FAG BEARINGS INDIA LIMITED, Baroda v. THE DY. COMMISSIONER OF I.TAX, CIRCLE-1., Baroda

ITA 792/AHD/2006 | 2001-2002
Pronouncement Date: 30-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 79220514 RSA 2006
Assessee PAN AAACF3357Q
Bench Ahmedabad
Appeal Number ITA 792/AHD/2006
Duration Of Justice 5 year(s) 5 month(s) 30 day(s)
Appellant FAG BEARINGS INDIA LIMITED, Baroda
Respondent THE DY. COMMISSIONER OF I.TAX, CIRCLE-1., Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 30-09-2011
Date Of Final Hearing 13-07-2011
Next Hearing Date 13-07-2011
Assessment Year 2001-2002
Appeal Filed On 31-03-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD .. !' #$ #$ #$ #$ %% % & ' ( ' BEFORE SHRI G.D.AGARWAL VICE-PRESIDENT (AZ) AND SHRI MUKUL KR.SHRAWAT JUDICIAL MEMBER 1. $./ I.T.A. NO.792/AHD/2006 2. $./ I.T.A. NO.816/AHD/2006 ( * * * * / / / / ASSESSMENT YEAR : 2001-02) 1.FAG BEARING INDIA LTD. P.O. MANEJA BARODA 2. ACIT CIRCLE-1(2) BARODA / VS. 1. DCIT CIRCLE-1 BARODA 2. FAG BEARING INDIA LTD. P.O.MANEJA BARODA '+ ( $./- $./ PAN/GIR NO. : AAACF 3357 Q ( +. / // / APPELLANTS ) .. ( /0+. / RESPONDENTS ) +. 1 ( / APPELLANT BY : SHRI A.V. SONDE & SHRI MILIN MEHTA ARS /0+. 2 1 ( / RESPONDENT BY : SHRI RABINDRA KUMAR CIT D.R. %3 2 & / / / / DATE OF HEARING : 13/07/2011 45* 2 & / DATE OF PRONOUNCEMENT : 30/09/2011 (6 / O R D E R PER SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER : FOR ASSESSMENT YEAR 2001-02 THESE ARE CROSS APPEAL S BY THE ASSESSEE AS WELL AS BY THE REVENUE ARISING FROM THE ORDER OF CIT(A)-III BARODA DATED 27/01/2006. BOTH THESE APPEALS HAVE B EEN HEARD TOGETHER AND HEREBY DECIDED THROUGH THIS COMMON ORDER. FIRS T WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE. ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 2 - (A) ASSESSEES APPEAL ITA NO.792/AHD/2006 2. GROUND NO.1 READS AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CONSIDERING LUMP SUM PAYMENT OF RS.43.10 LACS ON AC COUNT OF KNOWHOW FEES AS CAPITAL EXPENDITURE. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AL SO ERRED IN FACT AND IN LAW IN ENHANCING THE DISALLOWANCE ON ACCOUNT OF ROYALTY BY A SUM OF RS.4.90 LACS IN RESPECT OF APPL ICABLE TDS PAID ON SUCH AMOUNT OF KNOWHOW FEES AS PER THE TERM S OF AGREEMENT AND TREATING THE SAME AS CAPITAL EXPENDIT URE PRIMARILY ON THE GROUND THAT IT IS A CAPITAL EXPEND ITURE. 2.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT 1961 DATED 30/0 3/2004 WERE THAT THE ASSESSEE-COMPANY IS IN THE BUSINESS OF MANUFACTURI NG OF BALL-BEARINGS. IT WAS STATED BY THE AO THAT THE ASSESSEE WAS IN T HE SAID BUSINESS SINCE 1996. IT WAS NOTED BY THE AO THAT AN AGREEMENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND FAG AUTOMOBILTECHNIK AG DATED 30/03/2000. THAT AGREEMENT WAS IN RESPECT OF A KNOW-HOW TO BE PROVIDED BY THE SAID COLLABORATOR TO ASSESSEE CALLED AS INDIAN COMPANY. THAT KNOW-HOW WAS IN RESPECT OF MANUFACTURING OF CERTAIN KINDS OF BALL-BEARINGS LISTED THEREIN. AS PER CLAUSE-2 THE CHARACTER OF THE KN OW-HOW WAS AS FOLLOWS:- 2. THE KNOWHOW SHALL : (A) BE IN LINE WITH THE PROCESS OF MANUFACTURE OF THE PRODUCTS BEING FOLLOWED BY THE INDIAN COMPANY; AND (B) INCLUDE: ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 3 - (I) DEVELOPMENTS AND IMPROVEMENTS IN THE SAID PROCESS O F MANUFACTURE; (II) DESIGNS OF THE PRODUCTS; (III) SELECTION OF MACHINERY AND EQUIPMENT FOR THE MANUFACTURE OF THE PRODUCTS; (IV)DESIGN(S) OF THE PLANT/S FOR THE MANUFACTURE OF THE PRODUCTS AS AND WHEN REQUIRED IN REASONABLE JUDGEME NT OF THE COLLABORATOR; AND (V) KNOWHOW FOR THE VALIDATION AND TESTING OF THE PRODUCTS. 2.2. IN CONSIDERATION TO PROVIDE THE SAID KNOW-HO W THE INDIAN COMPANY WAS REQUIRED TO PAY THE COLLABORATOR THE AMOUNT AS PER THE FOLLOWING TERMS:- (1) A LUMP SUM FEE OF DM 600 TDM NET OF INDIAN T AXES AS FOLLOWS: FIRST 1/3 RD AFTER THE AGREEMENT HAS BEEN FILED WITH THE RESERV E BANK OF INDIA AND THE AUTHORISED DEALER IN FOREIGN EXCHANGE. SECOND 1/3 RD ON DELIVERY OF KNOW-HOW DOCUMENTATION; AND THIRD AND FINAL 1/3 RD ON COMMENCEMENT OF COMMERCIAL PRODUCTION OR FOUR YEARS AFTER THE PROPOSAL IS APPROVED BY THE RESERVE BANK OF INDIA AND AGREEMENT IS FILED WITH THE AUTHORISED DEALER IN FOREIGN EXCHANGE WHICHEVER IS EARLIER. (2) A SUM EQUAL TO 5 PERCENT NET OF INDIAN TAXES O F THE NET EX- FACTORY SALE PRICE OF THE PRODUCTS. 2.3. IT WAS ASKED FROM THE ASSESSEE TO EXPLAIN AS T O WHY THE PAYMENT OF ROYALTY FOR KNOW-HOW SHOULD NOT BE CONSIDERED AS C APITAL EXPENDITURE. ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 4 - IN COMPLIANCE IT WAS STATED THAT THE AMOUNT WAS PA ID IN RESPECT OF RENDERING AND ON-GOING TECHNICAL SERVICES. IT WAS ALSO EXPLAINED THAT THE CHARACTER OF THE KNOW-HOW WAS A RECURRING FEES PAID AT SPECIFIED PERCENTAGE ON NET SALES. IT WAS ALSO MENTIONED THA T THE PAYMENT WAS REVENUE IN NATURE AS ENVISAGED IN SECTION 40(A)(I) THEREFORE NECESSARY TDS HAD ALSO BEEN DEDUCTED. THE AO WAS NOT CONVIN CED AND IN HIS OPINION THE KNOW-HOW WAS FOR THE PURPOSE OF INTRODU CTION OF A NEW PRODUCT AND FOR UPGRADATION OF QUALITY OF CERTAIN PRODUCTS. THE KNOW- HOW WAS TO BE APPLIED FOR THE PURPOSE OF DESIGN OF A NEW PRODUCT AND ALSO DEVELOPMENT AND IMPROVEMENT OF MANUFACTURING O F THE PRODUCT. THE AO HAS ALSO OBSERVED THAT THE PROVISIONS OF DED UCTION OF TDS DID NOT NECESSARILY MEANS THAT THE EXPENDITURE HAD QUAL IFIED FOR DEDUCTION AS A REVENUE EXPENDITURE. ACCORDING TO AO THE VERY B EGINNING OF THE PROVISION OF SECTION 40 HAS OVERRIDING POWER ON OTH ER SECTIONS SUCH AS SECTIONS 30 TO 38. HE HAS EXPLAINED THAT AN EXPEN DITURE WHICH IS WITHIN THE PURVIEW OF SECTIONS 30 TO 38 AS WELL AS SECTION 40 THEN THE PROVISIONS OF SECTION 40 SHALL PREVAIL. AS PER AO QUOTE FOR THE PURPOSE OF SECTION 40(A)(I) ACCORDING TO CLAUSE (A) OF THE EXPLANATION TO THAT SECTION THE EXPRESSION ROYALTY SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO SECTION 9(1) (VI) CLAUSE (B) OF THE EXPLANATION TO SECTION 40(A)(I) COINS A DEFINITION OF THE EXPRESSION FEE FOR TECHNICAL SE RVICES SO AS TO HAVE THE SAME MEANING AS IN EXPLANATION 2 TO SECTION 9(1)(VI I). TECHNICAL KNOW- HOW FOR INDUSTRIAL INFORMATION AND TECHNICAL SERVIC ES ARE COVERED UNDER THE PROVISIONS OF SECTION 32(1)II) OF THE INCOME-TA X ACT. UNQUOTE. IN THE RESULT THE ASSESSEES CLAIM THAT THE SAID EXPE NDITURE WAS REVENUE IN NATURE WAS DISALLOWED. HOWEVER IT WAS HELD THAT THE ASSESSEE WAS ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 5 - ELIGIBLE FOR CLAIM OF DEPRECIATION. THE ISSUE WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. THE LD.CIT(A) HAS DISCUSSED THE CLAUSES OF THE I MPUGNED AGREEMENT AND RELATED FACTS IN DETAIL. LD.CIT(A) H AS ALSO DISCUSSED CERTAIN CASE LAWS. LD. CIT(A) HAS ALSO CALLED FOR A REMAND REPORT AND IN THAT REMAND REPORT IN RESPECT OF TECHNICAL SERVI CES OF RS.43.10 LACS IT WAS REPORTED THAT FOR A.Y.2002-03 AS WELL THE SAID PAYMENT WAS CAPITALIZED AND DEPRECIATION WAS ALLOWED. IT WAS A LSO MENTIONED IN THE REMAND REPORT THAT ALTHOUGH THE PAYMENT WAS IN THRE E INSTALLMENTS UPON THE FULFILLMENT OF TERMS BUT THE NATURE HAD CLEARLY INDICATED THAT THE ASSESSEE HAD ACQUIRED AN ASSET AS WELL AS AN ADVANT AGE OF ENDURING NATURE BY WAY OF THE SAID PAYMENTS. LD. CIT(A) HAS EXAM INED THE SAID AGREEMENT DATED 30/03/2000 IN DETAIL AS IS EVIDENT FROM THE DISCUSSION REPRODUCED BELOW:- 7.7 AGREEMENT DATED 30-3-2000 WITH FAG AUTOMOBILE TECHNIK AG : AS PER THIS AGREEMENT THE COLLABORATOR WHICH IS A SUBSIDIARY OF FAG KULGELFISCHER GEORG SCHAEFER AG ( FAG) AGREED TO PROVIDE KNOW-HOW FOR THE MANUFACTURE OF V ARIOUS TYPES OF BALL AND ROLLER BEARINGS AS REFERRED IN TH E AGREEMENT. THE KNOW-HOW SHALL BE IN LINE WITH THE PROCESS OF MANUFACTURE OF THE PRODUCTS BEING FOLLOWED BY TH E INDIAN COMPANY AND INCLUDE: (I) DEVELOPMENTS AND IMPROVEMENTS IN THE SAID PROCESS OF MANUFACTURE; (II) DESIGNS OF THE PRODUCTS AND OF RELATED TOOLS; ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 6 - (III) SELECTION OF MACHINERY AND SUPPORT EQUIPMENT FOR THE MANUFACTURE OF THE PRODUCTS (IV) DESIGN(S) OF THE PLANT/S AND SUPPORT AUXILIARY EQUIPMENT FOR THE MANUFACTURE OF THE PRODUCTS AS AND WHEN REQUIRED IN REASONABLE JUDGEMENT OF THE COLLABORATOR; (V) AND KNOW-HOW FOR THE VALIDATION AND TESTING OF THE PRODUCTS. 7.7.1. THE KNOW-HOW MAY BE PROVIDED BY THE COLLAB ORATOR TO THE INDIAN COMPANY IN ONE OR MORE OF THE FOLLOWI NG FORMS: (A) IN THE FORM OF DATA DOCUMENTATION DRAWINGS SPECIFICATIONS WRITTEN ADVICE OR IN ANY OTHER WRITTEN OR GRAPHIC FORM WHATSOEVER. (B) THROUGH EXPERTS DEPUTED BY THE COLLABORATOR TO THE WORKS OF THE INDIAN COMPANY TO IMPART TRAINING TO ITS EMPLOYEES; AND (C) THROUGH TECHNICIANS DEPUTED BY THE INDIAN COMPANY TO THE WORKS OF THE COLLABORATOR OR THE WORKS OF ANY OF THE COLLABORATORS ASSOCIATED COMPANIES. 7.7.2. IN CONSIDERATION OF THE COLLABORATOR PROVID ING TO THE INDIAN COMPANY THE KNOW-HOW THE INDIAN COMPANY SHA LL PAY TO THE COLLABORATOR: (1) A LUMP SUM FEE OF DM 600 TDM NET OF INDIAN TAXES AS FOLLOWS: (I) FIRST 1/3 RD AFTER THE AGREEMENT HAS BEEN FILED WITH THE RESERVE BANK OF INDIA AND THE AUTHORIZED DEALER IN FOREIGN EXCHANGE. (II) SECOND 1/3 RD ON DELIVERY OF KNOW-HOW DOCUMENTATION; AND ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 7 - (III) THIRD AND FINAL 1/3 RD ON COMMENCEMENT OF COMMERCIAL PRODUCTION OR FOUR YEARS AFTER THE PROP OSAL IS APPROVED BY THE RESERVE BANK OF INDIA AND AGREEMENT IS FILED WITH THE AUTHORIZED DEALER IN FO REIGN EXCHANGE WHICHEVER IS EARLIER. (2) A SUM EQUAL TO 5 PERCENT NET OF INDIAN TAXES O F THE NET EX-FACTORY SALE PRICE OF THE PRODUCTS. (3) THE SUMS PAYABLE TO THE COLLABORATOR IS PAYABL E ALSO IN RESPECT OF THE PRODUCTS THAT MAY BE IN STOCK WITH T HE INDIAN COMPANY AT THE TIME OF EXPIRATION OR SOONER TERMINA TION OF THE AGREEMENT. 3.1. THE OBSERVATION OF THE LD.CIT(A) WAS THAT AS P ER THE TERMS AND CONDITIONS OF THE AGREEMENT THERE WERE TWO KINDS OF PAYMENT; ONE WAS A LUMP-SUM CONSIDERATION AND THE OTHER WAS RECURRING IN NATURE DEPENDING UPON THE NET EX-FACTORY SALE PRICE. AS REGARD TO THE LUMP-SUM CONSIDERATION AS PER LD.CIT(A) IT WAS STATED TO B E RS.43.10 LACS. AT THAT JUNCTURE LD.CIT(A) HAS QUOTED CIT VS. SHARDA BINDI NG WORKS 102 ITR 187 (MAD.) FOR THE PROPOSITION THAT WHERE A FIXED A NNUAL SUM IS PAID TOWARDS ROYALTY THEN THE SAME IS IN THE NATURE OF CAPITAL EXPENDITURE. THE LD.CIT(A) HAS THEREFORE CONCLUDED THAT THE SAID LUMP-SUM CONSIDERATION WAS CAPITAL IN NATURE HENCE THE ACTI ON OF THE AO WAS CONFIRMED. THE SAID VIEW OF THE LD.CIT(A) IS NOW CHALLENGED BEFORE US. 4. FROM THE SIDE OF THE ASSESSEE MR. A.V. SONE & MR .MILIN MEHTA APPEARED. THE FIRST PLANK OF ARGUMENT OF MR. A.V. SONDE WAS THAT THE TERMS OF PAYMENT ITSELF DEMONSTRATE THAT THE INSTAL LMENTS WERE CONNECTED WITH THE SALES OF THE COMPANY. THE INSTALLMENT WA S DEPENDING UPON THE ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 8 - COMMERCIAL PRODUCTION OF THE ASSESSEE. THIS TERMS OF PAYMENT BEING LINKED WITH THE REVENUE GENERATED BY THE COMPANY TH EREFORE NOT FOR THE PURPOSE OF ACQUISITION OF AN ASSET BUT FOR RUNNING OF THE MANUFACTURING ACTIVITY. HE HAS FURTHER ARGUED THAT THE FACTORY HAD ALREADY BEEN ESTABLISHED IN THE YEAR 1996 AND THEREFORE THE KNOW -HOW WAS IN RESPECT OF RUNNING OF A PLANT WHICH HAD ALREADY SET UP. HIS NEXT PLANK OF ARGUMENT WAS THAT DEPRECIATION IS ALLOWABLE IN RESP ECT OF A KNOW-HOW AS PER SECTION 32(1)(II) OF THE ACT FOR ACQUISITION OF AN INTANGIBLE ASSET. HOWEVER NO SUCH INTANGIBLE ASSET WAS ACQUIRED BY T HE ASSESSEE. FOR THIS PROPOSITION LD.AR HAS DRAWN OUR ATTENTION ON SOME OF THE CLAUSES OF THE AGREEMENT RELEVANT CLAUSES REPRODUCED BELOW:- (E) THE APPELLANT DOES NOT HAVE ABSOLUTE UNLIMITED AND FREE RIGHT TO USE THE TECHNICAL KNOW-HOW AS ENVISAGED IN THE DEFINITION OF THE TERM PROPERTY AS IS CLEAR FROM THE FOLLOWI NG CLAUSES OF THE AGREEMENT: (A) CLAUSE 7 THE INDIAN COMPANY SHALL FOLLOW STRICTLY THE KNOW-H OW AND SHALL NOT WITHOUT THE EXPRESS PERMISSION IN WRITING OF TH E COLLABORATORS DEVIATE THEREFROM. (B) CLAUSE 8 THE INDIAN COMPANY SHALL NOT MAKE USE OF THE KNOW-H OW OTHERWISE THAN FOR THE PURPOSE FOR WHICH IT IS INTE NDED IN TERMS OF THE AGREEMENT. (C) CLAUSE 9 SUBJECT TO WHAT HAS BEEN PROVIDED FOR UNDER THE CLA USE IMMEDIATELY AFOREGOING THE INDIAN COMPANY SHALL EN SURE THAT THE KNOW-HOW IS NOT COMMUNICATED TO ANY PERSON OTHER TH AN RESPONSIBLE EMPLOYEES OF THE INDIAN COMPANY ITS SU B-CONTRACTORS OR RESPONSIBLE EMPLOYEES OF THE SUB-CONTRACTOR WHO MAY REQUIRE IT ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 9 - FOR THE PERFORMANCE OF THEIR FUNCTIONS AND WHO SHAL L HAVE PRIOR TO SUCH COMMUNICATION UNDERTAKEN IN WRONG TO TREAT IT AS CONFIDENTIAL. (D) CLAUSE 10 THE OBLIGATIONS UNDERTAKEN BY THE INDIAN COMPANY UN DER THE PROVISIONS OF CLAUSES 8 & 9 AFOREGOING SHALL CONTIN UE TO REMAIN IN FORCE EVEN AFTER EXPIRY OR SOONER TERMINATION OF TH IS AGREEMENT. (E) CLAUSE 12 NEITHER OF THE PARTIES SHALL ASSIGN THIS AGREEMENT OR ANY PART HEREOF OR ANY RIGHT HEREUNDER WITHOUT THE PREVIOUS CONSENT IN WRITING OF THE OTHER PARTY. (F) CLAUSE 13 THE INDIAN COMPANY SHALL NOT DURING THE CURRENCY OF THIS AGREEMENT EXCEPT WITH THE PREVIOUS CONSENT IN WRIT ING OF THE COLLABORATOR DIRECTLY OR INDIRECTLY RECEIVE OR SE EK TO RECEIVE FROM ANY THIRD PARTY AND KNOW-HOW RELATIVE TO THE PRODUC TS. (G) CLAUSE 14 THE INDIAN COMPANY MAY EXPORT THE PRODUCTS MANUFACT URED BY IT WITH PRIOR APPROVAL IN WRITING OF THE COLLABORATORS . (H) IN TERMS OF THE CLAUSE 24(A) OF THE AGREEMENT UP ON TERMINATION OF THE AGREEMENT THE INDIAN COMPANY HA S TO RETURN TO THE COLLABORATORS THE KNOW-HOW AS HAS BEEN PROVIDED TO IT BY THE COLLABORATORS. 4.1. LD.AR HAS ALSO QUOTED A CLARIFICATION OF CBDT DATED 9 TH JULY-1969 IN THE FOLLOWING MANNER:- (F) IT HAS BEEN CLARIFIED BY THE CENTRAL BOARD OF DIRECT TAXES VIDE CIRCULAR NO.21 (F NO.7A/40/68-IT (A-II) DATE D 9 TH JULY 1969 THAT IF WHAT HAS BEEN ACQUIRED UNDER THE AGREEMENT IS MERELY A LICENSE FOR THE USER FOR A LIMITED PERIOD OF A TE CHNICAL KNOWLEDGE ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 10 - OF THE FOREIGN PARTICIPANT TOGETHER WITH OR WITHOU T THE RIGHT TO USE THE PATENTS AND TRADEMARKS OF THE FOREIGN PARTY TH E PAYMENT WOULD NOT BRING INTO EXISTENCE AN ASSET OF ENDURING ADVANTAGE TO THE INDIAN PARTICIPANT AND SHOULD BE REGARDED AN E XPENDITURE INCURRED FOR THE PURPOSE OF RUNNING THE BUSINESS DU RING THE PERIOD OF THE AGREEMENT. 4.2. LD.AR HAS ALSO GIVEN AN EXAMPLE THAT PAYMEN T MADE TO A HOTEL FOR ROOM RENT IS MERELY A ROOM TARIFF THEREFORE RIGHT TO USE IS LIMITED FOR A PERIOD AND THAT ARGUMENT WAS RAISED BEFORE LD.CIT(A ) IN THE FOLLOWING MANNER:- (H) THIS IS THE FIRST YEAR IN WHICH THE ASSESSING OFFICER HAS DISALLOWED PAYMENTS FOR RUNNING ROYALTY. THE APPEL LANT IS MAKING THE PAYMENTS SINCE LAST SEVERAL YEARS AND ALL ASSES SMENTS FROM A.Y. 1996-97 TO A.Y. 2000-01 WERE COMPLETED U/S.143 (3) OF THE ACT. IN NONE OF THE YEARS THE PAYMENTS WERE DISALL OWED. THE FACTS RELATING TO THE SAID YEARS AND IN THE YEAR UNDER CO NSIDERATION ARE THE SAME. THE CONTENTION OF THE ASSESSING OFFICER THAT THE APPELLANT IS ACQUIRING THE KNOW-HOW IS FACTUALLY IN CORRECT. THE APPELLANT IS NOT ACQUIRING ANY KNOW HOW. THE APPEL LANT ONLY HAS A RIGHT TO USE. THE RIGHT TO USE IS TERMINATED AS SOON AS THE APPELLANT FAILS TO MAKE THE PAYMENT. IN ALL THE AG REEMENTS THERE IS A SPECIFIC CLAUSE DEALING WITH THE TERMINATION OF T HE AGREEMENT AS SOON AS THERE IS DEFAULT ON THE PART OF THE APPELLA NT. THE KNOW- HOW IS THE ASSET OF THE RESPECTIVE COMPANY AND NOT THE APPELLANT. THE APPELLANT IS ONLY GIVEN A LICENSE TO USE IT. A S FAR AS THE APPELLANT IS CONCERNED THE APPELLANT HAS ONLY A LIM ITED RIGHT TO USE IT. THIS SITUATION CAN BE COMPARED WITH THE PAYMEN TS TO A HOTEL FOR ROOM RENT. A PERSON DOES NOT BECOME THE OWNER OF T HE HOTEL BY PAYING THE ROOM TARIFFS. HE HAS A LIMITED RIGHT TO STAY IN THE HOTEL FOR THE PERIOD THE PAYMENTS ARE MADE. AS SOON AS T HE PAYMENTS ARE STOPPED THAT RIGHT IS LOST. SIMILAR IS THE CAS E OF THE APPELLANT ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 11 - HERE. THE APPELLANT IS ENTITLED TO THE KNOW-HOW TI LL THE PERIOD OF THE AGREEMENT AND NOT BEYOND IT. 4.3. IN SUPPORT OF THE ABOVE ARGUMENTS CASE LAWS CITED WERE AS UNDER: SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. SAYAJI INDUSTRIES LTD. VS. DY.CIT 68 TTJ 851 (ITAT DELHI) 2. GOODYEAR INDIA LTD. VS. ITO 73 ITD 189 (ITAT DELHI) 3. WELLMAN INCANDESCENT INDIA LTD. VS. DY.CIT 55 ITD 338 (ITAT CALCUTTA) 4. DY.CIT VS. METALMAN AUTO (P) LTD. 78 ITD 327 (ITAT CHANDIGARH) 5. K.B. MEHTA VS. DY.CIT 86 ITD 256 (ITAT PUNE) 6. EICHER MOTORS LTD. VS. DY.CIT 82 TTJ 61 (ITAT INDORE) 7. CIT VS. CIBA OF INDIA LTD. [1968] 69 ITR 692 (SC) 8. CIT VS. LUCAS T.V.S. LIMITED (NO.1) [1977] 110 ITR 338 (MAD) 9. CIT VS. SARADA BINDING WORKS [1976] 102 ITR 187 (MAD) 10. CIT VS. TATA ENGINEERING AND LOCOMOTIVE CO.PVT.LTD. [1980] 123 ITR 538 (BOM) 11. ALEMBIC CHEMICAL WORKS CO.LTD. VS. CIT (1989) 177 ITR 377 (SC) 5. FROM THE SIDE OF THE REVENUE LD.DR MR.RABINDR A KUMAR CIT-D.R. APPEARED AND SUPPORTED THE ACTION OF THE REVENUE AU THORITIES. IN HIS OPINION AS PER THE TERMS OF THE AGREEMENT THE SAID COLLABORATOR HAS PROVIDED KNOW-HOW FOR SETTING UP AN ALTOGETHER A NE W PART OF THE PLANT. THE TRANSFER OF KNOW-HOW REQUIRED TRAINING OF TECHN ICAL PERSONS. ACCORDING TO HIS ARGUMENT BY TRANSFER OF KNOW-HOW T HE ASSESSEE HAD ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 12 - OBTAINED AN ADVANTAGE OF ENDURING NATURE. IT WAS F OR AN ALTOGETHER A NEW PRODUCT THEREFORE TRAINING OF TECHNICAL PERSONS WAS REQUIRED. ACCORDING TO HIM THE KNOW-HOW FEES WAS MERELY LINKED WITH TH E PRODUCTION BUT THE CHARACTER OF TRANSFER OF KNOW-HOW HAVE NOT CHANGED DUE TO THE CONDITIONS OF THE PAYMENT. FURTHER HE HAS ALSO ARGUED THAT T HERE WAS A CLAUSE OF LUMP-SUM PAYMENT. THAT PAYMENT WAS RIGHTLY CONFIRM ED BY THE FIRST APPELLATE AUTHORITY. IN SUPPORT HE HAS DRAWN OUR ATTENTION ON THE COPY OF THE AGREEMENT DATED 24/02/2000 WHICH IS PLACED ON P AGE NO.168 OF PAPER-BOOK. LD.CIT-DR HAS ALSO DRAWN OUR ATTENTION ON A KNOW-HOW AGREEMENT DATED 30/08/1996. HE HAS REFERRED THAT THE TECHNICAL ASSISTANCE WAS BY WAY OF DEPUTING EXPERTS TO THE PL ANT OF THE INDIAN COMPANY AND FOR TRAINING OF TECHNICIANS. FOR IND IGENOUS PRODUCTION THE SAID TRAINING WAS GIVEN TO THE TECHNICIANS TO THE A SSESSEE-COMPANY. IN OTHER WORDS AS PER LD.CIT-DR AN INDIGENOUS PRODUCT ION OF AN ALTOGETHER NEW PRODUCT WAS STARTED. LD.DR HAS ALSO REFERRED A CLAUSE OF THE SAID AGREEMENT PLACED ON PAGE 144 OF PAPER-BOOK TO DEMO NSTRATE THAT AFTER THE SAID ACQUISITION OF KNOW-HOW AND TECHNICAL ASSI STANCE THE ASSESSEE HAS STARTED EXPORTING THE SAID PRODUCT AND IT WAS A GREED UPON THAT ATLEAST 75% OF THE PRODUCTION SHOULD GO TO THE COLLABORATOR OR TO BE EXPORTED THROUGH THE SAID COLLABORATOR. THEREFORE THE AGRE EMENT WAS A PRODUCTION SHARING AGREEMENT. SINCE IT WAS A PR ODUCTION SHARING AGREEMENT THEREFORE THE PAYMENT OF KNOW-HOW WAS I N INSTALLMENTS. LD.DR HAS ALSO MENTIONED THAT IN THE SUBSEQUENT ASS ESSMENT YEAR FOR AY 2006-07 THE IMPUGNED KNOW-HOW PAYMENT HAS AGAIN BEE N DISALLOWED BY THE AO. HE HAS ALSO SUPPORTED THE VIEW OF THE LD.C IT(A) THAT MERELY BY DEDUCTION OF TDS DID NOT MEAN THAT THE KNOW-HOW PAY MENT WAS REVENUE ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 13 - IN NATURE. HE HAS CONCLUDED THAT THE TONE AND TENO R OF THE AGREEMENT WAS FOR THE PRODUCTION OF AN ALTOGETHER NEW PRODUCT AND THEREFORE FOR THE ACQUISITION OF A NEW TECHNOLOGY THROUGH WHICH THE A SSESSEE HAS BEEN BENEFITED FOR A LONG PERIOD HENCE THE EXPENDITURE W AS NOTHING BUT CAPITAL IN NATURE. 6. WE HAVE HEARD THE PARTIES AT SOME LENGTH. WE H AVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF A VOLUMINOUS COMPILATION FILED BEFORE US CONTAINING ALMOST 400 P AGES AND THE CASE LAWS CITED. BEFORE US AN AGREEMENT DATED 30/03/ 2000 WAS REFERRED WHICH WAS EXECUTED BETWEEN FAG AUTOMOBILTECHNIK AG ON ONE PART REFERRED AS THE COLLABORATOR AND FAG BEARIN GS (INDIA) LTD. AS OTHER PART MENTIONED AS THE INDIAN COMPANY. TH E SAID COLLABORATOR IS A SUBSIDIARY OF FAG KUGELFISCHER GEORGE SCHAEFE R AG INCORPORATED UNDER THE LAWS OF THE FEDERAL REPUBLIC OF GERMANY. CLAUSE (C) ON PAGE NO.1 OF THE SAID AGREEMENT STATES THAT THE INDIAN COMPANY AND THE COLLABORATOR HAVE OVER THE YEARS ENTERED INTO DIV ERSE AGREEMENTS FOR SUPPLY OF KNOW-HOW AND TECHNICAL ASSISTANCE IN RESP ECT OF DIVERSE TYPES OF BEARINGS. THE PRESENT AGREEMENT WAS IN RESPEC T OF KNOW-HOW AND TECHNICAL SERVICES IN RESPECT OF THE FOLLOWING PROD UCTS. CLUTCH RELEASE BEARINGS ALTEMATOR BEARINGS WHEET BEARINGS HUB UNITS (ALL GENERATIONS) TENSIONER ICER ASSEMBLIES FROM THE SIDE OF THE ASSESSEE BY REFERRING THE TY PES OF THE PRODUCTS I.E. BEARINGS ETC. THE MAIN ARGUMENT WA S THAT THERE WERE NO ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 14 - NEW PRODUCT INTRODUCED BUT MAINLY THE TECHNICAL AS SISTANCE WAS TO IMPROVE THE QUALITY OF THE EXISTING PRODUCTS. 6.1. APART FROM THE ABOVE SPECIFICATIONS IT HAS ALSO BEEN BROUGHT TO OUR NOTICE THAT THE KNOW-HOW AS SUCH WAS NOT THE PROPER TY OF THE ASSESSEE. THE KNOW-HOW REMAINED THE PROPERTY OF THE SAID COL LABORATOR BECAUSE THE INDIAN COMPANY WAS NOT PERMITTED TO MAKE USE OF KNOW-HOW OTHER THAN THE PURPOSE FOR WHICH IT HAD INTENDED IN TERMS OF THE SAID AGREEMENT. ONE OF THE CLAUSE I.E. CLAUSE-9 PRESCRIBES THAT TH E KNOW-HOW SHOULD NOT BE COMMUNICATED TO ANY PERSON OTHER THAN THE RESPON SIBLE EMPLOYEES OF THE INDIAN COMPANY. RATHER ONE OF THE CLAUSE P RESCRIBES THAT UPON TERMINATION OF THE AGREEMENT THE INDIAN COMPANY HAD TO RETURN THE COLLABORATORS THE SAID KNOW-HOW. BY REFERRING THES E CLAUSES AND OTHER CONNECTED CLAUSES THE ARGUMENT IS THAT THE SAID K NOW-HOW IN QUESTION HAD NEVER BEEN PURCHASED BY THE INDIAN COMPANY I.E . THE ASSESSEE. THE SAID KNOW-HOW HAD NEVER BECOME AN ASSET OF THE ASSE SSEE. THE SAID KNOW-HOW WAS TO BE USED BY THE ASSESSEE FOR LIMITED AND SPECIFIC PURPOSES AS PRESCRIBED IN THE AGREEMENT. 6.2. IN RESPECT OF THE OBSERVATIONS MADE HEREINABOV E WE HAVE BEEN ASKED TO PERUSE A CLARIFICATION ISSUED BY CENTRAL B OARD OF DIRECT TAXES BY CIRCULAR NO.21 (F-NO.7A/40/68-IT (A-II) DATED 9 TH JULY 1969. IF A KNOW-HOW IS ACQUIRED UNDER AN AGREEMENT IS MERELY A LICENCE FOR THE USER IF IT IS FOR A LIMITED PERIOD IF THE KNOW-H OW IS WITHOUT THE RIGHT TO USE THE PATENTS AND TRADE MARKS THEN IF ANY PAYMENT MADE WOULD NOT BRING INTO EXISTENCE AN ASSET OF ENDURING ADVANTAGE TO THE INDIAN ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 15 - PARTICIPANTS. THIS CIRCULAR THEREFORE STATES THAT THE PAYMENT SHOULD BE REGARDED IF EXPENDITURE INCURRED FOR THE PURPOSE OF RUNNING THE BUSINESS DURING THE PERIOD OF AGREEMENT. AN ANOTHER ARGUMEN T HAS ALSO BEEN EXTENDED THAT THERE WERE SERIES OF AGREEMENTS HOWE VER THE KNOW-HOW INITIALLY WAS ACQUIRED OUT OF AN AGREEMENT DATED 30 /08/1996. THE CHANGES IN THE PROVISIONS OF SECTION 32 WERE MADE S UBSEQUENTLY FROM 1 ST DAY OF APRIL 1998 THEREFORE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. IT HAS BEEN CLARIFIED THAT THE AGREEMENTS EXECUTED LAT ER ON HAD IN FACT AROSE OUT OF THE ORIGINAL AGREEMENTS WHICH WERE IN OPERAT ION SINCE INCEPTION OF THE COMPANY. IN THE LIGHT OF THE FACTUAL BACKGRO UND WE HAVE SCRUTINIZED THE CASE LAWS CITED BEFORE US. WE HA VE NOTED THAT IN ONE OF THE CASE IT WAS HELD THAT IF THE PAYMENT IS MADE FO R EXCLUSIVE ACQUISITION OF TECHNICAL KNOW-HOW THEN THE EXPENDITURE IS CAPI TAL IN NATURE BUT IF THE PAYMENT IS FOR SECURING THE USE OF KNOW-HOW TH EN ALLOWABLE AS REVENUE EXPENDITURE. 6.3. IN THESE DECISIONS IT HAS BEEN CONVEYED THAT THE EXPENDITURE TOWARDS IMPROVISATION FOR THE EXISTING BUSINESS IS TO BE CONSIDERED A REVENUE EXPENDITURE. IN THE PRESENT APPEAL UNDIS PUTEDLY THE KNOW-HOW RELATED TO THE EXISTING MANUFACTURING OPERATION OF BALL-BEARINGS I.E.STATED TO BE SAME TYPE OF PRODUCT. IT CANNOT BE RULED OU T THAT IN A FAST GROWING ERA OF NEW TECHNOLOGIES THE OUTDATED OR OBSOLETE TE CHNOLOGIES ARE REQUIRED TO BE REPLACED AND THAT EXPENDITURE CAN BE HELD A BUSINESS REQUIREMENT. ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 16 - 6.4. IT HAS ALSO BEEN NOTED WHILE READING THE CLAUS ES OF THE AGREEMENT THAT ONE OF THE CLAUSE IS ABOUT THE NON-PORTABILITY . THEREFORE THIS CLAUSE HAS DEMONSTRATED THAT THE KNOW-HOW WAS NOT THE PROP ERTY OF THE ASSESSEE. RATHER THE SAID COLLABORATOR HAS IMPOSE D A CONDITION OF CONFIDENTIALITY AND SECRECY WHICH LEADS TO AN INFER ENCE THAT THE PROPERTY BELONGED TO THE SAID COLLABORATOR. RATHER WE ARE INCLINED TO DRAW AN INFERENCE THAT THE TRANSFER OF KNOW-HOW IN THE PRE SENT SET OF FACTS AND CIRCUMSTANCES WAS RESTRICTED FOR THE USE RATHER THA N ITS ACQUISITION. IN THE LIGHT OF THE REASONS ASSIGNED HEREINABOVE AND CONSI DERING THE TOTALITY OF THE EVIDENCE PLACED ON RECORD DULY SUPPORTED BY THE PRECEDENTS CITED WE HEREBY HOLD THAT THE PAYMENT OF RS.43.10 LACS WAS I N THE NATURE OF REVENUE EXPENDITURE. 6.5. GROUND NO.1 HAS ONE SUB-GROUND IN RESPECT OF D EDUCTION OF TDS OF RS.4.90 LACS WHICH WAS ALSO TREATED AS A CAPITAL EXPENDITURE BY THE REVENUE AUTHORITIES HOWEVER IT WAS A MISNOMER AND SPECIALLY CONSIDERING THE VIEW TAKEN HEREINABOVE THIS PART OF THE GROUND SHOULD ALSO GO IN FAVOUR OF THE ASSESSEE. 7. GROUND NO.2 READS AS UNDER: 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN INVOKING THE PROVISIONS OF SECTI ON 40A(2)(B) OF THE INCOME TAX ACT 1961 AND THEREBY DISALLOWING A SUM OF RS.278.78 LACS ON ACCOUNT OF ROYALTY PAID BY THE AP PELLANT TO ITS FOREIGN COLLABORATORS. ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 17 - 7.1. THIS GROUND HAS ARISEN DUE TO THE INVOCATION O F THE PROVISIONS OF SECTION 40A(2)(B) BY LD.CIT(A). IT WAS COMMENTED B Y THE LD.CIT(A) THAT THE ROYALTY WAS PAID TO THE PERSON AS SPECIFIED IN THE SAID SECTION. THOUGH THE SAID PROVISION WAS NOT INVOKED BY THE AO BUT BY ASSUMING THE JURISDICTION ON THE GROUND OF HAVING CO-TERMINU S POWERS WITH AO; CIT(A) HAS LOOKED INTO THE REASONABLENESS OF THE E XPENDITURE. IT WAS NOTICED BY HIM THAT IN TERMS OF AN AGREEMENT WITH F AG OEM UND HANDEL AG THE ASSESSEE WAS PAYING ROYALTY/FEES @ 1.5%. HOWEVER DURING THE YEAR UNDER CONSIDERATION ON AC COUNT OF VARIOUS AGREEMENTS THE SAID FEES WAS PAID @ 3% ON SCHEDULED PRODUCTS AND 5 TO 8% ON NON-SCHEDULED PRODUCTS. AS PER CIT(A) THERE WAS NO CHANGE IN THE KNOW-HOW PROVIDED AND ALSO THERE WAS NO CHANGE IN THE PRODUCTS MANUFACTURED THEREFORE THERE WAS NO REASON TO ENHA NCE THE PAYMENT OF FEES. HE HAS QUOTED THAT HAVING REGARD TO THE FAI R MARKET VALUE THE SAID PAYMENT WAS EXCESSIVELY MADE TO A SPECIFIED PERSON. IN DEFENCE ASSESSEE HAS SUBMITTED AS FOLLOWS: AT THE TIME OF HEARING WE WERE REQUIRED TO GIVE SU BMISSIONS WITH RESPECT TO APPLICABILITY OF PROVISIONS OF SECTION 4 0A(2)(B) OF THE ACT FOR PAYMENTS MADE TO GROUP COMPANIES ON ACCOUNT OF ROYALTY. WITH RESPECT TO THE SAME WE SUBMIT AS UNDER. IN PAPER BOOK NO.2 AT PAGE NOS.45 TO 47 WE HAVE GIV EN THE SUMMARY OF ROYALTY PAID UNDER DIFFERENT AGREEMENTS. WE HAVE ALSO ATTACHED THE SUMMARY OF ROYALTY PAYMENTS MADE FOR VARIOUS YEARS ON PAGE NO.44. ON THE PERUSAL OF PAGE NO.45 YOUR KIND OFFICE WOULD NOTICE THAT ROYALTY IS PAID TO THE FOL LOWING COMPANIES: A. FAG OEM AND HANDEL AG GERMANY ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 18 - B. FAG KUGELFISCHER GEORG SCHAEFER AG GERMANY; AND C. FAG AUTOMOBILTECHNIK AG GERNMANY IT MAY BE MENTIONED THAT THE PAYMENT TO PARTY AT (S ) ABOVE WAS MADE @ 1.5% FOR THE MONTHS OF APRIL 2000 AND MAY 2000 AND @ 3% FOR THE REMAINING PERIOD TILL 31-3-2011. WITH RESPECT TO THE INCREASE IN THE RATE OF ROYALTY WE WOULD LIKE TO PU T THE FOLLOWING FACTS ON RECORD. THE COMPANY WAS ORIGINALLY PAYING ROYALTY @ 1.5% UN DER AGREEMENT DATED 24-2-2000. THE SAID AGREEMENT WAS EFFECTIVE FROM 1-4-99 TO 31-3-2004. COPY OF THE AGREEMENT IS ATTACHED IN THE PAPER BOOK NO.4 AT PAGE NOS.273 TO 286. THE S AID AGREEMENT WAS APPROVED BY SIA VIDE LETTER DATED 18-9-2000 AND ALSO TAKEN ON RECORD BY RBI VIDE LETTER DATED 9-10-2000 (SEE P AGE NOS.287 & 288 OF PAPER BOOK NO.4). THERE WAS A CHANGE IN THE INDUSTRIAL POLICY OF THE GOI FOR FOREIGN TECHNOLOGY AGREEMENTS UNDER WHICH ROYALTY WAS ALLOW ED TO BE PAID @ 5% ON DOMESTIC SALES AND 8% ON EXPORT SALES W E F 1-6- 2000. IN PURSUANCE OF THE SAME THE APP REVISED THE RATES OF ROYALTY FROM 1.5% TO 3%. THE APPELLANT FILED LETTE R WITH SIA FOR TERMINATING THE AGREEMENT DATED 24-2-2000 (SEE PAGE NO.296 OF PAPER BOOK NO.4) AND EXECUTED A FRESH AGREEMENT DAT ED 21-12- 2000 W.E.F. FROM 1-6-2000 (SEE PAGE NO.48 TO 59 OF PAPER BOOK NO.2). IT MAY BE MENTIONED THAT EVEN AFTER REVISION OF RAT ES BY GOI THE RATE AT WHICH THE APPELLANT IS PAYING ROYALTY IS LO WER THAN THE RATE CONSIDERED BY SIA/GOI. SIA ALLOWED PAYMENT OF ROYA LTY @ 5% ON DOMESTIC SALES AND 8% ON EXPORT SALES UNDER THE AUT OMATIC APPROVAL ROUTE (WITHOUT PRIOR APPROVAL OF SIA) VIDE PRESS NOTE NO.9 92000 SERIES) (SEE PAGE NO.289-290 OF PAPER BO OK NO.4). ON THE PERUSAL OF THE SAME YOUR KIND OFFICE WOULD NOTI CE THAT PAYMENT OF ROYALTY @ 5% AND 8% IS DULY APPROVED BY SIA. IN THE CASE OF THE APPELLANT THE APPELLANT HAS PAID ONLY 3% WHICH IS BELOW THE RATE APPROVED BY SIA. WE THEREFORE SUBMIT THAT PRO VISIONS OF SECTION 40A92) WOULD NOT APPLY AS THE REASONABLE RA TE CONSIDERD ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 19 - BY THE GOI IS 5% FOR DOMESTIC AND 8% FOR EXPORTS SA LES. IN THE PAPER BOOK WE HAVE ALSO ATTACHED THE COPY OF LIBERA LIZED INDUSTRIAL POLICY FOR FOREIGN TECHNOLOGY AGREEMENTS OF GOI (SE E PAGE NO.295 OF PAPER BOOK NO.4). ON THE PERUSAL OF THE SAME YOUR KIND OFFICE WOULD NOTICE THAT THE PAYMENTS MADE BY THE A PPELLANT ARE LOWER THAN THE RATES CONSIDERED BY GOI. WE THEREFO RE SUBMIT THAT ALL PAYMENTS MADE ON ACCOUNT OF ROYALTY ARE REQUIRE D TO BE ALLOWED AS BUSINESS DEDUCTION. 7.2. HOWEVER LD.CIT(A) WAS NOT CONVINCED. IN HIS OPINION NO COGENT REASON WAS GIVEN AS TO WHY THE ROYALTY WAS ENHANCED FROM 1.5% UPTO 5%. RATHER HE HAS ALLEGED THAT THE ASSESSEE HAS F AILED TO PRODUCE ANY CORRESPONDENCE BETWEEN THE APPELLANT COMPANY AND TH E SAID FOREIGN COLLABORATOR. ACCORDING TO HIM THE ONUS WAS ON THE ASSESSEE TO PROVE THAT THE PRICE PAID WAS REASONABLE. THE ASSESSEE HAD FURNISHED CERTAIN APPROVALS FOR THE PAYMENT OF THE KNOW-HOW FEES BUT THAT ARGUMENT WAS DISMISSED BY LD.CIT(A) ON THE GROUND THAT THOSE APP ROVALS WERE THE REQUIREMENT OF THE LAW BUT THOSE APPROVALS HAVE NOT GIVEN A SANCTION TO ARBITRARILY PAY THE KNOW-HOW FEES TO A SISTER-CONCE RN. THOSE APPROVALS WERE GRANTED WITH A DIFFERENT ANGLE CONSIDERING THE RELATED LAW BUT NOT THE INCOME TAX ACT. HE HAS CONCLUDED THAT THE ROY ALTY @ 1.5% BOTH ON DOMESTIC AND EXPORT SALES WAS REASONABLE AND REST W AS HELD AS EXCESSIVE PAYMENT OF ROYALTY THEREFORE DISALLOWED U/S.40A(2) (B) OF THE ACT. 8. FROM THE SIDE OF THE APPELLANT MR. A.V. SONDE A RGUED THAT IT WAS WRONG ON THE PART OF THE CIT(A) TO PRESUME THAT FAG OEM UND HANDEL AG HAPPENED TO BE A PERSON SPECIFIED IN SE CTION 40A(2)(B). FOR THIS PROPOSITION LD.AR HAS REFERRED THE CONSTI TUTION OF THE SAID ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 20 - COLLABORATOR. HIS NEXT PLANK OF ARGUMENT WAS THAT IT WAS THE ONUS OF THE REVENUE DEPARTMENT TO REFER A COMPARABLE INSTANCES TO DEMONSTRATE THAT THE EXPENDITURE IN QUESTION WAS EXCESSIVE THAN THE FAIR MARKET VALUE. HE HAS MENTIONED THAT THE AGREEMENTS ITSELF SUGGEST THAT THE INCREASE IN THE FEES WAS A LEGITIMATE BUSINESS NEED OF THE ASSE SSEE. LD. AR HAS ALSO CITED A LIST OF SEVERAL DOCUMENTS IN SUPPORT OF THE ARGUMENT THAT THE IMPUGNED PAYMENT WAS NOT AN ARBITRARY ACTION ON TH E PART OF THE ASSESSEE BUT IT WAS DULY APPROVED BY THE FOLLOWING AUTHORITIES:- 1. FORWARDING LETTER OF APPLICATION FOR APPROVAL OF AGREEMENT DATED 24-2-2000 WITH FAG OEMUND HANDEL AG GERMANY DATED 31-5-2000. 2. AGREEMENT WITH FAG OEM UND HANDEL AG GERMANY DATED 24-2-2000. 3. APPROVAL OF SIA FOR AGREEMENT WITH FAG OEM UND HANDEL AG GERMANY DATED 24-2-2000. 4. LETTER OF RBI FOR AGREEMENT WITH FAG OEM UND H ANDEL AG GERMANY DATED 24-2-2000. 5. PRESS NOTE NO.9 (2000 SERIES) OF GOI DT. 8-9- 2000 6. FOREIGN EXCHANGE MANAGEMENT (CURRENT ACCOUNT TRANSACTIONS) RULES 2000 DT. 1-6-2000. 7. EXTRACT OF LIBERALIZED INDUSTRIAL POLICY FOR F OREIGN TECHNOLOGY AGREEMENTS OF GOI. 8. LETTER OF APPELLANT TO SIA FOR TERMINATION OF AGREEMENT DATED 24-2-2000 WITH FAG OEM UND HANDEL AG GERMANY. ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 21 - 9. APPROVAL OF RBI FOR AGREEMENT WITH FAG AUTOMOB ILECHNIK AG GERMANY DT. 30-3-2000. 10. APPROVAL OF SIA FOR AGREEMENT WITH FAG KUGELFIS CHER GEORG SCHAEFER AG GERMANY DATED 30-8-96. 11. LETTER OF RBI FOR AGREEMENT WITH FAG KUGELFISCH ER GEORG SCHAEFER AG GERMANY DATED 30-8-1996. 12. RENEWAL AGREEMENT WITH FAG KUGELCISCHER GEORG S CHAEFER AG GERMANY DATED 30-8-96. 13. APPROVAL OF SIA FOR AGREEMENT WITH FAG KUGELFIS CHER GEORG AG GERMANY DATED 24-6-2002. 14. LETTER OF RBI FOR AGREEMENT WITH FAG KUGELFISCH ER GEORG AG GERMANY DATED 24-6-2002. 8.1. FOR THIS LEGAL PROPOSITION LD.AR HAS CITED CI T VS. SHRIRAM PISTON & RINGS LTD. 181 ITR 23 (DELHI) EWAC ALLOYS LTD. VS. DCIT 42 ITD 218 (BOM) ANAND DYES INDUSTRIES (P) LTD. 17 ITD 10 41(AHD.)/25 TTJ 482 (AHD) KINECTIC HONDA MOTORS LTD. 77 ITD 393 ( PUNE) HONDA SIEL CARS INDIA LTD. 109 ITD 1 (DEL) NESTLE INDIA LTD. 94 TTJ 53 (DEL) AND CIT VS. SHRIRAM PISTONS & RINGS LTD. 181 ITR 230 (D EL). 9. FROM THE SIDE OF THE REVENUE LD.DR MR. RABINDR A KUMAR HAS PLACED RELIANCE ON THE REASONING ASSIGNED BY THE FI RST APPELLATE AUTHORITY FOR INVOCATION OF THE PROVISIONS OF SECTION 40A(2)( B). HIS FIRST VEHEMENT OBJECTION WAS THAT A NEW PLEA HAS BEEN RAISED BY LD .AR THAT THE SAID COLLABORATOR IS NOT WITHIN THE DEFINITION OF THE SP ECIFIED PERSON AS ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 22 - DEFINED IN SECTION 40A(2)(B). LD.DR HAS CONTESTE D THAT NO SUCH PLEA HAD EVER BEEN RAISED BEFORE CIT(A) THEREFORE IT IS AGAINST THE NATURAL JUSTICE TO RAISE AN ALTOGETHER NEW DEFENCE WITHOUT GRANTING AN OPPORTUNITY TO THE REVENUE. LD.DR HAS ALSO OBJECTED THE ARGU MENT OF LD.AR THAT THE REVENUE HAD NOT PLACED ON RECORD ANY COMPARABLE INSTANCE. ACCORDING TO DR THERE WAS NO NECESSITY TO PLACE SE VERAL EVIDENCES ON RECORD WHEN THE AGREEMENTS ITSELF HAVE DEMONSTRATED THAT THERE WAS AN ABRUPT INCREASE IN THE PAYMENT. 10. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES AT SOME LENGTH WE HAVE NOTED THAT IN RESPECT OF FAG OEM UND HANDEL AG AN AGREEMENT DATED 24/02/2000 WAS EXECUTED. IN RESPE CT OF THE SAID AGREEMENT WE HAVE BEEN INFORMED THAT THE APPROVAL OF SIA AND THE APPROVAL OF RBI WAS OBTAINED. UNDISPUTEDLY THE RA TE OF ROYALTY WAS 1.5% ON SCHEDULED PRODUCTS AND 5% ON NON-SCHEDULED PRODUCTS. THERE WAS AN ANOTHER AGREEMENT DATED 21/12/000 EXECUTED B ETWEEN THE ASSESSEE AND THE SAID COLLABORATOR BUT IN RESPECT O F THAT AGREEMENT NO SUCH INFORMATION IS AVAILABLE THAT WHETHER ANY APPR OVAL WAS OBTAINED FOR THE INCREASE IN THE ROYALTY. HOWEVER UNDISPUTED LY THE ROYALTY WAS INCREASED TO 3% ON SCHEDULED PRODUCTS AND 5% ON NON -SCHEDULED PRODUCED. WE MAY LIKE TO CLARIFY THAT AS FAR AS T HE AO WAS CONCERNED SINCE HE HAD DISALLOWED THE EXPENDITURE BY HOLDING AS CAPITAL IN NATURE THEREFORE DURING THE STAGE OF ASSESSMENT PROCEEDING S THERE WAS NO OCCASION TO EXAMINE THE COMPARABLE INSTANCES OR THE REASONABLENESS OF THE PAYMENT. NOW THE SITUATION HAS REVERSED BECAUS E THE FIRST APPELLATE AUTHORITY HAD ALREADY DECIDED THAT THE EXPENDITURE WAS NOTHING BUT ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 23 - REVENUE IN NATURE. BECAUSE OF THE STANDS TAKEN BY LD.CIT(A) THIS ISSUE OF INVOCATION OF THE PROVISIONS OF SECTION 40A(2)(B ) HAS NOW RACKED UP. THEREFORE IT IS WORTH TO MENTION THAT WHILE ARGUIN G THIS GROUND BOTH THE SIDES WERE UNANIMOUS ON ONE POINT THAT REQUISITE EN QUIRY IS STILL WANTING TO ARRIVE AT A CORRECT CONCLUSION. BOTH THE SIDE S HAVE DURING THEIR RESPECTIVE ARGUMENTS SUGGESTED IN A WAY THAT SINCE THE AO HAD DISALLOWED THE CLAIM ON DIFFERENT FOOTING THEREFORE HE HAD NO OCCASION TO PROCEED ON THE LINES OF THE REQUIREMENT OF SECTION 40A(2)(B). ON ACCOUNT OF THESE FACTS WE ARE OF THE VIEW THAT THE APPLICABILITY OF THE PROVISIONS OF SECTION 40A(2)(B) IN THE PRESENT SET OF FACTS AND CIRCUMSTANCES CAN BE DECIDED IF THE AO FORMS AN OPI NION THAT SUCH EXPENDITURE IS AN EXCESSIVE HAVING REGARD TO THE FA IR MARKET VALUE OF THE FACILITY ENJOYED BY THE ASSESSEE. AS FAR AS THE ONUS TO DEMONSTRATE THE REASONABLENESS OF THE PAYMENT THE ASSESSEE HAS ALR EADY CITED FEW CLAUSES OF THE AGREEMENT EXPLAINING THE LEGITIMATE NEED OF THE BUSINESS AND NOW THE ONUS HAS SHIFTED ON THE REVENUE TO PLACE ON REC ORD THE REASON WITH EVIDENCE AS TO HOW THE IMPUGNED PAYMENT WAS EXCESSI VE OR UNREASONABLE. MERELY BY COMPARING THE AGREEMENTS O F THE ASSESSEE IS NOT ENOUGH IN OUR OPINION BECAUSE THAT PLEA MAY NOT STAND IN THE EYES OF LAW HAVING REGARD TO THE FACT THAT THE AGREEMENTS I TSELF WERE REVISED AND THAT WERE STATED TO BE REVISED BECAUSE OF THE LEGIT IMATE BUSINESS NEED. WE HAVE MADE THESE OBSERVATIONS SIMPLY TO THROW CER TAIN SUGGESTIONS THOUGH APPARENTLY PRE-MATURE BUT TO AVOID THE REPE ATED LITIGATION. IN THE RESULT THIS ISSUE OF THE ASSESSEE AS RAISED VIDE G ROUND NO.2 IS RESTORED BACK TO THE FILE OF THE AO TO BE DECIDED DE NOVO NEEDLESS TO SAY AFTER ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 24 - GRANTING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE HENCE ALLOWED BUT FOR STATISTICAL PURPOSES ONLY. 10. GROUND NOS.3 & 4 READ AS UNDER: 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN TREATING REPAIRING EXPENSES TO PLANT AND MACHINERY OF RS.46 58 516 AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITURE AS CLAIMED BY THE APPELLANT. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN TREATING REPAIRING EXPENSES TO PLANT & MACHINERY OF RS.2 28 55 484 AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITURE AS CLAIMED BY THE APPELLANT. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FU RTHER ERRED IN FACT AND IN LAW IN NOT ALLOWING DEPRECIATI ON ON THE AMOUNT CONSIDERED AS CAPITAL EXPENDITURE ON THE GRO UND THAT NO EVIDENCE WAS FURNISHED FOR PROVING THAT THE SUBJ ECT ASSET WAS INSTALLED AND PUT TO USE DURING THE YEAR. 10.1. THE OBSERVATION OF THE AO WAS THAT VIDE A SEPARATE NOTE ANNEXED WITH THE RETURN ASSESSEE HAS CLAIMED A DEDUCTION O F RS.2 75 14 547/- . THE SAID NOTE WAS AS UNDER:- DURING THE CURRENT YEAR UNDER CONSIDERATION THE C OMPANY FOUND ESSENTIAL TO REPLACE/MODIFY CERTAIN ITEMS OF MACHIN ERY FORMING PART OF THE BEARING MANUFACTURING PLANT HAVING REGA RD TO THE NUMBER OF YEARS THAT THEY HAD BEEN IN USE AND THE F ACT THAT THEY WERE FUNCTIONING BELOW PAR THEREBY ADDING TO THE CO STS/LIMITING THE PROFITS EARNED. THESE ITEMS IN TERMS OF VALUE FO RM A NEGLIGIBLE PART OF THE ENTIRE PLANT. ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 25 - THOSE EXPENSES WERE STATED TO BE TOWARDS REPLACEME NT OF FURNACE AND MODIFICATION OF PLANT AND MACHINERY. A QUERY WAS RAISED TO EXPLAIN AS TO WHY THE SAID EXPENDITURE WAS CLAIMED AS CURRE NT REPAIRS. WRITTEN SUBMISSION WAS FILED BEFORE THE AO HOWEVER IT WAS GATHERED THAT THE SAID EXPLANATION WAS INCOMPLETE AND CASUAL. AGAIN THE ASSESSEE WAS ASKED TO FURNISH DETAILS OF EXPENDITURE INCURRED F OR THE REPLACEMENT OF FURNACE COSTING RS.1 25 82 118/-. AO HAS COMMENTED THAT THE ASSESSEE WAS DELIBERATELY SILENT ON THIS ISSUE. THE ASSESSE E HAS FURNISHED PARTICULARS IN RESPECT OF AN EXPENDITURE OF RS.46 5 8 516/- ONLY. THOSE EXPENDITURE WERE STATED TO BE IN RESPECT OF FOLLOWI NG ITEMS:- (A) TRACK GRINDING MACHINE: THE ASSESSEE EXPLAINED THAT RS.1749762/- WAS INCURR ED FOR REBUILDING OF THIS MACHINE BECAUSE THE MACHINE WAS VERY OLD. (B) UPGRADATION OF C.N.S. MACHINES: : IT WAS SUBMITTED BY THE ASSESSEE THAT REBUILDING CO ST OF RS.1825018/- WAS INCURRED FOR UPGRADATION OF THIS M ACHINE. (C) SUPERFINISHING MAHCINE: IT WAS SUBMITTED BY THE ASSESSEE THAT REBUILDING CO ST OF RS.551736/- WAS INCURRED FOR UPGRADATION OF THIS MA CHINE IN ORDER TO ACHIEVE DESIRED QUALITY AND QUANTITY OF PR ODUCT. (D) JOTES SURFACE GRINDER: ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 26 - IT WAS SUBMITTED BY THE ASSESSEE THAT REBUILDING CO ST OF RS.532000/- WAS INCURRED FOR UPGRADATION OF THIS MA CHINE IN ORDER TO ACHIEVE DESIRED QUALITY AND QUANTITY OF PR ODUCT. THE MAIN ALLEGATION OF THE AO WAS THAT IN FACT THE ASSESSEE HAD NOT FURNISHED PARTICULARS OF REPAIRING WORK CARRIED OUT . A ONE SENTENCE CLARIFICATION WAS GIVEN THAT THE EXPENDITURE WAS TO WARDS REPAIRS. THE AO HAS ALSO DISCUSSED THE BASIC PRINCIPLE OF ACCOUN TANCY THAT IF REPAIRS WERE INCURRED THEN THOSE SHOULD HAVE BEEN DISCLOSE D IN THE PROFIT & LOSS ACCOUNT. BY NOT DISCLOSING IN THE PROFIT & LOSS AC COUNT THE TRUE AND CORRECT PICTURE OF THE BUSINESS PROFITABILITY COULD NOT BE REFLECTED. IT HAS ALSO BEEN NOTED THAT OTHER REPAIRS AND SPARES AND T OOLS WERE OTHERWISE DEBITED IN P&L ACCOUNT. SO HE HAS COMMENTED THAT T HERE WAS NO REASON AS TO WHY THE ASSESSEE HAD NOT INCLUDED THE IMPUGNE D EXPENDITURE. AGAIN IT WAS COMMENTED BY THE AO THAT NO DETAILS W ERE FURNISHED IN RESPECT OF REPLACEMENT OF COST OF FURNACE. IN TH E ABSENCE OF A JUSTIFIABLE EXPLANATION IT WAS HELD BY THE AO THAT THE SAID EXP ENDITURE OF RS.46 58 516/- WAS CAPITAL EXPENDITURE. IN RESPECT OF REMAINING CLAIM OF EXPENDITURE OF RS.2 28 55 484/- THE ENTIRE AMOUNT WAS REJECTED AND EVEN NOT ALLOWED AS A CAPITAL EXPENDITURE BECAUSE THE AS SESSEE HAD FAILED TO FILE DETAILS AND EVIDENCES IN SUPPORT OF THE SAID C LAIM. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 11. THE FIRST APPELLATE AUTHORITY HAS AFFIRMED T HE ACTION OF THE AO PRIMARILY ON THE GROUND THAT THE ASSESSEE HAD NOT E XPLAINED THAT UNDER WHAT CIRCUMSTANCES THE EXPENDITURE WAS TREATED AS C APITAL EXPENDITURE IN THE BOOKS OF ACCOUNTS HOWEVER IT WAS CLAIMED AS R EVENUE EXPENDITURE IN ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 27 - THE INCOME TAX ASSESSMENT. IT HAS ALSO BEEN COMM ENTED BY LD.CIT(A) THAT THE NATURE OF CLAIM OF EXPENDITURE WAS NOT ON LY A LEGAL CLAIM BUT A FACTUAL ONE. HE WAS OF THE VIEW THAT THE REBUILD ING OF PLANT & MACHINERY COULD NOT BE CURRENT REPAIRS BUT A CAPITA L EXPENDITURE. EVEN IN RESPECT OF REBUILDING OF FURNACE LD.CIT(A) HAS MAD E AN OBSERVATION THAT THOUGH THE AO HAD SPECIFICALLY ASKED THE ASSESSEE T O PRODUCE BILLS OF PURCHASES BUT FAILED. THE ASSESSEE HAS SIMPLY MA DE CERTAIN LEGAL SUBMISSIONS BUT FAILED TO EXPLAIN THE NATURE OF THE EXPENDITURE WITH SUPPORTING EVIDENCES. FINALLY THE ACTION OF THE AO IN RESPECT OF BOTH THE ADDITIONS WAS AFFIRMED. 12. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES AND ON CAREFUL PERUSAL OF THE COMPILATION FILED BEFORE US ONE THI NG IS EVIDENT THAT CERTAIN EXPLANATIONS WERE FURNISHED BEFORE THE AO B UT THOSE WERE NOT SUPPORTED BY THE REQUISITE EVIDENCES. EVEN IN THE COMPILATION FROM PAGES 211 TO 289 THE ASSESSEE HAS FURNISHED CERTAI N DETAILS OF THE BILLS OF REPAIRS AND DETAILS OF REPLACEMENT OF FURNACE. TH E ASSESSEE WAS UNDER STRICT OBLIGATION TO FURNISH THE PROOF AND EVIDENCE S IN SUPPORT OF THE REPAIRS AND REPLACEMENT OF FURNACE. A PASSING REM ARK WAS MADE BEFORE US THAT THE ASSESSMENT ORDER UNDER CONSIDERATION WA S PASSED ON 30/03/2004 AND MIGHT BE BECAUSE OF THE TIME BARRING ASSESSMENT PROCEDURE THOSE DETAILS WERE NOT SCRUTINIZED BY THE AO OR THE ASSESSEE MIGHT HAVE PREVENTED BY INADEQUATE OPPORTUNITY TO PLACE THOSE DETAILS. THEREFORE WE ARE OF THE VIEW THAT THE NATURAL JUST ICE DEMANDS TO PROVIDE AN OPPORTUNITY TO THIS ASSESSEE TO FURNISH FULL DET AILS ALONG WITH BILLS AND ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 28 - VOUCHERS TO DEMONSTRATE THE NATURE OF EXPENDITURE I NCURRED; BEFORE THE AO SO THAT AFTER PROPER INVESTIGATION ABOUT THE NA TURE OF EXPENDITURE CAN BE DETERMINED. WITH THESE OBSERVATIONS THESE TWO GROUNDS OF THE ASSESSEE BEING RESTORED BACK FOR DE NOVO ADJUDICATION HENCE MAY BE TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSES. 13. GROUND NO.5 READS AS UNDER : 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ADDITION OF RS.34 41 LACS ON ACCOUNT OF INTEREST RECEIVED BY THE APPELLANT ON IN COME TAX REFUND DESPITE THE FACT THAT THE SAID INTEREST HAD NOT BECOME FINAL DURING THE YEAR UNDER CONSIDERATION. 13.1. IT WAS NOTED THAT THE ASSESSEE HAS RECEIVED I NTEREST U/S.244A ON INCOME TAX REFUND. THE SAID AMOUNT WAS NOT INCLUD ED IN THE COMPUTATION OF INCOME. IT WAS ACCORDINGLY TAXED IN THE HANDS OF THE ASSESSEE. WHEN THE MATTER WAS CARRIED BEFORE THE F IRST APPELLATE AUTHORITY A REMAND REPORT WAS CALLED FOR AND AFTER EXAMINING THE DETAILS OF THE INTEREST RECEIVED BY THE ASSESSEE ON INCOME TAX REFUND IT WAS HELD THAT THE SAME WAS LIABLE TO BE TAXED IN TH E HANDS OF THE ASSESSEE. NOW BEFORE US LD.AR MR. MILIN MEHTA HAS FAIRLY INFO RMED THAT THIS ISSUE NOW STOOD COVERED AGAINST THE ASSESSEE BY A SPECIA L BENCH DECISION OF MUMBAI IN THE CASE OF AVADA TRADING COMPANY 100 ITD 131(MUM). HOWEVER HE HAS PLEADED THAT AFTER THE LAPSE OF SO MANY YEARS NOW THOSE ASSESSMENTS HAVE BEEN CONCLUDED AND REACHED TO THE FINALITY THEREFORE THE AO MAY BE DIRECTED TO INCLUDE ONLY THAT INTEREST W HICH HAS NOW BEEN FINALIZED. WE DIRECT ACCORDINGLY HOWEVER THE I SSUE OF TAXABILITY OF ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 29 - INTEREST GRANTED ON INCOME-TAX RETURN GOES AGAINST THE ASSESSEE BEING COVERED BY THE AFOREMENTIONED DECISION OF THE TRIBU NAL. THIS GROUND IS DISMISSED. 14. GROUND NO.6 READS AS UNDER: 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CONSIDERING REPAIRS TO BUILDING AMOUNTING TO RS.15 02 510 AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITURE CLAIMED BY THE APPELLANT. 14.1. AN EXPENDITURE OF RS.2 86 698/- WAS INCURR ED ON EXTENSION OF TOOL ROOM. AOS ALLEGATION WAS THAT A NEW ASSET W AS BROUGHT INTO EXISTENCE. IT HAS ALSO BEEN NOTED THAT A SUM OF R S.2 95 530/- WAS INCURRED FOR FIXING GLAZED TILES. FURTHER A SUM OF RS.2 46 739/- FOR CONSTRUCTION OF SHED. HEAD-WISE EXPENDITURE WA S DISCUSSED BY THE AO. IN RESPECT OF EXPENDITURE ON TOOL-ROOM; A SU M OF RS.12 55 771/- WAS HELD AS CAPITAL EXPENDITURE. IN RESPECT OF FI XING OF GLAZED TILES A SUM OF RS.2 95 033/- HELD AS CAPITAL EXPENDITURE A ND IN BRIEF THE NARRATION OF THE DISALLOWANCE OF CAPITAL EXPENDITUR E WAS AS FOLLOWS:- (A) EXPENDITURE ON REPLACING AND FIXING TILES 2 95 330/- (B) CONSTRUCTION OF SHED 2 46 739/- (C) EXPENDITURE ON EXPANSION OF TOOL ROOM 12 55 771/- (D) OIL QUAKER COOLANT PLANT 9 63 000/- -------------- 27 60 840/- ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 30 - 15. BEFORE LD.CIT(A) IT WAS CONTESTED TO ALLOW THE CLAIM HOWEVER IN RESPECT OF EXPENDITURE ON TILES AND AN EXPENDITURE ON COOLANT PLANT WAS HELD AS REVENUE EXPENDITURE HOWEVER IN RESPECT OF CONSTRUCTION OF SHEDS AN EXPENDITURE ON TOOL-ROOM WAS HELD AS CAPITAL EXP ENDITURE. IT IS INFORMED THAT BOTH THE SIDES ARE IN APPEALS AGAINST THE SAID PART RELIEF. 16. WE HAVE HEARD BOTH THE SIDES. AS FAR AS THE A SSESSEES APPEAL IS CONCERNED THE AMOUNT CONTESTED BEFORE US IS RS.2 46 739/- TOWARDS CONSTRUCTION OF SHED AND RS.12 55 771/- TOWARDS EXP ENDITURE ON TOOL- ROOM TOTALING TO RS.15 02 510/-. WE HAVE ALSO E XAMINED THE NATURE OF REPAIRS INCURRED BY THE ASSESSEE. SOME OF THE E XPENDITURE WAS FOR REPLACEMENT OF OLD FLOORING CHANGE OF ELECTRICAL W IRES INSTALLATION OF PARTITIONS ETC. THERE ARE SERIES OF DECISION SUCH AS CHOWGULE & CO. 214 ITR 523 (BOM) ON THIS ISSUE AND PLACING RELIAN CE WE HEREBY HOLD THAT SUSTENANCE OF SHED OR BUILDING ETC. IS DEFIN ITELY IN THE NATURE OF CURRENT REPAIRS AS PRESCRIBED U/S.31 OF I.T. ACT. RESULTANTLY FOLLOWING THE LAW PRONOUNCED BY THE HONBLE COURT WE HEREBY DIRECT TO ALLOW THE CLAIM. THIS GROUND IS ALLOWED. 17. GROUND NO.7 READS AS UNDER: 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CONSIDERING SOFTWARE EXPENSES OF RS.26 95 590 AS CA PITAL EXPENDITURE. ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 31 - 17.1. THE ASSESSEE HAS INCURRED EXPENDITURE ON COM PUTER SOFTWARE DETAILS AS UNDER:- (A) FEES PAID FOR USE OF MICROSOFT OFFICE 9 45 005/- (B) EXPENSES INCURRED FOR USE OF E-MAIL FACILITY 2 72 500/- (C) COST OF AUTO CARD FOR BEARING DESIGN 4 57 16 0/- (D) EXPENSES INCURRED FOR UPGRADATION OF SOFTWARE/MAINTENANCE OF COMPUTER 1 0 20 925/- ------------- TOTAL 26 95 590 ====== 17.2. THE AUTHORITIES BELOW HAVE HELD THAT THE EX PENDITURE CONSTITUTED ACQUISITION OF ASSETS AND DISALLOWED THE SAME. 17.3. ON THE OTHER HAND IT WAS PLEADED THAT NUMBER OF LICENCES OF SMALL AMOUNTS WERE PURCHASED. OUR ATTENTION WAS INVITED ON PAGE NOS.298 TO 305 OF THE PAPER BOOK TO DEMONSTRATE THE SOFTWARES ACQUIRED BY THE ASSESSEE. IT HAS ALSO BEEN EXPLAINED THAT DUE TO T ECHNOLOGICAL CHANGES THE OLD SOFTWARES WERE REQUIRED TO BE REPLACED YEAR-AFT ER-YEAR. 18. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES WE HAVE FOUND THAT THE IDENTICAL ISSUE NOW STOOD COVERED IN FAVO UR OF THE ASSESSEE VIDE CIT VS. VARINDER AGRO CHEMICALS LTD. 309 ITR 272 (P &H) AND AMWAY INDIA ENTERPRISES V. DCIT 111 ITD 112 (DEL)[SB]. T HE ISSUE BEING COVERED THEREFORE THIS GROUND OF THE ASSESSEE IS HE REBY ALLOWED. ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 32 - 19. GROUND NO.8 READS AS UNDER: 8. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE DISALLOWANCE OF R S.7 13 677 ON ACCOUNT OF W/OFF OF BAD DEBTS. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN NOT ALLOWING THE DEDUCTION OF SU NDRY BALANCES WRITTEN OFF ON THE GROUND THAT THE SAME IS ALLOWABLE AS TRADING LOSS U/S.28(IV) OR BUSINESS EXPENDITURE U/S.37(1) OF THE ACT. 19.1. THE ASSESSEE HAS CLAIMED A DEDUCTION OF RS.7 13 677/- AS WRITING OFF DEBIT BALANCES OF CREDITORS. AS PER AO MERE W RITING OFF THE OUTSTANDING DEBTORS IN THE BOOKS OF ACCOUNT DID NOT MEAN THAT THE CLAIM IS ALLOWABLE AS DEDUCTION. AS PER AO IN TERMS OF S ECTION 36(1) (VII) A DEBT MUST BECOME BAD FOR ELIGIBLE ALLOWANCE. AGAIN ST THE SAID ADDITION ASSESSEE HAS CHALLENGED BEFORE THE LD.CIT(A) WHO HA S AFFIRMED THE ACTION OF THE AO. 20. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES WE ARE OF THE VIEW THAT THE ISSUE NOW STOOD COVERED BY TRF LTD. 323 IT R 397 (SC). RESPECTFULLY FOLLOWING THE DECISION THIS GROUND IS HEREBY ALLOWED. 21. GROUND NO.9 READS AS UNDER:- 9. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CHARGING INTEREST U/S.234B AND SECTION 234D OF THE INCOME TA X ACT 1961. ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 33 - 21.1 THIS GROUND IS MERELY CHARGING OF INTEREST HO WEVER CHARGEABILITY AS SUCH IS NOT IN QUESTION THEREFORE THIS GROUND IS MERELY CONSEQUENTIAL IN NATURE. 22. INA THE RESULT ASSESSEES APPEAL IS PARTLY ALL OWED. (B) REVENUES APPEAL ITA NO.816/AHD/2006 23. GROUND NO.I READS A SUNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) BARODA HAS ERRED IN- I. DELETING THE DISALLOWANCE OF CLAIM OF RS.30 96 7 21/- BEING AMOUNT OF LEASE RENTAL PAID TO IDBI LTD. AND SBI CA PITAL MARKETS LTD. 23.1. A SUM OF RS.30.96 LACS WAS CLAIMED AS PRE-PAI D RENT TO A FINANCIAL INSTITUTION. ADMITTED FACTUAL POSITION WAS THAT IT WAS A PRE-PAID EXPENDITURE. THEREFORE THE SAME WAS DISALLOWED. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY F OLLOWING THE PAST HISTORY OF THE CASE HOWEVER WITHOUT HAVING DISCUSSION ON MERITS THE CLAIM WAS ALLOWED. NOW BEFORE US IT WAS FAIRLY ACCEPTED B Y THE LD.AR MR.MEHTA THAT VIDE A DECISION OF SPECIAL BENCH IN THE CASE O F CIT VS. FAG BEARING (INDIA) LTD. 306 ITR 60 (AHD.)(AT) THE ISSUE IS DE CIDED AGAINST THE ASSESSEE HOWEVER ASSESSEE IS ELIGIBLE TO CLAIM TH E DEDUCTION OF SUCH PRE- PAID RENT IN THE YEAR FOR WHICH IT RELATES. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES AS FAR AS THE LEGALITY OF THE CL AIM IS CONCERNED THE SAME GOES IN FAVOUR OF THE REVENUE HOWEVER THE ALTERNA TE PLEA OF THE ASSESSEE CAN BE CONSIDERED BY THE AO. THIS GROUND OF THE REVENUE IS ALLOWED. ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 34 - 24. GROUND NO.II READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) BARODA HAS ERRED IN- II. REDUCING THE ADDITION OF RS.5 66 10 000/- TO RS .43 10 000/- ON ACCOUNT OF PAYMENT OF TECHNICAL KNOW HOW FEES HO LDING THAT THE REMAINING EXPENDITURE IS REVENUE IN FUTURE . 24.1. WE HAVE ALREADY DISCUSSED THE ISSUE AT LENGT H WHILE DECIDING THE APPEAL OF THE ASSESSEE IN RESPECT OF THE ADMISSIBIL ITY OF THE CLAIM. AN AGREEMENT WAS MADE WITH FAG KUGELFISCHER AND THE D ETAILS OF THE SAME WERE AS FOLLOWS:- (G) IN ANY CASE IN RESPECT OF KNOW-HOW ACQUIRED BEFORE THE 1 ST DAY OF APRIL 1998 THE PROVISIONS OF SECTION 32 AR E NOT APPLICABLE. IN THE PRESENT CASE ROYALTIES ETC (PAYABLE TO FAG KUGELFISCHER AG UNDER AGREEMENT DATED 21 ST MAY 1998) ARISING OUT OF THE AGREEMENT DATED 30 TH AUGUST 1996 WOULD AUTOMATICALLY EXCLUDE THEMSELVES. IN RESPECT OF THE AGREEMENT DATED 21 ST DECEMBER 2000 WITH FAG INDUSTRIAL BEARINGS AG THE ROYALTY T HERE FROM ESSENTIALLY AROSE OUT OF THE ORIGINAL AGREEMENT OF 25 TH JULY 1994 BUT WERE MERELY ASSIGNED ON ACCOUNT OF ORGANIZATIO NAL RESTRUCTURING AT THE COLLABORATORS END. IN OTHER WORDS THE ACQUISITION IF ANY OF THE KNOW-HOW CAME ALONG WIT H THE 1994 AGREEMENT AND NOT THOSE OF 2000. 24.2. IN RESPECT OF OTHER AGREEMENT WITH FAG OEM HA NEL THE DETAILS WERE AS FOLLOWS:- ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 35 - (I) AGREEMENT WITH FAG OEM UND HANDLE AG GERMANY DATED 21-12-2000 THE ORIGINAL AGREEMENT WITH FAG KUGELFISCHER GEORG SCHAEFER AG GERMANY WAS EXECUTED IN AUGUST 1979 WHICH WAS RENEWED ON 3-2-1989 AND 25-7-1994. DUE TO THE GROUP REORGANIZATION THE NEXT AGREEMENT WAS ENTERED INTO WITH FAG OEM UND HANDLE AG GERMANY ON 24-2-2000 (WHICH WAS RENEWAL OF AGREEMENT DATED 25-7-1994) AN D AGAIN ON 21-12-2000 WITH FAG INDUSTRIAL BEARINGS AG (RENEWAL OF AGREEMENT DT. 24-2-2000). IT WAS INFO RMED BY THE ASSESSEE THAT THE TERMS AND CONDITIONS OF THE A GREEMENT SINCE 1979 REMAINED ALMOST THE SAME. DURING THE CU RRENT YEAR THE ASSESSEE PAID GROSS FEE/ROYALTY OF RS.442 .50 LAKHS TO FAG OEM UND HANDLE AG GERMANY AS PER AGREEMENT DATED 21-12-2000. AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT THE COLLABORATOR AGREE D TO PROVIDE KNOW-HOW FOR THE MANUFACTURE OF BALL AND RO LLER BEARINGS IN RESPECT OF SCHEDULED AND NON-SCHEDULED ITEMS. SOME OF THE CLAUSES OF THE AGREEMENT WHICH ARE RELE VANT TO THE ISSUE ARE REPRODUCED BELOW: A VIEW HAS ALREADY BEEN TAKEN THAT THE PAYMENT WAS A RUNNING ROYALTY AND THAT KNOW-HOW HAS NOT BEEN ACQUIRED AN D THAT THE ASSESSEE HAS GOT ONLY RIGHT TO USE. IT HAS ALSO BEEN HELD THAT THE ASSET IN QUESTION WAS THE KNOW-HOW IN FACT WAS THE PROPERTY OF THE CO LLABORATOR AND THAT THE ASSESSEE HAD A LIMITED RIGHT OF USE. AFTER TH E EXPIRY OF THE TERM ASSESSEE IS UNDER OBLIGATION TO RETURN THE KNOW-HOW . WE HAVE ALSO DISCUSSED FEW CASE LAWS AS CITED BEFORE US AND THER EAFTER HELD THAT THE EXPENDITURE IS ALLOWABLE AS A REVENUE EXPENDITURE. ON THE SAME LINES FOR THE IMPUGNED AMOUNT AS CHALLENGED BY THE REVENU E WE HEREBY UPHOLD THE FINDINGS OF THE CIT(A) AND THEREFORE THI S GROUND OF THE REVENUE IS DISMISSED. ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 36 - 25. GROUND NO.III READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) BARODA HAS ERRED IN- III. DELETING THE DISALLOWANCE TO THE EXTENT OF R S.12 58 330/- OUT OF TOTAL DISALLOWANCE OF RS.27 60 840/- ON ACCOUNT OF REPAIRS TO BUILDING. 25.1. IN RESPECT OF REPAIRS OF BUILDING WHILE DECID ING THE CONNECTED GROUND OF THE ASSESSEE WE HAVE HELD THAT NO NEW AS SETS WAS CREATED AND THE NATURE OF EXPENDITURE WAS NOTHING BUT CURRENT REPAIRS. EVEN LD.CIT(A) HAS OPINED THAT REPLACING OF TILES WAS IN THE NATURE OF CURRENT REPAIRS. MOREOVER WE HAVE ALREADY HELD THAT THE MAINTENANCE OF THE EXISTING BUILDING CANNOT BE HELD AS A CREATION OF N EW ASSET. FEW DECISIONS IN THIS REGARD HAVE ALREADY BEEN DISCUSSE D HOWEVER THE DECISION OF R.B.BANSILAL ABIRCHAND SPINNING & WEAVI NG MILLS 31 ITR 427 IS AGAIN RELIED UPON AND THIS GROUND OF THE REV ENUE IS HEREBY DISMISSED. 26. GROUND NO.IV READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED CIT(A) BARODA HAS ERRED IN - IV. DELETING THE DISALLOWANCE OF RS.83 14 354/- ON ACCOUNT OF OPERATING AND LICENCE FEE FOR USE OF SAP R3 SOFTWAR E. 26.1. WHILE ALLOWING THIS GROUND LD.CIT(A) HAS O BSERVED AS FOLLOWS:- 12.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE APPELLANTS SUBMISSION. DURING THE YEAR THE ASSESSEE HAS NOT PAID ANY SUM FOR ACQUIRING THE SOFTWARE OR FOR FURT HER UPGRADATION. THE ENTIRE EXPENSES 83 14 354/- CONSI STS OF MONTHLY ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 37 - PAYMENTS FOR DM 32 282.50. THIS EXPENDITURE IS TOW ARDS MONTHLY CHARGES FOR4 74 IDS USED BY THE ASSESSEE. BY MAKIN G MONTHLY PAYMENTS THE ASSESSEE GOT ADVANTAGE OF USING THE F ACILITY FOR ONE MONTH ONLY AND THEREFORE THESE PAYMENTS CANNOT BE SAID TO HAVE GIVEN ADVANTAGE OF ENDURING NATURE TO THE ASSESSEE. THE ASSESSEE HAS ALSO NOT ACQUIRED ANY CAPITAL ASSET. THE EXPEN DITURE IS IN THE NATURE OF USER CHARGES ONLY AND THEREFORE CANNOT B E TREATED AS CAPITAL EXPENDITURE. THE LICENCE FEE PAID BY THE A SSESSEE IS NOT A ONE-TIME FEE GIVING THE ASSESSEE LICENCE TO USE THE SOFTWARE FOR PRESCRIBED NUMBER OF YEARS. THE FEE WHICH THE ASS ESSEE HAS TO APY EACH MONTH DEPENDING UPON THE NUMBER OF IDS TAK EN BY IT IS IN THE NATURE OF REVENUE EXPENDITURE AND ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME. THE GROUND OF APPEAL NO.8 IS ALLOWED. 27. WE HAVE ALREADY FOLLOWED FEW DECISIONS HOWEV ER THE ISSUE IS COVERED FURTHER BY THESE DECISIONS:- 1. JCIT V. CITICORP OVERSEAS SOFTWARE LTD. 85 TTJ 87 (MUM) 2. IBM INDIA LTD. VS. ACIT 105 ITD 1 (BANG.) 3. GE CAPITAL SERVICES INDIA LTD. 106 TTJ 65 (DEL) 4. CIT V. SOUTHERN ROADWAYS LTD. 220 CTR 298 (MAD) THEREFORE GROUND NO.IV OF REVENUES APPEAL IS DIS MISSED. 28. IN THE RESULT BOTH THE APPEALS ARE PARTLY AL LOWED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 30/09/2011. SD/- SD/- ( G.D. AGARWAL ) ( MUKUL KR. SHRAWAT ) VICE PRESIDENT (AZ) JUDICIAL ME MBER AHMEDABAD; DATED 30/ 09 /2011 7.. .../ T.C. NAIR SR. PS ITA NO.792/AHD/2006 (BY ASSESSEE) ITA NO.816/AHD/2006 (BY REVENUE) FAG BEARINGS INDIA LTD. VS. DCIT ASST.YEAR - 2001-02 - 38 - (6 2 /&8 (8*& (6 2 /&8 (8*& (6 2 /&8 (8*& (6 2 /&8 (8*&/ COPY OF THE ORDER FORWARDED TO : 1. +. / THE APPELLANT 2. /0+. / THE RESPONDENT. 3. $$ & %9 / CONCERNED CIT 4. %9() / THE CIT(A)-III BARODA 5. 8<= /& / DR ITAT AHMEDABAD 6. = >3 / GUARD FILE. (6% (6% (6% (6% / BY ORDER 08& /& //TRUE COPY// / // / $ $ $ $ ( DY./ASSTT.REGISTRAR) / ITAT AHMEDABAD 1. DATE OF DICTATION.. 27/09/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27/09/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 30/09/2011 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30/09/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER