TMI Blog2016 (10) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... h was rightly allowed by the ld. CIT(A) - Decided against revenue. Payment in the nature of reimbursement of expenses - AO made disallowance on the allegation that the assessee has not made tax deduction at source on the payments made to non resident outside India whereas the CIT(A) granted part relief to the assessee by observing that since payments have been made outside India in the form of reimbursement of expenses, thus they are not chargeable to tax in India and the AO should not have made disallowance in this regard - Held that:- CIT(A) was quite justified and passed a balanced order while upholding the addition under three heads and granting relief to the assessee by following the order of the DRP for A.Y 2006-07. It is well accepted proposition that the Rule of Consistency should be followed by the revenue authorities unless there is substantial change in the facts and circumstances. In the present case, the CIT(A) followed the order of DRP for earlier A.Y 2006-07 wherein claim of the assessee regarding payment in the nature of reimbursement of expenses was allowed. We are unable to see any valid reason to interfere with the conclusion of the CIT(A) especially when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, Adv For The Respondent : Shri A.K. Saroha, CIT-DR, Shri Rajesh Kumar ORDER PER CHANDRA MOHAN GARG, JUDICIAL MEMBER These are a bunch of five appeals filed by the assessee for A.Ys 2003-04 to 2005-06 and 2007-08 and cross appeal by the Revenue for A.Y 2007-08, directed against the orders of the ld. CIT(A), Panchkula dated 16.03.2011 in the case of the assessee and 26.3.2013 in Revenue s appeal. Since the issues involved in all these appeals are similar and the appeals were heard together, so these are being disposed off by this consolidated order for the sake of convenience. We shall dispose them of one by one. First we take up Revenue s appeal for A.Y 2007-08 ITA No. 3460/Del/2013 [A.Y 2007-08] 2. The fol lowing grounds have been raised by the Revenue in this appeal: 1. The ld. CIT(A) erred in treating the assessee company eligible for claiming depreciation at a higher rate on moulds, higher rate of depreciation on moulds is applicable only to rubber and plastics manufacturers, whereas the present assessee is a two wheeler manufacturer. 2. The ld. CIT(A) erred in deleting the addition made on account of non deduction of TDS on payments made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f two wheelers as specified by the assessee and the only question which remains to be considered is whether such moulds were used in plastic factories for the purpose of business of the assessee. To support this contention, the ld. AR also placed reliance on the decision of the Hon'ble High Court of Gujarat in the case of CIT Vs. Sanskrut Comfort Ltd dated 21.12.2005 in Tax Appeal Nos. 852 853/2005, decision of the Madras High Court in the case of Areva T D Vs. JCIT reported at [2013] 29 Taxman 255 and order of the ITAT Ahmadabad High Bench in the case of ITO Vs. Symphony Comfort Systems Ltd dated 20.5.2005 passed in ITA No. 777 and 4499[Ahd/2003. 5. We have heard the arguments of both the sides and carefully perused the relevant material placed on record before us. First of all we may point out that the A.O has not made any addition or disallowance in any of the earlier or subsequent A.Ys. Secondly, we observe that the A.O has allowed depreciation @ 15% whereas the assessee is claiming deprecation @ 30% by alleging that the assessee has made arrangement with vendors who, in turn, are engaged in manufacturing rubber and plastic goods as per specifications given by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusion arrived by the ld. CIT(A) in para 5.2 of the impugned order is quite correct and justified and we are unable to see any valid reason to interfere with the impugned order on this issue as admittedly and undisputedly the assessee is owner of the plastic mould which were used in the premises of various vendors for manufacturing of plastic and rubber goods for use of assessee. In our considered opinion, it is immaterial whether the plastic /rubber moulds were used in the factory premises of the assessee or vendors. Prime requirement is that moulds should be owned by the assessee, the same should be part of block assets shown by the assessee and these were put to use for the purpose of business of the assessee and the three requisite conditions have been fulfilled by the assessee in the present case and thus it is entitled to claim depreciation @ 30% which was rightly allowed by the ld. CIT(A). Hence ground No. 1 of the Revenue being devoid of merits is dismissed. Ground No. 1.1 7. Apropos this ground, we have heard the arguments of both the sides and careful ly perused the relevant material on record inter alia the relevant paper book and ratio of decision as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief to the assessee by observing that since payments have been made outside India in the form of reimbursement of expenses, thus they are not chargeable to tax in India and the AO should not have made disallowance in this regard. The CIT(A) was quite justified and passed a balanced order while upholding the addition under three heads and granting relief to the assessee by following the order of the DRP for A.Y 2006-07. It is well accepted proposition that the Rule of Consistency should be followed by the revenue authorities unless there is substantial change in the facts and circumstances. In the present case, the CIT(A) followed the order of DRP for earlier A.Y 2006-07 wherein claim of the assessee regarding payment in the nature of reimbursement of expenses was allowed. We are unable to see any valid reason to interfere with the conclusion of the CIT(A) especially when the AO could not establish that the impugned payments made by the assessee to non residents outside India were chargeable to tax in India and in this situation, TDS provisions are not applicable to the payments made by the assessee and hence we are unable to see any ambiguity or perversity in the order of the CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onwards of the assessee s paper book and submitted that as per the decision of Hon'ble Jurisdictional High Court of Delhi in the case of Tupperware India [P] Ltd Vs. CIT reported at [2015] 60 Taxmann.com 350 [Delhi] where contract manufacturers were carrying out manufacturing activities for the assessee and it was in assessee s business necessity that all the taxliabilities of manufacturers were duly satisfied by the assessee then the payments in this regard has to be considered as business expenses of the assessee and thus the same are allowable u/s 37(1) of the Act. 14. The ld. DR also placed rejoinder to the above submissions of the assessee and submitted that the test of wholly and exclusively for the purpose of business of the assessee is a matter of fact and issue of law. The ld. DR pointed out that in the case of Tupperware India [P] Ltd [supra], facts in para 10 are that since the assessee was not permitted to manufacture products in India and it had direct interest in the proper functioning/protection of business of contract manufacturers in as much as without them, the assessee could not run its business of trading in India. Therefore, law of additional excise dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... features for standardization of Honda Exclusive Dealer outlets. On specific query from the Bench, the ld. AR could not show us any other addenda or amendment to this agreement between the assessee and the dealers and to establish that the expenses incurred on sales tools expenses was made by the assessee under an obligation of an agreement. It was the contention of the ld. AR that even if agreement is not on record, expenses could have been incurred by the assessee by amending the agreement and as per clause (c) of clause 3 at page 386 of the assessee s paper book, the assessee company was under obligation to compensate the dealers suitably in consideration for cooperation/services/assistance as and when rendered by dealers in respect of sales. The ld. AR also submitted that such compensation was to be decided as per pol icy of the company in such matters. First of all, we may point out that the said clause (c) of clause (3) of the agreement stipulates the liability of the assessee company to compensate dealers suitably in consideration for cooperation/services/assistance in respect of direct sales and thus the sales tools expenses were not related to direct sales but it was for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y 2007-08. Since by the earl ier part of this order we have dismissed ground No. 2 of the Revenue wherein the assessee got relief from the first appellate order on the issue of payments to non residents and our said conclusion would apply mutatis mutandis to Ground No. 1 in A.Y 2004-05 and 2005-06. Consequently, Ground No 1 of the assessee in both the years are allowed and the AO is directed to delete the addition made u/s 40(a)(ia) of the Act. Ground No. 2 in A.Y 2004-05] 19. Apropos Ground No. 2, the ld. AR submitted that the CIT(A) has erred in facts and in law in disallowing a sum of ₹ 19,05,993/- being trial run expenses holding the same to be capital expenditure. The ld. AR further submitted that the CIT(A) and the AO erred in not appreciating that the trial run expenses incurred for introducing the new models of motorcycle as part of the existing business were allowable a revenue deduction. The ld. AR drew our attention towards para 7 at page 3 of the assessment order and contended that the AO by passing a cryptic order made disallowance without looking into the facts of the case. The ld. AR further contended that the CIT(A) in para 8.3 dismissed the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able revenue expenses as per the test laid down by the Hon'ble Supreme Court in the case of Empire Jute Company Limited [supra]. The Hon'ble Apex Court in this case has held as under: There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none-the-less, be on revenue account and the test one during benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense that it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assesses's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched. The expenditure would be on revenue account, even though the advantage may endure for an indefinite future. 23. In the present case, we find that the expenses were essential expenses incurred on purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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