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ACIT, Circle 13 (1) New Delhi and others Versus OCL India Ltd. and others

2015 (7) TMI 166 - ITAT DELHI

Technical know-how transfer - whether the expenditure incurred for the acquisition in question is in the capital filed or revenue? - Held that:- Perusal of the agreements clearly demonstrate that the assessee has acquired technical know-how by way of transfer from Mr.Trapp. The agreement with Mr.Glenn Trapp is for a period of 04 years. A perusal of this agreement further demonstrates that the expenditure in question was incurred for acquiring know-how with an object of improving the manufacturin .....

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assessee has not acquired any capital asset nor any enduring benefit in this case. Thus, in our view the expenditure in question is in the revenue field. - Decided in favour of assessee.

Disallowance of environmental study expenses - revenue v/s capital - Held that:- The expenditure was incurred for modernisation cum expansion of its existing Rajgangpur Cement Plant. The assessee has to statutorily obtain certain environmental clearances, for which the study has to be made as per the .....

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xpenditure - Held that:- adhoc disallowances cannot be sustained, unless there is evidence. The assessee has furnished trip wise details of its Sr.Executives and has also furnished the business transacted in each trip, export details, customer wise details of exports to various countries. Even copies of discussions held and copies of tour reports were furnished. In the face of such overwhelming evidences, to make an adhoc disallowance on surmises and conjectures cannot countenanced. In the resul .....

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ed by the assessee for the A.Y. 2006-07 against the order of Ld.CIT(A)-XVIII, New Delhi dated 24.2.2011. 2. Facts in brief:- The assessee is a company engaged in the manufacture and sale of cement, refractory and sponge iron. The issues that arise for our consideration in the assessee s appeal are disallowances made by the A.O. and confirmed by the First Appellate Authority. We shall deal with them in seriatim. 3. We have heard Shri R.M.Mehta, the Ld.Counsel for the assessee and Shri P.Dhamkanun .....

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OCL India Ltd. entered into an agreement with M/s. Glenn Ray Trapp in November, 2005 for a period of 4 years i.e. upto Novernber 2009. Mr Glenn Trapp has been engaged to have his knowledge in regard to Continuous Casting refractories. This knowledge is being provided by him purely from his memory and experience and not by way of any written manual. The most important reason for engaging him was that he had claimed to provide NIL rejection i.e. 100% recovery and there by increase in throughput. .....

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d by him till date, hence the payments made to him has not resulted in any asset of enduring nature for OCL India Ltd. and is revenue expenditure. We hope you will agree that knowledge till becoming successful is of no use to the company and will therefore be revenue expenditure. As till date that knowledge shared by him has not resulted in any concrete results, hence there has been no commercial exploitation of knowledge shared by him. We have not sub-licensed the knowledge shared by him with u .....

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nt and that technology can not remain constant and needs to be upgraded with time. Hence he argued that there is no benefit of enduring nature. He relied on the following case laws. (i) Beam Global Spirite & Wine (India) vs. DIT (ITA no.393/Del/2012); (ii) Goodyear India Ltd. Vs ITO (2000) 73 ITD 189 (Del.) For the proposition that enduring nature is not a relevant test in determining the nature of expenditure, he relied on the following case laws. (i) CIT vs. Asahi India Safety Glass Ltd. ( .....

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oes not lead to absolute transfer. For this proposition he relied on the judgement of Hon ble Delhi High Court in the case of Shriram Pistons & Rings Ltd. Vs. CIT (2008) 307 ITR 363 (Del.). 5.5. The Ld.Sr.D.R. relied on the order of the First Appellate Authority as well as the order of the A.O. He took this Bench through the agreement entered by the assessee with Mr.Glenn Ray Trapp which is at pages 5 to 11 of the assessee s paper book and submitted that there is transfer of knowhow and tech .....

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ause no. 4 and 5 read as follows. Clause 4. Exclusivity : 4.1. Mr.Trapp hereby grants to OCL and exclusive right to manufacture, use and sell in India and in overseas markets the CC Refractories manufactured by application of technical know-how/technology transferred by him to OCL and technical assistance provided by him in terms of and as contemplated herein. The right so hereby granted in favour of OCL shall be perpetual and shall not terminate with the expiry of this agreement. 4.2. During th .....

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quired technical know-how by way of transfer from Mr.Trapp. The issue to be considered is whether the expenditure incurred for the acquisition in question is in the capital filed or revenue filed. The agreement with Mr.Glenn Trapp is for a period of 04 years. A perusal of this agreement further demonstrates that the expenditure in question was incurred for acquiring know-how with an object of improving the manufacturing process of continuous casting activities. Thus, it is a case of improving th .....

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case. Thus, in our view the expenditure in question is in the revenue field. Thus, we allow this ground of the assessee. 8. Ground no.2 is against the disallowance of environmental study expenses by treating the same as capital expenditure. The assessee in this case has incurred an expenditure of ₹ 12,10,000/- towards carrying out Environmental Impact Assessment study for the proposed modernisation cum expansion of its existing Rajgangpur Cement Plant. Both the A.O. as well as the Ld.CIT(A .....

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tion is in the revenue field. While coming to such conclusion we rely on the following decisions of the Jurisdictional High Court. (i) CIT vs. Euro India Ltd. (2014) 45 Taxmann 173 (Del.) (ii) CIT vs. Priya Village Road Shows Ltd. (2011) 332 ITR 0594 (Del.) In the result this ground of the assessee is allowed. 9. Ground no.3 is against the partial disallowance of expenditure incurred by the assessee on foreign travel. The A.O. disallowed 80% of the expenses on ad-hoc basis on the ground that the .....

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ointed on 21.8.1987 and Smt.Abha Dalmia was appointed on 17.9.1982. It was further submitted that there was substantial increase in the exports from year to year from the A.Y. 2003-04 to 2008-09. It was argued that the expenditure incurred by all the employees of the assessee company, including these Senior Executives comes to only 5.9% of the value of total exports during the year which is ₹ 1660.59 lakhs. It was argued that the A.O. has taken a very narrow view of the fact that during on .....

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ncurred on foreign travel by Mr.M.H.Dalmia and Smtl.Abha Dalmia. He filed copy of the order of the Ld.CIT(A)-IX, New Delhi dt. 25.3.1992 and submitted that the First Appellate Authority deleted this addition on merits and the Revenue has not gone on appeal to the Tribunal. He relied on a number of case laws and argued that the disallowance is bad in law. He submitted that Courts have held in the case of UEM India P.Ltd. vs. ACIT (2015) 53 Taxmann.com 387 (Del.) that no adhoc disallowance could b .....

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isited a Doctor at Boston, USA for medical check-up. 9.3. After hearing rival contentions we find that the First Appellate Authority has recorded at page 23 of his order that the assessee had furnished the details of business transacted by these persons, during the above foreign travel. This factual finding of the First Appellate Authority could not be controverted by the Ld.Sr.D.R. Thus the disallowance of 80% made by the A.O. which is adhoc and arbitrary in our view cannot be sustained in the .....

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details of exports to various countries. Even copies of discussions held and copies of tour reports were furnished. In the face of such overwhelming evidences, to make an adhoc disallowance on surmises and conjectures cannot countenanced. In the result this ground of the assessee is allowed and the disallowance of 20% is deleted. 10. Ground no.4 is on disallowance made u/s 14A of the Act. In view of the smallness of the disallowance, the Ld.Counsel for the assessee did not press for the same on .....

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