRED OVERSEAS ADVE RTISEMENT EXPENSES. THE BOTTOM-LINE THAT ALL THE GOODS EXPORT ED WERE UNDER THE BRAND NAME OF SUZUKI OF THE AE AND MARUTI BRAN D WAS NOT USED. THEREFORE ON THE BASIS OF ECONOMIC ANALYSIS OF EXP ORT TRANSACTIONS IT IS EVIDENT THAT ASSESSEE WAS MADE TO BEHAVE AS A CONTR ACT MANUFACTURER OR A LICENSE MANUFACTURER DEPENDING UPON THE NEED O F THE ASSOCIATED ENTERPRISE. IF THE BRAND OF THE AE WAS TO BE USED THEN THE RISK WAS TO BE ALLOCATED ACCORDINGLY BETWEEN THE AE AND THE ASS ESSEE. 4.2.3 THE TPO EXAMINED THAT M/S SUZUKI MOTOR CORPORATION JAPAN THE AE OF THE ASSESSEE WHICH IS ENGAGED IN MANUFACT URING AND SALE OF MOTOR VEHICLES AND MOTOR VEHICLES PARTS HAD GRANTED LICENSE TO MANUFACTURE MOTOR CAR AND ITS PARTS ALONG WITH LICE NSE TO SALE AND AFTER ITA NO.-6021/DEL/2012 106 SALE SERVICE TO THE ASSESSEE. IT HAD ALSO GRANTED L ICENSE TO USE TRADE MARK SUZUKI AND MARUTI-SUZUKI' TO THE ASSESSEE. THE RESPONSIBILITY TO PROMOTE TRADE MARK AND TO DEVELO P AND EXPAND MARKET FOR SALE OF MOTOR CAR AND ITS PARTS WAS ON THE ASSE SSEE AS PER AGREEMENT. THE ASSESSEE HAD DEVELOPED MARKET AND PR OMOTED THE TRADE MARK OF THE AE WHICH HAS A CONTROLLING INTEREST IN THE ASSESSEE COMPANY AT HUGE ECONOMIC COST AND THE RISK. IT IS E VIDENT THAT THE ASSESSEE HAD DEVELOPED LOCAL MARKETING INTANGIBLE F OR ITS AE IN INDIA BY INCURRING HUGE ADVERTISEMENT EXPENDITURE ON PROMOTI ON OF COBRANDED TRADE MARK DEVELOPMENT OF HUGE NETWORK OF DEALERS AND AFTER SALE SERVICE. ADMITTEDLY THE ASSESSEE HAD ALSO INCURRED A CONSIDERABLE AMOUNT AS ADVERTISEMENT EXPENDITURE ON PROMOTION OF THE SUZUKI BRAND NAME IN EUROPEAN MARKET EVEN WHEN THE ASSESSE E WAS A CONTRACT MANUFACTURER TO THE AE AND HAD EXPORTED S UZUKI BRANDED CAR IN THAT CAPACITY. IN THE YEAR UNDER CONSIDERATION T HE ASSESSEE HAD INCURRED ADVERTISEMENT EXPENDITURE ON MARKET AND PR OMOTION OF COBRANDED TRADEMARK INCLUDING PROMOTION OF SUZUKI TRADE MARK. IT IS EVIDENT FROM AUDITED ACCOUNTS THAT THE AE HAD NOT C OMPENSATED THE ASSESSEE FOR COST INCURRED ON DEVELOPMENT OF MARKET INTANGIBLE. THEREFORE THE CRUCIAL ISSUE IN THIS CASE REVOLVES AROUND THE DETERMINATION OF QUANTUM OF ADVERTISEMENT EXPENDITU RE INCURRED BY THE ASSESSEE ON PROMOTION OF BRAND OF THE AE AND ON DEV ELOPMENT OF MARKETING INTANGIBLE FOR THE AE IN INDIA AND EUROPE AN COUNTRIES IN ADDITION TO ROUTINE EXPENDITURE OF ADVERTISEMENT RE QUIRED BY THE ASSESSEE FOR ITS BUSINESS I.E. TO FIX BRIGHT LINE LIMIT FOR ADVERTISEMENT EXPENDITURE. 4.2.4 IT HAS BEEN HELD THAT THE INCREASE IN SALES IS NOT BECAUSE OF THE SUZUKI BRAND NAME BUT BECAUSE OF THE EFFORTS PUT IN BY THE ASSESSEE COMPANY SINCE BEGINNING. THE ASSESSEE HAD NURTURED ITS OWN BRAND MARUTI AND ESTABLISHED ITSELF AS A MARKET LEADER WITHOUT ANY ASSISTANCE FROM ITS A. E. 4.2.5 THE ASSESSEE IN ITS REPLY TO THE TPO HAD MENTIONED THAT THE ASSESSEE COMPANY IS A LICENSED MANUFACTURER AND NOT A DISTRIBUTOR AND THUS THE BRIGHT LINE CONCEPT IS NOT APPLICABLE TO I T. IN PARA 6.38 ONLY A REFERENCE TO THE DISTRIBUTOR HAS BEEN MADE IN AN EXEMPLARY CAPACITY. FOR UNDERSTANDING THE CONCEPT WE WILL HAVE TO REFE R TO THE OPENING PARA 6.36 AND PARA 6.37 OF THE MARKETING ACTIVITIES SECTION OF THE OECD GUIDELINES D. MARKETING ACTIVITIES UNDERTAKEN BY ENTERPRISES NOT OWNING TRADEMARKS OR TRADE NAMES: 6.36 DIFFICULT TRANSFER PRICING PROBLEMS CAN ARISE WHEN MARKETING ACTIVITIES ARE UNDERTAKEN BY ENTERPRISES THAT DO NOT OWN THE TRADEMARKS OR TRADE NAMES THAT THEY ARE PROMOTI NG (SUCH AS A DISTRIBUTOR OF BRANDED GOODS). IN SUCH A CASE IT I S NECESSARY TO DETERMINE HOW THE MARKETER SHOULD BE COMPENSATED FO R THOSE ACTIVITIES. THE ISSUE IS WHETHER THE MARKETER SHOUL D BE COMPENSATED AS A SERVICE PROVIDER I.E. FOR PROVIDI NG PROMOTIONAL ITA NO.-6021/DEL/2012 107 SERVICES OR WHETHER THERE ARE ANY CASES IN WHICH T HE MARKETER SHOULD SHARE IN ANY ADDITIONAL RETURN ATTRIBUTABLE TO THE MARKETING INTANGIBLES. A RELATED QUESTION IS HOW THE RETURN A TTRIBUTABLE TO THE MARKETING INTANGIBLES CAN BE IDENTIFIED. 6.37 AS REGARDS THE FIRST ISSUE WHETHER THE MARKETER IS ENTITLED TO A RETURN ON THE MARKETING INTANGIBLES A BOVE A NORMAL RETURN ON MARKETING ACTIVITIES THE ANALYSIS REQUI RES AN ASSESSMENT OF THE OBLIGATIONS AND RIGHTS IMPLIED BY THE AGREEMENT BETWEEN THE PARTIES. IT WILL OFTEN BE THE CASE THAT THE RETURN ON MARKETING ACTIVITIES WILL BE SUFFICIENT AND APPROPR IATE. ONE RELATIVELY DEAR CASE IS WHERE A DISTRIBUTOR ACTS ME RELY AS AN AGENT BEING REIMBURSED FOR ITS PROMOTIONAL EXPENDITURES B Y THE OWNER OF THE MARKETING INTANGIBLE. IN THAT CASE THE DISTRIB UTOR WOULD BE ENTITLED TO COMPENSATION APPROPRIATE TO ITS AGENCY ACTIVITIES ALONE AND WOULD NOT BE ENTITLED TO SHARE IN ANY RETURN AT TRIBUTABLE TO THE MARKETING INTANGIBLE. 4.2.6 IT IS SEEN FROM THE COMBINED READING OF THE ABOVE T WO PARAS OF OECD GUIDELINES THAT THE WORD DISTRIBUTOR HAS BEE N USED (AS EMPHASISED ABOVE) ONLY TO EXPLAIN ONE PARTICULAR SI TUATION/EXAMPLE. IN FACT THE GENERAL TERM USED IN THE ABOVE GUIDELINES IS MARKETER. THIS TERM DOES NOT DISTINGUISH BETWEEN THE MANUFACTURER ' OR THE DISTRIBUTOR AS SUCH. IF AN EXAMPLE OF THE DISTRIBUTOR' HAS BEEN USED IN THE GUIDELINES IT DOES NOT MEAN THAT THE MANUFACTURER S' ARE EXCLUDED /EXEMPTED FROM THE TERM MARKETER. THESE PORTIONS OF THE GUIDELINES ARE DIRECTED TOWARDS THE ISSUE OF CREATION AND VALUATIO N OF MARKETING INTANGIBLES. THEY ARE NOT MEANT FOR PLACING LIMITS WHERE OR BY WHOM THE INTANGIBLES WILL BE CREATED. ANY PERSON INCURRING E XPENDITURE FOR BRAND PROMOTION MAY BE INVOLVED IN CREATING MARKETING INT ANGIBLES. 4.2.7 IT IS ALSO SEEN THE ASSESSEE HAS NOT APPRECIATED TH AT PARA 6.38 DOES NOT REFER TO TRADERS WHO OPERATE IN BUY-SELL MODEL. IT REFERS TO TERM DISTRIBUTOR AND EVEN A MANUFACTURER ENGAGES IN DISTRIBUTION OF ITS PRODUCTS. SPECIALLY IN A SITUATION WHERE AN INDEPE NDENT MANUFACTURER LIKE MARUTI SUZUKI USES THE BRAND NAME OF ITS AE FO R THE PURPOSE OF DISTRIBUTION OF ITS MANUFACTURED PRODUCTS THERE IS NO REASON WHY PARA 6.38 SHOULD NOT BE APPLICABLE TO THE FACTS AND CIRC UMSTANCES OF ITS CASE. PARA 6.38 DEALS WITH THE TREATMENT OF MARKETING INT ANGIBLES IN A SITUATION WHERE A COMPANY DISTRIBUTES OR MANUFACTUR E AND DISTRIBUTES PRODUCTS UNDER A BRAND LEGALLY NOT OWNED BY IT. 4.2.8 THE ASSESSEE COMPANY HAS ALSO NOT BEEN ABLE TO SHOW TO THE TPO AS TO HOW THE CREATION OF MARKET INTANGIBLES D OES NOT TAKE PLACE WHEN THE AMP EXPENSES ARE BORNE BY THE MANUFACTURER AND HOW THE MARKET INTANGIBLES ARE CREATED WHEN THE AMP EXPENS ES ARE BORNE ONLY BY THE DISTRIBUTOR. THEREFORE THE ARGUMENT OF THE ASSESSEE WAS REJECTED ON THIS POINT AND THE AMP EXPENSES DEBITED TO PROFI T & LOSS ACCOUNT WAS CONSIDERED FOR THE PURPOSE OF CALCULATING THE E XCESSIVE AMP EXPENDITURE OVER THE BRIGHT LINE LIMIT. 4.2.9 AS NOTED BY THE TPO THE ASSESSEE HAD STARTED SHIFT ING ITS ITA NO.-6021/DEL/2012 108 REGISTERED TRADEMARK AND LOGO M FROM FRONT SIDE OF THE VARIOUS CAR MODELS MANUFACTURED BY IT WITH TRADE MARK S OF TH E AE AS EARLY AS IN THE YEAR 1993. IN THE EARLY STAGE THE ASSESSEE HAD PIGGYBACKED ITS LOGO ONLY IN ONE CAR MODEL I.E. ZEN. LATER ON AFTER THE AE HAD ACQUIRED CONTROLLING RIGHTS IN THE ASSESSEE COMPANY IN FINAN CIAL YEAR 2003-04 AND THE PROCESS OF PIGGYBACKING OF THE ASSESSEE BRA ND M BY TRADE MARK S WAS HASTENED W.EFFINANCIAL YEAR 2003-04 AN D MANY MORE CAR MODELS WERE SELECTED FOR SHIFTING OF M LOGO FROM FRONT SIDE WITH S LOGO. 4.2.10 THE AE HAS ALSO STARTED PROCESS OF CO-BRANDING OF B OTH THE TRADES MARKS I.E. SUZUKI AND MARUTI' BY SIGNING A LICENSE AGREEMENT WITH THE ASSESSEE AS EARLY AS 1992-93. HOWEVER IN INITIAL PERIOD USE OF COBRANDED LOGO WAS VERY RARE. THE PROCESS OF PUTTIN G COBRANDED LOGO ON THE BACK SIDE OF VARIOUS CAR MODELS HAD SPEEDED UP ONLY AFTER THE AE HAD ACQUIRED CONTROLLING RIGHTS IN THE ASSESSEE IN THE FINANCIAL YEAR 2003-04. SINCE ASSESSEE HAD STARTED USING COBRANDED LOGO ON THE BACK SIDE OF THE CARS MANUFACTURED BY IT IN A BIG WAY ON LY AFTER FINANCIAL YEAR 2003-04 THE PROCESS OF IMPAIRMENT OF MARUTI TRADE MARK AND REINFORCEMENT OF BRAND VALUE OF SUZUKI TRADE MAR K HAS TAKEN PLACE EFFECTIVELY IN A BIG WAY ONLY AFTER FINANCIAL YEAR 2003-04. 4.2.11 IT IS EVIDENT THAT BOTH THE PROCESSES OF PIGGYBACK ING OF MARUTI TRADE MARK BY THE SUZUKI TRADE MARK AND CO-BRANDING OF MARUTI LOGO ALONG WITH SUZUKI LOGO HAS RESULT ED IN IMPAIRMENT OF MARUTI BRAND VALUE AND REINFORCEMENT OF VALUE OF SUZUKI BRAND OF THE AE IN A BIG WAY FROM F.Y. 2003-04. IMPAIRMENT O F MARUTI OR M BRAND HAS STARTED BECAUSE MARUTI WAS SUPER BRAND IN INDIA IN ITS OWN RIGHT AS COMPARED TO SUZUKI TRADEMARK AND WAS DEVELOPED BY INCURRING SEVERAL THOUSAND CRORES OF EXPENDITURE ON ADVERTISEMENT AND MARKETING FOR A PERIOD OF TWO DECADES. THE PROCESS OF REINFORCEMENT OF VALUE OF SUZUKI BRAND HAS STARTED BECAUSE SUZUK I BEING A VERY LOW VALUE BRAND IN INDIAN MARKET WAS USED ALONG WITH M ARUTI TRADE MARK IN COBRANDING PROCESS. THIS RESULTED IN MIGRATION O F INTANGIBLE EMBEDDED IN MARUTI BRAND TO SUZUKI BRAND DUE TO ASSOCIATION OF BOTH THE BRANDS TOGETHER. 4.2.12 THE ASSESSEE IGNORING THE MIGRATION OF INTANGIBLE EMBEDDED IN MARUTI BRAND TO THE LOW VALUE BRAND SUZUKI OF THE AE THROUGH THE PROCESS OF PIGGYBACKING AND CO-BRANDING HAD AGREED TO PAY THE AE A ROYALTY FOR SALE OF CAR USING COBRANDED LO GO OR SUZUKI LOGO. 4.2.13 THE ASSESSEE FOR NON ECONOMIC REASON EVEN IG NORED AN IMPORTANT FACT THAT THE CO BRANDING OF BOTH THE TRADEMARKS AS STIPULATED IN THE AGREEMENT EXTRACTED EARLIER IN THIS ORDER INVOLVES USE OF 'MARUTI' TRADE MARK OWNED BY THE ASSESSEE WITHOUT ANY CORRESPONDIN G COMPENSATION. THE ASSESSEE HAS IGNORED THE VITAL ISSUE OF REPLACE MENT OF 'M' LOGO WITH S LOGO ON EXISTING MODEL OF CARS. THE CO-BRANDING OF 'MARUTI- SUZUKI RESULTED IN REINFORCEMENT OF VALUE OF SUZUKI BRAN D AND SIMULTANEOUS IMPAIRMENT OF 'MARUTI' TRADEMARK FOR WHICH IT HAD R ECEIVED NO COMPENSATION BUT HAD INCURRED HUGE EXPENDITURE OF S EVERAL THOUSAND ITA NO.-6021/DEL/2012 109 CRORES TO DEVELOP MARUTI OR 'M' AS SUPER BRAND. CONTRARY TO THIS THE ASSESSEE AGREED TO PAY BRAND ROYALTY FOR USE OF 'SU ZUKI TRADE MARK AS PART OF COBRANDED TRADE MARK. 4.2.14 ASSESSEE HAD INCURRED ADVERTISEMENT EXPENSE S MARKETING AND DISTRIBUTION EXPENSES FOR PROMOTION OF 'SUZUKI' TRA DE MARK OF THE AE IN INDIA AND ABROAD. THE DISTRIBUTION AND THE MARKETIN G EXPENDITURE WERE ALSO INCURRED FOR DEVELOPMENT OF MARKETING INTANGIB LE. THE ADVERTISEMENT EXPENSES INCURRED FOR ADVERTISEMENT O N THE PRINT AND ELECTRONIC MEDIA HAS RESULTED IN GLOBAL PROMOTION T HROUGH SATELLITE TELEVISION BROADCASTING. THE ASSESSEE HAD ADVERTISE D 'SUZUKI BRAND OWNED BY THE ASSOCIATED ENTERPRISE. THE ADVERTISEME NT CARRIED OUT BY THE ASSESSEE ON PRINT AND ELECTRONIC MEDIA HAD CONT RIBUTED TO BRAND BUILDING OF THE AE. THEREFORE THE ADVERTISEMENT EX PENSES INCURRED BY THE ASSESSEE WOULD BE COMPARED WITH THE ADVERTISEME NT EXPENSES OF THE COMPARABLES SELECTED BY THE ASSESSEE IN THE TRA NSFER PRICING REPORT. THE CONTENTION OF THE ASSESSEE THAT THE COST BENEFI T ANALYSIS SHOULD BE BASED ON THE ANALYSIS OF INDEPENDENT COMPARABLES IS ACCEPTED. THE ARM'S LENGTH EXPENDITURE WOULD BE BASED ON THE ADVE RTISEMENT EXPENDITURE INCURRED BY THE INDEPENDENT COMPARABLES COMPANIES IDENTIFIED BY THE ASSESSEE IN THE TRANSFER PRICING REPORT. 4.2.15 THE OECD HAS RECOGNIZED THAT BRAND IS AN INTANGI BLE AND REPRESENTS A COMBINATION OF INTANGIBLES AND/OR OTHE R ITEMS INCLUDING AMONG OTHERS TRADEMARKS TRADE NAMES CUSTOMER REL ATIONSHIPS REPUTATIONAL CHARACTERISTICS AND GOODWILL. IN PARA 6.7 OF THE ACTION 8-10 REPORT IT HAS BEEN OBSERVED BY BEPS AS UNDER:- 6.7 INTANGIBLES THAT ARE IMPORTANT TO CONSIDER FOR TRANSFER PRICING PURPOSES ARE NOT ALWAYS RECOGNISED AS INTANGIBLE AS SETS FOR ACCOUNTING PURPOSES. FOR EXAMPLE COSTS ASSOCIATED WITH DEVELOPING INTANGIBLES INLEINALLY THROUGH EXPENDITURES SUCH AS RESEARCH AND DEVELOPMENT AND ADVERTISING ARE SOMETIMES EXPENSED RATHER THAN CAPITALISED FOR ACCOUNTING PURPOSES AND THE INTANGI BLES RESULTING FROM SUCH EXPENDITURES THEREFORE ARE NOT ALWAYS REF LECTED ON THE BALANCE SHEET. SUCH INTANGIBLES MAY NEVERTHELESS BE USED TO GENERATE SIGNIFICANT ECONOMIC VALUE AND MAY NEED TO HE CONSIDERED FOR TRANSFER PRICING PURPOSES FURTHERMORE THE ENHA NCEMENT O VALUE THAT MAY ARISE FROM THE COMPLEMENTARY NATURE OF A C OLLECTION OF INTANGIBLES WHEN EXPLOITED TOGETHER IS NO: AHVAVS R EFLECTED ON THE BALANCE SHEET. ACCORDINGLY WHETHER AIL ITEM SHOULD BE CONSIDERED TO BE AN INTANGIBLE FOR TRANSFER PRICING PURPOSES UNDE R ARTICLE 9 OF THE OECD MODEL TAX CONVENTION CAN BE INFORMED BY 7 ITS CHARACTERISATION FOR ACCOUNTING PURPOSES BUT WILL NOT BE DETERMINED BY SUCH CHARACTERISATION ONLY FURTHERMORE THE DETE RMINATION TLIAR AN ITEM SHOULD BE REGARDED AS AN INTANGIBLE FOR TRA NSFER PRICING PURPOSES DOES NOT DETERMINE OX FOLLOW FROM ITS CHAR ACTERISATION FOR ITA NO.-6021/DEL/2012 110 GENERAL TAX PURPOSES AS. FOR EXAMPLE AN EXPENSE O R AN AMORTISABLE ASSET. THE ABOVE TEXT CLEARLY STATES THAT SPEND ON ADVERTI SEMENT LEADS TO BUILD-UP OF INTANGIBLES AND SUCH SPEND SHOULD BE CA PITALIZED FOR PROPER REFLECTION IN THE BALANCE SHEET. FAILURE TO DO SO AS BY THE ASSESSEE IN THE INSTANT CASE CALLS FOR IMMEDIATE COMPENSATION BY THE AE FOR THE SIGNIFICANT ECONOMIC VALUE CREATED FOR THE AES BRA ND BY SUCH ADVERTISEMENT SPEND. THE OECD HAS ALSO RECOGNISED T HAT CHARACTERIZATION OF AN INTANGIBLE FOR GENERAL TAX P URPOSES MAY NOT HAMPER OR DISTORT ITS TRUE CHARACTERIZATION OF BEIN G AN INTANGIBLE. THUS OECD HAS REINFORCED THE VIEW THAT ADVERTISEMENT SPE ND BY THE ASSESSEE LEADS TO CREATION OF AN INTANGIBLE AND WHA TEVER CHARACTERIZATION HAS BEEN GIVEN BY THE ASSESSEE FOR SUCH ADVERTISEMENT SPEND FOR GENERAL TAX PURPOSES WON T IMPACT THE CR EATION OF AN INTANGIBLE BY THE ASSESSEE FOR ITS AE FOR WHICH TH E FORMER NEEDS TO BE COMMENSURATELY COMPENSATED WITH A MARK-UP. BEPS HAS RECOGNISED THAT THE LEGAL OWNER OF INTANGI BLES MUST COMPENSATE THE GROUP ENTITIES FOR THE FUNCTIONS PER FORMED BY THEM ASSETS UTILISED AND RISKS ASSUMED WHICH HAVE CONTRI BUTED TO THE VALUE OF INTANGIBLES BY OBSERVING AS UNDER: 6.32 IN TRANSFER PRICING CASES INVOLVING INTANGIBLE S THE DETERMINATION OF THE ENTITY OR ENTITIES WITHIN AN MNE GROUP WHICH AR E ULTIMATELY ENTITLED TO SHARE IN THE RETURNS DERIVED BY THE GROUP FROM E XPLOITING INTANGIBLES IS CRUCIAL. 15 A RELATED ISSUE IS WHICH ENTITY OR ENTITIES WITHIN THE GROUP SHOULD ULTIMATELY BEAR THE COSTS INVESTMENTS AND O THER BURDENS ASSOCIATED WITH THE DEVELOPMENT ENHANCEMENT MAINT ENANCE PROTECTION AND EXPLOITATION OF INTANGIBLES. ALTHOUG H THE LEGAL OWNER OF AN INTANGIBLE MAY RECEIVE THE PROCEEDS FROM EXPLOITATI ON OF THE INTANGIBLE OTHER MEMBERS OF THE LEGAL OWNER'S MNE GROUP MAY HA R E PERFORMED FUNCTIONS USED ASSETS. 16 OR ASSUMED RISKS THAT ARE EXPECTED TO CONTRIBUTE TO THE VALUE OF THE INTANGIBLE. MEMBERS OF THE MNE GROUP PERFORMING SUCH FUNCTIONS USING SUCH ASSETS AND A SSUMING SUCH RISKS MUST BE COMPENSATED FOR THEIR CONTRIBUTIONS UNDER T HE ARMS LENGTH PRINCIPLE. THIS SECTION B CONFIRMS THAT THE ULTIMAT E ALLOCATION OF THE RETURNS DERIVED BY THE MNE GROUP FROM THE EXPLOITAT ION OF INTANGIBLES AND THE ULTIMATE ALLOCATION OF COSTS AND OTHER BURD ENS RELATED TO INTANGIBLES AMONG MEMBERS OF THE MNE GROUP IS ACCO MPLISHED BY COMPENSATING MEMBERS OF THE MNE GROUP FOR FUNCTIONS PERFORMED ASSETS USED AND RISKS ASSUMED IN THE DEVELOPMENT ENHANCEMENT MAINTENANCE PROTECTION AND EXPLOITATION OF INTANGI BLES ACCORDING TO THE PRINCIPLES DESCRIBED IN CHAPTERS IIII. 6.48 IN IDENTIFYING ARMS LENGTH PRICES TOR TRANSA CTIONS AMONG ASSOCIATED ENTERPRISES THE CONTRIBUTIONS OF MEMBERS OF THE GR OUP RELATED TO THE CREATION OF INTANGIBLE VALUE SHOULD BE CONSIDERED AND APPROP RIATELY REWARDED THE ARMS LENGTH PRINCIPLE AND THE PRINCIPLES OF CHAPTE RS IIII REQUIRE THAT AIL MEMBERS OF THE GROUP RECEIVE APPROPRIATE COMPENSATI ON FOR ANY FUNCTIONS THEY PERFORM ASSETS THEY USE. AND RISKS THEY ASSUM E IN CONNECTION WITH THE DEVELOPMENT ENHANCEMENT MAINTENANCE PROTECTION AND EXPLOITATION OF INTANGIBLES IT IS THEREFORE NECESSARY TO DETERMINE BY MEANS OF A FUNCTIONAL ANALYSIS WINCH MEMBER(S) PERFORM AND EXERCISE CONT ROL OVER DEVELOPMENT ENHANCEMENT MAINTENANCE PROTECTION AND EXPLOITAT ION FUNCTIONS WHICH MEMBER(S) PROVIDE FUNDING AND OTHER ASSETS AND WHI CH MEMBER(S) ASSUME THE VARIOUS RISKS ASSOCIATED WITH THE INTANGIBLE OF COURSE IN EACH OF THESE AREAS THIS MAY OR MAY NOT BE THE LEGAL OWNER OF TH E INTANGIBLE AS NOTED IN PARAGRAPH 6.133. IT IS ALSO IMPORTANT IN DETERMININ G ARMS LENGTH COMPENSATION FOR FUNCTIONS PERFORMED ASSETS USED AND RISKS ASSUMED TO CONSIDER COMPARABILITY FACTORS THAT MAY CONTRIBUTE TO THE CREATION OF VALUE OR THE GENERATION OF RETURNS DERIVED BY THE MNE GROUP FROM THE EXPLOITATION OF INTANGIBLES DETERMINING PRICES FOR RELEVANT TRANSA CTIONS. 5. THE HIGH COURT IN WRIT PETITION MSIL V ACIT/TPO (2010) 328 ITR 210 (DEL) THE DIVISION BENCH CAME TO THE FOLLOWING CONCLUSION :- (I) THE CONTRACTUAL OBLIGATIONS ON MSIL UNDER THE AGRE EMENT DATED 12 TH DECEMBER 1992 TO USE THE JOINT TRADEMARK MARUTI S UZUKI' AS WELL AS THE PARTS MANUFACTURED AND OR SOLD BY MSIL IN IN DIA SHOWED THAT SMC WANTED TO POPULARIZE ITS NAME IN INDIA AT THE C OST OF BRAND MARUTI. (II) IT COULD NOT BE ACCEPTED THAT THERE WAS NO POSSIBL E BENEFIT TO SUZUKI ON ACCOUNT OF THE COMPULSORY USE OF THE JO INT TRADEMARK 'MAMTI SUZUKI ON ALL THE PARTS AND PRODUCTS MANUFACTURED AND SOLD BY MARUTI IN INDIA. SINCE THE TPO MAY NOT BE ABLE TO DEVISE A N OBJECTIVE AND FAIR METHOD TO ASSESS THE MONETARY VALUE OF THE BENEFIT OBTAINED BY SUZUKI M THE FORM OF MARKETING INTANGIBLES INCLUDING THE B ENEFIT ON ACCOUNT OF COMPULSORY USE OF THE JOMT TRADEMARK MARUTI SUZUKI THE TPO WOULD HAVE TO DETERMINE THE ALP BY FINDING OUT WHAT PAYM ENT IF ANY A COMPARABLE INDEPENDENT DOMESTIC ENTITY WOULD HAVE M ADE IN RESPECT OF AN AGREEMENT OF THIS NATURE. 6. WHILE GIVING THE ABOVE DIRECTION THE DIVISION B ENCH SUMMARIZED ITS CONCLUSIONS WHICH INCLUDED THE FOLLOWING:- (A) THE ONUS WAS ON MSEL TO SATISFY DIE TPO/AO THAT DI E AMP COMPUTED BY IT WAS CONSISTENT WITH SECTION 92 OF TH E ACT. IF THE TPO AO PROPOSED TO MAKE ADJUSTMENT BY REVISING THE AMP NO TICES WOULD HAVE TO BE GIVEN TO MSIL. FOLLOWED BY THEIR REPLY AND PR ODUCING EVIDENCE. (B) THE AMP EXPENDITURE INCURRED BY THE DOMESTIC ENTIT Y USING THE TRADEMARK OF THE FOREIGN NAME DOES NOT NORMALLY REQ UIRE PAYMENT OR COMPENSATION BY DIE OWNER OF THE FOREIGN TRADEMARK OR SUCH USE SO LONG ITA NO.6021/DEL/2012 112 AS THE EXPENSES INCURRED BY DIE DOMESTIC ENTITY' DO NOT EXCEED THE EXPENSES WHICH A SIMILARLY SITUATED AND COMPARABLE INDEPENDENT DOMESTIC ENTITY WOULD HAVE INCURRED '. 7. ON THE ISSUE OF AMP THE DEPARTMENT IN AY 2006-0 7 IS ALREADY BEFORE THE HON BLE APEX COURT WHEREIN THE FOLLOWING SUBSTAN TIAL QUESTION OF LAW HAS BEEN TAKEN:- I. WHETHER THE HON BLE HIGH COURT WAS RIGHT IN HOLDIN G THAT AMP EXPENSES DOES NOT CONSTITUTE AN INTERNATIONAL TRANSACTION AN D HENCE IT DOES NOT LEAD TO THE CREATION OF MARKETING INTANGIBLES? II. WHETHER THE HONBLE HIGH COURT WAS RIGHT IN LAW IN STATING THAT THE EXISTENCE OF AN INTERNATIONAL TRANSACTION CANNOT BE ARRIVED AT FORM THE CLAUSES OF THE INTERCOMPANY ARRANGEMENT? III. WHETHER THE HON BLE HIGH COURT WAS RIGHT IN L AW IN HOLDING THAT THE IT ACT DOES NOT HAVE MACHINERY PROVISION TO BEN CHMARK THE INTERNATIONAL TRANSACTION ARISING FROM AMP EXPENSES ? IV. WHETHER THE HONBLE HIGH COURT WAS RIGHT IN REJECTI NG THE BLP TO BENCHMARK THE AMP TRANSACTIONS? V. WHETHER THE HON BLE HIGH COURT WAS RIGHT IN LAW IN OBSERVING THAT THE BENEFIT TO THE AE DUE TO AMP EXPENDITURE IN ONLY IN CIDENTAL AND NOT INTENTIONAL? VI. WHETHER THE HON BLE HIGH COURT WAS RIGHT IN LAW IN OBSERVING THAT IF NO APPLICATION OF TNMM THE TRANSACTIONS ARE FOUND TO B E AT ARMS LENGTH THEN NO ADJUSTMENT IS WARRANTED IGNORING THE FACT T HAT A SEPARATE BENCHMARKING OF EACH INTERNATIONAL TRANSACTION IS P ERMITTED AS PER IT ACT AND INTERNATIONAL GUIDANCE? 15.10. LD. DR SUBMITTED THAT THE TPO HAS RECOMMENDED FOR FILING OF FURTHER APPEAL U/S. 260A BEFORE THE HONBLE HIGH COURT FOR AY 2007-08 AND THE ISSUES INVOLVED FOR THE AY 2008-09 BEING CONTINUOUS ISSUES FORMING PART OF THE ASSESSMENT ORDER FOR AY 2006-07 AND 2007-08 ARE ALS O AT PRESENT PENDING ADJUDICATION BEFORE HONBLE DELHI HIGH COURT. 15.11. WE HAVE CONSIDERED THE FACTS AND CONTENTIONS OF EI THER OF THE PARTIES IN THE LIGHT OF THE DECISIONS RELIED UPON B Y THEM. ON A READING OF THE DECISIONS CITED ON BEHALF OF THE ASSESSEE WE F IND THAT IN CASE OF WHIRLPOOL OF INDIA LTD VS DCIT 381 ITR 154 IT WAS HELD THAT - ITA NO.6021/DEL/2012 113 32. UNDER SECTIONS 92B TO 92F THE PRE-REQUISITE FOR COMMENCING THE TP EXERCISE IS TO SHOW THE EXISTENCE OF AN INTERNAT IONAL TRANSACTION. THE NEXT STEP IS TO DETERMINE THE PRICE OF SUCH TRAN SACTION. THE THIRD STEP WOULD BE TO DETERMINE THE ALP BY APPLYING ONE O F THE FIVE PRICE DISCOVERY METHODS SPECIFIED IN SECTION 92C. THE FOURTH STEP WOULD BE TO COMPARE THE PRICE OF THE TRANSACTION THAT IS SHO WN TO EXIST WITH THAT OF THE ALP AND MAKE THE TP ADJUSTMENT BY SUBSTITUTIN G THE ALP FOR THE CONTRACT PRICE. 34. THE TP ADJUSTMENT IS NOT EXPECTED TO BE MADE BY DE DUCING FROM THE DIFFERENCE BETWEEN THE 'EXCESSIVE' AMP EXPENDITU RE INCURRED BY THE ASSESSEE AND THE AMP EXPENDITURE OF A COMPARABLE ENTI TY THAT AN INTERNATIONAL TRANSACTION EXISTS AND THEN PROCEED TO MAKE THE ADJUSTMENT OF THE DIFFERENCE IN ORDER TO DETERMINE TH E VALUE OF SUCH AMP EXPENDITURE INCURRED FOR THE AE. 35. IT IS FOR THE ABOVE REASON THAT THE BLT HAS BEE N REJECTED AS A VALID METHOD FOR EITHER DETERMINING THE EXISTENCE OF INTER NATIONAL TRANSACTION OR FOR THE DETERMINATION OF ALP OF SUCH TRANSACTION. ALTHOUGH UNDER SECTION 92B READ WITH SECTION 92F (V) AN INTERNATIONA L TRANSACTION COULD INCLUDE AN ARRANGEMENT UNDERSTANDING OR ACTION IN CONCERT THIS CANNOT BE A MATTER OF INFERENCE. THERE HAS TO BE SO ME TANGIBLE EVIDENCE ON RECORD TO SHOW THAT TWO PARTIES HAVE ACT ED IN CONCERT. 37. THE PROVISIONS UNDER CHAPTER X DO ENVISAGE A SEP ARATE ENTITY CONCEPT. IN OTHER WORDS THERE CANNOT BE A PRESUMPT ION THAT IN THE PRESENT CASE SINCE WOIL IS A SUBSIDIARY OF WHIRLPOO L USA ALL THE ACTIVITIES OF WOIL ARE IN FACT DICTATED BY WHIRLPOOL USA. MERELY BECAUSE WHIRLPOOL USA HAS A FINANCIAL INTEREST IT C ANNOT BE PRESUMED THAT AMP EXPENSE INCURRED BY THE WOIL ARE AT THE INS TANCE OR ON BEHALF OF WHIRLPOOL USA. THERE IS MERIT IN THE CONTE NTION OF THE ASSESSEE THAT THE INITIAL ONUS IS ON THE REVENUE TO DEMONSTRATE THROUGH SOME TANGIBLE MATERIAL THAT THE TWO PARTIES ACTED IN CONCERT AND FURTHER THAT THERE WAS AN AGREEMENT TO ENTER INT O AN INTERNATIONAL TRANSACTION CONCERNING AMP EXPENSES. ITA NO.6021/DEL/2012 114 39. IT IS IN THIS CONTEXT THAT IT IS SUBMITTED AND R IGHTLY BY THE ASSESSEE THAT THERE MUST BE A MACHINERY PROVISION IN THE ACT TO BRING AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSE UNDE R THE TAX RADAR. IN THE ABSENCE OF ANY CLEAR STATUTORY PROVISION GIV ING GUIDANCE AS TO HOW THE EXISTENCE OF AN INTERNATIONAL TRANSACTION I NVOLVING AMP EXPENSE IN THE ABSENCE OF AN EXPRESS AGREEMENT IN THAT BEHALF SHOULD BE ASCERTAINED AND FURTHER HOW THE ALP OF SUCH A TRAN SACTION SHOULD BE ASCERTAINED IT CANNOT BE LEFT ENTIRELY TO SURMIS ES AND CONJECTURES OF THE TPO 47. FOR THE AFOREMENTIONED REASONS THE COURT IS OF THE VIEW THAT AS FAR AS THE PRESENT APPEALS ARE CONCERNED THE REVENUE HA S BEEN UNABLE TO DEMONSTRATE BY SOME TANGIBLE MATERIAL THAT THERE IS AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSES BETWEEN WOIL AND WHIRLPOOL USA. IN THE ABSENCE OF THAT FIRST STEP THE QUESTION OF DETERMINING THE ALP OF SUCH A TRANSACTION DOES NOT ARISE. IN ANY EVENT IN THE ABSENCE OF A MACHINERY PROVISION IT WOULD BE HAZARDOUS FOR ANY TPO TO PROCEED TO DETERMINE THE ALP OF SUCH A TRANSACTION SINCE BLT HA S BEEN NEGATIVED BY THIS COURT AS A VALID METHOD OF DETERMINING THE EXI STENCE OF AN INTERNATIONAL TRANSACTION AND THEREAFTER ITS ALP 15.12. UNDER A SIMILAR SET OF FACTS AS ARE INVOLVED IN TH IS MATTER IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 & 2 006-07 IN THE DECISION REPORTED IN 381 ITR 117 THE HONBLE COURT WHILE HOLDING THAT AMP EXPENSES INCURRED BY THE ASSESSEE DO NOT CONSTI TUTE AN INTERNATIONAL TRANSACTION HELD AS UNDER: 44. HOWEVER IN THE PRESENT APPEALS THE VERY EXIST ENCE OF AN INTERNATIONAL TRANSACTION IS IN ISSUE. THE SPECIFIC CASE OF MSIL IS THAT THE REVENUE HAS FAILED TO SHOW THE EXISTENCE OF ANY AGREEMENT UNDE RSTANDING OR ARRANGEMENT BETWEEN MSIL AND SMC REGARDING THE AMP SPEND OF MSIL. IT IS POINTED OUT THAT THE BLT HAS BEEN APPLIED TO THE AM P SPEND BY MSIL TO (A) DEDUCE THE EXISTENCE OF AN INTERNATIONAL TRANSACTIO N INVOLVING SMC AND (B) TO MAKE A QUANTITATIVE 'ADJUSTMENT' TO THE ALP TO THE EXTENT THAT THE EXPENDITURE ITA NO.6021/DEL/2012 115 EXCEEDS THE EXPENDITURE BY COMPARABLE ENTITIES. IT IS SUBMITTED THAT WITH THE DECISION IN SONY ERICSSON HAVING DISAPPROVED OF BLT AS A LEGITIMATE MEANS OF DETERMINING THE ALP OF AN INTERNATIONAL TRANSACT ION INVOLVING AMP EXPENSES THE VERY BASIS OF THE REVENUE'S CASE IS N EGATED. 51. THE RESULT OF THE ABOVE DISCUSSION IS THAT IN T HE CONSIDERED VIEW OF THE COURT THE REVENUE HAS FAILED TO DEMONSTRATE THE EXI STENCE OF AN INTERNATIONAL TRANSACTION ONLY ON ACCOUNT OF THE QUANTUM OF AMP E XPENDITURE BY MSIL. SECONDLY THE COURT IS OF THE VIEW THAT THE DECISIO N IN SONY ERICSSON HOLDING THAT THERE IS AN INTERNATIONAL TRANSACTION AS A RES ULT OF THE AMP EXPENSES CANNOT BE HELD TO HAVE ANSWERED THE ISSUE AS FAR AS THE PRESENT ASSESSEE MSIL IS CONCERNED SINCE FINDING IN SONY ERICSSON TO THE ABOVE EFFECT IS IN THE CONTEXT OF THOSE ASSESSEES WHOSE CASES HAVE BEE N DISPOSED OF BY THAT JUDGMENT AND WHO DID NOT DISPUTE THE EXISTENCE OF A N INTERNATIONAL TRANSACTION REGARDING AMP EXPENSES . 60. AS FAR AS CLAUSE (A) IS CONCERNED SMC IS A NON -RESIDENT. IT HAS SINCE 2002 A SUBSTANTIAL SHARE HOLDING IN MSIL AND CAN THEREFORE BE CONSTRUED TO BE A NON-RESIDENT AE OF MSIL. WHILE IT DOES HAVE A NUMBER OF 'TRANSACTIONS' WITH MSIL ON THE ISSUE OF LICENSING OF IPRS SUPPLY OF RAW MATERIALS ETC. THE QUESTION REMAINS WHETHER IT HAS ANY 'TRANSACTION' CONCERNING THE AMP EXPENDITURE. THAT BRINGS US TO C LAUSES (B) AND (C). THEY CANNOT BE READ DISJUNCTIVELY. EVEN IF RESORT IS HAD TO THE RESIDUARY PART OF CLAUSE (B) TO CONTEND THAT THE AMP SPEND OF MSIL IS 'ANY OTHER TRANSACTION HAVING A BEARING' ON ITS 'PROFITS INCOMES OR LOSSE S' FOR A 'TRANSACTION' THERE HAS TO BE TWO PARTIES. THEREFORE FOR THE PURPOSES O F THE MEANS PART OF CLAUSE (B) AND THE 'INCLUDES PART OF CLAUSE (C) T HE REVENUE HAS TO SHOW THAT THERE EXISTS AN 'AGREEMENT' OR 'ARRANGEMENT' OR 'UN DERSTANDING' BETWEEN MSIL AND SMC WHEREBY MSIL IS OBLIGED TO SPEND EXCESSIVEL Y ON AMP IN ORDER TO PROMOTE THE BRAND OF SMC. AS FAR AS THE LEGISLATIVE INTENT IS CONCERNED IT IS SEEN THAT CERTAIN TRANSACTIONS LISTED IN THE EXPLAN ATION UNDER CLAUSES (I) (A) TO (E) TO SECTION 92B ARE DESCRIBED AS 'INTERNATIONAL TRANSACTION'. THIS MIGHT BE ONLY AN ILLUSTRATIVE LIST BUT SIGNIFICANTLY IT DOE S NOT LIST AMP SPENDING AS ONE SUCH TRANSACTION . ITA NO.6021/DEL/2012 116 68..IN OTHER WORDS IT EMPHASISES THAT WHERE THE PRICE IS SOMETHING OTHER THAN WHAT WOULD BE PAID OR CHARGED BY ONE ENTITY FROM ANOTHER IN UNCONTROLLED SITUATIONS THEN THAT WOULD BE THE ALP. THE COURT DOES NOT SEE THIS AS A MACHINERY PROVISION PARTICUL ARLY IN LIGHT OF THE FACT THAT THE BLT HAS BEEN EXPRESSLY NEGATIVED BY THE CO URT IN SONY ERICSSON. THEREFORE THE EXISTENCE OF AN INTERNATIONAL TRANSA CTION WILL HAVE TO BE ESTABLISHED DE HORS THE BLT (II) QUESTION NO.2 IS ANSWERED IN THE NEGATIVE I.E . IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN OTHER WORDS IT IS HELD THAT AMP EXPENSES INCURRED BY MSIL CANNOT BE TREATED AND CATEGORISED AS AN INTERNATIONAL TRANSACTION UNDER SECTION 92B OF THE ACT. ECONOMIC OWNERSHIP OF THE BRAND 77. THE NEXT ISSUE IS CONCERNING THE ECONOMIC OWNER SHIP AND LEGAL OWNERSHIP OF THE BRAND. ACCORDING TO THE REVENUE V IEWING LEGAL OWNERSHIP AS SOMETHING DISTINCT FROM ECONOMIC OWNERSHIP MAY NOT BE THE RIGHT WAY OF LOOKING AT THINGS. 78. IT IS NECESSARY AT THIS JUNCTURE TO EXAMINE THE HISTORY OF THE RELATIONSHIP BETWEEN MSIL AND SMC. WHEN THE LICENCE AGREEMENTS W ERE ORIGINALLY ENTERED IN 1982 MSIL WAS KNOWN AS MARUTI UDYOG LIM ITED (MUL) AND SMC DID NOT HOLD A SINGLE SHARE IN MUL. IN 2003 SMC ACQ UIRED THE CONTROLLING INTEREST IN MSIL. THERE ARE VARIOUS MODELS OF SUZUK I MOTOR CARS MANUFACTURED BY MSIL AND EACH MODEL IS COVERED BY A SEPARATE LICENCE AGREEMENT. UNDER THESE AGREEMENTS SMC GRANTS LICENS E TO MSIL TO MANUFACTURE THAT PARTICULAR CAR MODEL; PROVIDES TEC HNICAL KNOW-HOW AND INFORMATION AND RIGHT TO USE SUZUKIS PATENTS AND T ECHNICAL INFORMATION. IT ALSO GIVES MSIL THE RIGHT TO USE SUZUKIS TRADE MAR K AND LOGO ON THE PRODUCT. PURSUANT TO THE ABOVE AGREEMENT MSIL HAS BEEN USIN G THE CO- BRAND I.E. MARUTI-SUZUKI TRADE MARK AND LOGO FOR MORE THAN 30 YEARS. AS ALREADY NOTED THIS CO-BRAND CANNOT BE USED BY SMC AND IS N OT OWNED BY IT. ITA NO.6021/DEL/2012 117 MSIL'S HIGHER OPERATING MARGINS 86. IN SONY ERICSSON IT WAS HELD THAT IF AN INDIAN ENTITY HAS SATISFIED THE TNMM I.E. THE OPERATING MARGINS OF THE INDIAN ENTER PRISE ARE MUCH HIGHER THAN THE OPERATING MARGINS OF THE COMPARABLE COMPAN IES NO FURTHER SEPARATE ADJUSTMENT FOR AMP EXPENDITURE WAS WARRANTED. THIS IS ALSO IN CONSONANCE WITH RULE 10B WHICH MANDATES ONLY ARRIVING AT THE N ET PROFIT BY COMPARING THE PROFIT AND LOSS ACCOUNT OF THE TESTED PARTY WIT H THE COMPARABLE. AS FAR AS MSIL IS CONCERNED ITS OPERATING PROFIT MARGIN IS 1 1.19% WHICH IS HIGHER THAN THAT OF THE COMPARABLE COMPANIES WHOSE PROFIT MARGI N IS 4.04%. THEREFORE APPLYING THE TNMM METHOD IT MUST BE STATED THAT THE RE IS NO QUESTION OF TP ADJUSTMENT ON ACCOUNT OF AMP EXPENDITURE. AND A COORDINATE BENCH OF THE TRIBUNAL IN THE APPE LLANTS OWN CASE FOR ASSESSMENT YEAR 2007-08 FOLLOWED THE ABOVE DECISIO N OF THE HONBLE HIGH COURT FOR AY 2005-06 & 2006-07 TO DIRECT THE TPO TO DELETE THE ADJUSTMENT ON ACCOUNT OF AMP EXPENSES. 15.13. THESE FINDINGS OF THE HONBLE HIGH COURT HAVE BEEN FOLLOWED IN THE CASES OF HONDA SIEL POWER PRODUCTS LTD VS DCIT (ITA NO 346/2015) & BAUSCH AND LOMB EYECARE INDIA PVT LTD VS ADDL CIT 3 85 ITR 227 AND BY COORDINATE BENCHES OF THIS TRIBUNAL IN THE CASE OF ESSILOR INDIA PVT LTD VS DCIT (ITA NO 29/BANG/2014) GOODYEAR INDIA LIMITED VS. DCIT (ITA NO 5650/DEL/2011) AND LREAL INDIA PRIVATE LIMITED VS DCIT (ITA NO. 7714/MUM/2012 WHEREIN BY PLACING RELIANCE UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZU KI (SUPRA) IT WAS HELD THAT IN THE ABSENCE OF AN AGREEMENT OR ARRANGEMENT BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISE WITH REGARD TO DEVELO PMENT OF BRAND IT CANNOT BE INFERRED THAT THERE EXISTS AN INTERNATION AL TRANSACTION BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISE AND THER EFORE THE QUESTION OF ITA NO.6021/DEL/2012 118 DETERMINATION OF ALP DOES NOT ARISE. WHEREIN IT HAS BEEN REITERATED BY THE COURT THAT THE REVENUE NEEDS TO ESTABLISH ON THE BA SIS OF SOME TANGIBLE MATERIAL OR EVIDENCE THAT THERE EXISTS AN INTERNATI ONAL TRANSACTION OF PROVISION OF BRAND BUILDING SERVICE BETWEEN THE ASS ESSEE AND THE ASSOCIATED ENTERPRISE AND IN THE ABSENCE OF ANY TRA NSACTION THERE IS NO QUESTION OF UNDERTAKING ANY BENCHMARKING ANALYSIS W ITH RESPECT TO AMP EXPENSES. 15.14. IN THE CASE OF LOREAL INDIA PRIVATE LIMITED VS DCI T (ITA NO. 7714/MUM/2012 THE HONBLE MUMBAI BENCH OF THE TRIB UNAL REJECTED THE CLAIM OF THE REVENUE TO SET ASIDE THE MATTER TO THE FILE OF THE TPO FOR FINDING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION HOLD ING AS UNDER: WITH REGARD TO THE SUBMISSIONS OF THE AR THAT THE ISSUE OF AMP SHOULD BE RESTORED BACK TO THE FILE OF THE AO WE WANT TO MEN TION THAT LAW AS A CONCEPT IS SUPPOSED TO EVOLVE WITH PASSAGE OF TIME-IT CANNO T BE STATIC ALWAYS. NON- AVAILABILITY OF A PARTICULAR DECISION OF THE HIGHER FORUM CANNOT JUSTIFY THE RESTORATION OF ISSUE/CASES TO THE FILE OF AO IN EAC H AND EVERY CASE. UNNECESSARY LITIGATION HAS TO BE AVOIDED AND ISSUES HAVE TO BE SETTLED FOR ONCE AND ALL. WE ARE OF THE OPINION THAT AFTER THE JUDGMENTS OF MARUTI SUZUKI AND BAUSCH & LOMB (SUPRA) THERE IS NO SCOPE OF ANY OTHER INTERPRETATION ABOUT THE AMP EXPENDITURE. IN THE CASE UNDER CONSID ERATION THE AO/TPO HAS NOT BROUGHT ANYTHING ON RECORD THAT THERE EXIST ED AND AGREEMENT FORMAL OR INFORMAL BETWEEN THE ASSESSEE AND THE AE TO SHA RE/REIMBURSE THE AMP EXPENDITURE INCURRED BY THE ASSESSEE IN INDIA. IN A BSENCE OF SUCH AN AGREEMENT THE FIRST AND PRIMARY PRECONDITION OF TRE ATING THE TRANSACTION IN QUESTION AN INTERNATIONAL TRANSACTION REMAINS UN-FU LFILLED. CONDUCTING FAR ANALYSIS OR ADOPTING AN APPROPRIATE METHOD IS THE S ECOND STAGE OF TRANSFER PRICING ADJUSTMENTS. THE FIRST THING IS TO FIND OUT WHETHER THE DISPUTED TRANSACTION IN IS INTERNATIONAL TRANSACTION OR NOT. WITHOUT CROSSING THE FIRST THRESHOLD SECOND CANNOT BE APPROACHED. IN THE CASE UNDER CONSIDERATION WE ARE OF THE OPINION THAT AMP EXPENDITURE IS NOT AN I NTERNATIONAL TRANSACTION AND THEREFORE WE ARE NOT INCLINED TO RESTORE BACK T HE ISSUE TO THE FILE OF THE AO. 15.15. SIMILAR VIEW WAS TAKEN IN ESSILOR INDIA PVT LTD VS DCIT (ITA NO 29/BANG/2014) HEINZ INDIA PVT. LTD. VS ACIT (ITA N O. 7732/MUM/2010) ITA NO.6021/DEL/2012 119 HONDA SIEL POWER PRODUCTS LTD. VS. DCIT (ITA NO. 55 1/DEL/2014) AND MONDELEZ INDIA FOODS PVT LTD VS ADDL CIT (ITA NO 547 0/MUM/2012). 15.16. WE THEREFORE WHILE RESPECTFULLY FOLLOWING THE DE CISION IN 381 ITR 117 IN ASSESSEES OWN CASE HOLD THAT THE AMP EXPENS ES INCURRED BY MSIL CANNOT BE TREATED AND CATEGORISED AS AN INTERNATION AL TRANSACTION UNDER SECTION 92B OF THE ACT AND THE QUESTION OF THE TPO MAKING ANY TRANSFER PRICING ADJUSTMENT IN RESPECT OF SUCH TRANSACTION C HAPTER X DOES NOT ARISE. GROUNDS NO 15.1 TO 15.1.37 ARE ALLOWED ACCO RDINGLY. GROUND NO. 15.2-15.2.14 ADJUSTMENT ON ACCOUNT OF PAYM ENT OF ROYALTY FOR USE OF BRAND NAME 15.17. NOW COMING TO THE ASPECT OF ADDITION OF RS. 237.24 CRORE ADJUSTMENT ON ACCOUNT OF PAYMENT OF ROYALTY FOR USE OF BRAND NAME RELEVANT FACTS ARE THAT DURING THE RELEVANT PREVIOU S YEAR THE APPELLANT INTER ALIA ENTERED INTO THE TRANSACTION OF PAYMENT OF ROY ALTY OF RS 494.25 CRORE TO SUZUKI MOTOR CORPORATION (THE ASSOCIATED ENTERPRIS E) IN CONSIDERATION FOR THE RIGHT TO MANUFACTURE AND SELL VARIOUS MODELS OF MOTOR CARS. TNMM WAS APPLIED TO BENCHMARK THE AFORESAID TRANSACTION OF PAYMENT OF ROYALTY AND OP/SALES WAS CONSIDERED AS THE PROFIT LEVEL IND ICATOR. SINCE THE OPERATING PROFIT MARGIN (OP/SALES) OF THE APPELLANT AT 13.17% WAS HIGHER THAN THE AVERAGE OF THE OPERATING PROFIT RATIO OF C OMPARABLE COMPANIES AT 6.60% THE INTERNATIONAL TRANSACTIONS ENTERED INTO B Y THE APPELLANT WERE CONSIDERED AS HAVING BEEN ENTERED AT ARMS LENGTH P RICE APPLYING TNMM. THE TPO HOWEVER DISREGARDED THE BENCHMARKING ANAL YSIS UNDERTAKEN BY THE ASSESSEE AND HELD THAT THE INTERNATIONAL TRANSA CTION OF PAYMENT OF ROYALTY DOES NOT SATISFY THE ARMS LENGTH PRINCIPLE THAT THE APPELLANT WAS NOT JUSTIFIED IN PAYING ANY ROYALTY TO SMC TOWARDS USE OF SMCS TRADEMARK AND ALLOCATED THE ROYALTY PAID BY THE APPELLANT IN THE RATIO OF R&D AND ITA NO.6021/DEL/2012 120 AMP EXPENSES INCURRED BY THE ASSOCIATED ENTERPRISE. THE TPO ACCORDINGLY HELD THAT 48% OF THE TOTAL ROYALTY PAID BY THE APPE LLANT IS TOWARDS USE OF TRADEMARK. THE TPO ACCORDINGLY MADE AN ADJUSTMENT O F RS 237.24 CRORES BEING 48% OF THE TOTAL ROYALTY PAID BY THE APPELLAN T. IN THIS REGARD LD. AR SUBMITTED THAT THE TRIBUNAL IN THE APPELLANTS CASE FOR ASSESSMENT YEAR 2005-06 (ITA NO 5237/DEL/2011) (PARA 10 TO 17 OF TH E ORDER) AND FOR ASSESSMENT YEAR 2006-07 (ITA NO 5120/DEL/2010) (PAR A 7.6 AND 7.7 OF THE ORDER) DELETED SIMILAR ADJUSTMENT ON ACCOUNT OF PAY MENT OF BRAND ROYALTY. FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2006-07 THE TRIBUNAL DIRECTED FOR THE DELETION OF TRANSFER PRICING ADJUSTMENT ON ACCO UNT OF PAYMENT OF ROYALTY IN ASSESSMENT YEAR 2007-08 (ITA NO 5720/DEL /2011) (PARA 28.8 OF THE ORDER). LD. AR FURTHER SUBMITTED THAT SIMILARL Y IN THE CASE OF GOODYEAR INDIA LTD VS DCIT (ITA NO 5650/DEL/2011) HELD THAT PAYMENT OF ROYALTY CANNOT BE DISALLOWED ARBITRARILY ON THE BASIS THAT A BRAND IS WEAK. THE TRIBUNAL FURTHER HELD THAT THERE IS A DIRECT NEXUS BETWEEN THE REVENUE OF THE TAXPAYER AND THE PAYMENT OF ROYALTY AND THE REV ENUE CANNOT CHALLENGE OR DISPUTE THE BENEFIT DERIVED BY THE TAXPAYER FROM PAYMENT OF SUCH ROYALTY. THE TRIBUNAL WHILE DELETING THE ADJUSTMENT MADE BY THE TPO HELD AS UNDER: 12. ANOTHER CONTENTION OF THE TPO THAT THE GOODYEA R BRAND WAS WEAK AND THEREFORE DOES NOT REQUIRE PAYMENT OF ROYALTY IS N OT BROUGHT OUT FROM THE RECORDS. THE AR OF THE ASSESSEE HAS MADE ELABORATE SUBMISSION AND PLACED EVIDENCE ON RECORD TO SHOW THAT GOODYEAR BRAND IS CONSIDERED TO BE ONE OF THE TOP MOST ACCLAIMED BRAND ACROSS THE GLOBE. THER EFORE THERE IS NO MERIT IN THE ALLEGATION OF THE TPO THAT GOODYEAR BRAND HAS N O WORTH AND THEREFORE THE PAYMENT MADE BY THE ASSESSEE FOR USE OF GOODYEA R BRAND IS UNWARRANTED 16. IN LIGHT OF THE ABOVE WE CONCLUDE THAT THER E EXISTS A DIRECT NEXUS BETWEEN THE REVENUE EARNED BY THE ASSESSEE AND THE PAYMENT OF ROYALTY ITA NO.6021/DEL/2012 121 MADE TO THE ASSOCIATED ENTERPRISE FOR USING BRAND N AME AND THEREFORE IT WOULD BE INCORRECT TO ANALYZE THE TRANSACTION OF PA YMENT OF ROYALTY IN ISOLATION. FURTHER THE LD. DR HAD RAISED A CONTENT ION THAT THE ASSESSEE HAS NOT DEMONSTRATED HOW THE PAYMENT FOR ROYALTY BENEFI CIAL TO THE TAXPAYER. WE ARE OF THE OPINION THAT ASCERTAINING WHETHER A SER VICE HAS ACTUALLY BENEFITTED THE ASSESSEE IS NOT WITHIN THE PREROGATI VE OF THE TAX AUTHORITIES 15.18. LD. AR THEREFORE BASING ON THE FINDINGS OF THE CO -ORDINATE BENCHES IN THE PRECEDING YEAR PRAYED TO DELETE THE SIMILAR TRANSFER PRICING ADJUSTMENT ALLEGEDLY ON ACCOUNT OF BRAND ROYALTY A MOUNTING TO RS. 237.24 CRORES. 15.19. PER CONTRA LD. DR PLACED RELIANCE ON THE FOLLOWING COMMENTS OF TPO ON THIS ISSUE FOR AY 2007-08 AND ADOPTED THE SAM E LINE OF ARGUMENTS BEFORE US. 4 TPO COMMENTS: 4.1. ISSUE OF ROYALTY 4.1.1 THE BRIEF FACTS ARE THAT MARUTI SUZUKI INDIA LIMIT ED (EARLIER ALSO KNOWN BY THE NAME OF MARUTI UDYOG LIMITED) IS A WEL L KNOWN SMALL AND MEDIUM SIZED PASSENGER CARS/VEHICLES IN INDIA. IT B ASICALLY CATERS TO THE CONSUMER SEGMENT PLACED IN THE MIDDLE INCOME GROUP AND UPPER MIDDLE INCOME GROUP. 4.1.2 THE ASSESSEE M/S MARUTI SUZUKI INDIA LIMITED IS ENGAGED IN THE MANUFACTURE OF PASSENGER CARS IN INDIA AND IS THE SUBSIDIARY OF JAPAN- BASED SUZUKI MOTOR CORPORATION (SMC). THE ASSESSEE HAD STARTED ITS BUSINESS IN 1982 AS A 100% GOVERNMENT OF INDIA OWNED COMPANY AND IS A LICENSEE MANUFACTURER IN INDIA. AS ON 31.3.2005 SMC HELD 54.21% SHARE IN MSIL AND APPROX . 18.30% WAS HELD BY THE GOI AND THE BALANCE WAS HELD BY INDIAN PUBLI C AND OTHERS. 4.1.3 THE COMPANY MARUTI UDYOG LIMITED CAME INTO EXISTEN CE IN FEB 1981. IT WAS THEN A 100% GOVERNMENT OF INDIA ENTERPRISE. IT ENTERED INTO AN AGREEMENT WITH M/S SUZUKI CORPORATION (SMC) JAPAN F OR TECHNICAL ASSISTANCE AND USE OF TRADEMARKS AND LOGOS. THIS AG REEMENT WAS SIGNED IN OCTOBER 1982 AND AT THAT TIME SMC WAS NOT A RELATED PARTY OR AN ASSOCIATED ENTERPRISE OF M/S MARUTI UDYOG LIMITED (MUL). SMC W AS OFFERED 26% STAKE IN THE COMPANY MARUTI UDYOG LIMITED. BUT THE MAIN C ONTROL WAS WITH THE GOVERNMENT OF INDIA AND ACTIONS WERE SUBJECT TO GOV ERNMENT OF INDIA APPROVAL. ITA NO.6021/DEL/2012 122 4.1.4 THE ASSESSEE HAS PAID ROYALTY TO THE AE SUZUKI MOT OR CORPORATION (IN SHORT SMC) FOR LICENSE FOR THE MANUFACTURE SALE AN D AFTER SALE SERVICE OF MOTOR VEHICLES MANUFACTURED BY IT. THE AGREEMENT ST IPULATES USE OF SUZUKI' AND SUZUKI TRADE MARK ONLY FOR EXPORT OF SUZUKI BRANDED MOTOR VEHICLES (AS STIPULATED IN EXHIBIT B AND CLAUSE 5.05 OF THE AGREEMENT). 4.1.5 UNDER LICENSE AGREEMENT DATED 3 RD JUNE 1992 BETWEEN THE ASSESSEE AND THE AE SMC FOR YE-2 MODEL THE ASSESSEE WAS RE QUIRED TO USE SUZUKI LOGO ON FRONT SIDE OF THE CAR. THE AGREEMENT STIPUL ATES FOR USE OF TRADE MARK MARUTI-SUZUKI 'FOR DOMESTIC SALES. 4.1.6 CLAUSE 3.02 AND 3.03 STIPULATES THAT IMPROVEMENT AN D MODIFICATION OF PRODUCT AND PART BY THE ASSESSEE SHALL BE TREATED AS LICENSED INFORMATION I.E. LEGAL OWNERSHIP OF TECHNOLOGY INTANGIBLE WILL GET TRANSFERRED TO THE AE SMC AND THE ASSESSEE SHALL BE COMPENSATED FOR SUCH IMPROVEMENT AND MODIFICATION. IT IS A MATTER OF RECORD THAT THE ASS ESSEE HAD MADE LOCALIZATION IMPROVEMENT; MODIFICATION AND UP GRADATION OF TECHN OLOGY PROVIDED BY THE AE BY INCURRING HUGE EXPENDITURE ON RESEARCH AND DE VELOPMENT ACTIVITIES. HOWEVER IN REALITY THE AE HAS NEVER COMPENSATED TH E ASSESSEE FOR SUCH IMPROVEMENT AND MODIFICATION. CONTRARY TO THIS IT HAS CHARGED ROYALTY ON CONTINUOUS BASIS FROM ASSESSEE EVEN ON MODIFIED AND UPGRADED TECHNOLOGY. THIS VIEW IS FORTIFIED BY THE FACT THAT THE AE HAS BEEN CHARGING RUNNING ROYALTY AT CERTAIN PERCENTAGE OF THE EXPORT AND DOM ESTIC SALE. 4.1.7 AS PER CLAUSE 5.01 OF THE AGREEMENT THE ASSESSEE W AS RESPONSIBLETO DEVELOP PROMOTE AND EXPAND THE SALE OFPRODUCT AND PARTS MA NUFACTURED BY THE AE WITHIN INDIA: MARUTI SHALL USE ITS BEST EFFORTS TO DEVELOP PRO MOTE AND EXPAND THE SALE OF PRODUCTS AND PARTS WITHIN THE TERRITORY THE AGREEMENT IN FACT HAS RESTRICTED THE ASSESSEE S BUSINESS OPPORTUNITY BY PROHIBITING IT FROM THE MANUFACTURE SALE AND EXPOR T OF PRODUCT OR PARTS OF OTHER COMPETITORS (REFER 5.01 (A) AND 5 03 OF THE A GREEMENT). 4.18 THE CLAUSE 5.02 STIPULATES THAT ALL PRODUCTS A ND PARTS MANUFACTURED IN INDIA SHALL BEAR TRADEMARK OF MARUTI-SUZUKI WHE THER FOR SALE IN TERRITORY OR FOR EXPORT. IT IS IMPORTANT TO CLARIFY HERE THAT MARUTI' OR M ARE REGISTERED TRADEMARKS OF THE ASSESSEE AND SUZUKI IS REGISTERED TRADE MARK OF THE AE SMC. IT IS A FACT THAT MARUTI-SUZU KI IS NOT A REGISTERED COMBINED TRADEMARK. 4.19 THIS AGREEMENT IS ONLY RELATED TO LICENSED TRA DEMARK OF SUZUKI AND IT DOES NOT PROVIDE ANY PROTECTION AND COMPENSATION TO TRADEMAR K OF MARUTI EVEN THOUGH AS PER AGREEMENT BOTH THE TRADEMARKS WERE US ED TOGETHER UNDER COBRANDED TRADEMARK. ITA NO.6021/DEL/2012 123 4.1.10 THE BRAND DEVELOPMENT WAS THE RESPONSIBILITY OF THE MARUTI WITHOUT ANY COMPENSATION. IN FACT ROYALTY WAS BEING PAID FO R USING AND PROMOTING BRAND 'SUZUKI OWNED BY THE AE. 4.1.11 THE TERMS AND CONDITIONS OF THE AGREEMENT CL EARLY STIPULATE THAT ALL THE FUNCTIONS OF PRODUCTION MANUFACTURING SALE E XPORT OF PRODUCTS AND PARTS MODIFICATION IMPROVEMENT OF PRODUCT AND TEC HNOLOGY LOCALIZATION AND ABSORPTION OF TECHNOLOGY BRAND PROMOTION MARKET D EVELOPMENT AFTER SALE SERVICE SUPPORT SERVICE ARE TO BE PERFORMED BY THE ASSESSEE AT ITS OWN ECONOMIC COST AND RISK IN INDIA. IT IS ALSO AMPLY C LEAR FROM THE TERMS AND CONDITIONS THAT ABOVE MENTIONED FUNCTIONS WERE PERF ORMED BY THE ASSESSEE USING ITS OWN ASSETS. 4.1.12 IT WAS NOTED BY THE TPO FROM TERMS AND CONDI TIONS OF THE AGREEMENT THAT RISK OF LICENSE INFRINGEMENT WARRANT OF PRODU CTS AND PARTS MANUFACTURED BY USING TECHNOLOGY OF THE AE. RISK OF IMPROVEMENT AND MODIFICATION OF PRODUCT AND PARTS RISK OF QUALITY CONTROL STANDARDS AND SPECIFICATION RISK OF SALE OF PRODUCTS AND PARTS RISK ASSOCIATED WITH USE OF TRADE MARK RISK OF NOT SELLING COMPETITIVE PRODUCT S RISK OF TECHNICAL MANPOWER WERE ASSUMED BY THE ASSESSEE I.E. ALL THE CRITICAL RISK OF TECHNOLOGY IMPLEMENTATION MANUFACTURING SALE AND AFTER SALE SERVICE WERE ASSUMED BY THE ASSESSEE WHEREAS AE HAD HARDLY ASSUM ED ANY RISK. 4.1.13 LUMP SUM AND RUNNING ROYALTY PAYMENT TO SUZU KI IS PROTECTED FROM FOREIGN EXCHANGE FLUCTUATION AND ALSO FROM TAXES AN D DISPUTES. OVER THE YEARS MARUTI BECAME A SUPER BRAND IN INDIA. THE NAM E MARUTI WAS MADE SYNONYMOUS WITH FAMILY CAR OVER A PERIOD OF MORE TH AN TWO DECADES OF SUSTAINED CAMPAIGNING IN INDIA. 4.1.14 SUZUKI AFTER GETTING CONTROLLING STAKE IN TH E COMPANY REPLACED THE WINGED M MARUTI LOGO WITH S LOGO OF SUZUKI AND REARRANGED AND REPOSITIONED ARRANGEMENT OF THE BRAND NAMES SYMBOL S AND LOGO ON THE VEHICLE. THIS WAS AN INFRINGEMENT ON THE TRADEMARKS AND TRADE NAME OF MARUTI. SINCE MARUTI INDIA HAD BUILD UP THE BRAND W ITH MONETARY AND INTELLECTUAL INPUTS OVER THE YEARS IT HAS THE RIGH T TO BE SUITABLY COMPENSATED FOR THE SAME. BUT THE USE OF 'S' LOGO AND OTHER REP OSITIONING OF THE TRADE NAMES AND LOGO HAD BEEN DONE WITHOUT ANY COMPENSATI ON TO MARUTI UDYOG LIMITED. 4 1.15 WHEN ASSESSEE IS PAYING TO SUZUKI FOR THE U SE OF ITSTRADEMARK THEN ONTHE SAME BASIS IT SHOULD ALSO GET PAID FOR THE ALLOWING SUZUKI TO ALI GN ITSELF WITH BRAND MARUTI IN A MORE EXPLICIT MANNER. OVER THE YEARS THE ASSES SEE HAS EVEN MERGED THE TWO LOGOS OF 'M' AND 'S AND THESE TWO APPEAR 'MS' ON THE MARUTI SHOWROOMS ETC AND EVEN THE NAME HAS BEEN CHANGED FR OM MARUTI UDYOG LIMITED TO MARUTI SUZUKI INDIA LIMITED. ITA NO.6021/DEL/2012 124 4.1.16 THAT THE SCOPE OF THE LICENSE GOVERNS THE US E OF TECHNICAL ASSISTANCE IN THE FORM OF LICENSE INFORMATION AND USE OF LICEN SE TRADE MARK FOR THE TECHNOLOGICAL DEVELOPMENT AND SALES OF PRODUCTS AND PARTS WITHIN THE TERRITORY AND OUTSIDE THE TERRITORY. THUS THE CONST ITUENTS OF ROYALTY ARE TWO. THOUGH THE PAYMENT BEING MADE IS COMPOSITE. 4.1.17 THE RESPONSIBILITY OF DOING THE MARKETING P ART WAS HOWEVER GIVEN TO MARUTI NOT SUZUKI AS BEING LOCAL THEY UNDERSTOOD TH E INDIAN CUSTOMER AND ITS PSYCHE. MARUTI SHALL USE ITS BEST EFFORTS TO DEVELOP PROMO TE AND EXPAND AND THE SALE OF PRODUCTS AND PARTS WITHIN THE TERRITORY. 4.1.18 THUS THE UNDERSTANDING OF THE AGREEMENT SHOW S THAT IT WAS SUZUKI THAT WAS TO PROVIDE LICENSED TECHNOLOGY AND LICENSE D TRADEMARKS AND MARUTI WAS TO MAKE EFFORTS TO DEVELOP PROMOTE AND EXPAND THE SALE. THE PURCHASES WERE ALSO TO BE FROM SUZUKI SUZUKI WAS ALSO ASSURE D OF ITS ROYALTY ON THESE SALES IN ADDITION TO THE LUMP SUM ROYALTY AND WAS ALSO ENTITLED TO THE DIVIDEND ON ITS CAPITAL CONTRIBUTION. THE MARKETING PART ON THE OTHER HAND WAS THE MANDATE OF THE MARUTI. THE REASON BEING IT BEING LOCAL IT IS AWARE OF THE MARKET AND CAN ACCORDINGLY DEVELOP STRATEGY AND DESIGN TO PENETRATE THE MARKET. AND THIS PROVED SUCCESSFUL ALSO. THE LOGO W AS ALSO VERY MUCH INDIAN WITH WINGS ATTACHED TO THE ALPHABET M DENOTING ITS ASSOCIATION WITH AIR AND SPEED. THIS BRIEF HISTORY IS ONLY TO SHOW THAT A TH OUGHT PROCESS HAS GONE INTO THE CREATION OF A BRAND AND ITS LOGO KEEPING IN MIN D THE INDIAN SET UP AND THE LOCAL MINDSET AND THEN AN INTANGIBLE HAS BEEN C REATED. 4.1.19 OVER THE YEARS SITUATION AND CIRCUMSTANCES H AVE CHANGED - THE ECONOMIC CIRCUMSTANCES HAVE CHANGED INDIAN MARKET HAS DEVELOPED WITH THE DISPOSABLE INCOME OF THE MIDDLE CLASS THE ECON OMY HAS OPENED UP. IN THE WAKE OF THESE CHANGES DIVESTMENT HAS HAPPENED I N THE M/S MARUTI UDYOG AND M/S SMC HAS INCREASED IN SHAREHOLDING IN THE SHARE CAPITAL AND AFFAIRS OF THE COMPANY. THE BRIEF HISTORY OF THE IN CREASE OF SHARE CAPITAL OF SMC IN MARUTI AND ITS PERCENTAGE IS GIVEN IN A TABU LAR FORMAT BELOW (FROM THE YEAR 1982 ONWARDS) S.NO. FINANCIAL YEAR NO. OF SHARE IN THE COMPANY VALUE OF THE SHARES PREMIUM PAID FOR ACQUISITION OF SHARES IF ANY PERCENTAGE OF SHARE HOLDING NAME OF THE COMPANY (THE YEAR WHEN IT CHANGED FROM MUL TO MSIL) 1 1982-83 173 000 17 300 000 26.01% ITA NO.6021/DEL/2012 125 2 1983-84 392 000 39 200 000 19.94% 3 1984-85 320 870 32 087 000 28.09% 4 1985-86 554 987 55 498 700 25.40% 5 1986-87 533 000 53 300 000 26.65% 6 1987-88 244 000 24 400 000 25.11% 7 1988-89 2 191 864 219 186 400 40% 8 1992-93 2 204 860 220 486 000 269 50% 9 2002-03 1 216 341 121 634 100 3 180 54.21% 4.1.20 NO INDEPENDENT PARTY WOULD HAVE ALLOWED THE REPLACEMENT OF ITS OWN LOGO OR TRADEMARK ESPECIALLY IN A SEGMENT THAT IT D OMINATES AND ALLOW ANYBODY ELSE TO ATTACH ITS NAME TO IT WITHOUT BEING PROPERLY COMPENSATED FOR IT. THE SITUATION BECOMES EVEN MORE COMPELLING TO D EMAND SUCH COMPENSATION WHEN THE INDIAN ENTITY ITSELF IS PAYIN G ROYALTY FOR THE USE OF BRAND NAME TO SUZUKI. 4.1.21 THE TPO HAS IN FACT BENCHMARKED THIS TRANSAC TION OF PIGGYBACKING THE LOCAL BRAND OF MARUTI WITHOUT THERE BEING ANY PROPE R COMPENSATION FOR IT YEAR AFTER YEAR. THIS COULD ONLY HAPPEN BECAUSE THE AE H AD INCREASED ITS SHAREHOLDING IN THE COMPANY. IT HAS GAINED COMMAND OVER THE AFFAIRS OF THE COMPANY OVER THE YEAR AND CAN EASILY INFLUENCE THE DECISION AND THUS TAKE UP OR USURP INTANGIBLES WITHOUT PAYING ANYTHING FOR IT. ON THE OTHER HAND IT CONTINUES TO CHARGE THE AE FOR USING ITS LOGO AND T RADEMARK ON THE BASIS OF AN AGREEMENT THAT WAS SIGNED WHEN SMC WAS A MINOR S HARE HOLDER IN MARUTI. 4.1.22 IT MAY BE NOTED THAT OVER THE YEARS THE SHAR E OF SUZUKI HAS INCREASED IN MARUTI. THE NAME HAS CHANGED FROM MARUTI UDYOG T O MARUTI SUZUKI. THE BRAND MARUTI HAS BEEN ASSIDUOUSLY BUILT OVER THE YE ARS SINCE ITS INCEPTION BY THE LOCAL STRATEGIST AND MARKETING PROFESSIONALS. T HAT INVOLVED UNDERSTANDING OF THE LOCAL PSYCHE BELIEFS AND SENT IMENTS THE CUSTOMER PROFILES IN TERMS OF DISPOSABLE INCOMES FUTURE INC OMES AND FAMILY VALUES AND THEN FORMULATING A POLICY TO GET A BRAND NAME E TCHED IN THE NICHE SEGMENT OF THE CUSTOMERS. THOUGH THE TECHNOLOGY MAY BE COMING FROM JAPAN BUT THE PRODUCT WAS TO REACH THE INDIAN CUSTOMER AS AN INDIAN PRODUCT MARUTI - SOMETHING LOCALLY MADE AND MARKETED. ITA NO.6021/DEL/2012 126 4.1.23 SUZUKI WHEN IT STARTED ACQUIRING MARUTI KNEW THE REACH OF THE BRAND THE POTENTIAL OF THE BRAND. SUZUKI MAY BE KNOWN WOR LD OVER AS AN AUTOMOTIVE GIANT BUT WAS NOT KNOWN IN INDIAN MARKET S AS MARUTI WAS A KNOWN BRAND IT WAS CONTENT PLAYING SECOND FIDDLE T O MARUTI AS A MAJOR BRAND NAME AND 'M' BEING THE LOGO. THE EXISTENCE OF A BRAND IN A MARKET IS THE FUNCTION OF ITS PRESENCE THERE. THE BRAND CANNO T BE BUILT IN ABSENTIA. TILL THE TIME SUZUKI DID NOT HOLD THE MAJORITY STAKE THE BRAND THAT GOT PROMOTED WAS MARUTI. THE NAME MARUTI WAS AT THE FRONT OF THE VEHICLES WITH THE WINGED M THE LOGO. 4.1.24 IT IS ALSO A FACT THAT SUZUKI IS A MULTINAT IONAL ENTITY AND ITS BUSINESS INTEREST ARE NOT CONFINED ONLY TO CARS. IT IS MANUF ACTURING OTHER TECHNOLOGICAL PRODUCTS AS WELL UNDER THE ONE UMBRELLA OF SUZUKI W ITH A LOGO S. THATS THE REASON IT NOW INTENDS TO PROPAGATE ITS NAME. TH US IT HAS LARGER INTERESTS AND FUTURISTIC MOTIVES TO GEL ITSELF WITH A HOUSEHO LD BRAND LIKE MARUTI. IT CAN FORESEE INDIA AS A GIANT MARKET WITH INCREASING DIS POSABLE INCOME AND THEREBY INCREASE IN DEMAND. IT IS FORESEEING A GREA TER ROLE FOR ITSELF AND ITS PRODUCT BY ASSOCIATING WITH THE LOCAL NAME MARUTI A ND THEREBY MAKING ITSELF VISIBLE AND KNOWN. THEREAFTER IT CAN BY ITSELF LAUN CH ITS PRODUCTS SOLELY IN THE NAME OF SUZUKI THEREBY RELIEVING IT OFF ITS DEPENDE NCE ON MARUTI SUZUKI. THUS THERE ARE BENEFITS FROM THE ASSOCIATION THERE IS A CREATION OF INTANGIBLE AND THERE ARE ANTICIPATED GAINS FROM THE ASSOCIATIO N. 4.1.25 THE HON 'BLE ITAT IS SWAYED BY THE ASSESSEE CONTENTION THAT TPO HAS DISALLOWED THE ROYALTY. IN FACT WHAT THE TPO HAS AC TUALLY DONE IS THAT IT HAS DETERMINED THE VALUE OF THE ALP OF THE CO BRANDING DONE BY SUZUKI . THE VALUE OF THE SAME IS DETERMINED BY EQUATING THE TRA DE MARK ROYALTY MARUTI WAS PAYING TO SUZUKI FOR ITS BRAND. THE LOGIC IS SI MPLE IF MARUTI WAS PAYING LICENSED TRADE NAME ROYALTY TO SUZUKI THEN SUZUKI S HOULD ALSO BE PAYING BACK THE TRADE NAME ROYALTY TO MARUTI. WHEREAS IT I S A FACT THAT ROYALTY BEING PAID IS A COMPOSITE ROYALTY INCLUDING THE USAGE OF TRADEMARK AND TECHNICAL INFORMATION. IT IS SUZUKI WHO HAS BEEN CHARGING THI S ROYALTY EVEN IF ITS NAME WAS USED ONLY ON THE REAR OF THE VEHICLE. 4.1.26 BUT NOW AFTER TAKING OVER THE MANAGEMENT OF THE COMPANY IT HAS REPOSITIONED ITS NAME AND BRAND AND LOGO ON THESE V EHICLES. THE QUESTION IS WHETHER ANY INDEPENDENT PARTY THAT HAD ASSIDUOUSLY OVER THE YEARS HAVE BUILT UP A NAME AND REPUTATION WOULD HAVE ALLOWED S O? AND THAT TOO ABSOLUTELY FREE WHEN THE OTHER PARTY HAD BEEN THROU GHOUT CHARGING IT FOR WHATEVER IT WAS PROVIDING IT BE IT MACHINERY TECHN OLOGY SPARE PARTS TECHNICAL ASSISTANCE CORPORATE GUARANTEE TRADE NA ME TRADE MARK. THAT DOES NOT SEEM TO BE A SITUATION IN NORMAL AND INDEP ENDENT CIRCUMSTANCES. THIS HAS NOT BEEN APPRECIATED BY THE HON BLE ITAT 15.20. HE LASTLY SUBMITTED THAT THE TPO IN ITS COMMENTS HA S RECOMMENDED FOR FILING OF FURTHER APPEAL U/S. 260A BEFORE THE HONBLE HIGH COURT ITA NO.6021/DEL/2012 127 FOR AY 2007-08 AND THESE ARE CONTINUOUS ISSUES FORM ING PART OF THE ASSESSMENT ORDER FOR AY 2006-07 AND 2007-08 ALSO AN D ARE AT PRESENT PENDING ADJUDICATION BEFORE HONBLE DELHI HIGH COUR T. 15.21. THIS ISSUE WAS DEALT WITH BY A COORDINATE BENCH OF THIS TRIBUNAL IN THE AY 2006-07. ON A PERUSAL OF RECORD WE FIND THAT FOR THE AY 2006-07 A COORDINATE BENCH OF THIS TRIBUNAL IN THE ORDER DATE D 24.08.2015 HELD AS FOLLOWS: 7.6. THUS IT IS MANIFEST THAT THE TRIBUNAL IN THE IMMEDIATELY PRECEDING YEAR HAS HELD TWO THINGS. FIRST THAT THE PAYMENT OF ROYALTY UNDER THE AGREEMENT IS BOTH FOR THE USE OF LICENSED INFORMATIO N AND LICENSED TRADEMARK AND THERE CAN BE NO DIVISION OF ROYALTY PAY MENT; AND SECOND THAT BRAND SUZUKI IS VALUABLE AND NOT WORTHLESS AS WAS HELD BY THE TPO. IN SO FAR AS THE FIRST ASPECT OF BIFURC ATION OF ROYALTY PAYMENT INTO TWO PARTS IS CONCERNED ALTHOUGH WE FIN D THAT THE ARGUMENTS PUT FORTH BY THE LD. DR ARE NOT ABSOLUTELY WITHOUT FOUNDATION YET THE PRINCIPLE OF CONSISTENCY LAID DO WN BY THE HON'BLE SUPREME COURT AND HON'BLE HIGH COURTS IN SEVERAL JUDGM ENTS PERSUADES US TO GO WITH THE VIEW TAKEN BY THE TRIBUN AL IN ITS ORDER FOR THE A.Y. 2005-06 MORE SPECIFICALLY BECAUSE THE TPO HAS ALSO RELIED ON HIS FINDING GIVEN FOR THE AY 2005-06 IN ARRIVING AT THE DECISION TAKEN AGAINST THE ASSESSEE IN THE EXTANT YEAR. AS REGARDS THE SECOND ASPECT THE LD. DR HAS NOT BROUGHT ON RECORD ANY FURTHER MATE RIAL TO DEMOLISH THE FINDING GIVEN BY THE TRIBUNAL IN THE EARLIER YE AR ABOUT THE BRAND `SUZUKI' HAVING SUBSTANTIAL VALUE AND THE ROYALTY PAY MENT AT ALP. 7.7. ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTME NT CAN BE MADE BY MAKING A COMPARISON BETWEEN THE TRANSACTED VALUE OF AN INTERNATIONAL TRANSACTION AND ITS ALP. THUS IT IS CL EAR THAT THE AVAILABILITY OF THE TRANSACTED VALUE OF AN INTERNATI ONAL TRANSACTION IS SINE QUA NON. IF SUCH TRANSACTED VALUE IS EITHER NO T SEPARATELY AVAILABLE OR CANNOT BE PRECISELY DETERMINED FROM A CO MBINED VALUE OF A NUMBER OF INTERNATIONAL TRANSACTIONS THEN THE EN TIRE EXERCISE OF DETERMINING ALP FAILS. INSTANTLY WE ARE CONFRONTED W ITH SUCH A PECULIAR SITUATION. THERE IS NO SEPARATE VALUE OF T HE INTERNATIONAL TRANSACTION OF ROYALTY FOR USE OF LICENSED TRADEMARK AND THE TRIBUNAL HAS HELD IN THE EARLIER YEAR THAT IT IS A PAYMENT OF INSEPARABLE ROYALTY FOR USE OF BOTH THE LICENSED INFORMATION AND THE LICE NSED TRADEMARKS. ITA NO.6021/DEL/2012 128 IN SUCH CIRCUMSTANCES AND RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL FOR THE IMMEDIATELY PRECEDING YEAR WE ORDER FOR THE DELETION OF THE ADDITION OF RS.127.195 CRORE ON ACCOUNT OF T RANSFER PRICING ADJUSTMENT OF ROYALTY FOR USE OF LICENSED TRADEMARK. 15.22. FOR THE AY 2007-08 VIDE PARAGRAPH NO 28.8 IN THE ORD ER THIS TRIBUNAL FOLLOWED THE ABOVE ORDER ON THE ISSUE UNDE R SIMILAR SET OF FACTS. SINCE THERE IS NO CHANGE OF LAW ON THIS ASPECT WHI LE RESPECTFULLY FOLLOWING THE DECISION OF THIS TRIBUNAL FOR THE AY 2006-07 WE ORDER FOR THE DELETION OF THE ADDITION OF RS. 237.24 CRORE ON ACCOUNT OF T RANSFER PRICING ADJUSTMENT OF ROYALTY FOR USE OF LICENSED TRADEMARK . GROUNDS 15.2-15.2.14 ARE ALLOWED ACCORDINGLY. GROUND NO 17 NOT ALLOWING CREDIT OF TDS CERTIFICATES CLAIMED THROUGH THE REVISED RETURN AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS 16. IN RESPECT OF THE ASSESSING OFFICER NOT ALLOWING C REDIT OF TDS CERTIFICATES WHICH THE ASSESSEE CLAIMED THROUGH TH E REVISED RETURN AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT IS PRAYED ON BEHALF OF THE ASSESSEE TO DIRECT THE ASSESSING OFFICER TO ALLOW T HE CREDIT OF ADDITIONAL TDS CERTIFICATES CLAIMED THROUGH THE REVISED RETURN OF RS.19 43 693/- WHEREAS THE TOTAL TDS CLAIMED IS RS.32 53 79 843/-. LD. AR FURTHER PRAYED TO DIRECT THE ASSESSING OFFICER TO ALLOW CRE DIT OF ADDITIONAL TDS CERTIFICATES RECEIVED AMOUNTING TO RS.12 62 180/- ( RS.11 31 295 + RS.1 30 885). 17. ON THIS ISSUE LD. DR FAIRLY CONCEDED THAT A COORD INATE BENCH OF THIS TRIBUNAL IN ITS ORDER FOR AY 2007-08 SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER THE CLAIMED TD S CREDIT ON THE BASIS OF REVISED RETURN AFTER AFFORDING OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE AND IT BEING A CONSEQUENTIAL GROUND THE DECISION OF ITAT FOR THE EARLIER YEAR WAS ACCEPTABLE ON THIS ISSUE FOR A Y 2007-08 AND FURTHER ITA NO.6021/DEL/2012 129 APPEAL WAS NOT RECOMMENDED AND PREFERRED. RECORDIN G THE SAME WE ALLOW GROUND NO. 17 FOR STATISTICAL PURPOSE BY SETT ING ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER THE C LAIMED TDS CREDIT ON THE BASIS OF REVISED RETURN AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 18 TO 18.1 ERROR IN COMPUTATION OF INTEREST U/S 234 B 18. IT IS ALLEGED BY THE ASSESSEE THAT THE ASSESSING O FFICER GROSSLY ERRED IN COMPUTING THE INTEREST U/S 234B OF THE ACT IN FI RST ADJUSTING THE INTEREST COMPUTED U/S 234B OF THE ACT ON THE ASSESS ED INCOME AGAINST THE SELF ASSESSMENT TAX PAID BY THE ASSESSEE. LD. AR S UBMITTED THAT INTEREST UNDER SECTION 234B OF THE ACT IS FIRSTLY COMPUTED O N THE ASSESSED INCOME UPTO THE DATE OF PAYMENT OF FIRST SELF ASSESSMENT T AX PRIOR TO FILING THE ORIGINAL RETURN AND THEREAFTER SELF ASSESSMENT TAX PAID BY THE APPELLANT IS FIRST ADJUSTED AGAINST THE INTEREST CALCULATED AS A FORESAID. HOWEVER THE ASSESSING OFFICER FIRST ADJUSTED THE SELF ASSESSMEN T TAX AGAINST THE INTEREST LEVIABLE UNDER SECTION 234B OF THE ACT CALCULATED O N THE BASIS OF ASSESSED INCOME AND SUCH ADJUSTMENT UNDER SECTION 140A OF THE ACT IS PERMISSIBLE ONLY WITH REFERENCE TO INTEREST COMPUTE D WITH REFERENCE TO THE RETURNED INCOME AND NOT WITH REFERENCE TO THE ASSES SED INCOME. LD. AR ARGUED THAT THE METHOD OF COMPUTATION USED BY THE A SSESSING OFFICER IS CONTRARY TO THE METHOD PRESCRIBED IN CBDT CIRCULAR NO.549 DATED 31.10.1989: 182 ITR (ST.) 40 WHICH IS BINDING ON THE INCOME TAX DEPARTMENT. IN THIS RESPECT HE PLACED RELIANCE ON THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF PATS ON TRANSFORMERS LTD. V. DCIT: 103 TTJ 735 WHEREIN THE TRIBUNAL WAS CONSI DERING THE SIMILAR ISSUE REGARDING THE CALCULATION OF INTEREST UNDER S ECTION 234B IN THE LIGHT OF THE EXPLANATION TO SECTION 140A OF THE ACT AND D ECIDED THE ISSUE IN ITA NO.6021/DEL/2012 130 FAVOUR OF ASSESSEE. FURTHER RELIANCE IS PLACED ON T HE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V. C.C CHOKSHI AND CO.: ITA NO. 7791/MUM/2004 (LEX DOC: 390032) WHEREIN THE ASSESSING OFFICER SIMILARLY ADJUSTED THE SELF ASSESSMENT TAX FIRSTLY AGAINST THE INTEREST LEVIABLE UNDER SECTION 234B OF THE ACT ON THE BASIS OF THE ASSESSED INCOME WHEREAS THE ASSESSEE CONTENDED THAT THE SAME NEEDS TO BE COMPUTED WITH REFERENCE TO THE RETURNED INCOME AND NOT THE ASSESS ED INCOME AND WHILE CONCURRING WITH THE CONTENTION OF THE ASSESSEE THE TRIBUNAL OBSERVED AS UNDER: 3.6.2 WE HAVE HEARD BOTH PARTIES PERUSED THE RECOR DS AND CONSIDERED THE MATTER CAREFULLY. THE FACTUAL AND LEGAL BACKGROUND RELATING TO THE ISSUE HAS ALREADY BEEN DISCUSSED IN THE PRECEDING PARAS. THE SECTION 140A PROVIDES THAT IN CASE PAYMENT MADE UNDER THE SAID SECTION FA LLS SHORT OF THE TAX PAYABLE INCLUDING INTEREST UNDER THE SAID SECTION T HEN THE TAX SO PAID SHALL BE FIRST ATTRIBUTED TOWARDS THE INTEREST AND THE BA LANCE AMOUNT SHALL BE ADJUSTED AGAINST THE TAX PAYABLE. IN THIS CASE THE TAX PAYABLE UNDER SECTION 140A ALSO INCLUDED INTEREST PAYABLE UNDER SECTION 2 34B. THE ISSUE IS WHETHER THE INTEREST PAYABLE UNDER SECTION 234B WHI CH HAS TO BE FIRST ADJUSTED AGAINST THE PAYMENT MADE UNDER SECTION 140 A HAS TO BE CALCULATED WITH RESPECT TO TOTAL INCOME AS DECLARED IN THE RETURN OR TOTAL INCOME DETERMINED IN THE REGULAR ASSESSMENT. WE FIN D THAT THE SECTION 140(1B) PROVIDES THAT INTEREST PAYABLE UNDER SECTIO N 234B HAS TO BE COMPUTED ON THE AMOUNT BY WHICH THE ADVANCE PAID FA LLS SHORT OF ASSESSED TAX AND THE ASSESSED TAX FOR THE PURPOSE OF THIS SU B-SECTION HAS BEEN DEFINED IN THE EXPLANATION TO MEAN THE TAX ON TOTAL INCOME AS DECLARED IN THE RETURN AS REDUCED BY TAX DEDUCTED/COLLECTED AT SOU RCE ETC. THEREFORE WE AGREE WITH THE SUBMISSION MADE BY LD. A.R THAT THE INTEREST PAYABLE UNDER SECTION 234 B FOR THE PURPOSE OF ADJUSTMENT AGAINST THE TAX PAID UNDER SECTION 140A HAS TO BE COMPUTED WITH RESPECT TO ASS ESSED TAX DETERMINED ON THE BASIS OF TOTAL INCOME DECLARED IN THE RETURN . BUT THIS IS ONLY FOR THE LIMITED PURPOSE OF ADJUSTMENT OF PAYMENT MADE U/S. 140A AGAINST INTEREST PAYABLE UNDER SECTION 234B WHILE MAKING COMPUTATIO N OF INTEREST PAYABLE BY THE ASSESSEE UNDER SECTION 234B WHICH HAS TO BE COMPUTED WITH RESPECT TO THE TOTAL INCOME DETERMINED IN REGULAR ASSESSME NT AS PER THE DEFINITION OF ASSESSED TAX GIVEN IN SECTION 234B. THE ASSESSEE HA S ALSO FOLLOWED THE SAME PROCEDURE WITH WHICH WE AGREE. THE ORDER OF CI T(A) CONFIRMING THE METHOD FOLLOWED BY THE AO IS THEREFORE SET ASIDE AN D THE CLAIM OF THE ASSESSEE IS ALLOWED. ITA NO.6021/DEL/2012 131 18.1. LASTLY HE BROUGHT IT TO OUR NOTICE THAT THIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE IN APPELLANTS OWN CASE FOR AY 2007-08. LD. AR THEREFORE PRAYED TO DIRECT THE ASSESSING OFFICER T O RECOMPUTE INTEREST UNDER SECTION 234B OF THE ACT AS AFORESAID. STATI NG IT TO BE A CONSEQUENTIAL GROUND LD. DR SUBMITTED THAT THE DEC ISION OF ITAT WAS ACCEPTABLE ON THIS ISSUE FOR AY 2007-08 AND NO FURTH ER APPEAL WAS RECOMMENDED. 18.2. WE HAVE GONE THROUGH THE OBSERVATIONS OF THE TRIBUN AL ON THIS ASPECT FOR THE AY 2007-08 AND VIDE PARAGRAPH NO. 34. 1 IT WAS OBSERVED THAT - FOLLOWING THE DECISION OF MUMBAI BENCH OF THE IT AT IN THE CASE OF ACIT VS. C.C. CHOKSHI & CO. (SUPRA) ON THE ISSUE WE HOL D THAT THE INTEREST PAYABLE UNDER SEC. 234B FOR THE PURPOSE OF ADJUSTME NT AGAINST THE TAX PAID UNDER SEC. 140A OF THE ACT HAS TO BE COMPUTED WITH RESPECT TO ASSESS TAX DETERMINED ON THE BASIS OF TOTAL INCOME DECLARE D IN THE RETURN. THIS IS ONLY FOR THE LIMITED PURPOSE OF ADJUSTMENT OF PA YMENT MADE UNDER SEC. 140A OF THE ACT AGAINST INTEREST PAYABLE UNDER SEC. 234B OF THE ACT WHILE MAKING COMPUTATION OF INTEREST PAYABLE BY THE ASSESSEE UNDER SEC. 234B WHICH HAS TO BE COMPUTED WITH RESPECT TO TOTAL INCOME DETERMINED IN REGULAR ASSESSMENT AS PER THE DEFINIT ION OF ASSESSED TAX GIVEN IN SEC. 234B OF THE ACT. WE THUS SET ASIDE TH E MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN VIE W OF THE ABOVE FINDING IN THE CASE OF C.C.CHOKSHI & CO. (SUPRA) AFTER HEAR ING THE ASSESSEE. 18.3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WHILE F OLLOWING THE ABOVE VIEW TAKEN BY A COORDINATE BENCH OF THIS TRIB UNAL FOR THE IMMEDIATELY PRECEDING YEAR WE SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN VIE W OF THE ABOVE FINDING IN THE CASE OF C.C.CHOKSHI & CO. (SUPRA) AF TER HEARING THE ASSESSEE. GROUNDS NO 18 AND 18.1 ARE THUS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.6021/DEL/2012 132 20 ERRORS IN COMPUTATION OF INTEREST U/S 234D 19. THE AMOUNT OF INTEREST CHARGEABLE U/S 234D OF THE INCOME TAX ACT HAS BEEN WRONGLY COMPUTED AT RS. 12 83 50 586/- INS TEAD OF RS.12 63 11 186/-. THE PAYMENT OF SELF-ASSESSMENT T AX OF RS.1 31 57 417/- MADE ON 27.03.2010 AT THE TIME OF FILING THE REVISED RETURN OF INCOME SEEMS TO HAVE BEEN IGNORED IN THE COMPUTATION OF INTEREST U/S 234D OF THE ACT. SINCE THE GRIEVANCE COMPLAINED BY THE ASSESSEE IS ONLY OF ARITHMETICAL ERROR IN NATURE W E DIRECT THE AO TO CONSIDER THE SAME FOR RE-COMPUTATION. 20. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOW ED IN PART FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 09.11.2017 SD/- SD/- (N.K. SAINI) (K.N.CHARY) ACCOUNTANT MEMBER JUDIC IAL MEMBER DATED: 09.11.2017 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI ITA NO.6021/DEL/2012 133