TMI Blog2017 (11) TMI 1632X X X X Extracts X X X X X X X X Extracts X X X X ..... of closing stock. It was further held that provisions of Section 43B, while overriding all the other provisions of the Act, also override Section 145A and further that provisions of section 145A does not in any manner dilute or nullify the effect of provisions of Section 43B of the Act. Excise duty actually paid on purchased inputs included in RG 23A Part II - Held that:- Facts being remained the same, we are not left with any clue as to why should we deviate from this consistent view taken for successive years, as such, we, therefore, respectfully following the same line of reason we set aside the matter to the file of the Assessing Officer to decide the issue afresh in view of the above decisions in the case of assessee itself in the appeal for the assessment year 2006-07 and 2007-08 after affording opportunity of being heard to the assessee. Customs duty paid under protest - Held that:- This aspect of disallowance of claim for deduction under section 43B of the Act for the amount of Customs Duty paid under protest has been one of the subject of matters in assessee's own case for the AY 2006-07 and 2007-08 successively as similar issue supra while dealing with 'Excise dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct the Assessing Officer to allow the deduction under section 35DDA of ₹ 23,91,54,836/- (being 1 /5th of the total expenditure of ₹ 119.58 crores incurred by the appellant company, in respect of payment made to its employees under the voluntary retirement scheme during the F.Y. 2003- 04). Disallowance of expenditure incurred on club membership to be allowed Disallowance of expenditure incurred on account of royalty - Held that:- The amount of royalty considered by the Assessing Officer as capital expenditure should be allowed as a revenue expenditure, and at the same time, depreciation allowed by the Assessing Officer on this amount should be taken back Disallowance on account of R&D Cess on Royalty - Held that:- Since the related facts of the present assessment year are similar to those in the assessment year 2006- 07 and 2007-08 on an identical issue, we, while respectfully following the same direct the Assessing Officer to allow the deduction as directed by the ITAT in the appeal for the assessment year 2006-07 and 2007-08 after affording opportunity of being heard to the assessee Sales Tax Subsidy claimed as capital receipt from the total income - H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjustment on account of payment of royalty for use of brand name - Held that:- While respectfully following the decision of this Tribunal for the AY 2006-07, we order for the deletion of the addition of ₹ 237.24 crore on account of transfer pricing adjustment of royalty for use of licensed trademark. Not allowing credit of TDS certificates claimed through the revised return and during the course of assessment proceedings - Held that:- Allow ground for statistical purpose by setting aside the matter to the file of the Assessing Officer to consider the claimed TDS credit on the basis of revised return after affording opportunity of being heard to the assessee. Error in computation of interest u/s 234B - Held that:- We set aside the matter to the file of the Assessing Officer to decide the issue afresh in view of the above finding in the case of C.C.Chokshi & Co. (2010 (5) TMI 698 - ITAT MUMBAI) after hearing the assessee - ITA No.-6021/Del/2012 - - - Dated:- 9-11-2017 - SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI K.N. CHARRY, JUDICIAL MEMBER For The Assessee : Sh. Ajay Vohra For The Revenue : Sh. Aprender Kumar ORDER PER SHRI K.N. CHARY, JUDI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl. No. Particulars of Income Amount (In Rs.) i. Business Income as per return of income (as per revised return) 20,25,23,96,841 ii. Disallowance of deduction u/s 43B 66,23,77,487 iii. Disallowance on account of excess consumption claimed 1,70,45,000 iv. Disallowance on account of claim u/s 35DDA 23,91,54,836 v. Disallowance u/s 14A of the Act 7,43,27,349 vi. Disallowance on account of Club membership 10,06,470 vii. Disallowance on account of Sales Tax concession treated as Capital Subsidy in revised return 13,55,68,826 viii. Disallowance on account of Royalty payment to SMC 1,92,77,00,000 ix. Disallowance on account of Cess on Royalty to be capitalized 16,93,68,741 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04,752 2 Customs Duty paid on import of components for Exports for purposes for which export had not been made by year end 42,961 3 Customs Duty paid on import of components for Exports purposes for which export had been made by year end 12,64,98,615 4 Excise duty on Inputs balance in RG 23A Part-II 18,47,40,688 5a CVD (Modvat) paid on goods in transit to be adjusted against excise duty payable on finished products components 10,73,21,757 5b CVD (Modvat) paid on goods in transit to be adjusted against excise duty payable on finished products Steel Coils 2,78,71,332 6 Customs Duty on Goods in Transit/under inspection 1,93,27,627 7 Customs Duty on Inventory in Closing Stock 18,23,52,893 8 Customs duty paid under protest 92,431 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , CIT v. Raj and Sans Deep Ltd: 293 ITR 12 (P H), Indian Communication Network 206 ITR 96 (ITAT SB), DCIT v. Glaxo SmithKline Consumer Healthcare Ltd: 107 ITD 343 (SB) (Chd.), Hind Lamps Ltd. DCIT: ITA No. 283/D/92 (Agra), Euro RSCG Advertising (P) Ltd v. ACIT : 154 TTJ 389 (Mum), he submitted that the aggregate amount of ₹ 66,23,77,487 was allowable as deduction to the assessee under section 43B of the Act. Ld. AR further submitted that this issue is, in principle, also covered by the order of the Delhi High Court in assessee's own case for the assessment years 1994-95, 1995-96 and 1996-97, reported in 255 CTR 140. 3.4 In the light of these submissions and detailed explanation offered by both the parties now we shall proceed to deal with the item wise submissions under Ground No.3. 3.5 Adverting to Grounds No 3.1 and 3.1.1, we find in the return of income, the assessee claimed deduction of duty paid amounting to ₹ 1,41,29,183 being closing balance in the PLA, under section 43B of the Act, as under: Item No. Item Particulars Amount (Rs.) 1(a) PLA Balance of Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay such sum was incurred is immaterial and that if an amount of tax or duty is paid in the first year as advance, then the deduction is to be allowed in that year itself, but one of the primary conditions for the operation of section 43B is that the liability to pay tax or duty must necessarily have been incurred. He submitted that this has also been observed by the Hon'ble Supreme Court in Allied Motors (P) Ltd. v. CIT (1997) 224 ITR 677 (SC), which is reproduced below: As is evident from the Budget Speech of the Finance Minister for the year 1983-84 and the Memorandum explaining the provisions in the Finance Bill, 1983 that section 43B was clearly aimed at curbing the activities of those taxpayers, who did not discharge their statutory liability of payment of excise duty, employer's contribution to Provident Fund, etc. for long periods of time but claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant Previous Year. It was to stop this mischief that section 43B was inserted... 3.5.3 According to him, vide para 4.1 on page 3 of its order for A.Y. 2006-07, the coordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an identical issue after discussing in detail and following the decision cited before it including the decision of special Bench of the ITAT in the case of DCIT v. Glaxo Smith Klin Consumer Health Care Ltd. (supra) holding that the excess amount of excise duty reflected in the account-current is nothing but actual payment of excise duty even though mentioned as advance payment and hence allowable as deduction under sec. 43B of the Act in the year of payment. The special bench has further clarified that the allowing of deduction on payment basis could not result in double deduction under any circumstance. We thus respectfully following the above decision set aside the matter to the file of the Assessing Officer to decide the issue afresh after affording opportunity of being heard to the assessee as per the decision cited above in the case of assessee itself for the assessment year 2006-07 (supra). Ground Nos. 3, 3.0.1 to 3.1.1 are accordingly allowed for statistical purposes. 3.5.6 There is no change in the circumstances that are discussed in para No 8.5 of the above order so as to enable us to take any contra view. Plea of the Revenue that these are continuous issues forming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary contained in Section 145, which relates to the method of accounting followed by the assessee. He further submitted that the introduction of the provisions of Section 145A does not in any way affect the claims of the assessee under Section 43B as there is no conflict between the provisions of Section 145A and Section 43B of the Act. Though the provisions of Section 145A mandate the assessee to include the value of tax, duty, cess or fee in the value of its closing stock, nowhere it requires the assessee to go a step further and curtail the operation of Section 43B by not claiming the deduction of such duties, etc. in the year of payment but in the year in which such stocks are consumed by the assessee. He submits that even if the said amount has to be added to purchases and closing stock by virtue of Section 145A, thereby being income neutral in so far as the P L Account is concerned, the said amount will be separately deductible while computing the taxable income u/s 43B of the Act. 3.5.8 He placed reliance on the decision of the Hon'ble Supreme Court, in the case of Berger Paints ltd. v. CIT: 266 ITR 99(SC) in support of his contention that customs and excise dutie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee which was included in the closing stock and credited to the P L account a coordinate Bench of this Tribunal observed that, According to the accounting principles whenever the raw material purchased is shown in the closing stock and carried forward to the next year in the form of opening stock, it cannot be said that the cost of purchase has been allowed. For the similar reason the custom duty paid by the assessee has been added to the cost of raw material and the same has been shown in the closing stock and carried forward to the next year in the form of opening stock. Therefore it cannot be said that the expenditure on account of customs duty stands allowed to the assessee in the year under consideration .Therefore following the decision of the Special Bench, the assessee is entitled to deduction of the aforesaid amount u/s 43B in the year under consideration. 3.7. He brought to our notice that a coordinate Bench of Delhi Tribunal in the case of Purolator India Ltd. v. DCIT: ITA No. 1441/Del/2003 decided similar issue in favour of assessee by accepting the valuation of closing stock on net of MODVAT basis by following the decision of the Supreme Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is entitled for duty drawback, which becomes immediately due on the date of export, the amount of custom duty on import as revenue neutral, as a result of which, no deduction is allowable to the assessee in respect of the same. According to the assessee, The assessing officer failed to appreciate that the Duty drawback does not accrue automatically on export of goods since the exporter is required to fulfill various addition/requirements in order to claim the same, but it accrues only when the claim of the exporter-assessee is sanctioned by the custom authorities and also that Duty drawback receivable is separately chargeable to tax as income of the assessee under section 28 of the Act. He explained that the receipt of duty drawback is altogether different from allowability of deduction in respect of which duty paid by the assessee on payment basis under section 43B of the Act. Without prejudice to this contention, he argued that in case the assessing officer's contention were to be accepted, then duty drawback income amounting to ₹ 12,12,31,609/-declared by the assessee for the year under consideration should be directed to be excluded. 3.9 He submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is customs duty of ₹ 8,65,07,635/- paid on import of components for which exports had been made by the year end and ₹ 1,47,142/- for which exports had not been made by the year end. These amounts claimed by the assessee as allowable u/s 43B of the Act, were disallowed by the AO. It is common submission that the tribunal has allowed deduction in respect of these amounts in the preceding years. 5.2. Here again it is noticed that the assessee has also followed 'Exclusive method'. In such circumstances, this method needs to be substituted with 'Inclusive method' as mandatorily required u/s 145A. We, therefore, direct the AO to recast Profit and loss account as per 'Inclusive method' as discussed above and then allow deduction in respect of the customs duty paid in accordance with section 43B, if not getting deducted in such recast. Customs duty paid on import of components for which exports had/had not been made by the year end under the inclusive method would now stand included in the value of imports and accordingly get deducted. Customs duty of ₹ 8,65,07,635/- paid on import of components for which exports had been made by the year end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally paid by the assessee under the Excise Laws. Since the aforesaid amount of excise duty was actually paid by the assessee as part of purchase price of raw material and inputs, the same has been claimed as deduction under section 43B of the Act. The assessing officer, however, disallowed the aforesaid amount following the assessment order for the assessment year 2005-06. 3.14 It is the submission of the Ld. AR that the Special Bench of the Tribunal in the case of DCIT v Glaxo SmithKline Consumer Healthcare Ltd: 107 ITD 343/ 299 ITR (AT) 1 (Chd.) (SB), has held that, unutilized MODAT credit is not an allowable deduction, since such credit does not amount to payment of duty, and following this order of the Special Bench, the ITAT in assessee's own case had decided the issue against the assessee till AY 2005-06. However, Supreme Court has allowed the deduction u/s 43B for the amount lying credited in the Modvat account at the end of the accounting year thereby dismissing the SLP (No. 23461/2012) filed by the department against the order of HC in the case of Shri Ram Honda Power Equipment Ltd. : 352 ITR 481 (SC) and while following the this judgment in Shri Ram Honda Power Equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61. Therefore, we hold that the Modvat credit available to the assessee as on the last day of the previous year does not amount to the payment of Central excise duty under s. 43B... 3.16 He further submitted that in Shri Ram Honda Power Equipment Ltd.(supra), the Hon'ble Apex Court has merely relied on the judgement of Hon'ble Bombay Court in CIT v. Indo Nippon Chemical Co. Ltd.(2000) 245 ITR 384 (Bom.), which was subsequently upheld by it. However, the facts of the matter in Indo Nippon (supra) are distinguishable inasmuch as the issue therein dealt with the method of valuation of stock of inputs, work in progress and finished goods with respect to the inclusion of Modvat credit, the Hon'ble Bombay High Court as well as the Hon'ble Supreme Court made no comments as to the nature allowability of unutilised Modvat credit in Indo Nippon (supra), as such, in view of this situation, unutilised Modvat credit does not amount to actual payment of central excise duty and therefore, cannot attract the provisions of Section 43B. Lastly he submitted that these are continuous issues forming part of the assessment order for AY 2005-06, 2006-07 and 2007-08 also, and ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 are sold and the finished goods corresponding to Modvat utilized of ₹ 2 are in stock. The assessee will get deduction for ₹ 9 under the exclusive method. Simultaneously the assessee will offer income of ₹ 7 embedded in the sale price. It is the remaining amount of Re.1 which is unutilized Modvat credit appearing as an asset in the balance sheet at the end of the year, for which the assesse is now seeking deduction. 4.16. At the outset, we want to mention that the Special Bench of the Tribunal in Glaxo Smithkline Consumer Healthcare (supra) has held that unexpired Modvat credit before it is set off, cannot be treated as tax paid. Accordingly the Special Bench held that the Modvat credit available to the assessee as on the last date of the previous year does not amount to payment of excise duty and is, hence, not allowable u/s 43B. In earlier years, the Tribunal has followed the dictum of this Special Bench verdict and upheld the disallowance. The ld. AR submitted that there has been further articulation of law on this point. Referring to the judgment of the Hon'ble Supreme Court in the case of CIT v. Shri Ram Honda Power Equipment Ltd. [2013] 352 ITR 48 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the preceding year, if allowed as deduction in such earlier year, requires a separate addition to the income of the current year. It is the treatment of Modvat credit under the 'Exclusive method'. 4.18 We have noticed supra that the use of 'Exclusive method' is no more permissible in the year under consideration. As such, there is a need to give effect to section 145A read with section 43B under the 'Inclusive method'. 4.19 Before taking up this aspect, we would like to deal with the judgment of the Hon'ble Supreme Court in Shri Ram Honda (supra), relied by the ld. AR for supporting the claim of per se deduction without any further adjustments as per section 145A. It is relevant to note that the Hon'ble Supreme Court in Shri Ram Honda (supra) was dealing with A.Y. 1995-96. While granting deduction for Modvat credit, the Hon'ble Summit Court followed the judgment of the Hon'ble Bombay High Court in CIT v. Indo Nippon Chemical Co. Ltd., [2000] 245 ITR 384 (Bom), as affirmed by the Hon'ble Apex Court in (2003) 261 ITR 275, in holding that the same was squarely applicable and hence the amount was deductible. The assessment year invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in closing stock; and Re. 1 as a part of purchases of raw materials and also simultaneously a part of the corresponding raw materials in closing stock. Though apparently it appears that the assessee gets deduction of ₹ 3 also by way of higher value of purchase of raw material, but the reality is different. When the figures of closing stock of finished goods and raw material also include ₹ 3, then in fact, there is no deduction of ₹ 3, because debit to the Profit and loss account through increased purchase value gets neutralized with the credit to the Profit and loss account with increased value of closing stock. This enhanced value of closing stock inclusive of ₹ 3 will become opening stock of the succeeding year, thereby obliterating the effect of deduction of ₹ 3. When such goods are sold or utilized and sold in the next year, the sale price will be realized which will be inclusive of ₹ 3 excise duty component also. So in fact, there is no actual deduction of ₹ 3 during the year under consideration because of the increased purchase price getting counterbalanced with the equal amount of loading in the value of closing stock. After having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns in the case of assessee itself in the appeal for the assessment year 2006-07 and 2007-08 after affording opportunity of being heard to the assessee. These grounds No 3.4 to 3.4.1are thus allowed for statistical purposes. Ground No 3.5: Customs duty included in closing inventory 3.19 In respect of disallowance of custom duty paid on import of raw material/inputs, challenged under Ground No 3.5, case of the assessee is that they have followed inclusive method of accounting, and accordingly, the amount of custom duty paid on imported inputs/ raw material is included in the purchase price, which is debited to the Profit Loss Account. According to them, the said duty is also included and considered as part of the value of closing stock, which is shown in the credit side of the Profit Loss Account. Assessee submits that the Custom duty of ₹ 18,23,52,893/- represents custom duty on import of raw material/inputs, which is included in the value of closing stock as per the aforesaid inclusive method of accounting followed by the assessee and such a method is in line with the provisions of section 145A of the Act. Inclusion of custom duty, both in the value of purchase a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck, it has already received deduction on these items which are also debited to the P L account. Further, according to him the computation of income starts from the net figure of P L account which means that the deduction is automatically allowed to the assessee, as such, no independent deduction can be allowable to the assessee under this head. On this premise, he submits that the decision of ITAT was not acceptable for AY 2006- 07 and 2007-08 on this issue. However, these are continuous issues forming part of the assessment order for AY 2005-06, 2006-07 and 2007-08 also, and are at present pending adjudication before Hon'ble Delhi High Court. 3.23 Vide para 5.6 and 5.7 of the order dated 24.8.2015 for A.Y. 2006-07 in assessees own case, a coordinate Bench of this Tribunal dealt with this aspect in the following manner:- 5.6. The last aspect of disallowance u/s 43B is customs duty included in closing stock amounting to ₹ 22,52,46,693/-. The assessee claimed deduction for this sum, which was denied by the AO. The ld. AR stated that the assessee followed 'Inclusive method' of accounting on this issue. The claim of the assessee is that the amount of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by the assessee during the year under consideration, the same was claimed as deduction under section 43B of the Act. But the assessing officer disallowed the aforesaid following assessment order for the assessment year 2005-06. Ld. AR submitted that this issue was also decided in favour of assessee by the Supreme Court in Civil Appeal No. 6449/2012 wherein the SLP filed by the department against the order of the Delhi High Court in the case of CIT v. Samtel Color Ltd : 184 Taxman 120 was dismissed holding that Custom duty paid is allowable deduction u/s 43B of the Act. He further submits that apart from this, the issue stands covered in favour of the assessee by the order of a coordinate Bench of this Tribunal for the assessment years 1999-00, 2000-01, AY 2002-03, AY 2005-06, AY 2006-07 and 2007-08 wherein it was held that since the duty is paid, deduction claimed u/s 43B of the Act has to be allowed. 3.26 Per Contra, on these Grounds 3.6 and 3.7, Ld DR submitted that in respect of the amount of ₹ 13,51,93,089/- being customs duty (CVD) paid to be adjusted against excise duty payable on finished products, a coordinate Bench of this Tribunal has also accepted that unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion u/s 43B. In our considered opinion, there can be no dispute on the otherwise availability of deduction of advance customs duty paid by the assessee, which has to be allowed in the year of payment. In this judgment also, the Hon 'ble High Court has noticed vide para 3 that the provisions of section 145A were not applicable as the assessment year under consideration was 1995-96. In view of the detailed discussion supra with reference to the applicability of section 145A to the year in question, there can be no escape from valuation of purchase, sale and inventories under the inclusive method. We, therefore, direct the AO to recast Profit and loss account under 'Inclusive method' as per the mandate of section 145A, thereby, inter alia, increasing the purchase value with the above customs duty. Then the AO will allow separate deduction for the above referred sums to the extent not getting eventually deducted separately by way of increased purchase price, as has been discussed above. At the same time, we also direct the AO to make sure that such amount separately getting deducted in this year does not get deduction once again in the next year. In the like manner, the las ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rampal Satyapal Sons (P.) Ltd.: 50 DTR 287, held that the amount paid by the assessee against excise duty demand raised by excise authorities was allowable deduction as it was statutory liability which was allowable on payment basis under section 43B of the Act, and also submitted that in assessee's own case for A.Y's 1999-00, 2000-01, 2001-02, 2002-03, 2005-06, 2006-07 and 2007-08, coordinate Benches of this Tribunal have held that, since the duty is paid, deduction claimed u/s 43B of the Act has to be allowed. 3.29 This aspect of disallowance of claim for deduction under section 43B of the Act for the amount of Customs Duty paid under protest has been one of the subject of matters in assessee's own case for the AY 2006-07 and 2007-08 successively, and for the AY 2006-07 vide para 5.5 of the order dated 24.8.2015, the following finding was returned by the Tribunal, 5.5. Next item is Customs duty paid under protest amounting to ₹ 1,34,25,787. We have discussed similar issue supra while dealing with 'Excise duty paid under protest' by holding that first the Profit and loss account be recast as per 'Inclusive method' in terms of section 145 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2005-06 and AY 2006-07 and by CIT(A) in AY 2001-02 and 2002-03. 4.1 As submitted by the Ld. AR, in the order dt 24.08.2015 for the AY 2006-07, this Tribunal in assessee's own case, vide paragraph No 6.3 and 6.4 dealt with this issue in the following manner: 6.3. Ground nos. 4 to 6.1 deal with a sum of ₹ 1,41,59,08,897, which has been stated to be a total of certain amounts claimed by the assessee as deductible in the preceding year u/s 43B as excise duty and customs duty and voluntarily offered for taxation in the current year's income. The ld. AR contended that since such deductions have been denied by the AO, the corresponding offering of the same to tax in the current year, be eliminated. 6.4. We agree with the ld. AR that one amount cannot be taxed twice. It is but natural that if an amount claimed as deduction by the assessee in the earlier year has not been allowed, then on the assessee's suo motu offering of it as an item of income for the current year on the strength of deduction claimed in the earlier year, which finally stands denied, should not be charged to tax. On being called upon to furnish the detail of such amount, it was stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee followed the elaborate system of book keeping for receipt and issue of raw material and component as also manufacture of finished goods. The assessee followed Just in Time system for management and reorder of inventory, whereby the inventories are ordered just in time when the requirement for said inventory arises in respect of production shops, in that process the material so required is delivered straight to the shop floor in the relevant department and at a time there remain only a few hour inventories except for certain items, and on daily basis, a consolidated entry is passed for consumption of various materials on the basis of Bill of Material ('BOM'), which basically contains the standard quantity of material required for manufacture of a vehicle on the basis of the number of vehicles manufactured. However, in case of certain material, such as paint, consumption is recorded on actual basis as against consumption of other material being recorded on the basis of standard bills of material and at the year end, actual physical verification of the inventories is carried out by the assessee followed by preparation of stock reconciliation in respect of va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 1999-2000 to 2002-03, AY 2005-06, 2006-07 and 2007-08. 5.1 Per contra, it is the argument of the Ld. DR that though AO held that while the system of accounting employed by the assessee is not being challenged, at the same time, it is noted that the system has produced an error, which has also been accepted by the assessee, as such, there is no reason why revenue authorities should continue with the error and allow the assessee excess consumption. Further according to him even if the amount of variation is insignificant and arises out of a systematic problem, there is no reason for the same to be accepted, once it is noticed. He urges that one needs to understand the reasoning behind the disallowance made in the assessment. According to him, since the coordinate Bench of this Tribunal has not controverted the stand taken by the AO, it was an error to direct the AO to allow the excess consumption on the ground of its being insignificant. He further submitted that the decision of the ITAT for the immediately preceding AY is at present pending adjudication before the Hon'ble High Court. 5.2 There is no denial of the fact that the issue is squarely covered in favour of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, it cannot call for any disallowance. There may be production efficiencies or inefficiencies leading to under or over consumption of inputs vis a-vis standard consumption. Such under or over consumption becomes a part of the cost of production. In our considered opinion, there can be no logic in disallowing such amount, which is nothing but excess consumption of inputs. Similar view has been taken by the Tribunal in the assessee 's own case for earlier assessment years including the immediately preceding assessment year. This ground is allowed . 5.3 Following the above decision, this Tribunal for AY 2007-08, directed the Assessing Officer to delete the disallowance. Further the Ld. AR brought to our notice, a decision of the Hon'ble Apex Court in Commnr. Of Central Excise v. M/s Maruti Suzuki India Ltd in Civil Appeal No 7829/2004 decided on 3.4.2015 wherein the Hon'ble Apex Court held that when the shortage of in-putes as corrected is only 0.24%, that would be immaterial and correction of the total input is in use. It is, therefore, clear that for the successive AYs 2006-07 and 2007-08, the Assessing Officer was directed to delete the disallowance in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order is without judicious appreciation of the facts and correct position of law, and is liable to be deleted. Ld. AR based his arguments on three reasons: 1. the assessing officer, in the assessment order, has not pointed out even a single expenditure being incurred by the appellant during the year, having relation/ proximate nexus with exempt dividend income earned during the year; 2. no investments were made from borrowed funds; 3. while computing disallowance as per Rule 8D, entire investments have been considered, without excluding the strategic long-term business investments, not for the purpose of earning dividend but for furthering the operations/ business of the company; and investments not resulting in any exempt income during the year under consideration; 6.2 On the first aspect, basing on the provisions of section 14A it is contended that even for assessment years 2008-09 and onwards, disallowance under section 14A, as per provisions of Rule 8D of the Rules can be made only if the assessing officer, having regard to the accounts of the assessee, reaches a finding that assessee has incurred actual expenses, which have proximate nexus with earning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such expenditure must be incurred in relation to the earning of exempt income, which means that there must be some nexus between the actual expenditure and the exempt income. In this regard he placed reliance on SIL Investment Ltd. v ACIT: 148 TTJ 213 (Del.) , M/s Multi Commodity Exchange of (India) Ltd. Vs. DCIT: ITA No.1050/Mum/2010 (Mum.), M/s. Auchtel Products Ltd. v ACIT: I.T.A. No. 3183 /Mum/2011 (Mum.), Om Era Engineering (P) Ltd. v .ITO: ITA No. 3913/D/2010 (Del.), Minda Investments Ltd. v. DCIT: 138 TTJ 240 (Del.), Punjab National Bank v. DCIT: 103 TTJ 908 (Del.), Vidyut Investment Ltd: [2006] 10 SOT 284 (Del.) , Impulse (India) Pvt. Ltd.: [2008] 22 SOT 368 (Del.) , D.J. Mehta v. ITO: 290 ITR 238 (Mum.)(AT), Jindal Photo Ltd v. DCIT: ITA No. 814 (Del) 2011, Dishman Pharmaceuticals Chemicals Ltd. v. Dy. CIT: 45 SOT 37 (Ahd.), Minda Investments Ltd. v. Dy. CIT: 138 TTJ 240 (Del), Bunge Agribusiness (India) (P.) Ltd. v. Dy. CIT: 132 ITD 549 (Mum.) also. 6.4 In the present case of the assessee, the assessing officer has simply applied the procedure prescribed in Rule 8D of the Rules to compute the amount disallowable under section 14A of the Act without appreciating tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Others including interest on cash credit/overdraft 61 Total : 128 6.8 Whereas as is evident from the balance sheet the following interest free funds were available at disposal of the assessee: a) Share Capital ₹ 144 crores (b) Reserves and Surplus ₹ 8,271 crores ₹ 8,415 crores 6.9 Ld. AR submitted that in case of mixed pool of funds, the correct method to establish source of investment would be to consider the macro fund/ cash flow position during the year and basing on the decisions in East India Pharmaceutical Works Ltd. v. CIT: 224 ITR 627 (SC), Indian Explosives Ltd. v. CIT: 147 ITR 392 (Cal.), Woolcombers of India Ltd. v. CIT: 134 ITR 219 (Cal.) - approved by Supreme Court in the case of East India Pharmaceutical Works Ltd. v. CIT: 224 ITR 627, Alkali Chemical Corp. of India v. CIT: (1986) 161 ITR 820 (Cal.), CIT v. Reliance Utilities and Power Ltd.: 313 ITR 340 (Bom.), CIT v. M/s. Ashok Commercial Enterprises: ITA No. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contended on behalf of the assessee that the disallowance computed under section 14A of the Act is incorrect since while computing disallowance as per Rule 8D, entire investments have been considered, without excluding the following: (a) strategic long-term business investments, not for the purpose of earning dividend but for furthering the operations/ business of the company; and (b) investments not resulting in any exempt income during the year under consideration. 6.12 Reliance is placed on the decisions in CIT v. Oriental Structural Engineers Pvt. Ltd.: 216 Taxman 92 (Del.) , Cheminvest Ltd v. CIT : 379 ITR 33 (Del HC), Eicher Goodearth Ltd. v. CIT: 378 ITR 28 (Del.), VA Tech Escher Wyss Flovel (P) Ltd. v. ACIT: [2014] 147 ITD 678 (Del Trib.) , CIT v. Knorr Bremse India(P) Ltd.: ITA No 1676/2002 (Del Trib.), Interglobe Enterprises v. DCIT: ITA No. 1362 1032/D/2013 (Del Trib.), Garware Wall Ropes v. ACIT: ITA No. 5408/2012 (Mum.), ACIT v. M/s Spray Engineering Devices Ltd: ITA No. 646/Chd/2009 (Chd.), J.M. Financial Ltd. v. ACIT: ITA No. 4521/ Mum/2012 (Mum. Trib.), Piem Hotels Limited v. DCIT: I.T.A No. 240/Mum/2012 (Mum Trib.), DCIT v. Morgan Stanley India Securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 5/2014 etc. 6.15 In this matter, assessee earned dividend income of ₹ 166,83,50,967/-, which was claimed as exempt from tax under sections 10(34) and 10(35) of the Act. However, according to the assessee, they did not incur any expenditure in earning this. Making investment, maintaining or continuing with any investment in a particular share/mutual fund etc. and the time when to exit from one investment to another are all the activities requiring well coordinated and well informed management decisions, involving not only inputs from various sources but it also involves acumen of senior management functionaries. There are incidental administrative expenses on collecting the information, research, etc. which helps in arriving at particular investment decisions and these expenses, relating to earning of income are embedded in the indirect expenses without which it would not be possible to carry out this herculean task. It, therefore, cannot be said that no expenditure at all incurred to earn ₹ 166,83,50,967/-, when huge amounts to a tune of ₹ 8,415 crores was available with the assessee. By looking into these factors, Ld. AO proceeded to hold that Rule 14A is ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2004-05, AY 2005-06, AY 2006-07 and AY 2007-08. Further, reliance is placed on CIT v. Sony India (P) Ltd : 210 Taxman 149 (Del) and State Bank of Mysore v. CIT, 139 ITD 526 (Bang) where it has been held that compliance with the conditions of rule 2BA is mandatory only to avail the exemption under section 10(10C) by employees and not for the purposes of deduction under section 35DDA. 7.1 Per contra, it is the argument of the Ld. DR that this issue was also adjudicated upon by the coordinate Bench of this Tribunal in favour of the assessee based on the findings in the decision in the assessee's own case for AY 2004-05, 2006-07 and AY 2007- O8 and the Department is in appeal against such orders. 7.2. In State Bank of Mysore v. CIT, 139 ITD 526 (Bang) it was held as follows: It is clear from the proviso to s. 10(10C) that in order to claim an exemption under this section in respect of any payments received/receivable by an employee under any voluntary retirement scheme/schemes, such scheme/schemes must comply with the guidelines prescribed in this regard i.e. guidelines prescribed under Rule 2BA. In other words, the employee is entitled to exemption u/s. 10(10C) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure of ₹ 119.58 crores incurred by the appellant company, in respect of payment made to its employees under the voluntary retirement scheme during the F.Y. 2003- 04). Ground Nos 7 to 7.3 are allowed accordingly. Ground No 8 disallowance of expenditure incurred on club membership 8. On the aspect of disallowance of ₹ 10,06,470/- expenditure incurred on club membership, case of the assessee is that the assessee company has debited ₹ 10,06,470/- to profit loss account, the expenditure was incurred on subscription to clubs provided to various employees and directors on account of club membership fees and the assessing officer has, in the impugned assessment order disallowed the said expenditure of ₹ 10,06,470/-by holding that the same cannot be considered as business expenditure. Ld. AR argued that this expenditure has been incurred for business purposes on the grounds of commercial expediency and there is no element of any personal benefit being granted either to the employee or director and the Tax Auditors have amply clarified this position vide clause 17(b) of the Tax Audit Report. Basing on the decision of the Supreme Court in the case of Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only 5 years whereas the licence agreement is for 10 years, extendable by 5 years and even thereafter the assessee can produce the said model of car, and the licence agreement led to the assessee setting up a new factory based on new technology, and for these reasons the assessee had enduring benefit as such royalty paid by the assessee was capital in nature, and consequently, held that the entire royalty is disallowable. On this premise, basing on the adjustment of ₹ 237.24 crores, made by TPO the assessing officer has computed the disallowance out of royalty payments to a tune of ₹ 192.77 Cr. 9.1 It is the argument of the Ld. AR that the assessing officer failed to appreciate the fact that the nature and purpose for which the royalty has been paid to SMC is only the use of licensed information for the engineering, design and development, manufacture, testing, quality control, sale and after sales service of Products and Parts, and as per clause 7.01 of the agreement the duration of the agreement has been specified as 10 years and vide clause 7.04 of the agreement it was subject to termination at earlier date for breach. He submitted that as evidenced by clause 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 109 (Del), Climate Systems India Limited v. CIT: 319 ITR 113 (Del), Shriram Pistons and Rings Limited v. CIT: 307 ITR 363 (Del), CIT v Lumax Industries Limited 173 Taxman 390 (Del), CIT v. J.K. Synthetics Ltd. 309 ITR 371 (Del), CIT v. Munjal Showa Ltd. : 329 ITR 449 (Del), CIT v. Hero Honda Motors Ltd.: 372 ITR 481 (Del.), CIT v. Denso India P. Ltd.: 232 Taxman 437 (Del.) , CITv. Modi Revlon (P) Ltd : 210 Taxman 161(MAG.) (Del.), CIT v. Prem Heavy Engineering Works P. Limited: 282 ITR 11 (All.), CIT v. Artos Breweries Ltd : [2013] 215 Taxman 80 (AP), CIT v. Essel Propack 325 ITR 185 (Bom), CIT v. Eicher Motors Ltd : 293 ITR 464 (M.P.), ITO v. Shivani Locks : 118 TTJ 467 (Del ITAT), Goodyear India Ltd. v. ITO : 73 ITD 189 (Del ITAT), Hero MotoCorp Limited v. ACIT : ITA Nos. 5130/Del/2010 for assessment year 2006-07 (Del. ITAT), Fenner (India) Ltd v. ACIT : [2012] 139 ITD 406 (Chennai), Glaxo SmithKline Consumer Healthcare Limited : ITA No. 1324/Chd/2012 (Chd), GlaxoSmithKline Consumer Healthcare Ltd. v DCIT : 175 TTJ 552 (Chd. Trib.), the issue of allowability of royalty payments as revenue expenditure is covered in favour of the assessee company. 9.5 He further relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee by the Delhi Bench of the Tribunal in assessee's own case for the AY2006-07 and AY 2007-08holding that amount of royalty considered by AO as capital expenditure should be allowed as revenue expenditure. For these reasons he prayed that the assessing officer may be directed to allow the entire royalty payment as allowable revenue deduction. 9.6 Per contra, Ld. DR vehemently defended the observations of the AO, while submitting that in the scenario of a New Model coming every 2nd or 3rd year and the old Models getting phased out, License Agreement is for 10 years, extendable by 5 years and even thereafter MSIL can produce the said model of Car, is more than enduring. Further, there has been technology transfer for manufacturing the product, and the personnel of the company have been technically trained. The transfer of technology is as per the License Agreement but the Skill which has been acquired year after year due to training of the companies personnel has been absorbed in the company and can be used across the other Products. This is again an enduring benefit. Referring to the cases cited by the Ld. AR, it is the argument of the Ld. DR that in all the cases where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are continuous issues forming part of the assessment order for AY 2005-06, 2006-07 and 2007-08 also, and are at present pending adjudication before Hon'ble Delhi High Court. 9.7 On this issue, a coordinate Bench of This tribunal in assessee's own case for AY 2007-08, vide para 20.5 and 20.6 on page 91-93 of order, referred to order for AY 2006-07 and held as under: 8.5. The ld. DR has relied on certain decisions, which categorize payment for use of technical know-how etc. as a capital expenditure. Similarly, the ld. AR has also relied on certain decision which mark such payment as a revenue expense. In all these decisions, the dividing line is whether the consideration is for purchase of technical information, know-how information, designs and drawings, etc., or for its use. If it is for use alone, then it is revenue and vice versa. Recently, the Hon'ble jurisdictional High Court in CIT v. Hero Honda Motors Ltd. [2015] 372 ITR 481 (Del), on consideration of the relevant clauses of the agreement before it, which considerably match with the Agreement under consideration, has held that the payments made for Model fee (which is equivalent of Lumpsum royalty in our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... higher forums, we find it difficult to countenance the argument of the Ld. DR that the ratio decidendi of the Delhi High Court decision in Hero Honda Motors Ltd. (supra) would not be applicable in the facts of the instant case. We, therefore, respectfully following the same hold that the amount of royalty considered by the Assessing Officer as capital expenditure should be allowed as a revenue expenditure, and at the same time, depreciation allowed by the Assessing Officer on this amount should be taken back. Grounds No 9 to 9.3 are, accordingly, allowed. Ground No 10 to 10.2 disallowance of ₹ 16,93,68,741/- on account of R D Cess on Royalty 10. Case of assessee in respect of Disallowance of R D Cess paid, is that as per provisions of Research and Development Cess Act, 1986, R D cess is imposed on import of technology by the Government of India, which is definitely not a related party of the appellant company, and the assessee has been instructed by the Government of India's approval for remittance of royalty to pay R D cess on the payment of royalty. R D cess, being a statutory payment, is governed by section 43B, which is a separate code in itself and overrides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year are similar to those in the assessment year 2006- 07 and 2007-08 on an identical issue, we, while respectfully following the same direct the Assessing Officer to allow the deduction as directed by the ITAT in the appeal for the assessment year 2006-07 and 2007-08 after affording opportunity of being heard to the assessee. Grounds 10 to 10.2 are allowed accordingly. Ground No 11 to 11.5 not accepting the claim of the appellant that sales tax subsidy 11. Grounds No 11 to 11.5 relate to the Sales Tax Subsidy claimed as capital receipt from the total income. Briefly stated relevant facts on this ground, as apparent from record and the Industrial Policy, 1999 notified on 11.11.1999 by the State Government of Haryana having a bearing on the claim of the assessee, are that the assessee had, for the relevant year under consideration, received sales tax concessions amounting toRs.13,55,68,826/- from the Government of Haryana under Rule 28C of the Haryana General Sales Tax Rules, 1975, and claimed it to be a capital receipt not liable for tax. However, AO denied the same and brought it to tax by treating the same as revenue receipt. 11.1 It is submitted on behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowed by the Delhi Bench of the Tribunal in the case of Johnson Matthey India (P) Ltd. v. Addl. CIT in ITA No.952/Del/2011, wherein the Tribunal, in the context of the aforesaid sales tax incentive in the State of Haryana, held the incentive to be capital receipt, not liable to tax, most importantly the Hon'ble Delhi High Court affirmed the said decision in the case titled as CIT v. Johnson Matthey India Pvt. Ltd. in ITA No. 193/2015. 11.3 Basing on this set of facts and law, Ld. AR submitted that the issue of taxability of Sales Tax Subsidy pursuant to the Haryana Government's Scheme is squarely covered in favour of the assessee by the aforesaid binding decision of the jurisdictional Delhi High Court in the case of Johnson Matthey (supra). 11.4 Per contra, Ld. DR placed reliance on the decision of the Delhi High Court in the case of CIT vs Bhushan Steel and Stripes Ltd., dt. 13.7.2017, ITA No. 315/03,316/03,317/03,349/03 and 434/05 and submitted that in this decision after considering all the decisions specially Sahney Steel and Ponni Sugars and Chemicals Ltd. of Hon'ble Supreme Court, it was concluded by the Hon'ble Delhi High Court that the Sales Tax subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Bench, ITAT which falls under the jurisdiction of the Hon'ble Delhi High Court. 11.6 On this premise, Ld. DR, therefore, prayed to consider the recent decision of the Hon'ble Delhi High Court reached in the case of Bhushan Steel Stripes Ltd. for considering the sales tax subsidy as the revenue receipt without considering the decision as per incuriam which is a subject matter of Hon'ble supreme Court. 11.7 In reply, Ld. AR submitted that in the case of the Bhushan Steel Strips Limited the Hon'ble Delhi High Court considered the case of sales-tax subsidy received under an altogether different industrial policy of the Government of UP, and in that different context of the policy of the Government of UP, the Court held that the sales tax subsidy was in the nature of a revenue receipt and not a capital receipt. 11.8 Ld. AR referred to the paragraph No 25 and 26 of the decision in Bhushan Steel Strips Limited (supra) in support of his submission that this decision of the Delhi High Court in the case of Bhushan Steel (supra) is confined to the peculiar facts of the Uttar Pradesh Industrial Policy, 1990, as would be evident from the following observations: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the subsidy received was not in the nature of a capital subsidy but only a revenue subsidy; whereas, according to the Ld. AR, unlike in the UP Industrial Policy, there is no specific provision in the Haryana Industrial Policy for capital subsidy and hence, the decision in the case of Bhushan is not applicable. As regards observations of the Hon'ble Court regarding no strings being attached to the incentives, Ld. AR submitted that such observations have to be read in the aforesaid context/ discussion wherein the Court held that the case of Bhushan was not falling in capital subsidy scheme as contained in the UP Policy. 11.10 Ld. AR pointed out that in fact, in Johnson Matthey (supra) and Bougainvillea Multiplex Entertainment Centre (P) Limited: 373 ITR 14 the Hon'ble Delhi High Court held that despite no strings being attached thereto, the subsidy or incentive, as the case may be, was in the nature of capital subsidy. He submitted that in similar view has been taken in Shree Balaj Alloys : 198 Taxman 122 (J K) affirmed by SC in 287 CTR 459, CIT v. Chaphalkar Brothers: 351 ITR 309 (Bom) , CIT v. Rasoi Limited : 335 ITR 438 (Cal) , CIT v. Birla VXL Ltd: 215 Taxman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other, the judgment rendered in case of Johnson Matthey (supra) has to be preferred because the decision in the case of Bhushan Steel (supra) was rendered without considering the earlier decisions rendered by the bench of co-equal strength in case of Johnson Matthey (supra) and Bougainvillea Multiplex Entertainment Centre (P.) Ltd. (supra). Saying so, he submitted that the contention of the Ld. DR that in the processes of advancement of jurisprudence, the Hon'ble High Court has evolved the law to treat the sales tax subsidy as revenue receipt cannot be accepted. 11.14 Lastly, Ld. AR contended that in Sandeep Kumar Bafna v. State of Maharashtra and Anr. : AIR (2014) SC 1745; and Mamaleshwar Prasad v. Kanhaiyalal (Dead) through L.Rs. : AIR (1975) SC 907 it has been held that where two judicial precedents of co-equal strength are available on the issue and the later judgment does not consider the earlier one, then, the lower court shall follow the judicial precedent rendered earlier in point of time. 11.15 We have carefully gone through the rival contentions in the light of the decisions of the Hon'ble jurisdictional High Court in CIT v. Bougainvillea Multiplex Enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cent of the equity capital paid up in the case of public limited companies and the actual capital in the case of others; subsidy on power consumed for production to the extent of 10 per cent in the case of medium and large scale industries etc; exemption from payment of water rate Liability on account of assessment of land revenue or taxes on land used for establishment of any industry, shall be limited to the amount of such taxes payable immediately before the land is so used. 11.17 In Sahney Steel's case, it was contended on behalf of the assessee that the subsidy given was up to 10 per cent of the capital investment calculated on the basis of the quantum of investment in capital, and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales tax on raw materials, machinery and finished goods were also of capital nature as the object of granting refund of sales tax was that the assessee could set up new business or expand his existing business. However, Hon'ble Apex Court on examination of the decisions in the case of Seaham Harbour Dock Co. v. Crook 16 Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether by way of refund of sales-tax or relief of electricity charges or water charges can be treated as an aid to setting up of the industry of the assessee. If any subsidy is given, the character of the subsidy in the hands of the recipient-whether revenue or capital-will have to be determined by having regard to the purpose for which the subsidy is given. If it is given by way of assistance to the assessee in carrying on of his trade or business, it has to be treated as trading receipt. The sales-tax upon collection forms part of the public funds of the State. In this sense it was held that the source of the fund is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project, the monies must be treated as to have been received for capital purpose. But, if monies are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade. In Sahney's case, subsidies have not been granted for production of or bringing into existence any new asset, but were granted year after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Sahney Steel and Press Works Ltd (supra) is, therefore, that the character of the subsidy in the hands of the recipient-whether revenue or capital- will have to be determined by having regard to the purpose for which the subsidy is given. If the purpose is to help the assessee to set up its business or complete a project, the monies must be treated as to have been received for capital purpose, and if it is given by way of assistance to the assessee in carrying on of his trade or business, it has to be treated as trading receipt. The source of the fund is quite immaterial. In a case where 75 per cent of the sales-tax paid in a year for a period of five years from the day of starting of production was to be given back by the Government to the industry concerned, the view taken by the Madhya Pradesh High Court that the subsidy was given by way of an incentive for capital investment and not by way of addition to the profits of the assessee was expressly disapproved basing on the significant fact that under the scheme framed by the Government, no subsidy was given until the time production was actually commenced. 11.20 In Ponni Sugars case (supra), four factors exist in the Incent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chemicals Ltd: 306 ITR 392 (SC) found vide Para No 32, that the UP Scheme under which the assessee claims exemption to the extent of entertainment tax subsidy, claiming it to be capital receipt, is clearly designed to promote the investors in the cinema industry encouraging establishment of new multiplexes. Since the subsidy of such nature cannot possibly be granted by the Government directly, the Entertainment tax is leviable on the admission tickets to cinema halls only after the facility becomes operational, and since the source of the subsidy is the public at large which is to be attracted as viewers to the cinema halls, the funds to support such an incentive cannot be generated until and unless the cinema halls become functional, by applying the purpose test , referred to in Ponni Sugars (supra) held that the assistance in the form of entertainment tax exemption came in the hands of assessee to enable it to set up the new unit which renders it a receipt on capital account. The periodicity (year to year) of the subsidy, its source (collections from the public at large) and the form (deemed deposit) are irrelevant considerations. 11.22 In CIT v. Johnson Matthey India Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applying to the limit, but also implying an underlying intention that the capital expenditure would thereby be recouped, the absence of any such condition should restrain the court from so concluding. In this matter, it was stated that in Sahney Steel (supra) and Ponni Sugars (supra) the issue decided was - what was the true purpose of the incentive or the subsidy, whereas the end use of the funds was considered as an additional argument to decide the matter either way. Further more, basing on the amendment to Section 2(24) of the Act by the Finance Act, 2015, it was contended before the Hon'ble jurisdictional High Court that, .. the Finance Act of 2015 which came into force on 01.04.2016 amended Section 2(24) of the Income Tax Act and inserted Clause (xvi). It is stated that assistance in the form of subsidy or grant or cash incentive or duty drawback or waiver by Central or State Governments or any authority in cash or kind to the assessee other than subsidy or grant or reimbursement which is taken into account determining the actual cost of the asset, is deemed to be income. It was submitted that this amendment clarifies the intent of Parliament which is that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is under obligation to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business, or to liquidate the cost incurred in creating the capital asset, makes the receipt a capital receipt and renders the time of providing the subsidy irrelevant. Mere indication of the limit of subsidy as the capital expended does not justify the conclusion that it replenished the capital expenditure and therefore, the subsidy is capital. It is, therefore, neither the lofty ideals/objectives of the policy document nor the presumed end use of the subsidy amount that determines the nature or subsidy in the hands of the recipient, but the purpose envisaged by the policy document that satisfies the 'purpose test' formulated under Sahney's case. Unless the intention of the policy makers is express and clear discernible from the policy document to link up the utilization of subsidy amount, irrespective of the time of recipient getting it, with liquidation of the capital cost, as could be gather from the decisions of Sahney steels and Ponni Sugars cases, no inference is permissible to be drawn that the subsidy re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n eligible industrial unit ; ( b) The expression eligible industrial unit was defined in sub-clause (c) of Rule 28C(3) of Haryana General Sales Tax Rules'1975 to include a new industrial unit or unit undertaking expansion or diversification subject to fulfillment of other conditions. The relevant extract of the said definition is as under: Rule 28-C ( 3)(c) eligible industrial unit means- ( 1) a new industrial unit or a unit undertaking expansion or diversification which, on the date of commercial production of new/expanded/diversified unit, fulfills the following conditions (emphasis supplied) ( c) The term expansion was defined in clause (f) of Rule 28C(3) of Haryana General Sales Tax Rules'1975 as under: expansion means an industrial capacity set up or installed during the operative period which creates additional production facilities for manufacture of the same product (s) as of the unit before expansion in which the additional fixed capital investment in plant and machinery made during the operating period in one go, not exceeding the period of one year, exceeds 25% of the fixed capital investment (gross block) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es-tax subsidy received under an altogether different industrial policy of the Government of UP, and in that different context of the policy of the Government of UP, the Court held that the sales tax subsidy was in the nature of a revenue receipt and not a capital receipt. 11.33 A comparative analysis of the both the policies, namely, Uttar Pradesh Industrial Policy, 1990 (applicable to the facts of Bhushan's case (supra)) and Haryana Industrial Policy, 1999 (applicable to the case of the appellant), is tabulated by the Ld. AR as follows: Salient Features Bhushan's case Appellant/ Johnson Matthey case Policy Uttar Pradesh Industrial Policy, 1990 Haryana Industrial Policy, 1999 Governing Act and section Section 4A of the UP Sales Tax Act, 1948 read with Rule 25 of the UP Sales Tax Rules. Rule 28C of the Haryana Sales Tax Rules. Object of subsidy (see Preamble) To encourage the capital investment and establishment of New Industrial Units in the State of Uttar Pradesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having fixed capital investment exceeding ₹ 30 crores. .. (5)(b) Decision about the tax concession to prestigious unit shall be taken by the High Powered Committee on the basis of factors like employment generation, likely revenue, growth of ancillaries, impact on overall industrial growth etc. A prestigious unit shall not be, as a matter of right entitled to benefits available to other units. 11.34 Basing on this he submitted that the Uttar Pradesh Industrial Policy, 1990 and the Haryana Industrial Policy,1999, are altogether different Industrial Policies with altogether different eligibility criteria. He submitted that the UP Industrial Policy specifically provided for Capital Subsidy Scheme , which is not there in the case of Haryana Policy. 11.35 However, on a careful perusal of the schemes in question, we find that, but for certain changes in the form and expression, there is no material difference between these schemes in substances. They are similar in respect of the time, its source and the form of subsidy in the hands of the assessee. Time of assessee getting subsidy as is adverted to in Sahney's case or the stipulation of utilizatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. AR that the observations of this Tribunal made in assesee's case were approved by the Hon'ble High Court, inasmuch as the Hon'ble Court has not specifically considered the same. As has been consistently held in all the decisions from Sahney Steels to Bhushan steels that insofar as the subsidy benefits inure to the benefit of the assessee after the accomplishment of the expansion without any burden of any condition towards capital utilization of the subsidy amount meant that the policy makers envisioned greater profitability as an incentive for investors to expand units, for rapid industrialization of the state, ensuring greater employment. In this context, we find it difficult to agree with the submission of the Ld. AR that the decision in CIT v. Johnson Matthey India Pvt. Ltd., has to be preferred to the latest decision of the Jurisdictional High Court in CIT vs Bhushan Steel and Stripes Ltd. on the ground that the Haryana State scheme was considered in the later, whereas in the later one UP Scheme was considered. For that matter in both Bougainville's case and Bhushan Steels's case, the very same UP scheme was considered, but with different result. No co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iers, trend of the cost of inputs, etc. The personnel in the purchase department updates the foreseen price of each component for each supplier and effective date, based on their input and available information in computer system regarding quantity purchased and price paid. The liability in respect of each component was worked out considering the weight of each material, the quantity procured, the old rate and new rate worked by the assessee considering the price changes occurred during the period. It is on the basis of analysis of the claims, price trend, and correspondences/ discussions/negotiations with the suppliers during the year and past dealings that the assessee had computed the impact of change in price of components, and, therefore, it is not a case of provisional liability/contingent liability, incurring of which is dependent on happening of an event, but in fact it is in respect of such purchases already made by the assessee and duly debited in the books of accounts resulting in that the amount of FPI is a liability which accrues simultaneously with each purchase made by assessee and is allowable as deduction in determining the income of the relevant assessment year. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear, even though was finally paid in the following assessment years, the same was allowable deduction. 12.2. Ld. AR placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Woodward Governor India (P) Ltd.: 312 ITR 254 wherein it is held that:- 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 debit the expenditure amount for which a legal liability has been incurred before it is actually disbursed and brings into credit what is due, immediately it becomes due and before it is actually received; (ii) whether the same system is followed by the assessee from the very beginning and if there was a change in the system, whether the change was bona fide; (iii) whether the assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it; (iv) whether the assessee has been consistent and definite in making entries in the account books in respect of losses and gains; (v) whether the method adopted by the assessee for making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H), CIT v. Dalmia Promoters Developers (P) Ltd: 200 CTR 426 (Del.), Escorts Cardiac Diseases Hospital: 300 ITR 75 (Del). Since the issue now stands covered in favour of the assessee by the order of the Tribunal in the assessee own case for the assessment year 2007-08, wherein the Tribunal held that provision for foreseen price increase made by the appellant represented an accrued/crystallized liability, which is an allowable business deduction, Ld. AR submits that the addition on this account may be deleted. 12.5 Per contra, Ld. DR submitted that the decision of ITAT for AY 2007-08 is not acceptable because the assessee's methodology is unique and no case law applies to the modus operandi adopted by the assessee. Further according to him Assessee's reliance on the case of Hon'ble Supreme Court in the case of Radha Saomi Satsang v. CIT reported in 193 ITR 321 and, Berger Paints v. CIT reported in 266 ITR 199, is also misplaced because in these cases Hon'ble Supreme Court was considering the situation where the liability was certain, but what was not certain was the quantum of such liability. In the case of the assessee, the assessee has quantified the liability wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the assessment year 2003-04 against which no appeal was preferred by the Revenue before the ITAT. 12.7 When a similar question was dealt with by the first appellate authority and the Revenue accepted the same without preferring any appeal thereon, it is not open for the Revenue now to contend that Assessee's reliance on the case of Hon'ble Supreme Court in the case of Radha Saomi Satsang v. CIT reported in 193 ITR 321 and, Berger Paints v. CIT reported in 266 ITR 199, is also misplaced because in these cases Hon'ble Supreme Court was considering the situation where the liability was certain, but what was not certain was the quantum of such liability. There is no dispute that the same method of accounting is regularly and consistently followed by the assessee as such rule of consistency is applicable as per which under the similar facts and circumstances, department ought to follow same approach on an issue in other assessment years. We, therefore, respectfully following the reasoning adopted by the coordinate Bench of this Tribinal for the AY 2007-08, set aside the matter to the file of the Assessing Officer with direction to decide the issue afresh after affo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 14.3 in the assessee's appeal for AY 2007-08, and on this aspect, a coordinate Bench of this Tribunal held as under: 27.3 We find that in its order dated 16.10.2012 in the case of assessee itself for the assessment year 2002-03, an identical issue has been decided in favour of the assessee by the ITAT following its earlier orders. Relevant para No. 50 thereof is being reproduced hereunder: 50. We have heard both the sides on this issue. This issue is covered in favour of the assessee by the decision of ITAT in assessee's own case for assessment years 2000-01 and 2001-02. The relevant para of the order for assessment year 2001-02 is reproduced hereunder: 22. In regard to Ground No. 9 which is against the action of CIT(A) in deleting the disallowance of the Excise Duty paid by the assessee representing the reversal of the excise MODVAT availed in inputs on clearance of finished goods, it was fairly conceded by both the sides that this issue was squarely covered by the decision of the co ordinate bench in assessee's own case for assessment year 2000-01 in ITA No. 678/Del/2004. Respectfully following the decision f the Co-ordinate Bench of this Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery significant, the activities contribute significantly in generating the demand for the products of the company. Looking at this, the assessing officer made an ad-hoc disallowance of ₹ 12,87,88,243 in the final assessment order holding the same to be relatable to/ towards sharing of appellant's resources with other group companies and 14.1 Ld. AR submitted that in view of the stringent provisions of the Motor Vehicles Act, 1988, it is mandatory that every vehicle should have a valid Insurance to drive on the road at the time of taking delivery itself from the dealership and under the governing insurance laws, it is not permissible for the company to obtain insurance agency, necessitating the assessee to promote the group companies. According to him this promotes the assessee to provide one stop shop for the company's products, which enables the company to not only promote sales but also face the ever increasing competition from rival automobile companies; to ensure smooth and timely delivery of the vehicles; to provide smooth after sale services by taking care of post-sales insurance needs of the customers; sale of spare parts and accessories; and service incomes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adidas India Marketing (P) Ltd: 195 Taxman 256 (Del), CIT vs Agra Beverages Corporation (P) Ltd: 200 Taxman 43 (Del. Mag.) (HC); , Sony India (P) Ltd v.. Dy. CIT : 315 ITR 150 (Del ITAT), Star India (P) Ltd.: 103 ITD 73 TM (Mum.) he argued that since the entire expenditure as incurred by the assessee wholly and exclusively for purposes of its business, any incidental/ indirect benefit to the group company(ies), it is settled law, cannot be the basis for disallowing the expenditure in the hands of the assessee. 14.5 As a matter of fact, Ld. AR submitted that even if the company were to recover the cost of charges provided to the Insurance subsidiaries, it shall be a very small amount compared to what has been considered by the AO in the impugned assessment order. Assessee estimated the annual cost of services/facilities provided to the different Insurance companies at ₹ 1.31 Crores as below: Salaries of Employees 10,250,000 Travelling Cost 918,000 Office Infrastructure Cost 946,800 IT System/ Application cost 985,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 81 and is engaged in the manufacture of passenger cars in India. MSIL is the subsidiary Suzuki Motor Corporation ('SMC' or 'the associated enterprises'). During the relevant previous year the appellant incurred expenses on advertising, marketing, sales promotion and distribution amounting to ₹ 373 crores which constitutes 2.09% of the sales of the appellant. The TPO held that since the AMP expenses to sales ratio of the appellant at 2.09% was higher than the AMP/sales ratio of 0.57% of the comparable companies, the appellant had incurred non routine AMP expenses for promotion of the brand name 'Suzuki' in India. Accordingly, the TPO applying the Bright Line Test ('BLT') computed an adjustment of ₹ 311.88 crore on account of allegedly excessive AMP expenses incurred by the appellant. The DRP directed the TPO to consider only AMP expenses incurred by the appellant and not to include sales promotion expenses within the ambit of AMP expenses for the purpose of applying the BLT. The TPO accordingly restricted the adjustment to ₹ 195.16 crores. Assessee is challenging the adjustment made by the TPO as not sustainable broadly on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, and the TPO has not established existence of any mutual agreement or arrangement for allocation of apportionment of such AMP expenses incurred by the appellant for benefit of the associated enterprise. 15.2 By placing reliance on the decision of the Hon'ble Delhi High Court in case of Whirlpool of India Ltd v. DCIT 381 ITR 154 Ld. AR submitted that in this case too it was held that there should be some tangible evidence on record to demonstrate that there exists an international transaction in relation with incurring of AMP expenses for development of brand owned by the associated enterprises and in the absence of such transaction there is no question of undertaking any benchmarking of AMP expenses. He further submitted that the Hon'ble Delhi High Court in the appellant's own case for assessment year 2005-06 2006-07 381 ITR 117, while distinguishing the decision in the case of Sony Ericsson Mobile Communications (supra), held that the existence of international transacting relating to AMP expenses was not in dispute and therefore, the findings of the Hon'ble High Court in the case of Sony Ericsson to the extent it upholds the existence of an international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be expected to seek compensation for the expenditure incurred on the asset economically owned by it. 15.5 Next contention of the assessee is that the expenditure on AMP was incurred wholly and exclusively for business of the appellant whereas the benefit to AE is only incidental. Relying on the decision of the Hon'ble Supreme Court in the case of Sassoon J. David and Co. (P.) Ltd. v. CIT : 118 ITR 261 he argued that expenditure incurred wholly and exclusively for purpose of business of an assessee would be allowable deduction notwithstanding that such expenditure may incidentally benefit third party. Reliance in this regard is also placed on para 7.12 and 7.13 of the OECD guidelines on transfer pricing. According to him, in the present case, the expenses have been incurred by the appellant herein for promotion of its business in India, which is reflected in the form of higher turnover and increased profitability. The expenditure in question ensures directly for the benefit of business of appellant in India. The benefit, if any, to the AE is only incidental and it is for this reason that no part of the expenditure have been disallowed by the Revenue in terms of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement, the assessee was responsible to develop, promote and expand the sale of product and parts manufactured by the AE within India. The responsibility to promote trade mark, and to develop and expand market for sale of Motor car and its parts was on the assessee as per agreement. Therefore it was proposed by the TPO that the assessee should have been compensated for the services rendered by it in building, developing and promoting the brand name of Suzuki on behalf of SMC Japan. 4.2.2 It can be seen that assessee was a leader in the past as it is today. It is beyond any rational logic to understand how brand logo of a foreign company which was relatively unknown as compared to 'MARUTI'' trade mark had established the market share or assisted in retaining the market share. The assessee was a licensed manufacturer and it had paid lump sum royalty as well as running royalty. Also the cost of the AE was embedded in imports of 'M '. Further, there were restrictions put by the AE in use of brand logo 'S'. Since beginning, the assessee had nurtured its own brand MARUTI'' and established itself as a market leader without any assistance fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded car in that capacity. In the year under consideration the assessee had incurred advertisement expenditure on market and promotion of cobranded trademark including promotion of SUZUKI trade mark. It is evident from audited accounts that the AE had not compensated the assessee for cost incurred on development of market intangible. Therefore, the crucial issue in this case revolves around the determination of quantum of advertisement expenditure incurred by the assessee on promotion of brand of the AE and on development of marketing intangible for the AE in India and European countries in addition to routine expenditure of advertisement required by the assessee for its business i.e., to fix bright line limit for advertisement expenditure. 4.2.4 It has been held that the increase in sales is not because of the Suzuki brand name but because of the efforts put in by the Assessee Company since beginning. The assessee had nurtured its own brand MARUTI and established itself as a market leader without any assistance from its A. E. 4.2.5 The assessee in its reply to the TPO had mentioned that the Assessee Company is a licensed manufacturer and not a distributor and thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;marketer'. These portions of the guidelines are directed towards the issue of creation and valuation of marketing intangibles. They are not meant for placing limits, where or by whom the intangibles will be created. Any person incurring expenditure for brand promotion may be involved in creating marketing intangibles. 4.2.7 It is also seen the assessee has not appreciated that para 6.38 does not refer to 'traders' who operate in buy-sell model. It refers to term 'distributor' and even a 'manufacturer' engages in distribution of its products. Specially, in a situation where an independent manufacturer like Maruti Suzuki uses the brand name of its AE for the purpose of distribution of its manufactured products, there is no reason why para 6.38 should not be applicable to the facts and circumstances of its case. Para 6.38 deals with the treatment of marketing intangibles in a situation where a company distributes or manufacture and distributes products under a 'brand ' legally not owned by it. 4.2.8 The assessee company has also not been able to show to the TPO, as to how the creation of market intangibles does not take place, when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Suzuki brand has started because Suzuki being a very low value brand in Indian market was used along with Maruti trade mark in cobranding process. This resulted in migration of intangible embedded in Maruti brand to Suzuki brand due to association of both the brands together. 4.2.12 The assessee ignoring the migration of intangible embedded in Maruti brand to the low value brand Suzuki of the AE through the process of piggybacking and co-branding had agreed to pay the AE a royalty for sale of car using cobranded logo or Suzuki logo. 4.2.13 The assessee for non economic reason even ignored an important fact that the co branding of both the trademarks as stipulated in the agreement extracted earlier in this order involves use of Maruti trade mark owned by the assessee without any corresponding compensation. The assessee has ignored the vital issue of replacement of M logo with S logo on existing model of cars. The co-branding of Maruti- Suzuki resulted in reinforcement of value of Suzuki brand and simultaneous impairment of Maruti trademark for which it had received no compensation but had incurred huge expenditure of several thousand c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted together is no: ahvavs reflected on the balance sheet. Accordingly, whether ail item should be considered to be an intangible for transfer pricing purposes under Article 9 of the OECD Model Tax Convention can be informed by7 its characterisation for accounting purposes, but will not be determined by such characterisation only Furthermore, the determination tliar an item should be regarded as an intangible for transfer pricing purposes does not determine ox follow from its characterisation for general tax purposes, as. for example, an expense or an amortisable asset. The above text clearly states that spend on advertisement leads to build-up of intangibles and such spend should be capitalized for proper reflection in the Balance Sheet. Failure to do so, as by the assessee in the instant case, calls for immediate compensation by the AE for the significant economic value created for the AE's brand by such advertisement spend. The OECD has also recognised that characterization of an intangible for general tax purposes may not hamper or distort its true characterization of being an intangible. Thus, OECD has reinforced the view that advertisement spend by the assessee lead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assume in connection with the development, enhancement, maintenance, protection, and exploitation of intangibles, it is therefore necessary to determine, by means of a functional analysis, winch member(s) perform and exercise control over development, enhancement, maintenance, protection, and exploitation functions, which member(s) provide funding and other assets, and which member(s) assume the various risks associated with the intangible Of course, in each of these areas, this may or may not be the legal owner of the intangible As noted in paragraph 6.133. it is also important in determining arm's length compensation for functions performed, assets used, and risks assumed to consider comparability factors that may contribute to the creation of value or the generation of returns derived by the MNE group from the exploitation of intangibles determining prices for relevant transactions. 5. The High Court in writ petition MSIL v ACIT/TPO [2010] 328 ITR 210 (Del), the Division Bench came to the following conclusion:- ( i) The contractual obligations on MSIL under the agreement dated 12th December 1992 to use the joint trademark 'Maruti Suzuki' as well as the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court was right in rejecting the BLP to benchmark the AMP transactions? v. Whether the Hon 'ble High Court was right in law in observing that the benefit to the AE due to AMP expenditure in only incidental and not intentional? vi. Whether the Hon 'ble High Court was right in law in observing that if no application of TNMM the transactions are found to be at arm's length then no adjustment is warranted ignoring the fact that a separate benchmarking of each international transaction is permitted as per IT Act and international guidance? 15.10. Ld. DR submitted that the TPO has recommended for filing of further appeal u/s. 260A before the Hon'ble High Court for AY 2007-08, and the issues involved for the AY 2008-09 being continuous issues forming part of the assessment order for AY 2006-07 and 2007-08 are also at present pending adjudication before Hon'ble Delhi High Court. 15.11 We have considered the facts and contentions of either of the parties in the light of the decisions relied upon by them. On a reading of the decisions cited on behalf of the assessee, we find that in case of Whirlpool of India Ltd vs DCIT 381 ITR 154, it was h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction involving AMP expense under the tax radar. In the absence of any clear statutory provision giving guidance as to how the existence of an international transaction involving AMP expense, in the absence of an express agreement in that behalf, should be ascertained and further how the ALP of such a transaction should be ascertained, it cannot be left entirely to surmises and conjectures of the TPO 47. For the aforementioned reasons, the Court is of the view that as far as the present appeals are concerned, the Revenue has been unable to demonstrate by some tangible material that there is an international transaction involving AMP expenses between WOIL and Whirlpool USA. In the absence of that first step, the question of determining the ALP of such a transaction does not arise. In any event, in the absence of a machinery provision it would be hazardous for any TPO to proceed to determine the ALP of such a transaction since BLT has been negatived by this Court as a valid method of determining the existence of an international transaction and thereafter its ALP 15.12 Under a similar set of facts as are involved in this matter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nctively. Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of MSIL is any other transaction having a bearing on its profits, incomes or losses , for a 'transaction' there has to be two parties. Therefore for the purposes of the 'means' part of clause (b) and the 'includes' part of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or 'understanding' between MSIL and SMC whereby MSIL is obliged to spend excessively on AMP in order to promote the brand of SMC. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i) (a) to (e) to Section 92B are described as 'international transaction'. This might be only an illustrative list, but significantly it does not list AMP spending as one such transaction. 68 ..In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e comparable companies whose profit margin is 4.04%. Therefore, applying the TNMM method it must be stated that there is no question of TP adjustment on account of AMP expenditure. and a coordinate Bench of the Tribunal, in the appellant's own case for assessment year 2007-08, followed the above decision of the Hon'ble High Court for AY 2005-06 2006-07 to direct the TPO to delete the adjustment on account of AMP expenses. 15.13 These findings of the Hon'ble High Court have been followed in the cases of Honda Siel Power Products Ltd v. DCIT (ITA No 346/2015) Bausch and Lomb Eyecare India Pvt Ltd v. Addl CIT 385 ITR 227 and by coordinate Benches of this tribunal in the case of Essilor India Pvt Ltd v. DCIT (ITA No 29/Bang/2014), Goodyear India Limited v. DCIT (ITA No 5650/Del/2011), and L real India Private Limited v. DCIT (ITA No. 7714/mum/2012 wherein by placing reliance upon the decision of the Hon'ble Delhi High Court in the case of Maruti Suzuki (supra) it was held that in the absence of an agreement or arrangement between the assessee and the associated enterprise with regard to development of brand, it cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken in Essilor India Pvt Ltd v. DCIT (ITA No 29/Bang/2014), Heinz India Pvt. Ltd. v. ACIT (ITA No. 7732/Mum/2010), Honda Siel Power Products Ltd. v. DCIT (ITA No. 551/Del/2014), and Mondelez India Foods Pvt Ltd vs Addl CIT (ITA No 5470/Mum/2012). 15.16 We, therefore, while respectfully following the decision in 381 ITR 117 in assessee's own case hold that the AMP expenses incurred by MSIL cannot be treated and categorised as an international transaction under Section 92B of the Act, and the question of the TPO making any transfer pricing adjustment in respect of such transaction Chapter X does not arise. Grounds No 15.1 to 15.1.37 are allowed accordingly. Ground No. 15.2-15.2.14 Adjustment on account of payment of royalty for use of brand name 15.17 Now coming to the aspect of addition of ₹ 237.24 crore, adjustment on account of payment of royalty for use of brand name, relevant facts are that during the relevant previous year the appellant inter alia entered into the transaction of payment of royalty of ₹ 494.25 crore to Suzuki Motor Corporation ('the associated enterprise') in consideration for the right to manufacture and sell various models o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that 'Goodyear' brand is considered to be one of the top most acclaimed brand across the globe. Therefore, there is no merit in the allegation of the TPO that Goodyear brand has no worth and therefore, the payment made by the assessee for use of Goodyear brand is unwarranted 16. In light of the above, we conclude that there exists a direct nexus between the revenue earned by the assessee and the payment of royalty made to the associated enterprise for using brand name, and therefore, it would be incorrect to analyze the transaction of payment of royalty in isolation. Further, the ld. DR had raised a contention that the assessee has not demonstrated how the payment for royalty beneficial to the taxpayer. We are of the opinion that, ascertaining whether a service has actually benefitted the assessee is not within the prerogative of the tax authorities 15.18 Ld. AR, therefore, basing on the findings of the co-ordinate benches in the preceding year, prayed to delete the similar Transfer Pricing adjustment allegedly on account of brand royalty, amounting to ₹ 237.24 crores. 15.19 Per contra, Ld. DR placed reliance on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee shall be compensated for such improvement and modification. It is a matter of record that the assessee had made localization, improvement; modification and up gradation of technology provided by the AE by incurring huge expenditure on Research and Development activities. However, in reality the AE has never compensated the assessee for such improvement and modification. Contrary to this, it has charged royalty on continuous basis from assessee even on modified and upgraded technology. This view is fortified by the fact that the AE has been charging running royalty at certain percentage of the export and domestic sale. 4.1.7 As per clause 5.01 of the agreement, the assessee was responsibleto develop, promote and expand the sale ofproduct and parts manufactured by the AE within India: MARUTI shall use its best efforts to develop, promote and expand the sale of PRODUCTS and PARTS within the territory The agreement in fact, has restricted the assessee's business opportunity by prohibiting it from the manufacture, sale and export of product or parts of other competitors (refer 5.01 (a) and 5,03 of the agreement). 4.18 The clause 5.02 stipulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the winged M maruti Logo with S logo of Suzuki and rearranged and repositioned arrangement of the brand names, symbols and logo on the vehicle. This was an infringement on the trademarks and trade name of Maruti. Since Maruti India had build up the brand with monetary and intellectual inputs over the years, it has the right to be suitably compensated for the same. But the use of S logo and other repositioning of the trade names and logo had been done without any compensation to Maruti Udyog limited. 4 1.15 when assessee is paying to SUZUKI for the use of its trademark then onthe same basis it should also get paid for the allowing SUZUKI to align itself with brand Maruti in a more explicit manner. Over the years the assessee has even merged the two logos of M and S and these two appear MS on the Maruti showrooms etc and even the name has been changed from Maruti Udyog limited to MARUTI SUZUKI INDIA LIMITED. 4.1.16 That the scope of the license governs the use of technical assistance in the form of license information and use of license trade mark for the technological development and sales of products and parts within the territory and outside the territory. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 1983-84 392,000 39,200,000 19.94% 3 1984-85 320,870 32,087,000 28.09% 4 1985-86 554,987 55,498,700 25.40% 5 1986-87 533,000 53,300,000 26.65% 6 1987-88 244,000 24,400,000 25.11% 7 1988-89 2,191,864 219,186,400 40% 8 1992-93 2,204,860 220,486,000 269 50% 9 2002-03 1,216,341 121,634,100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fact that Suzuki is a multinational entity and its business interest are not confined only to cars. It is manufacturing other technological products as well under the one umbrella of SUZUKI with a logo S . That's the reason it now intends to propagate its name. Thus it has larger interests and futuristic motives to gel itself with a household brand like Maruti. It can foresee India as a giant market with increasing disposable income and thereby increase in demand. It is foreseeing a greater role for itself and its product by associating with the local name Maruti and thereby making itself visible and known. Thereafter it can by itself launch its products solely in the name of Suzuki thereby relieving it off its dependence on Maruti Suzuki. Thus there are benefits from the association, there is a creation of intangible and there are anticipated gains from the association. 4.1.25 The Hon 'ble ITAT is swayed by the assessee contention that TPO has disallowed the royalty. In fact what the TPO has actually done is that it has determined the value of the ALP of the CO branding done by Suzuki . The value of the same is determined by equating the trade mark royalty Maruti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06, more specifically because the TPO has also relied on his finding given for the AY 2005-06 in arriving at the decision taken against the assessee in the extant year. As regards the second aspect, the ld. DR has not brought on record any further material to demolish the finding given by the tribunal in the earlier year about the brand Suzuki' having substantial value and the royalty payment at ALP. 7.7. Addition on account of transfer pricing adjustment can be made by making a comparison between the transacted value of an international transaction and its ALP. Thus it is clear that the availability of the transacted value of an international transaction is sine qua non. If such transacted value is either not separately available or cannot be precisely determined from a combined value of a number of international transactions, then the entire exercise of determining ALP fails. Instantly, we are confronted with such a peculiar situation. There is no separate value of the international transaction of royalty for use of licensed trademark and the tribunal has held in the earlier year that it is a payment of inseparable royalty for use of both the licensed information and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st u/s 234B of the Act in first adjusting the interest computed u/s 234B of the Act on the assessed income against the self assessment tax paid by the assessee. Ld. AR submitted that interest under section 234B of the Act is firstly computed on the assessed income upto the date of payment of first self assessment tax prior to filing the original return, and thereafter self assessment tax paid by the appellant is first adjusted against the interest calculated as aforesaid. However, the Assessing Officer first adjusted the self assessment tax against the interest leviable under section 234B of the Act calculated on the basis of assessed income, and such adjustment, under section 140A of the Act is permissible only with reference to interest computed with reference to the returned income and not with reference to the assessed income. Ld. AR argued that the method of computation used by the Assessing Officer is contrary to the method prescribed in CBDT Circular No.549 dated 31.10.1989: 182 ITR (St.) 40, which is binding on the Income Tax Department. In this respect he placed reliance on the decision of the Ahmedabad Bench of the Tribunal in the case of Patson Transformers Ltd. v. DCIT: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable under section 234B while making computation of interest payable by the assessee under section 234B which has to be computed with respect to the total income determined in regular assessment as per the definition of assessed tax given in section 234B. The assessee has also followed the same procedure with which we agree. The order of CIT(A) confirming the method followed by the AO is therefore set aside and the claim of the assessee is allowed. 18.1 Lastly he brought it to our notice that this issue is now covered in favour of the assessee in appellant's own case for AY 2007-08. Ld. AR, therefore, prayed to direct the Assessing Officer to recompute interest under section 234B of the Act, as aforesaid. Stating it to be a consequential ground, Ld. DR submitted that the decision of ITAT was acceptable on this issue for AY 2007-08 and no further appeal was recommended. 18.2 We have gone through the observations of the Tribunal on this aspect for the AY 2007-08 and vide paragraph No. 34.1, it was observed that,- following the decision of Mumbai Bench of the ITAT in the case of ACIT v. C.C. Chokshi Co. (supra) on the issue, we hold that the interest payable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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