TMI Blog2018 (10) TMI 1398X X X X Extracts X X X X X X X X Extracts X X X X ..... nch 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. Customs duty included in closing inventory - Held that:- It is clarified by the Assessee that the amount of ₹ 69,12,41,610/- represents customs duty included in closing stock and ₹ 50,28,051/- represents customs duty on tools imported by the Assessee which were made available by it to its contract manufacturers, also. described as vendors in the question of law framed on the same issue in subsequent AY 2001-02. In view of the decision in Berger Paints Limited v. CIT [2004 (2) TMI 4 - SUPREME COURT] question (ix) is answered in the affirmative i.e. in favour of the Assessee and against the Revenue. In this regard, the observations of the ITAT in para 41 of the impugned are reiterated, viz. that the AO should, while giving effect to the ITAT’s order, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. The Tax Auditors have amply clarified this position vide clause 17(b) of the Tax Audit Report. The aforesaid expenditure is, thus, allowable as deduction. See COMMISSIONER OF INCOME-TAX VERSUS SAMTEL COLOR LIMITED [2009 (1) TMI 26 - DELHI HIGH COURT]. Adjustment on account of payment of royalty for use of brand name - Held that:- There is a direct nexus between the revenue of the taxpayer and the payment of royalty. Therefore, the Revenue cannot dispute the benefit derived by the taxpayer from payment of such royalty. Not allowing credit of TDS Certificates - Held that:- Assessee has submitted the TDS certificates which has to be considered by the Assessing Officer. Therefore, we restore this issue to the file of the Assessing Officer and direct the Assessing Officer to verify the additional TDS certificates produced by the Assessee and thereafter allow the credit of the same. Needless to say, the assessee be given the opportunity of the hearing by following the principles of the natural justice. Hence, Ground No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the Assessing Officer to delete various additions/disallowance, which were squarely covered in favour of the appellant by the appellate orders for the earlier years. 2.0. That the Assessing Officer erred on facts of the case and in law in completing the impugned assessment at an income of ₹ 2071,38,86,572/- against income of ₹ 1262,60,79,909/-. 3.0. That the Assessing Officer erred on facts and in law in not allowing an aggregate claim of deduction of ₹ 78,01,08,417/- under section 43B of the Act. 3.1. That the Assessing Officer erred in making disallowance under section 43B of the Act following the assessment orders for the earlier assessment years despite admitting that in the earlier year(s) most of the issues have been decided in favour of the appellant. 3.2. That the Assessing Officer erred on facts and in law in holding that the deduction of liability to pay taxes/duties under section 43B is admissible only after such liability has been incurred under the Act. 3.3. That the Assessing Officer failed to appreciate that the assessee having admittedly paid ₹ 41.61.588 - as Excise Duty on vehicles. ₹ 24J0.93 - as R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law in not allowing deduction under section 43B of the Act for a sum of ₹ 2,20,97,979/- being Customs Duty paid under protest. 3.12. That the Assessing Officer erred on facts and in law in not allowing deduction u/s 43B of the Act for a sum of ₹ 1,06,72,866/- being Excise Duty paid under protest. 3.13. That the Assessing Officer erred in not following the binding decisions of the High Court and the Tribunal in the appellant's own case for the earlier assessment years, in gross violation of principles of judicial propriety. 4.0. That the Assessing Officer has erred in law, on facts and in the circumstances of the case in not allowing the claim of the assessee for withdrawal of add back of ₹ 69,50,54,572/- in the computation of taxable income, being the amounts disallowed in earlier years under Section 43B of the Act. 4.1. That the Assessing Officer has erred in law, on facts and in the circumstances of the case in failing to apply the fundamental rules of law of taxation that the same income cannot be taxed twice and that the AO is duty bound to determine the true figure of the assessee s taxable income in accordance with the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law in not appreciating that since the object of subsidy was to promote industrial growth/ development, to generate employment, etc., the subsidy so received was in the nature of capital receipt not liable to tax under the provisions of the Act. 6.4. That the Assessing Officer erred on facts and in law in not appreciating that the fact that appellant is a cash rich company or that the appellant was granted subsidy under prestigious unit category or that the appellant could utilize the subsidy amount without any pre-restricted object, had no bearing on deciding the issue in question. 6.5. That the Assessing Officer erred on facts and in law in not considering the Memorandum dated 18.10.01 issued by the Prohibition, Excise and Taxation Commissioner, Haryana, which was the competent authority and part of High Powered Committee, certifying the aforesaid amount retained as per entitlement certificate as capital subsidy. 7.0. That the Assessing Officer erred on facts and in law in disallowing expenditure of ₹ 679,11.80,556/- incurred on account of royalty, both lumpsum and running, holding the same to be capital expenditure. 7.1 That the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That the Assessing Officer has erred in law and on facts in disallowing deduction of ₹ 67,00,000/- representing the excise duty paid by the appellant during the relevant previous year. 8.1. That the Assessing Officer failed to appreciate that the said amount of ₹ 67,00,000/- constituted and represented excise duty actually paid by the appellant and is, therefore, allowable deduction under section 43 B of the Act. 8.2. That the Assessing Officer erred on facts and in law in leveling false and baseless allegations of the appellant having, inter alia, hidden true nature of payment of excise duty. 9.0 That the Assessing Officer has erred on facts and in law in making disallowance of ₹ 36,38,43,197/- being the expenditure provided on estimated basis on account of foreseen price increase (in short FPI ), disregarding the consistent and accepted method followed by the appellant for last many years since inception. 9.1. That the Assessing Officer completely failed to appreciate that there was a clear contractual agreement/ understanding between appellant and suppliers under which the appellant was liable to pay additional amount of price for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring of expenses. 11.0 That the Assessing Officer erred on facts and in law in disallowing ₹ 7.67.00.000-. being the expenditure incurred on account of discharging corporate social responsibility}. without appreciating that such expenditure was incurred wholly and exclusively for the purposes of business. 11.1. That the assessing officer erred on facts and in law in holding that the expenditure incurred on corporate social responsibility is, even otherwise, capital in nature on the ground that the same resulted in enduring benefit to the appellant. 11.2. Without prejudice, the assessing officer erred on facts and in law in not allowing depreciation under section 32 of the Act, consistent with his finding that the aforesaid expenditure is capital in nature. 12.0. That the assessing officer has erred on facts and in law in disallowing a sum of ₹ 6,41,060/-, being expenditure incurred on account of club membership fees, following the assessment orders for the earlier years, alleging that the appellant failed to justify the said expenses. 13. That the assessing officer erred on facts and in law in making addition to the income of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on facts and in law in holding that expenditure incurred by the appellant which incidentally resulted in brand building for the foreign AE, was a transaction of creating and improving marketing intangibles for and on behalf of its foreign AE and further that such a transaction was in the nature of provision of a service by the appellant to the AE. 15.6. That the assessing officer erred on facts and in law in not appreciating that the characterization of the appellant being that of a full fledged manufacturer and the sole beneficiary of the AMP expenditure incurred by it, justifies the conduct of the appellant in incurring and bearing the cost of AMP expenditure. 15.7. The DRP erred on facts and in law in not holding that expenditure on advertisement and brand promotion, unilaterally incurred by the appellant, could not be regarded as a transaction in the absence of any proved understanding / arrangement between the appellant and the associated enterprise. 15.8. The DRP/TPO erred on facts and in law in not appreciating that the AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an international transaction as per sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant earns return commensurate with other brand owners, the appellant is adequately compensated for its functions and AMP expenses. 15.17. Without prejudice that the assessing officer erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm s length applying Transactional Net Margin Method (TNMM). 15.18. The DRP/TPO erred on facts and in law in applying Bright Line Test ( BLT ) for computing adjustment on account of expenditure on advertisement and brand promotion expenses, without appreciating that in absence of specific provision in the Transfer Pricing statutory provisions in India., adjustment on account of the arm s length price of the advertisement and brand promotion expenses could not be made. 15.19. The DRPTPO erred on facts and in law in not appreciating that such a Transfer Pricing adjustment cannot at all be made in law without determining the Arm's Length Price ( ALP ) by applying one of the methods specified in section 92C of the Act. 15.20. The DRP/TPO erred on facts and in law in not appreciating that merely because the net profit rate of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12649.06 96.49 0.76% 25660.79 321.29 1.25% Arithmetic Mean (5.57+0.76+1.25/3) 2.53% Maruti Suzuki India Ltd. 20358.3 258.50 1.27% 15.28 That the assessing officer erred on facts and in law in not following the DRP direction to take the correct figures for turnover and AMP expenditure for Hindustan Motors. 16.0. That the assessing officer erred on facts and in law in making transfer pricing adjustment amounting to ₹ 311,73,59,562/- in relation to the international transaction of payment of royalty entered into by the appellant. 16.1. That the assessing officer erred on facts and in law, in not appreciating that the international transaction of payment of royalty entered into by the appellant was appropriately established to be at arm's length applying Transactional Net Margin Method (TNMM). 16.2. That the assessing officer erred on facts and in law in artificially splitting the single and ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of Suzuki brand and simultaneous impairment of Maruti trademark failing to appreciate that such concept of reinforcement cannot be considered to be an international transaction as defined in section 92B of the Act which consists of purchase, sale or lease of tangible or intangible property; 16.9. That the assessing officer erred on facts and in law in holding, on the basis of conjectures and surmises that, the associated enterprises has charged separate royalty for the use of technology and for use of brand name in the proportion in which it incurs expenditure on R D and Brand promotion. 16.10. Without prejudice, the assessing officer erred in considering the consolidated financials of the associated enterprise for the purpose of segregating the payment of royalty for the use of technology and for the use of brand name. 16.11 That the assessing officer erred on facts and in law in failing to appreciate stature of the associated enterprise and the brand recognition enjoyed by it globally. 16.12. That the assessing officer erred on facts and in law in ignoring the search for third party independent technology agreements conducted by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficient vehicles. In October 1982, MSIL chose SMC as its partner, and SMC acquired 26% equity stake in the company. SMC further increased its share to 50% in 1992, converting MSIL into a Non-Governmental Company. Subsequent to the disinvestment in May 2002 by the Government of India, SMC now holds 54.2% equity in MSIL. MSIL is engaged in the manufacturing of passenger cars primarily for sale in the Indian market. It also exports vehicles to various countries in Europe, Asia, etc. MSIL has various models currently plying on Indian roads including Maruti 800, Omni, Esteem, Alto, Gypsy, Swift, Versa, Wagon R, SX4, Vitara, Zen Estilo, Swift DZire and Ertiga. MSIL undertakes sales promotion and customer education activities as well. Further, 315 Maruti True Value outlets were engaged in the sale, purchase and exchange of preowned cars. MSIL also operates in auto finance, auto insurance, corporate lease and fleet management and pre-owned cars, in addition to operating to over 50 driving schools. The following international transactions had been undertaken by the assessee during the F.Y. 2008-09: S. No. Description of the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the same are dismissed. 6. Ground No. 3 to 3.2 are regarding disallowing deduction claimed u/s 43B of the Act. The issue raised relates to allowability of deduction of statutory duties on payment basis under Section 43B of the Income-tax Act, 1961 ( the Act ). The Assessee in the return of income claimed deduction of ₹ 78,01,08,417 in respect of various statutory duties paid during the year under consideration under section 43B of the Act. The duties so paid include excise duty, custom duty on import/ purchase of inputs/components and also amount of duty paid in PLA account. The Assessing Officer, following the Assessment Order for the earlier years disallowed the aforesaid amount of ₹ 78,01,08,417/- on the ground that deduction under Section 43B of the Act is allowable only where the amount claimed as deduction on actual payment basis is charged to the P L Account. It is primarily the case of the Assessing Officer that the amount paid by the assessee is in the nature of advance payment of duty, liability in respect of which has not accrued/ crystallized and consequently, such advance payment is not allowable as deduction. 7. The Ld. AR submitted that the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3B to mean that whether or not the liability 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. The Ld. DR 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... 9. According to the Ld. DR, vide p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 vs. 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. The Ld. DR submitted that there is no change in the circumstances that are discussed in para No 8.5 of the above order so as to take any contrary view. The Ld. DR submitted plea of the Revenue that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92,431 Total 66,23,77,487 3.1. According to the assessee, the assessee, in the return of their income, has claimed deduction of ₹ 66,23,77,487 in respect of the above statutory duties paid during the year under consideration under section 43B of the Act and simultaneously offered for tax Rs.l 17,72,92,005 claimed as deduction in earlier years. The duties so paid include excise duty, custom duty on import/ purchase of inputs/components and also amount of duty paid in PLA account. However, the assessing officer, following the assessment order for the earlier years, disallowed ₹ 66,23,77,487 on the ground that deduction under section 43B of the Act is allowable only where the amount claimed as deduction on actual payment basis is charged to the P L Account. It is primarily the case of the assessing officer that the amount paid by the assessee is in the nature of advance payment of duty, liability in respect of which has not accrued/ crystallized and consequently, such advance payment is not allowable as deduction. Dispute Resolution Panel ( DRP ), also approved the findings of the assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and Excise Duty on spare parts. The return of income, the assessee claimed deduction of duty paid amounting to ₹ 67,03,179/-, being balance in the PLA, under section 43B of the Act. The aforesaid amount was paid by the assessee under Rule 4 of the Excise Rules, 2002 in order to cover the duty required to be paid on the goods to be removed from bonded warehouse. At the time of removal of the goods, excise duty/R D Cess payable on the goods is debited to the PLA. As per the mandate of section 43B of the Act, the aforesaid amount was claimed as deduction in the return of income. The Assessing Officer disallowed the same following the assessment order for the preceding assessment years. 12. The Ld. AR submitted in the assesseee s own case for the assessment year 1999-2000, the Tribunal allowed the claim subject to incurring of liability on manufactured goods. The assessee had closing stock on 31st March, 2009, of manufactured vehicles amounting to ₹ 166 crores, which sum includes the accrued liability of excise duty and R D cess amounting to ₹ 12.87 Crores. This amount of accrued liability has been debited to the profit and loss account for the relevant previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the reason that if the assessee were to be asked to pay the exact amount, through some other method, by deposit, as a precondition for clearance, that would have been cumbersome to it as well as the revenue; it would also have led to problems of storage of goods, and slow down their supply and distribution. The Rule makers pragmatically directed that sufficient amounts ought to be maintained in the account, to cover the removals. Therefore, at any given point of time, there had to be an excess in the account, if the assessee were to remove the goods. Each clearance mentions the quantum of goods, and the duty amount, which is apparently reconciled at the end of the period, and shortfalls if any are appropriated from the account. The excess credit is likewise adjusted for the next day's clearances. The point to be underlined is that there is no choice, and the amounts relate to the assessee's duty liability, falling within the description under Section 43-B. The consequence of not allowing the amounts as deductions, are vividly brought out in the decision of the Allahabad High Court in C.L. Gupta Sons (supra), where it was held that: 10. In the case in hand, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi High Court has already decided this issue in favour of the assessee for A.Ys. 1999-00 and 2000-01. Therefore, in absence of any contrary material brought to our notice by the Ld. DR against the order of the Tribunal, we allow Ground Nos. 3.3 to 3.4. 15. In result, Ground Nos. 3.3. to 3.4 are allowed. 16. As regards to Ground No. 3.5, relating to Customs Duty paid on import of components for export purposes for which exports has been made. The assessee has been consistently following exclusive method of accounting in respect of custom duty paid on import of components for export purposes. Accordingly, duties paid on purchases are not included in the cost of purchases and the value of closing stock in the profit and loss account. Addition of the duty, both in the purchases as well as the closing stock as per the requirement of section 145A, is tax neutral inasmuch as the same amount is both debited as well as credited to the profit and loss account. However, to give effect to the provisions of section 43B, which mandates that duties paid by the assessee are allowable only on payment basis, custom duty paid by the assessee on import of components for export purposes, wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon ble Punjab and Haryana High Court in the case of CIT v. Sriyansh Knitters P. Ltd. 336 ITR 235 wherein the High Court, while affirming the finding of the Tribunal held that duty drawback accrues in the year in which rate is fixed by the competent authority after verification of claim of the assessee and amount is quantified and not in the year of export. Similar view has been held in the case of CIT v. Manav Tools (India) P. Ltd: 336 ITR 237 (P H). It has been held similarly by the Delhi High Court in assessee s own case for assessment years 1994-95, 1995-96, 1996-97, 1997-98, 1998-99, 1999-00, 2001-02 and 2004-05. 18. The Ld. DR relied upon the assessment orders. 19. We have heard both the parties and perused the records. It is pertinent to note that the Hon ble Delhi High Court in Assessee s own case held as under: 6. Question (iii) concerns the disallowance of an addition of ₹ 20,60,14,392 representing the customs duty paid on imports claimed as a deduction under Section 43B of the Act. This was directly paid by the Assessee to the customs authorities and paid during the AY in question. Consequently, it was correctly allowed as a deduction b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the end of the accounting year, dismissing the SLP (No. 23461/2012) filed by the department against the order of the High Court in the case of Shri Ram Honda Power Equipment Ltd: [2013] 258 CTR 329 / 352 ITR 481 (SC). Following the above judgment, the ITAT in AY 2006-07, AY 2007-08 and 2008-09 decided the aforesaid issue in favour of assessee. The Ld. AR pointed out that the aforesaid issue has been decided against the assessee by the Delhi High Court in assessment years 1999-00 (ITA No.31/2005 and 250/2005), 2000-01 (ITA No.442/2005) and 2004-05 (ITA No.397/2009). The High Court has, however, decided the alternate claim in favour of the assessee and held that unutilized MODVAT credit of earlier year to the extent adjusted in the year under consideration shall be allowed as deduction in the relevant year ( para 45 of Delhi High Court order for AY 1999-00 in ITA No.31/2005). Thus the Ld. AR submitted that the assessee may be allowed the deduction representing the RG 23A balance at the end of Assessment Year 2008-09 amounting to ₹ 18,47,40,688/- being the opening balance in the instant assessment year. The High Court has further allowed deduction for amount representing addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es available, certain acts have been done by the parties concerned, incidents following thereto must take place in accordance with the Scheme under which the duty had been paid on the manufactured products and if such a situation is sought to be altered, necessarily it follows that the right, which had accrued to a party such as the availability of a scheme, is affected and, in particular, it loses sight of the fact that the provision for facility of credit is as good as tax paid till tax is adjusted on future goods on the basis of the several commitments which would have been made by the Assessee concerned. 35. It was further explained that the MODVAT credit is a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. 36. In Dai Ichi Karkaria (supra), the question that arose for consideration was whether the cost of the raw material was the price paid by the manufacturer to its seller, as contended by the Revenue, or is it the price of raw material minus the excise duty thereon which has been paid by the seller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items are deducted in determining the costs of purchase. 38. The ICAI has also issued a Guidance Note for treatment of MODVAT/CENVAT. Paras 16 and 18 of the Guidance Note reads thus: 16. Specified duty paid on inputs may be debited to a separate account, e.g. MODVAT/CENVAT Credit Receivable (inputs) Account. As and when MODVAT/CENVAT credit is actually utilized against payment of excise duty on final products, appropriate accounting entries will be required to adjust the excise duty paid out of MODVAT/CENVAT Credit Receivable (inputs) Account to the account maintained for payment / provision for excise duty on final product. In this case, the purchase cost of the inputs would be net of the specified duty on inputs. Therefore, the inputs consumed and the inventory of inputs would be valued on the basis of purchase cost net of the specified duty on inputs. The debit balance in MODVAT/ CENVAT Credit Receivable (Inputs) should be shown on the assets side under the head advances , xxx 18. A question may arise as to when the MODVAT/CENVAT credit should be taken if documents evidencing payment of specified duty on inputs are received later than the physical receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 85% subject to furnishing of bank guarantees by the importers in favour of the Customs Department. In terms of the agreement between the appellant and the importers, the appellant provided counter guarantees for the bank guarantees provided by the importers for the unpaid disputed amount of 85% of the additional customs duty. 41.3. As far as the Appellant therein was concerned, the unpaid additional customs duty pertaining to the previous year relevant to AY 1987- 88 was ₹ 1,64,87,375. The Appellant therein, following the mercantile system of accounting, claimed deduction on account of the said additional customs duty, in as much as the same was included in the landed cost of the imported material. The AO rejected the claim since the Appellant therein had failed to produce evidence by which it could be ascertained that the liability to pay the additional customs duty was crystallized during the period relevant to the ASSESSMENT YEAR 41.4. After the CIT (A) also dismissed the appeal of the Appellant holding that the liability would arise only when the Supreme Court gave a verdict in favour of the Customs Department, the Appellant went before the ITAT. Rejecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly to them or on their behalf, cannot be considered as a statutory liability as this obligation is not imposed by any statute but from the contracts entered into between the Assessee and the importers. The liability in question is thus, clearly a contractual liability insofar as the Assessee is concerned. (emphasis supplied) 41.7. The Court clarified that Section 43B of the Act would apply only in cases of statutory liability and held that: This provision would have no application insofar as the assessee is concerned, as the liability to pay the amount of additional customs duty on behalf of the importers as and when they are called upon to discharge the same is, clearly, a contractual liability and not a statutory liability. Therefore, the question whether the said liability should be considered as deductible under Section 43B of the Income Tax Act does not arise. 42. In the considered view of the Court, the above decision should answer the question in the present case in favour of the Revenue and against the Assessee. The primary liability to pay excise duty is essentially on the manufacturers of the raw materials and inputs. As far as the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment would have to be treated as an actual payment of excise duty. In view of the Court agreeing with the ITAT on the non-allowability of unutilized MODVAT credit as a deduction under Section 43B of the Act for the AY in question, this Court also agrees with the ITAT s acceptance of the Assessee s alternate contention with regards to the unutilized MODVAT credit of the earlier year being allowable as a deduction in the AY in question to the extent that it has been adjusted by treating as actual payment of the credit for the AY in question. As the ITAT has already pointed out, the Assessee would be entitled to such deduction subject to verification provided the same was not allowed as deduction in the earlier year. 46. An attempt was made by Mr. Ganesh to contend that it should now be allowed to be treated as unutilized MODVAT credit as part of the closing stock. An attempt was then made by Mr. Ganesh to contend that the amount of excise duty paid by the Assessee should be treated as expenditure allowed under Section 37 of the Act as business expenditure. As rig pointed out by Mr. Bhatia, the Assessee appears to have followed exclusive method of valuation of stock as opposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble High Court and if found proper be allowed for deduction for amount forming part of RG 23A balance to the extent it has been directly paid to custom authorities. Needless to say the assessee be given opportunity of hearing by following principles of natural justice. 25. In result, Ground No. 3.6 to 3.7 is partly allowed for statistical purpose. 26. Ground No. 3.8 is regarding Customs duty included in closing inventory. In respect of custom duty paid on import of raw material/inputs, the assessee followed inclusive method of accounting. 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. 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. Custom duty of ₹ 21,90,94,216/- 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. The said method is also in line with the provisions of section 145A of the Act. Inclusion of custom duty, both in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 976/2005), 2001-02 (ITA No. 519/2010), 2005-06 (ITA No. 171/2012) and 2006-07 (ITA No. 381/2016). 28. The Ld. DR relied upon the assessment order. 29. We have heard both the parties and perused the records. It is pertinent to note that the Hon ble Delhi High Court in Assessee s own case held as under: 12. As regards Question (ix), of the two amounts that represent customs duty/paid and debited to the P L account. It is clarified by the Assessee that the amount of ₹ 69,12,41,610/- represents customs duty included in closing stock and ₹ 50,28,051/- represents customs duty on tools imported by the Assessee which were made available by it to its contract manufacturers, also. described as vendors in the question of law framed on the same issue in subsequent AY 2001-02. 13. In view of the decision in Berger Paints Limited v. CIT [2004] 266ITR 99 (SC), question (ix) is answered in the affirmative i.e. in favour of the Assessee and against the Revenue. In this regard, the observations of the ITAT in para 41 of the impugned are reiterated, viz. that the AO should, while giving effect to the ITAT s order, ensure that no double deduction is allowed. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, 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 vs. 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 under the Inclusive method it will be inclined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 last year s similar deduction separately allowed should be taxed in the computation of income of the current year , and by following the same for AY 2007-08, vide para 14.1 the matter was set aside to the file o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yapal Sons (P.) Ltd. 50 DTR 287 wherein the High Court has held that 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. Similarly, the Mumbai Bench of the Tribunal in the case of Euro RSCG Advertising (P) Ltd v. ACIT [2013] 154 TTJ 389 (Mum) held that service tax liability alongwith the interest paid on the basis of the show cause notice issued by the service tax authorities, is allowable deduction under section 43B of the Act in the year in which the payment was made irrespective of the fact that such demand was paid under protest and the matter was subjudice before the authorities. The issue stands covered in favour of the assessee by the order of the Tribunal in the assessee s own case for A.Y s 1999-00, 2000-01, 2001- 02, 2002-03 2005-06, 2006-07, 2007-08 and 2008-09. 37. The Ld. DR relied upon the order of the Assessing Officer. 38. We have heard both the parties and perused the records. It is pertinent to note that the Tribunal in Assessee s own case held as under: 3.28. With regard to the disallowance of claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty 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 145A and then some adjustments as stated above be separately made. Such directions are fully applicable pro tanto to the customs duty paid under protest. The AO is directed to follow the same. 3.30. While following the same for AY 2007-08, Tribunal set aside the matter to the file of the Assessing Officer to decide it afresh as decided above by the ITAT after affording opportunity of being heard to the assessee. 3.31. Ld. DR fairly concedes that the decision of the Tribunal on the issue of Excise duty paid under protest , in A.Y. 2006-07 and 2007- O8 was acceptable to the Revenue, and accordingly, no further appeal was preferred on this issue. In these circumstances, while following the same, we set aside Ground No. 3.8 to the file of the Assessing Officer to decide it afresh as decided by the ITAT for the Assessment Years 2006-07 and 2007-08 after affording opportunity of being heard to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,005/- in its return of income representing the amounts received back or adjusted in the Profit and Loss Account during FY 2007-08 out of the amounts which have already been claimed as deduction on payment basis u/s 43B of the Act in the preceding assessment years, and this amount was offered to tax by the assessee during AY 2008-09 on the presumption that deduction would be allowed in preceding years on payment basis. It is pleaded that the aforesaid total amount of ₹ 117,72,92,005/- has not been allowed to the assessee on payment basis in the preceding assessment years and thus the assessee has prayed that it be allowed to withdraw the add back of the said amount and not allowing withdrawal of add back has resulted in the claim not being allowed in any year. Ld. AR brought to our notice that assessee s claim under Section 43B deduction was allowed in the earlier assessment years, as such, said amount of ₹ 117,72,92,005/- would certainly be liable to be added to the assessable income of the present year. It is submitted on behalf of the assessee that the withdrawal of write-back has been allowed by AO for AY2007-08, which has been confirmed by DRP. He submitted that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also the tribunal. 4.2. For the AY 2007-08, though the AO refused to allow the deductions claimed by the assessee under section 43B of the Act, by order dated 20-05-2016 the Tribunal considered the case of the assessee and set aside the matter to the file of AO, and the relief on this aspect is dependent upon the findings of the AO while implementing the said order, as such we deem it just and proper to direct the AO to consider this aspect also in the light of implementing the order of this Tribunal for the AY 2007-08. These grounds are, therefore, allowed for statistical purpose. Thus, the issue is squarely covered by the decision of the Tribunal in Assessee s own case, therefore, we set side this issue to the file of the Assessing Officer to decide it afresh as decided by the Tribunal in earlier Assessment Years. Needless to say, the assessee be given opportunity of hearing. Ground No. 4 to 4.2 are partly allowed for statistical purpose. 45. In result, Ground No. 4 to 4. 2 are partly allowed for statistical purpose. 46. Ground Nos. 5 to 5.5 are relating to disallowance u/s 14A. During the year under consideration, the assessee earned dividend income of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome and not otherwise. In other words, the onus is on the assessing officer to find proximate nexus of expenses with earning of exempt income, before rejecting the claim of assessee and computing disallowance under section 14A of the Act. The provisions of sub-section (2) and (3) to section 14A, which empowers the assessing officer to compute disallowance as per provisions of Rule 8D of the Rules, w.e.f assessment year 2008-09, also provides that disallowance as per provisions of Rule 8D can be computed, only if the assessing officer, having regard to the accounts of assessee is not satisfied with the correctness of the claim of the assessee. In other words, even from assessment year 2008-09 and onwards, the assessing officer can compute disallowance under section 14A as per the provisions of Rule 8D, only if assessing officer, having regard to accounts of assessee, reaches a finding, that assessee has incurred expenses over and above expenses suo-motu disallowed by him.. In the absence of such finding, the assessing officer does not have power to compute disallowance under section 14A of the Act as per provisions of Rule 8D, even for assessment years 2008-09 and onwards. Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng: Particulars Amount (Rs. Millions) (b) Interest on- advances from dealers 79 (b) Others including interest on export credit/overdraft 69 Total 148 On perusal of the aforesaid, it will kindly be noticed that the aforesaid expenditure actually related to the manufacturing operations of the assessee. Borrowed funds available with the assessee, as a matter of fact, were utilized for business operations and not used for making the investments. It is further submitted that interest free own funds available with the assessee far exceeds the investment made in shares/securities on which exempt dividend income was received. The assessee, as on the last date of the relevant assessment year, had investments amounting to ₹ 317 crores, which is substantially less than the opening investments of ₹ 518 crores (refer page 151 of PB Vol 1). Further, on perusal of the balance sheet for the relevant year (refer page 151 of PB Vol I), it will kindly be noticed that the following interest free funds were available at disposa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A of the Act. The Supreme Court has dismissed the Revenue s SLP in Civil Appeal No. 468/2014 against the aforesaid decision. In the case of mixed funds, the option is with the assessee to appropriate fund and expenditure in a manner most favourable to the assessee. While following the ratio emanating from the aforesaid decisions, it has been held in the following cases, that interest expenditure cannot be disallowed under section 14A of the Act, where the assessee had sufficient surplus funds and there was no finding by the assessing officer of any direct nexus of borrowed funds with investments: Godrej Boyce Mfg. Co. Ltd. v. DCIT : 394 ITR 449 (SC) HDFC Bank Ltd v. DCIT: 366 ITR 505 (Bom) HDFC Bank Ltd v. DCIT: 383 ITR 529 (Bom) CIT v. K. Raheja Corporation Pvt. Ltd: ITA No. 1260 of 2009 (Bom.) Bright enterprises Pvt Ltd. v. CIT: 381 ITR 107 (P H) CIT v. Max India Ltd: 388 ITR 81 (P H) Gurdas Garg v. CIT: ITA No.413 of 2014 (P H) CIT v. Microlabs Ltd. : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has consistently been held disallowance under section 14A of the Act is only to be made only if there is exempt income and not otherwise: Cheminvest Ltd. v. CIT : 379 ITR 33 (Del.) PCIT v. IL FS Energy Development Company Ltd. : 297 CTR 452 (Del.) CIT v. Holcim India (P) Ltd.: 272 CTR 282 (Del.) ' CIT v. Corrtech Energy Pvt. Ltd.: 372 ITR 97 (Guj.) CIT v. Winsome Textile Industries Ltd.: 319 ITR 204 (P H) CIT v. M/s Lakhani Marketing: 272 CTR 265 (P H) CIT v. M/s. Shivam Motors (P) Ltd.: 272 CTR 277 (All) Redington (India) Ltd vs. ACIT: 392 ITR 633 (Mad.) SInterglobe Enterprises v. DCIT: ITA No.1362 1032/Del./2013 (Del. Trib.) - affirmed by Delhi High Court in ITA No.456 of 2016 DCIT v. Morgan Stanley India Securities Pvt. Ltd. : ITA No. 114/Mum/2013 (Mum.) VS ACIT v. M. Baskaran: 152 ITD 844 (Chn. Trib.) Specific reliance in this regard is placed on the decision of the Kolkata Bench of the Tribunal in the case of REI Agro Ltd vs. DCIT: 144 ITD 141. In the said case, in A.Y .2008-09, the assessee had invested ₹ 103 crores in shares on which it earned tax-free dividends of ₹ 1.3 lakhs. The assessee claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties and perused the records. It is pertinent to note that though the Hon ble Delhi High Court in Assessee s own case held that there was no question of disallowance of any amount on account of interest under Section 14A of the Act, but the Tribunal in assessee s own case for A.Y. 2008-09 held as under: Ground No 6.0 to 6.4 disallowance of ₹ 7,43,27,349/- under section 14A of the Act 6. Adverting to the aspect of disallowance u/s 14A of the Act, we find from the record and contentions of the parties that, during the year under consideration, the appellant 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, on the basis of which, the assessing officer concluded that provisions of section 14A of the Act becomes applicable to the assessee and consequently, expenditure incurred in relation to exempt income is required to be disallowed, while computing taxable income and by placing reliance upon the decision of the Special Bench of the Tribunal in the case of Daga Capital Management Pvt. Ltd: 312 ITR (AT) 01(Mum.), the assessing ITA No.- 6021/Del/2012 officer applied the method prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (2) and (3) to section 14A, which empowers the assessing officer to compute disallowance as per provisions of Rule 8D of the Rules, w.e.f. assessment year 2008-09, also provides that disallowance as per provisions of Rule 8D can be computed, only if the assessing officer, having regard to the accounts of assessee is not satisfied with the claim of assessee that no expenditure in relation to exempt income has been incurred by assessee. In other words, even from assessment year 2008-09 and onwards, the assessing officer can compute disallowance under section 14A as per the provisions of Rule 8D, only if assessing officer, having regard to accounts of assessee, reaches a finding, that assessee has incurred expenses, having proximate nexus with earning of exempt dividend income. According to the Ld. AR in the absence of such finding, as is held in CIT vs. Walfort Share Stock Brokers: 326 ITR 1 (SC), Godrej Boyce Mfg. Co. Ltd. v. DCIT : 394 ITR 449 (SC) - affirming Godrej Boyce Mfg. Co. Ltd. v. CIT: 328 ITR 81 (Bom.), Maxopp Investment Ltd. vs. CIT: 347 ITR 272 (Del.), and Punjab Haryana High Court in the case of CIT vs. Hero Cycles: 323 ITR 518, assessing officer do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the appellant during the year, having relation/ proximate nexus with exempt dividend income earned during the year. The assessing officer, it is submitted, invoked the provisions of section 14A read with Rule 8D of the Rules in a mechanical manner, which, it is respectfully submitted is beyond jurisdiction. 6.6. For the principle that disallowance under section 14A of the Act cannot be sustain without any satisfaction being recorded by the assessing officer before applying Rule 8D of the Rules, reliance is placed on the decisions reported in Pr.CIT vs. U.K. Paints (India) (P.) Ltd.: 244 Taxman 309 (Del.), Joint Investments P. Ltd. v. CIT: 275 CTR 471 (Del.), Minda Investments Ltd. vs. DCIT: 138 TTJ 240 ( Del.) , ACIT vs. MMTC Limited: ITA No. 724/Del/2014 (Del. Trib.), REI Agro Ltd vs. DCIT: 144 ITD 141 (Revenue appeal dismissed by Calcutta High Court in appeal No. GA No.3581 of 2013)., CIT v. Abhishek Industries Ltd - 231 Taxman 85 (P H), 6.7. Second contention raised on behalf of the assessee is that the assessee is an operating company engaged in manufacture of automobiles and the entire expenditure incurred was in relation to the manufacturing operations of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee that surplus funds have been utilized for making investments. He submitted that the Gujarat High Court in the case of CIT v. UTI Bank Ltd: 215 Taxman 8 (Mag.) held that where there are ITA No.-6021/Del/2012 sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A of the Act, and the Hon'ble Apex Court has dismissed the revenue's SLP in Civil Appeal No. 468/2014 against the aforesaid decision. 6.10. He contended that in the case of mixed funds, the option is with the assessee to appropriate fund and expenditure in a manner most favorable to the assessee, and by placing reliance on Godrej Boyce Mfg. Co. Ltd. v. DCIT : 394 ITR 449 (SC), HDFC Bank Ltd v. DCIT: 366 ITR 505 (Bom), HDFC Bank Ltd v. DCIT: 383 ITR 529 (Bom), CIT v. K. Raheja Corporation Pvt. Ltd: ITA No.1260 of 2009 (Bom.), Bright enterprises Pvt Ltd. v. CIT: 381 ITR 107 (P H), CIT v. Max India Ltd: 388 ITR 81 (P H), Gurdas Garg v. CIT: ITA No.413 of 2014 (P H), CIT v. Microlabs Ltd. : 383 ITR 490 (Kar.), Lubi Submersibles Ltd.: ITA No.868 of 2010 (Guj.), CIT v. Gujarat Pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons ought to have been excluded. In view of the above, without prejudice to their contention that no disallowance is warranted under section 14Aof the Act, Ld. AR prayed that, the assessing officer may be directed to recompute disallowance under that section after reducing the strategic longterm trade investments. 6.13. For the principle that disallowance under section 14A of the Act is only to be made only if there is exempt income and not otherwise, support is derived from the decisions in ACB India Ltd. v. ACIT: 374 ITA No.- 6021/Del/2012 ITR 108 (Del.), Cheminvest Ltd. v. CIT : 379 ITR 33 (Del.), CIT v. Holcim India (P) Ltd.: 272 CTR 282 (Del.), ACIT v. Vireet Investments (P.) Ltd: 165 ITD 27 (Del SB), CIT v. Corrtech Energy Pvt. Ltd.: 372 ITR 97 (Guj.), CIT v. Winsome Textile Industries Ltd.: 319 ITR 204 (P H), CIT v. M/s Lakhani Marketing: 272 CTR 265 (P H) , CIT v. M/s. Shivam Motors (P) Ltd.: 272 CTR 277 (All), Interglobe Enterprises v. DCIT: ITA No.1362 1032/Del./2013 (Del. Trib.) - affirmed by Delhi High Court in ITA No.456 of 2016, REI Agro Ltd vs. DCIT: 144 ITD 141 (Kol. Trib.) - Department appeal dismissed in CIT v. REI Agro Ltd. : I.T.A.T No.220 of 2013 (Cal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or earning the exempt income cannot be accepted, and to proceed with the application of the formula prescribed under Rule 8D of the Rules, which is in force from the AY 2008-09. 6.16. Adverting to the arguments of the Ld. AR on the aspects of interest expenses relevant under Rule 8(ii) of the Rules and the reckoning of the investment amount relevant for 8D(iii), on a consideration of the same in the light of the principles of law laid down by the Court, as stated supra, we agree with the submissions made on behalf of the assessee that insofar as the interest expense under Rule 8D(ii) is concerned, it has to be determined after examination of the macro fund/ cash flow position during the year and if the assessee had sufficient surplus funds available, presumption should be drawn in favour of the assessee that surplus funds have been utilized for making investments, and while ITA No.-6021/Del/2012 calculating the disallowance under Rule 8D(iii) has to be calculated in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promoting industrial growth and increasing employment opportunities by incentivizing fresh investment/ substantial expansion and creating an investor friendly enabling environment that facilitates the industry to move strongly to the front ranks of global competition. Accordingly, sales tax concessions were to be provided to new units and also industrial units undergoing expansion/ diversification. Pursuant to the aforesaid Policy, Chapter IV-C was inserted in July, 2000 in the Haryana General Sales Tax Rules 1975, containing Rule 28C dealing with Tax Concessions , Class of Industries, Period and Other Conditions . In the aforesaid background, the assessee had undertaken industrial expansion in terms of the Rule 28C of Haryana General Sales Tax Rules, 1975. The High Powered Committee, thereafter, in its meeting held on 14.06.2001, granted sales tax concession to the assessee, whereby the assessee company was required to pay 50% of the sales tax collected on sales of finished products from expanded unit and, retain balance 50% of the tax so collected, subject to maximum permissible benefit of ₹ 564.35 crores. The letter/ communication received from Director of Industries, Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i: 60 ITR 253 held that the character of the subsidy in the hands of the recipient is to be determined having regard to the purpose for which the subsidy has been given. The aforesaid principle has been reiterated by the Supreme Court in the case of Sahney Steel and Press Works Ltd. and Others vs. CIT: 228 ITR 253 wherein the Court held that the character of a subsidy in the hands of the recipient, whether revenue or capital, is to be determined having regard to the purpose for which the subsidy is given. The Hon ble Supreme Court of India in Sahney Steel Press Works Ltd. s case (supra) and Ponni Sugars Chemicals Ltd. s case (supra). The Ld. AR relied upon the decision of the jurisdictional High Court in the case of CIT vs. Johnson Matthey India Pvt. Ltd. : ITA No. 193/2015 wherein the Hon ble Delhi High Court, on exactly similar facts decided the aforesaid issue in favour of the assessee by holding that the sales tax subsidy received by the assessee pursuant to Haryana Government s Scheme given for promoting the local industry was in the nature of a capital receipt, not liable to tax under the provisions of the Act. In that case, the assessee was a manufacturer of catalysts fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of CIT vs. Ponni Sugars and Chemical Ltd. (supra) was cited and the Ld. CIT(A) following the ratio of the said decision of Hon'ble Supreme Court decided the issue in favour of the assessee which was questioned by the revenue before the Tribunal. It was argued that their lordship of Hon'ble Supreme Court in the case of Ponni Sugars and Chemicals Ltd. (supra) have again reiterated that the purpose for which the subsidy is given is only relevant for determining its nature. The purpose of subsidy was to promote industrial development in the State by promoting an establishment of new industrial unit or substantial expansion of existing industrial units. Almost similar are the facts in the present case before us as well as similar are the industrial policy 1999 issued by the department of industries, Govt. of Haryana and the relevant rule 28C of General Sales Tax Rules, 1975 as applicable in the case of present assessee, whereby the assessee was required to pay 50% of the tax collected and retain 50% subject to other conditions. Similarly in the case of present assessee was issued entitlement certificate under Rule 28C of the Haryana Sales Tax Rule 1975 to avail the sales tax c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ITA: 472 of 2010, wherein the High Court, following the decision of the Supreme Court in the case of Ponni Sugar (supra), held that the subsidy received by the assessee was capital receipt not liable to tax. The following decisions are also to the same effect: CIT v. Chaphalkar Brothers Pune : 400 ITR 279 (SC) Sunbeam Auto Pvt. Ltd. v. PCIT : 402 ITR 309 (Del.) Bougainvillea Multiplex Entertainment Centre (P.) Ltd.: 373 ITR 14 (Del) CIT vs. Siya Ram Garg (HUF): 237 CTR 21 (P H) CIT vs. Talbros Engineering Ltd.: 386 ITR 154 (P H) CIT vs Rasoi Ltd.: 335 ITR 438 (Cal.) DCIT vs. Inox Leisure Ltd.: 351 ITR 314 (Guj) Garden Silk Mills Ltd. v. CIT and Anr. : 394 ITR 192 (Guj.) CIT vs. Birla VXL Ltd.: 215 Taxman 117 (Guj.) DCIT vs. Munjal Auto Industries Ltd.: 218 Taxman 135 (Guj.) CIT vs. Samta Chavigarh: ITA No. 144 of 2007 (Raj)/ 222 Taxman 205 (Mag.) Shiv Shakti Flour Mills (P) Ltd. v. CIT: ITA No. 6 of 2014 (Gau) Honda Siel Cars India Ltd in ITA No.5577/ Del/ 2004 (Del.) ACIT vs. Shree Cement Ltd. : ITA No. 614, 615 and 635/JP/2010 (JP) DCIT vs. M/s Teesta Agro Industries Ltd. IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (s) 2002-03, 2004-05, 2005-06, 2006-07 and 2007-08. Subsequently, the Tribunal had, for the assessment year 2008-09, relying upon the decision of the Delhi High Court in the case of Bhushan Steels and Strips Ltd., decided the aforesaid issue against the assessee. The adverse decision of the Delhi High Court in the case of Bhushan Steels and Strips Ltd. has been stayed by the Hon'ble Supreme Court vide order dated 20.11.2017 in SLP (C) No.30728-30732/2017. Further, the order of the Tribunal for AY 2005- 06 has recently been affirmed by the Delhi High Court vide order dated 7.12.2017 in ITA No.171/2012, wherein the High Court has, relying upon the decision in the case of Johnson Matthey (supra) held that sales tax exemption received under the Haryana General Sales Tax Rules, 1975 is to be treated as capital receipt. Similarly, order of the Tribunal for assessment year 2006-07 has also been affirmed by the Delhi High Court in ITA No.381/2016. Therefore, the Ld. AR submitted that the assessing officer erred in not excluding the amount of subsidy while computing the taxable income of the assessee. Such action is contrary to the facts of the case and position in law and the same, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs Rasoi Ltd.: 335 ITR 438 (Cal.), CIT vs. Balarampur Chini Mills Ltd.: 238 ITR 445 (Cal.), CIT vs. Madurantakam Co-operative Sugar Mills Ltd.: 263 ITR 388 (Mad), Garden Silk Mills Ltd. v. CIT and Anr. : 394 ITR 192 (Guj.), DCIT vs. Inox Leisure Ltd.: 351 ITR 314 (Guj), CIT vs. Birla VXL Ltd.: 215 Taxman 117 (Guj.), DCIT vs. Munjal Auto Industries Ltd.: 218 Taxman 135 (Guj.), DCIT vs. Reliance Industries Limited: 88 ITD 273 (Mum SB.). 11.2. He drew support from the decision of the jurisdictional High Court in the case of CIT v. Bougainvillea Multiplex Entertainment Centre (P.) Ltd.: 373 ITR 14. Ld. AR further submitted that a coordinate Bench of Delhi Bench of the Tribunal considered all relevant facts and decided the issue in favour of the assessee in assessee s own cases in ITA No.1927/Del/2010 (AY 2005-06), ITA No.5120/Del/2010 (AY 2006-07), ITA No.5720/Del/2011 (AY 2007-08) and the decision in ITA No.1927/Del/2010 for assessment year 2005-06 was followed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery clearly at page No. 26 of its judgment. 11.5. According to the Ld. DR the assessee s case also encircles the issues of sales tax subsidy in the similar ways, thereby, the sales tax subsidy received in the hands of the assessee needs to be treated as revenue receipts, and the Assessee s reliance on Bougainvillea multiplex Entertainment Centre Pvt. Ltd. 373 ITR 14(Del) and Johnson Matthey India Pvt. Ltd., ITANo. 192/2015(Del) are misplaced. Ld. DR emphasizes that the Hon ble Delhi High Court s decision in the case of M/s Bhushan Steel and Stripes Ltd. dt. 13.7.2017 being the recent decision after consideration of all the case laws, wherein the wisdom of the Delhi High Court has reached, in the processes of advancement of jurisprudence, as to treat the sales tax subsidy as revenue receipt, has to be preferred to other earlier decisions. This is being recent, speaking and the well reasoned order needs to be followed by the Hon ble 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture and therefore, the subsidy is capital, would not be justified. The specific provision for capital subsidy in the main scheme and the lack of such a subsidy in the supplementary scheme (of 1991) meant that the recipient, i.e. the assessee had the flexibility of using it for any purpose. Unlike in Ponni Sugars (supra), the absence of any condition towards capital utilization 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. Clearly, the subsidy was revenue in nature. 11.9. Basing on the above observations, he submitted that the Hon ble Court gave much emphasis to the fact that the UP Industrial Policy specifically provided for capital subsidies, and considering the fact that the in that case assessee was not granted capital subsidy, as specifically contained in the said Policy, the Court concluded 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 subsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e jurisdictional High Court in the case of Bhushan Steels (supra), because it has been rendered in context of an altogether different Industrial Policy. 11.13. Placing reliance on the decisions rendered in Government of Andhra Pradesh and Anr. vs. B. Satya Naraina Rao(dead) by LRs. and Others (2000) : 4 SCC 262(SC), A.R. Antuleyvs. R.S.Naik: AIR 1988 SC 1531 (SC), R. Thiruvirkolam v. Presiding Officer and Another : 1 SCC 9 (SC), State of Assam v. RipaSarma : 3 SCC 63 (SC), Punjab Development and Reclamation Corporation Limited vs. Presiding Officer, Labour Court : 1990 : 3SCC 682 (SC), CIT v. Thana Electricity Supply Ltd.: 206 ITR 727 (Bom.), CIT v. Cascade Holdings (P) Ltd.: 365 ITR 84 (Bom.), Ld. AR submitted that even if there is a conflict between the judgements of jurisdictional High Court, viz., Bougainvillea Multiplex Entertainment Centre (supra) and Johnson Matthey (supra) on the one hand, and Bhushan Steels (supra) on 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to find out the principles of law laid down in these decisions. 11.16. In Sahney Steel and Press Works Ltd ( supra) facts involve the notification issued by the Andhra Pradesh Government where under certain facilities and incentives were to be given to all the new industrial undertakings which commenced production on or after 1st Jan., 1969 with investment capital (excluding working capital) not exceeding ₹ 5 crores. The incentives were to be allowed for a period of five years from the date of commencement of production. Concession is also available for subsequent expansion of 50 per cent and above of existing capacities provided in each case, the expansion was located in a city or town or panchayat area other than that in which the existing unit is located. The incentives were, refund of sales-tax on raw materials, machinery and finished goods, levied by the State Government subject to a maximum of 10 per 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 paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business more profitably, since the payments were made only after the industries have been set up. Payments are not being made for the purpose of setting up of the industries. But the package of incentives was given to the industries to run more profitably for a period of five years from the date of the commencement of production. In other words, a helping hand was being provided to the industries during the early days to enable them to come to a competitive level with other established industries. In such circumstances, the Hon ble Court held that the payments were nothing but supplementary trade receipts, though the assessee could not use this money for distribution as dividend to its shareholders, but, the assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose, as such, by no stretch of imagination can the subsidies whether 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustry concerned. The High Court was of the view that obviously the subsidy was given by way of an incentive for capital investment and not by way of addition to the profits of the assessee as was clear from the facts and circumstances of the case. While referring to these facts, Hon ble Apex Court held that the Madhya Pradesh High Court, however, failed to notice the significant fact that under the scheme framed by the Government, no subsidy was given until the time production was actually commenced, mere setting up of the industry did not qualify an industrialist for getting any subsidy, and the subsidy was given as help not for the setting up of the industry which was already there but as an assistance after the industry commenced production. Hon ble Apex Court, therefore, held that the view taken by the Madhya Pradesh High Court is erroneous. 11.19. Law laid down by the Hon ble Apex Court 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inville case (supra), facts submitted to the Court are that against the backdrop of steep decline of viewership due to various reasons including onslaught of cable television leading to erosion in entertainment tax collections and with a view to encourage setting up of multiplex cinema halls and malls, in order to promote the viewership in cinema halls, various State Governments, being aware that setting up an operation of such multiplexes involves various problems including huge capital investments, had come up with schemes offering incentives to cinema industry and the Government of the State of Uttar Pradesh formulated a promotional scheme to such effect and notified it by Government order issued on 13.07.1999. Hon ble jurisdictional High Court after noticing the decisions of the Hon ble Apex Court in Sahney Steel and Press Works Ltd. v. CIT: 228 ITR 253 (SC), and CIT vs Ponni Sugars and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emicals Ltd. of Hon ble Supreme Court, and Bougainville case (supra) of High Court, reached a conclusion that the Sales Tax subsidy received by the assessee as revenue receipt. 11.24. In this case, the Hon ble Court observed that the object of providing subsidy by way of permission to not deposit amounts collected (as sales tax liability)- which meant that the customer or servicer user concerned had to pay sales tax, but at the same time, the collector (i.e. the assessee) could retain the amount so collected, undoubtedly was to achieve the larger goal of industrialization, and the achievement of a quantitative limit (of 125% of capital expenditure in the case of small scale units and 100% in the case of other units) meant that the subsidy could no longer be claimed. However, it was further observed that whilst it might be tempting to read the linkage with capital expenditure as not only 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls, depending upon the experience, vision and genius of its representatives, it is always open for the State to provide incentives, which results in capital and revenue receipts in the hands of the receiver, depending upon the purpose for which they are given. 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 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 However, any stipulation placing the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a high power committee. 11.28 Policy document says, SCHEME OF INCENTIVES CUSTOMISED PACKAGE OF INCENTIVES Customised package of incentives and concessions will be provided for prestigious projects having investment of ₹ 30 crores and above. A High Powered Committee will be constituted under the chairmanship of the Chief Minister to decide the package in individual cases 11.29. Accordingly, sales tax concessions were to be provided to new units and also industrial units undergoing expansion/ diversification. Pursuant to the aforesaid Policy, Chapter IV-C was inserted in July, 2000 in the Haryana General Sales Tax Rules 1975, containing Rule 28C dealing with Tax Concessions, Class of Industries, Period and Other Conditions . The Salient features of the said Rule 28C, to the extent relevant, are as under: (a) Concessions shall be available to an 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collected on sales of finished products from expanded unit and, retain balance 50% of the tax so collected, subject to maximum permissible benefit of ₹ 564.35 crores. The letter/ communication received from Director of Industries, Haryana intimating the aforesaid decision, clearly referred to concession being granted only in respect of vehicles rolled out of production capacity of 70,000 vehicles added as a result of first expansion . Pursuant thereto, the assessee was issued entitlement certificate dated 01.08.2001 under rule 28C of Haryana General Sales Tax Rules, 1975 to avail sales tax concession to the extent of ₹ 564.35 crores during the period 01.08.2001 to 31.07.2015. 11.32. 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. 11.33. A comparative analysis of the both the policies, namely, Uttar Pradesh Industria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to decide the package in individual cases 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 . (f) 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 the unit before expansion at the same or new location. (m) prestigious unit means an eligible unit having fixed capital investment exceeding Rs.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 righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct distinguishes the present case from the facts of Ponni Sugar s case. When the purpose of the subsidy is clearly revenue in nature, end use of the funds by the assessee to liquidate the cost incurred in the expansion activity remains irrelevant having regard to the fact that the subsidy was not expressly for meeting the capital expenses either in the presenti or of past as was the case in Ponni Sugar s case. Though the case in Bougainville was referred to in the case of Johnson Matthey, the Hon ble Court noticed the said case in Bougainville while rendering the decision in Bhushan Steels case also. Though the findings of the Tribunal in Johnson Matthey s case were upheld by the Hon ble Jurisdictional High Court in CIT vs. Johnson Matthey India Pvt. Ltd., we find it difficult to agree with the argument of the 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had claimed running royalty as revenue expenditure and lump sum royalty as capital expenditure, the lump sum royalty was claimed as a revenue expenditure through the revised return of income. The assessing officer, in the impugned assessment order, has held that royalty paid by the assessee was capital in nature and consequently, held that the entire royalty is disallowable. Since, TPO had made adjustment of ₹ 311.74 crores, the assessing officer has computed the disallowance out of royalty payments as under: Total Royalty Rs.679.11cr Less: Adjustment by TPO - Rs.311.73cr Balance Rs.367.38cr Depreciation on above@25% - Rs.91.84cr Disallowance Rs.275.54cr In this regard, the Ld AR submitted that the aforesaid action of the Assessing Officer in holding the royalty payments to be capital in nature. The aforesaid right vested with the assessee was not exclusive in as much as in terms of Article 2.01(b)(ii), SMC granted license for non-exclusive use outside India, meaning thereby, that the owner of the trademark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be treated as revenue expenditure. The Ld. AR relied upon the following decisions: CIT v. Ciba India Ltd: 69 ITR 692 (SC) Alembic Chemical Works Co. Ltd. v. CIT: 177 ITR 377 (SC) CIT v. Shriram Pistons and Rings Limited -CC 12154/2009 (SC) (dismissing the SLP filed by the revenue against the order of the Delhi High Court in ITA No. 167/2008) Shriram Refrigeration Industries Ltd. v. CIT: 127 ITR 746(Del) Triveni Engineering Works Ltd. v. CIT 136: ITR 340 (Del) CIT v. Sharda Motor Industrial Limited: 319 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. Denso India P. Ltd.: 232 Taxman 437 (Del.) CIT v. 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. Shiva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now-how of the foreign company under an exclusive license, the payment in the nature of royalty made has been held to be revenue in nature. The Ld. AR relied upon the following decisions: CIT v. Ciba India Ltd: 69 ITR 692 (SC) CIT v. IAEC (Pumps) Ltd.: 232 ITR 316 (SC) Shriram Refrigeration Industries Ltd. v. CIT: 127 ITR 746(Del) Triveni Engineering Works Ltd. v. CIT: 136 ITR 340 (Del) CIT v. Bhai Sunder Dass Sons (P) Ltd: 158 ITR 195 (Del.) CIT v. Hero Honda Motors Ltd.: 372 ITR 481 (Del.) Praga Tools Ltd. v. CIT : 123 ITR 773 (AP) Mysore Kirloskar Ltd. V. CIT: 114 ITR 443 (Kar.) CIT v. Tata Engineering Locomotive Co. Pvt. Ltd. 123 ITR 538 (Bom) CIT v. Hindustan Motors Ltd.: 192 ITR 619 (Cal.) CIT v. Avery India Ltd.: 207 ITR 813 (Cal.) Shivani Locks Ltd. (ITA No. 3173 3048/D/07) (Del)(ITAT) Hero Honda (P) Ltd.: ITA No 5130/Del/2010 (Del. ITAT) The Ld. AR further submitted that there is no enduring benefit in capital field. The assessee only had the right to use the Trademark on non-exclusive basis. In terms of Article 7.04 and 7.05, the assessee is always exposed to the risk of premature termination of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 6.01 and 6.02, royalty is paid in lumpsum in three installments starting from the year of entering into the license agreement while running royalty is paid each year on the basis of quantum of sale of each model. The Ld. AR submitted that the payment of running royalty is directly linked and correlated with the production/ sales of cars and spares by the assessee company. If there is no production/ sale of cars and spares, there will be no royalty payable by the assessee to SMC. The assessee merely gets a license to use the various items of the intellectual property of the licensor for manufacture of the licensed products and parts without acquiring any ownership of such intellectual property. Such license to manufacture has been granted by the licensor to the assessee during the validity of the license agreement. The royalty is paid by the assessee on the number of licensed products already manufactured and there is no future benefit to be derived from such payment. Accordingly, there is no enduring benefit of capital nature to the assessee and the expenditure is revenue in nature. It has been laid down by the Hon ble Supreme Court in case of Alembic Chemical Works Co. Ltd. 177 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable as revenue deduction by the jurisdictional Delhi High Court in case of CIT v Lumax Industries Limited: 173 Taxman 390. It has similarly been held in the case of CIT V. J.K. Synthetics Limited: 309 ITR 371 (Del). The assessing officer, in the impugned order, has disallowed the royalty as capital expenditure following the assessment orders for the preceding assessment years on the following grounds: Car is a fast moving consumer product with a life cycle of 5 years whereas the license agreement is for 10 years, extendable by 5 years, and even thereafter the assessee can produce the said model of car, which provides more than enduing benefit to the assessee. The license fee has been paid to obtain exclusive right from the parent company for manufacture and sale of the products in India. The license agreement led to the setting up of a new factory based on new technology obtained through the license agreement. The aforesaid findings/ observations of the assessing officer are erroneous, based on incorrect appreciation of the facts and the settled legal position, as pointed out by the Ld. AR hereinafter. It was contended by the Assessing Officer that the life ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of transaction or result in any benefit of enduring character to the assessee. The Ld. AR relied upon the following decisions: Praga Tools Ltd. v. CIT : 123 ITR 773 (AP)(FB) CIT v. Tata Engineering Locomotive Co. Pvt. Ltd. 123 ITR 538 (Bom) Shriram Refrigeration Industries Ltd. v. CIT: 127 ITR 746 (Del) Triveni Engineering Works Ltd. V. CIT: 136 ITR 340 (Del) CIT v. Bhai Sunder Dass Sons (P) Ltd.: 158 ITR 195 (Del.) CIT v. Hero Honda Motors Ltd.: 372 ITR 481 (Del.) CIT v. B.N. Elias Co. (P) Ltd.: 168 ITR 190 (Cal.) CIT v. Avery India Ltd.: 207 ITR 813 (Cal.) SRP Tools Ltd. v CIT: 237 ITR 684(Mad) CIT v. Power Build Ltd.: 244 ITR 19 (Guj.) CIT v. Gujarat Carbon Ltd.: 254 ITR 294 (Guj.) CIT v. Kanpur Cigarettes (P) Ltd.: 287 ITR 485 (All.) Shriram Pistons and Rings Ltd.: 219 CTR 228 (Del.) CIT v. J.K. Synthetics Ltd.: 176 Taxman 355 (Del.) Further, the Ld. AR pointed out that it has been held in the following judicial precedents that where the assessee continued to manufacture using the technology obtained even after expiry of the agreement, the same was not conclusive and the expenditure would be allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xisting business of the assessee. Therefore, the mere fact that new models/ variants of cars are introduced by the assessee based on the license agreement does not mean that an altogether new product was manufactured. That apart, even if various variants of car are treated as different/ new products, still, having regard to the fact that the same were part of the very same business of the assessee of manufacturing of cars, no new business was set up so as to regard the payment of royalty as resulting in an enduring benefit to the assessee. The said payment of royalty therefore does not result in acquisition by the assessee of any asset or advantage of enduring benefit which is in the capital field as explained by the Hon ble Supreme Court in the Empire Jute case 124 ITR 1 (SC), which is necessary in order to consider the same as capital expenditure. The payment of the entire royalty, both Lumpsum and running royalty, therefore needs to be allowed revenue deduction. The aforesaid issue has been decided in favour of the assessee by the Delhi Bench of the Tribunal in assessee s own case for the AY 2006-07, AY 2007-08 and AY 2008-09 holding that amount of royalty considered by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... patents or copyrights or other secret or protected information or knowhow so as to make MSIL a proprietor of the same or so as to enable MSIL to exercise proprietary rights such as unrestricted rights of transfer to third party, either by way or assignment or license. 9.2. According to him in order to determine the nature of the royalty payment, whether capital or revenue, what is material is the underlying purpose for which payment is made and not the tenure or its extendibility or the life cycle of the product that is manufactured with the help of the technology that is accessed from SMC. If the payment is for use of technical knowhow, simplicitor, then the payment has to be regarded as revenue, irrespective of the tenure for which permission is granted for such use. Since in the present case, under the License Agreement, the assessee was merely granted permission to access the technical knowhow for the limited purpose of using the technology relating to the new models during the currency of the agreement and the proprietary rights for the know-how and the intellectual property rights in relation thereto continue to be owned by SMC alone, the payment is undoubtedly revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT v. J.K Synthetics: 309 ITR 371@ pg 391, wherein while culling out legal principles based on various decisions it was held that the fact that assessee could use the technical knowledge obtained during the tenure of the License for the purposes of its business after the agreement has expired, and in that sense, resulting in an enduring advantage, has been categorically rejected by the Courts, and that this, by itself, cannot be decisive because knowledge by itself may last for a long period even though due to rapid change of technology and huge strides made in the field of science, the knowledge may with passage of time become obsolete. Ld. AR disputed the factual correctness of the observation of the assessing officer that the license Agreement led to the assessee setting up a new factory based on new technology, and submitted that no new plant/ factory was setup by the assessee on the basis of the agreement entered into for use of technical knowledge/ information. According to him the assessing officer failed to appreciate that the assessee is engaged in the business of manufacture of automobiles and various models of the cars introduced by the assessee fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue and not capital are the ones where the License Agreement was only to approach or access the technology without imparting any trade secrets and above all the time period was much short, say 5 years or less coupled with the fact that , the product was different and the right given was not exclusive. He submitted that the Tribunal s order in assessee s own case for AY 2007-08 cannot be relied upon because on this aspect the Tribunal was swayed by the assessee contention that TPO has disallowed the royalty, but as a matter of fact, TPO had determined the value of the ALP of the cobranding done by Suzuki. The value of the same is determined by equating the trade mark royalty Maruti was paying to Suzuki for its brand. The logic is simple if Maruti was paying licensed trade name royalty to Suzuki then Suzuki should also be paying back the trade name royalty to Maruti. Whereas it is a fact that royalty being paid is a composite royalty including the usage of Trademark and technical information. It is Suzuki who has been charging this royalty even if its name was used only on the rear of the vehicle. But now after taking over the management of the company, it has repositioned its nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Hon'ble jurisdictional High Court has considered several judgments of the Hon'ble Supreme Court and Hon'ble High Courts and on consideration of their cumulative effect, it has come to the conclusion that both the amounts are revenue in nature. The Hon'ble Delhi High Court in an earlier judgment in Shriram Refrigeration Industries Ltd. vs. CIT (1981) 127 ITR 746 (Del), has held that the lumpsum royalty is a revenue expenditure. After going through the relevant clauses of the Agreement, we have noted that royalty paid by the assessee is for use of licensed information and no part of the same is towards its acquisition as an owner. In the light of the above discussion, it is absolutely clear that the view canvassed by the AO in treating this amount as capital expenditure, is not sustainable. 8.6. Our above finding decides the nature of royalty payment for use of licensed information as revenue expenditure and not its quantum part. We have noticed above that the tribunal in its order for the immediately preceding year has also given some observations, which prima facie indicate that the entire amount of royalty is for the use of licensed information. Since w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire royalty expenditure is a capital expenditure, therefore, cess on royalty also needs to be capitalized. At the outset, it may be mentioned that as per the provisions of Research and Development Cess Act, 1986, R D cess is imposed on import of technology by the Government of India. Further, the applicant has been instructed by the Government of India to pay R D cess on the payment of royalty. Such, R D cess, being a statutory payment, is governed by section 43B of the Act, which is a separate code in itself and overrides other provisions of the Act. It is not in dispute that the R D cess has actually been paid to the Government within the time limits prescribed by section 43 B of the Act. Section 43B of the Act allows payment of statutory dues on payment basis. Any expense which is laid out or expended wholly and exclusively for the purposes of the business of the assessee and which is not in the nature of capital expenditure or personal expenses are allowable under the Act. The assessee has given detailed factual and legal arguments in the earlier part of this submission as to why the royalty payment be considered as revenue expenditure. The Ld. AR submitted that the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of assessee itself in the appeal before the ITAT for the assessment year 2006-07 and in that case it was held that: 9. The next ground is disallowance of R D cess paid amounting to ₹ 9,68,47,294/-. Relevant discussion has been made by the AO on page 26 of his final order. The assessee treated the amount of royalty and cess on royalty as revenue expenditure. The AO disallowed a sum of ₹ 9.68 crore after proportionately allowing deduction to the extent of depreciation allowed by him on royalty. There is no dispute on the nature of cess, which is on royalty and has been treated both by the assessee as well as the AO as part and parcel of royalty and accordingly claimed/disallowed in line with the treatment of royalty. Since we have allowed deduction for the entire amount of royalty paid by the assessee during the year by deleting the TP adjustment and also overturning the action of the AO in treating the remaining half part as capital expenditure, the consequential amount of cess on royalty payment automatically becomes deductible. We, therefore, direct to allow deduction of ₹ 9.68 crore. 10.3. This Tribunal followed the above reasoning for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have heard both the parties and perused the relevant material available on record. We find that in assessee s own case for A.Y. 2008-09, the Tribunal held as under: Ground Nos 13 to 13.3 disallowance ₹ 58,61,136/- on account of Expenditure on Excise duty: 13. In respect of disallowance ₹ 58,61,136/- on account of Expenditure on Excise duty, case of the assessee is that during the relevant assessment year, the assessee paid excise duty of ₹ 58,61,136/-, being provision for MODVAT on quantity difference on inputs disallowed in earlier years now claimed on payment basis u/s 43B of the Act, but the assessing officer disallowed the aforesaid claim on the ground that assessee would not have been liable to make the aforesaid payments of ₹ 58,61,136/- to the Excise Department if it had been able to establish that all consumptions claimed by it were for the purposes of manufacturing. Assessee submits that the payment made by them is clearly in the nature of excise duty, which is admissible as deduction on payment basis under section 43B of the Act. 13.1. Ld. AR submits that the issue is also covered in favour of the assessee by the orders of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of the CIT(A) on this issue stands confirmed. 23. It is also noticed that this Excise Duty is paid against the order of the Settlement Commission and is in the nature of reversal of MODVAT availed on the inputs and not in the nature of penalty or fines. In the circumstances, the ground of appeal as raised by the Revenue on this issue stands dismissed. 27.4 In view of the above finding of the ITAT on the issue and of the Excise Tribunal in the assessment year 2000-01 that shortage of stock of raw-material and the minor discrepancy was the result of accounting error due to use of large quantity of inputs procured from several hundred suppliers, we hold that the assessee was justified in claiming ₹ 77 lacs on account of expenditure on excise duty on payment basis under sec. 43B of the Act. The Assessing Officer is accordingly directed to allow the claim. Ground Nos. 14 to 14.3 are thus allowed. 13.4. When the facts are similar and a particular view is taken by a coordinate Bench of this Tribunal for the earlier years, it is not desirable to deviate from the same in a subsequent year in the absence of any change of circumstances, as such by respectful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (a) The liability was booked on account of materials already supplied by suppliers and not on an ad hoc or arbitrary basis. b) The amount was determined and computed with a substantial degree of accuracy at the time of determining and booking the amount as per information available till date of finalization of accounts c) The liability was required to be booked as per accrual system of accounting as the goods were already received. The Ld. AR submitted that FPI is an existing liability as per the understanding arrived at with the suppliers of the components, who are original manufacturers of the components. 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. The change in price of the components takes place to give effect to the increase in the cost of the inputs required for manufacturing of the components. The same is as per the agreement with the suppliers to ensure uninterrupted supply of components, even when their cost has been increased. The Ld. AR also submitted that such practice i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure 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 entries in the books both in respect of losses and gains is as per nationally accepted accounting standards; (vi) whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation. The Ld. AR further relied upon the judgment of the Supreme Court in the case of Rotork Controls India (P) Ltd. vs CIT: 314 ITR 62 wherein it has been held that:- 17. At this stage, we once again reiterate that a liability is a present obligation arising from past events, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written-back and offered for tax as part of his chargeable income in assessment year 2010-11. The amount of write-back could, in law, be taxed by the Assessing Officer in assessment year 2010-11 only if the same was an allowable deduction from the assessee s assessable income in assessment year 2009-10. Further, the payment made in next year against the liability for foreseen price increase of previous year should be allowed as deduction in Assessment Year 2010-11. The issue now stands squarely covered in favour of the assessee by the order of the Tribunal in the assessee s own case for the assessment years 2007-08 and 2008-09, wherein the Tribunal held that provision for foreseen price increase made by the assessee represented an accrued/crystallized liability, which is an allowable business deduction. 69. The Ld. DR relied upon the Assessment Order. 70. We have heard both the parties and perused all the relevant material available on record. We find, the Tribunal in assessee s own case for A.Y. 2008- 09 has held as under: Ground No 12 to 12.5 Disallowance on account of Provisional Liability relating to Expenditure on account of FPI-OE Components 12. On the aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchases 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. The accounting of FPI was justified by the assessee on account of the liability that was determined and computed with a substantial degree of accuracy on account of materials already supplied by suppliers, at the time of determining and booking the amount as per information available till date of finalization of accounts and such a liability was required to be booked as per accrual system of accounting as the goods were already received. According to the Ld. AR this practice of provision for FPI is in accordance with practice prevalent in motor vehicles industry. Reference in this regard is invited to a notification dated 28.7.2003 issued by the Excise Authorities on the subject of charging of interest under section 11AB wherein the excise authorities recognized prevailing commercial practice of supplementary invoices being made in addition to the original invoices. 12.1. Placing reliance on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 entries in the books both in respect of losses and gains is as per nationally accepted accounting standards; (vi) whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation. 12.3. Further reliance is also placed on the judgment of the apex Court in the case of Rotork Controls India (P) Ltd. vs CIT: 314 ITR 62 wherein it has been held that:- 17. At this stage, we once again reiterate that a liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate is possible of the amount of obligation. 12.4. Ld. AR submitted that this practice is in consonance with the provisions of the Companies Act and generally accepted accounting principles and practices of Institute of Chartered Accountants of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 without being sure of the liability and at the same time not acknowledging the quantified liability to the creditors and not leaving any note in the audit report. He placed reliance on the decisions reported in ITO vs. EMCO Transformers Ltd. (ITAT, Bom) 32 1TD 260, Srinivasa Computers Ltd. vs. ACIT (ITAT, Chennai) 107 1TD 357, and CIT vs. Rotork Controls India Ltd. (Mad) 293 ITR 311. According to him, later on the Hon ble Supreme Court has laid down General Principle on this issue, wherein it was stated that the value of contingent liability, like warranty expense, if properly ascertained and discounted on accrual basis can be an item of deduction under section 37, the principle of estimation is not the normal rule it would depend on the nature of business, nature of sale, nature of product and scientific method of accounting adopted by the assessee, and it would also depend upon the historical trend and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 affording opportunity of being heard to the assessee as per the first appellate order on the issue in the assessment year 2003-04, as followed by this Tribunal for the AY 2007-08 also. Grounds 12 to 12.5 are disposed of accordingly. Thus, the issue is identical in assessee s own case for A.Y. 2008-09. Therefore, we are remanding back this issue to the file of the Assessing Officer with direction to decide the issue afresh after giving opportunity of hearing to the assessee. Hence Ground No. 9 to 9.5 are partly allowed for statistical purpose . 71. In result, Ground No. 9 to 9.5 are partly allowed for statistical purpose. 72. Ground No. 10 to 10.3 is relating to Sharing of resources with other Group Companies/Subsidiary Companies amounting to ₹ 17,29,22,979/-. During the financial year 2008-09, the subsidiary companies of the assessee were operating as Corporate Insurance agents of different insuran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive and manpower support for its functioning, which has been provided by the existing set-up of the MSIL. The assessee, it needs to be appreciated, provided the support to the Insurance subsidiaries due to its business exigency rather than supporting the said company. The sharing of facilities/services by MSIL for its own business interests and accordingly, the related cost is an allowable business expenditure for the company. Further, it may kindly be appreciated that the expression for the purpose of business as used in section 37(1) of the Act is much wider than for the purpose of earning income . What is, therefore, important for the purpose of allowability of deduction under section 37(1) of the Act is that the expenditure must be incurred for the purpose of business. It is not necessary that incurring of expenditure must immediately result in receipt of income and/or there must be substantial quantum of income. Therefore, if expenditure is incurred for the purpose of business, such expenditure is an allowable deduction, even though the same does not result in earning of income immediately. The Ld. AR relied upon the decisions of the Supreme Court in the case of CIT vs. Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sputed the aforesaid business expenditure, being will have to be allowed as deduction under section 37(1) of the Act, either in the hands of the assessee company or to the group Companies. Therefore, on an overall basis, the entire exercise of seeking to tax the normal business expenditure is, in any case, revenue neutral. Accordingly, even on this ground, deduction in respect of such business expenditure should be allowed under section 37(1) of the Act. The Ld. AR relied upon the following decisions wherein it has been held that Revenue should agitate issues or make adjustment on issues which are revenue neutral and do not affect overall taxes likely to be collected by the Government. CIT v. Excel Industries Ltd and Mafatlal Industries (P) Ltd.: 358 ITR 295 (SC) CIT v. Bilahari Investment P. Ltd.: 299 ITR 1 (SC) CIT v. Shri Ram Pistons Rings Ltd.: 220 CTR 404 (Del.) CIT v. Triveni Engg. Industries Ltd.: 336 ITR 374 (Del.) CIT v. Nagri Mills Co. Ltd.: 33 ITR 681 (Bom.) CIT vs. M/s Vishnu Industrial Gases: ITA No. 229/1988 (Del.) In view of the aforesaid, the Ld. AR submitted that the assessing officer may be directed to delete the arbitrary disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivery 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 of the company and its dealers. He further submitted that the simplistic business structure of the Insurance Company required negligible administrative and manpower support for its functioning, which has been provided by the existing set-up of MSIL. Since the assessee provided the support to the Insurance subsidiaries due to its business exigency the related cost is allowable business expenditure for the company, in view of the fact that the expression for the purpose of business as used in section 37(1) of the Act is much wider than for the purpose of earning income . 14.2. He relied on the decisions of the Supreme Court in the case of CIT vs. Malayalam Plantations Ltd.:53 ITR 140, wherein it was held, that the expression for the purpose of the business is wider in scope than the expression for the purpose of earning profits . Its range is wide : it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Travelling Cost 918,000 Office Infrastructure Cost 946,800 IT System/ Application cost 985,000 Total Cost 13,099,800 14.6. He further submitted that the said expenditure being the business expenditure, will have to be allowed as deduction under section 37(1) of the Act, either in the hands of the appellant company or to the group companies, in that sense the entire exercise of seeking to tax the normal business expenditure is, in any case, revenue neutral as such in view of the decisions in CIT v. Excel Industries Ltd and Mafatlal Industries (P) Ltd.: 358 ITR 295 (SC), CIT v. Bilahari Investment P. Ltd.: 299 ITR 1 (SC), CIT v. Shri Ram Pistons Rings Ltd.: 220 CTR 404 (Del.), CIT v. Triveni Engg. Industries Ltd.: 336 ITR 374 (Del.), CIT v. Nagri Mills Co. Ltd.: 33 ITR 681 (Bom.), and CIT vs. M/s Vishnu Industrial Gases: ITA No. 229/1988 (Del.) Revenue should not agitate issues or make adjustment on issues which are revenue neutral and do not affect overall taxes likely to be collected by the Government. Ld. DR vehemently relied u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecure a sustainable competitive advantage. The said expenditure has been incurred for business purposes on the grounds of commercial expediency and for long term sustainability and there is no element of any personal benefit being granted. The expenditure was incurred by the company wholly and exclusively for the purpose of promoting its business and, therefore, the expenditure is allowable. On the contrary, the assessing officer disallowed the claim of the assessee on the ground that the same had not been incurred wholly and exclusively for the purpose of the business. In addition, the assessing officer also alleged that the expenditure incurred by the assessing officer resulted in an enduring benefit to the assessee and therefore was capital in nature. In this regard, it is respectfully submitted that the assessee, since 28 years is committed to the principle of Give - a principle that has been the bedrock of the company s approach to sustainable business. The assessee company has formulated a corporate social responsibility policy recognizing its responsibility towards all its stakeholders. The key stakeholders of the assessee company are its employees and their families, cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... projects accordingly. These community initiatives have helped in developing a cohesive relationship between the community and the company. The company has adopted 4 villages around Manesar manufacturing plant for overall development of these villages and for the well-being of people living in these villages. The assessee company has been strengthening its own operations by gaining the co-operation of the local community and its employees. Further, the company endeavours to educate its employees and workers in order to develop an effective two-way communication to educate workers as to what is in their best interests. Sometimes a company's policies are also very one-sided. Workers, usually receive politically motivated communications from outside persons, who have no stake in the future of the company, and who are looking for short-term political gains. The management needs to counter this by developing an education process so as to develop a long term sustained growth for its business. Moreover CSR is an efficient instrument of how to bind the workers to the company. This would also include good working conditions which directly have a positive impact on the profit making strat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed to lay down that necessity of the expenditure would be a condition for claiming deduction under that section. The implication of the aforesaid is that the fact that somebody other than the assessee is also benefitted by the incurring of the expenditure does not come in the way of the expenditure being allowed by way of deduction under section 37(1) of the Act. What is important for the purpose of allowability of deduction under section 37(1) of the Act is that the expenditure must be incurred for the purpose of business. Again, the words, for the purpose of business should not be limited to the meaning of earning profit alone . It is also important to note that the purpose has to be seen from the point of view of the businessman and should not be seen with reference to narrow objective of earning profits immediately. To elaborate, certain expenditure may not reap profits immediately, but may be advantageous in the long run, by creating goodwill and brand image. The Ld. AR further submitted that CSR expenses are allowable as revenue expenditure, as has been held in the following decisions: i) Sri Venkata Satyanarayana Rice Mill Contractors Co v. CIT: 223 ITR 101 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITD 186. In the instant case, the assessee, a company owned by Government of India and working under its control and directions, incurred some expenditure towards implementation of 20- Point Programme at instance of Government and claimed deduction of same under section 37(1) of the Act. The Tribunal observed that it was in business interest of assessee to abide by directions of Government of India which owned assessee and expenditure on 20- Point Programme was incurred in view of specific directions of Government of India and allowable under section 37(1) of the Act. Attention is also invited to the decision of the Mumbai Tribunal in the case of Indian Petroleums vs. Department of Income Tax: ITA No. 664 and 665/ Ahd/2008, wherein the Court held that the assessee is entitled to the deduction of expenditure incurred in the nature of donation / contribution towards community development work. The Ld. AR relied upon the decision of the Ahmedabad bench of the Tribunal in the case of Lubrizol Advances Materials India P. Ltd. v. DCIT: 150 ITD 538. The Ld. AR also relied upon the following cases: i) IAC v. Nuchem Plastics Ltd.: 35 TTJ 559 (Del.) ii) DCIT v. Hero Moto Corp. Ltd. : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of deduction under section 37(1) of the Act. What is important for the purpose of allowability of deduction under section 37(1) of the Act is that the expenditure must be incurred for the purpose of business. Again, the words, for the purpose of business should not be limited to the meaning of earning profit alone . It is also important to note that the purpose has to be seen from the point of view of the businessman and should not be seen with reference to narrow objective of earning profits immediately. Certain expenditure may not reap profits immediately, but may be advantageous in the long run, by creating goodwill and brand image. These submissions of the Ld. AR are supported by the Income Tax statute. But at the same time, it can be seen that Explanation 2 has been inserted in section 37 of the Act by the Finance (No.2) Act, 2014 w.e.f. 1.04.2015 to provide that CSR expenses referred in section 135 of the Companies Act, 2013 shall not be deemed to be incurred for the purpose of business. The aforesaid Explanation inserted w.e.f. 1.04.2015. Therefore, in the present assessment year the said explanation will not be applicable. Hence, the expenditure has to be allowed bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the Tribunal in the assessee s own case for the assessment years 2001-02, 2002-03, 2004-O5, 2005-06, 2006-07, 2007-08 and 2008-09. 81. The Ld. DR relied upon the Assessment Order. 82. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that in assessee s own case for A.Ys. 2001-02, 2002-03, 2004-O5, 2005-06, 2006-07, 2007-08 and 2008-09, the Tribunal decided this issue in favour of the assessee. The Tribunal held as under: 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 benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to order passed by the TPO u/s 154 of the Act, the transfer pricing adjustment made on account of AMP expenses was deleted. Therefore, these grounds become infructuous. Ground No. 13 and 15 to 15.28 are dismissed. 86. Ground Nos. 16 to 16.14 is relating to adjustment on account of payment of royalty for use of brand name for ₹ 311.75 crores. The Ld. AR submitted that this issue is covered by the decision of the Tribunal in assessee s own case for A.Y. 2005-06 (ITA No.5237/Del/2011), A.Y. 2006-07 (ITA No.5120/Del/2010), A.Y. 2007-08 (ITA No.5720/Del/2011), and A.Y. 2008-09 (ITA No.6021/Del/2012). The Ld. AR submitted that during the relevant previous year the assessee inter alia entered into the transaction of payment of royalty of ₹ 677.68 crore to Suzuki Motor Corporation (AE) in consideration for the right to manufacture and sell various models of motor cars. TNMM was applied to benchmark the aforesaid transaction of payment of royalty and OP/Sales was considered as the profit level indicator. Since the operating profit margin (OP/Sales) of the assessee at 6.85% was higher than the average of the operating profit ratio of comparable companies, at 6.56% the intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d evidence on record to show 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. Thus, the issue is identical with the earlier assessment year and in the present year as well, there is a direct nexus between the revenue of the taxpayer and the payment of royalty. Therefore, the Revenue cannot dispute the benefit derived by the taxpayer from payment of such royalty. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest under section 234B in the light of the Explanation to section 140A of the Act and decided the issue in favour of assessee. The Ld. AR relied upon the decision of the Mumbai Bench of the Tribunal in the case of ACIT v. C.C Chokshi and Co.: ITA No. 7791/Mum/2004 wherein the Tribunal was adjudicating similar issue. In that case, the assessing officer similarly adjusted the self assessment tax firstly against the interest leviable under section 234B of the Act on the basis of the assessed income. On the other hand, the assessee contended that the same needs to be computed with reference to the returned income and not the assessed income. Accepting the contention of the assessee, the Tribunal observed in C.C Chokshi and Co (supra) as under: 3.6.2 We have heard both parties perused the records and considered the matter carefully. The factual and legal background relating to the issue has already been discussed in the preceding paras. The section 140A provides that in case payment made under the said section falls short of the tax payable including interest under the said section then the tax so paid shall be first attributed towards the interest and the balance amount sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 234C of the Act, as aforesaid. 96. The Ld. DR relied upon the Assessment Order. 97. We have heard both the parties and perused all the relevant material available on record. Accepting the contention of the assessee, the Tribunal observed as under: 3.6.2 We have heard both parties perused the records and considered the matter carefully. The factual and legal background relating to the issue has already been discussed in the preceding paras. The section 140A provides that in case payment made under the said section falls short of the tax payable including interest under the said section then the tax so paid shall be first attributed towards the interest and the balance amount shall be adjusted against the tax payable. In this case, the tax payable under section 140A also included interest payable under section 234B. The issue is whether the interest payable under section 234B which has to be first adjusted against the payment u/s 140A has to be calculated with respect to total income as declared in the return or total income determined in the regular assessment. We find that the section 140(1B) provides that interest payable under section 234B, has t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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