TMI Blog2016 (5) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... off in subsequent years, no disallowance can be made on the assessee company. provision for slow moving inventory would be allowed as revenue deduction and therefore, the disallowance made in the assessment order for A.Y. 2010- 11 on this account has to be deleted. - ITA No.551/Del./2014, ITA No. 636/Del./2015 - - - Dated:- 13-4-2016 - SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER For The Appellant : S/Sh. Neeraj Jain, Adv., Romit Katyal, CA and Ms. Bhavita Kumari, Adv. For The Respondent : Sh. Armendra Kumar, CIT/ DR ORDER Per L.P. Sahu, Accountant Member: This appeal has been filed by the assessee against the assessment orders dated 11.12.2013 21.11.2014 passed u/s. 143(3) read with section 144C of the IT Act, 1961 (hereinafter referred to as the Act ) for the assessment year 2009-10 and 2010-11 on the following grounds : Grounds raised in A.Y. 2009-10: General: 1. That the impugned order of assessment framed by the assessing officer in pursuance of the directions of the Dispute Resolution Panel (hereinafter referred to as DRP ) under Section 143(3) read with Section 144C of the Income-tax Act, 1961 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tally resulted in brand building for the foreign AE, was a transaction of creating and improving marketing intangibles for and on behalf of its foreign AE and further that such a transaction was in the nature of provision of a service by the appellant to the AE. 3.6. That the assessing officer erred on facts and in law in not appreciating that the characterization of the appellant being that of a full fledged manufacturer and the sole beneficiary of the AMP expenditure incurred by it, justifies the conduct of the appellant in incurring and bearing the cost of AMP expenditure. 3.7. The DRP erred on facts and in law in not holding that expenditure on advertisement and brand promotion, unilaterally incurred by the appellant, could not be regarded as a transaction in the absence of any proved understanding / arrangement between the appellant and the associated enterprise. 3.8. The Assessing Officer/TPO erred on facts and in law in not appreciating that the AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an international transaction as per section 92B, in the absence of any proved understanding / arrangement between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r/TPO erred on facts and in law in not appreciating that merely because the net profit rate of the appellant was better than the corresponding net profit rate of comparable companies, would not lead to the conclusion that incurring of AMP expenses for the AE was at arm s length. 3.18 That the assessing officer/TPO erred on facts and in law in ignoring that bright line limit is not a prescribed method under the purview of section 92C of the Act. 3.19 Without prejudice that the assessing officer/TPO erred on facts and in law in not appreciating that for determining whether the AMP expenses incurred by the appellant could be said to be excessive, only the appropriate comparables having similar product / brand profile as the appellant could be considered in terms of Rule 10B(2) of the Income-tax Rules, 1962 read with section 92C of the Act. 3.20 That the assessing officer/TPO erred on facts and in law in failing to appreciate that the appellant has long-term rights to use the trademark/ licensed intangibles and reaps all the benefits of the said AMP expenses and is thus the economic owner of any related marketing intangible. 3.21 That the assessing officer/TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AE. 3.28 Without prejudice, the assessing officer/TPO erred on facts and in law in not appreciating that markup, if at all, had to be restricted to the value added expenses incurred by the appellant for providing the alleged service in the nature of brand promotion. Royalty in respect of exports made to associated enterprises : 4. That the assessing officer/TPO erred on facts and in law in holding that arm s length price of international transactions of payment of royalty on exports made to the associated enterprises of ₹ 45,67,000 was nil. 4.1 . That the assessing officer/TPO erred on facts and in law in holding that the assessee was acting as a contract manufacturer and hence royalty paid as percentage of sale to the associated enterprises is not at arm s length as it amounts to collecting royalty on the sale to itself. 4.2. That the assessing officer/TPO erred on facts and in law in holding that where the appellant is making part of its sales to related parties and the benefit of purchasing components is reaped by the associated enterprise, the payment of royalty do not confirm to arm s length price. 4.3. That the assessing off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther legal entities exclusive privilege of manufacturing and selling the products. (v) In the event of the expiration of the contract, the appellant may continue to use the know-how and the Industrial property Rights is capital in nature. 6. That the assessing officer erred on facts and in law in disallowing export commission paid to M/s Honda Motor Co. Ltd. of Japan of ₹ 4,32,49,149 invoking section 40 (a) (i) of the Act holding the same to be royalty/fee for technical service on which allegedly the assessee had failed to deduct tax at source as per section 195 of the Act. 6.1. That the assessing officer erred on facts and in law in law in holding that the payments of export commission was towards royalty/fee for technical services as the same was in consideration for (i) right to use trademark, (ii) permission to export and (iii) in lieu of managerial and technical services provided by Honda, and accordingly the appellant was under obligation to deduct tax at source there from as per section 195 of the Act. 6.2. That the assessing officer erred on facts and in law in not appreciating that payment of export commission to Honda does not result in an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of international transactions. Advertisement, marketing and sales promotion expenses: 3. That the assessing officer erred on facts and in law in making transfer pricing adjustment amounting to ₹ 10,98,88,464 in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as the AMP expenses ) incurred by the appellant. 3.1 Whether on the facts and in the circumstances of the case, the DRP erred in law in upholding, in principle, transfer pricing adjustment made by the assessing officer / TPO in respect of expenditure incurred on advertising, marketing and publicity ( AMP expenses )? 3.2 The DRP/TPO erred on facts and in law in not appreciating that the only Transfer Pricing adjustment permitted by Chapter X of the Act was in respect of the difference between the arm s length price (ALP) and the contract or declared price. 3.3 The DRP erred on facts and in law in not appreciating that the Transfer Pricing adjustment sought to be made by the TPO in the present case was a mere quantitative adjustment, on the footing that the Appellant had incurred an excessive amount of AMP expenditure , and not on the footi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / arrangement between the appellant and the associated enterprise. 3.11 The DRP/TPO erred on facts and in law in not appreciating that the AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an international transaction as per section 92B, in the absence of any proved understanding / arrangement between the appellant and the associated enterprise, so as to invoke the provisions of section 92 of the Act. 3.12 That the DRP/TPO erred on facts and in law in not appreciating that unilaterally incurring of AMP expenses by the appellant does not result in an international transaction in terms of section 92B of the Act, even after its amendment by the Finance Act, 2012. 3.13 The DRP/TPO erred on facts and in law in not appreciating that in absence of any understanding / arrangement between the appellant and the associated enterprise, the associated enterprise was under no obligation to reimburse AMP expenses incurred by the appellant for sale of its products in India. 3.14 That the DRP/TPO erred on facts and in law by questioning the commercial expediency of AMP expenditure incurred by the appellant and assuming that be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant was better than the corresponding net profit rate of comparable companies, would not lead to the conclusion that incurring of AMP expenses for the AE was at arm s length. 3.24 That the assessing officer erred on facts and in law in ignoring that bright line limit is not a prescribed method under the purview of section 92C of the Act. 3.25 Without prejudice that the DRP/TPO erred on facts and in law in not appreciating that for determining whether the AMP expenses incurred by the appellant could be said to be excessive, only the appropriate comparables having similar product / brand profile as the appellant could be considered in terms of Rule 10B(2) of the Income-tax Rules, 1962 read with section 92C of the Act. 3.26 That the assessing officer erred on facts and in law in holding that the appellant should have earned a mark-up in respect of the AMP expenses, alleged to have incurred for and on behalf of the associated enterprise. 3.27 Without prejudice that, the assessing officer erred on facts and in law in holding the AMP expenses incurred by the appellant to be excessive on the basis of a bright line limit arrived at by considering inappropri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eparately. 3.33 That the assessing officer / TPO erred on facts and in law in holding that the appellant has rendered service to the AEs by incurring the AMP expense and by holding that markup has to be earned by the appellant in respect of the AMP expenses, alleged to have incurred for and on behalf of the AE. 3.34 Without prejudice, the assessing officer/TPO erred on facts and in law in not appreciating that markup, if at all, had to be restricted to the value added expenses incurred by the appellant for providing the alleged service in the nature of brand promotion. Royalty in respect of exports made to associated enterprises: 4. That the assessing officer/TPO erred on facts and in law in holding that arm s length price of international transactions of payment of royalty on exports made to the associated enterprises of ₹ 37,79,000 was nil. 4.1 That the assessing officer/TPO erred on facts and in law in holding that the assessee was acting as a contract manufacturer and hence royalty paid as percentage of sale to the associated enterprises is not at arm s length as it amounts to collecting royalty on the sale to itself. 4.2 That the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit and Loss statement, amounting to ₹ 11,76,382, being the amount of expenses estimated by the appellant to be incurred on account of obsolescence/ slow moving inventory. 6.1 That the assessing officer/DRP erred on facts and in law in holding the provision for slow moving inventory, estimated by the appellant in accordance with Accounting Standard 2, issued by the Institute of Chartered Accountants of India, to be an unascertained liability, which was not an allowable expense 6.2 Without prejudice, that the assessing officer/DRP erred on facts and in law in making the aforesaid disallowance of the amount of provision for slow moving inventory and not appreciating that the aforesaid disallowance was revenue neutral in nature, because as and when the aforesaid inventory will be sold, the loss relating to the same will not be debited in Profit Loss statement. 2. Since both these appeals were heard together and major issues involved in these appeals are common, we deem it appropriate to decide both these appeals simultaneously by this consolidated order for the sake of convenience and brevity. 3. The brief facts leading to the present cases are that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing depreciation of 25% on the same. 4.1 The AO further made addition of ₹ 1,11,47,000 towards relocation expenses towards shifting of factory of the assessee company, on the ground that such expenditure was capital in nature and had resulted in benefit of enduring nature to the assessee company. The AO also noted that the amount of ₹ 11,76,382 debited in the profit loss account of the assessee company towards Provision of Slow Moving Inventory was not to be allowed since such expenditure in the nature of provision. 4.2 The AO further noticed that the assessee had entered into international transactions during the year under consideration. The TPO in the order dated 31.12.2013 made an adjustment of ₹ 10,98,88,464 on account of the difference in advertisement and promotion expenditure of the assessee company and the arm s length price of subsidy received from the associated enterprises. The AO further made disallowance of royalty payment of ₹ 37,790,00 on account of sales made to associated enterprises. 4.3. The assessee carried the matter in appeal before the DRP. The DRP-I, New Delhi in its order dated 21.11.2014 directed the AO to delete the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TNMM 8. Reimbursement of Expenses by AEs 1,065,607 Cost Recharges 9. Reimbursement of Expenses to AEs 33,447 Cost Recharges In the Transfer Pricing study report, the international transactions have been benchmarked using Transactional Net Margin Method ( TNMM ) as the most appropriate method with Operating Profit/Operating Revenue (OP/OR) ratio as profit level indicator. For the purpose of selecting comparables the appellant has selected companies engaged in manufacturing of engine and generators and the following filters were used for rejecting non-comparable companies: a. Companies for which sufficient information is not available b. Companies that do not have significant (less than 25%) foreign exchange earnings; c. Companies that have substantial (excess of 25%) related party transactions; d. Companies incurring persistent losses Accordingly, the appellant has analysed the OP/TC ratio of the following 10 comparable companies: S. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advertisement and publicity 1,76,58,000 Sales Promotion 3,72,36,000 Total 12,62,35,000 The Transfer Pricing Officer (TPO) had undertaken benchmarking analysis of AMP expenses incurred by the appellant allegedly applying the Bright Line Test. The TPO has held that the AMP expenses to that extent were incurred for creating marketing intangible of Honda brand which belongs to the associated enterprise and, therefore, requires compensation along with a mark-up for the brand promotion services. For applying bright line test, the TPO compared AMP expenditure of 4.13% (as a percentage of total turnover) incurred by the appellant with average AMP expenditure of 1% of the following comparable companies: Name of company AMP/sales Birla power solutions 1.43% Greaves Cotton 0.32% Gujarat Forgings Ltd 1.61% Jaksons Ltd 0.60% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Where the Indian company has incurred expenditure on advertisements of the foreign brand and the AMP expenses incurred by the taxpayer are proportionately higher than those incurred by comparable cases, the same leads to the inference of transaction between the taxpayer and the foreign AE for creating marketing intangibles on behalf of the later. (ii) The transaction of brand building is a transaction of creating and improving marketing intangibles by the taxpayer for and on behalf of its foreign AE; such transaction is in the nature of provision of service. (iii) The bright line test is used only to ascertain the cost / value of service rendered by the taxpayer to foreign AE towards creation and improvement of marketing intangibles. (iv) The Special Bench accordingly held that AMP expense may result in transaction or international transaction, which may be benchmarked under the Transfer Pricing Regulations. 1. No international transaction The said decision of Special Bench of the Tribunal recently was considered by the Hon ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd. Vs. CIT 374 ITR 118. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only received by the Indian entity. It is respectfully submitted that the economic ownership of the brand rests with the appellant and accordingly, the appellant cannot be expected to seek compensation for the expenditure incurred on the asset economically owned by it. No Transfer Pricing adjustment on account of AMP expenses would be warranted. The aforesaid test is fully satisfied in the case of the appellant and the Transfer Pricing adjustment on account of AMP expenses made by the TPO is liable to be deleted. It is submitted that in case of a Distributor of the products of the AE, the overseas supplier of the goods has a higher potential of repatriating profits from India by way of higher product pricing and squeezing the return left for the Indian distributor. It is pertinent to note that ordinarily for a distributor, who is functionally only a reseller and typically does not add value, the cost of sales (comprising essentially of finished good purchases) to sales is a significant percentage. In case of manufacturer, any expenditure incurred on account of advertisement and marketing expenses are borne by it and the related benefits also accrue to the manufacturer. The fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee in India and not the brand name of the associated enterprise. The Hon ble Delhi High Court in the case of Sony Ericsson Mobile Communications (supra) held that expenditure incurred for promoting products cannot be regarded as expenditure for incurred for development of brand. The Hon ble Court held as under: In view of the aforesaid, it is respectfully submitted that since the AMP expenditure incurred by the appellant is restricted to promotion of sale of its products rather than development of brand, the adjustment made by the TPO on the basis that the appellant is developing brand Honda on behalf of its associated enterprise is flawed liable to be rejected. The appellant, pursuant to the license agreement, is authorized to manufacture the models/variants of gensetsetc for sale in India. On facts of appellant s case, apart from advertising only for the products sold in India, no brand name is separately advertised. In view of the aforesaid, it is submitted that in case of a full risk distributor or a full risk manufacturer, running an independent business, no compensation on account of AMP expenses is warranted. 3. Bright Line Test is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 Total 7,13,41,000 The TPO has not followed the Special Bench decision by not excluding selling and distribution expenses debited to the profit and loss account. It is submitted that the aforesaid selling and distribution expenses aggregating to ₹ 7,13,41,000, incurred by the applicant, being expenses incurred in connection with effecting the sale, do not lead to brand promotion as held by the Hon ble Special Bench Further, Hon ble Delhi High Court, too, at Para 176, reiterated that marketing or selling expenses like trade discounts, volume discounts, etc. offered to sub-distributors or retailers are not in the nature and character of brand promotion. Accordingly, in terms of the directions of the Hon ble Tribunal and the position upheld by the Hon ble High Court, the advertisement expenses of ₹ 5,48,94,000 only constituting 1.80% of the turnover is to be considered as AMP expenses incurred by the appellant exclusively for sales of its own product bearing the AE s brand name Honda . During the course of the hearing, it was submitted by the Ld. AR that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and in the eventuality they are modified or substituted by the decision of the Jurisdictional High Court in the case of Canon India Pvt. Ltd., the same shall also necessarily be taken into consideration. In view of the above, Ground No. 3 along with various subgrounds are allowed for statistical purposes. 10.1 We further note that the Hon ble Delhi High Court in the appellant s appeal against the above order for A.Y. 2008-09 (ITA No 346/2015) has held that AMP expenses unilaterally incurred by the appellant cannot be construed as an international transaction. The relevant observations of Hon ble Court are reproduced as under for ready reference : 37. Additionally it was held both in MSIL (supra) as well as Whirlpool of India Limited (supra) that in terms of the law explained by the Supreme Court in CIT v. B.C. Srinivas Setty (1981) 128 ITR 294 (SC) and PNB Finance Limited v. CIT (2008) 307 ITR 75 (SC), in the absence of any machinery provision, bringing an imagined international transaction to tax is fraught with the danger of invalidation. In the present case, in the absence of there being an international transaction involving AMP spend with an ascertainable price, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s its own marketing strategy as it considers necessary and appropriate. Further as an independent manufacturer the Assessee bears all the risks associated with its business of manufacturing and sale of products in India and abroad. The condition in the license agreement that the technology will be used for sale of goods in designated jurisdictions or specified territories is not an unusual arrangement. The question of recharacterising the Assessee as a 'contract manufacturer' was unwarranted. The Court finds that the Revenue has not been able to controvert any of the above submissions. 41. In that view of the matter, the question of a benchmarking analysis by evaluating the AMP expenses incurred by the Assessee in relation to its total sales vis-a-vis its comparables is not called for. There is nothing to indicate that the AMP expenses incurred by the Assessee is at the instance of foreign AE and that the Assessee has to be compensated by the foreign AE in that behalf. 42. Question (ii) is answered in favour of the Assessee and against the Revenue by holding that the Revenue has not been able to demonstrate that there exists an international transaction involving the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales are made to third party customers or to the associated enterprises. However, the TPO, disregarding the fact that even with respect to sales made to associated enterprises the applicant is performing all the entrepreneurial functions and is assuming associated risks, arbitrarily characterized the applicant as a contract manufacturer. The difference between the functional profile of a contract manufacturer and an entrepreneur such as the applicant is summarized as under: Particulars Applicant Contract Manufacturer Nature of relationship Principal to Principal Principal and agent Type of products Standard Customized to the requirements of principal Volume of production No separate production capacity is earmarked for the AEs Capacity determined on the basis of principal s demands Quality Control As per the standards of the applicant As per the standards prescribed by the principa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price earned by the assessee from exports of goods to the AEs as well as non-AEs, the assessee has earned a premium which would not be in the case of a contract manufacturer. In case of sister concern of the assessee, identical payment of royalty was held to be allowable by the Tribunal in the case of M/s. Hero MotoCorp Ltd. XXX 13. In view of the above reasoning, we are of the view that there is no justification for disallowance of royalty on the export made to the AEs. Accordingly, the addition made by the AO/TPO by determining the ALP of royalty on exports to the AEs at nil is deleted. Reliance in this regard is also placed on the following decisions of the Tribunal: - Applicant s own case for assessment year 2008-09 (ITA No 6023/Del/2012) - Deputy CIT Vs. SonaOkegawa Precision Forgings Ltd. (ITA No. 5386/Del/2010) - SC Enviro Agro India Ltd Vs DCIT (ITA Nos. 2057 2058/Mumbai/2009) It is further submitted that the TPO has arbitrarily re-characterized the assessee as contract manufacturer in relation to the international transaction of export of goods, without challenging the FAR analysis conducted by the assessee which clearly esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. It was on taking into consideration all of the above that the ld. CIT(A) deleted the addition wrongly made by the AO. We do not find any reason to record any variance with the well reasoned elaborate findings of fact recorded by the ld. CIT(A). The same are hereby upheld. In the case of the assessee too, it is an admitted fact that the sales were made by the assessee to its associated enterprise at market determined prices. Moreover, the royalty paid under the Technology Agreement comprises an integral part of the cost of production, which has been recovered from the sale price. Accordingly, even applying the criteria laid down by the Hon ble Tribunal, the assessee is operating as an independent manufacturer even with respect to sales made to AEs. In view of the aforesaid, it is submitted that the contention of the TPO that the assessee, while making sales to its associated enterprises is acting as a contract manufacturer is unfounded and the addition made by the TPO is liable to be deleted. Without prejudice to the submission that with regard to export of goods to the AEs, the assessee was acting as an entrepreneur, it is submitted that even if the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed. The law does not empower the Transfer Pricing Officer to question the justification of the payment by disputing the genuineness of the agreement itself. The aforesaid has been clarified by CBDT vide Instruction No. 3 of 2003 dated 20-05-2003 as under: - - - In order to maintain uniformity of procedure and to ensure that work in this important area proceeds smoothly and effectively, the following guidelines are hereby issued: (i) Reference to Transfer Pricing Officer (TPO): The power to determine arm s length price in an international transaction is contained in sub-section (3) of section 92C. However section 92CA provides that where the Assessing Officer considers it necessary or expedient so to do, he may refer the computation of arm s length price in relation to an international transaction to the TPO. Subsection (3) of section 92CA provides that the TPO after taking into account the material available with him shall, by an order in writing, determine the arm s length price in accordance with sub-section (3) of section 92C . Sub-section (4) of section 92CA provides that on receipt of the order of the TPO, the Assessing Officer shall proceed to compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of sales relatable to export of products. Accordingly, since the exports of the appellant to the associated enterprise is based on the rights and licenses provided by Honda, for which royalty is being paid, the royalty payments cannot be separately evaluated. In view of the aforesaid, it would be appreciated that the transaction of payment of royalty on exports to AEs is intrinsically linked with the manufacture of goods exported to the AEs and has therefore been appropriately benchmarked by applying TNMM, at the entity level, as the most appropriate method. Reliance in this regard may be placed on the guidance note issued by the Institute of Chartered Accounts of India which states as under: 5.7 The factors referred to above are to be applied cumulatively in selecting the most appropriate method. The reference therein to the terms best suited and most reliable measure indicates that the most appropriate method will have to be selected after a meticulous appraisal of the facts and circumstances of the international transaction or specified domestic transaction. Further, the selection of the most appropriate method shall be for each particular international tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal in Demag Cranes Components (India) Pvt. Ltd. Vs. DCIT (supra), it is held that where number of transactions are closely linked transactions, then the same can be aggregated and construed as a single transaction for the purpose of determining the arm's length price. In case, there is close link exists between the different transactions, the same should be treated as composite transaction and appropriate method should be applied to work out the transfer pricing analysis. Where two or more transactions emanate from common source being an order or contract or an agreement or an arrangement, then such transactions could be said to be closely linked as the nature, characteristic and terms of such transaction substantially flow from the said common source . In view of the aforesaid, it is submitted that the adjustment made by the TPO to the arm s length price of international transaction of payment of royalty without applying any of the prescribed methods is unlawful and is liable to be deleted. 12. The Ld. CIT / DR placed reliance on the orders of the authorities below and has no objection if the issue is remitted to the AO in terms of the findings of the coord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export. At the cost of repetition, we would like to mention that the export sale value was more than the domestic sale rate and the assessee has given a detailed working thereof, which is enclosed with this order in the form of Annexure-I. In the above working, the assessee has reduced the export commission. Therefore, by export to the AE of Honda Japan, the assessee has been benefited and was not at a loss. The further finding of the TPO that the position of the assessee company with regard to export was that of a contract manufacturer, in our opinion, is without any basis and in fact contrary to the facts on record. The raw materials have been purchased by the assessee in its own right. It is not the case of the TPO that the raw materials have been supplied by the AE. The assessee has sold the goods to AE on principal to principal basis and has received the sale consideration. In view of the above, in our opinion, there is no justification for disallowance of the royalty on the export. We may reiterate that the Revenue has disallowed the entire royalty paid even on domestic sale which has been considered at length by us in the earlier paragraph of this order and we have arrived a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l/2012, wherein the Co-ordinate benches, after considering the decision rendered in the case of Hero Moto Corp Ltd. v. DCIT in ITA No. 716/Del/2008 and after making a comparison of the various clauses of the agreement was pleased to delete the addition made in the assessment order on account of payment of royalty and technical guidance fee. It was submitted that there is no change in the facts and circumstances of the present case. Copy of the aforesaid decisions of the Coordinate benches was filed. It was further pointed out that the decision of the Co-ordinate bench of the Tribunal in the case of Hero Moto Corp (supra) has been affirmed by the jurisdictional Delhi High Court in the case of CIT v. Hero Moto Corp in 372 ITR 481. It was submitted that the High Court has also held that payment of royalty and technical guidance fee is allowable business deduction. It was further submitted that the DRP in the subsequent assessment year 2010-11 has deleted identical disallowance proposed by the assessing officer on the basis of the order of the Co-ordinate bench of the Tribunal in the assessee s own case for assessment year 2008-09. 16. Per contra, the Ld. CIT DR placed reliance on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s own case where no change in facts or circumstances has been pointed out, the additions made by applying section 40(a)(i) are directed to be deleted. Accordingly, these grounds of appeal stand allowed. In view of this decision of co-ordinate Bench in the case of assessee, the advance ruling relied on by the ld. DR does not help the revenue, as the said ruling is binding on that applicant and not upon the Tribunal u/s. 245S of the IT Act. 22. By way of ground No. 7 in appeal for A.Y. 2009-10, the assessee has agitated that credit for TDS amounting to ₹ 71,407/- has not been given by the AO without any reason. This issue is restored to the file of AO to verify the stand of assessee and accordingly to give credit thereof as per provisions of law. 23. The issue of interest u/s. 234B is consequential in nature and needs no adjudication. 24. Accordingly, the appeal for A.Y. 2009-10 is partly allowed for statistical purposes. 25. The next issue raised in Ground Nos. 5 to 5.3 in appeal for A.Y. 2010-11 relates to disallowance of ₹ 43,47,750 on account of relocation expenses on transfer of factory of the assessee company from Rudrapur to Greater Noida. In this reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Stores, spares and tools 6,36,000 Total 51,15,000 The assessing officer, however, allowed depreciation @ 15% on the aforesaid amount, thereby restricting the disallowance on account of shifting expenditure to ₹ 43,47,750. In this regard, it is submitted that the aforesaid expenses incurred by the appellant represent expenses incurred in dismantling the existing plant, transportation cost of machines at new site and reinstallation cost of such machines at new premises, comprising of civil works cost, cost of new stores and spare parts, and professional and consultancy charges incurred for the purposes of relocation. The shifting expenses were, therefore, indirect expenses, which were incurred at the time of shifting of factory from Rudrapur to Greater Noida. The expenses were incurred for the purpose of running the business of the appellant company as a more technically viable, efficient and profitable unit. The said expenses were incurred only for shifting of factory/machines from one place to the other without any enhancement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Coats Ltd. v. ITO: 26 ITD 152 (Mad.) Hindustan Times Ltd. v. ITO: 3 ITD 525 (Del.) JCIT v. ITC Ltd.: 299 ITR(Trib.) 341 (Kol.)(SB)(AT) The decision in the case of Bimetal Bearings(supra), relied upon by the assessing officer, has been distinguished in the subsequent decision of the Hon ble Madras High Court in the case of CIT v. Loyal Super Fabrics: 304 ITR 78 (Mad.). Further, it is respectfully submitted that the decision of Bombay High Court in the case of Otis Elevator (supra), also relied upon by the assessing officer, is per incuriam, since the same has been rendered without considering the decision of the apex Court in the case of Empire Jute Co. v. CIT: 124 ITR 1. The decision of the Patna High Court in the case of Jamshedpur Engg. (supra) has also been duly considered and distinguished by the Third Member of the Madras bench of the Tribunal in the case of Madura Coats Ltd. v. ITO: 26 ITD 152. (Mad.) In the present case, it is respectfully submitted, the above expenses were incurred on merely reallocation of the factory from Rudrapur to Greater Noida and no new asset has come into existence. Such expenses, therefore, are allowable revenue deduction a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar to the case of the assessee. Accordingly, we hold that the expenses on relocation and shifting are revenue in nature and would be allowed as business deduction and the disallowance made by the AO on this count is deleted. 29. The last issue raised in appeal for A.Y. 2010-11 by way of ground Nos. 6 to 6.2 relate to disallowance of ₹ 11,76,382 on account of provision for slowmoving inventory. The Ld. AR has submitted as under: During the relevant year under consideration, the appellant had, in its books of accounts, debited a sum of ₹ 11,76,382 on account of slow and non-moving inventory under the head other expenses . The method of valuation of inventory was duly reflected at paragraph 12(a) of the Tax audit report and reference to the accounting policy for inventories was also made in Schedule 12 in paragraph (vii) of the audited accounts. The assessing officer/ DRP, vide order dated 16.12.2014, without pointing out the basis on which such expenditure was disallowable, stated that since expenditure in respect of the above amount was in the nature of provision, the said provision ought to have been added back to the income of the assessee. In this regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addl. CIT: IT Appeal No. 8118 (Mum.) of 2010 (Bom. Trib.) Digital Equipment India Ltd. vs CIT: ITA No. 6623 and 6624(Bom.)/2008 (Bom. Trib.) CIT v Nuware India Ltd.: 118 ITD 70 (Del. Trib.) In view of the above, it is respectfully submitted, that the action of the assessing officer in disallowing the aforesaid provision on account of slow moving expenses is erroneous and based on incorrect appreciation of facts and the settled legal principles. That apart, and without prejudice to the aforesaid, it is respectfully submitted that even otherwise no disallowance is warranted under the provisions of the Act inasmuch as the provision for slow moving inventory of ₹ 11,76,382, debited to the profit and loss account for the year under consideration, would be reduced to Nil when the inventory is actually written off in the subsequent assessment years. 30. On the other hand, the Ld. CIT DR relied on the orders of the lower authorities. 31. We have heard the rival submissions and perused the material on record. We find that the aforesaid issue is squarely covered by the decision of the jurisdictional Delhi High Court in the case of Hotline Tele Tube and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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