TMI Blog2016 (10) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... use the same by Mahindra & Mahindra to Manufacture IFS System, in accordance with their requirement, on payment of Technical fees. In view of the same, the payment was rightly held to be revenue in nature by the Ld. CIT(A), which was rightly claimed by the assessee and also rightly allowed by the AO in original assessment proceedings. - Decided against the Revenue. Addition on account of excess claim of deduction u/s. 80IB - Held that:- Allocation of "head office expenses" for the purpose of computation of deduction 80lB on the basis of ratio of eligible sale to total sales, is only in the nature of a thumb-Rule for practical ease for such allocation. However, there is no specific provision in the Income Tax Act, 1961, to provide that head office expense should be apportioned in a particular ratio and in a particular manner only. Therefore, merely for invoking the thumb-Rule, proceeding under section 147 should not have been initiated, since there will always be more than one opinion while adopting any thumb-Rule. Furthermore, we find that the principle of consistency is also an important one for the purpose of computation of taxable income as was held by Supreme Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see preferred an appeal before the Ld. CIT(A), who vide his impugned order dated 22.12.2011 has statistically allowed the appeal of the assessee. 4. Now the Revenue is aggrieved against the impugned order and filed the present appeal before the Tribunal. 5. Ld. Counsel of the Assessee has relied upon the order of the Ld. CIT(A). He further stated that since the Ld. CIT(A) has held the reassessment as bad in law, but the Revenue has not challenged the same in the present appeal. He further stated that Ld. CIT(A) has passed a well reasoned order which does not need any interference on our part, hence, the same may be upheld and accordingly, the appeal of the Revenue may be dismissed. 6. We have heard both the parties and perused the records, especially the impugned order passed by the Ld. CIT(A). We find that Ld. First Appellate Authority has elaborately discussed the issues in dispute by considering the submissions of the assessee and adjudicated the issues vide para no. 6 to 7 of the impugned order. The said relevant paras are reproduced as under:- 6. I have carefully considered the facts of the case in light of the submission made by the appellant and applicable la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he absence of any specific legal provision in the statute, one could not state with accuracy that the computation of appellant was correct or not. Thus both issues are debatable and reopening assessment in respect of the same was therefore not justified. 6.2 Regarding the Ground No.4 of the appeal relating to treatment of the technical fees paid to M/s Mahindra Mahindra for use of design, drawing production tooling for manufacturing of Independent front suspension for Scorpio Car as capital in nature, the appellant claims that the above expenses were revenue in nature, which were incurred for the purpose of developing prototype tooling by M/s Samlip. In this regard, my attention was drawn to the Tripartite agreement dated 21 March 1998 amongst the appellant {Then called as Korin ), Mis Samlip and Mis Mahindra Mahindra. The clause (is) of the same, reads as under:- 15. TOOLINGS Subject to the provisions of this Agreement, the prototype toolings developed and manufactured by Samlip and the Production Toofings developed and manufactured y Korin, for the purpose of this Agreement, shall become the sole and exclusive property of M M. If so desired by M M, Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the current year as well. Perusal of the Agreement dated 21 March, 1998 clearly shows that. development of drawing, which is main product of the prototype agreement is clearly held to be property of M/s Mahindra Mahindra (M M). Further, the agreement clearly provides that in terms of the agreement, design and drawing taken into manufacturing of the products, and the related documents shall be handed over to M/s Mahindra Mahindra on termination of the agreement. Keeping in view the same, it is evident that the appellant company was given only limited rights to use the prototype tooling and drawing developed by M/s Samlip by M M (for which purpose the payment was paid by M/s M M to the said MIs Samlip) in lieu of which payment of technical fee to M/s Mahindra Mahindra was made for the purpose of manufacturing the IFS system for MIs Mahindra Mahindra. It is obvious that the appellant company, being auto part manufacturer for MIs Mahindra Mahindra is solely dependent upon the business given to it by M/s Mahindra Mahindra. In view of the required modernization in the IFS system, the said MIs Mahindra Mahindra made payment to the Korean company, M/s Samlip for developing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Supreme Court in the case of M/s Radhasoamy Satsang vs. (IT 193 ITR 321 (SC). On the other hand, the appellant's claim under section 80lB is duly supported by the Auditors and which also, on examination, was found acceptable by the Ld. AO in the original assessment proceedings. In view thereof, the addition made on this ground is liable to be deleted. 7. Statistically the appeal stands allowed. 7.1 After going through the findings of the Ld.CIT(A), as aforesaid, with regard to deletion of addition of ₹ 65,14,891/- on account of disallowance of Technical Fees being Capital Expenditure is concerned, we find that the assessee has been making such payments from AY 1999-2000 onwards which have been accepted as revenue in nature by the Department except during the assessment proceedings for the A.Y. 2009-10, when such payment was treated as capital in nature by the Ld. AO. On the same ground, the re-assessment proceeding was initiated in the current year as well. Perusal of the Agreement dated 21 March, 1998 clearly shows that development of drawing, which is main product of the prototype agreement is clearly held to be property of M/s Mahindra Mahindra (M M). F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual manufacturing resulted into turnover of ₹ 183.44 crores and the assessee reduced an amount of ₹ 7,55,38,858/- from its turnover, relating to inter-unit transfer in view of the provision of Companies Act 1956. Therefore, the basis of allocation of head office expenses by taking actual amount of turnover was justified and which has been followed by the assessee consistently in earlier years and has not been challenged by the Department either. Moreover, allocation of head office expenses for the purpose of computation of deduction 80lB on the basis of ratio of eligible sale to total sales, is only in the nature of a thumb-Rule for practical ease for such allocation. However, there is no specific provision in the Income Tax Act, 1961, to provide that head office expense should be apportioned in a particular ratio and in a particular manner only. Therefore, merely for invoking the thumb-Rule, proceeding under section 147 should not have been initiated, since there will always be more than one opinion while adopting any thumb-Rule. Furthermore, we find that the principle of consistency is also an important one for the purpose of computation of taxable income as was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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