TMI Blog2017 (1) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... semi finished goods and obsolete items - Held that:- As not found that how the loss of the assessee was found to be normal when the assessee submitted that it is an abnormal loss incurred by it during the course of manufacturing process. Further the Ld. dispute resolution panel has also stated that both the cost of normal and abnormal losses have to be loaded to the value of the closing stock is devoid of any merit as it is contrary to the accounting standard issued by the Institute of chartered accountants of India which has been mandated by the Ministry of corporate affairs ,which only says that, only normal losses are required to be included and abnormal losses are required to be excluded for the purpose of the valuation of the closing stock of the finished goods and semi finished goods. Disallowance of provisions made towards net increase in prices of raw materials already supplied by the vendors - Held that:- The provision has been made on a scientific basis by estimating the actual increase in price of material and the amount of material that was already supplied and consumed in the vehicles manufactured up to the end of the year. Considering principles laid down in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made. Addition in respect of provision for advertisement expenses incurred at the head office made at the end of the relevant previous years which were subsequently reversed in the succeeding year alleging same to be excessive - Held that:- The present disallowance is revenue-neutral, since the impugned amount of provision, as also admitted by the assessing officer itself, was reversed in the succeeding year and consequential offered to tax in that year. If such provision is disallowed in this year, the corresponding reduction would need to be made in the return of the succeeding year, neutralizing the entire tax liability on the appellant company. For the aforesaid cumulative reasons, we hereby delete the disallowance TDS U/S 194C - disallowance under section 40 (a) (ia) incurred on account of provision towards advertisement and publicity expenses provided at the end of the year - Held that:- Considering order of the coordinate bench in case of appellant for earlier years where in it is held that it is reimbursement of expenditure and on this there is no requirement of tax deductions at sources, we are bound to follow the order of coordinate bench and allow ground no 9 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis and dealers do not act as agents of the appellant while purchasing and further selling the vehicles. Accordingly, the incentives offered at the time of purchase of vehicles do not fall within the meaning of commission u/s 194H TDS u/s 194C - payment toward room reimbursement of cost of gifts distributed to customers - Held that:- If we see the dominant nature of the transaction, the same is in the nature of purchases or, in other words, contract or sale inasmuch as the appellant never had title in the goods before same were procured by FX and further supplied either to dealers or the appellant. Even where the goods are purchased by the vendor as per the specifications of the purchaser, is not in the nature of work contract covered within the scope of section 194C TDS u/s 194I - payment to forum Aviation’s private limited - Held that:- Appellant had rightly deducted tax at source from the aforesaid payments made to Forum India Aviation Ltd. u/s 194C of the Act. Since the appellant had deducted tax at source under the correct provision, the question of disallowance u/s 40(a)(ia) does not arise. Accordingly, the disallowance made by the assessing officer under that sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay him homage satisfies the test of business / commercial expediency and, thus, cannot be said to be not incurred for the purpose of business. More so when in past assessment years the similar expenditure have been incurred by the assessee but have not been disallowed by the Ld. assessing officer and this fact has not been controverted by the Ld. departmental representative even on the principle of consistency also we are not inclined to upheld the disallowance Addition on account of commission paid to the managing director - Held that:- In making payment of commission to the managing director of the company of 29.50 crore the provisions of section 36 (1) (ii) of the income tax act cannot be applied. The commission’s leading to the percentage of the profit earned by the company has for the companies act and there is an outer limit which is also been fixed in the terms and conditions of employment of the managing director therefore it cannot be said that there is no business expediency in payment of such commission to the managing director of the company. Disallowance of deduction u/s 80 IA in respect of captive power generating unit situated at Gurgaon - Held that:- Consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, on the basis of which entire claim could not have been denied. Accordingly, in our view, the assessing officer was not justified in denying the benefit of deduction Disallowing deduction under section 80 IC - whether the deduction needs to be computed by recording internal unit transfer at market price - Held that:- Even by applying the provisions of section 80IA(8), in our opinion, there can be no substitution of the price at which goods are debited by the eligible unit in its independent books of account. Similarly, with respect to components having value of ₹ 6.34 crores, which were transferred by the non-eligible unit to the eligible unit at Haridwar after nominal processing, does not result in enhancement of any market price of such goods. No disallowing deduction u/s 80IC, by enhancing the purchase price by adding certain markup thereon Denial of deduction under section 80 IC - inflation of profit by charging higher basic price - Held that:- We reverse the action of the assessing office in partly disallowing deduction under section 80IC on account of the have profit earned by the assessee in the eligible unit. Disallowance of deduction under section 80 I.C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied to ancillary units for further processing and finished components procured there from are subsequently debited at cost in the books. There is no profit element in the aforesaid transaction and therefore the benefit of deduction under section 80IC cannot be denied on above Miscellaneous income – cash discounting from vendors - any benefit towards purchase price would have direct nexus with the computation of the aforesaid profits. The aforesaid income is, thus, directly related to business of manufacturing. Accordingly the action of the assessing officer in disallowing deduction under section 80IC on above was not valid and therefore, the action of the assessing officer on aforesaid ground is reversed. Exchange fluctuation gain on import of goods is going to directly reduce foreign exchange liability to be discharged against import of goods being debited in the profit and loss account to arrive at the profits of the eligible business, such benefit has direct nexus with the said business, which is eligible for deduction under section 80IC of the Act. Disallowance of expenses incurred on repairs and maintenance of assets at Nagpur premises alleging that the premises wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adverse inference in relation to incurrence of such expenses have been pointed out by the auditors. No unvouched expenditure has been pointed out by the assessing officer. This is not the first year of the incurrence of such expenses. No disallowance on the aforesaid account was made in any preceding assessment year or the succeeding assessment years. Disallowance on account of right above certain obsolete store right - Held that:- The fact that the assessee could not maintain quantitative details of scrap does not lead to a conclusion that the entire claim should be disallowed. AO should have, in our opinion, considered the reasonableness of the claim based on the size of the company, its operations or on the basis of similar comparable cases. As AO does not dispute the realization from the sale of scrap, the disallowance of the entire value of scarp is not justified. Deemed dividend addition - Held that:- Even assuming that the transaction is in the nature of loan, we have to agree with the arguments of the assessee that the transaction cannot be deemed as dividend in terms of exemption provided in clause (ii) of section 2(22)(e) since the loan would be considered as given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company , the assessee is having 59% share of motorcycle market in India. For assessment year 2010 11 assessee filed return of income on 30 September 2010 declaring total income of ₹ 16302076983/-. As the assessee was involved in international transactions with its associated enterprises, the learned assessing officer made reference to the learned transfer-pricing officer for examining the determination of arm s length price of those international transactions. The Ld. Transfer pricing officer passed an order under section 92CA (3) on 31/12/2013. Subsequently the Ld. assessing officer passed draft assessment order under section 143 (3) of the income tax act 1961 on 31st of March 2014 wherein against the returned income of ₹ 16302076984/-, the total income was determined at ₹ 74551967470/-. There were 60 additions / disallowances / adjustments were made to the returned income of the assessee. The above draft assessment order also included adjustment under section 92CA of the income tax act proposed by the Learned transfer pricing officer amounting to ₹ 319897455/-. Against the draft assessment order of the Ld. assessing officer, assessee preferred objection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law in enhancing the value of closing inventory of finished goods and thereby income of the appellant by an amount of ₹ 6.40 lacs, in respect of cost of rejection of semi finished goods and obsolete items. 3.1 That on facts and circumstances of the case, the assessing officer failed to appreciate that the aforesaid costs was abnormal in nature and, therefore, in accordance with the consistent, regular and accepted method of accounting was not considered for the purpose of valuation of closing inventory. 3.2 Without prejudice, the assessing officer erred on facts and in law in not appreciating that the aforesaid addition was revenue neutral. 4. That the assessing officer erred on facts and in law in making a disallowance of ₹ 61,59,89,710 in respect of provision made at the end of the year towards net increase in prices of raw material already supplied by the vendors upto 31.03.2010, with retrospective effect, on the ground that basis of creating the said provision was not comprehensible. 4.1 That on the facts and circumstances of the case, the assessing officer erred in observing that as per the terms of purchase order, rates negotiated with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Transfer Pricing Officer (the TPO) erred on facts and in law in making adjustment of ₹ 31,98,97,455 to the income of the assessee on account of the following international transactions disregarding the benchmarking analysis applying Transactional Net Margin Method ( TNMM ) undertaken by the assessee: s. No. International Transactions Amount of international transaction shown by the assessee Proposed Arm's length price of the international transaction Difference 1. Payment of Export Commission 159,127,093 NIL 159,127,093 2. Payment of Model Fee 159,044,986 NIL 159,044,986 4. Royalty paid on exports made to the AEs. 1,725,376 NIL 1,725,376 Total 319,897,455 8.2 That the TPO erred on facts and in law in holding that benchmarking analysis u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gained to the marketing / dealer network of HMCL is incidental to its being part of the group. As per the OECD guidelines such incidental services do not call for a separate payment. (g) It is evident from para 7.4, 7.5 7.6 of OECD guidelines that the key measures in identifying intra group services and in applying arm's length test are whether the services have been provided in order to meet specific need of the recipient; any benefit has accrued to the recipient; in comparable circumstances an independent enterprise would have been willing to pay an independent thirty party to do so. From the available details, it is more than evident that the assessee has not received any service that an independent entrepreneur would have been willing to pay for. (h) It can clearly be seen that all the responsibility of activities connected to export of goods lies on the shoulders of the assessee. An export agent would not leave it to principal to carry out all these functions. Hence, there is no comparison between the AE and an export agent in this matter. (i) The assessee also enters the South Asian markets with products that the AE, HM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of ₹ 64,08,000 incurred on account of provision towards advertisement and publicity expenses created at the end of year, on the ground that the assessee failed to deduct tax at source therefrom under section 194C of the Act. 9.1 That the assessing officer erred on facts and in law in holding that an assessee is obliged to withhold tax in respect of provisions, even where the (i) exact amount identifiable, at the time of creating the provision. 10. That the assessing officer erred on facts and in law in disallowing amount of ₹ 1,47,34,700 on account of provision made towards commission paid on institutional sales to dealers, on the ground that the assessee failed to deduct tax at source under section 194H from the amount of aforesaid provision invoking provision of section 40(a)(ia) of the Act. 10.1 That the assessing officer erred on facts and in law in not appreciating that since the contract between the dealers and the appellant was on principal to principal basis, the provisions of section 194H were not applicable on the aforesaid amount of commission. 10.2 That the assessing officer erred on facts and in law in observing that the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee failed to establish nexus of services availed from the aforesaid party with the business of assessee company and, therefore, not being incurred wholly and exclusively for the purpose of business. 12.1 That the assessing officer erred on facts and in law in observing that since Hero Corporate Services Ltd. was related to assessee in terms of AS 18, although not related in terms of section 40A(2)(b) of the Act, the Revenue had powers to determine the reasonableness of the aforesaid payment made by the assessee to the said party. 13. That the assessing officer erred on facts and in law in holding that purchases made from certain vendors aggregating to ₹ 3828.78 crores are disallowable under section 40(a)(ia) on the ground that assessee failed to deduct tax at source (TDS) therefrom under section 194C of the Act. 13.1 That the assessing officer erred on facts and in law in observing that contracts entered with the aforesaid vendors were in the nature of 'work contract' and, therefore, payments made thereunder were subject to TDS under section 194C of the Act. 13.2 That on the facts and circumstances of the case, the assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act 14.2 Without prejudice, the assessing officer erred on facts and in law in not appreciating that no disallowance against the aforesaid expenditure could be made exceeding the outstanding liability as at the end of the year. 14.3 Further, without prejudice, the assessing officer erred on facts and in law in not appreciating that since the payees have also paid tax on the income receivable from the assessee, no disallowance could be made under section 40(a)(ia) of the Act for alleged default in deduction of tax at source by the assessee. 15. That the assessing officer erred on facts and in law in disallowing expenditure of ₹ 36,88,02,598 incurred towards quarterly target and turnover discount and trade discount of ₹ 27,74,47,608 given to the dealers/customers on the ground that the assessee failed to deducted tax at source there from under section 194H of the Act, invoking provisions of section 40(a)(ia) of the Act. 15.1 That the assessing officer erred on facts and in law in not appreciating that the aforesaid discounts were offered under contracts entered into with the dealers on a principal to principal to basis, and did not constitute ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduct tax at source there from under section 1941 of the Act. 17.1 That the assessing officer erred on facts and in law in observing that the aforesaid payments were subject to TDS under section 1941, instead of section 194C of the Act applied by the assessee. 17.2 Without prejudice, that on the facts and circumstances of the case, the assessing officer failed to appreciate that an expenditure cannot be disallowed under section 40(a)(ia) of the Act if tax has been deducted at source there from under the provisions of the Act, notwithstanding that tax as per the assessing officer was deductible under a different provision than that applied by the assessee. 17.3 Further Without prejudice, that the assessing officer erred on facts and in law in not appreciating that since the assessee harboured a bona fide belief that no tax was required to be deducted there from, no disallowance was warranted under section 40(a)(ia) of the Act 17.4 Without prejudice, the assessing officer erred on facts and in law in not appreciating that the disallowance against the aforesaid expenditure could not be made exceeding the outstanding liability as at the end of the year. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observing that payments under the LTAA covered consideration for setting up of manufacturing facility for the appellant. 19.5 Without prejudice, that the assessing officer erred on facts and in law in treating 100% expenditure incurred on account of royalty, technical guidance fees and model fees as capital expenditure as opposed to 25% of similar expenditure held to be capital expenditure in earlier years. 20. That the assessing officer erred on facts and in law in treating gains arising from sale of investments made during the year as business income, instead of capital gains as considered by the assessee. 20.1 That the assessing officer erred on facts and in law in observing that investments were made by the assessee with a view to earn profit from selling the same at a later stage and, therefore, profits were taxable under the head business income . 20.2 That the assessing officer erred on facts and in law in observing that since the turnover from sale of investments was higher than the turnover from business of selling motor vehicles, therefore, the assessee was primarily engaged in activity of investments, which was to be regarded as business activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance of ₹ 29,50,00,000/- on account of commission paid to Managing Director, Shri Pawan Munjal under section 36(l)(ii) of the Act on the ground that commission was paid in lieu of distribution of dividend to him, who was also shareholder of the assessee company. 25.1 That the assessing officer erred on facts and in law in holding that the appellant failed to justify the commercial expediency for making the aforesaid payment of commission to the Managing Director. 25.2 That on the facts and circumstances of the case the assessing officer failed to appreciate that the commission was paid to Shri Munjal in lieu of services rendered by him and not in lieu distribution of profits. 25.3 That the assessing officer erred on facts and in law in not appreciating that dividend was separately distributed amongst all the shareholders, including Shri Munjal and thus, payment of commission was not in lieu of distribution of dividend. 26. That the assessing officer erred on facts and in law in disallowing deduction of Rs, 8,07,76,420/- claimed under section 801A of the Act in respect of captive power generating unit situated at Gurgaon. 26.1 That the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer erred on facts and in law in not appreciating, that since the recipient had, in any case, included the aforesaid receipt as part of taxable income, the aforesaid expenditure could not have been disallowed in the hands of assessee under section 40(a)(ia) of the Act. 28.4 That the assessing officer erred on facts and in law in not appreciating that since there was no liability outstanding as at the end of the relevant year, no part of the aforesaid expenditure was disallowable under section 40(a)(ia) of the Act. 29. That the assessing officer erred on facts and in law in disallowing deduction under section 80IC of the Act, aggregating to ₹ 997,25,35,090, on an ad-hoc basis, on the ground that the assessee failed to give sufficient documentary evidence substantiating fulfillment of conditions precedent for claiming deduction under that section, without pointing out any such single condition not being fulfilled by the assessee. 29.1 That the assessing officer erred on facts and in law in not appreciating that all the conditions precedent for claiming deduction under section 80IC were satisfied by the assessee. 30. That the assessing officer erred on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , profit attributable to such outsourced activity(ies) shall not be allowable as deduction. 32.1 That the assessing officer erred on facts and in law in drawing adverse inference that part of manufacturing activity(ies) at Haridwar unit were outsourced on the basis of lower consumption of power per unit at Haridwar plant vis-a-vis rate of power consumption at other two plants. 32.2 Without Prejudice, that the assessing officer erred in making a separate and additional disallowance of the aforementioned amount, without appreciating that the entire deduction claimed by the appellant u/s80IC has already been disallowed in entirety (challenged in ground of appeal no. 29 supra), resulting in double disallowance of the same amount to the total taxable income. 33. That the assessing officer erred on facts and in law in disallowing deduction under section 80IC of the Act by an amount of ₹ 697.40 crores on the ground that part of profits earned by the eligible unit should have been attributed to advertisement and marketing activities carried out at head-office, and such profits were not derived from the business of manufacturing, which were only eligible for deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es . 34.2 Without Prejudice, that the assessing officer erred in making a separate and additional disallowance of the aforementioned amount, without appreciating that the entire deduction claimed by the appellant u/s80IC has already been disallowed in entirety (challenged in ground of appeal no. 29 supra), resulting in double disallowance of the same amount to the total taxable income. 35. That the assessing officer erred on facts and in law in making disallowance of ₹ 47,21,618/- incurred on repair, maintenance of various existing assets at Nagpur office premises, holding that said office premise was not put to use for business purposes of the assessee during the relevant assessment year. 36. That the assessing officer erred on facts and in law in treating expenditure incurred towards support of up gradation of softwares aggregating to ₹ 25.05 lakhs incurred by the assessee during the year as capital expenditure and making a net disallowance of ₹ 17.53 lakhs, after allowing depreciation @ 30%. 36.1 That on the facts and circumstances of the case the assessing officer failed to appreciate that the aforesaid expenditure did not result in acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les'), entitling depreciation @100%. 39.1 That the assessing officer erred on facts and in law in not appreciating that aforesaid asset was constructed for the purpose of preventing water pollution which was covered under clause III (3)(ix) of Appendix I to the Rules and was thus, eligible for higher rate of depreciation. 39.2 That the assessing officer erred on facts and in law in not following binding directions of the DRP without appreciating that all details in respect of said claim were filed by the appellant. 40 That the assessing officer erred on facts and in law in disallowing depreciation by an amount of ₹ 1,56,37,228/- in respect of depreciation claimed @ 100% on secured land fill system at Haridwar unit on the ground that the aforesaid asset did not specifically fall under any sub clause of clause III(3)(ix) of Appendix to Income Tax Rules, 1962 ('the Rules'), entitling depreciation @100%.. 40.1 That the assessing officer erred on facts and in law in not following binding directions of the DRP without appreciating that all details in respect of said claim were filed by the appellant. 40.2 Without prejudice, the assessing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e draft order? 3. Whether Hon'ble DRP was correct on facts and circumstances of the case and in law in deleting the addition of ₹ 698.07 lacs made by the AO on account of disallowance of prior period expenses in the draft order? 4. Whether Hon'ble DRP was correct on facts and circumstances of the case and in law in deleting the addition of Rs, 501.77 lacs made by the AO on account of disallowance of software expenses charged to revenue in the draft order? 5. Whether Hon'ble DRP was correct on facts and circumstances of the case and in law in deleting the addition of ₹ 32.72 lacs made by the AO on account of disallowance of depreciation on wrong classification of assets under the head computers in the draft order? 6. Whether Hon'ble DRP was correct on facts and circumstances of the case and in law in deleting the addition of ₹ 404.84 lacs made by the AO on account of deemed dividend in the draft order? 7. Whether Hon'ble DRP was correct on facts and circumstances of the case and in law in deleting the addition of ₹ 9149.48 lacs made by the AO on account of disallowance of reimbursement of free service coupon u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the value of the closing inventory of raw material/ components and thereby income of the appellant by ₹ 117.43 lakhs in respect of freight inward expenses and import clearing charges incurred in relation to procurement of raw material and components stating that same to be attributable to the closing stock of those goods. Ld. assessing officer observed that assessee has not considered freight inward and import cleaning charges for inventory valuation which results in undervaluation of closing inventory based on the details submitted by the assessee it was found that the value of such impact of non inclusion of freight inward and cleaning charges is ₹ 117.43 Lacs. On query during the course of assessment proceedings assessee submitted that most of the time it purchases material on CIF basis and therefore the cost of delivery of goods to location of the company are embedded in the purchase price hence , inward charges and important cleaning charges towards purchase of a material are preliminary included in the valuation of the closing stock. It further stated that only in rare cases the material is purchased on the urgent basis where the transportation charges and fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that principle of consistency does not operate against the law. Therefore, in the final assessment order the addition of ₹ 11743000/- was made to the total income of the assessee on account of increase in the valuation of the closing stock on account of inclusion of freight and clearing import charges. Assessee being aggrieved with the order of the Learned assessing officer has preferred appeal before us. 9) The Ld. authorized representative of the assessee submitted that Freight expenses of ₹ 117.43 lacs were incurred on account of purchases under exceptional situation viz. material shortage, for immediate consumption. There is no time lag between the entry of raw-material in the factory premises and consumption thereof in the process of manufacturing. Since the invoice is received after receipt and consumption of material in the manufacturing process, the said expenditure is not, therefore, attributable to closing inventory. That apart, it would further be appreciated that the appellant follows a consistent and regular method of not considering the aforesaid expenditure for purposes of valuing closing stock, which has always been accepted by the Revenue in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR relied up on the order of the ld. AO and LD DRP and submitted that there cannot be applied the principle of consistency in wrong method of valuation adopted by the assessee. 11) We have carefully considered the rival contentions. The company is a corporate entity therefore it has to value its closing stock according to the accounting standard 2 valuation of inventories issued by the Ministry of corporate affairs and ICAI. According to that accounting standard the closing stock of the finished goods is required to be valued including all cost of purchases, cost of conversion and other cost incurred in bringing the inventory to their present location and conditions. The contention of the appellant is that that it s all purchases are accounted for on CIF basis and therefore the suppliers are required to provide the goods at the factory location and therefore in the closing stock of inventory there cannot be any element of freight etc ,this issue has been considered by the coordinate bench in appellant s own case for A Y 2007-08 where in it has been held that :- 7.13. We have considered the submissions and the material filed by both the parties. The issue in question is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the facts, which is neither demonstrated by assessing officer nor DRP, the view which is taken earlier, should not be changed, as held by various courts. We now discuss some of the case laws. 7.17. The Hon ble Supreme Court in the case of Radhasoami Satsang (supra), on the theory of consistency, has held as under: ..Strictly speaking, res judicatta does not apply to the income tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following, year , where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to ne sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year . 7.18. This view has been followed by the Hon ble Delhi High Court in the case of CIT vs. Neo Ploy Pack (P) Ltd [2000] 245 ITR 492 and the Hon ble Bombay High Court in the case of CIT vs. Gopal Purohit [2011] 336 ITR 287. 7.19. Further, the Hon ble Supreme Court in the case of CIT vs. Realest Builders and Services Limited (2008) 307 ITR 202 held that: In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had claimed prior period expenses on the ground that the vouchers for such expenses from the employees/ branch employees were received after March 31st of the financial year. It had branch offices throughout the country. It debited the expenditure spill over the subsequent years and the Assessing officer had been allowing it in the past. The accounting practice had been consistently followed by it and accepted by the Revenue. Nothing had been brought on record to show that there had been distortion of profits or that the books of account did not reflect the correct picture. In the absence of any reason whatsoever, there was no warrant or justification to depart from the previous accounting system which was accepted by the Department in respect of the previous years. 7.22. In the present case, the Revenue has rejected the method of accounting which is consistently followed by the assesseee on the ground that there may be chance where in a particular year, the method adopted by the assessee may result in underestimation of profits. However, the Revenue failed to demonstrate with facts and figures that the impugned method of accounting may result in material underestima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n between the parties could have been avoided since it was quite immaterial, whether full deduction was allowed in one year or partly in one year and partly in the next, since the assessee is a company and rate of tax is uniform. The gain to one and the loss to the other is illusory since what is deferred in one year, would have to be discharged in the next. In that sense, nobody has won and nobody has lost. 7.25. Even on this plea also, the assessee succeeds. We have dealt with this issue elaborately as, in a number of grounds, this issue would become applicable. In view of above discussion, we allow this ground of the assessee. 12) Before us, the Ld. departmental representative could not point out any changes in the facts and circumstances of the case for this year compared to the year in which the tribunal has decided this issue. He also did not point out any contrary decision and therefore, respectfully following the decision of the coordinate bench we allow ground No. 2 of the appeal of the assessee. 13) Ground No. 3 of the appeal of the assessee is against the action of the Ld. AO in enhancing the value of closing inventory of finished goods and thereby the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regard. 14) Ld. authorized representative of the assessee submitted before us that AS-2 on Valuation of inventory stipulates that abnormal wastages should not be considered for valuation of inventory. Since, the impugned write off on account of rejection of material, was in the nature of abnormal rejections, the appellant, as per consistent, regular and accepted method of accounting, charged the same to profit and loss account, without any allocation to the value of closing inventory. He further submitted that adjustment made by the AO is contrary to the mandatory accounting standard consistently and regularly followed by the appellant and accepted by the Department. Reliance in this regard is placed on: i. UCO Bank v. CIT: 240 ITR 355 (SC) ii. CIT v. Singaribai: 13 ITR 224 (All.)(FB) iii. Juggilal v. CIT: 101 ITR 40 (All.) iv. CIT v. TISCO: 106 IR 363 (Bom.) v. CIT v. Sankarapandia: 130 ITR 541 (Mad.) vi. Balapur Mandali v. CIT: 135 ITR 91 (Guj.) He further stated that In any case, considering that the appellant is a high tax paying company, subjected to uniform rate of tax, no adjustment is even otherwise called for in view of the following: a. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also perused the relevant provisions of the accounting standard 2 which has been relied by the Ld. assessing officer. We have carefully perused the decision of the coordinate bench in the appellant s own case for assessment year 2007 2008 wherein the identical issue is dealt with as under:- 8.9. The issue in question is whether the cost of abnormal rejections have to be considered for the purpose of valuation of closing stock. The assessee relied on Accounting standard-2 Valuation of Inventories which is a notified accounting standard by the Companies Act which stipulates that abnormal wastages should not be considered for valuation of inventory. 8.10. It was submitted by the Ld.AR of the assesse that it is in the manufacturing of precision and quality product and in case of unfit material it has been consistently following the method of charging the abnormal rejection of material to its profit and loss account, without any allocation to the value of closing inventory. 8.11. The assessing officer s case is that cost of rejections needed to be included in the value of closing stock. Assessing officer worked out an amount of ₹ 9.24 lacs as attributable to closin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f normal and abnormal losses have to be loaded to the value of the closing stock is devoid of any merit as it is contrary to the accounting standard issued by the Institute of chartered accountants of India which has been mandated by the Ministry of corporate affairs ,which only says that, only normal losses are required to be included and abnormal losses are required to be excluded for the purpose of the valuation of the closing stock of the finished goods and semi finished goods. In view of the above, we respectfully following the decision of the coordinate bench in the appellant s own case for the previous year allow ground No. 3 of the appeal of the assessee. 17) The ground No. 4 of the appeal is against disallowance of ₹ 615989710/- in respect of provisions made at the end of the year towards net increase in prices of raw materials already supplied by the vendors upto 31st of March 2010 with retrospective effect on the ground that the basis of creating the said provision was not comprehensible. During the course of the assessment proceedings assessee has provided this sum as an year-end provision in respect of purchases submitting the detailed breakup of these provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing officer erred in observing that the prices cannot be amended from prior dates. It is submitted, that considering the volatility in prices of material like steel etc., used as inputs by the vendors and having regard to the continuous supply of such material in heavy volume by the vendors, it is not practically feasible to negotiate the rate with vendors on daily/periodic basis and, therefore, it is a trade/industry practice for serving commercial interests, to negotiate and revise the rates for supply already made with retrospective effect. He further submitted that it is a matter of record that the appellant has, year after year, including in the relevant year, issued purchase orders for modified rates with retrospective effect, for which payments have also been made by the appellant to the vendors. Stated that The payments made for amended prices with retrospective effect have always been accepted as revenue deduction, including payments made during the relevant year. Therefore according to him , during the relevant previous year, the appellant made aggregate provision of ₹ 6159.90 lacs, comprising of Provision for purchase orders issued for price amendment as at 31. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd/ downward revision is scientific in nature or not. However, the AO, without considering the details submitted by the appellant, including the break-up and details of purchase vouchers, proceeded to disallow the provision on conjectures and surmises. In this regard he submitted page No. 1030 to 1139 and 1140 paper book volume 3 where the complete details are provided for. Hence he submitted that appellant had worked out the provision on a scientific basis, which is clearly borne out from the contemporaneous documents submitted before the AO/ DRP. Further, the appellant has been consistently making the aforesaid provision year after year on the same scientific basis, which as pointed above, has always been accepted and allowed in past, except in assessment year 2008-09, which was also deleted by the Tribunal. Therefore his argument was that that the provision made by the assessee is based on the negotiation with the parties, based on the scientific method for increase in prices, there is not only upward revision but downward revision also and further the issue is squarely covered in favour of the appellant by virtue of the decision of the coordinate bench in appellant s own case f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly, when the provision is lower, the same is claimed in the latter assessment year. It cannot be said that these are prior period expenditure. The actual liability in question is ascertained only during the year and hence the liability crystallizes during the year. Estimation of an expense has to be considered in contradiction to actual ascertainment of the expenses. Once the actual expense has been ascertained, the liability accrues in that year to the extent not provided in the earlier year and is to be allowed as revenue expenditure in the year of crystallization. Concepts of going concern, accrual and consistency have to be taken into account by the revenue authorities while evaluating such provisions and making such adjustments. The assessee is disputing the figures of disallowance and the DRP is also expressing its inability to correct the figures. In our view the DRP is not helpless and could have directed the assessing officer to verify the figures and correct the mistakes, if any. In view of the above discussion, we allow this ground of assessee for statistical purpose and direct the assessing officer to properly verify the figures and allow the claim of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of the statement it is apparent that the assessee has also made the downward revision by negotiating the prices from the vendors. This itself proves that there is a strong negotiation deployed by the appellant with the vendor perhaps which may be going on throughout during the year and based on which the provisions are made or credit notes are issued at the end of the year on account of such price negotiation. Further, there are strong business/commercial reasons behind such trade practice as explained by appellant, which was always accepted by the Revenue in the past. Furthermore, we also agree that once the Revenue had accepted the similar transaction in the earlier years, the same could not have been disturbed during the year under consideration on the grounds of consistency. For the aforesaid various reasons, we hold that the impugned expenditure incurred by the appellant on account of provisions for retrospective increase in price of materials which was already settled up to the end of the year end had, thus, accrued during the year under consideration, was an allowable business expenditure. The Supreme Court in the case of Rotork Control versus CIT 314 ITR 62 has held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... booked for the lesser amount in comparison to other days. Therefore on the basis of the average sale of scrap in these 30 days the sale of scrap has been calculated by the Ld. assessing officer at ₹ 302400/- after reducing the sales recorded on last day of the year. Further it was noted by the Ld. assessing officer that except the excise records which are maintained at the time of sale the assessee has not maintained any stock register at scrap yard showing receipt and disposal of the scrap, he made an addition of ₹ 302400/- and ₹ 156510002/- the income of the assessee in the draft assessment order. On objection before the Ld. DRP, Ld. dispute resolution panel deleted the addition of ₹ 15651000/- on account of certain obsolete store items on the ground that no sale was credited against such items in the books of accounts and therefore for the remaining amount of ₹ 302400/- the addition was made to the total income of the assessee. This addition has been contested by the assessee by this 5th ground of appeal preferred before us. 22) Ld. authorized representative of the assessee submitted before us that It is an admitted position that the appellant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order is purely hypothetical and notional, without any evidence to establish that scrap was actually lying in the premises of the appellant at the end of the relevant year. Accordingly, for that reason as well, the addition made in the assessment order calls for being deleted. He further stated that assuming while denying that in the event the aforesaid addition is to be sustained, it is prayed that the AO should be directed to make identical addition to the opening stock of the subsequent year. He further stated in all fairness the aforesaid issue has been decided against the appellant by the Tribunal in appellant s own case for the AY 2007-08 and 2008-09. The Tribunal, in the said years, had restored the matter back to the file of the assessing officer to compute the value of closing stock on consistent basis, as per method to be followed by the assessing officer in the set-aide order. Consequently , The AO had, in the set aside proceedings for AY 2007-08, vide order dated 31.10.2014, confirmed such disallowance on an ad-hoc basis by estimating the average of scrap lying in the closing stock as a proportion of scrap sales for the last 15 days for the ended 31.03.20007 and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal, following the decision of honourable High Courts and Supreme Court, we have held that adjustment should not be made in the assessment order on issues, which are revenue-neutral. The impugned addition under consideration is purely revenue-neutral in as much as addition of the estimated value of the scrap to closing stock would be debited as opening stock in the profit and loss account of the immediately succeeding year. Further, the assessing officer will need to carry out the similar exercise in the last year, to estimate stock of scrap which would become opening stock of this year. There is, thus, no escapement of Revenue on the basis of the impugned addition made by the assessing officer in the assessment order. We have already held in multiple grounds supra that no adjustment should be made to returned income on issues, which are revenue neutral. Having held as above, it is difficult to take any different view for the issue under consideration, which is also purely revenue neutral, especially considering that if similar adjustment (which has not been carried out by the assessing officer) is made to the opening stock, no additional tax liability would delve upon the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivery of the goods to the customers during the relevant year which were determined in the succeeding year but according to the assessing officer it was the income of the appellant for this year. As the assessee is engaged in the business of manufacturing and selling of 2 wheelers the assessee uses transport facility for delivery of vehicles to the customers/dealers. At the time of appointing the transporters for delivery of the vehicle the assessee agrees in advance the time limit for delivery of such vehicles at the place of the destination. In the event there is a delay in delivery of vehicle beyond the specified agreed limb time-limit the assessee has a policy of charging liquidated damages from the transporters for such delays. Accordingly in the immediately succeeding year the assessee recovered liquidated damages of ₹ 3 8.22 lakhs on account of such damages towards delay in delivery of goods dispatched by the assessee during the relevant year. The Ld. assessing officer was of the view that assessee should have made provision of this sum in the current year and not in the succeeding years and therefore the addition was made in the hands of the assessee of ₹ 3822 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he earlier years should not be disturbed in the absence of any change in facts, more so when the change does not affect the overall tax liability to be collected from the appellant. While holding as above, the Tribunal set aside the matter to the file of the assessing officer to be decided afresh, keeping in mind the fact that such LDs, being due at the end of the relevant year, are not easily ascertainable and the transaction is revenue neutral. He further stated that that the assessing officer, in the set aside order dated 26.02.2015 passed in connection with the assessment year 2008-09, deleted the aforesaid addition on account of liquidated damages recovered by the appellant and accepted the claim of the appellant that in the absence of information qua delay in delivery details by the end of the year, the amount of LD s cannot be ascertained and thus, no addition on this account is sustainable. He drew our attention to the page number. 577-579 of PB Vol. 1 to support his contention. Therefore he submitted that when the assessee has already offered the sum in the subsequent year when the income accrued to the appellant there is no reason that it should be added in the current ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidated damages recovered from transporters for late delivery of vehicles . Therefore, ground No. 6 of the appeal of the assessee is allowed. 30) Ground No. 7 of the appeal of the assessee is against the disallowance of ₹ 196581820/ in respect of provision for advertisement expenses incurred at the head office made at the end of the relevant previous years which were subsequently reversed in the succeeding year alleging same to be excessive. Furthermore, the Ld. assessing officer also held that it was not made on scientific basis and therefore it was a contingent expenditure in nature. The Ld. assessing officer was also of the view that the appellant has failed to substantiate the method for creating the aforesaid provisions of the advertisement expenditure. The brief history of those expenditure is that assessee has during the year created certain provisions pertaining to its head office. The Ld. assessing officer asked for the basis of those provisions and also that details as to when this provisions were squared off. Therefore on the basis of the examination of the detailed the Ld. assessing officer was of the view that these provisions crystallizing in the next fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is only the excess amount of provision, which was reversed in the succeeding year, that has been disallowed on the ground of the same being an unascertained liability. In this regard, it is submitted, that what is required to be seen is whether the methodology followed by the assessee for providing for expenses is rational / scientific or not. If yes, then the method followed by the assessee needs to be accepted (and not disturbed) and the amount provided for is to be allowed. In this regard, it is submitted that the provision for advertisement expenses, in the year under consideration as well, has been made on the basis of actual Purchase orders and agreements and thus, has been made on reasonable and scientific basis. Detail of provisions for advertisement is enclosed in paper book at Pg. 1293 of PB Vol. 3. As submitted above, the amount of provision is created by the appellant, on the basis of reasonable estimate, based on inputs gathered from the various departments. The estimate by its very nature cannot be precise. Further, in the case of the appellant company, having offices / branches at various locations throughout the country and several departments, the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alize and thus, was reversed in the succeeding year. Accordingly, it would be appreciated that aforesaid provision was made on the basis of actual PO and management s best estimates and thus was reasonable and scientific in nature. He further submitted that the aforesaid issue is squarely covered in favour of the appellant by the decision of the Delhi Bench of Tribunal in appellant s own case for the assessment year2008-09, wherein the Tribunal reversed the action of assessing officer in disallowing provision on the ground that the amount reversed there against in the succeeding year exceeded 15% of the amount of provision. The Tribunal held that the said approach followed by the Respondent had no valid basis and was purely ad-hoc. It was held that if a provision is made on rational and scientific basis, the same needs to be allowed as business deduction, notwithstanding the same (without any percentage limit) gets reversed in the succeeding year. The Tribunal also held that the assessing officer was bound to follow the practice and stand taken by the Department on this issue in the earlier years and, accordingly, restored the matter back to the file of the assessing officer to rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the by the Ld. Assessing officer of ₹ 1 9658 1820/ in respect of provision for advertisement expenses incurred at the head office made at the end of the relevant previous year which were reversed in the succeeding year and allow the ground No. 7 of appeal raised by the assesse. 34) Ground No. 8 of the appeal of the assessee is against the order of the Ld. assessing officer in making an adjustment of ₹ 319897455/ to the income of the assessee on account of the international transactions regarding payment of export commission, payment of modal fees and royalty paid on exports made to the associated enterprise. The Ld. assessing officer has held that benchmarking analysis undertaken by the assessee in respect of the international transactions of payment of a these sums by clubbing with the other transactions by applying the transactional net margin method was incorrect and in such transaction is required to be analyzed separately. The Ld. transfer pricing officer has held that the payment of export commission of ₹ 159127093/ has arm s length price of Rs. nil applying the cup method holding that no independent party will pay such commission in similar circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard value of such exports. In the transfer pricing documentation appellant applied transactional net margin method as the most appropriate method to justify the international transaction of payment of export commission and submitted that it is at arm s length. Appellant says that the operating profit ratio of the assessee is 16.42% which is higher than the average of the operating profit ratio of comparable companies the international transactions entered into by the appellant were considered to be at arm s length by the appellant. The Ld. transfer pricing officer on a reference being made by the Ld. assessing officer has determine the arm s length of export commission payment at Rs. nil applying cup method and providing rational is that the transaction of payment of export commission is required to be benchmarked separately, an independent enterprise would compensate another party for ceding territory to it only when the later party either withdraws from that territory or some restrictions are placed upon it and nothing of that short has happened to the associated enterprise and therefore the associated enterprise continues its business as usual in those overseas territories and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annual report of the assessee an impression is given that research and development is carried out by the assessee complainant the technology provided by the Honda motorcycle company Ltd Japan and if that be the case the assessee is equally responsible for technology up gradation that is taking place in India. Further since the model fee payment in the royalty payment are for the same set of services there is no justification for further payment of the model fees. Therefore, on these reasons he held that the arm s length price of the model fee payment is Rs. nil. On objection filed by the assessee before the Ld. dispute resolution panel it upheld the findings of the Ld. transfer pricing officer on the same reasons which were given for the purpose of upholding the findings of the Ld. transfer pricing officer with respect to the payment of export commission. 36) The 3rd international transaction was with respect to the payment of royalty on sales to the associated enterprise amounting to ₹ 17.25 Lacs. The brief facts regarding the payment of royalty is that the assessee is paying royalty to Honda Japan for export made to subsidiaries and group companies. The Ld. transfer pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess to new market for its products, which enabled it to enhance its sales. d) The export commission is also paid by the appellant to HMCL for procuring export orders using their network and infrastructure in relation to exports. e) The primary purpose of payment of export commission, therefore, it would be appreciated, was ceding of overseas territory by HMCL in favour of the assessee, whereby the assessee is enabled to export its product manufactured in India to earn higher profits. f) The transaction has been appropriately benchmarked on an aggregate basis applying TNMM. The Hon ble Delhi High Court in the case of Sony Ericsson Mobile Communications vs CIT 374 ITR 118 held that aggregation of closely linked transactions is desirable and not merely permissible. Reliance in this regard is also placed on the following decisions wherein Courts have upheld the benchmarking of international transactions applying TNMM on an aggregate basis: i. Maruti Suzuki India Ltd vs CIT 381 ITR 117 ii. CIT vs Lumax Industries Ltd (ITA No 102/2014) (Delhi High Court) iii. Daksh Business Process Services Pvt Ltd vs DCIT (ITA No 2666/Del/2014) iv. Toyota Kirloskar Auto Parts Pvt Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lely on the basis of technology provided by Honda, manufactures various models of motorcycles in India. The entire technical knowhow in this regard is provided by Honda and the finished products manufactured by the appellant conforms to the specifications, drawings and designs as provided by Honda. It is stated in the TP report that the appellant does not undertake significant research and development activities, all of which is performed by Honda. . The research and development undertaken by the appellant in India is limited to implementing the technology provided by HMCL and controlling product s specification, etc. f) The fact that the appellant has obtained technical knowhow for manufacture of motorcycles in consideration of model fee is borne out from the various evidences, such as agreements, drawings and designs, specifications, etc. provided by Honda, Japan g) In our respectful submission, the payment of model fee is as per the industrial policy and the agreement approved by RBI. h) It is a common practice in the industry that, for obtaining technology, consideration is usually paid partly in the form of lump sum technical know-how fee and partly in the form of rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessment year 2008- 2009 wherein the identical issue was considered and decided by the coordinate bench. Before us the Ld. DR could not point out that the facts in the present year are anyway different from the facts and issues decided by the coordinate bench in earlier years in appellant s own case. The coordinate bench has decided this issue for assessment year 2007 2008 in ITA number 00/Del/2012 as under:- 59.15. The Tribunal considered these very same T.P. adjustments while disposing of the case of the assessee for A.Y. 2006-07. Paras 65 to 66, paras 88 89 and 90 91 of the Tribunal s cover all the three issues, as reproduced below. 65. In the details filed before the Assessing Officer, the assessee has given model-wise details to show that the sale consideration of the export of each model was more than the domestic rate and even after considering the export commission, it was more than the domestic rate. The TPO has also held that under the export agreement, the assessee has agreed to various conditions which are detrimental to the assessee and, therefore, the assessee is not required to pay any export commission. The first point mentioned by the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required to be paid. After considering the entire facts, we are of the opinion that the export agreement was for the benefit of the assessee and not detrimental to the interests of the assessee. By virtue of the export agreement, the assessee was able to export the specified models of the two wheelers to the specified countries. It is true that by virtue of the export agreement, the assessee was not permitted to export any of the models to any of the countries. However, even by export of specified models to the specified countries, the assessee has benefited and the assessee has given the detailed working of such benefit which is also enclosed as Annexure-1 to this order. As per this working, the assessee derived the benefit of ₹ 13.05 crores by the export. The export sale rate was more than the domestic sale rate even after considering the export commission. In view of the above, we are unable to uphold the disallowance of commission by the Assessing Officer by way of transfer pricing adjustment. 88. In our opinion, the ratio of the above decision would be applicable to the facts of the assessee s case because in this case also, there is no dispute about the genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment fee should have been 25% of the payment made by the assessee. While taking this view, he has held that there was a joint activity of development of new model by the assessee and HMCL. The contribution of the assessee is much more than the HMCL and therefore, he attributed only 25% of the model development fee as arm s length price of the transaction. However, we have already discussed above that there was no such joint activity of the model development. The activity of the assessee of the market research and market study was for ascertaining the specifications of the model/technology required by it. Therefore, it was prior to the actual research and development undertaken by HMCL. The next activity of the assessee started only after the model is developed by HMCL and technology is handed over to the assessee. Then the assessee undertook the research and development activity for absorption of such technology and for indigenization of the spare parts. Thus, the activity of research and development of the model was undertaken by HMCL and not jointly by the assessee and HMCL. No other reason is given by the TPO for determining the arm s length price at 25% of the model fee pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the AEs is that of a Contract Manufacturer. The assessee company is purchasing raw material from the AEs. The royalty paid as a percentage of sales to the associated enterprise is not at arm s length because it amounts to collecting royalty on the sales to itself. All the AEs are typically within the broad umbrella of the multinational corporation. Even though, it appears that the technical knowhow is commercially exploited in India, in realty the price for these activities are not fixed by market forces. Whether the sales of the assessee are made within India to its AE or to the parent company does not make much difference to the principles of arm s length transactions. In this case the capacity and other parameters are tied to the AE capacity and it cannot act like an entrepreneur. Therefore, both the risk and reward are like a contract manufacturer. No contract manufacturer would like to make this kind of transactions with an independent third party. We respectfully follow the decision of coordinate Bench of the Tribunal. 59.16. The submission of the ld. DR that the Tribunal has not considered the agreement while disposing of the mater in the previous year is devoid of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he exact amount payable to recipient subject to tax deduction at source and the actual recipients are not identifiable at the time of providing for the liability. The brief fact of the disallowances is that At the year end, the assessee created provision for expenses under Dealer Group Promotion Scheme (DGP), debited under the head of advertisement publicity expenses, which were pending to be processed as on 31.03.2010 and booked as provision on 31.03.2010. The assessee enters into principal to principal agreement with dealers, whereby the dealers purchases vehicles from the assessee on its own account and further sell the same to the customers. The dealers, in order to promote sales have to incur advertisement expenses, for which re-imbursement of certain portion thereof is subsequently sought from the assessee, pursuant to a sales promotion scheme introduced by the assessee. In such circumstances, since the contract of advertisement is between the dealers and the contractor, the obligation to deduct tax at source, if any, from the payments made under such advertisement contracts is that of the dealer(s). The assessee simply reimburses the actual cost incurred by the dealer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on assessee on the basis of submission of proof of carrying out of the advertisement. Therefore the tax should have been deducted on this sum. 45) The Ld. authorized representative vehemently contested the disallowance made by the Ld. assessing officer submitting that:- a) The observations made by the AO/DRP are patently contrary to facts on record. The assessee submitted that the aforesaid payments were made on account of reimbursement of actual expenses incurred by the dealers on advertisements. Since the responsibility to deduct tax at source at the time of making payment to the advertisement contractor was undertaken by the dealer, the assessee was not obliged to deduct tax at source in relation to the aforesaid reimbursement to the dealers on a cost to cost basis, as the same would have resulted in double deduction of tax at source. b) Further, there was no privity of contract between the advertising agency and the assessee so as to require the assessee to deduct tax at source from the aforesaid amount under section 194C of the Act. The privity of contract was between the dealer and the advertising agency. The assessee did not make payment to the dealer under any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UCO Bank v. UOI: 369 ITR 335 (Del.) (ii) Ericsson Communication Ltd.: TS-523-HC-DEL (iii) Industrial Development Bank of India v. ITO: 104 TTJ 230 (Mum.) (iv) Pfizer Ltd. v. ITO: ITA NO. 1667/Mum./2010 (Mum.) (v) Dishnet Wireless Limited vs. DCIT: [2015] 172 TTJ 394 (Chennai) b) Further, it is submitted that it has not been appreciated that the liability to withhold tax also attaches with itself, the liability to issue a TDS certificate for the tax deducted/withheld by the payer. If the payee is not identifiable then it is impossible for the payer to issue a TDS certificate. Accordingly, the interpretation adopted by the assessing officer would lead to absurdity, which cannot be the intention of the legislature. Income in the hands of the payee (i) Obligation to deduct tax at source would be triggered only when the sum payable by payer is chargeable to tax as income in the hands of payee. (ii) In the present case, it would be appreciated that since the provision has been made on an estimate basis, the same cannot be construed as income in the hands of the payee. It is well settled that income accrues only when the recipient is vested with the right to rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments made to a resident payee, it is proposed to amend section 40(a)(ia) to provide that where an assessee makes payment of the nature specified in the said section to a resident payee without deduction of tax and is not deemed to be an assessee in default under section 201(1) on account of payment of taxes by the payee, then, for the purpose of allowing deduction of such sum, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee. (emphasis supplied) l) On perusal of the above, it may kindly be noted that the wordings In order to rationalize the provisions indicates that the amendment was made with a view to remove the unnecessary hardship caused to assesses by the earlier provision. The non-deduction of tax at source from the amounts genuinely spent by the assessee for business purpose, resulting in disallowance of the same under section 40(a)(ia) of the Act, notwithstanding that tax was paid by the payee treating the amount received from the payer as its taxable income, caused a lot of hardship to the assesses and thus the amendment by the Finance Act, 2012, relaxing the rigour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Parth Developers vs ITO : ITA No. 344/Ahd/2010 [ (viii) Dynamic Builders vs. ITO : ITA No. 1625/Ahd./2008 (Ahmedabad) (ix) Aavkar Developers vs. ITO : ITA No. 3165 / Ahd./ 2009 ( Ahmedabad) (x) Golden Stables Life Centre Pvt. Ltd. vs. C.I.T : ITA No. 5145/Mum/2009 (Mumbai) (xi) Matrix Glass and Structures (P) Ltd. vs ITO : ITA No. 658 (Kol) of 2010 (Kol) (xii) ACIT v. M/s Sanjay Automobile Engineering: ITA No. 1370/PN/2011 (Pune) (xiii) Rana Builders vs. ITO : 142 ITD 205 (Rajkot) (xiv) Rajamahendri Shipping Oil Field Services Limited [ITA No.352/Vizag/2008] p) In the following decisions, the Courts/Tribunal construing the amendment in section 201 and 40(a)(ia) by Finance Act, 2012 w.e.f. 1.07.2012, applying the ratio decidendi laid down in the judicial precedents referred hereinabove, held the said amendment to be procedural in nature and thus applicable retrospectively. (i) Ansal Land Mark Township P. Ltd.: 377 ITR 635 (Del.) (ii) Gujarat Pipavav Port Limited vs. DCIT: ITA Nos. 614 615/Rjt/2012 (Rajkot) (iii) DCIT v. Ananda Marakala : 48 taxmann.com 42 (Bang.) (iv) Shri G. Shankar v. ACIT: ITA No.1832/2013 (Bang.) (v) Rajeev Kumar Agarwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer, in the set-aside orders for assessment year 2007-08 and 2008-09 had also accepted the alternate contention on verification of the date of deduction and depositing tax at source and disallowance was made only on the ground that relief ought to be granted in the year of deduction of tax a source, viz., the subsequent assessment year. [Page 570-571 and 585-586 of Vol-2] 46) We have carefully perused the rival contentions and also perused the relevant material placed before us including the order of the coordinate bench in case of appellant for earlier years where in it is held that it is reimbursement of expenditure and on this there is no requirement of tax deductions at sources. Ld DR could not point out any change in the facts and circumstances of the case and therefore we are bound to follow the order of the coordinate bench in case of the appellant for earlier years. Therefore we are bound to follow the order of coordinate bench and allow ground no 9 of the appeal of the assessee and delete the disallowance accordingly. 47) Ground No. 10 of appeal is against the disallowance made by the Ld. assessing officer of ₹ 14734700/-on account of provision ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the Hon ble Delhi High Court in case of Jai Drinks P. LTd.: 336 ITR 383 (Del.). He further submitted that Without prejudice, obligation to deduct tax at source under Chapter XVII-B arises (i) when the payee is identified and (ii) amount is receivable by payee during such year. He submitted that the provision was made on the basis of intimation as to the number of vehicles sold to institutional customers that was received at the fag end of the financial year. However, the appellant was aware about the liability to pay commission, but was not aware about the amount payable to the respective payee/dealer. According to him dealer is vested with right to receive commission only after claim for such commission made by the dealer is verified, acknowledged and passed for payment by the appellant. In the event of rejection of claim, the dealer would not be entitled to receive any commission on sales made to customer. Therefore, commission amount payee wise was not known and there was no right to receive the same in hands of the payee. He further submitted that considering that similar payments were made by the applicant in preceding assessment years, without deduction of tax at sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission. The stockists/ dealers purchase spare parts/ vehicles from the assessee. They are not commission agents. Sale consideration is paid by these parties to the assessee. As a matter of incentive for higher sale, the assessee grants discount if the stockits/ dealers achieve a particular volume of transaction. Thus, in our view the discount in question is not in the nature of commission or the brokerage, which attracts sec. 194H. In the case of CIT Vs. Mother Dairy Ltd. (ITA no. 1925/2010(Del) the Hon ble Delhi High Court was considering similar case and held as follows: 3. The assessee explained in writing that it sold the products to the concessionaires on a principal to principal basis, that the concessionaires buy the products at a given price after making full payment for the purchases on delivery, that the milk and other products once sold to the concessionaires became their property and cannot be taken back from them, that any loss on account of damage, pilferage and wastage is to the account of the concessionaires and that in these circumstances the payment made to the concessionaires cannot be treated as commission for services rendered and consequently there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. For the less realization of the sale price by the dealer, they are compensated by the assessee at the predetermined rate. The above issue has already been decided by the coordinate bench as stated above and Ld. departmental representative could not point out any contrary decisions on this issue, therefore respectfully following the decision of the coordinate bench we allow ground No. 10 of the appeal reversing the disallowance made by the Ld. assessing officer on commission to dealers on institutional sales amounting to ₹ 1 473 4700/ on account of non-deduction of tax. 52) Ground No. 11 of the appeal of the assessee is against disallowance of purchases to the extent of ₹ 7 2.40 crores made from certain parties related with the assessee in terms of accounting standard 18 issued by the Institute of chartered accountants of India alleging that the same are excessive. It is further the grievance of the assessee that the expenditure was actually incurred by the assessee for the purpose of the business and no part of the same was excessive or unreasonable and further the parties which have been picked up by the Ld. assessing officers were not related to the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties for which internal comparables of similar products purchased from related parties were available. In case of other parties was no internal comparable was available the Ld. assessing officer worked out an amount of ₹ 6 0.80 crores in the same proportion as that of purchases for into which internal comparables are available and therefore the Ld. assessing officer computed the total disallowance of ₹ 7 2.40 crore out of the purchases. The Ld. assessing officer made such addition in the draft assessment order, which were challenged by the assessee before the Ld. dispute resolution panel who concurred with the views of the Ld. assessing officer rejecting the objection of the appellant, and therefore the assessee is in appeal before us on this ground. 53) Ld. authorized representative submitted that it was on account of various factors / varying business circumstances, enumerated below as a consequence of which prices paid to different vendors, including related parties in terms of AS-18, were different: i. Level of automation of vendor; ii. Amount of investment by vendor, age of the plant, capacity utilization (impacting fixed cost recovery); iii. Volume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer to examine the reasonableness of the expenditure and to disallow any part thereof. [Refer: Shaw Wallace Distilleries Ltd. vs. ACIT: 85 TTJ 236 (Del.) which has been upheld by the Supreme Court in SLP No. 18121/2007; DCIT vs ICICI Web Trade Ltd.: ITA No. 6559/M/2006 (Mum.)]. Similar view has been held by Delhi Bench of Tribunal in case of Glaxo Smithkline Asia P. Ltd.: 97 TTJ 108 which has been upheld by Supreme Court in SLP No. 18121/2007/ 236 CTR 113. He vehemently submitted that the vendors are independent, distinct legal entities and the appellant exercises no control over such vendors. These entities are carrying on business in their independent right and supplying goods to independent, unrelated third parties as well. Therefore, no question arises of lifting of corporate veil as alleged by the assessing officer. [Refer: Juggilal Kamlapat v. CIT: 73 ITR 702 (SC) and CIT v. Indian Express Newspapers (Madurai) (P) Ltd.: 238 ITR 70 (Mad)]. He argued that Further, as long as the appellant acted in a bonafide manner and it was not a case of fraudulent or sham transaction, the Revenue would not, on account of commercial considerations be empowered to lift the corporate veil even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . S. Dempo Co. P. Ltd.: 196 Taxman 193/336 ITR 209; and the Mumbai bench of Tribunal in the case of Indo Bearing Traders [TS-780-ITAT-2012(Mum)]. He further challenged the estimate made by the Ld. and assessing officer regarding the computation disallowance of purchases qua vendors where there was no comparable available, is in any case incorrect. For this proposition he submitted that aforesaid issue is squarely covered in favour of the appellant by the decision of the Delhi Bench of Tribunal in the appellant s own case for the assessment year 2007-08 and 2008-09, wherein the same disallowance made in that year was deleted on the ground that since in the first place, the parties were not related to the appellant company in terms of section 40A (2), disallowance on ground of excessive purchase price could not have been made under that section. Further, the Tribunal held that the transactions were entered by the appellant on account of commercial expediency and when the recipients had paid tax on payments received from the appellant company, disallowance could not be made by applying provisions of section 40A(2) of the Act. Therefore, according to him, the disallowance made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who is not liable to pay tax at all or liable to pay tax at a rate lower than the rate at which the assessee pays the tax. In order to curb such tendency of diversion of income and thereby reducing the tax liability by illegitimate means, section 40-A was added to the Act by an amendment made by the Finance Act, 1968. Clause (b) of section 40A (2) gives the list of related persons. 13.17. In the present case, it is an undisputed fact that none of the parties fall within the persons specified as defined under clause (b) of section 40A (2) of the Act. Related parties are to be considered in terms of provisions of sec. 40A (2) of the Act and not as mentioned in AS-18 issued by the Institute of Chartered Accountant. Thus, we are of the view that the provisions of section 40A (2) do not apply to the present case. Further, there is no provision under the Act which authorizes the Assessing Officer to lift the corporate veil and disallow an expenditure on the ground of reasonableness and commercial expediency unless it is established that the transaction is primarily devised to evade tax. 13.18. In the present case, it was submitted by the learned AR of the assessee that the related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceed to answer whether the action of the Assessing Officer in disallowing the expenditure on the ground of commercial expediency is justified. 13.23. The Hon ble Supreme Court in the case of CIT vs Walchand Co [1967] 65 ITR 381 in the context of deductibility of expenditure under Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] held as under: In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue . 13.24. Further, reference is also drawn to the decision of the Hon ble Supreme Court in the case of S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1 (SC) , where in it was held as under: ....that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the provisions of accounting standard 18. The brief facts of the issue is that the appellant has paid return worship fees of ₹ 2 crores to hero corporate services Ltd in connection with the availing advisory services for the purposes of the business which are payable ₹ 50 Lacs every quarter. The Ld. assessing officer has disallowed this sum is according to him the nexus of advisory services rendered by that company with the business of the appellant could not be ascertained and the appellant has also failed to explain as to how it is commercially expedient to avail the aforesaid services from the related party. On objection before the Ld. dispute resolution panel the action of the Ld. assessing officer was confirmed. Therefore the assessee is in appeal before us against the above disallowance. 57) Before us, the Ld. authorized representative submitted that appellant entered into service agreement for availing advisory services rendered by HCSL, a company engaged in business of providing various corporate services like management of treasury and finance functions, human resources development, strategic planning and projects, IT support etc. HCSL during the releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A(2)(b) of the Act, there was no scope for the Revenue to examine the reasonableness of the expenditure incurred and to disallow any part thereof for that reason. In any case, no evidence has been brought on record by the Revenue to substantiate that the amount paid was excessive, having regard to the legitimate needs of business. He further submitted that Apart from the provisions of aforesaid section 40A(2), there is no provision under the Act, which gives power to the assessing officer to go into the issue of reasonableness of the expenditure, where the transacting parties are not related under section 40A(2)(b) of the Act. On the relationship of the assessee he submitted that, AS-18 defines wider test of related party only for the purpose of accounting. The same cannot replace the various categories of related persons set out in section 40A(2)(b) of the Act. Thus, if the parties are not related in terms of section 40A(2)(b) of the Act, no disallowance on account of alleged unreasonableness of expense can be made, notwithstanding that such parties are related in terms of AS-18. He further submitted that In the preceding assessment year viz. 2007-08, the assessing officer admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in terms of sec. 40A(2)(b). While it is so, the action of the Revenue in disallowing the certain portion of the expenditure is not justified unless the revenue demonstrates that the transaction is primarily a device to evade tax. 15.13. The Hon ble Supreme Court in the case of CIT v. Walchand Co. (P.) Ltd. [1967] 65 ITR 381 held that the Income-tax authorities have to decide whether the expenditure claimed as an allowance was incurred voluntarily and on grounds of commercial expediency. In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business, the Supreme Court laid down that the reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the Revenue. 15.14. The Hon'ble Supreme Court in the case of CIT v. Dharamraj Giriji Riya Narsingiriji 91 ITR 544 held that it is not open to the Department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows its interest best . 15.15. It is well settled that the assessing officer cannot place himself i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f to those Vendor and hence the contract with the vendor is constituted what s contract according to him and therefore the provisions of section 194C is applicable on those payments to those Vendor. According to the Ld. and assessing officer the Vendor are not operating as independent business entities but are captive units and working under the direction and control and dictation of the appellant and thereby having no independent decision-making of their own but of the appellant only. The Ld. assessing officer was also of the view that the appellant while arranging the transaction in the aforesaid manner of routing the supply of material through other parties has hoodwinked the revenue in order to evade liability to deduct tax at source. Therefore he held that the aforesaid transaction of purchase from vendor was in the nature of the contract for carrying out the work which is subject to tax deduction at source under the provisions of section 194C of the income tax act and as the assessee has failed to deduct tax at source on those payments the entire purchase consideration amounting to ₹ 3 828.78 crores made from these aforesaid vendors is liable to disallowance under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vendors source the raw material / components required from such manufacturers only. Further, in view of the sheer magnitude and size of its operations, the appellant is able to negotiate with the manufacturers of raw material / components for best prices. The appellant advices the vendors who supply intermediary products to the appellant, of the prices negotiated by the appellant with the manufacturers of raw material / components, to be sourced by such vendors. Since the price paid by the appellant to the vendors of intermediary products / components is, in turn dependent on prices of inputs paid by the vendors to suppliers of raw material / components, it is in the best interest of the appellant to ensure that the prices of raw material / components sourced by the vendors from independent manufacturers are kept to the minimum. It is in this background that the appellant seeks to leverage its strength, given the magnitude of its business and requirement of intermediary products to extract the best prices from the manufacturers of raw material or components. The benefit of lower prices enjoyed by the vendors is, in turn, passed on to the appellant when the appellant purchases inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is well settled and reference in this regard can be made to the decision of the Supreme Court in the case of CIT vs. Silver Oak Laboratories P. Ltd.: SLP No.18012/2009. j) Section 194C has also been amended, w.e.f 1-10-2009, to clarify that contract of manufacturing customized goods, without using material procured from the customer would be outside the scope of work contract under section 194C. k) Raw-materials are purchased by the vendors from the suppliers on their own account, after negotiating other relevant terms of payment and delivery schedule, payments of excise duty and VAT, etc. The raw materials are delivered to the vendors and are at the risk and title of the vendors. The vendors who are independent legal entities with their own manufacturing establishments, employing huge labour, utilize the raw materials purchased for producing customized finished goods for the appellant. The title in the finished goods, goods passes to the appellant only after the goods have come into existence and are supplied by the vendor to the appellant. Excise duty is paid by the vendors in their own right, as an independent manufacture and not as a job worker in respect of goods manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, if any further defects, not arising from mishandling are noticed, we reserve the right to reject such material as line rejection. Our decision on such rejection shall be final. 14. Rejection must be replaced within the delivery schedule and will be invoiced separately and not as replacements. All charges inclusive of freight and handling on replacement of rejections shall be borne by supplier. For outstation suppliers, where requested, the rejected material will be dispatched at the risk of the supplier. 17. WARRANTY Warranty extended by us on our product has to be honoured by you as per prevailing policy of HHML from time to time. The warranty for product supplied by you will start from the period our final product is SHIPPED OUT. You will warrant that all the new goods supplied by you are free of all defects in the material and workmanship. Its liability under such warrant being limited to taking goods at the factory of HERO HONDA MOTORS LTD., GURGAON/DHARUHERA any part(s) which within 6 calendar months from the date when the product as delivered now to the representative and why by HHML is satisfied on its examination of part(s) to have been defective in mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il converted into finished components to be supplied to the appellant and accepted by the appellant. Accordingly, the contract between the appellant and vendors was in the nature of contract of sale and not works contract as alleged in the assessment order. q) The assessing officer it is submitted has merely gone by the fact that the appellant had specified to the vendors the source of supply of raw materials/components and the prices to be paid therefore, for holding the impugned purchase contract as contract for carrying out work which is too farfetched. The assessing officer failed to appreciate the business consideration behind such stipulation. r) The aforesaid assumptions by the assessing officer are further belied by the fact that the appellant has paid the vendors for supply of goods including the cost of raw materials / components (alleged to be supplied by the appellant to the vendors). The vendors have in their tax assessments being assessed on the full purchase price received from the appellant. If the appellant had supplied the raw material / components required by the vendors for fabrication / manufacture of customized intermediary products, the appellant would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of supply of goods. Under such circumstances, no disallowance can be made under section 40(a)(i) of the Act. [Refer: CIT v. Kotak Securities Ltd.: 245 CTR 3 (Bom.)] x) Since, the appellant would not be deducting tax at source, in future as well (out of such expense payment), there would, in terms of the proviso be no occasion for the appellant to be entitled to deduction there for in a later year(s). Section 40(a)(ia) of the Act would, in such circumstances, operate to deny deduction for the expense for all times to come. In other words, deduction for the amount of expense would be lost forever, notwithstanding that the deductee / recipient of income out of whose income tax had to be deducted at source, has already paid tax on such income. y) In our respectful submission, in situations of bona-fide difference of opinion between the tax deductor and the Revenue regarding the liability to deduct tax at source, the provisions of section 40(a)(ia) of the Act are harsh and seek to discriminate against an appellant, who has failed to deduct tax altogether vis- -vis another appellant who has defaulted in depositing tax deducted at source in time. Although, the latter default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Tribunal also found force in the arguments of the appellant that, where recipients have paid tax, no disallowance under section 40(a)(ia) was warranted. 62) At the end of his lengthy arguments he submitted that the Ld. assessing officer relied in applying the provisions of section 194C of the income tax act when the transaction is for the purchase of the goods and not for the purpose of carrying out any work. 63) The Ld. departmental representative relied upon the order of the Ld. assessing officer and submitted that the purchase of the goods is made by the vendors under the instructions and under the control of the appellant, the material is also negotiated with the supplier by the appellant himself therefore it is not the case of purchase of goods but it is the case of carrying out work on behalf of the assessee as the specifications are also provided. He therefore submitted that the Ld. assessing officer has correctly applied the provisions of section 194C of the income tax act for making the disallowance for non-deduction of tax on such payments. 64) We have carefully considered the rival contentions. Payment to the parties involved under this issue are as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing officer came to the conclusion that the assessee has termed the contract of work as contract for sale . The reasons in details for arriving at such conclusion by the Assessing officer and as confirmed by the DRP are discussed in the above paragraphs (supra). 14.60. With the above background, we examine the legal position in this regard. ................... 14.73. On perusal of the above mentioned CBDT Circulars, it can be appreciated that the fact that the goods sold are manufactured according to specifications of the buyer is not relevant in determining whether the contract is a contract of sale or works contract. What is relevant to determine the stage of passing of property/title in the goods from the vendor to the buyer. Where title to the goods passes to the buyer at the time goods are manufactured and transported, the contract would be one for sale of goods, notwithstanding that the goods are manufactured according to the specifications of the buyer. 14.74. The principal test to be applied to determine whether the contract is works contract or contract for sale is examined whether title to the goods passes to the purchaser at any time anterior to the manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons on which the purchase order is placed, we observe that the transaction is on a principal to principal basis. ................. 14.90. Combined reading of all the terms and conditions of the purchase order takes us to the conclusion that the vendors supply finished goods to the assessee at their risk and cost. Title to the finished goods was transferred to the appellant when the supplier/ vendor completed production of the finished goods and dispatched the same to the assessee and only when the assessee approves and accepts the said goods i.e. title passes on acceptance of goods. Until that stage of acceptance on delivery, there is no transfer of title as per the intention of the parties gathered from the purchase order. The transfer of title at the stage of acceptance of deliveries by the purchaser would be, in our opinion, only a sale of goods but not work contract. 14.91. The test laid down by the courts is to examine the intention of the parties as to the point of time when they want to transfer of title in the goods. In this case, the title in the goods vests in the assessee on delivery of the goods. The assessee never acquired any title prior to the point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, there is no supply of raw material by the assessee to the vendors either directly or indirectly. In laying down the quality specification of the products, the assessee is ensuring the required quality of its purchases which in turn ensures the quality of its two wheelers. Considering the magnitude of the total requirements, the assessee was able to negotiate the price and hence is controlling its input costs. The low price enjoyed by the vendors, in turn would be passed on to the assessee. This is a case where the vendors were purchasing raw material on their own account by payment of excise duty, VAT etc. The goods were manufactured by the vendors to the specification and other terms and conditions spelt out in the purchase orders and in their own right as independent manufactures. On this factual matrix, we have no hesitation in holding that it is a case of contract of sale and not contract of work. Hence, in our view, the provision of Sec. 194C are not applicable and consequently the disallowance made u/s 40(a)(ia) is to be deleted. 14.96. It would be pertinent to point that section 194C was amended by the Finance (2) Act, 2009 w.e.f. 1.10.2009, whereby the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. Accordingly, for the aforesaid cumulative reasons, we delete the impugned disallowance made by the assessing officer on account of purchases of ₹ 3 828.78 crores disallowed for failure to deduct tax under section 194C of the income tax act. In the result ground No. 13 of the appeal of the assessee is allowed. 67) The ground No. 14 of the appeal of the assessee is against the disallowance made by the Ld. assessing officer of ₹ 8 29765/ incurred on account of booking of hotel to convene training courses on the ground that the assessee has failed to deduct tax at source from such payments under section 194I of the income tax act. The opinion of the Ld. assessing officer was further confirmed by the Ld. dispute resolution panel following the orders of the tribunal for assessment year 2007 08 and 2008 09 in the appellant s own case where the about disallowances have been confirmed. Aggrieved by this, the appellant is in appeal before us. 68) Before us the Ld. authorized representative stated that on this payment is no tax is required to be deducted under the provisions of section 194I of the income tax act in view of the CBDT circular No. 715 dated 8895 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered the rival contentions. We find that the Tribunal in the orders passed for the assessment years 2007-08 and 2008-09 have categorically held that hire charges for taking room in a hotel on hire are covered within the scope of section 194I of the Act. 71) However the alternate plea raised by the appellant deserves consideration that disallowance u/s 40(a)(ia) could not be made if recipient had paid tax thereon, the appellant has not produced any evidence in support of such plea, which is a condition precedent for allowance of relief as per the second proviso to section 40(a)(ia) of the Act. We, however, find force in the arguments of the appellant that disallowance under section 40(a)(ia) cannot be made, if the assessee held a bonafide belief for being outside the purview of TDS. We draw support for the aforesaid conclusion from the following findings in the decision of Honourable Bombay High Court in the case of CIT v. Kotak Securities LTd.: 340 ITR 333: 32. Accordingly, we hold that the transaction charges paid by the assessee to the stock exchange constitute fees for technical services covered under s. 194J of the Act and, therefore, the assessee was liable to dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was under and bonafides believe to for not deduction of tax at source as in the past years no such disallowances been made on this account and further the CBDT itself is clarified these issues which says that there are doubts about the payment made to hotels in such circumstances whether covered under the provisions of section 194I of the income tax act or not. In view of the aforesaid discussion, we feel that bonafide belief of the appellant for not deduction tax at source from aforesaid payment for taking room on hire on certain solitary occasion(s) cannot be doubted. Accordingly, following the decision of Bombay High Court in the case of Kotak Securities Ltd. (supra), we delete the disallowance made by the assessing officer on the aforesaid alternate ground. Therefore, ground No. 14 of the appeal of the assessee is decided accordingly. 72) Ground No. 15 of the appeal of the writ assessee is against the disallowance of ₹ 3 6880 2598/ being expenditure incurred towards quarterly target on turnover discount on trade discount of ₹ 2 7744 7608/ given to the dealers/customers on the ground that the assessee has failed to deduct tax at source on these payments as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 194H are applicable, where payment by way of commission or brokerage is made for any services rendered by a person in the capacity of an agent. In the present case, in the absence of any principal-agent relationship between the company and the stockiest/dealers, the discount received by such stockiest/dealers, was not in the nature of commission or brokerage , subject to TDS under section 194H of the Act. Reliance, in this regard, is placed on the following decisions wherein it has been held that the provisions of section 194H are not applicable where the payment is made to a dealer or distributor in a principal to principal contract: i) CIT v. Ahmedabad Stamp Vendors Association: 348 ITR 378 (SC) ii) Chief Treasury Officer v. UOI: 355 ITR 484 (All. HC) iii) Roorkee Stamp Vendor Association v. State of Uttarakhand Ors: WP No. 422/2013 (Uttkd.) iv) Kerala State Stamp Vendors Associations Vs. Office Of The Accountant-general and Others: 282 ITR 7 (Ker.) v) CIT v. Mother Dairy Ltd. (Del.)(HC): 249 CTR 559 (Del.) vi) CIT v Intervet India (P) Ltd.:268 CTR 429 (Bom.) vii) CIT v. Mother Dairy Ltd.: ITA No. 1925/2010 (Del.)(HC) viii) Jai Drinks (P) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014] and Merilyn Shipping and Transport v. ACIT: 146 TTJ 1 (Vishak.)(SB)]. In the end he submitted that the aforesaid issue is squarely covered in favour of the appellant by the decision of the Tribunal in the appellant s own case for the assessment years 2007-08 and 2008-09, wherein it has been held that the agreement between the appellant and dealers was on principal to principal basis and, therefore, incentives payable to dealers was not liable to TDS under section 194H, warranting disallowance under section 40(a)(ia) of the Act. 74) Ld. departmental representative submitted that the Ld. assessing officer has correctly made the disallowance as it is a discount which is in the form of commission covered under the provisions of section 194H of the income tax act and we on which at the time of the payment or at the time of the credit the appellant should have deducted the tax at source which is not been deducted therefore the disallowance is rightly made and confirmed by the Ld. dispute resolution panel. 75) We have heard the rival contentions. As dealership agreement entered between the appellant and dealers is on a principal-to-principal basis and dealers do not act as agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture provided by the Dairy. That fact is not determinative of the relationship between the Dairy and the concessionaires with regard to the sale of the milk and other products. They were licensees of the premises and were permitted the use of the equipment and furniture for the purpose of selling the milk and other products. But so far as the milk and the other products are concerned, these items became their property the moment they took delivery of them. They were selling the milk and the other products in their own right as owners. These are two separate legal relationships. The income tax authorities were not justified or correct in law in mixing up the two distinct relationships or telescoping one into the other to hold that because the concessionaires were selling the milk and the other products from the booths owned by the Diary and were using the equipment and furniture in the course of sale of the milk and other products, they were carrying on the business only as agents of the Diary. 45.12. The Hon ble High Court held that in such circumstances S.194H is not attracted. 45.13. In the case of Jai Drinks (P) Ltd. 336 ITR 383 (Del.), the Hon ble Delhi High Court has h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ift when gift was given redemption of more than a specified limit by the customer. For this purpose the appellant has appointed the FX enterprise solution two-minute the procurement and distribution of the gift and for this the appellant has made payment of ₹ 1.56 crores to this party on account of purchase of gifts reimbursement of cost of gift sent by the vendors to the dealers. The Ld. and assessing officer was of the view that memorandum of understanding entered into by the appellant with the aforesaid party provides that that party was to procure gifts from the parties identified by the appellant and data rates negotiated and finalized by the appellant and appellant has therefore definite control over the work of the aforesaid vendor therefore it was held that the above payment are in the nature of services rendered by such offender. It was further held by him that the vendor was entitled to 1.5% of the profit margin of more the landed cost price of the product and hence the payment was made to the vendor against the composite product prices as well as the service charges contained therein. According to the Ld. and assessing officer these transaction attract the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te from a Chartered Accountant in the prescribed form, to this effect. It is submitted, that considering the legislative intent, the provisions of section 40(a)(ia) of the Act needs to be liberally construed and no disallowance could be made under that section, where tax has been paid by the recipients. Without prejudice, considering that similar payments have been made by the appellant in the past since several years, without deduction of tax at source, which has always been accepted by the Revenue, the appellant was under the bonafide belief that no tax was required to be deducted there from and accordingly, having regard to the decision of Kotak Securities (supra)no disallowance is warranted under section 40(a)(ia) of the Act. Further, without prejudice, disallowance under section 40(a)(ia) can be made only qua liabilities which are not paid and are outstanding at the end of the year. (Refer: Vector Shipping Services P. Ltd: 357 ITR 642 (All.) [SLP filed by revenue has been dismissed vide CC No(s). 8068/2014 dated 02.07.2014] and Merilyn Shipping and Transport v. ACIT: 146 TTJ 1 (Vishak.)(SB)] 79) He further submitted that It would be pertinent to point out that the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years 2007-08 an 2008-09, no different view could have been taken in the assessment year under consideration, on the grounds of consistency. For the cumulative reasons, we hereby delete the disallowance made by the ld. Assessing officer of ₹ 1 561 2424 by way of payment to Fx enterprise solutions private limited towards reimbursement of cost of gifts distributed to the customers. In the result ground No. 16 of the appeal of the assessee is allowed. 81) Ground No. 17 of the appeal of the assessee is against the disallowance of ₹ 222.13 lakhs incurred on account of payment to forum Aviation s private limited on the ground that the assessee has failed to deduct tax at source under section 194I of the income tax act. The brief facts of the expenditure disallowed is that that the appellant uses facility of transportation through aircraft for purpose of business under a charter agreement entered with the vendor in consideration for payment of variable charges per hour of use of aircraft and share of fixed cost of such aircraft. According to the assessee it is deducted tax from the aforesaid payment under the provisions of section 194C of the income tax act however the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT) 83) He further submitted that since the appellant had, in any case, under a bonafide belief, deducted tax at source under section 194C, instead of section 194I of the Act, provisions of section 40(a)(ia) cannot be invoked to disallow deduction claimed by the appellant. Reliance, in this regard, is placed on the following decisions: - CIT v. S.K Tekriwal : 361 ITR 432 (Cal.)(HC) - DCIT v. Chandabhoy Jassobhoy : 49 SOT 448 (Mum.) - Sunbell Alloys Company of India Ltd [TS-642-ITAT-2012(Mum)] - M/s. Saralee Household Bodycare India Pvt. Ltd. (Mum.) - UE Trade Corpn. (India) Ltd. v. DCIT: 28 taxmann.com 77 (Del.) - Highlight Pictures India Ltd. v. ACIT: 49 taxmann.com 187 (Mum.) - ITO v. Premier Medical Supplies and Stores: 25 taxmann.com 171 (Kol.) 84) He further urged that in view of the aforesaid undisputed practice being followed by the appellant, which stands accepted by the Revenue, the appellant, it is submitted, had a bonafide belief that tax was not deductible at source on aforesaid transaction. Under such circumstances, no disallowance can be made under section 40(a)(i) of the Act. (Refer:CIT v. Kotak Securities Ltd.: 245 CTR 3 (Bom.). since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arose before the Hon ble Gujarat High Court in the case of Swayam Shipping Services Pvt. Ltd.: 339 ITR 647. In that case, the assessee had taken cranes / trailers on rent from various transport companies and handling agents. The assessee had deducted tax at source from payments made to such vendors u/s 194C, whereas the Revenue had held that tax was required to be deducted at source there from u/s 194I of the Act. Accordingly, the assessing officer had raised demand for differential tax u/s 201 of the Act. The High Court, while noting the facts held that the assessee had not merely taken the vehicles on hire, but had taken the entire facility of freight and transport from the vendors, which fell within the scope of section 194C as work contract , instead of section 194I applied by the Revenue. The relevant observations of the Hon ble high court in this regard are as under: 6. The facts are not in dispute. The assessee has carried out freight and transportation works contracts with three transporters who transported the goods belonging to the assessee and its clients to various places through their vehicles. The assessee had not taken the trailers/cranes on hire or rent from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No. 4017/M/2007 (Mum.)(ITAT) In view of the above, we hold that the appellant had rightly deducted tax at source from the aforesaid payments made to Forum India Aviation Ltd. u/s 194C of the Act. Since the appellant had deducted tax at source under the correct provision, the question of disallowance u/s 40(a)(ia) does not arise. Accordingly, the disallowance made by the assessing officer under that section stands deleted. Since we have given our findings on the primary contentions, we do not feel it necessary to go into the alternate contentions raised by the appellant. In the result the disallowance made by the Ld. assessing officer of ₹ 222.13 lakhs incurred on account of payment to Forum aviation private limited for non-deduction of tax or short deduction of tax is hereby deleted in the result ground No. 17 of the appeal of the assessee is allowed. 87) Ground No. 18 of the appeal of the assessee is against the disallowance made by the Ld. assessing officer on account of additional depreciation of ₹ 86.15 Lacs with respect to the computers installed at the supervisory office located in the factory of the appellant. The Ld. assessing officer was of the view tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this regard is placed on the decision of the Gujarat High Court in the case of CIT vs Statronics and Enterprises (P) Ltd.: 288 ITR 455. In that case, the issue for consideration before the Court was whether additional depreciation is allowable in respect of computer installed in office premises. The Court held that computers and data processing machines, even though installed in office premises, constitutes plant and machinery and are eligible for additional depreciation as per the provisions of section 32(1)(iia) of the Act. Similarly, the Allahabad High Court in the case of CIT vs Radla Machinery Exports: 155 Taxman 131 had held that computers used for data processing of other companies were eligible for additional depreciation. Reliance, in this regard, is placed on the following decisions wherein it has been held that electrical installations like cables, overhead cables, etc. are part and parcel of plant and machinery itself and are, therefore, entitled to benefit/depreciation/ allowances available to plant and machinery: (i) CIT v Tajmahal Hotel : 82 ITR 44 (SC) (ii) CIT v. Tribeni Tissues Ltd: 206 ITR 92 (Cal) (iii) CIT v. Indian Turpentine Ltd. : 75 ITR 533 (All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the manufacturing process, but have been installed in the administrative / supervisory offices located in the compound of the factory premises. The plea of the appellant has been that for the purpose of additional depreciation, distinction has to be drawn between the computers installed in the supervisory offices of the manufacturing plant with the computers installed at the head office / corporate office, which is involved in the overall supervision of the business function. It has been argued that in the former case, although the computers are not directly involved in the manufacturing operations, but are indirectly facilitating the manufacturing activity as opposed to the computers installed at head office / corporate office. It was the submission that the exclusion of machinery or plant installed in any office premises under clause (b) of the proviso to section 32(1)(iia) of the Act is applicable to office premises like head office / corporate offices where there is no direct or indirect nexus with the manufacturing operations. The plant and machinery installed in the offices supervising the manufacturing operations should be viewed distinctly and are outside the ambit of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument is on the words office premises . 10. The submission is that the computers and the data processing machines are always kept in the office and in this case, when the computer and the data processing machines are used in the office, then, the additional depreciation would not be allowable. 11. It is to be noted that the words office premises have not been defined in the Income-tax Act. The word office would partake its character with the activities carried on in the said premises. In a given case, a doctor's clinic would be his office, but, would also be his clinic and if he installs a computer or some machine for the purposes of pathology, then, his office would be taken to be industrial premises for the purposes of depreciation and investment allowance. In a given case, a computer kept in the office of a manager for his personal use or for some other purpose, then, such computer would not be entitled to investment allowance and/or additional depreciation. In the present case, the words office premises though would be covering office but, industrial premises would not come within the office premises if the said premises are used for data processing. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f fact of the expenditure incurred by the assessee and its rational are that appellant is engaged in the business of manufacture and sale of motorcycles using technology licensed by Honda Motor Co. Ltd, Japan ( Honda ). The appellant makes payment of royalty to Honda for use of know-how and technical guidance fee, as per agreed per diem rates, for technicians visiting the appellant for rendering services as required by the appellant, in accordance with License and Technical Assistance Agreement, ( LTAA ) dated 02.06.2004, read with Memorandum for exchange of technicians, applicable during the relevant year. The appellant also pays model fees in lumpsum on launch of any new model. During the relevant previous year, in terms of the aforesaid agreement, the appellant had incurred expenditure aggregating to ₹ 453,32,77,040 (Rs. 454.32 crores) on account of (i) ₹ 437.17 crores (comprising of royalty of ₹ 416.36 crores and cess thereon of ₹ 20.82 crore) as royalty, (ii) ₹ 46.22 lacs as technical guidance fee (including cess) and (iii) ₹ 16.68 crores (comprising of model fees of ₹ 15.90 crores and cess thereon at ₹ 78.55 lacs) as model fees, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant was not exclusive in as much as, in terms of Article 2 of LTAA, Honda reserved the right to provide technology to HMSI to manufacture motorcycles. (ii) That aforesaid limited right were available to the appellant and the fact of such rights being not exclusive can be gathered from the following clauses of the agreement:- Article 2 (Grant of License and Exclusivity) Subject to the terms and conditions herein contained, LICENSOR hereby grants to LICENSEE an indivisible, non-transferable and exclusive right and license, without the right to grant sublicenses, to manufacture, assemble, sell and distribute the products and the parts during the term of this Agreement within the Territory under the Intellectual Property Rights and by using the Technical Information. Provided, it is acknowledged by LICENSEE, (i) the exclusivity granted herein is against the third parties but not HMSI, and (ii) the exclusivity against HMSI is only with respect to the exterior of the products. It is agreed between the parties that subject to the terms hereof, the LICENSOR shall make necessary endeavors so that New Model(s) for the LICENSEE are introduced in a phased and timely manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was made for limited license to use the know-how provided by Honda, as the proprietary and ownership rights in the same continued to remain vested with Honda at all times and, therefore, there was no absolute parting of know-how in favour of the appellant resulting in acquisition of any asset, (vi) no benefit of enduring nature in the capital field accrued to the appellant, even if the license to manufacture and sell products in India is assumed to be exclusive, except for grant of license to HMSI, (vii) the subject payment made did not cover consideration paid for setting up of the manufacturing facility in India e) Model fees accepted as revenue expenditure i) For A.Y. 1996-97, the Tribunal was pleased to allow model fee paid to Honda under section 37(1) of the Act as revenue expenditure on the ground that payment was only for right to use the technical know-how and there was no ownership of any intellectual property, which continued to remain with Honda.[Hero Honda Motors Ltd. v. JCIT: 95 TTJ (Del) 782]. It would be pertinent to point out that the aforesaid order of the Tribunal has attained finality inasmuch as the appeal filed by the Revenue against the said de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the demo payment has resulted into the enduring benefit as the appellant was entitled to use information even after the termination of agreement and there is it is degree of perpetuating India war agreements based on which the payments have been made. He therefore submitted that the disallowance made by the Ld. assessing officer of these payments as capital expenditure is correct. He reiterated the submission that the order of the coordinate bench has not reached the finality therefore the disallowance has been made. In view of this is submitted that the order of the coordinate bench may not be followed. 95) We have heard the rival contentions. We have gone through the orders in the appellant s case for the earlier assessment years as was pointed out by the Ld. Counsel. Both the parties admitted before us that there is no change in the facts and circumstances of the case as well as the agreement under which the payments have been made by the assessee. The Ld. departmental representative also could not point out any other judicial precedent on this issue of the higher forum. In this event we are duty bound to follow the order of the coordinate bench passed in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the business of manufacture and sale of two wheelers. During the relevant previous year, the turnover from sale of vehicles was ₹ 16,780 crores (approx.). b) The appellant, it is submitted, realizes funds from sale of vehicles on daily basis. However, the appellant makes payment to various vendors in four tranches/dates during a month. Accordingly, the appellant generates substantial surplus funds in the course of the aforesaid business activities, which remain idle in the bank account. In order to optimally utilize the spare funds, instead of keeping the same idle in the bank account, the appellant invested the same, primarily in various mutual funds/liquid schemes of mutual funds, and also portfolio management schemes. c) The investments were made by the appellant as part of prudent fund/cash management, in order to optimally utilize spare funds. Investments made in units of mutual funds were switched to realize best yields. d) The aforesaid investment activity does not constitute business of the company and investments are made, it is reiterated, to only optimize return on idle funds. e) It is submitted that gain arising from sale of an asset is taxable un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 336 ITR 287 (Bom.) (SLP dismissed by SC at 334 ITR 308 (st.)) ii. Jindal Photo Investment Ltd.: 334 ITR 308 (St.) (SC) iii. CIT vs M/s Devasan Investments Pvt. Ltd.[2014]: SLP(C) No. 30606 of 2014 (SC) iv. CIT v. Rohit Anand: 327 ITR 445 (Del.) v. CIT v Consolidated Finvest and Holding Ltd (2011) 337 ITR 264 (Delhi) vi. CIT v. Avinash Jain : 214 Taxman 260 (Del) vii. CIT v. PNB Finance Industries Ltd: 236 CTR 1 (Del) viii. CIT V. Ess Jay Enterprises (P) Limited: 173 Taxman 1 (Del.) ix. CIT v. Vinay Mittal: 208 Taxman 106 (Del.) (SLP Dismissed) x. CIT v. Suresh R. Shah: ITA No. 1974/2011 (Bom.)(HC) xi. CIT v Naishadh V. Vachharajani ITA No. 1042 of 2011 (Bom.) affirming the decision of Mumbai Tribunal in ITA No. 6429/Mum/2009 xii. Slocum Investment (P) Ltd. vs. DCIT: 106 ITD 1 (Del. Trib.) xiii. Gomti Credits (P) Limited vs. DCIT: 100 TTJ 1132 (Del). l) Reliance is also placed on the following decisions, wherein it has been consistently held that frequency or volume of transactions does not simpliciter characterize the income from sale of shares as business income: i. Holck Larsen v. CIT: 85 ITR 285 (SC) ii. J. M. Share Stock Brokers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mutual funds. The appellant, it is reiterated, is only interested in the return on funds invested and does not act as a dealer/trader, so as to be regarded as being engaged in business activity. q) Attention in this regard is invited to decision of Mumbai Bench of Tribunal in the case of ITO vs. Radha Birju Patel: 5382/Mum./2009, wherein it has been held that investments made in various shares through PMS scheme, with a view to earn optimum return on investment / wealth creation/maximization cannot be treated as income taxable under the head business income . r) Recently, the Delhi High Court in the case of Radials International v. CIT: 367 ITR 1 and the Karnataka High Court in the case of CIT v. Kapur Investments Pvt. Ltd.: 234 Taxman 149 has held likewise. s) To the same effect are the following decisions: i. DCIT v. M/s. Eterna Steel Investments Pvt. Ltd. : ITA No. 817 /Kol/2010 (Kol.) ii. ITO v. Veer Enterprises Ltd. : ITA No. 1448 of 2009 (Kol.) iii. ARATrading Investment Pvt. Ltd. vs DCIT (Pune)(ITAT) iv. KRA Holding Trading Pvt Ltd vs. DCIT (ITAT Pune): ITA Nos. 500 1320/PN/2008 434/PN/2009 (Pune) v. Devendra Motilal Kothari v. Dy. CIT: 132 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the same constitutes stock-in-trade and assess gains as business profits on grounds that there were substantial and frequent transactions and motive was to earn profit and holding period of such shares was very short. z) The aforesaid issue is squarely covered in favour of the appellant by the decision of the Delhi bench of the tribunal in the appellant s own case for the AY 2007-08 and 2008-09, wherein after considering the legal position and intention of the appellant company, the Tribunal came to the conclusion that income from sale of shares/mutual funds/PMS etc. would be taxable as capital gains, instead of business income brought to tax by the assessing officer. 98) Ld. departmental representative reiterated the same argument that the looking at the magnitude of the turnover of the investment activities allegedly shown by the assessee it constitutes business income and therefore the Ld. assessing officer and Ld. dispute resolution panel has rightly held that these income is chargeable to tax under the head business income and not under that capital gains as claimed by the appellant. 99) We have heard the rival contentions. We have gone through the order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Investments and not in accordance with Accounting Standard 2 which deals with valuation of inventories. 65.32. The assessee has been holding the securities/ shares as investments from year to year and consistently following the same method of accounting for the purpose of disclosure and valuation. This treatment by the assessee was accepted by the Revenue for the past years. 65.33. The assessee had earned income from both long term and short term capital gains which means the assessee has also held shares for a period of more than 12 months. Whether the investments are made out of borrowed funds 65.34. The investments were made from surplus funds of the assessee and there were no borrowings. The investments were made to optimally utilize the spare funds instead of keeping the same idle in the bank accounts. The investments were made in mutual funds (debt and liquid funds) and through portfolio management schemes/ IPOs. 65.35. The co-ordinate bench of the Delhi ITAT in the case of Narendra Gehlaut vs. JCIT [ITA No 1648/ Del/ 2010] held that despite borrowing, gains on shares assessable as Short term capital gains and not business profits. The decision is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is: (i) not a trader in stocks (ii) Intention of holding the shares as investment/ stock is manifest. (iii) Sales are effected by delivery. (iv) Department has itself in earlier years taxed such transactions under the head Capital Gains . 65.42. Considering these facts and applicable judicial precedents on the issue, we are of the considered opinion that the income in question can be taxed only under the head Capital Gains and not under the head business income. This ground of the assessee is allowed. 100) In addition to the aforesaid observations, the appellant in this year also has benefit of the recent Circular No.6 of 2016 dated 29.2.2016 issued by the CBDT, wherein with an idea to reduce litigation on this issue of classification of the head of income arising from sale of shares / mutual funds, etc., the CBDT has opined that gains arising from sale of such shares/securities held for a period of more than 12 months and shown as capital gains by the assessee should not be disputed by the assessing officer. Having regard to the aforesaid intent of the Circular where a consistent method has been followed by an assessee to treat the investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purposes of computation of capital gains. He also submitted that, in the event the Tribunal were to hold the aforesaid PMS expenses to be not an allowable business expenditure, the assessing officer may be directed to allow the same as deduction from income under the head capital gains , in accordance with law. However he further submitted that In all fairness the Tribunal in appellant s own case in for A.Y 2008-09 while holding the income from PMS as capital gains held the PMS expenses for administering the funds are not allowable business expenditure. However, the Tribunal, in the said order accepted the alternate contention of the appellant by directing the AO to allow reduction of PMS expenses from income under the head capital gains . 103) Ld. departmental representative relied upon the orders of the Ld. assessing officer and submitted that the PMS expenses cannot be granted as deduction even if the income of the assessee is computed under the head of the capital gains. 104) We have carefully considered the rival contentions. The revenue could not point out any other decision which can be controverted against the decision of the coordinate bench in the case of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of rule 8D of the rules after reducing suo motto disallowance of 16.46 Lacs made by the appellant in the return of income. On objection before the Ld. dispute resolution panel would directed the Ld. assessing officer to carry out similar exercise is was directed by the tribunal in earlier years however the Ld. assessing officer disallowed ₹ 1 45.62 lakhs in the final assessment order. Therefore the assessee is in appeal before us. 106) Ld. authorized representative submitted that As per section 14A(2), disallowance under that section as per Rule 8D can be made only if the assessing officer records satisfaction/finding as to the incorrectness in the method of disallowance followed by the appellant. [Refer: Maxopp Investment Ltd: 347 ITR 272 (Del.)]. In the absence of any satisfaction recorded in the assessment order, the disallowance as per Rule 8D needs to be deleted. In the present case, as submitted above, the appellant suo moto identified expenses, having relation with earning of exempt dividend income, viz., salary of employees engaged in treasury functions and proportionate PMS fees which were disallowed in the return of income. The company is engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, having nexus with main business function. Further, no direct nexus of interest expenditure with investments or earning of dividend income was established by the assessing officer, for which the initial burden was on the assessing officer. [Refer: CIT vs. Hero Cycles: 323 ITR 518 (P H) and Godrej Boyce Mfg. Co. Ltd. v. CIT: 328 ITR 81 (Bom.). He submitted that That apart, the appellant had substantial free reserves of ₹ 3760.81 crores at the beginning of the relevant previous year and had also generated substantial surplus/interest free funds of ₹ 2686.64 crores during the year, which were sufficient to make net investment of ₹ 527.63 crores during the year. In such circumstances, it is to be presumed that only interest free funds have been utilized for making investments during the year. He relied upon the following decisions: i. East India Pharmaceuticals Works Ltd: v. CIT: 224 ITR 627 (SC), ii. Woolcombers of India Ltd. v. CIT: 134 ITR 219 (Cal) iii. CIT vs. Hotel Savera: 239 ITR 795 (Mad) iv. CIT v Radico Khitan Ltd : 274 ITR 354 (All) v. CIT v Dhampur Sugar Mills Ltd : 274 ITR 370 (All) vi. CIT v. United Collieries Ltd. : 49 Taxman 227 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided afresh as per law, having regard to the satisfaction to be recorded qua correctness of the suo-moto disallowance made by the appellant in the return of income and to adjudicate afresh following the decisions of the Delhi High Court in the case of Maxopp Investment Ltd. (supra). He stated that The AO, in the set aside proceedings for assessment year 2007-08, vide order dated 30.10.2014 passed under section 254/143(3) of the Act [at Pg. 553-558 of PB Vol. 1]did not make any disallowance in respect of interest expenses since there was no nexus between the income and such expenditure, The AO however, made disallowance of administrative expenses under section 14A in proportion the total profit before tax bears to tax free income, which has been challenged in appeal before the CIT(A) and is pending disposal. 107) Ld. departmental representative relied upon the order of the lower authorities and submitted that disallowance under section 14 A is mandatory and only the disallowance can be made applying rule 8D. He submitted that the assessee does not have any option to say that particular expenditure is not incurred when the application of rule 8D is been made mandatory w.e.f. as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be no nexus of interest-bearing borrowed funds with such investments. The appellant is having substantial free reserves of ₹ 3760.81 crores at the beginning of the relevant year and has generated surplus interest free funds of ₹ 268.64 crores during the year. The assessing officer, too, in the set-aside proceedings for the AY 2007-08 had accepted the aforesaid cash flow position and deleted the disallowance of interest expenditure. In view of this we reverse the finding of the Ld. assessing officer about disallowance of ₹ 145.62 lakhs under section 14 A of the income tax act applying the rule 8D of the income tax rules 1962. He in the result ground No. 22 of the appeal of the assessee is allowed. 109) The ground No. 23 of the appeal of the assessee is against the action of the Ld. assessing officer in enhancing the value of closing inventory and thereby income of the assessee by ₹ 1 565000/ in respect of proportionate amount of depreciation on model fees incurred during the year and debited to the profit and loss account alleging the same to be directly related to the manufacturing of is goods and therefore attributable to the closing stock of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of stock consistently and regularly followed. It was the main contention that The appellant has been following the same system of accounting and valuation of inventory for the past several years, which has always been accepted by the department. In the absence of any change in the method of accounting and/or the books of accounts maintained by the appellant, during the relevant previous year, as compared to earlier years, the method of accounting/valuation followed by the assessee-company cannot be disturbed as has been held in following cases: UCO Bank v. CIT: 240 ITR 355 (SC) CIT v. Singaribai: 13 ITR 224 (All.)(FB) Juggilal v. CIT: 101 ITR 40 (All.) CIT v. TISCO: 106 IR 363 (Bom.) CIT v. Sankarapandia: 130 ITR 541 (Mad.) Kone Elevator India (P.) Ltd v ACIT: 355 ITR 139 (Madras) Balapur Mandali v. CIT: 135 ITR 91 (Guj.) He further submitted that Further considering that the appellant is a high tax paying company, subjected to uniform rate of tax, no adjustment is even otherwise called for in view of the following: (i) If the closing stock of the year is to be varied, similar adjustments would need to be made to the opening stock, too. (Refer: K.G. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then the said corresponding amount/adjustment would need to be made in the opening stock of the succeeding year and in a broader sense, such kind of adjustment/addition would be revenue neutral. On specific query from the Bench, the DR submitted that the treatment given by the revenue authorities on the issue in the preceding year is not known to him and in this situation, we hold that the / department has not disputed the claim of the assessee in the preceding years. 220. It is well accepted legal proposition that when the department has taken a particular stand on a particular issue, then the department cannot take a deviated stand on the issue in the succeeding year without ant sound, justifiable and cogent reason. The department has not disputed the fact that impugned expenditure was incurred prior to commencement of production of new model and the same was neither incurred during the manufacturing of new model nor model fee expenditure is directly related to manufacture of new models. In this factual aspect and circumstances, we hold that the assessee incurred expenditure on new model fees prior to commencement of production of new models of two wheelers, even otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e regarded as being incurred for the purpose of business under section 37(1) of the Act. Reliance, in this regard, is placed on the following decisions, of the Supreme Court, wherein it has been held that the expression expenditure laid out or expended wholly and exclusively for the purpose of such business used in section 37(1) includes expenditure voluntarily incurred out of commercial expediency, in order to indirectly facilitate the business; the expression commercial expediency is an expression of wide import and includes expenditure a prudent man may incur for the purpose of the business; the reasonableness whereof has to be seen from the point of view of businessman and not that of the Revenue: i. Hero Cycles (P) Ltd. v. CIT: 281 CTR 481 ii. S.A. Builder v. CIT: 288 ITR 1 iii. CIT vs. Walchand Co.: 65 ITR 381 iv. J.K. Woollen Manufacturers vs. CIT: 72 ITR 612 v. Aluminium Corporation of India Ltd. vs. CIT: 86 ITR 11 vi. CIT vs. PanipatWoollen General Mills Co. Ltd.: 103 ITR 666 vii. J.J. Enterprises v. CIT: 254 ITR 216 viii. CIT vs. Dhanrajgirji Raja Narasingirji : 91 ITR 544 Further, reliance is placed on the following decisions, wherein wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration. Reliance, in this regard, is placed on the following decisions: CIT v. Excel Industries: 358 ITR 295 (SC) RadhasoamiSatsang v. CIT: 193 ITR 321 (SC) CIT v. Rajasthan Breweries: SLP (C) 1379/2014 (SC) CIT v. Realest Builders and Services: 307 ITR 202 (SC) CIT V. Neo Polypack (P) Ltd: 245 ITR 492 (Del.) CIT V. Dalmia Promoters Developers (P) Ltd: 281 ITR 346 (Del.) DITv. Escorts Cardiac Diseases Hospital: 300 ITR 75 (Del.) CIT V. A.K.J. Security Printers: 264 ITR 276 (Del) DIT(E) vs. Apparel Export Promotion Council: 244 ITR 734 (Del.) Vesta Investment and Trading CO. (P) Limited v. CIT: 70 ITD 200 (Chd.) For the aforesaid cumulative reasons, it is submitted that the aforesaid expenditure was allowable deduction under section 37(1) of the Act. The disallowance made by the assessing officer is not based on correct appreciation of facts and position in law and, therefore, the same calls for being deleted. 115) Ld. departmental representative relied upon the order of the lower authorities and submitted that expenditure incurred by the assessee on the advertisement on the death anniversary of founder of the assessee company is a perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also we are not inclined to upheld the disallowance. In that view of the matter, we do not agree with the findings of the assessing officer in disallowing the expenditure of ₹ 3 465552/ incurred for giving advertisements in newspaper to commemorate Mr. Munjal s death anniversary. In the result ground No. 24 of the appeal of the assessee is allowed. 117) Ground No. 25 is against the disallowance of ₹ 29500 0000/- on account of commission paid to the managing director Mr. Munjal under section 36 (1) (ii) of the act on the ground that the commission was paid in view of distribution of dividends to him was also shareholder of the assessee company. The assessee was further aggrieved against the observation of the Ld. assessing officer that the appellant failed to justify the commercial expediency for making the aforesaid payment of commission to the managing director and on his failure to appreciate that the commission vote paid to him in view of services rendered by him and not in view of distribution of profits. The brief facts of the expenses incurred by the appellant are that Shri. Pawan Munjal was appointed as Managing Director CEO of the appellant company in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits. He further mentioned that the commission was paid to Managing Director, in addition to salary and other benefits, in accordance with the terms of employment, in lieu of services rendered and not in lieu of distribution of dividend entitled to shareholders. It is not in doubt that Mr. Munjal is actively engaged in supervising the business operation of the applicant company, in his capacity of Managing Director, which has not even been doubted by the assessing officer; the other part his remuneration package, viz., salary and other benefits paid to him have been accepted as an allowable revenue expenditure to have been incurred for the purpose of business in lieu of service rendered by him to the applicant company. His main argument was that remuneration to executive directors is recommended by the Remuneration Committee and duly approved by the Board of Directors, comprising of independent directors, after considering various factors, in which promoter directors do not participate. Therefore, he submitted that, when service rendered by Mr. Munjal and other part of the remuneration package by way of salary and other benefits stands accepted to have been incurred for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4/Del/2009 (Del) [affirmed by Del HC in 358 ITR 179] - DCIT v. CTI Shipbrokers India P. Ltd: ITA No. 84(Del) 2011 - CIT v Convertech Equipments (P.) Ltd: 217 Taxman 115 (Delhi) - Arihant am Infraprojects (P.) Ltd v JCIT: 64 taxmann.com 404 (Pune - Trib.) With respect to the observation of the assessing officer that the payment of commission reduced the corpus available for distribution as dividend with the intention of avoiding dividend distribution tax by paying commission to the Director, it is submitted is based on surmises and conjectures, without appreciating the facts and financial position of the applicant company. The applicant, it is submitted, during the year under consideration, even after declaration of dividend @5500 %, and payment of commission had sufficient profits. Thus, commission cannot be alleged to have been paid to reduce surplus and reduce distribution of dividend. The applicant, it would be appreciated, is in fact one of the highest dividend paying company in India. The history of payment of dividend is as follows: Financial Year Percentage of Dividend 2005-06 1000% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e terms of employment entered in earlier years; (ii) The commission was paid in lieu of services rendered by Shri Munjal in the capacity of Managing director; (iii) Dividend was paid to Shri Munjal in addition to commission, in proportion to his shareholding in the appellant company in line with dividend distributed to the shareholders; (iv) There is no whisper or any evidence being brought on record by the assessing officer in the assessment order, which suggests that profits were distributable to Shri Munjal as a shareholder of 0.02% shares in appellant company in lieu of which commission was paid. (v) The commission paid to Managing Director in earlier years, in accordance with the terms of employment, have been accepted as allowable business deduction in the earlier years. Without there being any change in facts during the impugned year, the commission paid could not have been disallowed on the grounds of consistency as well. (vi) In the end is submitted that issue is squarely covered in favour of appellant by the order of Delhi Bench of the Tribunal in the case of group concern of the appellant company, viz. Hero Honda Finlease Ltd. v. Addl. CIT: ITA No 4329/Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dividend. In other words, the aforesaid section provides for disallowance of expenditure incurred as bonus or commission, which otherwise constituted share of profit or dividend of the recipient. In the present case, as we have observed (supra) and also explained by the appellant, the commission constitutes part of Mr. Munjal s remuneration package, the computation whereof is simply based on the percentage of net profit. The computation of remuneration with reference to profit does not, ipso facto, classify the same as payment of profit or dividend, covered within the exception provided in section 36(1)(ii) of the Act. In the case of a company, recipient is entitled to dividend with reference to percentage of his/her shareholding in the company. In the present case, Mr. Munjal held 0.02% of shares in the appellant company, for which separate dividend was received as per the total amount of dividend declared by the company to its all shareholders. The provisions of section 36 provides that 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- ii) any sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. The issue has been considered by this Court in AMD Metplast (P.) Ltd v. Dy. CIT [2012] 341 ITR 563 / 20 taxmann.com 647 (Delhi) in the light of the judgment of the Bombay High Court in Loyal Motor Service Co. Ltd v . CIT [1946] 14 ITR 647 . It was observed that the judgment of the Bombay High Court (supra) does not assist the revenue and that so long as the bonus or commission is paid to the directors for services rendered and as part of their terms of employment it has to be allowed and sec.36(1)(ii) does not apply. 21. Having regard to the above legal position and the factual findings recorded by the Tribunal, we are unable to say that the Tribunal erred in holding that the bonus payment was allowable u/s.36(1)(ii) of the Act. The substantial questions of law are answered in the affirmative, against the revenue and in favour of the assessee for both the years. We also agree with the decision taken by the Tribunal in the case of appellant group company, viz., Hero Honda Finlease Ltd. Vs. Addl. CIT : ITA No.4329/Del/2010 relating to AY 2005-06, wherein the similar disallowance was deleted. In view of this we are of the opinion that in making payment of commission to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, Haryana the appellant is set up a power plant within the factory premises to meet the requirement of the power of the manufacturing unit of the assessee. On this unit the assessee claimed deduction under section 80 IA of the income tax act on the profit derived by that unit. For the purpose of deriving the profit the appellant adopted the transfer price of power for captive consumption from power generating unit to the manufacturing unit as cost of generation of the power along with a markup of 15%. According to the working of the assessee the cost of generating the power was ₹ 7.61 per unit and after reading markup thereon it was 8.75 per unit. Based on this the assessee derived the profit of ₹ 8 0 7.76 Lacs from that industrial undertaking which is eligible for deduction. However the Ld. assessing officer rejected the market price adopted by the assessee and substituted same by the rate of state Electricity Board taking same at ₹ 4.39 per unit and the fair market price because the assessee was also getting power from state Electricity Board that rate. The Ld. that assessing officer proposed the amount disallowance in the computation of total income while fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit. Accordingly, the rate of power at which SEB supplied power cannot be considered as the market rate for adopting inter-unit transfer price thereof and computing deduction under section 80-IA of the Act. f) Attention in this regard is invited to the decision of the Mumbai bench of the Tribunal in the case of Reliance Infrastructure Ltd. v. Addl. CIT: ITA No. 4631/Mum./2009, wherein it has been held that the rate of supply of power by the State Electricity Board will not be determinative of market price where, other benchmarks of actual sale of power were available to an assessee. g) Kind attention is further invited to the decision of the Jaipur bench of the Tribunal in the case of Shree Cement v. Addl. CIT: 160 TTJ 529, wherein the Tribunal while adjudicating the issue regarding allowability of deduction under section 80IA of the Act while computing the profits and gains derived by captive power undertaking, held as under: 13. In the light of the aforesaid, we hold that:- (a) the value adopted by the assessee be it value as per independent third party trading transactions or as per power exchange (IEX etc.) or any other independent transaction (for the relevant per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... electricity by Maruti was not reflective of market price, which needed to be adopted as the rate of supply of power by SEB. j) In this regard, it is respectfully submitted that there is no evidence on record, nor was it the admission or submission of the appellant, that Maruti was supplying power to associated enterprises/ related parties and not to unrelated parties in general. The only submission of the appellant was that Maruti was supplying power to business associates, who were not related to Maruti, much less in terms of section 40A(2) of the Act, and there was no occasion for Maruti to charge higher price, or for such business associates to pay higher price to Maruti in consideration of supply of power. k) Further, the appellant had filed miscellaneous application against the aforesaid order passed by the Tribunal in the relevant assessment year pointing out that the assumption by the Tribunal that Maruti supplied power to related/ associated enterprises, which have been defined under section 92CA of the Act to mean companies having common control/ directions, etc., had no factual foundation. Further, no opportunity was allowed to the appellant to lead evidence to reb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturers and laborers will tend to respond by increasing the price they require, thus setting a higher market rate. Had power been provided by HSEB in abundant quantity to meet the needs of consumers, especially manufacturing entities, there was no occasion for any other player to supply the power at higher rates. In such a situation, the free market conditions would have forced a private player to supply the power at the same rate at which power is supplied by HSEB or at a lower rate. But since the actual facts are reverse inasmuch as HSEB is not able to meet the power requirement of the consumers, private entities are forced to generate power for self-consumption, as in the case of appellant, or supply in the market like Maruti Udyog at a higher price. The consumers in the free market conditions are, therefore, willing to pay higher price to meet their power consumption needs. In such a situation, under an arm s length condition, if the appellant, too, like Maruti was to supply power to third party located in its vicinity, the appellant could have also charged price higher than that charged by HSEB. The aforesaid discussion leads to the conclusion that the price charged by HSEB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tempt is clearly beyond the explicit provisions of s. 80-IA(8) of the Act. Underlying principles forming the basis of our findings given hereinbefore in this order are also supported by the decision of Special Bench of Hon'ble Bangalore Tribunal in Aztec Software Technology Services Ltd. v. Asstt. CIT [2007] 107 ITD 141/15 SOT 49/162 Taxman 119 (Bang.) (SB) as well as Mumbai Tribunal decision in the case of Asstt. CIT v. Maersk Global Service Center (India)(P.) Ltd. [2011] 133 ITD 543/16 taxmann.com 47 (Mum.) wherein while interpreting the transfer pricing provisions, the Courts have held that it is the assessee who is the best judge to know the transactions undertaken and thus finding out the comparable cases from the vast database available in the public domain. Once the assessee has adopted the same, the AO has to examine whether the same is market price or not. AO has the power to adopt the market price only when the price adopted by the assessee does not correspond to market value. In the present case, we find that the assessee has adopted a rate at which actual transactions have been undertaken by unrelated entities. The volumes of transaction as relied upon are also su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;market value'. 14. Accordingly, we delete the disallowance as made by the AO in order under s. 143(3) on account of deduction under s. 80-IA of the Act and hence the grounds 1 and 2 are accordingly decided in favour of the assessee. In the present case also there are three rates,(i) rates at which power is purchased from state electricity board, ( ii) the cost of production of the power by the legible unit of the assessee and mark up thereon ( iii) the rates at which power is supplied by Independent party to its ancillary unit . Therefore there are multiple basket of the market rates. As held in above decision that where multiple options for the price of a product are available, then the option which is most favorable to assesse needs to be adopted for the purposes of determining inter-unit transfer price u/s 80 IA(8) of the Act. Further it is not the case of the revenue that the power cost incurred by the assessee is inflated or incorrect. In that view of the matter, in the present case, considering that three different prices for supply of power are available in the market, the method adopted by the appellant to compute inter-unit transfer price by imputing a reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of trade debtors in foreign currency. The aforesaid issue that reinstatement of assets and liabilities on revenue account in foreign currency is allowable business loss under the mercantile system of accounting has been settled by the Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd.: 312 ITR 254. The relevant observations of the Supreme Court with respect to the above are as under: 13. As stated above, one of the main arguments advanced by the learned Addl. Solicitor General on behalf of the Department before us was that the word expenditure in s. 37(1) connotes what is paid out and that which has gone irretrievably. In this connection, heavy reliance was placed on the judgment of this Court in the case of Indian Molasses Company (supra). Relying on the said judgment, it was sought to be argued that the increase in liability at any point of time prior to the date of payment cannot be said to have gone irretrievably as it can always come back. According to the learned counsel, in the case of increase in liability due to foreign exchange fluctuations, if there is a revaluation of the rupee vis-a-vis foreign exchange at or prior to the point of payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly at a lower rate. The difference of ₹ 4 (50-46) per US $ is to be shown as an exchange loss in the P L account and is not to be adjusted against the cost of raw materials. 20. In the case of Sutlej Cotton Mills Ltd. vs. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1 (SC) this Court has observed as under : The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be a trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as a part of circulating capital embarked in the business. But, if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature. (Emphasis, italicized in print, supplied) 21. In conclusion, we may state that in order to find out if an expenditure is deductible the following have to be taken into account (i) whether the system of accounting followed by the assessee is mercantile system, which brings into deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered service in the nature of professional or technical, covered under section 194J of the Act. Accordingly, AO made disallowance of ₹ 901.80 lacs, being the amount attributable to alleged short deduction of tax at source under section 194J as against section 194C applied by appellant, in respect of payments made to the said party by invoking provisions of section 40(a)(ia) of the Act. Therefore, is assessee is in appeal before us. 130) Ld. authorized representative submitted as under:- a) The appellant entered into a composite contract for organizing an event, which involved arrangement for booking of hotel, arranging transfer of guests from the airport to hotel, breakfast-lunch in hotel, engaging various artists, staging green rooms, light and sound for theatre projection system, taking venue on rent, etc. b) The said activities, it would be appreciated, did not involve any specialized skill / intellect on the part of the vendor, but were predominantly physical involving organizing / arranging of facilities in order to hold an event. c) The aforesaid activities, therefore, fell within the meaning of contract for carrying out work under section 194C and were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not rendered any advisory services to the appellant and has only executed the various tasks entrusted to the vendor under the composite contract. Therefore, the impugned payment does not fall within the meaning of consultancy services under section 194J read with Explanation 2 to section 9(1)(vii) of the Act. Re: Technical: j) It would be appreciated that the said word encompasses payment made for rendering services, which involve use of specialized knowledge or skill by the service provider, as opposed to rendering of service, which is predominantly physical and does not involve use of knowledge / specialized skill. k) It is only where the service provided involved specialized knowledge or skill, the same would fall within the meaning of technical service under section 194J of the Act, as has been held in the following decisions: a) SRF Finance Ltd. v. CBDT: 211 ITR 861 (Del) b) Skycell Communications Ltd. and Anr. v. DCIT: 251 ITR 53 (Mad) c) Yashraj Films v. ITO: 140 ITD 625 (Mum) d) CIT v. Bharti Cellular Ltd.: 319 ITR 139 (Del. HC) e) Dr. Hutarew Partner (India) P. Ltd. v. ITO: 25 SOT 347 (Del. Trib.) f) Credit Lyonnais v. ADIT: 144 ITD 644 (Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) DCIT v. Chandabhoy Jassobhoy: ITA No.20/Mum/2010 (Mum.) (iii) Sunbell Alloys Company of India Ltd [TS-642-ITAT-2012(Mum)] (iv) M/s. Saralee Household Bodycare India Pvt. Ltd. (Mum.) (v) UE Trade Corpn. (India) Ltd. v. DCIT: 28 taxmann.com 77 (Del.) (vi) Highlight Pictures India Ltd. v. ACIT: 49 taxmann.com 187 (Mum.) (vii) ITO v. Premier Medical Supplies and Stores: 25 taxmann.com 171 (Kol.) t) The aforesaid issue is also squarely covered in favour of the appellant by the decision of the Delhi bench of the Tribunal in the appellant s own case for the assessment year 2007-08 and 2008-09, wherein disallowances made in that year for alleged short deduction of tax at source were deleted by the Tribunal, by following the decision of Calcutta High Court in the case of S.K. Tekriwal (supra). u) Further, without prejudice, the appellant was under the bonafide belief that tax was required to be deducted under section 194C for reasons discussed in detail above, accordingly, having regard to the decision of Naresh Kumar and Ors (supra) and Kotak Securities (supra) v) Without prejudice to the above, it is submitted, that there was no outstanding liability, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnical services , which borrows the meaning from Explanation to section 9(1)(vii) of the Act has been explained by Courts in several decisions. The meaning of words managerial, technical and consultancy used in the aforesaid section has been explained by the Hon ble Delhi High Court in the case of DIT v. Pan Alfa Auto Elekrik Ltd.: 227 Taxman 351 in the following words: 14. The expressions managerial, technical and consultancy services have not been defined either under the Act or under the General Clauses Act, 1897. The said terms have to be read together with the word 'services' to understand and appreciate their purport and meaning. We have to examine the general or common usage of these words or expressions, how they are interpreted and understood by the persons engaged in business and by the common man who is aware and understands the said terms. The expression management services was elucidated upon by this Court in J.K. (Bombay) Ltd. v. CBDT, [1979] 118 ITR 312/1 Taxman 537 in the following terms:- '6. It may be asked whether management is not a technical service. According to an Article on Management Sciences , in 14 Encyclopaedia Britannica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. Thus, managerial service essentially involves controlling, directing or administering the business. 18. It would be incongruous to hold that the non-resident was providing technical services. To quote from Skycell Communications Ltd. v. Dy CIT [2001] 251 ITR 53/119 Taxman 496 (Mad), the word 'technical' has been interpreted in the following manner:- 'Thus while stating that technical service would include managerial and consultancy service, the Legislature has not set out with precision as to what would constitute technical service to render it technical service . The meaning of the word technical as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques: technical terms (especially of a book or article) requiring special knowledge to be understood: a technical report. 2. of involving, or concerned with applied and industrial sciences: an important technical achievement. 3. resulting from mechanical failure: a technical fault. 4. according to a strict application or interpretation of the law or the rules: the arrest was a technical violation of the treaty. Having regard to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that special skill or knowledge is required when the service is provided to the customer. For example, special skill or knowledge will be required to develop software and data used in a computer game that would subsequently be used in carrying on the business of allowing consumers to play this game on the internet for a fee. Similarly, special skill or knowledge is used to create a troubleshooting database that customers will pay to access over the Internet. In these examples, however, the relevant special skill or knowledge is not used when providing the service for which the fee is paid, i.e. allowing the consumer to play the computer game or consult the troubleshooting database. 42. Many categories of e-commerce transactions similarly involve the provision of the use of, or access to, data and software (see, for example, categories 7, 8, 9, 11, 13, 15, 16, 20 and 21 in annex 2). The service of making such data and software, or functionality of that data or software, available for a fee is not, however, a service of a technical nature. The fact that the development of the necessary data and software might itself require substantial technical skills is irrelevant as the servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing him to do so. It was recognized that this type of services overlapped the categories of technical and managerial services to the extent that the latter types of services could well be provided by a consultant.' We broadly agree with the aforesaid observations. However, in the case of selling agents, we add a note of caution that taxability would depend upon the nature of the character of services rendered and in a given factual matrix, the services rendered may possibly fall in the category of consultancy services. Paragraphs 41 and 42 do not emanate for consideration in the present case, and effect thereof can be examined in an appropriate case [However, see CIT v. Estel Communication (P.) Ltd. [2009] 318 ITR 185 (Del) and Skycell Communications Ltd. (supra)]. Further Hon ble Delhi tribunal has also explained the word consultant in the same decision as under as under:- 21. The word consultant refers to a person, who is consulted and who advises or from whom information is sought. In Black s Law Dictionary, Eighth Edition, the word consultation has been defined as an act of asking the advice or opinion of someone (such as a lawyer). It may mean a mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal. Certainly, `work' also involves intellectual exercise to some extent. Even a gardener has to bestow sufficient care in doing his job; so is the case with a mason, carpenter or a builder. But the physical (tangible) aspect is more dominant than the intellectual aspect. In contrast, in the case of rendering any kind of `service', intellectual aspect plays the dominant role. The vocation of a lawyer, doctor, architect or a Chartered Accountant (there are other similar vocations also) involves deep intellectual exercise and physical skill involved in their vocational activities is minimal. A dancer's performance no doubt involves physical movement; but all the movements are projections of the talent which is natural, or acquired by training. A surgery certainly involves physically visible and tangible work; but, inherently, it is the mental skill developed by the intellectual exercise that permeates the operation. Word work may have different and wider meanings. But, here, we have to find out the real meaning of the word in the context of its setting in section 194C. The meaning attributable should fit into the clause for carrying out any work . An architect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad started commercial production at new manufacturing facility at Plot No. 3, Sector 10, Integrated Industrial Estate, Ranipur, SIDCUL, Haridwar (UTTARAKHAND) at Khasra Number 545 Village Salempur Mehdood, Haridwar on 07.04.2008. The said plot was notified by Notification No.177 dated 28.06.2004 as industrial Estate under section 80IC (2)(a)(ii).The appellant for the purpose of establishing a factory/plant, as per the Factory Act, 1948, was required to obtain permission/license from the appropriate authority, in accordance with local State Government Factory Rules, i.e., Uttar Pradesh Factory Rules, 1950, which were applicable in the present case. No separate license was required to carry on the business of manufacture of two wheelers as also to claim deduction for such activity under section 80IC of the Act. The only permission required was the aforesaid license to work as factory, which was submitted along with audit report in Form 10CCB read with Rule 18BBB(4) of the Rules. In view of the aforesaid, the appellant claimed deduction of ₹ 997.25 crore under section 80IC of the Act during the relevant assessment year. However, the Ld. assessing officer disallowed the entire de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centage, nor does the section mandate that the eligible business must, in order to be entitled to deduction there under, satisfy the conditions stipulated in the State Government order/communication. b) The provisions of section 80IC are self-contained and deduction under that section has to be allowed if the conditions stipulated under that section are satisfied by an assessee. No further conditions, which are extraneous to the said section, can be imposed or satisfaction of such extraneous conditions be considered as a condition precedent for claiming deduction there under. c) In other words, the conditions in the industrial policy cannot be read into the Statute, viz., section 80IC of the Act, when the same have not been incorporated either explicitly or implicitly therein. d) It is submitted that violation of conditions contained in the State industrial policy, if any, can be considered as a default under that policy, which may lead to withdrawal of benefits, if any, granted by the State, but the said violation, not being a pre-requisite condition for claiming tax benefit under section 80IC, would not jeopardize the claim under that section. e) It is reiterated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les or things specified in Schedule XIII) and such undertaking is located in the notified area of the specified State. g) For purpose of claiming deduction, no separate license from the Central/State Government or any other appropriate authority is required to be obtained by an appellant. If the undertaking is located in the specified area and is engaged in manufacture of specified article or things, such undertaking shall be eligible for deduction under section 80IC of the Act. h) The provisions of Rule 18BBB do not impose any additional condition(s) for claim of deduction under section 80IC, nor could any such condition have been imposed through delegated legislation, viz., Rule 18BBB in derogation of the said section. The said Rule only provides that if an appellant is required to obtain any approval/license to do the eligible business, copy of same must be attached with the audit report. It does not tantamount to imposing any condition precedent to the effect that deduction under section 80IC would be admissible only if such approval is obtained, even if such approval is otherwise not required in law. i) For establishing a factory, the assessee, as per the Factory Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing officer, without prejudice to the present action of denying the entire claim of deduction under the said section, made partial disallowances out of the total claim for one reason or the other. The said action substantiates that the entire detail/information for computing / verifying the amount of deduction was available with the assessing officer, leading to tinkering with the amount of deduction in the later part of the assessment order, challenged by the appellant in the succeeding grounds of appeal . o) For the aforesaid cumulative reasons, it is respectfully submitted that the present ground of appeal needs to be allowed and the disallowance of the total claim of deduction under section 80IC for the aforesaid reason(s) calls for being deleted. 136) We have heard the rival contentions. The case of the assessing officer was that the appellant is not eligible for claiming deduction u/s 80IC since it did not satisfy the following conditions: a) The appellant failed to comply with Rule 18BBB of the Rules inasmuch as the appellant did not obtain any approval for carrying on the business of manufacturing two-wheelers in the State of Uttaranchal; b) The appellant fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r not. The aforesaid findings of the DRP have not been challenged by the assessing officer in appeal before us. Such findings have, thus, become final, which could not have been overridden by the assessing officer in the assessment order. Accordingly, for the aforesaid additional reason also, we hold that deduction u/s 80IC cannot be denied for alleged failure to comply with the aforesaid three conditions specified in the assessment order. As regards compliance of conditions precedent for claiming deduction u/s 80IC, we note that the appellant during the course of set-aside proceedings had point-wise given entire details /information as to how it satisfied each condition precedent for claiming deduction under said section. The claim of deduction of the appellant is also duly supported with the audit report in Form 10CCB issued by the auditors, answering each question in the format and how the appellant satisfied all such conditions. In the final assessment order, the assessing officer has not pointed out violation of any such condition precedent. We agree with the submissions of the Ld. Counsel that the various errors (assuming without admitting) in submission of complete detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial cost. Freight charges on transfer of the aforesaid items were always booked at the receiving unit. The Ld. that AO disallowed deduction, to the extent of ₹ 6,25,55,736, by applying the provisions of section 80IA(8) read with section 80IC(7) of the Act and held that for the purpose of computing deduction under the latter section, inter-unit transfer of goods should have been recorded at market price, instead of cost price as carried out by the appellant. Accordingly, markup of 12.48%,being the net profit rate of Gurgaon Unit, was attributed on the entire cost of goods aggregating to ₹ 50.12 crores, procured by the eligible unit at Haridwar from other unit(s), which mark-up, amounting to ₹ 6,25,55,736, was reduced from the profit of the eligible unit. 138) Before us, the Ld. authorized representative submitted that:- i) The purchase of components by non-eligible units at Gurgaon or Dharuhera from third parties and thereafter transfer of same at the same purchase price to the eligible unit at Haridwar did not involve any value addition in such components as was carried out by the non-eligible units. ii) The non-eligible units in the aforesaid transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puting the profits of the eligible business. ix) Thus, in order to determine the market price of any goods or services, open market conditions must exist, i.e., there is willingness on the part of the buyer to purchase and the seller to sell the goods. In such a situation, the price determined by the market forces of demand and supply is the market price of such goods. x) In light of the meaning of market price discussed above, there was no enhancement in the price of such semi-finished components, which a willing buyer would have agreed to pay the seller/non-eligible unit, nor the same has been pointed out by the assessing officer. xi) It was only that the non-eligible units, before transfer of components to the eligible unit, carried out certain processing through incurring of labour charges, which the eligible unit could have also done at its plant, which did not result in enhancement of market price of such goods, in as much as, no buyer would have been willing to pay more price than the actual cost for such semi-finished components. xii) Without prejudice to the above, the AO could have only added labour charges incurred by the non-eligible units to the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid transfer only involves additional freight cost, which as stated has been borne by the eligible unit. Further, the provisions of section 80IA(8) as discussed in ground of appeal no. 26 (supra) provides for inter unit transfer at market price. The market price of the components procured by the non-eligible units from third parties/independent vendors do not undergo any change at the time of further transfer by the non-eligible unit to the eligible unit. In other words, the market price of such components at which the same was procured by non-eligible units remains constant. Accordingly, even by applying the provisions of section 80IA(8), in our opinion, there can be no substitution of the price at which goods are debited by the eligible unit in its independent books of account. Similarly, with respect to components having value of ₹ 6.34 crores, which were transferred by the non-eligible unit to the eligible unit at Haridwar after nominal processing, too, in our opinion, does not result in enhancement of any market price of such goods; in other words, in a free market condition such goods would have also been sold at the same price at which they have been transferred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aordinary profits at Haridwar unit, which ought to be disallowed as per the provisions of section 80IA(10) read with section 80IC(7) of the Act. Therefore the assessing officer made disallowance of ₹ 362,93,25,945 on account of the aforesaid alleged extraordinary profits. On objection filed before the Ld. Dispute resolution panel the opinion of the assessing officer was confirmed and therefore assessee is in appeal before us. 142) Ld. authorized representative submitted before us that a) This final price charged by the appellant from dealers/customers with respect to units sold from Haridwar and other units is the same. The only variance is in basic sale price on account of exemption from excise duty available to the unit at Haridwar. b) In case of non-eligible unit(s), since excise duty was charged from customers, basic price charged from customers was exclusive of excise duty, whereas in case of eligible units owing to exemption from excise duty, basic price was higher on account of element of excise duty. c) The aforesaid can be understood with the help of the following illustration: Non-eligible unit Eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price. h) That apart, and without prejudice to the above, the action of the assessing officer in applying provisions of section 80IA(10) is not correct as the conditions precedent for applying the aforesaid provision is that (a) eligible business must have entered into a transaction with a person, who is closely connected with the appellant, and (b) the transaction between them is so arranged, that the same produces extraordinary profits to the eligible business. i) In the present case, even assuming without admitting that higher price has been charged at the Haridwar unit, the aforesaid conditions precedent are not satisfied, in as much as: i) the alleged higher price was charged from customers / dealers, who are independent unrelated parties and are not connected, much less closely connected, to the appellant in any manner, and ii) the business cannot be said to be arranged in collusion with the customers, resulting in earning of alleged extraordinary profits to the eligible business. In fact, it would be totally unrealistic to assume that unrelated customers/dealers will collide with the appellant to pay higher price so as to allow earning of higher profits to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the Ld. assessing officer is correctly adjusted the higher profit shown by the assessee. 144) We have heard the rival contentions. At the outset, we agree with the submissions of the appellant and reject the contentions of the assessing officer that higher price was charged for vehicles sold from eligible unit vis-a-vis non-eligible unit. The appellant in this connection also produced sales invoices of vehicles of same models removed from eligible unit as also non-eligible unit. The final price charged from the customer, as it would have been ordinarily expected, was same in both the cases. The aforesaid factual position was expected, since there is no reason behind the customer to pay higher price for purchasing same model of vehicle from the eligible unit at Haridwar, vis-a-vis, price to be paid for purchase from non-eligible unit. We agree with the contentions of the appellant that the basic sale price before charging excise duty in case of eligible unit was higher than the basic price of non-eligible unit on account of exemption from excise duty given to the unit located at Haridwar. In view of the same, there was basic fallacy in the entire case made by the assessing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses like administrative, marketing, etc. for all its manufacturing units. The Head Office in such a situation, in our view, is not rendering any separate services to the manufacturing/eligible unit but is a cost centre incurring expenses for and on behalf of all such units. The only rational approach in such a kind of situation is to apportion the common expenses incurred by the head office to various profit making units on a scientific and rational basis. Considering that such expenses are incurred by head office for and on behalf of the profit making units, no profit is liable to be attributed to the head office. We rely in this regard on the decision taken by this Bench in the case of Ranbaxy Laboratories Ltd. v. ACIT: ITA No. 196/Del/2013, wherein on the same controversy it was observed as under: 87. It is one of the contention of revenue that selling and distribution activity is itself a separate profit center and therefore whatever services have been provided by the selling and distribution arm of the company to the eligible undertaking should have been charged and reduced from the profit of the industrial undertaking after valuing service of selling and distributio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work and outsourcing of the manufacturing activity. As the appellant is engaged in the business of Manufacturing of two wheelers, which involves various processes including assembly of certain components of two wheelers like gearbox , fuel tank, engine etc. It is on the completion of these processes including assembly of the aforesaid each component at the separate and distinct product that is, the two-wheeler vehicle that comes out . The assessee is pointed out that there is no difference between the Manufacturing activity carried on at Haridwar plant and other unit is that in the later unit certain processes like Pressure , heat treatment at surprise carried out at such units whereas these courses are not carried out in the eligible unit, which is situated at Haridwar. Accordingly, the Ld. assessing officer raised equerry regarding lower contention of electricity the appellant is furnished the details of the power consumed at all the 3 units in the respective plants. It was found that the reviewer unit consumes lesser number of units of electricity to manufacture each unit of vehicle. The Ld. assessing officer compared the electricity unit consumed with respect to each vehicle ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded as being engaged in the business of manufacture or production of relevant goods. It has been held that even where the entire manufacturing activities are carried by a third party, but the overall supervision, control, and management of the product manufactured is with the assessee, the assessee would be regarded as being engaged in manufacture or production of relevant goods. Reference, in this regard, can be made to the following decisions: - Addl. CIT vs. A. Mukherjee and Co. (P) Ltd.: 113 ITR 718 (Cal.) - Griffon Laboratories Pvt. vs. CIT: 119 ITR 145 (Cal.) - CIT v. Neo Phrama P. Ltd.: 137 ITR 879 (Bom.) - CIT v. Anglo French Drug Co. (Eastern) Ltd. : 199 ITR 92 (Bom.) - India TyreAnd Rubber Co. (India) Pvt. Limited. vs. CIT: 210 ITR 409 (Bom.) - CIT v. Penwalt India Ltd.: 196 ITR 813 (Bom.) - Oriental Longman Ltd. vs. CIT: 130 ITR 477 (Del.) - CIT v. Acrow India Ltd.: 188 ITR 485 (Bom.) - CIT vs. Elgi Ultra Industries Ltd. : 25 taxmann.com 561 (Mad.) - MkU (Armours) Ltd. v. CIT: 279 CTR 504 (All.) - IT v AAR ESS Exim (P) Ltd: 372 ITR 111 (Del.) - Prabhudas Kishoredas Tobacco Products Pvt Ltd: 282 ITR 568 (Guj.) - Liberty Group Market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, the assessee would be regarded as engaged in manufacture or production of relevant goods. The latest is the decision of Delhi High Court in the case of ITO v AAR ESS Exim (P) Ltd: 372 ITR 111. Thus, disallowance made by the assessing officer on the aforesaid ground was not based on any valid reasons and accordingly the same is deleted and ground 32 of appeal is allowed. 151) Ground No. 33 of the appeal of the assessee is against the disallowance of deduction under section 80 IC of the act on account of profit attributable to advertisement and marketing activities carried out at head office. The Ld. assessing officer was of the view that as the assessee is engaged in the business of manufacturing and selling of the vehicles therefore the goods manufactured at eligible unit and appellant was required to incur substantial marketing expenses at the head office of the appellant. Therefore, there are common expenses including advertisement, brand creation expenses which are incurred at the head office which are required to be allocated to various Manufacturing units of the appellant company including the unit eligible for deduction under section 80 IC. On a rational and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itate and incur common expenses, for the aforesaid profit earning activity carried out at manufacturing plants. For instance, administrative staff is employed at head office to facilitate smooth running of manufacturing and sale operations carried out at profit centers, viz. manufacturing plants. iii) Similarly, advertisement expenses are incurred in order to promote sale of goods manufactured at manufacturing plants. The said expenses are in the nature of common expenses incurred for all the plants that may be located at different locations. Accordingly, such expenses are allocated to profit centers/manufacturing plants in an appropriate ratio. iv) The said expenses could have been incurred directly and separately by each profit centre/manufacturing plant, but in order to take advantage of economies of scale, the same were incurred through a common cost centre, viz., head office, for and on behalf of such units. It is reiterated that by incurring such common expenses, including sales and marketing expenditure, the head office cannot be said to be a separate profit centre, so as to be attributed with part of profits earned from business of manufacture and sale of two-wheelers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a scientific basis. The head office not being a separate legal entity, the question of attribution of profits between the head-office and eligible unit does not arise. xi) The AO completely fell in error in holding that only manufacturing profits are eligible for deduction under the said section. The qualification under section 80IC of the Act is qua the unit only, viz., the unit in order to be eligible needs to be engaged in manufacture or production of an article or thing. Profit derived from such unit is eligible for deduction under the said section; there is no further qualification or restriction that only manufacturing profit would be entitled for deduction xii) That apart, it is submitted that the advertisement activity, in any case, forms an integral part of the business of manufacture and sale of two-wheelers, since profit will accrue only when manufactured goods are sold in the market. Thus, the profit, if at all, attributed to such activity, will also be considered as forming integral part of manufacturing operations, which shall be eligible for deduction under section 80-IC of the Act. xiii) The assessing officer did a backward working and arrived at the net p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assets and marketing assets of the company and therefore the profit is rightly been attributed by the Ld. assessing officer on a plausible percentage will stop. He further submitted that the assessee has wrongly shown the higher profit on the sale of vehicle when the profit earned by these other two activities of the assessee also earns other than manufacturing and hence is required to be reduced from the profit from manufacturing activities shown by the assessee. 154) We have heard the rival contentions. We have already discussed the aforesaid issue at length while disposing the ground of appeal No. 31 to 31.2 supra, wherein we have dealt with that head office is a separate cost centre and expenses incurred thereat needs to be allocated to various profit centers/manufacturing units on a rational and scientific basis, without any element of profit/markup. The issue raised by the assessing officer in the present ground of appeal is categorically similar to that raised in the aforesaid ground. Accordingly following our findings stated above, we reverse the action of the assessing officer and delete the disallowance made under section 80IC. Accordingly, the ground No. 33 of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the remuneration/benefit extended to employees is reduced from income for the purpose of computing deduction under section 80IC, the interest income earned on loan provided to employees, as a result of the employment contract entered with such employees and in order to retain their services, also have first degree/immediate nexus with the manufacturing activity. e) The Delhi High Court in the case of CIT v. Eltek SGS (P) Ltd: 300 ITR 6 held that interest received by the assesse-company on the employees loan and on late payment from customers being linked to the business of the industrial undertaking was includible as business income and eligible for benefit under section 80IA of the Act. f) Reliance, in this regard, is placed on the decision of Delhi bench of Tribunal in the case of Joyco India (P.) Ltd. v. ITO: 122 TTJ 940, wherein it has been held that interest income earned from loan given to employees engaged in the business of manufacturing is derived from such business and, therefore, is eligible for deduction under section 80IA of the Act. Interest on loan provided for working capital support to vendors a) The appellant had engaged vendors to manufacture ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. h) Reliance, in this regard, is placed on the following decisions, wherein it has been held that interest income earned from delay in payment received from customers of the relevant undertaking is to be regarded as derived from the eligible business, which is eligible for deduction under section 80IA/80IB/80IC of the Act: (i) CIT v. Advance Detergents: 339 ITR 81 (Del.) (ii) CIT v. Vidyut Corporation: 324 ITR 221 (Bom) (iii) CIT v. Eltek SGS (P) Ltd: 300 ITR 6 (Del.) (iv) CIT v. Poddar Pigments Ltd: 41 DTR 390 (Del.) (v) CIT v. Prallay Oils Ltd: 58 DTR 271 (MP) (vi) Nirma Industries Ltd. v. DCIT: 283 ITR 402 (Guj.) (vii) CIT v. Madras Motors Ltd.: 257 ITR 60 (Mad.) (viii) CIT v. Indo Matsushita Carbon Co. Ltd.: 286 ITR 201 (Mad.) (ix) Phatela Cotgin Industries (P) Ltd. v. CIT: 303 ITR 411 (P H) (x) CIT v Jindal Polyester And Steel Ltd: 221 Taxman 30 (Allahabad) (xi) ACIT v Sun N Sand Hotels (P.) Ltd: 67 SOT 331 (MumTrib.)(URO) i) The ratio emanating from the aforesaid decisions, in our respectful submission, is squarely applicable to interest income earned from vendors, inasmuch as, when interest earned from benefit provided to deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciple of netting needs to be applied and both the freight expenses and recovery thereof needs to be removed from the profit and loss account of the eligible unit and deduction ought to be allowed on the profits arrived after such removal. [Refer: ASG Associated Capsules (P) Ltd. v. CIT: 247 CTR 372 (SC)] e) Thus, considering that freight expenses incurred are more than recovery there against, netting of the aforesaid expenses, will also not have any adverse impact on the profits of the eligible undertaking for the purpose of computing deduction under section 80IB/IC of the Act. Sundry Sales ₹ 92.41 crore a) The appellant engaged various ancillary units/third parties to carry job-work/processing on the components supplied by the appellant in the activity of manufacture of two wheelers. b) In the aforesaid transaction, the semi-finished components supplied by the appellant company to vendors were credited in the books at cost of such components. The finished components supplied by the vendors were debited in the books at cost plus processing charges. The aforesaid credit in the nature of cost of components supplied to the vendors/ancillaries, was set-off with the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the cost of assets, was not taxable as income and, therefore, was liable to be reduced from profits derived from the eligible business as also from the income under the normal provisions. d) Although the said income was to be reduced from profits of eligible business, the same was inadvertently added back in the computation of income under the normal provisions of the Act. As a result of the aforesaid mistake, there was a double addition of same non-taxable income to the income of the appellant e) In view of the same, the aforesaid amount was liable to be reduced from the profits derived from the eligible business for the purpose of computing deduction under section 80IC of the Act. f) Accordingly, the appellant had filed an application dated 13.03.2015 under section 154 of the Act before the assessing officer, praying for rectification of mistakes apparent from record, contained in the assessment order, resulting in wrong computation of income-tax demand. In pursuance thereof, the assessing officer, vide order dated 07.05.2015, has rectified the mistakes contained in the assessment order, thereby deleting the double addition made under section 80-IC of the Act. g) Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness operations carried on by the eligible unit. The appellant is engaged in the business of manufacturing two-wheelers and is not engaged in the activity of giving loans and advances to earn interest income. It is not the case of appellant or the assessing officer that surplus funds were given to the employees to earn interest income. The loans/advances to employees under consideration was a measure of incentive / perquisites to the employees involved in carrying on the business of manufacturing. The source of such income is, thus, not the activity of giving loan, but benefit extended to employees engaged in the business. The first-degree nexus of such income, in our view, is the eligible business carried on by the appellant. Therefore, such income would be eligible for deduction u/s 80IC of the Act. The action of the assessing officer on this account is thus reversed. 2. Interest on loans provided for making capital support to vendors The present issue is similar to the immediately preceding issue. In our view, loan has been given to vendors to provide uninterrupted supply of goods to the appellant. The first-degree nexus of giving loan is, thus, business of manufacturing. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectified by the assessing officer in the order dated 07.05.2015 passed under section 154 of the Act. Accordingly we do not render any finding on the aforesaid issue. As regards gain arising on reinstatement of liabilities in foreign currency against import of goods in our view is similar to the issue of cash discount on purchases dealt supra. Similar to our findings given on the said issue, considering that fluctuation gain on import of goods is going to directly reduce foreign exchange liability to be discharged against import of goods being debited in the profit and loss account to arrive at the profits of the eligible business, such benefit has direct nexus with the said business, which is eligible for deduction under section 80IC of the Act. We draw support for the aforesaid conclusion from the decision of the Bombay High Court in the case of CIT v. Rachna Udyog : 233 CTR 72. Accordingly the action of the assessing officer on this ground is reversed and we hold that assessee is eligible for deduction under section 80 IC of the income tax act on interest on loans given at subsidized rates to the employees of ₹ 1 62975/ , interest on loans provided for working capital sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not put to use. Blooded authorized representative further submitted that the said premises were in possession of the appellant during the relevant further financial year, even though the registered sale deed might have taken place later on as the appellant has been incurring electricity, water and other routine expenditure for upkeep and maintenance of the said premises. He further submitted that the relevant expenditure debited by the assessee in the books of account on account of these officer revenue in nature is no new addition to the respective office has been made. 161) Ld. departmental representative relied upon the order of the lower authorities and submitted that the assessee has not taken the above property as there was registered sale deed later on between the assessee and the seller of the property and therefore the assessee has not put to use the above property. Therefore, the expenses incurred on purchase of various items for that office are correctly disallowed by the Ld. assessing officer. 162) We have heard the rival contentions. The assessing officer in our view has gone wrong in holding that the property was not put to use simply because there was no ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. dispute resolution panel the opinion of the Ld. assessing officer was confirmed and therefore the assessee is in appeal before us. 164) The Ld. authorized representative submitted that the appellant does not acquired any capital asset in as much as the appellant is simply incurred expenses for the support of up gradation of the software and seized the above expenditure are only for support of application software which does not, and as the production capacity manufacturing activity of the appellant company s these expenditure cannot be said to resulting benefit of enduring nature in the capital field. Therefore he submitted that it is not the capital expenditure but the revenue expenditure. He further submitted that the software s are becoming very obsolete nowadays. In view of the changing a and needs to be replaced or upgraded by an appellant support its existing system and therefore such expenditure in any case cannot be said to result in any enduring benefit to the appellant to be considered as a capital expenditure. He further relied on the decision of the Hon ble Delhi High Court in case of CIT versus Ashai India safety Glass Ltd and Amway India Enterprise to suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue expenditure. In view of the aforesaid discussion, as stated before us that the above expenditure related to the open tax server for sending fax through SA P and purchase of up gradation package, respectfully following the decision of the coordinate bench in the appellant s own case where it is been held that the software are revenue expenditure and whereas the server purchase are capital expenditure. In view of this we direct the Ld. assessing officer to allow the deduction of expenses on account of purchase of the software including their up gradation treating it as revenue expenditure and to allow depreciation on server purchased treating it as capital expenditure. In the result ground No. 36 of the appeal of the assessee is partly allowed. 167) The ground No. 37 of the appeal of the assessee is against disallowance of various expenses incurred on repairs and maintenance to plant and machinery and store said tool consumed on account of non-furnishing of requisite details in the prescribed format amounting to ₹ 118.58 crores. During the year appellant has incurred the expenditure under that manufacturing and other expenses which were claimed as revenue deduction such e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses were incurred on repair and maintenance of existing plant and machinery, which were used for the purpose of business. The aforesaid expenses did not result in acquisition of any new assets or benefit of enduring nature in the capital field or accretion to the profit earning apparatus, to be regarded as capital in nature. The aforesaid expenditure was incurred by the appellant for replacing the old and worn out parts of machinery, which were necessary for keeping the machines in working order. There was no replacement of entire independent plant and machinery and the aforesaid expenses were thus not capital in nature. He stated that since no new asset came into existence by incurring of the said repair expenditure and there was no enhancement in the capacity/ efficiency of the transformers, the expenditure incurred on repairs is allowable as deduction under section 31(1) or section 37(1) of the Act as has also been held in following cases: (i) CIT vs Saravana Spinning Mills (P) Ltd.: 293 ITR 201 (SC) (ii) Ramaraju Surgical Cotton Mills: 294 ITR 328 (SC) (iii) CIT v. Sagar Talkies Ltd.: 325 ITR 133 (Kar) (iv) CIT vs Sree Ayyanar Spinning and Weaving Mills Ltd.: 211 Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mental representative submitted that as the assessee could not furnished the information in the particular format. The Ld. assessing officer could not verify the expenditure and therefore the disallowance has been made. 170) We have heard the rival contentions. It cannot be doubted that repair and maintenance or consumption of stores and tool expenditure needs to be incurred having regard to the size and magnitude of the appellant company. The aforesaid expenses are not being incurred for the first time and are routine expenses incurred regularly in the course of business. It was pointed out by the appellant, which was not disputed by the Ld. DR that the similar expenditure was accepted and allowed in the earlier years as also in the assessment order passed for the succeeding year i.e. assessment year 2011-12 and in the draft order passed for AY 2012-13. The impugned assessment year is a solitary year in which the aforesaid expenditure has been disallowed and that, too, on ad-hoc basis for non-furnishing of details in the prescribed format desired by the assessing officer. It was the case of the appellant that the appellant had furnished all the possible details which could have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore it is owned by the assessee, though registered sale deed could not be executed till 14th of June 2010. Based on the above evidence the appellant claimed depreciation on this property which was disallowed by the Ld. assessing officer holding that it was not put to use for the purposes of the business during the relevant previous year and as the assessee has failed to submit details of expenses with respect to electricity, water, etc incurred in respect of the said premises to demonstrate that the said premises were put to use. During the year. 172) The Ld. authorized representative of the assessee submitted that the agreement to sale dated 07/03/2008 was executed and according to that the appellant shall be delivered possession of the property before registration of sale deed. Pursuant to that sale deed the complete payment were made till the August 2009 and the assessee received the possession of the property. Therefore, in that property assessee undertook repairs and maintenance or expenditure in order to bring it into usable state and further incurred expenses of electricity and water etc. Therefore according to him the depreciation sell be allowed to the assessee on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly assessee incurred expenditure of ₹ 3 4938, 40/ on construction of rainwater harvesting system and also landfill system at Haridwar unit for ₹ 1 737 4697/ . These are the expenditure incurred by the assessee for controlling water pollution and conserving fresh rainwater for the purpose of preventing water pollution and providing pollution free water for consumption within the industrial area. Appellant claimed these expenditure as water pollution control measures and claimed depreciation thereon at the rate of hundred percent. Further, some of these was constructed in later half of the financial year the assessee claimed depreciation on that at 50% of the normal rate of depreciation of the hundred percent amounting to ₹ 1 746920/ . The Ld. assessing officer disallowed the claim of the appellant holding that it does not fall within the rules and therefore allowed depreciation at the rate of 10% only. The Ld. assessing officer also did not except the alternative plea of the appellant that the expenditure incurred on the aforesaid assets were allowable as revenue expenditure as same do not result into acquisition of any new capital asset. Therefore, assessee is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es could absorb and hold water. The assessee constructed several re-charge structures in the factory premises, which were all connected through pipes. The water stored in such structures was transmitted in the ground water/water body, available to the public at large through the medium of pipes. The water through natural slope / gravitational force got accumulated through the pipes into various tanks from which it was filtered through the overflow process and went further through deep bores into the earth and increased the ground water table. h) Similarly, the secured land fill system, it is submitted, does not involve purchase of any scientific equipment, but involved expenditure incurred in collection pump, rain water collection pond, monitoring bore wells, hide pipe line network, misc. of civil works for extension of Bund level of SFL Facility etc. Same was used for the purpose of handing of industrial waste as a result of manufacturing activities. i) In view of the above, it would be appreciated that the aforesaid rainwater harvesting systems did not involve purchase of any scientific equipment, but involved expenditure on digging of holes in the factory premises and cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of water pollution control equipment are not exhaustive. In our view, if any equipment satisfies the test of being a water pollution equipment, the same would be covered within the larger genus of that category to be eligible for depreciation at the prescribed rate there against, notwithstanding specific inclusion of such asset in the specified list. While coming to the aforesaid conclusion, we have also kept in mind the intention of the Legislature behind providing higher rate of depreciation to such equipments viz. to incentivize an assessee to make investment in such equipments and serve the larger public interest. The impugned expenditure was precisely incurred by the appellant to meet the aforesaid objective i.e. to provide clear and safe water to the habitants in the vicinity of the appellant s factory in line with the notice issued by the relevant water authority. In view of the above, we hold that the impugned assets were covered within the meaning of Water Pollution Control Equipments prescribed in the Appendix I to the Rules and were therefore, entitled to depreciation at higher rate of 100%. The action of the assessing officer is, therefore, reversed and ground 39 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crepancy has been pointed out by the AO in the details/information furnished by the appellant. c) In view of the aforesaid, it will be appreciated that information could not be furnished in the prescribed format only on account of genuine difficulty in collating such information in such short span of time, which was not practical, and appellant had no other mala-fide intention. d) That apart, it is reiterated that the information and details of the credit card expenses duly submitted clearly evidenced that the said expenses were incurred wholly and exclusively for the purposes of business of the appellant and were allowable revenue deduction. The expenses incurred through credit card included amounts paid for meeting official telephone bill of the employee, travel expenses, card membership fee etc. e) The assessing officer further failed to appreciate that the accounts of the assessee were duly audited by the chartered accountant and no discrepancy whatsoever were found during the course of such audit. f) In light of above circumstances, bald allegation of AO that expenses might be related to personal purposes of the concerned employee and disallowed 50% of such expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance was ever made in the earlier assessment orders nor in the immediately succeeding assessment years i.e. assessment year 2011-12. We were pointed out that no such disallowance was proposed in the draft assessment order for assessment year 2012-13. The disallowance was thus purely made on surmises and conjectures, which is not backed by any strong basis/legal foundation. Accordingly, the disallowance made is deleted and ground No. 41 of appeal is allowed. 183) Ground No. 42 of the appeal of the assessee is against the disallowance of credit card expenses due to non-furnishing of information in prescribed format by the appellant as desired by the Ld. assessing officer. The appellant has incurred expenditure aggregating to ₹ 8 025935 in respect of credit card expenses which was claimed as revenue expenditure. The Ld. assessing officer has disallowed 50% of the total expenses incurred through credit cards since the information was not furnishing the prescribed format and therefore AO was of the view that it could not be ascertained by him whether the expenses were related to the business purpose of the appellant were related to personal purposes of the concerned employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made by the Ld. assessing officer is not based on the correct appreciation of facts and position in law and therefore such addition shall be deleted by the tribunal. 185) Ld. departmental representative relied upon the order of the Ld. assessing officer and submitted that the information supplied by the assessee is in complete with respect to certain columns as desired by the assessing officer. Therefore in absence of such kind of information the disallowances been made at the rate of 50% of the total expenditure and therefore the order of the assessing officer does not deserve any interference. 186) We have heard the rival contentions. The present issue is similar to disallowance made by the assessing officer, which have been dealt in ground of appeal no. 37 and 41 supra. It is an admitted position that expenses of the business are paid through credit card these days. The company reimburses credit card expenses only after establishing nexus of same with the business activities. The books of account of the appellant are audited and no adverse inference in relation to incurrence of such expenses have been pointed out by the auditors. No unvouched expenditure has been pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y had only scrap value in the market and hence they were written off. However, the Ld. assessing officer in draft assessment order disallowed the about deduction for the reason that assessee failed to disclose any corresponding credit against these items is a sale of such store items . Before the Ld. dispute resolution panel on objection filed by the assessee. It upheld the contention of the assessee and directed the AO to delete the aforesaid disallowance made in the draft assessment order on the ground that the items return of would form part of scrap sold during the year in scrap held as closing stock and disallowance therefore would amount to double taxation. Therefore agreed by the direction of the Ld. dispute resolution panel, the revenue is in appeal before us. 191) The Ld. departmental representative submitted that that there cannot be any doubt that there can be in obsolete item in the store items. However, the assessee has not shown the corresponding credit against this items discarded by it is sale of such store item as a scrap. Therefore, the Ld. assessing officer is correct in disallowing the above amount of force return of. He further submitted that without verifyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. At the same time, when the assessee discloses income from sale of this scrap, it is not correct on the part of the assessing officer and DRP to infer on surmises that this sales revenue is not due to sale of scrap but for something else. It has to be appreciated that the assessee produces excisable goods and all the sales are monitored by excise authorities. There is no proof that the assessee has indulged in making unaccounted sales. The scrap is either sold or is on the scrap floor. No other logical inference can be drawn on these undisputed facts without contrary evidence. 10.15. The assessee has realized an amount of ₹ 11.43 crores on sale of scrap as against the aforesaid claim of ₹ 12.53 crores which was on account of scrap. The fact that the assessee could not maintain quantitative details of scrap does not lead to a conclusion that the entire claim should be disallowed. Assessing officer should have, in our opinion, considered the reasonableness of the claim based on the size of the company, its operations or on the basis of similar comparable cases and also by keeping in view the past history of the assessee. When the Assessing officer does not dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have heard the rival contentions. We note that similar issue relating to disallowance of pre-paid expenses was deleted by the Tribunal in the assessee s own case for assessment year 2008-09. The relevant observations of the Tribunal for assessment year 2008-09 are as under: 38. Briefly stated the facts related to this ground are that during the assessment year under consideration, the assessee claimed deduction of expenses in the nature of maintenance charges, renewal of licenses etc. aggregating to ₹ 41.63 lacs. The AO disallowed ₹ 31.64 lac out of the total expenditure on the ground that the same are related to the succeeding year and no corresponding revenue has been reported by the assessee during the relevant previous year against such claim of expenses. Ld. Counsel of the assessee submitted that the aforesaid expenditure was indirect expenses incurred for the purposes of business and cannot be said to have one to one nexus with the income of the assessee. Ld. counsel of the assessee submitted that the assessee is following consistent method of accounting which was accepted by the revenue in the preceding assessment year, then no adjustment is called for in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses the service contacted by the various locations are also not available at the head office. Therefore the assessee provides these expenses on the basis of the fair estimate. The Ld. assessing officer identified such expenditure amounting to ₹ 6 980 7983, which are pertaining to the prior period on the ground that the same pertinent to a year prior to the assessment year and as the time period of 6 months from the end of relevant assessment year was available to the assessee for filing the return of income therefore the assessee could have considered claiming such expenses in the computation of income of the earlier year. When the direction of the Ld. dispute resolution panel revenue has preferred this appeal. 199) The Ld. departmental representative submitted that the expenses pertaining to the current year, or only allowable to the assessee as deduction. Therefore, the expenses accounted for in the books of the assessee in the current year, but which pertain to the earlier year cannot be allowed as they are prior prayed expenses and therefore, the Ld. dispute resolution panel was not correct in directing the Ld. assessing officer to allow those expenses as deduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour of the assessee with following findings and conclusions:- 61.10. The issue herein is year of deductibility. Additional ground of appeal was filed for A. Y. 2006-07 before the Tribunal and this additional ground was not disposed of Misc. application is pending. The assessee's contention is that the correct amount is ₹ 23.86 lakhs and not ₹ 643.05 lakhs as mentioned by the A.O. Details are given in the paper book we find that the D.R.P. has directed the assessing officer to verify the price. This working given by the assessee is not properly verified by the A.O. The AO should have verified the claim of the assessee. We direct the assessing officer to verify the claim of the assessee. Be it as it may, the genuineness of the expenditure is not in doubt and as it is a question of excess/ short provision of discount in respect of sales effected, we are of the considered opinion that method of accounting followed by the assessee need not to be disturbed as it is being consistently followed over the years and as the revenue has accepted the same. The assessee's claim that the amount of ₹ 23.86 lakhs is not prior period expenses is not seriously disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant s own case for the earlier years, We dismiss ground No. 3 of the appeal of the revenue 202) Grounds 4 of the appeal of revenue is that software expenses disallowed as capital expenditure of ₹ 5 0 1.77 lakhs by the Ld. assessing officer have been directed by the Ld. dispute resolution panel for deletion. The brief facts of the case is that during the relevant assessment year the assessee incurred expenditure aggregating to ₹ 8.206 crores on account of software up gradation and maintenance in respect of the various softwares. Further as sum of ₹ 7 426 3619 towards obtaining license right to use application software was also upgraded by the assessee. The Ld. and assessing officer in the draft assessment order has held that since the expenses resulting acquisition of capital asset the same constituted capital expenditure and therefore not allowable as revenue expenditure. On objection by the assessee before the Ld. dispute resolution panel it directed the Ld. assessing officer to delete the disallowance made on the aforesaid ground following the order of coordinate bench for assessment year 2007 08 in appellant s own case. 203) The Ld. departmental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts under the head computers and therefore according to the learned assessing officer the assessee s claim of depreciation at the rate of 60% on those assets which is allowable as the normal rate applicable to the plant and machinery. During the year assessee has purchased certain assets which the computer peripherals amounting to ₹ 12215308/- . The appellant claimed depreciation on these items at the rate of 60%. However, the Ld. and assessing officer allowed and depreciation on such items at normal rate applicable to plant and machinery and disallowed the excess claim of depreciation amounting to ₹ 3 272835/ . On objection before the Ld. dispute resolution panel, the dispute resolution panel on the basis of the decision of the Hon ble jurisdictional High Court in the case of BSES Rajdhani Ltd held that the aforesaid assets on which higher rate of depreciation, has been claimed was essentially and inextricably linked to the computer system and were primarily utilised for enhancing the functionality of the computer system as a whole and therefore they are eligible for deduction at the rate of 60%. 207) The Ld. departmental representative relied upon the order of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal of the revenue is against the direction of the Ld. dispute resolution panel holding that they advances to hero Honda finlease Ltd in the nature of business transactions, which would fall within the ambit of sub clause (ii) to subsection 2 (22) (e) of the income tax act and would thus not be taxable as deemed dividend in the hands of the assessee. Hero Honda Finlease Ltd is related company in which the assessee holds 30% of the share capital, which is engaged primarily in the business of the financing of the vehicles. This company access to the dealers of the assessee facility of financing vehicle purchased by such dealer from the assessee company and the dealers on purchase of vehicles from the assessee against the bill of the purchase discounted from this company and remit payment to the assessee. The dealers are required to make payment of the aforesaid discounted bills to that company on maturity thereof. Secondly, when payments by the dealers to that particular company are due the dealers due to convenience of facility of collection Centre s of the assessee available all over India make payment into the assessee s bank account foreign on behalf of that company which in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med dividend was deleted by the Tribunal in the assessee s own case for assessment year 2007-08 which was followed in assessment year 2008-09. The relevant observations of the Tribunal for assessment year 2007-08 are as under: 16.27.Section 2(22)(e), is a deeming section and it is well settled that it should be strictly interpreted. In the present case, the intention of the parties did not reflect that it was an advance or loan so as to attract section 2(22)(e). The assessee in this case was holding the money received from dealers as custodian of HHFL. There is no privity of contract between the assessee and HHFL. There is no positive act of granting loan or advance given by HHFL to the assessee. There is neither a stipulation for payment of interest or period of repayment. Further, the assessee has not used the funds for its own purposes, as admittedly the assessee is a cash rich company, not requiring loans. This fact is not disputed by the Revenue. The assessee was used as channel for remittance of money by the dealers to HHFL for the purpose of convenience and from assessee s a standpoint this is business expediency. We are unable to appreciate the conclusions drawn by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice coupons handed over by the customers to dealers. The ld. AO held that the dealers rendered technical service of repairing the vehicle to assessee and, therefore, the assessee was liable to deduct tax there from under section 194J of the Act. Accordingly, the AO proposed disallowance of ₹ 91.49 crores, under section 40(a)(ia) of the Act. The ld DRP, while accepting the contention of the assessee, directed the AO to delete the proposed disallowance on the ground that the payment was in the nature of reimbursement of expenses, which did not attract provisions of TDS and hence, no disallowance under section 40(a)(ia) is called for. The ld DRP further held that assessee had not received any technical/ professional service to warrant the applicability of section 194J of the Act. 216) Ld. departmental representative relied upon the order of the Ld. assessing officer. 217) Ld. authorized representative submitted that on free service coupons no tax is required to be deducted and is arguments were as under: A) The agreement entered into between the assessee and dealers is on principal-to-principal basis; in other words, the dealers do not act as agent of assessee. b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in not deducting tax at source from the reimbursement of expenses to the dealers on account of free service and therefore no portion of the impugned expenditure can be disallowed under section 40(a)(ia) of the Act. j) That apart and without prejudice to the above, even otherwise the assessee cannot be said to have defaulted in not deducting tax at source under section 194J, since the repair/maintenance services provided by the dealer to the customers was not in the nature of technical service , as defined in section 9(1)(vii) read with section 194J of the Act. k) There was no element of managerial or technical services involved in repair services rendered by the dealers to the customers when such customers bring vehicles to the dealers, as there is no interaction between the persons repairing the vehicle and the assessee/customer, involving any rendering of advice, consultancy, technical knowledge, etc. by the former to the latter, so as to constitute payment made by the assessee to the dealers to fall within the meaning of fees for technical services as defined in section 9(1)(vii) of the Act. l) Reliance, in this regard, is placed on the following decisions: - Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Delhi bench of the Tribunal in the assessee s own case for the assessment years 2007-08 and 2008-09, wherein the Tribunal deleted the disallowance made under section 40(a)(ia) on the ground that (i) repair services do not fall within the meaning of professional services defined under section 194J of the Act and (ii) no service was, in any case, availed by the appellant from dealers; service, if any, was availed by customers from the dealers, necessitating obligation on the appellant to deduct tax at source. 218) We have heard the rival contentions. We note that similar issue relating to disallowance u/s 40(a)(ia) for non-deduction of tax from reimbursement of free service coupons, was deleted by the Tribunal in the assessee s own case for assessment year 2007-08 which was followed in assessment year 2008-09. The relevant observations of the Tribunal for assessment year 2007-08 are as under: 29.41.In the case on hand, the obligation incurred by the assessee at the time of sale to pay the cost of free services and is not payment made in consideration for the rendering of any managerial, technical or consultancy services as defined for the purpose of S.194J. Routine rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , We dismiss ground No.7 of the appeal of the revenue 219) Ground rate of the appeal goes with respect to be proposed disallowance of ₹ 3 0800/ of legal and professional expenses for non-deduction of the tax. During the year the assessee is incurred legal and professional expenses amounting to ₹ 3 0800/ paid to Mr. VK Agrawal. The Ld. and assessing officer disallowed the aforesaid expenditure for the alleged failure of the assessee to deduct tax at source there from under the provisions of section 194J of the income tax act. The contention of the assessee was that it is for the purpose of the reimbursement of expenses and it is not for the purpose of obtaining any legal advice and therefore there was no tax deduction required to be made by the appellant. The Ld. assessing officer accepting the argument of the assessee however, said that tax is required to be deducted under the provisions of section 194J of the income tax act and therefore disallowed the above sum. The Ld. dispute resolution panel the accepted the contention of the assessee and directed the assessing officer to delete the proposed disallowance on the ground that the payment was in the nature of reim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully following the same, the ground is allowed in favour of the assessee. The Ld. departmental representative could not point out any change in the facts and circumstances of the case of the appellant as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectfully following the decision of the coordinate bench in the appellant s own case for the earlier years, We dismiss ground No.8 of the appeal of the revenue 223) Grounds 9 of the appeal of the revenue is against the direction of the Ld. dispute resolution panel to delete the proposed disallowance on the basis of the order of the ITAT passed in the assessee s own case for earlier years with respect to the disallowance of expenditure of reimbursement of foreign travelling expenses paid to directors and employees of the company. The brief facts of the expenses is that during course of discharge of official duties, the employees/directors of the company are required to travel abroad and incur incidental expenses in foreign currency like local conveyance, boarding and lodging expenses, telephone expenses etc. it was claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on production of bills against expenses declared by the employees, considering the practical difficulties/impossibilities in submitting invoices/bills for petty expenses like conveyance, telephone, meals, etc. In view of the above, it is submitted, that the practice followed by the assessee to reimburse expenses on the declarations of the employees was in order and the expenditure cannot be disallowed simply on the ground that declarations of the employees were not backed by invoice/bills of expenses incurred. Reliance, in this regard, is placed on the decision of Supreme Court in the case of CIT v. Larsen Toubro: 313 ITR 1, wherein it was held that declaration submitted by the employees, which may not be backed with supporting evidences, is sufficient for the assessee to make re-imbursement of expenses, like leave travel concession, to employees. The allegation of Ld. Assessing officer that per diem allowance for travel expenses was not in the nature of reimbursement of expense and in terms of section 10(14) of the Act travel allowance is exempt only to extent actually incurred, it is respectfully submitted, that the declaration filed by the employees corroborates that the allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed. The Ld. departmental representative could not point out any change in the facts and circumstances of the case of the appellant as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectfully following the decision of the coordinate bench in the appellant s own case for the earlier years, We dismiss ground No. 9 of the appeal of the revenue 227) Ground No. 10 of the appeal of the revenue is against the direction of the Ld. dispute resolution panel deleting the disallowance proposed by the Ld. assessing officer proportionate amount of premium paid for land taken on lease for 99 years by the appellant at its Haridwar unit. The brief fact of the claim of the assessee was that assessee-company was, vide allotment letter dated 8.8.2006 allotted land at Haridwar by State Industrial Development Corporation of Uttaranchal Ltd. (SIDCUL) on lease for a period of 99 years. The aforesaid lease was granted on payment of premium of ₹ 48,45,87,780. In accordance with the aforesaid letter, the land was allotted to the assessee for which lease deed was executed subsequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease agreement, annexed at Pg. 2948-2994 of PB Vol. 7, it would be appreciated that the assessee did not acquire the capital asset in the form of land from the State Government, but only obtained a limited right to use land on lease over the tenure of lease period. It would be further appreciated that the land was granted on lease for the purpose of construction of factory building thereon and carry on the business of manufacturing two-wheelers. b) It was also stipulated that if the assessee did not erect factory building and did not commence business operations within the stipulated time, the lessor shall be at liberty to terminate the lease and take over the possession of land. c) As per clause 7 of the lease agreement, the assessee was not vested with right to transfer, assign or otherwise part with physical possession of the land, without the written consent of the lessor. d) Further, as per clause 10.2 of the agreement, on expiry of the period of lease, the lease was not automatically renewable and in case the period of lease was not extended by the parties at mutually acceptable terms and conditions, the lessee was liable to deliver back physical possession of the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctory to be constructed on the leasehold land was in connection with extension of existing business of manufacturing two wheelers by the assessee and, therefore, the leasehold right obtained on payment of impugned premium was a right obtained in connection with business of the assessee company, which is covered within the meaning of business or commercial right under section 32(1)(ii) of the Act. b) It is further respectfully submitted that leasehold rights, more specifically where lease extends over a long period of time, has been recognized as a separate asset under the provisions of the Act as also the Wealth-tax Act, as could be gathered from the following provisions: Section 27 of the Act, which deems owner for the purposes of charging income under the head house property, under clause (iiib) thereof deems a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be owner of that building or part thereof; [Section 269UA(f) covered transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e covered within the meaning of business or commercial rights under section 32(1)(ii) of the Act. i) Reliance is also placed on the following decisions, wherein it has been recognized that land and/or building or any right therein, including leasehold rights are different assets and the provisions applicable on the former, for instance section 50C, cannot be applied on transfer of latter assets: Atul G. Puranik v. ITO: 141 TTJ 69 (Mum.) ITO v. Pradeep Steel Rolling Mills P. Ltd.: 155 TTJ 294 (Mum. Trib.) DCIT v. Tejinder Singh: 147 TTJ 87 (Kol. Trib.) Kancast v. ITO: 68 SOT 110 (Pune Trib.) j) Reliance, in this regard, is placed on the following decisions, wherein it has been held that, by applying the principle of ejusdem generis, the expression business or commercial rights of similar nature in section 32(1)(ii) of the Act, need not answer the description of knowhow, patents, trademarks, licenses or franchises but must fall in the larger genus of intangible assets related to business, for being eligible for depreciation under that section: CIT vs. Smifs Securities Ltd.: 348 ITR 302 (SC) Areva T D India Ltd. Ors. vs. DCIT: 345 ITR 421 (D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble Delhi High Court in the case of GAIL India Ltd. v. JCIT: 211 Taxman 587. The relevant observations of the High Court are as under: 6. This Court has considered these submissions and the issue which was sought to be urged has been re-visited on a number of occasions by various Courts. There is no doubt that in Madras Auto Services case (supra), the Court had observed that there is no single decisive test to ascertain whether expenditure qualifies as Revenue or that which properly falls in the capital field. Several aspects are to be applied such as nature of gain by the assessee, specially in a case of this kind, whereby constructing a building on a land which belongs to someone else, the saving in expenditure etc., a very important consideration, the Court emphasized that it should be seen from the Commercial point of view . The other aspect emphasized by the Supreme Court was whatever substituted for revenue expenditure should normally be considered as revenue expenditure. 7. It is no doubt true that the decisions in HMT (Supra), Sun Pharmaceuticals (supra) and Gemini Arts (supra) dealt with fact situations where the assessee had obtained long lease, and wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng by the assessee, clause 3(m) enjoins the lessee not to transfer either directly or indirectly, sell or encumber the lease benefits to any other party, the same stipulation enables transfer with previous consent in writing of the Chief Executive Officer . This Court is also further conscious of the fact that the conditions embodied in such lease deed are part of the general policies consciously adopted by the municipal and statutory authorities who manage and lease out such assets. 8. Having regard to these factors, this Court finds no infirmity with the reasoning of the Tribunal. 8. Having regard to these factors, this Court finds no infirmity with the reasoning of the Tribunal 9. In view of the above conclusion, the questions of law are answered against the assessee and in favour of the Revenue. The appeals consequently have to fail and are accordingly dismissed without any order to costs. The ratio emanating from the aforesaid decision in our view is squarely applicable to the facts of the present case, in as much as the lease under consideration is for a long period for 99 years and the appellant enjoys substantial rights as a lessee including the rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he meaning of capital asset under section 2(14) of the Act. We also agree with the various provisions in the scheme of the Act highlighted by the Ld. Counsel, which endorses that leasehold rights in a long term lease are recognized as a separate asset. In view of the above, we reach to the conclusion that premium paid, once held to be capital expenditure, can be said to have been paid for acquiring a separate asset, being leasehold rights in the hands of appellant. Having held as above, the next issue that arises is whether such leasehold rights would fall in the category of land for which lease has been taken or in the category of intangible assets as specified in section 32(1)(ii) entitling to depreciation thereon. In our view, land and leasehold rights in land are both distinct and separate assets in general law as well as in the Act. In case of the asset in the nature of land, the possessor thereto enjoys exclusive ownership right therein, in perpetuity, whereas in case of leasehold rights, the lessee only enjoys rights provided to him in the lease agreement, during the limited tenure of the lease. In case of lease, the rights of the lessee would come to an end on expiry of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred in Section 32(1)(ii) of the Act preceding the term business or commercial rights of similar nature , it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words business or commercial rights of similar nature have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of intangible assets, which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of business or commercial rights cannot be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of business or commercial rights can be of the same genus in which all the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) Cosmos Co-op Bank Ltd. v. DCIT: 64 SOT 90 (Pune) In view of the aforesaid discussion, we hold that intangible assets including an asset in the nature of leasehold rights would fall within the meaning of business or commercial rights under section 32(1)(ii) for being allowed depreciation thereon, if such intangible asset could be said to be related to or is to be used in relation to business of the assessee. In the present case, the impugned land was taken on lease to construct factory building thereon. In fact, the lease agreement specifically creates an embargo on the assessee/lessee to use the land only for the purpose of constructing factory and not otherwise. In fact, we note that the assessee had subsequent to taking the land on lease had constructed a new state of the art factory thereon engaged in the activity of manufacturing two wheelers on which deduction under section 80IC was also claimed, which was discussed by us in detail in the assessee s appeal. Accordingly the intangible asset in the nature of leasehold right vesting with the appellant was clearly related to its business and therefore the same satisfies the test of being classified as business or commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that these expenses incurred under the aforesaid head were mainly incurred for the following purposes: (i) Expenditure incurred by way of sponsorship / construction of camps, etc., organized for social/public welfare like cancer detection camps, meal eye camps, etc. (ii) Traffic Barricade provided to police in the vicinity of factory premises. (iii)Security guard provided at Traffic Park maintained by the assessee. (iv) Horticulture and plantation activities at such traffic park. (v) Renovation/construction expenses incurred at school operating in the vicinity of the factory premises for welfare of the children of employees studying at that school, etc. The aforesaid expenses debited under the head corporate social responsibility , were incurred for the purposes of assessee s business or, in other words, directly or indirectly benefited the business carried on by the assessee-company. He submitted that Sponsorship/ construction of health checkup camp aforesaid activity organized for needy and poor people, apart from promoting the welfare of public, prominently displayed the name of the assessee-company, which in turn enhanced goodwill as also provided public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 679 (Bom) (iv) Krishna SahakariSakharKarkhana Ltd V. CIT: 229 ITR 577 (Bom.) (v) CIT v. India Radiators Ltd.: 236 ITR 719 (Mad.) (vi) Northern Coalfields Ltd v ACIT; 69 SOT 637 (Jabalpur - Trib.) Meeting Social Responsibilities, which have indirect business nexus: i. VenkataSatyanarayana Rice Mill Contractors Co V. CIT: 223 ITR 101 (SC) ii. CIT Vs. Chemicals and Plastics India Ltd. 292 ITR 115 (Mad.) iii. CIT v. Madras Refineries Ltd.: 266 ITR 170 (Mad) iv. CIT v. Chennai Petroleum Corpn. Ltd: T.C.(A).No.57 of 2006 (Mad.) v. CIT vsJayendrakumarHiralal: 327 ITR 147 (Guj.) vi. CIT vs. Karnataka Financial Corporation: 326 ITR 355 (Kar.) vii. Infosys Technologies Ltd. v. JCIT: 109 TTJ 631 (Bang. Trib.) -affirmed by the Karnataka High Court reported at 360 ITR 714 viii. Ranbaxy Laboratories Ltd.: ITA No.: 3925/D/02 (Del.Trib.) ix. CIT v. Deversons Industries Ltd. 290 ITR (AT) 287 (Ahd) x. Hindustan Petroleum Corpn. Ltd. Vs. DCIT 96 ITD 186 (Bom.) Display of name/Publicity expense (i) CIT v. Delhi Cloth General Mills Co. Ltd.: 115 ITR659 (Del.) (ii) CIT v. Lake Palace Hotels Motels (P) Ltd.: 293 ITR 281 (Raj.) (iii) CIT v. Alum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not restricted to merely earning profit but also discharging certain community related obligations, with a larger intent of fostering its goodwill/reputation. We have gone through the details of various expenses incurred by the assesse which were debited under the head Corporate social responsibility and elaborated in detail in the submissions made by the Ld. Counsel above. The said expenses although were not incurred towards earning profit, but were incurred out of commercial expediency and were directly/indirectly related to its business like earning goodwill/display of name, employee s welfare, etc. The said expenses therefore, in our view, satisfy the test of being allowable as business deduction under section 37(1) of the Act. We draw support for the aforesaid conclusion from the following decisions of the various Tribunals/High Courts : (i) In the case of Mysore Kirloskar Ltd. vs. CIT: 166 ITR 836 (Kar.), the assessee started school for education of children of its employees for attracting technocrats and men of managerial skill to its industry. Donations made by the company to the school were claimed as business expenditure under section 37(1) of the Act. The Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra Mahindra: 284 ITR 679. (iii)In the case of CIT v. India Radiators Ltd.: 236 ITR 719 (Mad.), the Madras High Court observed as under: The finding of the Tribunal is that by making the contribution to the Panchayat for upgrading the elementary school, the assessee-company was assured by the school management that it would give preference in the matter of admission to the children of the employees in the said school. The Tribunal placed reliance on a letter from the President of the Building Committee and Parents Teacher Association of the school. It is well settled that if a certain sum of money was expended for the education of the children of the employees of the assessee-company, it should be regarded as staff welfare expenditure, particularly in view of the fact that in these days it is very hard to get admission in educational institutions. The employees of the assessee are given the satisfaction by the donation made by the assessee that their employers have taken full care of the education of their ward and such a mental satisfaction on the part of the employees would generate good will and the expenditure can be regarded as staff welfare expenditure and allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cceed in a greater measure with the aid of such goodwill. Monies spent for bringing drinking water as also for establishing or improving the school meant for the residents of the locality in which the business is situated cannot be regarded as being wholly outside the ambit of the business concerns of the assessee, especially where the undertaking owned by the assessee is one which is to some extent a polluting industry. The Tribunal was right in allowing the deduction of the entire expenditure of ₹ 15,32,000 as business expenditure. (vi) In the case of Hindustan Petroleum Corpn. Ltd. Vs. DCIT 96 ITD 186 (Bom.), the assessee company incurred certain expenditure towards implementation of 20 point programme. The expenditure was incurred to improve the conditions of SC/ST in pursuance of national policies and to help acceleration of all round development of villages by providing assistance to educated unemployed to earn a living. The assessing officer held that since the expenditure was in the nature of donation, the same could not be allowed deduction. The CIT(A) upheld the order of the assessing officer by holding that the expenditure incurred did not have any direct con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd development of villages, which has always been the central theme of Government's development initiatives. An expenditure of such a nature cannot but be, 'a concrete expression of care and concern for the Society at large and an expenditure to discharge the responsibilities of a 'good corporate citizen which brings goodwill of with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill' . Just because the expenditure was voluntary in nature and was not forced on the assessee by a statutory obligation, it could not cease to be a business expenditure. 236) Further, the insertion of explanation 2 to section 37(1) has been inserted w.e.f. 01/04/2015 and shall be applicable for the assessment year 2015 16 onwards and therefore same does not apply to the assessment year in question before us in this appeal. In view of the above we agree with the findings of the ld DRP and dismiss the ground no 11 of appeal raised by the department. 237) No. 12 of the appeal of the revenue is against the disallowance of ₹ 1 56.51 Lacs written off by the assessee is obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 35D of the income tax act. He vehemently supported the order of the Ld. assessing officer. 240) Ld. departmental representative submitted that:- a) The new manufacturing plant at Neemarana was only an expansion in the same line of business, in which the assessee was already engaged under the control and supervision of the existing management of the company. b) The aforesaid expenditure was not capital in nature as the same was not directly or indirectly related to acquisition of any fixed assets at Neemrana Plant or setting up of that plant. c) The various expenses incurred towards acquisition of assets and those of revenue nature incurred in relation to the new facility, were met out of funds generated from the existing business of manufacture of motorcycles at Gurgaon and Dharuhera. There was thus complete interlacing of funds. d) The overall policy decisions relating to manufacturing operations/selling functions at the new plant are all looked after by a centralized team, which oversees the working of the existing plants at Gurgaon, Dharuhera and Haridwar. There was thus common management, common administration, interlacing of funds and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , was allowable revenue expenditure. h) With regard to the reference of the assessing officer to provisions of clause (d) of section 35D(2), it is submitted, that aforesaid clause can only be invoked in respect of such expenditure which are capital in nature or otherwise not allowable under any other provision of the Act which is not the present case since the expenses incurred by the assessee were clearly allowable under section 37(1) of the Act, being an expenditure incurred wholly and exclusively for the purposes of business, not being personal or capital expenditure. i) On perusal of CBDT Circular No. 56 dated 19.3.1971, it will be noticed that the provisions of section 35D were not intended to supersede/override any existing provisions of law. Further, it cannot be said that section 35D is a specific provision and section 37(1) is a general provision and, therefore, section 35D will override section 37(1) of the Act. [Also refer: Goodyear India Ltd. v. ITO : 73 ITD 189 (Del)(TM). j) The aforesaid issue is squarely covered in favour of the assessee by the decision of Delhi Bench of the Tribunal in assessee s own case for the assessment year 2007-08 and 2008-09 where si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter taking into consideration the order of the coordinate bench in assessee s own case for assessment year 2008 2009. The brief facts of the issue is that assessee has incurred an expenditure of ₹ 1 976617 2/- provision of its various offices, as repair and maintenance expenses. These expenses are been claimed by the appellant as revenue expenditure. The Ld. assessing officer was of the view that all of the expenses are not in the nature of current repairs but is capital in nature and thus he determined depreciation at the rate of 10% of the expenditure and held them to be not allowable as deduction in terms of section 30 (a) (ii) of the income tax act. Therefore he allowed 10% depreciation on the sum of ₹ 1 976 6172, and thereby made a disallowance of ₹ 1 825 5930. Ld. DRP directed the Ld. assessing officer to delete the above addition. In addition, therefore, revenue is in appeal before us against the order of the Ld. dispute resolution panel. 244) Ld. departmental representative submitted that the assessee has incurred these expenditure which are stated to be routine expenditure on repairs and maintenance expenses of various existing assets, but they are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the submissions and arguments of both the parties on the issue. Ld. Counsel of the assessee submitted that the claim of expenses was pertaining to the expenses which were incurred from time to time on miscellaneous repair/maintenance like building maintenance, whitewash, paint work, plastering, enamel and premium work, replacement of roof cladding sheet/ kharanja on the various existing assets which did not result in any manner in increase of production capacity and the expenses were incurred to facilitate a smooth running of existing business operations. Ld. Counsel of the assessee also submitted that the expenses incurred on routine repair and maintenance were in relation to various existing assets of the assessee company used for the purpose of business only. Ld. Counsel of the assessee further submitted that the expenditure of ₹ 3,60,409/- was incurred in respect of existing asset i.e. DGH House by way of renovation which include replacement of roof, brick work, flooring and plastering etc. Ld. Counsel of the assessee further submitted that the said expenditure are revenue in nature and has been accepted by the AO in the earlier years. 52. Ld. DR replied that when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appear to be in the nature of repairs but no vouchers were available to the Special Auditor during the course of audit or submitted to the AO in response to the reply of final show cause. Therefore, AO is inclined to go by the nature of these expenses as given by the assessee itself i.e. provision for capital nature work'. Entire amount of ₹ 1800301/- is therefore inadmissible being capital in nature. Therefore, after allowing depreciation @10% amounting to ₹ 90015, for the period of 6 months, amount of ₹ 17,10,286/- is added to the income of the assessee. The DRP vide its order dated 28.03.2013 has decided this issue in favour of Revenue. Accordingly, in conformity with the order of DRP, an addition of ₹ 17,10,286 is made to the total income of the assessee. 54. In view of above conclusion of the AO, we clearly observe that the AO has observed that though inner items appear to be in the nature of repairs but no vouchers were available to the Special Auditor during the course of audit or submitted to the AO in response to the reply of final show cause. Hence, we are of the opinion that it is a well-settled legal proposition that the rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30/-by holding that expenditure incurred of ₹ 1 976 6172 is allowable repairs and maintenance expenditure on the existing assets of the company and is revenue in nature. In the result ground No. 14 of the appeal of the revenue is dismissed. 249) Ground No. 15 of the appeal of the revenue is against direction of the Ld. dispute resolution panel to delete the disallowance of ₹ 2 18850 on account of expenditure incurred on purchase of the mobile phones held by the Ld. and assessing officer as capital expenditure in nature. The brief facts of the issue is that assessee has purchased certain mobile phones during the year for use by its employees, which were claimed as revenue deduction. However, the Ld. assessing officer was of the view that this is the capital expenditure and he allowed depreciation on this amount and disallowed the balance amount as capital expenditure. The Ld. dispute resolution panel on objection filed by the assessing officer allowed the above claim and directed the Ld. assessing officer to delete the proposed disallowance. The Ld. Assessing officer being aggrieved by the order of the Ld. dispute resolution panel is in appeal before us on this issue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer made a reference under section 92CA(1) to the Ld. transfer pricing officer. The Ld. transfer pricing officer in his order under section 90 2CA of the income tax act, 1961 dated 29th of January 2015 determine the arm s length price of the international transaction of payment of export commission of ₹ 1 6124 0908/ , payment of model fees of ₹ 8 8428 7976/ and payment of royalty for export of ₹ 6 31680/ totalling to ₹ 1 04, 61, 60, 566/ at rupees nil. Consequently, the enhancement to the total income of the assessee was proposed by him. Incorporating the above adjustment to the arm s length price of the international transactions, Ld. assessing officer passed draft assessment order wherein he further proposed 38 adjustments in the form of disallowances, additions to the total income of the assessee. Against this order. The assessee preferred objection to the dispute resolution panel under the provisions of section 144C of the income tax act. The Ld. dispute resolution panel passed direction wide their order dated 28th of December 2015 wherein they have accepted certain arguments of the assessee and directed the Ld. assessing officer to delete the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether Ld. DRP was correct on facts and circumstances of the case and in Saw in deleting the addition of ₹ 48.84 lacs made by the AO on account of disallowance of lease rent of Haridwar in the draft order? 8. Whether Ld. DRP was correct on facts and circumstances of the case and in law in deleting the addition of ₹ 42.20 lacs made by the AO on account of disallowance of community development expenses in the draft order? 9. Whether Ld. DRP was correct on facts and circumstances of the case and in law in deleting the addition of ₹ 265.33 lacs made by the AO on account of disallowance the expenses on account of current repair in the draft order? 10. Whether Ld. DRP was correct on facts and circumstances of the case and in law in deleting the addition of ₹ 3.19 lacs made by the AO on account of disallowance of expense on account of purchase of mobile phones in the draft order? 255) The 1st ground of appeal of the revenue is against the direction of the Ld. dispute resolution panel that the stock of ₹ 1 801 1035 has been written off by the assessee in the books of accounts with respect to the store items. Assessee submitted before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeal for assessment year 2010 11, and their arguments also remains the same. They further submitted that there is no change in the facts and circumstances of the case. We have carefully considered the rival contentions and also perused the relevant ground of appeal of the revenue for earlier year in the case of the assessee and the reasons given by the Ld. assessing officer for proposing the disallowance and the reasons given by the Ld. dispute resolution panel directing the Ld. assessing officer to delete the addition. On the basis of the submission of the parties. It is apparent that ground No. 4 of the appeal of the revenue for assessment year 2010 11, squarely covers the issue involved in the present appeal. While deciding the ground No. 4 of the appeal of the revenue for assessment year 2010 2011, we hold that software expenses incurred by the assessee are revenue expenditure in nature and not capital expenditure and thereby we dismissed that ground of appeal. Similarly, therefore, we also dismiss ground No. 3 of the appeal of the revenue wherein the software expenses of ₹ 130.44 lacs were proposed to be disallowed by the Ld. assessing officer holding them to be ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounting to ₹ 206.73 lakhs which is directed to be deleted by the Ld. dispute resolution panel. The parties before us submitted that the issue involved in this appeal is identical to the ground of appeal no. 9 of the revenue s appeal for assessment year 2010 11 and there is no change in the facts and circumstances of the case and their arguments for and against of this ground also remains the same. We have carefully perused the ground No. 9 of the appeal of the revenue for assessment year 2010 11, and also perused the facts of this ground of appeal and we also found that they are identical except the amount involved therein. While deciding the appeal of the revenue for the assessment year 2010 11. We have dismissed that ground of appeal vide ground No. 9 of that appeal and therefore for the same reasons we also dismiss ground number 6 of the appeal of the revenue. 261) Ground No. 7 of the appeal of the revenue was against the disallowance of proportionate amount of premium paid for line taken only is for 99 years at Haridwar. The parties before us submitted that the issue involved in this appeal is identical to the ground of appeal no. 10 of the revenue s appeal for ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round of appeal and we also found that they are identical except the amount involved therein. While deciding the appeal of the revenue for the assessment year 2010 11. We have dismissed that ground of appeal vide ground No. 14 of that appeal and therefore for the same reasons we also dismiss ground number 9 of the appeal of the revenue. 264) Ground No. 10 of the appeal of the revenue was against the direction of the Ld. dispute resolution panel against the proposed addition of ₹ 3.19 Lacs made by the Ld. assessing officer on account of the purchase of mobile phones holding the same as capital expenditure. The parties before us submitted that the issue involved in this appeal is identical to the ground of appeal no. 15 of the revenue s appeal for assessment year 2010 11 and there is no change in the facts and circumstances of the case and their arguments for and against of this ground also remains the same. We have carefully perused the ground No. 15 of the appeal of the revenue for assessment year 2010 11, and also perused the facts of this ground of appeal and we also found that they are identical except the amount involved therein. While deciding the appeal of the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction is required to be analyzed separately. 3. That the assessing officer/TPO erred on facts and in law in determining the arm's length price of international transaction of payment of export commission of ₹ 16,12,40,908 at NIL, allegedly applying CUP method holding that no independent party shall pay such commission in similar circumstances since (a) An independent enterprise would compensate another party for ceding territory to it only when the latter party either withdraws from that territory or some restrictions are placed upon it. Nothing of that sort has happened to the AE. The AE continues its business as usual in those overseas territories. (b) The restriction to export products was imposed by the AE itself. It is not as if after the AE lifted its restriction some loss was caused to it that it needed to claim compensation from the assessee. The assessee is part of the Honda group. If the AE places a restriction by one agreement, lifts with another agreement and then claims compensation, the entire scheme appears to be nothing but a device to shift profits out of India. (c) The assessee's exports to South East Asian countries con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred on facts and in law in holding that arm's length price of international transaction of payment of royalty on exports made to AEs of ₹ 6,31,680 was NIL on the ground that (a) 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. (b) the assessee 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 does not conform to arm's length price. 4.1 That the assessing officer/TPO erred on facts and in law in re-characterizing the appellant as a contract manufacturer not appreciating that even with respect to exports to associated enterprises, the appellant is operating in the capacity of full risk bearing entrepreneur. 4.2 That the assessing officer/TPO officer erred on facts and in law in not appreciating that the royalty is paid by the appellant on net sales after deducting the cost of imported components, standard bought out components and export commission. 5. That the assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, thereby holding that provisions have been incorrectly made by the appellant and are not allowable expenditure. 9.2 That the assessing officer erred in not appreciating that out of the total provision of ₹ 13,458 Lakhs, provision to the extent of ₹ 8,169.57 lakhs was made on the basis of actual price revisions approved upto the end of the relevant year and balance provision to the extent of ₹ 5288.51 lakhs was made on the basis of management's best estimate, on a scientific basis, which is an allowable business expenditure, as per mercantile system of accounting, under section 37(1) of the Act. 10. That the assessing officer erred on facts and in law in making an addition of ₹ 2.51 lacs by estimating the value of scrap lying in stock as at the end of the relevant previous year, on hypothetical / notional basis. 11. That the assessing officer erred on facts and in law in disallowing a sum of ₹ 28,76,95,776 in respect of provision for advertisement expenses (incurred at the head office) made at the end of the relevant previous year, which were reversed in the succeeding year, alleging the same to be excessive. 11.1 That the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough not related in terms of section 40A(2)(b) of the Act. 14. That the assessing officer erred on facts and in law in disallowing amount of ₹ 1,15,82,750 on account of provision made towards commission paid on institutional sales to dealers, on the ground that the appellant failed to deduct tax at source under section 194H from the amount of aforesaid provision invoking provision of section 40(a)(ia) of the Act. 14.1 That the assessing officer erred on facts and in law in not appreciating that since the contract between the dealers and the appellant was on principal to principal basis, the provisions of section 194H were not applicable on the aforesaid amount of commission. 14.2 That the assessing officer erred on facts and in law in observing that the appellant did not dispute applicability of section 194H on the aforesaid amount of provision made towards commission payable to dealers. Without Prejudice 14.3 Without prejudice, that the assessing officer erred on facts and in law in not appreciating that since payees were not identified nor any right to receive commission accrued in the hands of payees, there was no obligation on appellant to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5 Without prejudice, the assessing officer erred on facts and in law in not appreciating that the appellant had a bonafide belief that tax was not deductible at source on aforesaid transaction of supply of goods. 15.6 Further, without prejudice, that the assessing officer erred on facts and in law in not appreciating that the disallowance under section 40(a)(ia) against the aforesaid expenditure cannot exceed the outstanding liability at the end of the year. 15.7 Further without prejudice, that the assessing officer erred on facts and in law in disallowing the aforesaid purchases for alleged failure to deduct tax at source from payments made there against, without appreciating that, since the recipient had considered sales to the appellant as part of the taxable income on which tax was duly paid, the same could not have been disallowed in the hands of appellant under section 40(a)(ia)of the Act. 16. That the assessing officer erred on facts and in law in disallowing aggregate expenditure of ₹ 4,00,945 incurred on account of booking of hotel to convene training courses on the ground that appellant failed to deduct tax at source there from under section 1941 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year. 17.5 Further, without prejudice, the assessing officer erred on facts and in law in not appreciating that since the payees have also paid tax on the income receivable from the appellant, no disallowance could be made under section 40(a)(ia) of the Act for alleged default in deduction of tax at source by the appellant. 18. That the assessing officer erred on facts and in law in disallowing legal and professional expenses of ₹ 41,47,4607- , on the ground that the appellant failed to deduct tax at source there from under section 194J of the Act invoking provisions of section 40(a)(ia) of the Act. 18.1 That the assessing officer erred on fact and in law in not accepting the invoices raised by the vendors for reimbursement of expenses on the ground that the said claim were raised on the basis of self serving vouchers. 18.2 Without prejudice, that the assessing officer erred on facts and in law in not appreciating that since the appellant was under a bona fide belief that no tax was required to be deducted there from, no disallowance was warranted under section 40(a)(ia)of the Act 18.3 Without prejudice, the assessing officer erred on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation of ₹ 46.88 lacs claimed under section 32(l)(iia) of the Act, in respect of computers installed at supervisory offices located in the compound of factory at Gurgaon / Dharuhera / Haridwar plant, on the ground, that in terms of proviso to said section additional depreciation is not admissible on any machinery or plant installed in any office premises. 20.1 That the assessing officer erred on facts and in law on holding that since computers at supervisory offices located within the factory premises were not directly involved in manufacturing activity, were not eligible for additional depreciation under section 32(l)(iia) of the Act. 20.2 That the assessing officer erred on facts and in law in observing that since the appellant was claiming depreciation on computers @60%, the same cannot be said to be plant and machinery for the purposes of the claim of additional depreciation under section 32(l)(iia) of the Act. 21. That the assessing officer erred on facts and in law in holding that expenditure aggregating to ₹ 3,87,55,10,269 and ₹ 92,79,73,203, incurred by the appellant during the relevant previous year on account of royalty/ technical g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed under the head 'capital gains'. 22.1 That the assessing officer erred on facts and in law in observing that investments were made by the appellant with a view to earn profit from selling the same at a later stage and, therefore, profits were taxable under the head business income . 22.2 That the assessing officer erred on facts and in law in observing that since the turnover from sale of investments was higher than the turnover from business of selling motor vehicles, therefore, the appellant was primarily engaged in activity of investments, which was to be regarded as business activity and, accordingly, income arising therefore was taxable under the head business income . 23. That the assessing officer erred on facts and in law in making additional disallowance of ₹ 6.131acs under section 14A of the Act, by applying provisions of Rule 8D of the Rules. 23.1 That the assessing officer erred on facts and in law in applying provisions of Rule 8D of the Rules, without reaching a finding/recording satisfaction as to the incorrectness of the suo moto disallowance of expenses made by the appellant under section 14A of the Act. 23.2 That t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rate of ₹ 5.13 per unit, at which power was supplied by State Electricity Board, as the 'market price' of the power, supplied by that unit to the vehicle manufacturing unit of the appellant, as against rate of ₹ 9.78 per unit (cost of generation of power at ₹ 8.50 per unit + mark-up of 15%) adopted by the appellant. 27.2 That the assessing officer erred on facts and in law in not appreciating that the price at which electricity was supplied by HSEB was not reflective of'market price1 since electricity supply was not adequately available from HSEB at Gurgaon as per its requirement. 27.3 That the assessing officer erred on facts and in law in observing that head office expenses were not considered while computing deduction under section 80IA of the Act for the power generating unit. 28. That the assessing officer erred on facts and in law in disallowing deduction under section 80IC of the Act by an amount of 95.85 crores, being the proportionate amount of purchases from vendors after processing of semi-finished goods supplied by the appellant, amounting to ₹ 577.15 crores, computed on ad-hoc basis, on the ground that manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, on the ground that deduction under the former section needs to be computed by recording inter-unit transfer at market price. 31. That the assessing officer erred on facts and in law in disallowing deduction under section 80IC by an amount of ₹ 636,85,69,061 (restricted to ₹ 414,82,93,617, being the balance deduction claimed under section 80IC) invoking provisions of section 80IA(10) of the Act, on the ground that eligible business at Haridwar earned extraordinary profits as compared to other non-eligible units by way of charging higher amount for basic price per unit of two-wheelers vis-a-vis price charged by other non-eligible units. 31.1 That the assessing officer erred on facts and in law in holding that part of the alleged extraordinary profits earned by the eligible unit should have been attributed to the head office on account of sales/marketing set-up at head-office. 32. That the assessing officer erred on facts and in law in disallowing deduction under section 80IC of the Act by an amount of ₹ 609.39 crores (restricted to Rs. NIL, being the balance deduction claimed under section 80IC) on the ground that part of profits earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of manufacture of specified articles or things, without appreciating that all the aforesaid incomes had first degree nexus with manufacturing activity. 33.1 That the assessing officer erred on facts and in law in holding that the other income aggregating to ₹ 137,06,12,682 is taxable under the head income from other sources . 34. That the assessing officer erred on facts and in law in disallowing deduction under section 80IC of the Act, aggregating to ₹ 1038,11,93,617 (restricted to Rs. NIL, being the balance deduction claimed under section 80IC), on an ad-hoc basis, on the ground that the appellant failed to give sufficient documentary evidence substantiating fulfillment of conditions precedent for claiming deduction under that section, without pointing out any such single condition not being fulfilled by the appellant. 34.1 That the assessing officer erred on facts and in law in not appreciating that all the conditions precedent for claiming deduction under section 80IC were satisfied by the appellant. 34.2 That the assessing officer erred on facts and in law in disallowing deduction under section 80IC of the Act, aggregating to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of the case and their arguments for and against of this grounds also remains the same. We have carefully perused the ground No. 8 of the appeal of the assessee for assessment year 2010 11, and also perused the facts of these grounds of appeal and we also found that they are identical except the amount involved therein. While deciding the appeal of the assessee for the assessment year 2010 11, We have allowed ground No. 8 of that appeal and therefore for the same reasons we also allow ground number 2,3,4,5 and 6 of the appeal of the assessee. 270) Ground No. 7 of the appeal of the assessee was against the addition of freight in and import clearing expenses amounting to ₹ 59.83 lakhs to the cost of closings inventory. The parties before us submitted that the issue involved in this appeal is identical to the ground of appeal no. 2 of the assessee s appeal for assessment year 2010 11 and there is no change in the facts and circumstances of the case and their arguments for and against of this ground also remains the same. We have carefully perused the ground No. 2 of the appeal of the assessee for assessment year 2010 11, and also perused the facts of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this appeal is identical to the ground of appeal no. 5 of the assessee s appeal for assessment year 2010 11 and there is no change in the facts and circumstances of the case and their arguments for and against of this ground also remains the same. We have carefully perused the ground No. 5 of the appeal of the assessee for assessment year 2010 11, and also perused the facts of this ground of appeal and we also found that they are identical except the amount involved therein. While deciding the appeal of the assessee for the assessment year 2010 11, We have allowed ground No. 5 of that appeal and therefore for the same reasons we also allow ground number 10 of the appeal of the assessee. 274) Ground No. 11 of the appeal of the assessee is against the disallowance of provision of head office expenses amounting to ₹ 28.77 crores which were reversed in the succeeding year. The parties before us submitted that the issue involved in this appeal is identical to the ground of appeal no. 7 of the assessee s appeal for assessment year 2010 11 and there is no change in the facts and circumstances of the case and their arguments for and against of this ground also remains the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal of the assessee. 277) Ground No. 14 of the appeal of the assessee is against the disallowance of commission paid to dealers on institutional sales amounting to ₹ 1.16 crores disallowed by the Ld. assessing officer s for failure to deduct tax at source under section 194H of the income tax act. The parties before us submitted that the issue involved in this appeal is identical to the ground of appeal no. 10 of the assessee s appeal for assessment year 2010 11 and there is no change in the facts and circumstances of the case and their arguments for and against of this ground also remains the same. We have carefully perused the ground No. 10 of the appeal of the assessee for assessment year 2010 11, and also perused the facts of this ground of appeal and we also found that they are identical except the amount involved therein. While deciding the appeal of the assessee for the assessment year 2010 11, We have allowed ground No. 10 of that appeal and therefore for the same reasons we also allow ground number 14 of the appeal of the assessee. 278) Ground No. 15 of the appeal of the assessee is against the disallowance of ₹ 4 095.55 crores on account of non-ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground No. 15 of the appeal of the assessee for assessment year 2010 11, and also perused the facts of this ground of appeal and we also found that they are identical except the amount involved therein. While deciding the appeal of the assessee for the assessment year 2010 11, We have allowed ground No. 15 of that appeal and therefore for the same reasons we also allow ground number 17 of the appeal of the assessee. 281) Ground No. 18 of the appeal of the assessee is against the disallowance of these 41.47 Lacs on account of failure to deduct tax at source on legal and professional charges paid to the various consultant. The parties before us submitted that the issue involved in this appeal is identical to the ground of appeal no. 8 of the assessee s appeal for assessment year 2010 11 and there is no change in the facts and circumstances of the case and their arguments for and against of this ground also remains the same. We have carefully perused the ground No. 8 of the appeal of the assessee for assessment year 2010 11, and also perused the facts of this ground of appeal and we also found that they are identical except the amount involved therein. While deciding the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that they are capital expenditure in nature. The parties before us submitted that the issue involved in this appeal is identical to the ground of appeal no. 19 of the assessee s appeal for assessment year 2010 11 and there is no change in the facts and circumstances of the case and their arguments for and against of this ground also remains the same. We have carefully perused the ground No. 19 of the appeal of the assessee for assessment year 2010 11, and also perused the facts of this ground of appeal and we also found that they are identical except the amount involved therein. While deciding the appeal of the assessee for the assessment year 2010 11, We have allowed ground No. 19 of that appeal and therefore for the same reasons we also allow ground number 21 of the appeal of the assessee. 285) Ground No. 22 of the appeal of the assessee is against the treatment given by the Ld. assessing officer to the gains derived from sale of investment as business income, whereas the assessee has treated them as capital gains.. The parties before us submitted that the issue involved in this appeal is identical to the ground of appeal no.20 of the assessee s appeal for assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed ground No. 23 of that appeal and therefore for the same reasons we also allow ground number 24 of the appeal of the assessee. 288) Ground No. 25 of the appeal of the assessee is against the disallowance of expenditure on advertisement incurred by the assessee on death anniversary of late S here Raman Munjal amounting to ₹ 36.01 lakhs. The parties before us submitted that the issue involved in this appeal is identical to the ground of appeal no. 24 of the assessee s appeal for assessment year 2010 11 and there is no change in the facts and circumstances of the case and their arguments for and against of this ground also remains the same. We have carefully perused the ground No. 24 of the appeal of the assessee for assessment year 2010 11, and also perused the facts of this ground of appeal and we also found that they are identical except the amount involved therein. While deciding the appeal of the assessee for the assessment year 2010 11, We have allowed ground No. 24 of that appeal and therefore for the same reasons we also allow ground number 25 of the appeal of the assessee. 289) Ground No. 26 of the appeal of the assessee is against the disallowance of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 crores. The parties before us submitted that the issue involved in this appeal is identical to the ground of appeal no. 32 of the assessee s appeal for assessment year 2010 11 and there is no change in the facts and circumstances of the case and their arguments for and against of this ground also remains the same. We have carefully perused the ground No. 32 of the appeal of the assessee for assessment year 2010 11, and also perused the facts of this ground of appeal and we also found that they are identical except the amount involved therein. While deciding the appeal of the assessee for the assessment year 2010 11, We have allowed ground No. 32 of that appeal and therefore for the same reasons we also allow ground number 28 and 29 of the appeal of the assessee. 292) Ground No. 30 of the appeal of the assessee was against the disallowance of deduction under section 80 I. C of the income tax act on account of inter-unit transfer of goods. The parties before us submitted that the issue involved in this appeal is identical to the ground of appeal no. 30 of the assessee s appeal for assessment year 2010 11 and there is no change in the facts and circumstances of the case and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round No. 33 of that appeal and therefore for the same reasons we also allow ground number 32 of the appeal of the assessee. 295) Ground No. 33 of the appeal of the assessee is against the disallowance of deduction of ₹ 137.06 crore under section 80 I. C of the income tax act on account of other income. The parties before us submitted that the issue involved in this appeal is identical to the ground of appeal no. 34of the assessee s appeal for assessment year 2010 11 and there is no change in the facts and circumstances of the case and their arguments for and against of this ground also remains the same. We have carefully perused the ground No. 34 of the appeal of the assessee for assessment year 2010 11, and also perused the facts of this ground of appeal and we also found that they are identical except the amount involved therein. While deciding the appeal of the assessee for the assessment year 2010 11, We have decided ground No. 34 of that appeal and therefore for the same reasons we also partly allow ground number 33 of the appeal of the assessee. 296) Ground No. 34 of the appeal of the assessee is against the disallowance of deduction of ₹ 1 0 38.12 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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