TMI Blog2013 (5) TMI 729X X X X Extracts X X X X X X X X Extracts X X X X ..... y that part of the income in the total turn over which represents consideration received for sale of goods. Accordingly, this matter is restored to the file of AO for taking fresh decision after hearing the assessee. Receipt of service charges - Held that:- As submitted by assessee that the amount represents after sale service charges received from the customers to whom the goods are sold. However, the details of this income also are not available and, thus, the aforesaid submission has to be verified by the AO - matter is restored to the file of AO for taking fresh decision. Receipt of interest from customers on account of late payment - Held that:- As the same is in the nature of sale proceeds. Therefore, CIT(A) rightly included this amount in the total turn over. Interest on security deposit with the Government, interest on I.T. refund and interest on housing loan given to the employees - Held that:- Obviously, these receipts do not include any element of turn over. Therefore, these amounts have to be excluded from the total turn over. Deduction u/s 80HHC on DEPB benefits - Held that:- The decision of CIT Vs. Kalpatru Colours and Chemicals (2010 (6) TMI 63 - BOMBAY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that:- The issue stands covered by the decision of Climate Systems India (P) Limited Vs. ACIT [2009 (12) TMI 699 - ITAT DELHI] in which it has been held that the expenditure is revenue in nature. 5-S and safety expenses - Held that:- 5-S stands for sorting, systematic arrangement, keeping environment spic and span, standardization and self-discipline. These expenses are obviously in the nature of training expenses. The other expenses are also in the nature of training expenses of the staff and refilling of fire extinguisher, printing of banners, awareness of safety and audit fees for ensuring compliance of safety standards. These expenses are also training expenses in nature. Therefore, all these expenses are deductible in full. - I.T.A. No.2771/Del/2009, I.T.A. No1861/Del/2008, I.T.A. No1752/Del/2008, I.T.A. No.213/Del/2008, I.T.A. No.2860/Del/2008, I.T.A. No.2081/Del/2008, I.T.A. No.2461/Del/2008, I.T.A. No.2713/Del/2009, I.T.A. No.2562/Del/2010, I.T.A. No.3029/Del/2010 - - - Dated:- 31-5-2011 - Shri Rajpal Yadav And Shri K. G. Bansal,JJ. For the Petitioner : Shri R. K. Kapoor, CA For the Respondent : Shri H. L. Dihana, CIT-DR. ORDER Per Bench:- T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the commission paid by the assessee to the agents is deductible in full in computing the total income. Therefore, it is argued that the commission may be allowed in full in this year also. A copy of the consolidated order for these years has been placed in the paper book between page nos. 1 to 29. The Tribunal has noted that the commission has been paid not only for procuring orders but for rendering a number of services relating to completion of the sale and realization of sale proceeds. The payment of commission is not against any public policy or an offence punishable by law. The commission varies between 4% to 5% of the sale proceeds. The agents are not in any manner connected with the assessee and they have transacted with it at arms length. The commission cannot be said to be excessive. There is no evidence to show that the commission paid or a part thereof has come back to the assessee. In fact, genuineness of the payment is not any doubt. Therefore, the commission is deductible in full. For the sake of ready reference paragraph No.9 of the decision of the Tribunal is reproduced below:- 9.We have examined the rate of commission paid by the assessee to various a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, ground No.1 of the assessee is allowed and ground No.4 of the revenue is dismissed. 4. Ground No.2 is in respect of the computation of deduction u/s 80HHC. The facts in this connection are that the assessee received interest of ₹ 1,38,83,105/-, service charges of ₹ 37,19,856/-, and miscellaneous income of ₹ 2,24,99,834/-. The assessee had also written back provision for doubtful debts to the profit and loss account amounting to ₹ 4,74,973/-. The question raised in this ground is regarding inclusion of these items in the total turn over for computation of the deduction. The learned CIT(A) held that the miscellaneous income included a sum of ₹ 18,36,916/- arising on account of variation in the foreign exchange rate. This amount is to be included in the turn over as well as the total turn over for aforesaid purpose. The learned counsel for the assessee has not raised any dispute in the matter. Further, the provision for doubtful debts written back amounting to ₹ 4,74,973/- has been excluded from the total turn over. Interest from fixed deposits has been considered separately and, therefore, such interest of ₹ 48,38,910/- has also be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4.3 In so far as receipt of interest from customers on account of late payment, amounting to ₹ 66,40,365/- is concerned, the same is in the nature of sale proceeds. Therefore, the learned CIT(A) rightly included this amount in the total turn over. 4.4 The assessee also received interest on security deposit with the Government amounting to ₹ 5,01,797/-, interest on I.T. refund of ₹ 1,04,644/-, and interest on housing loan given to the employees of ₹ 17,97,389/-. Obviously, these receipts do not include any element of turn over. Therefore, these amounts have to be excluded from the total turn over. 4.5 Thus, ground No.2 is treated as partly allowed for statistical purposes. 5. Ground No.3 is in respect of the deduction u/s 80HHC on DEPB benefits. The findings of the learned CIT(A) are that undoubtedly the assessee has not fulfilled the conditions mentioned in the third proviso to section 80HHC(3). Thus, it is not proved that the assessee had an option to choose the benefit of DEPB scheme or duty draw back scheme, and that benefit under duty draw back scheme was higher than the benefit under DEPB scheme. The Assessing Officer has denied the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits of the business for computing deduction u/s 80HHC. The learned counsel harped upon the fact that the Assessing Officer had treated the interest income as business income. But he could not elaborate as to how the income was business income, connected with the operation of the business. On the other hand, the learned DR submitted that the issue stands squarely covered by the decision of jurisdictional High Court fin the case of CIT Vs. Sriram Honda Power Equipment (2007) 289 ITR 475 (supra). Having considered the submissions from both the sides, we are of the view that the order of the Assessing Officer merged with the order of learned CIT(A), which was arrived at after following the due process of law, namely, issuance of notice of enhancement to the assessee thereby giving him a reasonable opportunity of being heard. The assessee could not explain as to how the income was to be treated as business income. Therefore, we do not find any error in the order of the learned CIT(A), which requires correction from us. Accordingly, this ground is dismissed. 7. Coming to the appeal of the revenue, ground No.1 is against the finding of the learned CIT(A) that royalty expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the revenue. Respectfully, following this decision, it is held that the whole of the expenditure by way of fees is revenue expenditure. Accordingly this ground is also dismissed. 7.2 Ground No.3 is against the finding of the learned CIT(A) that the expenditure of ₹ 36,79,058/-, being capital expenditure on research and development, is deductible in computing the income. The Assessing Officer had disallowed the expenditure of ₹ 36,79,058/- on this ground. It is the common case of both the parties that the issue stands covered by the decision of the Tribunal, referred to above, in favour of the assessee. Paragraph Nos. 42 and 43 of that decision reads as under:- 42.The assessee has claimed deduction of ₹ 1,87,53,790/- in respect of expenditure incurred on research development. The Assessing Officer disallowed the expenses to the extent of ₹ 1,56,16,310/- by treating the same to be of capital in nature. 43.In the course of hearing of this appeal, it was pointed out that similar disallowance made by the Assessing Officer was deleted by the Tribunal in assessee s own case for the assessment year 1998-99 which has /been affirmed by the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so dismissed. (v) i.T.A. No.2081/D/08-appeal of the assessee (vi) I.T.A. No.2461/D/08-appeal of the revenue Assessment year : 2005-06 8. The only ground in the appeal of the assessee and ground No.4 in the appeal of the revenue are regarding the deduction of commission expenditure, which stand covered by our decision in the appeal for assessment year 1998-99. Following the decision in that appeal, the ground of the assessee is allowed and the ground taken by the revenue is dismissed. 9. Ground Nos. 1 2 in the appeal of the revenue are in respect of the disallowance of 25% of the expenditure incurred as royalty expenses and foreign technicians fees, by holding the expenditure to be capital in nature. The learned CIT(A) held the expenditure to be revenue in nature. These grounds stand covered in the appeal of the revenue for assessment year 2004-05 (supra) against the revenue. Following this order, these grounds are dismissed. 9.1 Ground No.3 5 are in respect of disallowance of capital expenditure on R D and new model development expenditure of 18,81,114/- and ₹ 1,95,30,323/- respectively. These grounds also stand covered in the appeal of the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in which it was held that ₹ 40,000/- paid to the lessor to prevent him from granting quarrying rights in neighbouring quarries to the competitors is an expenditure of capital nature; ii) Hylam Limited Vs. CIT, (1973) 87 ITR 310 (AP) , in which it has been held that fees paid to a foreign company for supplying technical information to be used for patented process of manufacture is of capital nature as the acquisition of knowledge in respect of new products would grant advantage of enduring nature to the assessee; iii) Praga Tools Vs. CIT, (1980) 123 ITR 773 (AP) (FB) , in which it has been held that the payment made to a foreign concern for supplying technical know-how which could be used even after expiry of the agreement amounts to capital expenditure, but the royalty paid at 5% of the production is revenue expenditure; iv) Alembic Chemicals Works Company Ltd. Vs. CIT, (1989) 177 ITR 377 (Supreme Court) , in which it has been held that the expenditure incurred on acquisition of know-how for producing higher yield and sub-cultures of high yielding strain of penciline constitutes of revenue in nature; v) Jyoti Electric Motors Limited Vs. CIT, (1999) 237 ITR 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the expenditure is in the nature of training expenditure, deductible in computing the income. 9. 9 In so far as ISO expenses are concerned, the details are as under:- ISO 9001 ₹ 3,97,253 5 S ₹ 82,766 Safety expenses ₹ 9,32,010 Total ₹ 14,12,029 9.10 The expenditure has been incurred for the following purposes:- i) Maintain control over the manufacturing process by carrying out quality systems audits. ii) Documentation of process of measurement and evaluation of the project using the quality control plan. iii) Required validation of the products manufactured to ensure that the products continue to make customer satisfaction. iv) Formulation of assessment for measurement of customer satisfaction. v) Documentation of various manufacturing process carrying out in the plants. 9.11 The submissions of the rival parties as to whether the expenditure is revenue in nature are capital in nature or the same as in respect of TPM expenditure. 9.12 We have considered t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t spic and span, standardization and self-discipline. These expenses are obviously in the nature of training expenses. The other expenses are also in the nature of training expenses of the staff and refilling of fire extinguisher, printing of banners, awareness of safety and audit fees for ensuring compliance of safety standards. These expenses are also training expenses in nature. Therefore, all these expenses are deductible in full. 9.15 In result, ground No.6 is also dismissed. (vii) I.T.A. No./2713/D/09-appeal of the assessee (viii) I.T.A. No.2771/D/09-appeal of the revenue: Assessment year : 2006-07 10. The only ground taken by the assessee is in respect of restricting the payment of commission to the agents at 4.5% against the actual amount of commission paid to them. Admittedly this ground stands covered against the revenue in the appeal for assessment year 1998-99 (supra). Therefore, the ground is decided in favour of the assessee. 11. The appeal of the revenue consists of four grounds regardingi) Capitalization of 2.5% of royalty expenses; ii) Capitalization of R D expenses on development of new models amounting to ₹ 1,29,79,137/-, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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