TMI Blog2019 (4) TMI 1509X X X X Extracts X X X X X X X X Extracts X X X X ..... s made to the AE on principal to principal basis, at price agreed upon by the parties. As regards payment of export commission, the assessee paid this export commission for providing access by HMCL to the assessee for procuring export orders using their network and infrastructure in relation to export. In fact the export agreement with HMCL impart the consent to the assessee for export of specific models of two wheelers to certain countries on payment of export commission @ 5% of the FOB value of such export. It is noted here that by virtue of the said payment the assessee gained the access to new market for its products, which enabled it to enhance sales. Thus, the TPO/DRP was not correct in disallowing these three components in the Transfer pricing additions and we are allowing Ground No. 1 to 12 of the assessee s appeal. Addition of freight inward/import clearing expenses - assessee ordinarily purchases raw material on CIF basis and, therefore, freight cost for delivery of goods is ordinarily included in purchase price and are factored in the value of closing inventory - HELD THAT:- The assessee is following consistent system of accounting which was without any reasons was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod expenses - assessee is a large size manufacturing company which receives services from several vendors, running into hundreds and made attempt to quantify the liability incurred towards expenses during the relevant previous years and provide for it - HELD THAT:- From the records it can be seen that the assessee made reasonable attempt to quantify the liability incurred towards expenses during the relevant previous years and provide for it. But it was not humanly possible to consider and provide for all the expenses, in absence of relevant details/material/information for various reasons like non-receipt of bills/invoices from the vendors, the contract terms with vendors not being settled, disputes in relation to bills received, services contracted by zonal/regional/branch officer not intimated to the head office, etc. Therefore, assessee in our opinion rightly claimed miscellaneous expenses aggregating to ₹ 17,83,68,791 pertaining to prior period. Advertisement provisions of Head Office - at the end of year, the assessee makes provision for various expenses incurred during the year on the basis of reasonable estimate since in the absence of receipt of bills/invoices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were rendered by HCSL to the assessee and the assessee explained the nature of services received from Hero Corporate Services Ltd. and nexus of same with the business of the assessee before the Assessing Officer. AO was not right in disallowing the payments made for advisory services availed from HCSL. TDS u/s 194H - TDS on quarterly target and turnover discount and Sales Discount - HELD THAT:- From the perusal of records it can be seen that as dealership agreement entered between the appellant and dealers is on a principal-to-principal basis and dealers do not act as agents of the appellant while purchasing and further selling the vehicles. Accordingly, the incentives offered at the time of purchase of vehicles do not fall within the meaning of commission u/s 194H. AO was not correct in holding that the assessee was liable to deduct tax from discounts/incentives u/s 194H. TDS u/s 194J - disallowance of legal and professional expenses u/s 40(a)(ia) - re-imbursement of professional expenses - HELD THAT:- In the present Assessment Year, the Assessing Officer disallowed the aforesaid expenses, invoking section 40(a)(ia), for the failure of the assessee to deduct tax at source t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the assessee under section 14A and made further disallowance of ₹ 124.88 lakhs invoking provisions of Rule 8D after reducing the suo moto disallowance made by the assessee in the return of income. But the Assessing Officer has not given the proper calculation to that effect. Therefore, the matter is restored back to the file of the AO. AO that after taking congnizance of the Apex Court decision in case of Maxopp Investment Ltd. [ 2018 (3) TMI 805 - SUPREME COURT OF INDIA] , pass the appropriate order. Disallowance of additional depreciation of model fee - incurred prior to commencement of production of the new model - HELD THAT:- It is pertinent to note that in the present year expenditure was incurred on new model fees prior to commencement of production of new models of two wheelers, and even otherwise this is revenue neutral exercise as the same adjustment would be required to be made to the opening stock of finished goods for the year under consideration. Thus, the facts are similar to the subsequent Assessment years and are squarely covered with the decision of the Tribunal for A.Ys. 2010-11, 2011-12, 2012-13 and 2013-14. Disallowance of reimbursement of fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer. Disallowance of expenses incurred on account of Corporate Social Responsibility (CSR) - HELD THAT:- The role of the assessee was not restricted to merely earning profit, but also discharging certain community related expenses, which would be considered to have been incurred on account of commercial/ business expediency. Disallowance of deduction u/s 80IC - being the proportionate amount of sales to vendors for processing of semi-finished goods supplied by the assessee , computed on ad-hoc basis, on the ground that manufacturing activity to the aforesaid extent of sales was outsourced - HELD THAT:- We fully agree with the findings of the Tribunal in A.Ys. 2010-11 to 2013-14 that outsourcing of certain intermediary processes or procurement of finished components in the process of manufacture does not tantamount to outsourcing of manufacturing activities and thus would not hamper the claim of deduction of the assessee company u/s 80 IC. It is also pertinent to mention that no appeal has been filed by the Department before the Hon ble Delhi High Court. Disallowance of deduction u/s 80IC - part of the manufacturing activity (ies) at Haridwar were outsourced o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowing the said expenses. Disallowance of certain incomes earned by the eligible unit, on the ground that such incomes were not derived from the business of manufacture of specified articles or things - HELD THAT:- Other incomes in the nature of Interest on loan to employees, interest on loan to vendors for working capital support, freight recovery, sundry sales, cash discounting from vendors and exchange fluctuation gain, etc. earned by a unit eligible for deduction under Section 80IC has to be considered as incidental to the activity of carrying out manufacturing and thus eligible for deduction Disallowance of deduction u/s 80IC for non compliance of Rule 18BBB and non-adherence to condition specified in Industrial Policy - HELD THAT:- The assessee company has given all the necessary details to the Assessing Officer and fulfilled all statutory conditions for the claim of deduction u/s 80IC. Disallowance of purchase u/s 40(a)(ia) for alleged failure to deduct TDS u/s 194C - HELD THAT:- In the present case the recipient have discharged their tax liability and certificate of Chartered Accountant to that effect was provided by the parties, therefore, no disallowance can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is pending before the Tribunal. Thus the Revenue accepted the aforesaid claim made by the assessee. AO was not correct in disallowing the provision for warranty holding the same to be unascertained as the provision for warranty was made by the assessee since A.Y. 1996-97 on the basis of weighted average cost for the actual claims received in the past two years which was a scientific and rational basis and accepted by the revenue in past. Disallowance of export commission paid to Honda Motor Co. Ltd. of Japan, u/s 40(a)(ia) - HELD THAT:- similar issue was decided in favor of the assessee by Tribunal, holding that by way of export agreement, Honda has only permitted the assessee to export the specified goods to the specified countries and the assessee has not acquired any asset/intangible right in the nature of a capital asset. Ad-hoc disallowance on the ground that the assessee had allegedly engaged in shifting of profits and/or losses through Client Code Modification (CCM) - HELD THAT:- AO did not bring any document and/or evidence on record to support the adverse inferences drawn in respect of genuineness of the impugned transactions or suggesting mala fide client code modif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NIL 15,00,822 Total 42,60,02,783 3. That the DRP/TPO erred on facts and in law in holding that benchmarking analysis undertaken by the appellant in respect of the international transactions of payment of export commission, model fee and royalty by aggregating with other transactions and applying TNMM was incorrect and each such transaction is required to be analyzed separately. 4. That the DRP/TPO erred on facts and in law in not appreciating that the transaction of payment of model fee, export commission and royalty were in accordance with the approval granted by the central government/limits prescribed by the RBI and were therefore at arm s length. 5. That the DRP/TPO erred on facts and in law in determining the arm s length price of international transaction of payment of export commission of ₹ 11,67,48,507 at NIL, allegedly applying CUP method holding that no independent party shall pay such commission in similar circumstances since - (a) An independent enterprise would compensat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as percentage of sale to the associated enterprises is not at arm s length as it amounts to collecting royalty on the sale to itself. (b) the appellant is making part of its sales to related parties and the benefit of purchasing components is reaped by the associated enterprise, the payment of royalty does not conform to arm s length price. 9. That the DRP/TPO erred on facts and in law in not appreciating that the royalty is paid by the appellant on net sales after deducting the cost of imported components, standard bought out components and export commission. 10. That the DRP/TPO erred on facts and in law in not appreciating that the payment of export commission, model fee and royalty was validly benchmarked applying TNMM method as most appropriate method and that no adverse inference could be drawn on this account. 11. That the DRP/TPO erred on facts and in law in computing adjustment on account of international transaction of payment of export commission, model fee and royalty without applying any of the prescribed methods. 12. That the DRP erred on facts and in law in upholding the adjustment made by the TPO holding that the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t liability and (ii) there was no condition of revision of prices in the purchase order placed by the appellant on such vendors. 15.1 That the assessing officer erred on facts and in law in observing that the appellant did not submit information/details qua the method followed for computing the aforesaid provisions. 15.2. That the assessing officer erred on facts and in law in not appreciating that total provision of ₹ 10,43,44,673was made on the basis of actual price revisions approved upto the end of the relevant year, which is an allowable business expenditure, as per mercantile system of accounting, under section 37(1) of the Act. 15.3. That the assessing officer erred on facts and in law in alternatively observing that the aforesaid amount of provision for increase in price of material is further liable to be added to the cost of closing stock, without appreciating the correct facts and the legal position. 16. That the assessing officer erred on facts and in law in disallowing various expenses to the extent of ₹ 17,83,68,791/-, which pertained to services availed from the vendors in the immediately preceding year, and were cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid parties were not related to the appellant in terms of section 40A(2)(b) of the Act and hence no disallowance of expense on the ground that payment made to such parties was excessive, could be made. 18.2 That the assessing officer erred on facts and in law in alleging that the appellant had maintained its relationship with the parties in a manner that they do not qualify for being related parties as per the provisions of section 40A(2) of the Act. 18.3. Without Prejudice, that the assessing officer erred on facts and in law in disallowing purchases to the extent of ₹ 48.76 crores, with respect to purchases from aforesaid related parties (in terms of AS-18) for which no comparable instance supporting the allegation of excessive payment, was available, on pure estimate basis. 19. That the assessing officer erred on facts and in law in making addition of ₹ 84,08,000 to the income of the appellant under section 2(22)(e) of the Act on account of payments given by the customers of Hero Fin Corp Ltd. ( HFCL ) to the appellant. 19.1 That on the facts and circumstances of the case, the assessing officer failed to appreciate that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on a principal to principal to basis, and did not constitute commission as referred to in section 194H of the Act. 21.3. Without prejudice, that the assessing officer erred on facts and in law in not appreciating that since the appellant was under a bona fide belief that no tax was Without prejudice, the assessing officer erred on facts and in law in required to be deducted therefrom, no disallowance was warranted under section 40(a)(ia) of the Act. 21.4. Without prejudice, the assessing officer erred on facts and in law in not appreciating that since the payees have also paid tax on the income receivable from the appellant, no disallowance could be made under section 40(a)(ia) of the Act for alleged default in deduction of tax at source by the appellant. 21.5. Without prejudice, the Assessing Officer erred on fact and in law in not not appreciating that the disallowance could not have exceeded 30% of the total expenditure in view of the amended provisions of section 40(a)(ia) of the Act. 22. That the assessing officer erred on facts and in law in disallowing reimbursement of conveyance expenses aggregating to ₹ 9,68,081/- under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had a degree of perpetuity, as it was being renewed and extended year after year. 23.3. That the assessing officer erred on facts and in law in observing that payments under the LTAA covered consideration for setting up of manufacturing facility for the appellant. 23.4. That the assessing officer erred on facts and in law in holding that expenditure incurred on royalty/ technical guidance fee/ model fee were not incurred for the purpose of the business of the appellant, without giving any cogent reasons. 23.5. Without prejudice, the assessing officer erred on facts and in law in inadvertently not allowing depreciation on royalty/technical fee and model fee paid after the treating the same to be capital expenditure. 24. That the assessing officer erred on facts and in law in treating gains arising from sale of investments made during the year as business income, instead of capital gains as considered by the appellant and consequently making an addition of ₹ 145,43,08,968/- under the head business income, as opposed to income of ₹ 81,80,74,967/- disclosed under the head capital gains . 24.1. That the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eyond jurisdiction to the assessment year under consideration inasmuch as the said issue could be raised only in the year of sale of investment(s). 26. That the assessing officer erred on facts and in law in enhancing the value of closing inventory and thereby income of appellant by ₹ 19,26,000 in respect of proportionate amount of depreciation on model fee incurred during the year and debited to the profit and loss account, alleging the same to be directly related to manufacture of finished goods and, therefore, attributable to the closing stock of such goods. 27. That the assessing officer erred on facts and in law in making disallowance of ₹ 1,50,92,608/- (comprising of ₹ 48,55,673/- in respect of Dharuhera, Gurgaon and Haridwar plants and ₹ 1,02,36,935/- in respect of head office expenses) out of expenditure incurred towards re-imbursement of foreign travel expenses incurred by employees, on the ground that the same were not supported with evidences / bills of expenditure incurred abroad. 28. That the assessing officer erred on facts and in law in disallowing expenditure of ₹ 13,04,554/- incurred on advertisement for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure allowable against business income under the provisions of the Act. 32. That the assessing officer erred on facts and in law in disallowing deduction under section 80IC of the Act by an amount of ₹ 7.53 crores, being the proportionate amount of purchases from vendors after processing of semifinished goods supplied by the appellant, amounting to ₹ 57.72 crores, computed on ad-hoc basis, on the ground that manufacturing activity to the aforesaid extent of purchases was outsourced and, therefore, proportionate amount of profit derived from such purchases was not eligible for deduction under section 80IC of the Act. 32.1 That the assessing officer erred on facts and in law in observing that purchase of finished components from the vendors for further consumption in assembly/manufacture of two wheelers constituted outsourcing of manufacturing activity. 33. That the assessing officer erred on facts and in law in disallowing deduction under section 80IC of the Act by an amount of ₹ 71.62 crores, on the ground that part of the manufacturing activity(ies) at Haridwar were outsourced on the basis of lower consumption of power per unit at Har ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36. That the assessing officer erred on facts and in law in disallowing deduction under section 80IC of the Act by an amount of ₹ 128.45 crores (restricted to Rs. NIL) on the ground that part of profits earned by the eligible unit should have been attributed to advertisement and marketing activities carried out at head-office, and such profits were not derived from the business of manufacturing, which were only eligible for deduction under the aforesaid section. 36.1 That the assessing officer erred on facts and in law in holding that part of extraordinary profits earned by eligible unit at Haridwar were attributable to profit earned from marketing of products and brand value. 36.2. That the assessing officer erred on facts and in law in holding that since marketing activities were carried out at Head Office, therefore, the appellant should have transferred goods to Head Office at cost plus reasonable margin and the head-office should have earned higher profit on account of sales and marketing activities. 36.3. That the assessing officer erred on facts and in law in holding that the assets, such as, brand value and marketing network, were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to carry on the eligible business for the purpose of claiming deduction under section 80IC of the Act. 38.2 That the assessing officer erred on facts and in law in not appreciating that no separate approval was required by the appellant to carry on the eligible business of manufacturing two-wheelers at a specified location, under section 80IC of the Act. 38.3 That the assessing officer erred on facts and in law in observing that failure to comply with conditions contained in industrial policy for the relevant State would disentitle the appellant to claim of deduction under section 80IC of the Act. 38.4 That the Assessing Officer failed to appreciate that Section 80IC was an independent and self-contained provision and did not stipulate any pre-requisite conditions, as contained in the industrial policy, for claiming deduction under that section. 39. That the assessing officer erred on facts and in law in holding that purchases made from certain vendors aggregating to ₹ 3517,66,84,000 are disallowable under section 40(a)(ia) of the Act on the ground that failed to deduct tax at source (TDS) therefrom under section 194C of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alers, on the ground that the appellant failed to deduct tax at source under section 194H from the amount of aforesaid provision invoking provision of section 40(a)(ia) of the Act. 40.1 That the assessing officer erred on facts and in law in observing that the appellant was liable to deduct tax at source, since the aforesaid provision was made in relation to identified parties. 40.2 That the assessing officer erred on facts and in law in not appreciating that the appellant was not liable to deduct tax at source under section 194H of the Act as the dealers were acting on a principal to principal basis qua the company and not as an agent. 40.3 Without prejudice, that the assessing officer erred on facts and in law in not appreciating that since payees were not identified nor any right to receive commission accrued in the hands of payees, there was no obligation on the appellant to deduct tax at source under section 194H of the Act. 41. That the assessing officer erred on facts and in law in disallowing under section 40(a)(ia), expenditure of ₹ 71.42 crores being payment made to dealers towards repair/maintenance of vehicles of the custome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the compound of factory at Gurgaon / Dharuhera / Haridwar plant, holding that in terms of proviso to section 32(l)(iia), additional depreciation is not admissible on any machinery or plant installed in any office premises. 42.1. That the assessing officer erred on facts and in law on holding that since computers at supervisory offices located within the factory premises were not directly involved in manufacturing activity, were not eligible for additional depreciation under section 32(l)(iia) of the Act. 42.2. That the assessing officer erred on facts and in law in observing that since the appellant was claiming depreciation on computers @60%, the same cannot be said to be plant and machinery for the purposes of the claim of additional depreciation under section 32(l)(iia) of the Act. 43. That the assessing officer erred on facts and in law in disallowing deduction of ₹ 7,59,98,664/- claimed under section 80IA of the Act in respect of captive power generating unit situated at Gurgaon. 43.1. That the assessing officer erred on facts and in law in computing income of the power generating unit by considering the rate of ₹ 4.36 per u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made to Honda in consideration of according consent/for ceding overseas territory and allowing export of motorcycle and spares by the appellant and the same was not liable to tax in India. 45.3. That the assessing officer erred on facts and in law in not appreciating that services / assistance provided by Honda were incidental to the right for exploiting the foreign territory and were not in the nature of fee for technical services . 45.4. That the assessing officer erred on facts and in law in not appreciating that the payment of export commission was not in consideration for use of trade mark or provision of technical assistance, for which separate payment was being made, on which tax was required to be deducted under section 195 of the Act by the appellant. 45.5. Without prejudice that the assessing officer erred on facts and in law in not appreciating that payment of export commission being for earning income from source outside India, would not be characterized as royalty or fee for technical service as per section 9(l)(vi)(b) or section 9(l)(vii)(b) of the Act, respectively. 45.6. That the assessing officer erred on facts and in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents made by the TPO. 5. The Ld. AR submitted that the adjustment made by the TPO is bad in law and is liable to be deleted. The TPO observed that the payment of model fee has been made in terms of License and Technical Assistance Agreement (approved by the Government) in consideration of license to manufacture 'Products' and using technical know-how a provided by the associated enterprises during the currency of the agreement. The TPO further held that the payment of model fee, therefore, it would be appreciated, is a consideration in terms of agreement with the associated enterprises for availing license to use their proprietary technology. In other words, the payment of model fee is necessary cost incurred for obtaining knowhow for manufacture of products by the assessee. The Ld. AR submitted that while implementing the Transfer Pricing regulations, it would not be appropriate for the Indian tax administration to deny payment of rightful consideration to a non resident related party (AE) pursuant to a bonafide agreement for use of their proprietary technology by the for manufacture of finished products in India. Therefore, the Ld. AR submitted that payment of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot confirm to arm s length principle. 7. The Ld. AR submitted that the adjustment by the TPO is not sustainable and is liable to be deleted for the reasons hereinafter. The Ld. AR further submitted that the contention of the Assessing Officer that the assessee is acting as contract manufacturer with regard to the transaction of export to the AE is erroneous and inconsistent with the facts on record. The assessee acts as an independent manufacturer of products, viz., two wheelers and not as a contractor manufacturer as observed by the TPO. The sale of such products are made to the AE on principal to principal basis, at price agreed upon by the parties. The Ld. AR submitted that the Tribunal, following the order of the coordinate benches, the aforesaid issues have been decided in favour of the assessee by the consolidated order dated 24.10.2016 passed by the Delhi Bench of the Tribunal in assessee's own case for assessment year 2010-11 and 2011- 12 following assessee's own case for the assessment year 2006- 07, 2007-08 and 2008-09 deleted the aforesaid addition. While deciding the appeal for the Assessment Year 2012-13, the Tribunal decided the issue following the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was made by the assessee to HMCL as consideration for according consent to the assessee to export two wheelers in the overseas territory(ies), which were earlier being supplied by HMCL or its other affiliates. In other words, the payment of commission was made to HMCL in lieu of HMCL agreeing to cede the overseas market. It is to be appreciated that the assessee by virtue of the aforesaid payment gained access to new market for its products, which enabled it to enhance its sales. The export commission is also paid by the assessee to HMCL for procuring export orders using their network and infrastructure in relation to exports. The Ld. AR submitted that the Tribunal, following the order of the coordinate benches, the aforesaid issues have been decided in favour of the assessee by the consolidated order dated 24.10.2016 passed by the Delhi Bench of the Tribunal in assesee s own case for assessment year 2010-11 and 2011- 12, following assessee s own case for Assessment Year 2010-11 and 2011-12, following assesee s own case for the Assessment Year 2006-07, 2007- 08 and 2008-09 deleted the aforesaid addition. 9. The Ld. DR relied upon the Assessment Order and order of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional transactions entered into by the assessee were considered as having been entered at arm s length price, applying TNMM. From the records it can be seen that the assessee has not sold any products to the associated enterprises on which royalty was payable and the entire amount of royalty was paid by the assessee on sales made to independent enterprises. Therefore, the TPO/AO as well as DRP were not correct in determining the arm s length pricing of model fees and payment of royalty. This issue is squarely covered by the earlier Assessment Years in assessee s favour. Therefore, Ground No. 1 to 15 are allowed in favour of the assessee. The payment of model fee has been made in terms of License and Technical Assistance Agreement approved by the Government in consideration of license to manufacture Products and using technical know how provided by the associated enterprises during the prevalence of the agreement. The payment of model fee is a consideration in terms of agreement with the associated enterprises for availing license to use their proprietary technology and it is a necessity for the assessee for manufacturing of the products to have knowledge of know-how f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock of the last year, which constituted opening stock of the year under consideration, the assessing officer allowed deduction for the said amount, resulting in net reduction of (-) 17.81 lacs (i.e. ₹ 90.58-108.39 lacs). 12. The Ld. AR pointed out that the aforesaid issue has been decided in favour of the assessee by the recent consolidated order dated, 24.10.2016 passed by the Delhi bench of the Tribunal in appellant's own case for assessment year 2010-11 and 2011- 12, wherein the Tribunal, following the order of the coordinate benches of the Tribunal passed in the assessee s own case for the assessment year 2007-08 and 2008-09, deleted the aforesaid addition on the ground that in those years it has been held that the assessee was following consistent system of accounting, which was unnecessarily disturbed by the Revenue, without change in facts. It was further held that tinkering with the accounting method was unjustified when the exercise did not materially alter the profits of the assessee Company. While deciding the appeal for the assessment years 2012-13 and 2013-14, the Tribunal decided the issue in favor of the assessee following the orders for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as soon as raw material enters the factory premises which is not disputed by assessing officer, hence the question of such purchases being part of closing stock does not arise at all. In such a situation, when freight/ import charges are directly debited to the P L A/c along with the value of the purchases, naturally the question of treating them as part of closing inventory does not arise. The assessee has acted and accounted in a proper and acceptable method. Therefore, the relief should be granted on this count alone. 7.15 Alternatively, the undisputed fact remains that the assessee has consistently following the said method of accounting in the last many years and the Revenue has been accepting these facts and method of accounting without any demur. 7.16 The contention of the DRP that, the principle of res-judicata does not apply in Income tax proceedings and therefore, the Assessing officer is correct to come to independent conclusion and is not bound by past acceptance of a factual legal point by the department is untenable. Technically the principle of res judicata may not apply to the income tax proceedings as each year is an independent year, yet ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer was required to demonstrate both the methods, one adopted by the assessee and the other by the department. In the circumstances, there was no reason to interfere with the conclusion given by the High Court. 7.20 The Hon ble Supreme Court in the case of CIT vs. Bilahari Investment P. Ltd. 299 ITR 1 (SC) held as follows: Every assessee is entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits that the Department can insist on substitution of the existing method. 7.21 In the case of CIT vs. Jagatjit Industries Ltd. (2011) 399 ITR 382 (Del.), the Hon ble Jurisdictional High Court has held as follows: If a particular accounting system has been followed and accepted and there is no acceptable reason to differ with it, the doctrine of consistency would come into play. The method of accounting cannot be rejected. The assessee was following the mercantile system of accounting. According to past business practice, the expenditure spilled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materiality, consistency, prudence etc. is part of the I.T. Act after it is notified u/s 145(2). 7.23 In view of the foregoing and proposition laid down by the Hon ble Supreme Court and the Hon ble High Courts, we are of the opinion that adjustment of ₹ 31.18 lacs made to total value of closing stock of ₹ 275 crores and consumption of stocks of ₹ 7178 crores is uncalled for. If valuation of closing stock is changed then the value of opening stock should also be changed on the same basis or method. The closing stock of a particular year is the opening stock of the subsequent year. It is not the case of the revenue that the method of valuation of closing stock is materially affecting the accounts and profits disclosed by the assessee. This adjustment sought to be made is revenue neutral and at best may result in preponment or postponement of revenue. The issue is whether such exercise is at all required on the ground of materiality. Materiality is a concept which is well recognized both in accountancy and law. Accounting standards notified by the CBDT u/s 145(2) mandate that the concept of materiality be taken into consideration when finalizing the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any reasons was disturbed by the Assessing Officer despite that the facts remains same in this year as well. There is no alteration in the profit of the assessee company. Therefore, the issue is squarely covered by the order of the Tribunal in earlier A.Ys. 2010-11, 2011-12, 2012-13 and 2013-14. Hence, Ground No. 13 to 13.1 are allowed. 15. As regards Ground No. 14 to 14.2 are relating to addition on account of cost of rejection of semi-finished goods and obsolete items to the value of closing stock. The assessee had debited to the profit and loss account ₹ 1,356.22 lacs representing the cost of material / semi-finished goods rejected in the course of manufacturing or obsolete items. The aforesaid rejections comprised of abnormal rejections arising in the course of manufacturing, like rejections on account of obsolescence, etc. According to principles of accounting (AS-2), as also the consistent, regular and accepted method of accounting, the assessee only considers normal wastages arising in the course of manufacturing for the purposes of allocation to closing inventory. Since, the aforesaid expenditure comprised of abnormal wastages, it was not practically feas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or A.Ys. 2010-11 2011-12 held as under: 16. We have carefully considered the rival contention and has also perused the relevant provisions of the accounting standard 2 which has been relied by the Ld. assessing officer. We have carefully perused the decision of the coordinate bench in the appellant s own case for assessment year 2007-08 wherein the identical issue is dealt with as under:- 8.9 The issue in question is whether the cost of abnormal rejections have to be considered for the purpose of valuation of closing stock. The assessee relied on Accounting standard -2- Valuation of Inventories which is a notified accounting standard by the Companies Act which stipulates that abnormal wastages should not be considered for valuation of inventory. 8.10 It was submitted by the Ld. AR of the assessee that it is in the manufacturing of precision and quality product and in case of unfit material it has been consistently following the method of changing the abnormal rejection of material to its profit and loss account, without any allocation to the value of closing inventory. 8.11 The assessing officer s case is that cost of rejections needed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that it is an abnormal loss incurred by it during the course of manufacturing process. Further the Ld. dispute resolution panel has also stated that both the cost of normal and abnormal losses have to be loaded to the value of the closing stock is devoid of any merit as it is contrary to the accounting standard issued by the Institute of chartered accountants of India which has been mandated by the Ministry of corporate affairs, which only says that, only normal losses are required to be included and abnormal losses are required to excluded for the purpose of the valuation of the closing stock of the finished goods and semi finished goods. In view of the above, we respectfully following the decision of the coordinate bench in the appellant s own case for the previous year allow ground no. 3 of the appeal of the assessee. It is pertinent to note that it is not practically possible for the assessee to segregate normal and abnormal wastages embedded in the aforesaid costs and therefore, the assessee, as per consistent and regular method of accounting, accepted by the Revenue as such in the earlier years, did not consider the aforesaid expenditure for the purposes of valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears of the amount due to them would be paid to them retrospectively. Such price revisions, being an accrued liability at the time of purchase of raw materials, are recorded in the books of accounts by the assessee. At the year end, the company estimates the additional liability on account of price revision under negotiation and makes upward/downward provision, as the case may be, in relation to material supplied until the end of the relevant year. In the assessment order, the assessing officer held that the aforesaid provision of ₹ 10.43 crores is not allowable business expenditure. The assessing officer held that provisions emanating from retrospective price amendments are contingent in nature and thus, not an allowable business expenditure. The assessing officer also added back the aforesaid total provision while computing book profit under section 115JB, holding the same to be an unascertained liability. 20. The Ld. AR submitted that the provision for the material is worked out in respect of price amendments which were already issued on 31.03.2009. The aforesaid provision was made on the basis of actual supplied made upto the end of the year as per price amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in NIL amount was stated against the column of unascertained liability on account of provision for advertisement expenses.' Therefore, it would be noted that no qualification was made by the auditors to the book profit' as shown in the P L account of the company. The Ld. AR relied upon the following decisions, wherein it has been held that provision for accrued liabilities, made on the basis of management's best estimate on scientific basis or on the basis of actuarial valuation, etc., will not be regarded as provision for unascertained liability, liable to be added back to book profits' under section 115JB of the Act: - CIT vs. H.P. Tourism Taxman 148 (HP) - ACIT vs. NHPC Ltd.: 67 SOT 317 (Del. The Ld. AR further submitted that the Assessing Officer, thus, has limited power of adjusting the book profit as shown in the P L account in accordance with the adjustments provided in the Explanation to section 115JB of the Act and does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the said Explanation. Even otherwise, it is a settled law that where liability has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When provisions are made, what is to be seen is whether the assessee has done a bona fide and genuine exercise to estimate its liability with reasonable certainty. The term reasonable certainty means that the provision in question might be slightly higher or lower than the actual figure. When the provision is higher, it is reversed in subsequent year, when the actual figures are known. Similarly, when the provision is lower, the same is claimed in the latter assessment year. It cannot be said that these are prior period expenditure. The actual liability in question is ascertained only during the year and hence the liability crystallizes during the year. Estimation of an expense has to be considered in contradiction to actual ascertainment of the expenses. Once the actual expense has been ascertained, the liability accrues in that year to the extent not provided in the earlier year and is to be allowed as revenue expenditure in the year of crystallization. Concepts of going concern, accrual and consistency have to be taken into account by the revenue authorities while evaluating such provisions and making such adjustments. The assessee is disputing the figures of disallowance and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduction in cost elements of component prices, company informs the vendors for reduction in price of components. Accordingly, while price revisions are pending or negotiations are on, the vendors keep on supplying the material provisionally at the agreed rates, with the understanding that pursuant to negotiations being finalized, the arrears of the amount due to them would be paid to them retrospectively. Such price revisions, being an accrued liability at the time of purchase of raw materials, are recorded in the books of accounts by the assessee. At the year end, the company estimates the additional liability on account of price revision under negotiation and makes upward/downward provision, as the case may be, in relation to material supplied until the end of the relevant year. Thus, the Assessing Officer was incorrect in disallowing this claim. Therefore, Ground No. 18 to 18.2 are allowed in favour of the assessee. From the records it can be seen that the provision for the material is worked out in respect of price amendments which were already issued on 31.03.2009 which was made on the basis of actual supplied made upto the end of the year as per price amendments a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11-12. 26. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal. 27. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2012-13 held as under: 25. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2010-11 and 2011-12 held as under: 201. We have heard the rival contentions. We note that similar issue relating to disallowance of prior-period expenses was deleted by the Tribunal in the assessee s own case for assessment year 2008-09. The relevant observations of the Tribunal for assessment year 2008-09 are as under: 5. On careful consideration of above contention and submissions of both the parties and careful perusal of the record placed before us, inter alia decision in assessee's own case for AY 2007-08 (supra), we observe that the same issue was decided by coordinate bench of this Tribunal in favour of the assessee with following findings and conclusions:- 61.10. The issue herein is year of deductibility. Additional ground of appeal was filed for A. Y. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer and the same should have been verified by the Assessing Officer. Under above circumstances, we hold that the issue is squarely covered in favour of the assessee by the decision of Hon'ble ITAT 'C' Bench in assessee's own case for AY 2007-08 (supra) and we direct the Assessing Officer to allow the claim of the assessee after proper examination and verification. Accordingly, going consistent with the view taken by this Tribunal in assessee's own case for the immediately preceding year to the year under consideration in this appeal, we hold that ground no. 1 of the revenue being devoid of merits deserves to be dismissed and we dismiss the same. The Ld. departmental representative could not point out any change in the facts and circumstances of the case of the appellant as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectfully following the decision of the coordinate bench in the appellant s own case for the earlier years. We dismiss ground No. 3 of the appeal of the revenue. It can be seen that the assessee is a large sized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndors, exact amount payable to vendors was ascertained. The amount of provision in excess of actual amount pay able was reversed in the books of account. In case of shortfall, the profit and loss account is debited with the amount of shortfall. The aggregate provision for advertisement expenses incurred at the head office made at the end of the relevant previous year, which was reversed in succeeding year amounted to ₹ 10.19, crores. In the assessment order, the Assessing Officer disallowed the provisions made at the end of the year, to the extent of ₹ 10.19 crores. which were reversed in the succeeding year on receipt of bills from the vendors on conclusion of negotiations with the vendors, on the ground that the provisions to that extent were excessive and represented contingent liability, which is not allowable deduction. Apart from that the Assessing Officer also added back the aforesaid total provision while computing 'book profit under section 115JB, holding the same to be an unascertained liability. 29. The Ld. AR submitted that the provision for advertisement /expenses, in the year under consideration as well, has been made on the basis of actual ..... 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 material available on record. The Tribunal in A.Y. 2012-13 held as under: 29. We have heard both the parties and perused the material available on record. The Tribunal for A.Ys. 2010-11 and 2011-12 held as under: 1) 33. We have heard the rival contentions. We agree with the submissions of the Ld. Counsel of the appellant, which, in fact, have even been agreed by the DRP and endorsed by Tribunal in the order for AY 2008-09, that a provision made for expenses on a scientific and rational basis is allowable business deduction. The provisions so made cannot be disallowed merely because; part thereof was reversed in the subsequent year at the time of actual quantification of the liabilities. We also find that the appellant had given complete details in respect of the method followed in creating the aforesaid provisions, which were made on the basis of details / information available with the company as at the end of the relevant year. We further reiterate and follow the finding given in the preceding ground of appeal that the Revenue should not make adjustment on the issues which are revenue-neutral, having no impact on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee , inter alia, procures certain critical components like shock absorbers, carburetors, etc., which are fitted in the two- wheelers manufactured by the assessee, from a single vendor, having the requisite technology to manufacture the same, in accordance with the specifications given by the assessee. The assessee pointed out before the Assessing Officer that it does not procure such components from any other vendors. The purchase price of components which are purchased from various suppliers are based upon negotiations with such vendors and are different due to various factors, like level of automation of vendor, amount of investment by vendor, age of the plant, capacity utilization (impacting fixed cost recovery), volume of supply, geographical differences (which could impact cost of freight, labour, power), lead time, indirect tax costs (CST vs. VAT) etc. Further, the assessee also prefers purchasing material from certain suppliers, due to business/commercial expediency, viz. de-risking the supply chain to reduce dependence, inability of existing supplier to meet demand increase, etc. The assessee submitted before the Assessing Officer that the said parties are not rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for which internal comparable were available as the same are excessive. Thus, Assessing Officer made total disallowance of ₹ 64.75 cr out of related parties purchases. 33. The Ld. AR submitted that the aforesaid issue is squarely covered in favour of the assessee by the decision of the Delhi Bench of Tribunal in the assessee s own case for assessment 'year 2007-08 and 2008-09, wherein identical disallowance made in that year was deleted on the ground that since in the first place, the parties were not related to the assessee company in terms of section 40A (2), disallowance on ground of excessive purchase price could not have been made under that section. Further, the Tribunal held that the transactions were entered by the assessee on account of commercial expediency and when the recipients had paid tax on payments received from the assessee company, disallowance could not be made by applying provisions of Section 40A(2) of the Act. The Ld. AR pointed out that similar disallowance made in the immediately preceding two assessment years, viz. AY 2010-11 and 2011-12 was also reversed by the Tribunal, following the aforementioned order of the Tribunal for assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeks to transfer a part of his income to a related person who is not liable to pay tax at all or liable to pay tax at a rate lower than the rate at which the assessee pays the tax. In order to curb such tendency of diversion of income and thereby reducing the tax liability by illegitimate means, section 40-A was added to the Act by an amendment made by the Finance Act, 1968. Clause (b) of section 40A (2) gives the list of related persons. 13.17. In the present case, it is an undisputed fact that none of the parties fall within the persons specified as defined under clause (b) of section 40A (2) of the Act. Related parties are to be considered in terms of provisions of sec. 40A (2) of the Act and not as mentioned in AS-18 issued by the Institute of Chartered Accountant. Thus, we are of the view that the provisions of section 40A (2) do not apply to the present case. Further, there is no provision under the Act which authorizes the Assessing Officer to lift the corporate veil and disallow an expenditure on the ground of reasonableness and commercial expediency unless it is established that the transaction is primarily devised to evade tax. 13.18. In the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the provisions of section 40A (2) of the Act does not apply to the facts of the case. We now proceed to answer whether the action of the Assessing Officer in disallowing the expenditure on the ground of commercial expediency is justified. 13.23. The Hon ble Supreme Court in the case of CIT vs Walchand Co [1967] 65 ITR 381 in the context of deductibility of expenditure under Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] held as under: In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue . 13.24. Further, reference is also drawn to the decision of the Hon ble Supreme Court in the case of S.A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1 (SC) , where in it was held as under: ....that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal purchases of various raw materials, etc. aggregating to ₹ 17,791.60 crores. Out of the aforesaid total purchases, purchases from related parties, i.e., parties related to the assessee, in accordance with definition given in AS-18 issued by the ICAI and as disclosed in the notes to accounts of the audited accounts of the relevant previous year, but admittedly not related in terms of definition provided in section 40A (2) of the Act, amounted to ₹ 1886.15 crores. Thus, the issue is squarely covered by the order of the Tribunal for A.Ys. 2010-11 and 2011-12. Therefore, Ground Nos. 22 to 22.3 are allowed in favour of the assessee. The purchase prices of components which are purchased from various suppliers are based upon negotiations with such vendors and are different due to various factors. The assessee also prefers purchasing material from certain suppliers, due to business/commercial expediency. The said parties are not related to assessee, in terms of the provisions of section 40A(2)(b) of the Act. During the relevant previous year, the assessee made total purchases of various raw materials, etc. aggregating to ₹ 9366.88 crores. Out of the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be exempted in terms of clause (ii) section 2(22)(e) since the amount was given in the ordinary course of business. In Assessment Year 2008-09, 2010- 11 and 2011-12, the Tribunal following the order for Assessment Year 2007-08 deleted the disallowance. While deciding the appeal for the assessment years 2012-13 and 2013-14, the Tribunal decided the issue in favor of the assessee following the orders for the assessment years 2010-11 and 2011-12. 38. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal. 39. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2012-13 held as under: 37. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: 214) We have heard the rival contentions. We note that similar issue relating to addition of deemed dividend was deleted by the Tribunal in the assessee s own case for assessment year 2007-08 which was followed in assessment year 2008-09. The relevant observations of the Tribunal for assessment year 2007-08 are as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectfully following the decision of the coordinate bench in the appellant s own case for the earlier years. We dismiss ground No.6 of the appeal of the revenue. It is pertinent to note that when payments by dealers to HFCL are due to the dealers, due to convenience of facility of collection centers of the assessee available all over India, make payment into the assessee's bank account, for and on behalf of HFCL, which is in turn remitted by the assessee to HFCL in 2-3 days. Thus, the assessee is mere custodian of the said amount. Thus, Section 2(22)(e) will not be applicable in the present case. The issue is squarely covered by the order of the Tribunal for A.Ys. 2010-11 and 2011-12. Therefore, Ground Nos. 23 to 23.3 are allowed in favour of the assessee. In this Assessment Year as well when payments by dealers to HFCL are due to the dealers, due to convenience of facility of collection centers of the assessee available all over India, make payment into the assessee's bank account, for and on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: 41. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: 56) We have carefully considered the rival contentions. We have also noted the documents in relation to various services provided by HCSL, the necessity thereof was explained by the appellant in his submissions discussed above. We have also gone through the order of the Tribunal for AY 2007-08, wherein while following the settled legal propositions that an assessing officer cannot sit in the arm chair of the business man and decide the reasonableness of expenditure incurred or commercial expediency thereof, deleted the impugned disallowance made by the assessing officer as under :- 15.12. The assessing officer in this case made an ad hoc disallowance by allowing an amount of ₹ 20 lacs as expenditure for the services availed by the assessee from HCSL and disallowing the rest. The assessing officer has by observing in his order that various reports have been provided by HCSL admitted the fact that certain services were rendered in this case. His only doubt is how these services were needed in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplaining the nature of services received from Hero Corporate Services Ltd. and nexus of same with the business of the assessee. This fact is identical with the earlier Assessment Years. The issue is squarely covered in favour of the assessee by the Tribunal s order for A.Ys. 2010-11 2011- 12. Besides this the Revenue has accepted this issue and has not challenged the same in Hon ble High Court. Thus, this issue attains finality. Therefore, Ground No. 24 to 24.1 are allowed in favour of the assessee. In the present Assessment Year also services were rendered by HCSL to the assessee and the assessee explained the nature of services received from Hero Corporate Services Ltd. and nexus of same with the business of the assessee before the Assessing Officer. Thus, the Assessing Officer was not right in disallowing the payments made for advisory services availed from HCSL. In the present Assessment Year also the facts are similar and is squarely covered with the decision of the Tribunal for A.Ys. 2010-11, 2011-12, 2012-13 and 2013-14. Hence Ground Nos. 20 to 20.1 are allowed. 44. As regards Ground No. 21 to 21.5 are relating to TDS on quarterly target and turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce to the above, the Ld. AR submitted that the Assessing Officer erred in disallowing 100% of the impugned expenditure incurred, instead of restricting the disallowance to 30% of the said total expenditure, in terms of the provisions of section 40(a)(ia) as amended by the Finance (No.2) Act, 2014. The Ld. AR pointed out that although the Finance (No.2) Act, 2014 states the aforesaid amendment to be effective from 01.04.2015, however the aforesaid amendment was made with an intent to remove the hardship, the same is also applicable retrospectively including the year under consideration. The Ld. AR relied upon the following decisions wherein it has been held that the aforesaid amendment of reducing the amount of disallowance from 100% to 30% is retrospective: Smt. Kanta Yadav vs. ITO (ITA No. 6312/Del/2016) Shri Rajendra Yadav vs. ITO (ITA No. 895/JP/2012) Smt. Sonu Khandelwal vs. ITO (ITA No. 597/JP/2013) In that view of the matter, without prejudice to the submissions above that there was no failure on the part of the assessee to deduct tax at source from the impugned payment, the disallowance, if any should be directed to be reduced to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts at a given price after making full payment for the purchases on delivery, that the milk and other products once sold to the concessionaires became their property and cannot be taken back from them, that any loss on account of damage, pilferage and wastage is to the account of the concessionaires and that in these circumstances the payment made to the concessionaires cannot be treated as commission for services rendered and consequently there was no liability on the part of the assessee to deduct tax. It is irrelevant that the concessionaires were operating from the booths owned by the Dairy and were also using the equipment and furniture provided by the Dairy. That fact is not determinative of the relationship between the Dairy and the concessionaires with regard to the sale of the milk and other products. They were licensees of the premises and were permitted the use of the equipment and furniture for the purpose of selling the milk and other products. But so far as the milk and the other products are concerned, these items became their property the moment they took delivery of them. They were selling the milk and the other products in their own right as owners. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and dealers is on a principal-to-principal basis and dealers do not act as agents of the appellant while purchasing and further selling the vehicles. Accordingly, the incentives offered at the time of purchase of vehicles do not fall within the meaning of commission u/s 194H of the Act. Thus, the Assessing Officer was not correct in holding that the assessee was liable to deduct tax from discounts/incentives under Section 194H of the Act. In the present Assessment Year also the facts are similar and is squarely covered with the decision of the Tribunal for A.Ys. 2010-11, 2011-12, 2012-13 and 2013-14. Hence Ground Nos. 21 to 21.5 are allowed. 48. As regards Ground No. 22 to 22.5 is relating to disallowance of legal and professional expenses u/s 40(a)(ia). During the relevant year, the assessee incurred legal and professional expenses, amounting to ₹ 9,68,081. The Assessing Officer disallowed the aforesaid expenses, invoking section 40(a)(ia) for the failure of the assessee to deduct tax at source therefrom under section 194J of the Act. While the Assessing Officer did not doubt that the payment was made by assessee towards reimbursement of expenses, it was still h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such reimbursement of expenditure has no element of income embodied in it. Thus, we apply the following decisions wherein it is held that payer is not obliged to deduct tax at source from reimbursement of expenses: - United Hotels Ltd. Vs. ITO 93 TTJ 822; - Karnavati Co-op. Bank Ltd. Vs. DCIT 134 TTJ 486 (Ahd.). 35.9. Respectfully following the same, the ground is allowed in favour of the assessee. The Ld. departmental representative could not point out any change in the facts and circumstances of the case of the appellant as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectfully following the decision of the coordinate bench in the appellant s own case for the earlier years, We dismiss ground No.8 of the appeal of the revenue. In the present Assessment Year, the Assessing Officer disallowed the aforesaid expenses, invoking section 40(a)(ia), for the failure of the assessee to deduct tax at source there from under section 194J of the Act. But it is pertinent to note here that the Assessing Officer did not doubt that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee had set up its plant to manufacture models of motor-cycle by using know-how of Honda Motor Co. in the year 1984 through Technical Collaboration Contract dated 24th January 1984. Under that agreement, the assessee was provided with the technical assistance not only for manufacture, assembly and servicing of the products but was also provided with information, drawings and designs for setting up of the plant. The assessee was required to pay lump sum amount of $5,00,000 in consideration of technical information for construction of plant, which was capitalized in the books of account and no part thereof was claimed as revenue expenditure. The aforesaid agreement expired in 1994. The LTAA was entered on 2/6/2004 for a period of 10 years and had no relation with the erstwhile agreement(s) and was not a continuation of the earlier agreement. The know-how licensed by Honda under the subject agreement of 2004 related only to manufacture, assembly inspection, maintenance, etc., of products and was not for establishment/setting up of the factory. The assessee before the Assessing Officer submitted that no plant was set-up, leave alone as per any know-how provided by Hond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same to be capital expenditure. The Assessing Officer observed that the is to be allowed depreciation @ 25% on the expenditure treated as capital expenditure, but failed to allow depreciation while computing the amount of disallowance. 53. The Ld. AR submitted that Royalty/Technical Guidance Fees and Model Fees are not capital expenditure as there is no ownership Rights given to the assessee. During the currency of the agreement, the assessee only had a limited right to use the technology of Honda. Ownership/proprietary rights in the technical know-how continued to vest in Honda and the assessee was not authorized to transfer, assign or convey the know-how/technical information to any third party as the assessee only acquired limited right to use and exploit the know-how. The Ld. AR further submitted that the aforesaid limited right were available to the assessee and the fact of such rights being not exclusive can be gathered from the following clauses of the agreement:- ARTICLE 2 - Grant of License and Exclusivity ARTICLE 17 - Maintenance of Secrecy ARTICLE 18 - Limitation of Use, and other Prohibition ARTICLE 21 - Validity and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td.: ITA 16/2008 (Del.) (HC) CIT v. Eicher Motors Ltd.: 293 ITR 464 (MP)(Indore Bench) The Ld. AR further submitted that since, no proprietary rights in the know how vested in the assessee the assessee being a mere licensee with limited rights to use the technical assistance during the currency of the agreement, there is no explicit or implied intention to transfer or create ownership in the technical know-how /technical information in the assessee. In view of the aforesaid, expenditure by way of royalty, technical guidance fee and model fees incurred by the assessee was allowable revenue deduction since- payment was made for limited license to use the knowhow provided by Honda, as the proprietary and ownership rights in the same continued to remain vested with Honda at all times and, therefore, there was no absolute parting of know-how in favour of the assessee resulting in acquisition of any asset, no benefit of enduring nature in the capital field accrued to the assessee, even if the license to manufacture and sell products in India is assumed to be exclusive, except for grant of license to HMSI The aforesaid issue is covered in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g capital in nature. For the aforesaid cumulative reasons, no portion of the royalty expenditure/Technical Guidance fees/model fee incurred by the assessee calls for being disallowed. While deciding the appeal for the assessment years 2012-13 and 2013-14, the Tribunal decided the issue in relation to disallowance of royalty model fee in favor of the assessee following the orders for the assessment years 2010-11 and 2011- 12. Without prejudice, the Ld. AR further submitted that the assessing officer failed to allow depreciation @ 25% to the assessee; thereby not following the specific directions of the DRP. 55. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal. 56. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2012-13 held as under: 76. We have heard both the parties and perused the material available on record. The Tribunal for A.Y. 2010-11 and 2011-12 held as under: 95) We have heard the rival contentions. We have gone through the orders in the appellant s case for the earlier assessment years as was pointed out by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is pertinent to note that during the currency of the agreement, the assessee only had a limited right to use the technology of Honda. Ownership/proprietary rights in the technical know-how continued to vest in Honda and the assessee was not authorized to transfer, assign or convey the know-how/technical information to any third party as the assessee only acquired limited right to use and exploit the know-how. Thus, royalty/TGF/Model fee payable to Honda is only for the purpose of use of technical assistance in the manufacture and sale of products and the assessee has not acquired any capital asset. Thus, the payment made to simply use the technical know-how/knowledge provided by the foreign collaborator as opposed to acquisition of ownership rights therein are revenue expenditure only and the same should have been allowed by the Assessing Officer/TPO. The model fees is also allowable as revenue expenditure in previous years. In the present Assessment Year also the facts are similar and are squarely covered with the decision of the Tribunal for A.Ys. 2010-11, 2011-12, 2012-13 and 2013-14. Hence Ground Nos. 23 to 23.5 are allowed. 57. As regards Ground No. 24 to 24.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material available on record. The Tribunal in A.Y. 2012-13 held as under: 65. We have heard both the parties and perused the material available on record. The Tribunal for A.Ys. 2010-11 and 2011-12 held as under: 99) We have heard the rival contentions. We have gone through the order passed by the Tribunal for the assessment year 2007-08, which was followed in appeal order for AY 2008-09. The Tribunal in that year went through the entire facts, which are similar to the year under consideration, and the legal position before coming to the conclusion that the gains arising from investment of surplus funds in shares/mutual funds/PMS as part of cash management policy cannot lead to the conclusion that the appellant was carrying on business to bring to tax such income under the head business as against capital gains offered by the appellant. The Ld. departmental representative could not point out any change in the facts and circumstances of the case of the current assessment year compared to the assessment year for which the tribunal is decided in the appellant s own case for earlier years. No other judicial precedent was also cited by which we could deviate fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts. The investments were made in mutual funds (debt and liquid funds) and through portfolio management schemes/ IPOs. 65.35. The co-ordinate bench of the Delhi ITAT in the case of Narendra Gehlaut vs. JCIT [ITA No 1648/ Del/ 2010] held that despite borrowing, gains on shares assessable as Short term capital gains and not business profits. The decision is rendered considering the CBDT Circular No 4/ 2007 and various judicial precedents on the subject. Frequency of the transactions 65.36. Out of the total sale value of ₹ 13,690.84 crores realized from the investments, an amount of ₹ 12,330.33 crores relates to sale of short term debt mutual funds and liquid funds in which the transactions are effected on daily basis (i.e. surplus amounts are invested and the withdrawals are made in a short span depending on the business needs of the assessee). These funds were invested mainly into money market instruments, short-term corporate deposits and treasury. Most schemes have a lock-in period of a maximum of three days to protect against procedural (primarily banking) glitches, and offer redemption proceeds within 24 hours. 65.37. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the head of income arising from sale of shares / mutual funds, etc., the CBDT has opined that gains arising from sale of such shares/securities held for a period of more than 12 months and shown as capital gains by the assessee should not be disputed by the assessing officer. Having regard to the aforesaid intent of the Circular where a consistent method has been followed by an assessee to treat the investment as on capital account corroborated with disclosure in balance sheet as investment, the same consistent stand should not be disputed by the assessing officer. It is also not disputed by the Ld. assessing officer that the capital gains arising on the various investments are held for less than 12 months and are not long-term capital gain. In view of the aforesaid reasons also, while respectfully following the appeal orders for AY 2007- 08 and 2008-09, we reverse the action of the assessing officer in changing the head of income surplus arising from sale of shares/mutual funds, etc. therefore ground No. 20 of the appeal of the assessee is allowed. It is pertinent to note that the assessee invested surplus funds arising in the course of business under various modes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction recorded in the assessment order, the disallowance as per Rule 8D needs to be deleted. The Ld. AR relied upon the following decisions: Godrej Boyce Manufacturing Company Ltd. VS. DCIT: 394 ITR 449(SC) Maxopp Investment Ltd: 347 ITR 272 (Del.)- Affirmed by the Hon'ble Supreme Court in 402 ITR 640 H.T. Media Limited v. PCIT: ITA No.548/2015 (Del.) dated 23.8.2017 Eicher Motors Ltd. vs. CIT: ITA No. 136/2017 dated 15.09.2017 The Ld. AR further submitted that even otherwise, there is no nexus of expenses, like interest expenditure and other administrative expenses with investments, warranting disallowance under section 14A. 63. As regards interest expenditure, the Ld. AR submitted that the assessee is a cash rich company, which does not borrow' funds for making investment. The marginal interest expenditure of ₹ 2.10 crores was incurred on other temporary loans/dealers deposit, having nexus with main business function. Further, no direct nexus of interest expenditure with investments or earning of dividend income was established by the assessing officer, for which the initial burd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hero Honda Finlease Ltd vs. ACIT: ITA No. 3726/Del/2012 (Del) Eimco Elecon (India) Ltd. v. Addl. CIT: 142 ITD 52 (Ahd.) 64. As regards to administrative expenses, the Ld. AR submitted that all the expenses, other than the suo-moto disallowance by the assessee related to main business function of manufacturing vehicles. In the absence of any proximate nexus having been established by the assessing officer, the Ld. AR pointed out that the Tribunal in the assesee s own case for the assessment year 2007-08 and 2008-09 set-aside the matter to the file of the assessing officer to be decided afresh as per law, having regard to the satisfaction to be recorded qua correctness of the suo-moto disallowance made by the assessee in the return of income. The Assessing Officer, in the set aside proceedings for assessment year 2007- 08, vide order dated 30.10.2014 passed under section 254/143(3) of the Act did not make any disallowance in respect of interest expenses since there was no nexus between the income and such expenditure. The Assessing Officer however, made disallowance of such administrative expenses under section 14A in the proportion the total profit before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 1 to section 115JB(2) of the Act is to be made without resorting to computation as contemplated under section 14A read with rule 8D of the Rules. The Ld. AR also relied upon the following decisions: Quippo Telecom Infrastructure Ltd v. ACIT: ITA No.4931 /Del/2010 (Del ITAT) Beach Minerals Company (P.) Ltd. v. ACIT: ITA No. 2110/Mds/2014 (Chennai ITAT) Shriram Capital Ltd v. DCIT (ITA. Nos.512 513 /Mds/2015) (Chennai ITAT) Scope Private Ltd. v. ACIT : ITA No. 8934/Mum./2010 Reliance Industrial Infrastructure Ltd. v. ACIT: ITA Nos. 69 70/Mum/2009 JCIT v. Reliance Capital Ltd.: ITA No. 3037/Mum/2008 Bengal Finance and Investment (P) Ltd. v. CIT: ITA No. 5620/Mum/2010 Essar Teleholdings Ltd v. DCIT : ITA 3850/Mum/2010 Nahar Capital And Financial v. ACIT: ITA No. 1120/Chd/2011 ACIT vs. Spray Engineering Devices Ltd: (2012) 53 SOT 69(Chd.) (URO.) GMM Pfaudler Ltd. v. JCIT : ITA Nos. 2627 2923/Ahd/2008 3280/Ahd/2010 Cadila Flealthcare Ltd. v. ACIT: 21 Taxmann.com 483 (Ahd.) Reliance Petroproducts (P) Ltd. v. ACIT : ITA No. 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble jurisdictional High Court. Reference in this regard can be made to the decision of Maxopp Investment Ltd. : 347 ITR 471. In view of the aforesaid legal position, we find that no valid satisfaction was recorded by the assessing officer in the assessment order to reject the method followed by the appellant in computing disallowance u/s 14A, before mechanically resorting to and applying the provisions of Rule 8D of the Rules. In view of such findings, the additional disallowance made by the assessing officer u/s 14A stands deleted on the aforesaid ground at the threshold. That apart, we also agree with the submissions of the appellant that, since the appellant is a cash-rich company, which, in fact, is investing surplus/idle funds in various modes of investments, there could be no nexus of interest-bearing borrowed funds with such investments. The appellant is having substantial free reserves of ₹ 3760.81 crores at the beginning of the relevant year and has generated surplus interest free funds of ₹ 268.64 crores during the year. The assessing officer, too, in the set-aside proceedings for the AY 2007-08 had accepted the aforesaid cash flow position and deleted the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove. 41) Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO. Though the Assessing Officer did not accept the method of disallowance computed by the assessee under section 14A and made further disallowance of ₹ 62.30 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate basis, worked out a sum of ₹ 19,26,000/- out of depreciation on model fee debited to the profit and loss account, as attributable to the value of closing stock and made addition of the said amount to the income of assessee. 69. The Ld. AR submitted that the aforesaid issue is squarely covered in favour of the assessee by the decision of the Delhi Bench of the Tribunal in assessee s own case for assessment years 2010-11 and 2011-12 wherein following the order for assessment year 2008-09, similar disallowance of depreciation on model fee was deleted by the Tribunal on the ground that expenditure was incurred on new model fees prior to commencement of production of new models of two wheelers, and even otherwise this exercise would be revenue neutral in a broader perspective as the same adjustment would be required to be made to the opening stock of finished goods for the year under consideration. While deciding the appeal for the assessment years 2012-13 and 2013-14, the Tribunal decided the issue in favor of the assessee following the orders for the assessment years 2010-11 and 2011-12. 70. The Ld. DR relied upon the Assessment Order and order of the TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el nor model fee expenditure is directly related to manufacture of new models. In this factual aspect and circumstances, we hold that the assessee incurred expenditure on new model fees prior to commencement of production of new models of two wheelers, even otherwise this exercise would be revenue neutral in a broader perspective as the same adjustment would be required to be done in the opening stock of finished goods for the year under consideration. More so, when the assessee has followed a particular mode of accounting for this expenditure which was accepted by the Revenue, then the department cannot take a different stand in the succeeding year to make an addition in this regard. We are unable to see any valid ground to 'accept' a deviated stand of the Revenue on the issue, which in a broader sense, is revenue neutral, then no adjustment is called for in this regard. We hold that findings of the AO are not sustainable and we set aside the same. Hence, we allow ground no.58 to 58.1 of the assessee. Accordingly, respectfully following the aforesaid decision, we decide the issue in favour of the appellant. Accordingly, the ground number 23 of appeal stands allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,50,92,608 /-(comprising of ₹ 48.55.673/- in respect of Dharuhera, Gurgaon and Haridwar plants and ₹ 1.02,36.935/- in respect of head office expenses) out of expenditure incurred towards re-imbursement of foreign travel expenses incurred by employees, on the ground that declaration furnished by the employees was not a sufficient evidence to establish incurrence of actual expenses, which were required to be supported with bills/invoices of factual expenditure incurred by the employees. 73. The Ld. AR submitted the aforesaid issue is squarely covered in favour of the assessee by the decision of Delhi bench of tribunal in the assessee's own case for the AY 2007-08 and 2008-09, wherein the Tribunal held that disallowance cannot be made merely on the basis that vouchers were not produced by the employees, which has been reaffirmed by the Tribunal in the order dated 24.10.2016 passed for the assessment years 2010-11 and 2011- 12. While deciding the appeal for the assessment years 2012-13 and 2013-14, the Tribunal decided the issue in favor of the assessee following the orders for the assessment years 2010-11 and 2011-12. 74. The Ld. DR relied upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al representative could not point out any change in the facts and circumstances of the case of the appellant as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectfully following the decision of the coordinate bench in the appellant s own case for the earlier years, We dismiss ground No. 9 of the appeal of the revenue. It is pertinent to note that for payment of per diem allowance, as per policy, the assessee does not require the expenses to be necessarily supported / backed by bills considering the practical difficulties/impossibilities in producing invoices for petty expenses like local conveyance, telephone bills, etc. The employees are only required to submit details of expenditure incurred in specified form, on basis of which travel bill is settled. The Tribunal in A.Ys. 2010-11 and 2011-12 and earlier years held that disallowance cannot be made merely on the basis that vouchers were not produced by the employees, Thus, the facts have not changed in this year as well, therefore, the issue is squarely covered by the decision of the Tribunal for earlier Assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no appeal has been filed by the department before the High Court. While deciding the appeal for the assessment years 2012-13 and 2013-14, the Tribunal decided the issue in favor of the assessee following the orders for the assessment years 2010-11 and 2011-12. 78. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal and the Hon ble High Court. 79. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2012-13 held as under: 88. We have heard both the parties and perused the material available on record. The Tribunal held in A.Ys. 2010-11 and 2011-12 as under: 116) We have considered rival contentions. Under section 37(1) of the Act, expenditure is allowable as deduction if the same is incurred for the purpose of business out of commercial expediency. An expenditure which is personal in nature, is not an allowable business deduction. In the present case, the assessing officer has disallowed the expenditure incurred for making advertisement in newspapers to commemorate the death anniversary of late Shri Raman Munjal, being the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Kant Munjal was not personal expenditure of the promoter family and satisfied the tests of commercial and business expediency' and thus was an allowable business deduction under Section 37(1) of the act. It is also pertinent to mention that no appeal has been filed by the department before the High Court. Thus, the Tribunal decision has attained the finality. Therefore, Ground No. 35 allowed in favour of the assessee. It is pertinent to note that such expenditure incurred by the assessee on death anniversary of Sh Raman Kant Munjal was not personal expenditure of the promoter family and satisfied the tests of commercial and business expediency and thus was an allowable business deduction under Section 37(1) of the Act. In the present Assessment Year also the facts are similar and are squarely covered with the decision of the Tribunal for A.Ys. 2010-11, 2011-12, 2012-13 and 2013-14. Besides that no appeal has been filed by the Revenue before the Hon ble High Court. Hence Ground No. 28 is allowed. 80. As related to Ground No. 29 to 29.3 are relating to disallowance of commission paid to Managing Director CEO, Shri Pawan Munjal and Joint Managing Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue is also squarely covered in favour of assessee by the order of Delhi Bench of the Tribunal in the case of group concern of the assessee company, viz. Hero Honda Finlease Ltd. v. Addl. CIT: ITA No 4329/Del/2010 (Del) relating to assessment year 2005-06, which has been further affirmed by the Delhi High Court, vide order dated 12.08.2014 passed in ITA No. 305/2014 wherein the appeal of the Revenue was dismissed. 82. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal and the Hon ble High Court. 83. We have heard both the parties and perused the material available on record. The Tribunal held in A.Y. 2012-13 as under: 92. We have heard both the parties and perused the material available on record. The Tribunal held in A.Ys. 2010-11 and 2011-12 as under: 120) We have heard the rival contentions. We notice that the year under consideration was not the first year of payment of such commission to Mr. Pawan Munjal. The same terms and conditions of his employment, comprising salary, perquisites and commissions not exceeding 1% of the net profit was agreed/prevalent in the earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 36 provides that 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- ii) any sum paid to an employee as bonus or commission32 for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission; In the present case the assessee has paid ₹ 29.50 crores to the managing director of the company as commission whereas the managing director is just holding shares of the company of 0.02% therefore it cannot be said that a sum of ₹ 29.50 crores would have been paid to that shareholder holding 0.02% as dividend. Therefore The impugned amount of commission was separate and was not in addition or in lieu of dividend linked to percentage of shares held by Mr. Munjal in the appellant company. We draw support for the aforesaid view from the recent decision of Delhi High Court in the case of Carrier Launchers India Ltd. vs. ACIT: 358 ITR 179, where, too, the High Court held that where the commission is paid in lieu of services provided by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en by the Tribunal in the case of appellant group company, viz., Hero Honda Finlease Ltd. Vs. Addl. CIT : ITA No.4329/Del/2010 relating to AY 2005-06, wherein the similar disallowance was deleted. In view of this we are of the opinion that in making payment of commission to the managing director of the company of 29.50 crore the provisions of section 36 (1) (ii) of the income tax act cannot be applied. Furthermore regarding the commercial expediency of the above sum the such commission was decided by the remuneration committee constituted by the company in terms of the provisions of the listing agreement entered into with various stock exchanges. Even otherwise the commission s leading to the percentage of the profit earned by the company has for the companies act and there is an outer limit which is also been fixed in the terms and conditions of employment of the managing director therefore it cannot be said that there is no business expediency in payment of such commission to the managing director of the company. In view of this ground No. 25 of the appeal regarding disallowance of ₹ 29.54 crores paid the managing director as commission disallowed by the Ld. assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the aforesaid premium was paid to acquire right and interest in the land, which has resulted in (a) acquisition of capital asset in the form of land or (b) benefit of enduring nature in the capital field since the land was acquired to construct manufacturing plant thereon. The AO also held that the aforesaid payment of lease enhanced the profit earning apparatus of the assessee whose benefit was of enduring nature and therefore was capital in nature. The DRP, however, allowed the assessee depreciation on the premium paid for acquiring of leasehold rights of land, considering the same as an intangible asset in the nature of business or commercial right' which is eligible for depreciation under Section 32(1 )(ii) of the Act. The Ld. AR submitted that he Assessing officer, however, erred in not giving effect to such binding directions of the DRP. 85. The Ld. AR pointed out that the similar disallowance made by the assessing officer in the preceding assessment years 2010-11 and 2011-12 was directed to be deleted by the DRP. The Tribunal, while adjudicating upon Revenue s appeal, vide consolidated order dated 26.10.2016, reversed the directions of the DRP and held the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant assessment year, the assessee had incurred expenditure of ₹ 23,44,222, which was debited under the head community development expenses ( CSR activity ) in the books of accounts. The Assessing Officer disallowed the aforesaid expenses on the ground that it was not incurred wholly and exclusively for the purposes of earning business income from the activity of manufacture and sale of two-wheelers and, therefore, such expenditure was not allowable deduction under section 37(1) of the Act. It was also observed that the aforesaid payments were in the nature of application of income, which was not allowable as expenditure under the provisions of the Act. 89. In this regard, the Ld. AR pointed out that the aforesaid disallowance made by the assessing officer in the preceding years, viz. AY 2010-11 and AY 2011-12 has been deleted by the Tribunal vide recent consolidated order dated 24.10.2016, wherein the Tribunal held that the expenditure incurred by the assessee company on Corporate Social Responsibility, prior to insertion of Explanation 2 to Section 37(1) of the Act, was an allowable business deduction under the said provision. The Tribunal, in the said or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommunity related obligations, with a larger intent of fostering its goodwill/reputation. We have gone through the details of various expenses incurred by the assesse which were debited under the head Corporate social responsibility and elaborated in detail in the submissions made by the Ld. Counsel above. The said expenses although were not incurred towards earning profit, but were incurred out of commercial expediency and were directly/indirectly related to its business like earning goodwill/display of name, employee s welfare, etc. The said expenses therefore, in our view, satisfy the test of being allowable as business deduction under section 37(1) of the Act. We draw support for the aforesaid conclusion from the following decisions of the various Tribunals/High Courts : (i) In the case of Mysore Kirloskar Ltd. vs. CIT: 166 ITR 836 (Kar.), the assessee started school for education of children of its employees for attracting technocrats and men of managerial skill to its industry. Donations made by the company to the school were claimed as business expenditure under section 37(1) of the Act. The Tribunal sustained disallowance of the deduction claimed on the ground th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT v. India Radiators Ltd.: 236 ITR 719 (Mad.), the Madras High Court observed as under: The finding of the Tribunal is that by making the contribution to the Panchayat for upgrading the elementary school, the assessee-company was assured by the school management that it would give preference in the matter of admission to the children of the employees in the said school. The Tribunal placed reliance on a letter from the President of the Building Committee and Parents Teacher Association of the school. It is well settled that if a certain sum of money was expended for the education of the children of the employees of the assessee-company, it should be regarded as staff welfare expenditure, particularly in view of the fact that in these days it is very hard to get admission in educational institutions. The employees of the assessee are given the satisfaction by the donation made by the assessee that their employers have taken full care of the education of their ward and such a mental satisfaction on the part of the employees would generate good will and the expenditure can be regarded as staff welfare expenditure and allowable as business expenditure. The cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er measure with the aid of such goodwill. Monies spent for bringing drinking water as also for establishing or improving the school meant for the residents of the locality in which the business is situated cannot be regarded as being wholly outside the ambit of the business concerns of the assessee, especially where the undertaking owned by the assessee is one which is to some extent a polluting industry. The Tribunal was right in allowing the deduction of the entire expenditure of ₹ 15,32,000 as business expenditure. (vi) In the case of Hindustan Petroleum Corpn. Ltd. Vs. DCIT 96 ITD 186 (Bom.), the assessee company incurred certain expenditure towards implementation of 20 point programme. The expenditure was incurred to improve the conditions of SC/ST in pursuance of national policies and to help acceleration of all round development of villages by providing assistance to educated unemployed to earn a living. The assessing officer held that since the expenditure was in the nature of donation, the same could not be allowed deduction. The CIT(A) upheld the order of the assessing officer by holding that the expenditure incurred did not have any direct connection wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und development of villages, which has always been the central theme of Government's development initiatives. An expenditure of such a nature cannot but be, 'a concrete expression of care and concern for the Society at large and an expenditure to discharge the responsibilities of a 'good corporate citizen which brings goodwill of with the regulatory agencies and society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill' . Just because the expenditure was voluntary in nature and was not forced on the assessee by a statutory obligation, it could not cease to be a business expenditure. 236) Further, the insertion of explanation 2 to section 37(1) has been inserted w.e.f. 01/04/2015 and shall be applicable for the assessment year 2015 16 onwards and therefore same does not apply to the assessment year in question before us in this appeal. In view of the above we agree with the findings of the ld DRP and dismiss the ground no 11 of appeal raised by the department. The aforesaid disallowance made by the assessing officer in the preceding years, viz. AY 2010-11 and AY 2011-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the same, the assessing officer disallowed deduction under section 80IC of the Act by an amount of ₹ 7.53 crores, being the proportionate amount of sales of ₹ 57.72 crores to vendors for further processing of semi-finished goods supplied by the appellant, attributed in the ratio of total profits of the eligible undertaking to total sales of that undertaking, on ad-hoc basis, on the ground that manufacturing activity to the aforesaid extent of sales was outsourced and, therefore, proportionate amount of profit derived therefrom was not eligible for deduction u/s 80IC of the Act. 93. The Ld. AR submitted that the aforesaid issue stands squarely covered in favour of the assessee inasmuch as the Tribunal while adjudicating upon the issue of disallowance u/s 80IC on account of job work/ outsourcing of manufacturing activity in the immediately preceding assessment years, i.e. AY 2010-11 and AY 2011-12, held that outsourcing of certain intermediary processes or procurement of finished components in the process of manufacture does not tantamount to outsourcing of manufacturing activities and thus would not hamper the claim of deduction of the assessee company u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture or production of relevant goods. The latest is the decision of Delhi High Court in the case of ITO v AAR ESS Exim (P) Ltd: 372 ITR 111. Thus, disallowance made by the assessing officer on the aforesaid ground was not based on any valid reasons and accordingly the same is deleted and ground 32 of appeal is allowed. The aforesaid issue stands squarely covered in favour of the assessee inasmuch as the Tribunal while adjudicating upon the issue of disallowance u/s 80IC on account of job work/ outsourcing of manufacturing activity in the immediately preceding assessment years, i.e. AY 2010-11 and AY 2011-12, held that outsourcing of certain intermediary processes or procurement of finished components in the process of manufacture does not tantamount to outsourcing of manufacturing activities and thus would not hamper the claim of deduction of the assessee company under Section 80 IC of the Act. It is also pertinent to mention that no appeal has been filed by the Department before the Hon ble Delhi High Court. These fact are identical with the present Assessment Years. The issue is squarely covered in favour of the assessee by the Tribunal s order for A.Ys. 2010-11 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantity) Haridwar 1,55,08,625 6,29,775 Gurgaon 5,58,83,492 15,58,928 Dharuhera 4,77,08,619 15,33,141 The Assessing Officer on the basis of lower consumption of electricity per unit at Haridwar vis-a-vis average rate of consumption of electricity per unit at Gurgaon and Dharuhera plants, assumed that part of manufacturing activities at Haridwar plant were outsourced and accordingly, disallowed proportion of outsourced manufacturing activities in the following manner: Particulars Haridwar Dharuhera Gurgaon Power Consumption (KWH) 1,55,08,625 4,77,08,619 5,58,83,492 Units Manufactured (No.) 6,29,775 15,33,141 15,58,928 Consumption per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocess chart for manufacturing of final products followed in all the three units. On perusal of the same, it was noted that since plant at Haridwar was a new plant and Gurgaon and Dharuhera were old plants, certain initial processes, like press shop, heat treatment, etc., which was carried out at the latter unit were not carried out at the unit at Haridwar. The aforesaid lend support to the argument made by the appellant for justifying the lower consumption of electricity at Haridwar as compared to electricity consumed in other two units. That apart, even assuming that certain intermediary processes were not carried out by the eligible unit at Haridwar and were outsourced to the third parties or non-eligible units, the same cannot lead to the conclusion that the entire profits are not derived from the manufacturing activity for being liable for deduction under section 80IC of the Act. The profit earned by the eligible unit is from manufacturing of two wheelers, which is an eligible activity covered under section 80IC of the Act. Outsourcing of certain intermediary processes or procurement of some finished components for assembly thereof in the vehicle does not, in our view, mean out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing activities and therefore claim of deduction under Section 80IC of the Act is just and proper. In the present Assessment Year also the facts are similar and are squarely covered with the decision of the Tribunal for A.Ys. 2010-11, 2011-12, 2012-13 and 2013-14. Besides that no appeal has been filed by the Revenue before the Hon ble High Court in A.Y. 2011-12, thus, the decision of the Tribunal attains finality. Hence Ground No. 33 is allowed. 100. As regards Ground No. 34 to 34.2 are relating to Disallowance of deduction u/s 80IC of the Act on account of inter-unit transfer of goods. The assessee is engaged in the business of manufacturing two-wheelers. For the aforesaid activity, the assessee purchases various components required to be used in the assembly of two-wheelers, like gear box, fuel tank, etc., from third party vendors. In the present transaction, the aforesaid components were first purchased by non-eligible units at Gurgaon or Dharuhera from third parties, due to proximity of location of such units with third parties, business relationship, etc. and were thereafter transferred at the same purchase price to the eligible unit at Haridwar. In such a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue stands squarely covered in favour of the assessee, by the order dated 24.10.2016 passed by Tribunal in the immediately preceding assessment years, i.e. AY 2010-11 and AY 2011-12, wherein identical disallowance made by the assessing officer has been deleted. The Tribunal, in allowing the claim of the assessee under section 80-IC of the Act, held that for the purpose of computing market price of inter-unit transfer of goods, when the non-eligible units procured goods at market price from third party vendors and supplied the same to the eligible unit at the same purchase price as increased by the applicable freight cost, no further substitution of such price is warranted in terms of section 80IA(8) of the Act and the transaction was a genuine business transaction borne out of commercial expediency. While deciding the appeal for the assessment years 2012-13 and 2013-14, the Tribunal decided the issue in favor of the assessee following the orders for the assessment years 2010-11 and 2011-12. 102. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal and the Hon ble High Court. 103. We have hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the non-eligible units from third parties/independent vendors do not undergo any change at the time of further transfer by the non-eligible unit to the eligible unit. In other words, the market price of such components at which the same was procured by non-eligible units remains constant. Accordingly, even by applying the provisions of section 80IA(8), in our opinion, there can be no substitution of the price at which goods are debited by the eligible unit in its independent books of account. Similarly, with respect to components having value of ₹ 6.34 crores, which were transferred by the non-eligible unit to the eligible unit at Haridwar after nominal processing, too, in our opinion, does not result in enhancement of any market price of such goods; in other words, in a free market condition such goods would have also been sold at the same price at which they have been transferred by the non-eligible unit to the eligible unit. In that view of the matter, we find that the present issue was not decided by the assessing officer in correct perspective and, therefore, erred in disallowing deduction under section 80IC, by enhancing the purchase price by adding certain markup there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of exemption from excise duty available to the unit at Haridwar. There were no extraordinary profits to the eligible unit, vis-a- vis, other / non-eligible units, in as much as, in the latter unit(s), as per CENVAT Rules, the assessee was eligible to take credit of excise duty paid on purchase of excisable goods against the excise duty charged and collected from customers, which reduced the cost of production in such units, whereas in the case of eligible unit, in the absence of exemption from charging excise duty, the excise duty paid on purchase of components was not available for credit and formed part of cost of production, which consequently reduced the profit earned at such unit. The Assessing Officer admitted that there was no violation of provisions of section 80IA(8) read with section 80IC(7) of the Act, applied provisions of section 80IA(10), which have also been made applicable to section 80IC as per sub-section (7) thereof, and held that the eligible business earned extra ordinary profits on account of higher basic price charged from customers vis-a-vis price charged by non-eligible units, which ought to be disallowed as per the said sections. The Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department before the Hon ble Delhi High Court. While deciding the appeal for the assessment years 2012-13 and 2013-14. the Tribunal decided the issue in favor of the assessee following the orders for the assessment years 2010-11 and 2011-12. 106. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal. 107. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2012-13 held as under: 112. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: 144) We have heard the rival contentions. At the outset, we agree with the submissions of the appellant and reject the contentions of the assessing officer that higher price was charged for vehicles sold from eligible unit vis-a-vis non-eligible unit. The appellant in this connection also produced sales invoices of vehicles of same models removed from eligible unit as also non-eligible unit. The final price charged from the customer, as it would have been ordinarily expected, was same in both the cases. The aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds the other findings of the assessing officer that finished goods should have been transferred from the eligible unit to Head Office at normal profit and Head Office should have further sold the goods at higher sale price or in other words, profits earned by the eligible unit should be attributed to the Head Office for sale and marketing activities carried out by the latter unit, in our opinion, is also not correct. The Head Office is not a separate entity/person or a profit centre. The Head office in a case of multiple manufacturing units plays a central role for undertaking common expenses like administrative, marketing, etc. for all its manufacturing units. The Head Office in such a situation, in our view, is not rendering any separate services to the manufacturing/eligible unit but is a cost centre incurring expenses for and on behalf of all such units. The only rational approach in such a kind of situation is to apportion the common expenses incurred by the head office to various profit making units on a scientific and rational basis. Considering that such expenses are incurred by head office for and on behalf of the profit making units, no profit is liable to be attributed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act do not apply to the assessee on transfer of services of marketing division of the company to the eligible industrial undertaking whose profits are claimed as deductible. 146) In view of the above, we reverse the action of the assessing office in partly disallowing deduction under section 80IC on account of the have profit earned by the assessee in the eligible unit. In the result ground No. 31 of the appeal of the assessee is allowed. This fact is identical with the earlier Assessment Years. The issue is squarely covered in favour of the assessee by the Tribunal s order for A.Ys. 2010-11 2011-12. Besides this the Revenue has accepted this issue and has not challenged the same in Hon ble High Court. Thus, this issue attains finality. Therefore, Ground No. 41 is allowed in favour of the assessee. Section 80IA(10) is applicable to transactions entered with related parties whereas the prices charged by the assessee was from customers/dealers. Thus the final price charged to the end customer was the same irrespective of the unit of manufacture. Therefore, the Assessing Officer was not correct in disallowing the claim of the assessee. In the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffice. In order to attribute profits to marketing/advertisement activities, the Assessing Officer computed rate of net profit for the financial year 1984-85, being the first year of operations of the assessee company, at 6.85% on an arbitrary basis and applied the same to arrive at the profit solely attributable to the manufacturing activity of Haridwar unit. On the basis of above, the assessing officer computed profit attributable to the manufacturing activity at ₹ 142.29 crores. Accordingly, deduction under section 80IC qua remaining profit of ₹ 128.45 crores, attributable to marketing and advertisement activity was disallowed. Since the assessing officer had disallowed the entire amount of deduction claimed under section 80IC on various which has been objected in ground of appeal no. 28-34(supra), no further disallowance on account of above was made in the assessment/order. 109. The Ld. AR pointed out that the issue is squarely covered in favor of the assessee by the order dated 24.10.2016 passed by the Tribunal for immediately preceding assessment years, i.e. AY 2010-11 and AY 2011-12. wherein identical disallowance made by the Assessing Officer has been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head office are to be allocated between various profit centers on a rational and scientific basis. Therefore, Ground No. 42 to 42.6 are allowed in favour of the assessee. The Head office is not a separate profit centre and therefore, no profit is to be separately attributed to such activity. Thus, for the purpose of working out eligible deduction under Section 80IC of the Act, actual expenses incurred at the head office are to be allocated between various profit centers on a rational and scientific basis which has been rightly done by the Assessee company. Therefore, the Assessing Officer was not correct in disallowing the said expenses. In the present Assessment Year also the facts are similar and are squarely covered with the decision of the Tribunal for A.Ys. 2010-11, 2011-12, 2012-13 and 2013-14. Hence Ground Nos. 36 to 36.6 are allowed. 112. As regards Ground No. 37 to 37.1 are relating to Disallowance of ₹ 40.47 crores (restricted to NIL) in respect of certain incomes earned by the eligible unit, on the ground that such incomes were not derived from the business of manufacture of specified articles or things. During the relevant previous year, the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct shall be considered as incidental to the activity of carrying out manufacturing and thus eligible for deduction under that section. Accordingly, the aforesaid issue stands squarely covered in favour of the assessee. Details of correspondences exchanged with vendors establishing working capital support on sample basis were submitted before the Assessing Officer. While deciding the appeal for the assessment years 2012-13 and 2013-14 the Tribunal decided the issue in favor of the assessee following the orders for the assessment years 2010-11 and 2011-12. 114. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal and the Hon ble High Court. 115. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2012-13 held as under: 120. We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: 158) We have heard the rival contentions. Our findings on the various issues raised by the assessing officer are given in seriatim hereunder: 1. Interest on loan given a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges recovered by the appellant for supply of vehicle are recoupment of such charges, which were paid by the appellant at the first place to the transporter delivering the vehicle to the customer/dealers. There is no profit element in the aforesaid recovery. In the absence of any income on the aforesaid recovery there was no warrant to deny benefit of deduction under section 80IC on the above. Accordingly, the action of the assessing officer is reversed on this ground. 4. Sundry Sales The present issue is also similar to the immediately preceding issue relating to freight recovery. The sale of some finished components also does not involve any income element inasmuch as semi-finished components are supplied to ancillary units for further processing and finished components procured there from are subsequently debited at cost in the books. There is no profit element in the aforesaid transaction and therefore the benefit of deduction under section 80IC cannot be denied on above. In that view of the matter, the action of the assessing officer is reversed on this ground. 5) Miscellaneous income cash discounting from vendors The cash discount a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal of the assessee is partly allowed. Similar disallowance made by the assessing officer in the immediately preceding assessment years, i.e. AY 2010-11 and AY 2011-12 has been deleted by the Tribunal vide consolidated order dated 24.10.2016. The Tribunal, after examining the nature of the aforesaid incomes, held that other incomes in the nature of Interest on loan to employees, interest on loan to vendors for working capital support, freight recovery, sundry sales, cash discounting from vendors and exchange fluctuation gain, etc. earned by a unit eligible for deduction under Section 80IC of the Act shall be considered as incidental to the activity of carrying out manufacturing and thus eligible for deduction under that section. Accordingly, the aforesaid issue stands squarely covered in favour of the assessee. Therefore, Ground No. 43 to 43.1 are allowed in favour of the assessee. Other incomes in the nature of Interest on loan to employees, interest on loan to vendors for working capital support, freight recovery, sundry sales, cash discounting from vendors and exchange fluctuation gain, etc. earned by a unit eligible for deduction under Section 80IC of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 80IC of the Act, on the ground that the assessee failed to comply with Rule 18BBB(4) of the Rules inasmuch as the assessee did not obtain any approval for carrying on the business of manufacturing two-wheelers in the State of Uttaranchal. The Assessing Officer further observed that the assessee failed to comply with the condition specified in the Industrial Policy and consequent Notification issued by Uttranchal Government and also failed to meet the condition of continuous employment of specified number of employees on any given day, as contained in the factory license. Since the Assessing Officer had disallowed the entire deduction claimed under section 80IC on various grounds, which have been objected in Grounds of Appeal Nos. 28-37 (supra), no further disallowance for the aforesaid amount of ₹ 270,74,38,681 was made in the assessment order. 117. In this regard, the Ld. AR submitted that identical disallowance made by the assessing officer in the immediately preceding assessment years, i.e. AY 2010-11 and AY 2011-12 has been deleted by the Tribunal vide consolidated order dated 24.10.2016, wherein it was held that the assessee had given all the necessary detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer. As regards the factory license, the appellant had obtained the said license from the appropriate state authority which was attached along with audit report in Form 10CCB in compliance of Rule 18BBB(4) of the Rules. Considering that no license was required to be obtained to carry on the eligible business under any law, the appellant could not have been said to violate the provisions of said Rule. As regards the other two failures, relating to state industrial policy alleged by the assessing officer, the satisfactions of such conditions have not been stipulated as a condition precedent under any provision of section 80IC of the Act. The provisions of section 80IC are self-contained and if the condition stipulated therein are satisfied, the benefit therein cannot be denied on the ground of non-satisfaction of certain extraneous condition. We, accordingly, hold that there was no failure of satisfaction of conditions precedent to claim deduction u/s 80 IC as was pointed out by the assessing officer in the assessment order. That apart, we additionally note that the DRP had also agreed with the aforesaid view and had directed the assessing officer to not deny the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of deduction under Section 80IC of the Act. In the present Assessment Year also the facts are similar and are squarely covered with the decision of the Tribunal for A.Ys. 2010-11, 2011-12, 2012-13 and 2013-14. Besides, no appeal has been filed by the department before the High Court, thus the order of the Tribunal attains finality. Hence Ground Nos. 38 to 38.4 are allowed. 120. As related to Ground No. 39 to 39.7 are relating to Disallowance of purchase u/s 40(a)(ia) for alleged failure to deduct TDS u/s 194C of the Act. In the course of business of manufacturing two wheelers, the assessee places purchase orders on vendors of certain customized intermediary products like wheel assembly, seat assembly, etc. While placing the aforesaid purchase orders to the vendors, the assessee also provides the specifications of the products to be purchased, as also the name of suppliers, from whom the vendor is required to purchase raw materials/components to be used in manufacture of customized intermediary products at the price negotiated by the assesssee with such suppliers. The names of the suppliers and the price at which the vendors are required to procure raw materials, etc., f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... components. The benefit of lower prices enjoyed by the vendors is, in turn, passed on to the assessee when the assessee purchases intermediary products / components from the vendors, utilizing raw materials / components sourced from independent manufacturers at best prices negotiated by the assessee. Furthermore, the assessee specifies suppliers, in view of their technical expertise level, references / reputation, in view of their financial stability and staying power, ability to meet delivery due dates and capacity to align with the growth of the company. Also, the supplier must be in a position to serve the assessee company's long term needs by adhering to the delivery agreements with higher technical production level. Therefore, selecting the most appropriate suppliers is considered as an important strategic management decision that helps the company to ensure uniform quality, control prices and ensure continuous and uninterrupted supply of material. Excise duty, sales tax, etc. and other applicable taxes are paid by the vendors on manufacture and sale of goods to the applicable, while claiming CENVAT credit in respect of duty paid on raw materials purchased by the vendors ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of the assessee that, where recipients have paid tax, no disallowance under section 40(a)(ia) was warranted. Further, the Ld. AR pointed out that similar disallowance made by the assessing officer in assessment years 2010-11 and 2011-12 has been deleted by the Tribunal vide order dated 24.10.2016, following the aforesaid orders for earlier years, viz. AY 2007-08 and 2008-09. While deciding the appeal for the assessment years 2012-13 and 2013-14, the Tribunal decided the issue in favor of the assessee following the orders for the assessment years 2010-11 and 2011 -12. Even otherwise and without prejudice to the above, the Ld. AR submitted that second proviso to section 40(a)(ia) provides if the recipient has considered the payments received as part of income and paid tax thereon, then the payer cannot be considered as in default and no part of the expenditure can be disallowed under the said section. The said provision was inserted w.e.f. 1.4.2013, i.e., AY 2013-14 and onwards. The Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P.) Ltd.: 377 ITR 635, has, however, held the aforesaid amendment to be retrospective in nature and applicable in earlier year(s). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in the order for AY 2007-08 in appellant s own case has reversed the aforesaid findings of the assessing officer. The coordinate bench has held that impugned transaction is not covered within the scope of section 194C of the Act. The relevant observations of the coordinate bench are as under: 14.58. The issue before us for adjudication is whether on the facts and circumstances of the case, the customized intermediatery products like wheel assembly, seat assembly etc. sourced by the assessee from the vendors is a contract of sale by the vendors or a contract of work. 14.59. The assessing officer issued summons u/s 131 to nine vendors and recorded their statements. This exercise resulted in the assessing officer gathering information from the vendors that they have procured material from the sources specified by the assessee and at rates specified by the assessee. Based on the statements from nine vendors, the assessing officer came to the conclusion that the assessee has termed the contract of work as contract for sale . The reasons in details for arriving at such conclusion by the Assessing officer and as confirmed by the DRP are discussed in the above pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturing establishments, employing huge labour; utilize the raw materials purchased by them, for producing customized finished goods for the assessee. (3) The assessee has issued purchase orders for supply of components as per the assessee s specification. The assessee has filed copies of the purchase orders/ invoices. The same finds place in the paper book filed by the assessee. (4) The raw materials are delivered to the vendors by the suppliers and are at the risk and title of the vendors. The suppliers collect from the vendors, sales tax, VAT etc. on sale of raw material and the vendor paid the same. (5) Excise duty is paid by the vendors in their own right, as an independent manufacturer and not as a job worker in respect of goods manufactured and sold to the assessee. (6) The assessee has paid sales tax/VAT, as the case maybe, for the goods purchased from the vendors. 14.88. Further on perusal of the sample purchase orders produced before us and the terms and conditions on which the purchase order is placed, we observe that the transaction is on a principal to principal basis. ................. 14.90. Comb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered this as a deemed purchase by the assessee. The reason enunciated by the assessee w.r.t identifying the suppliers of the material along with the determination of price of the raw material fixing of payment terms etc., clearly constitutes a matter of business expediency for the assessee. 14.93. Further, in the statement recorded from the vendors after summoning them u/s 131 of the Act, the vendors have confirmed that this is a case of sale of goods and not a works contract. Mr. Yogesh Kumar Jindal has explained the purpose for which the assessee specifies the suppliers and the rate. 14.94. We have carefully gone through the decision of the Karnataka High Court in the case of Nova Pharma Ltd. (supra) relied by the Ld. DR and are of the view that the fact of the case is clearly distinguishable and cannot be applied to the facts of the present case. The assessee has rightly distinguished the case. As the same is brought out in the earlier part of the order, for sake of brevity we do not repeat the same. 14.95. In this case, there is no supply of raw material by the assessee to the vendors either directly or indirectly. In laying down the quality speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like payment terms, period of delivery etc. is for acquisition of ascertained goods the contract is thus one of sale and not a contract for carrying out work. 14.99. In view of the above finding, we are not adjudicating on the other arguments raised by the assessee on this issue, though we find force in the argument of the assessee that since all the vendors have filed their returns of income and paid taxes on the receipts from the assessee, no disallowance under section 40(a)(ia) is warranted. Hence the additional evidence and additional argument is not adjudicated as it would be an academic exercise. In the result, this ground of the assessee is allowed. 66) In absence of any contrary decision pointed out by the Ld. departmental representative and the facts and circumstances of the case remaining the same was the assessment years, We follow the aforesaid findings given in the appeal order for 2007-08 and therefore, we hold that the transaction entered by the appellant for purchase of material from vendors is outside the scope of section 194C of the Act. Accordingly, for the aforesaid cumulative reasons, we delete the impugned disallowance made by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see made provision of ₹ 89,31,800 towards commission on institutional sales payable to dealers. The A.O/DRP disallowed the aforesaid amount of provision on the ground that assessee failed to deduct ax at source u/s 194H from the said provision, invoking provision of section 40(a)(ia) of the Act, more so when payments are definitive and payees were identified. 125. The Ld. AR submitted that the sales made by dealers to institutional customers were on a principal to principal basis and not as agent of the assessee and only the concession in price of vehicles sold by dealers was compensated by the assessee at pre-determined price. [Refer: Jai Drinks P. Ltd. : 336 ITR 383 (Del.)] Without prejudice, the Ld. AR further submitted that obligation to deduct tax at source under Chapter XVII-B arises (i) when the payee is identified and (ii) amount is receivable by payee during such year. The provision was made on the basis of intimation as to the number of vehicles sold to institutional customers which was received at the fag end of the financial year. Though the assessee was aware about the liability to pay commission, but was not aware about the amount payable to the respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld as under: 49. We have heard both the parties and perused the material available on record. The Tribunal for A.Ys. 2010-11 and 2011-12 held as under: 75) We have heard the rival contentions. As dealership agreement entered between the appellant and dealers is on a principal-to-principal basis and dealers do not act as agents of the appellant while purchasing and further selling the vehicles. Accordingly, the incentives offered at the time of purchase of vehicles do not fall within the meaning of commission u/s 194H of the Act. Further, the issue is squarely covered by the decision of the ITAT in assessee s own case in AY 2008-09 wherein following the ITAT decision in assessee s own case for the year AY 2007-08, it was observed as under 148. From the bare reading of the decision of the Tribunal in assessee s own case for AY 2007-08 (supra), we observe that after dealing with rivals submissions and contentions of both the parties, the tribunal reached to the following finding and conclusion deciding the issue in favour of the assessee. The relevant operative part of the order of the Tribunal for AY 2007-08 in assessee s own case (supra) read as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Diary and were using the equipment and furniture in the course of sale of the milk and other products, they were carrying on the business only as agents of the Diary. 45.12. The Hon ble High Court held that in such circumstances S.194H is not attracted. 45.13. In the case of Jai Drinks (P) Ltd. 336 ITR 383 (Del.), the Hon ble Delhi High Court has held as follows: Held, dismissing the appeal, that a perusal of the agreement showed that the assessee had permitted the distributor to sell its products in a specified area. The distributor was to purchase products at a pre- determined price from the assessee for selling them. Both the assessee and the distributor had been collecting and paying their sales tax separately. The CIT(A) and also the Tribunal rightly held that the payments being made by the assessee to the distributor were incentives and discounts and not commission. 45.14. Respectfully following the propositions laid down in the aforementioned cases we allow this ground of the assessee. 76) In that view of the matter, the Ld. departmental representative could not point out any decision contrary to the above findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alers, incurred by the Company at the time of sale of products to the dealers. The Assessing Officer/DRP held that the payments made by the assessee in the form of reimbursement of free service coupons is nothing but consideration in lieu of service provided by the dealers to the appellant, which falls within the meaning of professional or technical service in terms of section 194J read with section 9(i)(vii) of the Act. In view of the same, since the assessee has failed to deduct tax at source under section 194J from the expenditure of ₹ 71.42 crores incurred during the year, the same was disallowable under section 40(a)(ia) of the Act. 129. The Ld. AR submitted that the products sold by the company to the dealers are with free service coupons. The sale price has embedded therein the obligation for rendering free service. The further sale of the products by the dealers to the customers is with the free service coupons. The sale price recovered by the dealer includes the free service obligation. The obligation cast upon the dealers in the dealership agreement qua service of products to the satisfaction of the company, is only to ensure overall control and qualit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e TPO, but could not distinguish the decision of the Tribunal. 131. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2010-11 and 2011-12 held as under: 218) We have heard the rival contentions. We note that similar issue relating to disallowance u/s 40(a)(ia) for non-deduction of tax from reimbursement of free service coupons, was deleted by the tribunal in the assessee s own case for assessment year 2007-08 which was followed in assessment year 2008-09. The relevant observations of the Tribunal for assessment year 2007-08 are as under:- 29.41.In the case on hand, the obligation incurred by the assessee at the time of sale to pay the cost of free services and is not payment made in consideration for the rendering of any managerial, technical or consultancy services as defined for the purpose of S.194J. Routine repairs which includes supply of spares does not attract Sec. 9(1)(vii) of the Act and hence no TDS need be done u/s 194J. As sec. 194J does not apply, disallowance u/s 40(a)(ia) on the ground that no deduction of tax at source is made u/s 194J is bad in law and has to be deleted. 29.42 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 194J of the Act. From the records it can be seen that no service was availed by the assessee from the dealers. Therefore, Ground Nos. 41 to 41.6 are allowed. 132. As regards Ground No. 42 is related to disallowance of additional depreciation of computers installed at Supervisory Office. During the relevant previous year, the assessee claimed additional depreciation of ₹ 2.01 crores, on computers installed at supervisory offices located in the compound of factory at Gurgaon/Dharuhera, on the ground that such offices formed integral part of the factory. The Assessing Officer has denied the plea of the assessee that administrative/supervisory offices located in the factory premises forms integral part of the factory. The Assessing Officer observed that since computers installed in such offices located within the compound of factory cannot be said to be directly involved in carrying out the manufacturing activity, additional depreciation under section 32(l)(iia) of the Act shall not be eligible on same. Accordingly, the assessing officer disallowed additional depreciation of ₹ 2.01 crores claimed by the assessee. 133. The Ld. AR submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional depreciation, distinction has to be drawn between the computers installed in the supervisory offices of the manufacturing plant with the computers installed at the head office / corporate office, which is involved in the overall supervision of the business function. It has been argued that in the former case, although the computers are not directly involved in the manufacturing operations, but are indirectly facilitating the manufacturing activity as opposed to the computers installed at head office / corporate office. It was the submission that the exclusion of machinery or plant installed in any office premises under clause (b) of the proviso to section 32(1)(iia) of the Act is applicable to office premises like head office / corporate offices where there is no direct or indirect nexus with the manufacturing operations. The plant and machinery installed in the offices supervising the manufacturing operations should be viewed distinctly and are outside the ambit of exclusion provided in the aforesaid section. We have, however, found that the aforesaid plea was not accepted by the Tribunal in the appeal orders for AY 2007-08, which was followed in appeal for AY 2008-09. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case, when the computer and the data processing machines are used in the office, then, the additional depreciation would not be allowable. 11. It is to be noted that the words office premises have not been defined in the Income-tax Act. The word office would partake its character with the activities carried on in the said premises. In a given case, a doctor's clinic would be his office, but, would also be his clinic and if he installs a computer or some machine for the purposes of pathology, then, his office would be taken to be industrial premises for the purposes of depreciation and investment allowance. In a given case, a computer kept in the office of a manager for his personal use or for some other purpose, then, such computer would not be entitled to investment allowance and/or additional depreciation. In the present case, the words office premises though would be covering office but, industrial premises would not come within the office premises if the said premises are used for data processing. In the present case, undisputedly, the office premises are used as industrial premises for production of the data processors. The submission of learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee arrived at base price of ₹ 8.95 per unit and computed deduction under section 80IA of the Act at ₹ 759.99 lacs. The Assessing Officer/DRP rejected the transfer price computed by the assessee as fair market price and substituted the same with rate of power supplied by local State Electricity Board in the area. Since, the rate of SEB, viz., ₹ 4.36 per unit was less than the cost of production of electricity by the assessee no deduction under section 80IA of the Act was allowed in the assessment order. 137. The Ld. AR submitted that in view of power supply constraints in the area of Gurgaon, Haryana, where the assessee had set-up its manufacturing facility, the assessee had set-up power plant in order to meet the captive consumption requirements of power, which is eligible for deduction under section 80IA of the Act. The assessee claimed a deduction of ₹ 759.99 lacs under section 80IA of the Act in respect of power generated at the aforesaid unit and captively consumed by the assessee. The deduction claimed was duly supported by Chartered Accountant s Report. In that area, HSEB (government body) was not able to meet the demand of industrial consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal for the assessment year 2006-07 decided the issue in favour of the assessee, holding that for the purpose of determination of market price7 of power under Section 80IA(4) read with 80IA(8) of the Act, where multiple options of price of a product are available, then the price which is most favorable to the needs to be adopted. The Tribunal, while distinguishing the decision of Delhi bench of the Tribunal in the earlier years, also held that price of power charged by State Electricity Board is not reflective of market price for computing deduction under Section 80IA(4) of the Act. 138. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal. 139. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2010-11 held as under: 124) We have carefully. We find that the expression market value for inter-unit transfer has been defined under Explanation to section 80IA of the Act as follows: In the present case also there are three rates, (i) rates at which power is purchased from state electricity board, (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant previous year. The assessee as per consistent, regular and accepted method of accounting claimed deduction of the said expenditure on account of provision for warranty as revenue expenditure. The Assessing Officer observed that a more scientific formulae could have been adopted to arrive at an amount which was closer to the actual expenditure and that liability arrived at as per the present method was not appropriate. The assessing officer also observed that since provision made each year is more than actual warranty claims, the said provision is an unascertained liability, which could not be allowed deduction. 141. The Ld. AR submitted that in case of the assessee itself, reported as Hero Honda Motors Ltd. Vs JCIT: 103 ITD 157, relating to Assessment Year 1996- 97, facts were that provision was made on the basis of weighted average of actual warranty claims in respect of motorcycles sold in the past. The Assessing Officer, however, was of the view that the expenditure in question could be allowed only on actual basis and since the purchasers of motor-cycles had not made claims for rectification of defects, it would not be said that the liability had accrued. The CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt. Further, the Tribunal in assessee's own case for assessment year 1998-99, 1999-00, 2001-02, 2007-08 and 2008-09 decided the issue in favour of the assessee and accepted the method of accounting for warranty claim. The departmental appeal has not been entertained by the High Court against said orders. The Ld. AR pointed out that the Revenue has not preferred appeal against the order passed by the CIT(A) on the aforesaid issue for the assessment year 2003-04 which is pending before the Tribunal. Thus the Revenue accepted the aforesaid claim made by the assessee. Therefore, the Assessing Officer was not correct in disallowing the provision for warranty holding the same to be unascertained as the provision for warranty was made by the assessee since A.Y. 1996-97 on the basis of weighted average cost for the actual claims received in the past two years which was a scientific and rational basis and accepted by the revenue in past. Hence Ground Nos. 44 to 44.2 are allowed. 144. As regards Ground No. 45 to 45.8 is related to disallowance of export commission paid to Honda Motor Co. Ltd. of Japan, u/s 40(a)(ia). During the relevant previous year, the assessee paid export c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06-07, holding that by way of export agreement, Honda has only permitted the assessee to export the specified goods to the specified countries and the assessee has not acquired any asset/intangible right in the nature of a capital asset. The aforesaid order of the Tribunal has been affirmed by the Hon'ble High Court vide order dated 08.05.2017, passed in ITA No. 923/2015.The Tribunal following the order for the assessment year 2006-07 decided the issue in favor of the assessee in the assessment years 2007-08 and 2008-09. 146. The Ld. DR relied upon the Assessment Order, but could not distinguish the order of the Tribunal. 147. We have heard both the parties and perused the material available on record. For A.Y. 2006-07, the co-ordinate bench held that by way of export agreement, Honda has only permitted the assessee to export the specified goods to the specified countries and the assessee has not acquired any asset/intangible right in the nature of a capital asset. This has been affirmed by the Hon ble High Court vide order dated 08.05.2017 in ITA No. 923/2015. Besides that for A.Ys. 2006-07, 2007-08 and 2008-09 this issue is decided in favour of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessing officer to prove that the transaction was not genuine, by bringing some adverse material on record. The Ld. AR made reference to the following decisions: Kalwa Vs. UOl 49 HR 165 (SC) CIT vs. Daulat Ram 87 ITR 349 (SC) CIT vs. Durgaprasad 82 ITR 540 (SC) In view of the above, in the absence of any adverse evidence being brought on record by the Assessing Officer thereby failing to discharge placed on it, the impugned disallowance deserves to be deleted on the aforesaid ground itself, at the threshold. 150. The Ld. AR further submitted that miniscule transaction has to be ignored. The assessee company is a very large sized company having various voluminous transactions of sale/purchase of shares and mutual funds running in to thousands of crores of rupees. During the year under consideration, the assessee had recorded profit/loss of ₹ 1.45.43 crores from such transactions and tax thereon had been offered to tax in the return of income as well. The Ld. AR further submitted that considering the quantum of transactions entered into by the assessee during the year, the impugned alleged transactions are miniscule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading transactions, impugned addition was to be deleted. The Ld. AR relied upon the following decisions: ACIT vs. Amar Mukesh Shah: 46 ITR(T)234( Ahm) Ashok Goyal (HUF) vs. AC1T: 165 TTJ 306(Ahm) Pal Commodity Services Pvt. Ltd. vs. DIT: ITA No. 3498/M u/2012 For the aforesaid cumulative reasons, the Ld. AR submitted that the disallowance made on account of alleged shifting on profits/losses through client modification on an ad-hoc basis is unwarranted and liable to be deleted. The Ld. AR submitted that the CIT(A) in the assessment year 2010-11 deleted the addition made in the assessment order passed under section 147 of the Act holding that the assesssee would not engage in such a miniscule transaction taking into consideration the fact that huge capital gain of ₹ 20 crores was offered to tax in the return of income. 151. The Ld. DR relied upon the Assessment Order and order of the TPO. 152. We have heard both the parties and perused the material available on record. It is pertinent to note that the Assessing Officer made this addition without referring to any document. All the transactions entered by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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