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2015 (9) TMI 900 - ITAT DELHI

2015 (9) TMI 900 - ITAT DELHI - TMI - Reopening of assessment - payment made to M/s Mahindra & Mahindra for the purpose of obtaining exclusive vendor status - Held that:- From the explanation furnished during the course of original assessments, it is clear that the assessee company was harping on that it is nothing but volume discount by the appellant to the M/s Mahindra and Mahindra. There is no evidence on record to indicate that the agreement entered into by the assessee company with M/s Mahi .....

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mere change of opinion, is devoid of merit. The case-laws relied upon by the appellant do not come to the rescue of the appellant as the ratio laid down on those cases are that the reassessment proceedings are invalid in law, when prompted by a change of opinion. Accordingly, we hold that the reassessment proceedings initiated by the Assessing Officer are valid in law. - Decided against assessee.

Disallowance on the ground that the expenditure incurred to obtain exclusive vendor stat .....

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as a deduction under Section 37(1) of the Act. The fact that the appellant company paid consideration by way of reduction from the invoice value does not make any difference because what has to be looked to is the character of the payment. A capital expenditure may as well be spread over for a number of years and had retained his character as a capital expenditure. We place reliance on the decision of CIT Vs. Piggot Champman & Co., (1949 (2) TMI 8 - CALCUTTA HIGH COURT) and further the fact that .....

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Disallowance without appreciating the fact that during the year the total expenditure incurred and claimed on account of trade/volume discount was only ₹ 9,23,23,607/- Held that:- As held that the entire expenditure is capital in nature and mere fact that the capital expenditure is spread over period of time, does not make any difference. Therefore, the argument that the expenditure incurred during the year under consideration was only ₹ 9,23,23,607/-, does not hold any wate .....

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se and in law, the Ld. CIT(A) grossly erred in upholding the action of the Ld. AO in initiating and completing assessment proceedings under Section 147/ 148 of the Act on mere change of opinion as held by the Honourable Supreme Court in 'CIT v. Kelvinator of India Ltd.' [2010], 228 CTR 488' as the original assessment was completed under Section 143(3) of the Act wherein the issue regarding allowability of payment by the appellant on account of exclusive vendor status was duly examine .....

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unt allowed by the appellant to its customers during the normal course of business and is therefore fully allowable under Section 37(1) read with Section 28 of the Act. 3. a. Without prejudice to the above, on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in rejecting the contention of the appellant that in computing the disallowance at INR 140,899,500 (INR 187,866,000 less 25% dep. on INR 187,866,000) the Ld. AO has not appreciated that the total expense incurred and .....

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pholding the action ofLd. AO in levying interest under Section 234D of the Act. 6. That the Ld. CIT(A) erred in upholding the action of Ld. AO in initiating penalty proceedings under Section 271 (l)( c) of the Act for furnishing inaccurate particulars of income. That the above grounds of appeal are without prejudice to each other. That the appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal. 2. The brief facts .....

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was selected for scrutiny assessment under Section 143(3) of the Income-tax Act, 1961 (for short the Act ). The assessment was completed under section 143(3) of the Act vide order dated 24th December, 2008 at a total income of ₹ 24,85,09,200/-. Subsequently, a notice under Section 148 of the Act, dated 19th January, 2010 was issued by the Deputy Commissioner of Income Tax, Circle- 4(1), New Delhi, proposing to reassess the income. The reasons recorded for issuance of said notice are as und .....

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ed in under assessment of income of ₹ 1,15,04,000/- involving tax effect of ₹ 61,03,921/- B. that as per the notes to accounts assessee had paid an amount of ₹ 18,78,66,000/- to obtain exclusive vendor status and this amount was set off against sales of current financial year. As the expenses incurred on exclusive commercial rights and covered under intangible assets, therefore, it needed to be capitalized. Only depreciation @ 25% was allowable on such capitalized amounts. Thus .....

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incurred on purchase of software are covered under intangible assets, therefore, it needed to be capitalized. Only depreciation @ 25% was allowable on such capitalized amounts. Thus, depreciation of ₹ 31,73,220/- was only allowable in the current financial year out of total claim of the assessee amounting to ₹ 1,26,92,880/-. Further as per the depreciation chart of the income tax the assesee had claimed and allowed depreciation of ₹ 55,57,163/- @ 60% on intangibles (computer s .....

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hort levy of interest of ₹ 10,04,787/-. 02.In view of the above, I have reasons to believe that the income of ₹ 1,15,04,000/-, ₹ 14,08,99,500/-, & ₹ 1,27,61,338/- aggregating to ₹ 16,51,64,838/- chargeable to tax has escaped assessment within the meaning to section 147/148 of the Income Tax Act, 1961 and interest of ₹ 10,04,787/- was under charged on the income assessed. 2.1 Thereafter, the reassessment was completed vide order dated 14th December, 2010 by .....

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, since it goes to the root of the matter. This ground challenges the validity of the reassessment proceedings. 3.1 It was argued before us that the issue of payment made to M/s Mahindra & Mahindra for the purpose of obtaining exclusive vendor status was considered at the time of original assessments by the Assessing Officer. He invited our attention to page no. 91 of the paper book where the explanation was furnished regarding the queries raised by the Assessing Officer during the course of .....

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IT [21 DTR 281 (Bom.)] vi. M.J. Pharmaceuticals Ltd. Vs. DCIT [297 ITR 119 (Bom.)] vii. Garden Silk Mills (P.) Ltd. Vs. DCIT, [237 ITR 668 (Guj.)] viii. CIT Vs. Eicher Ltd. [294 ITR 310 (Del.)] ix. Jal Hotels Co. Ltd. Vs. ADIT [24 DTR 37 (Del.)] x. ITO Vs. Object Connect India Pvt. Ltd. [1277 & 1278/Hyd/2011 (Hyd.)] xi. Usha International Ltd. [ITA No. 2026/2010]-Delhi High Court 3.2 On the other hand, learned Sr. DR placed reliance on the orders of the CIT(A). 3.3 We heard the rival submiss .....

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to the M/s Mahindra and Mahindra. There is no evidence on record to indicate that the agreement entered into by the assessee company with M/s Mahindra & Mahindra, dated 11th January, 1998 was filed before the Assessing Officer. Therefore, the Assessing Officer had no opportunity to peruse and draw any kind of inference about the nature of agreement or the right acquired pursuant to that agreement. Hence, it cannot be said that the Assessing Officer at the time of framing the original assess .....

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ficer are valid in law. The reasoning given by the CIT(A) while upholding the validity of reassessment proceedings, cannot be found fault with. Hence, ground no. 1 is dismissed. 4. Now we shall deal with ground no. 2. Ground no. 2 relates to the challenge of disallowance of ₹ 14,08,99,500/- on the ground that the expenditure incurred to obtain exclusive vendor status was in the nature of capital expenditure. From the agreement filed the brief facts revolving around this issue are as under: .....

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te to Accounts included in Schedule-XXI of the balance-sheet is reflected as under: 12. In March, 2003, under an agreement, a total consideration of USD 6,000 was agreed with customer to obtain exclusive vendor status. This consideration being set off against sales based on pre-agreed rates/quantities are appropriate recorded as volume discount. USD 4,124 (equivalent of ₹ 187,866/-) has been adjusted towards above till end of this financial year. The total consideration will be paid off by .....

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commissioned cars seating systems at the behest of independent car manufacturers like General Motors, Mahindra & Mahindra Ltd. (M&M) etc. It is a common knowledge that India automobile market for passenger car is highly price competitive and domestic manufacturers like Tata Motors, General Motors, Hyundai are under a significant pressure to bring down costs to make their cars more affordable to an average India. Accordingly, in the experience of Lear India such cost pressure are pushed t .....

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case the company wishes to become a sole supplier of a particular company, it is required to commit upfront to its customer an overriding volume discount measured on a per piece basis based on total volume committed to Lear India by the customer over a defined time frame. It may be mentioned that the volume commitment is a simply pre-agreed volume discount and has the effect of reducing individual system cost for automobile manufacture on a unit by unit basis. No amount was actually paid in cas .....

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e at the time of original assessment proceedings; it was only when the audit party raised the objection on this issue. The Assessing Officer examined the issue independently and came to the conclusion that the impugned payment is nothing but capital expenditure and made disallowance of ₹ 14,08,99,500/- and depreciation @ 25% was allowed. The CIT(A) dismissed the ground by holding as under: Perusal of the facts on record shows that the appellant had obtained "exclusive vendor status&qu .....

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the M/s Mahindra & Mahindra. Now the issue that crops up for our consideration is whether it constitutes capital expenditure or revenue expenditure. To decide this issue, in our considered opinion, the principles laid down by the Hon ble Supreme Court in the case of Assam Bengal Cement Vs. CIT, 27 ITR 34, should be applied. The relevant portion of the aforesaid case are as follows: …………..Under clause 4 of the deed the lessors undertook not to grant any lease, perm .....

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company and came well within the test laid down by Viscount Cave. It was not a lump sum payment but was spread over the whole period of the lease and it could be urged that it was a recurring payment. The fact however that it was a recurring payment was immaterial, because one had got to look to the nature of the payment which in its turn was determined by the nature of the asset which the company had acquired. The asset which the company had acquired in consideration of this recurring payment w .....

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was not an allowable deduction under section 10(2)(xv) of the Income-tax Act. 4.5 Applying the above principles to the facts of the case on hand, in this case also the assessee company acquired a right to carry on its business unfettered by any competition from outsiders within India. It was a protection acquired by the company for its business as a whole. As a result of this, the capital value of the business goes to appreciate and make it more profit yielding. Therefore, the expenditure incurr .....

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Piggot Champman & Co., (1949) 17 ITR 317 and further the fact that in the books of account this item was treated as a volume trade discount cannot determine the true nature of the transaction. Nomenclature of a transaction is immaterial while deciding the true nature of the transaction. 4.6 Having regard to these principles, we have no hesitation to hold that the expenditure incurred by the assessee company in acquiring exclusive vendor status in terms of the agreement entered into by it is .....

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