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2025 (5) TMI 1577 - AT - Income TaxTP Adjustment - disallowance of royalty payments - principle of res-judicata - HELD THAT - It is true that principle of res-judicata is not applicable to the tax proceedings. However it is equally true that there has to be consistent in the approach of the Revenue. We observe that similar type of payments of royalty and FTS have been made by the assessee in previous year assessment of which year has been completed u/s 143(3) of the Act. In view of principle of consistence as propounded in the case of Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT . Similarly in the case of Cairn U.K Holdings Limited 2013 (10) TMI 430 - DELHI HIGH COURT has held that there has to be consistency uniformity and certainty in the approach of the Revenue Thus we hold that the payments of royalty and FTS are to be allowed to the assessee as there is no change in facts and circumstances of the case when compare to previous year. 50% allowance on depreciation granted by the DRP - It is the case of the assessee that out of total payment attributable to the project cost payment has been allowed to the assessee in previous year and the balance payment has been disallowed to the assessee and only 50% depreciation attributable to this cost has been given by the DRP. We hereby restore this issue to the file of Assessing Officer for deciding afresh in accordance with law.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal arising from the assessment year 2013-14 are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Disallowance of Royalty Payments and Fees for Technical Services (FTS) Relevant legal framework and precedents: The assessment proceedings were conducted under the Income Tax Act, with scrutiny initiated under sections 143(2) and 142(1). Since international transactions were involved, the Transfer Pricing provisions were invoked, and reference was made to the TPO. The principle of res judicata is not applicable in tax proceedings, but the principle of consistency and uniformity in the approach of the Revenue has been emphasized by the Supreme Court and the Jurisdictional High Court. Precedents relied upon include:
Court's interpretation and reasoning: The Tribunal acknowledged that while res judicata does not apply to tax proceedings, the Revenue must maintain consistency in its approach. The assessee had made similar royalty and FTS payments in the previous year under the same agreement, which were accepted by the Revenue without invoking reassessment or revision proceedings. The Revenue did not contest the continuity of the agreement or the factual matrix for the impugned year. The Tribunal observed that the TPO's disallowance on the ground of no benefit or fruitful result was inconsistent with the prior year's acceptance. The Tribunal relied on the principle that tax authorities should follow their earlier views unless there are compelling reasons to deviate, which were absent in this case. Key evidence and findings: The assessee produced the agreement under which royalty and FTS were paid, which was identical to the agreement for the previous year. The Revenue did not dispute this fact. The prior year's assessment was completed under section 143(3) without any adverse action. Application of law to facts: Applying the principle of consistency, the Tribunal held that the payments of royalty and FTS should be allowed as deductions since the facts and circumstances remained unchanged from the previous year. Treatment of competing arguments: The Revenue argued that each assessment year is separate and res judicata does not apply. The Tribunal agreed but emphasized that consistency and uniformity in Revenue's approach are necessary to uphold certainty in tax laws. The Revenue failed to provide compelling reasons for deviation. Conclusions: The disallowances of royalty and FTS payments by the TPO were set aside, and these payments were allowed as deductions to the assessee. Issue 3: Disallowance of Service Agreement Fees and Depreciation Allowance Relevant legal framework: The service agreement fees capitalized by the assessee were subject to depreciation under the Income Tax Act. The DRP allowed only 50% depreciation on the disputed amount, partially disallowing the claim. Court's interpretation and reasoning: The Tribunal noted that out of the total payment attributable to the project cost, a portion had been allowed in the previous year, while the balance was disallowed with only 50% depreciation granted. The Tribunal found that the nature of the payment required further examination. Key evidence and findings: The payment of Rs. 2,45,00,000/- was allowed in the previous year, while Rs. 2,39,51,355/- was disallowed in the impugned year. The DRP granted only 50% depreciation on the disallowed portion. Application of law to facts: The Tribunal held that the issue required a fresh examination by the Assessing Officer to determine the nature of the payment and the appropriate depreciation allowance in accordance with law. Treatment of competing arguments: The assessee contended for full allowance, while the DRP restricted depreciation to 50%. The Tribunal did not decide on merits but remanded the matter for reassessment. Conclusions: The issue was restored to the file of the Assessing Officer for fresh adjudication in accordance with law. 3. SIGNIFICANT HOLDINGS The Tribunal laid down the following significant principles and conclusions: "It is true that principle of res-judicata is not applicable to the tax proceedings. However, it is equally true that there has to be consistent in the approach of the Revenue." "There has to be consistency, uniformity and certainty in the approach of the Revenue. ... Certainty is integral to rule of law. Certainty and stability form the basis foundation of any fiscal laws." "Authority should follow their earlier view, unless there are strong grounds and reasons to take a contrary view, but in the present case there is no compelling justification and reason to override and disturb the earlier view." Accordingly, the Tribunal held that the disallowance of royalty and FTS payments was unsustainable where the facts and agreement remained unchanged from the previous year's accepted assessment. On the issue of service agreement fees and depreciation, the Tribunal did not express a final view but remanded the matter for fresh determination by the Assessing Officer, emphasizing the need for examination "in accordance with law." Thus, the final determinations are:
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