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TMI Blog2019 (4) TMI 1509X X X X Extracts X X X X X X X X Extracts X X X X ..... eeon account of the following international transactions disregarding the benchmarking analysis applying Transactional Net Margin Method ("TNMM") undertaken by the appellant: S. No. International Transactions Amount of international transaction shown by the appellant Proposed Arm's length price of the international transaction Difference 1. Payment of Export Commission 11,67,48,507 NIL 11,67,48,507 2. Payment of Model Fee 30,77,53,454 NIL 30,77,53,454 3. Royalty paid on exports made to the AEs. 15,00,822 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty for development of new models. 8. That the DRP/TPO erred on facts and in law in holding that arm's length price of international transaction of payment of royalty on exports made to AEs of Rs. 15,00,822 was NIL on the ground that - (a) the appellant was acting as a contract manufacturer and hence royalty paid as percentage of sale to the associated enterprises is not at arm's length as it amounts to collecting royalty on the sale to itself. (b) the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions made at the end of the year towards net increase in prices of raw material already supplied by the vendors upto 31.03.2009, with retrospective effect, on the ground that - (i) the said provisions were made for contingent 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch purchases. 18.1. That on the facts and circumstances of the case, the assessing officer erred in not appreciating that the 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 Rs. 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts entered into with the dealers 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 Rs. 9,68,081/- under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 Rs. 145,43,08,968/- under the head business income, as opposed to income of Rs. 81,80,74,967/- disclosed under the head 'capital gains'. 24.1. That the assessing officer erred on facts and in law in observing that investments were made by the appellant with a view to earn pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing officer erred on facts and in law in enhancing the value of closing inventory and thereby income of appellant by Rs. 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 Rs. 1,50,92,608/- (comprising of Rs. 48,55,673/- in respect of Dharuhera, Gurgaon and Haridwar plants and Rs. 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 Rs. 13,04,554/- incurred on advertisement for remembering death anniversary of Late Shri Raman Munjal, being the Founder of the appellantcompany, on the ground that same was an expenditure of personal nature, not being incurred for the purpose of appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter processing of semifinished goods supplied by the appellant, amounting to Rs. 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 Rs. 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 Haridwar plant vis-a-vis rate of power consumption at other two plants and, therefore, profit attributable to such outsourced activity(ies) shall not be allowable as deduction. 34. That the assessing officer erred on facts and in law in disallowing deduction under section 80IC by an amount of Rs. 1,21,00,000, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 not owned by the eligible undertaking at Haridwar. 36.4 Without prejudice, that the assessing officer erred on facts and in law in attributing profits to the manufacturing activities at Haridwar by applying net profit rate of 6.85%, on an arbitrary basis. 36.5. Without prejudice, that the assessing officer erred on facts and in law in holding that the net profit rate of the first year of operation of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 Rs. 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. 39.1 That the assessing officer erred on facts and in law in observing that contracts entered with the aforesaid vendors were in the nature of 'work contract' and, therefore, payments made thereunder were subject to TDS under section 194C of the Act. 39.2 That on the facts and circumstances of the case, the assessing officer failed to appreciate that the provisions of section 194C of the Act were not applicable in relation to the aforesaid transactions, as the same were in the nature of contract of sale. 39.3 That the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incipal 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 Rs. 71.42 crores being payment made to dealers towards repair/maintenance of vehicles of the customers under free service coupons on the ground that the appellant failed to deduct tax at source therefrom under section 194J of the Act. 41.1 That the assessing officer erred on facts and in law in observing that carrying out repair and maintenance services of vehicles of customers, which was the obligation of the appellant under the contract of sale of vehicles to customers tantamount to rendering of professional/technical services by the dealers to the appellant and the payment made by the appellant to the dealers was for availing such services. 41.2. That on the facts and circumstances of the case, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 Rs. 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 Rs. 4.36 per unit, at which power was supplied by State Electricity Board, as the 'market price' of the power, supplied by that unit to the vehicle manufacturing unit of the appellant, as against rate of Rs. 8.95 per unit (cost of generation of power at Rs. 7.78 per unit + mark-up of 15%) adopted by the appellant. 43.2. That the assessing officer erred on facts and in law in not appreciating that the price at which electricity was supplied by HSEB was not reflective of 'market price' since electricity supply was not adequately available from HSEB at Gurgaon as per its requirement. 44. That the assessing officer erred on facts and in law in disallowing deduction of Rs. 1,24,71,776 claimed by the appellant on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant. 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 law in holding that the appellant was bound to take a certificate from the assessing officer under section 195(2) of the Act in view of the decision of the Supreme Court in the case of Transmission Corporation of India Ltd. vs. CIT: 239 ITR 587, before remitting export commission to Honda and in absence of such certificate the appellant was required to withhold tax on export commission paid to Honda. 45.7. That the assessing officer erred on facts and in law in alternatively holding that export commission constitutes capital expenditure on the ground that the same was incurred for acquiring permission / license for making export and was not allowable under section 37(1) of the Act. 45.8. Without prejudice the assessing officer erred on facts and in law in not holding that depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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 royalty is made in consideration for right to manufacture products and using the technical knowhow owned by the associated enterprises. 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. Further, the Ld. AR submitted that the Hon'ble High court upheld the order of the Tribunal for AY 2006-07 (ITA No. ITA 923/2015) deleting the adjustment on account of payment of model fee. While deciding the appeal for the assessment year 2012- 13, the Tribunal decided the issue following the orders for assessment year 2010-11 and 2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 orders for assessment year 2010-11 and 2011-12, wherein the Tribunal, following the orders for the assessment years 2006-07, 2007-08 and 2008-09 had deleted similar transfer pricing adjustment made in those years. 8. As relates to Payment of export commission, Technical Know How Agreement the assessee was entitled to use technical know-how provided by Honda Motor Co. Ltd, Japan (HMCL) for manufacture and sale of two wheelers and parts in India and was not authorized to sell its products or parts in any other territory than in India without the prior written consent of HMCL. The assessee entered into a separate Export agreement dated 15.01.2005 under which HMCL accorded consent to the assessee to export specific models of two wheelers to certain countries on payment of export commission @ 5% of the FOB value of such exports. The TPO determined the arm's length price of international transactions on payment of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing 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 TPO, but could not distinguish the decision of the Tribunal. 10. We have heard both the parties and perused the material available on record. The facts of the present assessment year are identical with that of the subsequent Assessment Year 2012-13 being ITA No. 1616/Del/2017. No distinguishing facts were placed on record by the Ld. DR. The Tribunal held as under: "5. We have heard both the parties and perused the material available on record. The issue is covered in favour of the Assessee for A.Y. 2006-07 by the Hon'ble High Court's decisions in assessee's case. For A.Ys. 2006-07, 2007- 08 and 2008-09, the Tribunal decided this issue in favour of the assessee. The Tribunal in immediate preceding year i.e. A.Ys. 2010-11 & 2011-12 held as under: "43) For the subsequent year also the coordinate benches followed the similar view with respect to all the payments. Further with respect to the allowance of the model fee the Hon'ble Del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 from the associated enterprise. Thus, payment of royalty is made in consideration for right to manufacture products and using the technical know-how owned by the associated enterprises. As regards royalty on sales to AEs, from the records it can be seen that the assessee is an independent manufacturer of products in respect of two wheelers and not a contractor manufacturer. The sale of such products 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. 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. 13. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal. 14. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2012-13 held as under: "9. We have heard both the parties and perused the material available on record. The Tribunal in assessee's own case for A.Ys. 2010-11 & 2011-12 held as under: "11) We have carefully considered the rival contentions. The company is a corporate entity therefore it has to value its closing stock according to the accounting standard 2 'valuation of inventories' issued by the Ministry of corporate affairs and ICAI. According to that accounting standard the closing stock of the finished goods is required to be valued including all cost of the finished goods is required to be valued including all cost of purchases, cost of conversion and other cost incurred in bringing the inventory to their present location and conditions. The conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of res judicata may not apply to the income tax proceedings as each year is an independent year, yet there ought to be uniformity in treatment and consistency as propounded by Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT 193 ITR 321, when the facts and circumstances are identical. It is a judicially accepted principle that when the facts are same, a uniform view should be adopted for the subsequent years in the income tax proceedings. Unless there is a material change in the facts, which is neither demonstrated by assessing officer nor DRP, the view which is taken earlier, should not be changed, as held by various courts. We now discuss some of the case laws. 7.17 The Hon'ble Supreme Court in the case of Radhasoami Satsang (supra), on the theory of consistency, has held as under: "....Strictly speaking, res judicata does not apply to the income tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year, where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to ne sustained by not challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness practice, the expenditure spilled over the next year and was debited in the second year and was allowed by the Assessing Officer. The Assessing Officer for the assessment year in question disallowed Rs. 13,46,299 claimed as expenditure of prior period allowable in the current year. The Commissioner (Appeals) deleted the disallowance and this was upheld by the Tribunal. On appeal to the High Court: Held, dismissing the appeal, that the assessee had claimed prior period expenses on the ground that the vouchers for such expenses from the employees/ branch employees were received after March 31st of the financial year. It had branch offices throughout the country. It debited the expenditure spill over the subsequent years and the Assessing officer had been allowing it in the past. The accounting practice had been consistently followed by it and accepted by the Revenue. Nothing had been brought on record to show that there had been distortion of profits or that the books of account did not reflect the correct picture. In the absence of any reason whatsoever, there was no warrant or justification to depart from the previous accounting system which was accepted by the Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts of an assessee. 7.24 Further, the Hon'ble Supreme Court in the case of Berger Paints India Ltd. vs. CIT (2004) 266 ITR 99 at page 103(SC), has noted with approval, the observations of the Special Bench of the ITAT in the case of Indian Communication Network Pvt. Ltd. vs. IAC (1994) 206 ITR (AT) 96 (Delhi). At page 114 it observed that: "Before we part with the ground, we cannot help feeling that the litigation between the parties could have been avoided since it was quite immaterial, whether full deduction was allowed in one year or partly in one year and partly in the next, since the assessee is a company and rate of tax is uniform. The gain to one and the loss to the other is illusory since what is deferred in one year, would have to be discharged in the next. In that sense, nobody has won and nobody has lost." 7.25 Even on this plea also, the assessee succeeds. We have dealt with this issue elaborately as, in a number of grounds, this issue would become applicable. In view of above discussion, we allow this ground of the assessee." 25) Before us, the Ld. Departmental representative could not point out any changes in the facts and circumstances of the case for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see as per the consistent method of accounting did not consider aforesaid costs for purposes of allocation to closing inventory. The Assessing Officer held that cost of rejection needs to be attributed and included in the value of closing inventory, and accordingly computed the proportionate amount of Rs. 7.39 lacs out of the total cost of rejections as attributable to the value of closing stock. However, since the assessing officer had made similar addition of Rs. 4.95 lacs on similar account in the closing stock of the last year, which constituted opening stock of the year under consideration, the assessing officer made net addition of Rs. 2.43 lacs (i.e. Rs. 7.39-4.95 lacs). 16. The Ld. AR 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 valuation of closing inventory of finished goods. The Ld. AR submitted that aforesaid issue stands decided in favour of the assessee by the order of Delhi Bench of the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure of Rs. 12.49 crores and closing stock value of Rs. 275 crores. The assessee as a consistent accounting policy has been claiming the cost of abnormal rejections as revenue expenditure for the previous years and this has been regularly accepted by department in past. 8.12 The amount of Rs. 9.24 lacs attributed by the assessing officer, in our view, is materially inconsequential so as to warrant disturbing the regular method of valuation of closing stock being followed by the assessee company. The quantum of the addition of Rs. 9.24 lacs is less than 0.74% of the value of abnormal rejections. As a percentage of total stocks / turn over / profits declared, this figure is miniscule. 8.13 Accounting Standard-2 stipulates that abnormal wastages should not be considered for valuation of inventory. It reads as follows: "16. Examples of costs excluded from the cost of inventories and recognized as expenses in the period in which they are incurred are: a) Abnormal amounts of wasted materials, labour or other production costs; storage costs, unless those costs are necessary in the production process before a further production stage; administrative overheads that do not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 17-17.1 are allowed in favour of the assessee." It is pertinent to note that the assessee followed this method of accounting consistently and regularly which was accepted by the Revenue in the earlier years. Thus, the Revenue at this juncture cannot disturb the said method. 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. 14 to 14.2 are allowed. 19. As regards to Ground No. 15 to 15.3 are relating to disallowance of provision for increase in price of material. The assessee has appointed various vendors for supply of material to be used in the process of manufacturing of vehicles. The assessee at the time of issuing of purchase order, negotiates the price at which the particular component/ components shall be supplied by the vendor. Subsequently, vendors are provided supply of component schedule annually. In the business of manufacturing vehicles, the assessee purchases raw material from vendors with the express understanding that the rates would be revised, if there is substantial increase/decrease in cost of materials, at the agreed interval ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the change in prices during the year and it involved no estimation. The Ld. AR submitted that in assessment year 2008-09, the Tribunal deleted the disallowance holding that similar disallowance of provision was made by the assessing officer in complete disregard of the findings of the assessing officer in the preceding assessment year. viz. AY 2007-08 as also the consistent method followed by the assessee. In that year, the Delhi bench of the Tribunal, vide order dated 13.06.2014 passed in the assesee's own case for assessment year 2008-09 was pleased to delete the disallowance made by the assessing officer keeping in view the principle of materiality and consistency followed by the assessee. Further, the Delhi bench of the Tribunal, vide consolidated order dated 24.10.2016 passed in assessee 's own case for assessment year 2010-11 and 2011-12, has decided the aforesaid issue in favour of the assessee holding that the provisions was made on scientific basis and the transaction is revenue neutral. 21. The Ld. AR further submitted that under the provisions of section 115JB of the Act, the Assessing Officer has limited powers of only making adjustments of items as provided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 (SC): CIT v. Armour Consultants (P.) Ltd. 214 Taxman 444 (Mad.): Bayer Bio Science (P) Ltd.: 148 TTJ 73 (Mum.)] In view thereof, the Ld. AR submitted that the provision for increase in price of material being an ascertained liability made on an actual and scientific basis for the reasons submitted above would also be allowable while computing book profits under section 115.1 B of the Act. 22. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal. 23. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2012-13 held as under: "17. We have heard both the parties and perused the material available on record. The Tribunal for A.Ys. 2010-11 & 2011-12 held as under: "20) We have carefully considered the rival contentions and also perused order of the coordinate bench in the appellant's own case for earlier years. We have also perused the page no. 1130 to 1140 of the paper book volume 3 submitted by the assessee before the Ld. assessing officer in pursuance of direction of the Ld. dispute resolution panel. The parties before us have confirmed that there is no change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing officer to properly verify the figures and allow the claim of the assessee." Subsequently for the assessment year 2008-09 when the similar disallowance was made by the Ld. assessing officer the coordinate bench vide its order dated 13.04.2014 has held deleted the disallowance made by the assessing officer keeping in view the principle of materiality and consistency followed by the appellant. On the ground that the mention has been made in the purchase order that there cannot be any revision of the prices subsequently and the prices mentioning the purchase order of final based on which the Ld. assessing officer has relied very heavily we are of the view that that these are the general terms and conditions of the purchase order claimed by the appellant upon its various vendors and there is no prohibition in the said purchase orders that subsequently the prices cannot be revised. Many times the prices are dependent upon the cost of the raw material such as metal etc of the vendors which is highly fluctuating, which may result into subsequent price revision. Further when the actual payments are made to the vendors on the basis of such retrospective increase in price of material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act, 1961. 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. 15 to 14.3 are allowed. 24. As regards Ground No. 16 to 16.2 is relating to Disallowance of prior period expenses. The assessee is a large size manufacturing company which receives services from several vendors, running into hundreds. The assessee made attempt to quantify the liability incurred towards expenses during the relevant previous years and provide for it. The assessee submitted before the Assessing Officer that it not possible to consider and provide for all 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. Accordingly, the assessee claimed deduction for miscellaneous expenses aggregating to Rs. 17.83,68,791 pertaining to prior period. In the assessment order, the Assessing Officer/DRP has disallowed the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verified by the A.O. The AO should have verified the claim of the assessee. We direct the assessing officer to verify the claim of the assessee. Be it as it may, the genuineness of the expenditure is not in doubt and as it is a question of excess/ short provision of discount in respect of sales effected, we are of the considered opinion that method of accounting followed by the assessee need not to be disturbed as it is being consistently followed over the years and as the revenue has accepted the same. The assessee's claim that the amount of Rs. 23.86 lakhs is not prior period expenses is not seriously disputed by the revenue. As to the balance amount Rs. 90,000 under the festival offer scheme, it was marginal variation that arose due to estimation of liability towards sales discount to be given to dealers. Thus the disallowance cannot be sustained both on the grounds of materiality as well as consistency. Similar issues were dealt by us while disposing of ground nos. 7 and 7.1. Consistent with the view taken therein, we allow this ground of the assessee for statistical purposes." 6. During the argument, both the parties fairly agreed that the assessee claimed deduction for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt 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, the assessee in our opinion has rightly claimed deduction for miscellaneous expenses aggregating to Rs. 18,01,39,937 pertaining to prior period. The facts are identical in the previous Assessment Year 2010-11 & 2011-12 and squarely covered in favour of the assessee. Therefore, Ground No. 20 to 20.1 are allowed in favour of the assessee." 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 miscell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the succeeding year. The Tribunal, in coming to the aforesaid conclusion, also held that the disallowance cannot be made on the issues which are revenue neutral. The aforesaid issue is also covered in favour of the assessee by the decision of the Tribunal in assessee's own case for the assessment year 2008-09, wherein the Tribunal reversed the action of Assessing Officer in disallowing provision on the ground that the amount reversed there against in the succeeding year exceeded 15% of the amount of provision. The Tribunal held that the said approach followed by the AO had no valid basis and was purely ad-hoc. The Tribunal also held that the assessing officer was bound to follow the practice and stand taken by the Department on this issue in the earlier years and, accordingly, restored the matter back to the file of the assessing officer to reconsider the issue, having regard to the method of making provisions followed by the assessee and accepted by the Revenue in preceding years. The Assessing Officer, in the set-aside proceedings vide order 26.02.2015, accepted the claim of the assessee and allowed relief on the aforementioned identical issue by observing that the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any. For the aforesaid cumulative reasons, we hereby delete the disallowance made by the by the Ld. Assessing officer of Rs. 1 9658 1820/- in respect of provision for advertisement expenses incurred at the head office made at the end of the relevant previous year which were reversed in the succeeding year and allow the ground No. 7 of appeal raised by the assesse." In the present Assessment Year also, the provision for advertisement expenses, has been made on the basis of actual Purchase orders and agreements and thus, has been made on reasonable and scientific basis. Detail of provisions for advertisement was submitted before the lower authorities. Further, The Assessing Officer, in the set-aside proceedings for A.Y. 2008-09, vide order dated 26.02.2015, accepted the claim of the assessee and allowed relief on the aforementioned identical issue by observing that the assessee had computed the provision on the basis of actual Purchase Orders, which was scientific and logical in nature. Thus the issue is squarely covered by the order of the Tribunal in A.Ys. 2010-11 & 2011-12. Therefore, Ground No. 21 to 21.2 are allowed in favour of the assessee." It is pertinent to note that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se such materials/components at prices predetermined by the assessee. During the relevant previous year, the assessee made total purchases of various raw materials, etc. aggregating to Rs. 9366.88 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 Institute of Chartered Accountants of India (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 Rs. 2711.12 crores. The Assessing Officer after comparing purchase price of certain products, which were purchased from the aforesaid related parties as also for related parties, held that the purchase price from "related parties was excessive in order to reduce the taxable income. The Assessing Officer also held that the assessee has conducted itself in such a manner that the parties do not qualify as 'related party' under section 40A(2) of the Act, even though said parties were related to assessee in terms of AS- 18. The Assessing Officer had the power to lift the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal for A.Ys. 2010-11 and 2011-12 held as under: "55. We have carefully considered the rival contention and perused the relevant records placed before us. It was submitted by the parties that there is no change in the facts and circumstances of the case in the present assessment year compared to the assessment year for which the coordinate bench is decided this issue in the favour of the appellant for assessment year 2007 - 08 and 2008 - 09 wherein this issue has been decided by the coordinate bench as under:- "13.14. The basic requirement for the applicability of section 40A(2) of the Act is that the payment should be made to a related person i.e. to a person referred to in clause (b), of sub-section (2) of section 40A of the Act. 13.15. In the present case, it is an undisputed fact that the payments are not made to a person mentioned in clause (b) of section 40A (2) of the Act. 13.16. Clause (a ) of sub-section (2) of section 40A of the Act provides that where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of the sub-section and the Assessing Officer is of the opinion that such expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer to prove that the assessee had in fact evaded or saved tax by such exercise. The argument of the Revenue fails. The allegation that the assessee has structured his associate concern so as to avoid sec. 40A (2) is also devoid of merit, as the revenue has failed to demonstrate as to how it has come to such a conclusion. The allegation means that profit is transferred to third parties, where the share holding of the assessee is not a major share holding. The allegation means that the assessee is distributing profits to companies with majority holding by unrelated parties for the purpose of reducing taxes. Such wild allegation cannot be endorsed by us. 13.19. The assessee does not dispute the fact that certain purchases are made at a rate higher than the rate paid to certain other parties for the same periods. The assessee at pages 1523 to 1523.18 of the paper book also furnished instances where purchases were made from these parties at price lower than the purchases made from unrelated parties. Further, the disallowance was made on adhoc basis without setting any benchmark for the disallowance. 13.20. Notwithstanding the above view, even assuming for a moment that the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessing officer has made this disallowance based on surmises and conjectures without properly examining the facts on record and without bringing any evidence that the purchases were made at an excessive price compared to fair market value to evade tax. 13.26. In view of the above discussions, and bearing in mind entirety of the case, we are of the considered view that the impugned disallowance was indeed uncalled for on the facts of this case. Hence, we uphold the grounds of the assessee." In view of the above about decision of the coordinate bench in appellant's own case and further failure on part of the revenue to controvert any of the findings in the earlier order of the tribunal or pointing out any contrary decisions on this issue, the respectfully following the order of the coordinate bench to not inclined to uphold the disallowance made by the Ld. assessing officer on account of the purchases of Rs. 72.40 crores made from the parties who are related parties in terms of accounting standard 18 issued by the Institute of chartered accountants of India but not in terms of provisions of section 40A (2) of the income tax act. In the result ground No. 11 of the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted (HFCL) is a related company which is engaged primarily in the business of financing of vehicles. In pursuance of the said business, HFCL extends to the dealers of the assessee company, facility of financing vehicles purchased by the dealers from the assessee company. The dealers on purchase of vehicles from the assessee, get the bill of purchase raised by the assessee, discounted from HFCL and remit payment to the appellant. The dealers are required to make payment of aforesaid discounted bills to HFCL on maturity thereof. Subsequently, when payments by dealers to HFCL are due, 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. The Assessing Officer held the aforesaid amount received by assessee from dealers as loan/advance given by HFCL to assessee and consequently deemed the same as dividend under section 2(22)(e) of the Act. The Assessing Officer further observed that the aforesaid advances were not given by HFCL to the assessee in the ordinary course of business since the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money by the dealers to HHFL for the purpose of convenience and from assessee's a standpoint this is business expediency. We are unable to appreciate the conclusions drawn by the assessing officer that this is a deemed loan. In our view, by no stretch of imagination it can be said that there was any amount of advance or loan given by HHFL to the assessee. 16.28.Even assuming that the transaction is in the nature of loan, we have to agree with the arguments of the Ld. AR of the assessee that the transaction cannot be deemed as dividend in terms of exemption provided in clause (ii) of section 2(22)(e) of the Act, since the loan would be considered as given by HHFL, which is engaged in the business of money lending, in the ordinary course of its business. Therefore, the amount cannot be deemed as dividend in the hands of the assessee. The arguments of the Ld. DR that since no interest was charged/ chargeable thereon from the assessee, the aforesaid loan cannot be said to be given in the ordinary course of business of HHFL is taken to its logical conclusion, supporting our view that this is not a loan or advance. 16.29. Considering the decision of the Hon'ble Delhi High Court and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, despite the elaborate submissions explaining the nature of services received from Hero Corporate Services Ltd. and nexus of same with the business of the assessee simply on surmises and conjectures observed that the assessee has not explained the business expediency of such expenditure incurred by the assessee. 41. The Ld. AR submitted that the aforesaid issue is squarely covered by the decision of the Delhi bench of the Tribunal in the assessee's own case for the assessment year 2007-08 and 2008-09, wherein the ad-hoc disallowance made out of total expenditure incurred in that year was deleted on the ground that services were rendered by HCSL to the assessee and the assessing officer could not sit in the arm chair of a businessmen to decide reasonableness of an expenditure. The aforesaid findings of the Tribunal had been followed and reiterated by the Tribunal in appellant's own case for the immediately preceding assessments years, viz. AY 2010-11 and 2011-12. The Ld. AR also mentioned 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon'ble Supreme Court in the case of CIT v. Dharamraj Giriji Riya Narsingiriji 91 ITR 544 held that "it is not open to the Department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows its interest best". 15.15. It is well settled that the assessing officer cannot place himself in the arm chair of businessman and decide the amount of expenditure that is to be incurred for the purpose of running of the business. The expenditure in question cannot be disallowed for the reason that the expenditure was incurred for business and was in the revenue field and was not a personal expenditure. In the result, this ground of the assessee is allowed." Having regards to the facts and circumstances of the case under consideration, and in absence of any contrary decision pointed out by the Ld. departmental representative and any changes in the facts and circumstances of the case in the present assessment year we respectfully following the aforesaid finding given by the coordinate bench in appeal order for AY 2007-08 in case of appellant. Direct the assessing officer to delete the disallowance mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same was not given at the time of taking delivery of goods by the dealers but was given subsequently. The Assessing Officer held that incentive paid by the assessee to dealers was not in the nature of "discount', but fell within the meaning of the term 'commission' as defined in section 19411 of the Act and thus disallowed the entire expenditure under section 40(a)(ia) of the Act. Further, the Assessing Officer disallowed trade discount given to dealers on sales invoice at the time of sale observing that the same was based on achievement of turnover targets which represented commission on which TDS under section 194H was liable to be deducted. 45. The Ld. AR submitted that the Tribunal in assessment year 2007-08 decided the issue in favour of the assessee relying on the decision of Delhi High Court in the case of CIT vs. Mother Dairy Ltd. (ITA No. 1925/2010) and Jai Drinks Pvt. Ltd. (336 ITR 383), holding that the discount in question is not in the nature of commission but an incentive for higher sale targets. The Ld. AR submitted that the aforesaid finding was followed by the Tribunal in the AY 2010-11 and 2011-12, wherein similar disallowance made by the assessing officer was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 under- "45.11. The facts of this case clearly demonstrate that what is given to the stockiest/ dealers is discount on the purchase price and not any commission. The stockiest/ dealers purchase spare parts/ vehicles from the assessee. They are not commission agents. Sale consideration is paid by these parties to the assessee. As a matter of incentive for higher sale the assessee grants discount if the stockiest/ dealers achieve a particular volume of transaction. Thus, in our view the discount in question is not in the nature of commission or the brokerage which attracts sec. 194H. In the case of CIT Vs. Mother Dairy Ltd. (ITA no. 1925/2010(Del) the Hon'ble Delhi High Court was considering similar case and held as follows: "3. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal 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 finding of the coordinate bench or change in the facts and circumstances of the case, therefore respectfully following the decision of the coordinate bench in the appellant's own case for assessment years 2007-08 and 2008-09 discussed supra, we delete the disallowance made by the Ld. assessing officer on account of expenditure of Rs. 3 6880 2598 towards the quarterly target on turnover discount on trade discount of Rs. 2 7744 7608 given to the dealers. In the result ground No. 15 of the appeal of the assessee is allowed." This issue is covered in favour of the Assessee by the Tribunal order for A.Ys. 2010-11 and 2011-12 as well as, the decision of the Hon'ble High Court in case of Mother Dairy Ltd. (supra). Therefore, Ground No. 26 to 26.3 are allowed in favour of the assessee." From the perusal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years 2010-11 and 2011-12. 50. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal. 51. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2012-13 held as under: "53. 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: "222) We have heard the rival contentions. We note that similar issue relating to disallowance relating to re-imbursement of professional expenses 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: "35.8. It is the case of the assessee that it had reimbursed the expenses incurred by various consultants and vendors on travelling and out of pocket expenses. It is also claimed that out of an amount of Rs. 10.68 lacs expenses to the extent of Rs. 6.01 lacs were made after verifying the supporting vouchers for claims raised by the vendors. Balance amount of Rs. 4.66 lacs were based on self certification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssemble, sell and distribute the products and parts during the terms of the agreement within the specified territory. In consideration thereof, the assessee paid royalty of Rs. 340,87,05,721 (including cess), Technical guidance fee of Rs. 65,70,503, model fee of Rs. 32,29,18,453 (including cess) to Honda. The assessee pays model fees in lump sum on launch of any new model. In addition, the assessee entered into a Memorandum for exchange of technicians dated 21.06.2004, wherein, Honda would impart technical guidance and training to the assessee's engineers and deploy technicians in India for rendering training services as required by the assessee. Detailed bifurcation of the payment made by the assessee to Honda is tabulated as under: Nature of payment Amount Model Fee 30,77,53,454 Cess on Model Fee 1,51,64,999/- Royalty 340,21,35,218 Technical guidance fee 65,70,503 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty since the agreement was renewed and was extended year after year and did not, therefore, remain a short term agreement. * The assessee had acquired asset in the nature of intellectual property rights and patents from Honda. The Assessing Officer, accordingly, disallowed the entire expenditure of Rs. 373,16,24,174 (including cess) incurred towards royalty/technical guidance fee/model fee. However, since the assessing officer had considered expenditure to the extent of Rs. 15,00,822 towards royalty and Rs. 30,77,53.454 incurred towards model fee, to be not at ATP while making transfer pricing adjustment, challenged in GOA 1 supra, the assessing officer made the disallowance of the balance amount of Rs. 340,72,04,899 (including TGF) incurred towards royalty and TGF and Rs. 151,64.999 incurred towards cess on model fee by treating the 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73 ITD 189 (Del)(TM) ITO vs. Shivani Locks : 118 TTJ 467 (Del) * Climate Systems India Ltd. vs. CIT: 319 ITR 113 (Del- HC)] * CIT vs. Sharda Motor Industries Ltd: 319 ITR 109 (Del- HC) * CIT vs. Essel Propack 325 ITR 185 (Bom) * CIT v. Modi Revlon (P) Ltd: (2012) 9 TMI 48 (Del.) Mafatlal Denim Ltd. V. DCIT: 2011 (12) TMI 351 (Mum.) * Climate Systems India Ltd. vs. CIT: 319 ITR 113 (Del- HC) * Goodyear India Ltd. vs. ITO : 73 ITD 189 (Del)(TM) CIT v. Avery India Ltd. 207 ITR 813 (Cal) * CIT v. Bhai Sunder Dass & Sons P. Ltd.: 158 ITR 195 (Del) * CIT v. DCM Ltd.: ITA No. 87-89/1992 (Del.)(HC) * CIT v. Denso India P. Ltd.: 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 fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2009 in ITA No. 2067/Del/2006 allowed the payment of model fee following the same order for assessment year 1996-97. The same treatment has been given by ITAT in respect of AY 2006-07, AY 2007-08, AY 2008-09, AY 2010-11 and AY 2011-12. The High Court has affirmed the order passed by the Tribunal in assessment year 2000-01 to 2002-03 in 372 ITR 481. The Ld. AR submitted, that when model fees, payment for which is made through the same agreement is accepted as revenue expenditure, the nature of royalty cannot be given any different treatment and, therefore, no portion thereof needs to be disallowed as being 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 speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 as held in the decision given by the Tribunal for A.Ys. 2010-11 and 2011-12. The issue is squarely covered by the said decision. Therefore, Ground No. 32 to 32.6 are allowed." 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 of the Board, gains/profits on sale of such investments shall be treated as capital gains and not income from business/profession. 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. 59. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal. 60. We have heard both the parties and perused the 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 lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed income from both long term and short term capital gains which means the assessee has also held shares for a period of more than 12 months. Whether the investments are made out of borrowed funds 65.34. The investments were made from surplus funds of the assessee and there were no borrowings. The investments were made to optimally utilize the spare funds instead of keeping the same idle in the bank accounts. The investments were made in mutual funds (debt and liquid funds) and through portfolio management schemes/ IPOs. 65.35. The co-ordinate bench of the Delhi ITAT in the case of Narendra Gehlaut vs. JCIT [ITA No 1648/ Del/ 2010] held that despite borrowing, gains on shares assessable as Short term capital gains and not business profits. The decision is 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 Rs. 13,690.84 crores realized from the investments, an amount of Rs. 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 withdraw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head business income. This ground of the assessee is allowed." 100) In addition to the aforesaid observations, the appellant in this year also has benefit of the recent Circular No.6 of 2016 dated 29.2.2016 issued by the CBDT, wherein with an idea to reduce litigation on this issue of classification of the head of income arising from sale of shares / mutual funds, etc., the CBDT has opined that gains arising from sale of such shares/securities held for a period of more than 12 months and shown as capital gains by the assessee should not be disputed by the assessing officer. Having regard to the aforesaid intent of the Circular where a consistent method has been followed by an assessee to treat the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat as per section 14A(2), disallowance under that section as per Rule 8D can be made only if the assessing officer records satisfaction/finding as to the incorrectness in the method of disallowance followed by the appellant. In the absence of any 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 Rs. 2.10 crores was incurred on other temporary loans/dealers deposit, having nexus with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Guj HC) * 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 tax be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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. 2324/Ahd/2009 * Jindal Steel and Alloy Ltd. Vs. ACIT : ITA Nos. 961 & 962/Mum/2009 In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Rs. 3760.81 crores at the beginning of the relevant year and has generated surplus interest free funds of Rs. 268.64 crores during the year. The assessing officer, too, in the set-aside proceedings for the AY 2007-08 had accepted the aforesaid cash flow position and deleted the disallowance of interest expenditure. In view of this we reverse the finding of the Ld. assessing officer about disallowance of Rs. 145.62 lakhs under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 62.30 lakhs (disallowing interest expense of Rs. 38.91 and administrative expense of Rs. 94.16 lacs) invoking provisions of Rule 8D of the Income Tax Rules, 1962 after reducing the suo moto disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 TPO, but could not distinguish the decision of the Tribunal. 71. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2012-13 held as under: "80. We have heard both the parties and perused the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 allowed." The facts of the present Assessment Year and the earlier Assessment Year are not different. In the present year also , the expenditure was incurred on new model fees prior to commencement of production of new models of two wheelers, thus, this action is revenue neutral in a broader p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal. 75. We have heard both the parties and perused the material available on record. The Tribunal for A.Y. 2012-13 held as under: "84. We have heard both the parties and perused the material available on record. The Tribunal held in A.Ys. 2010-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smiss 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 Assessment Years. Therefore, Ground No. 28 is allowed in favour of the assessee. During the course of discharge of official duties, the employees of the company are required to travel abroad and incur incidental expenses in foreign currency like local conveyance, boarding and lodging expenses, telephone expenses etc. for which the assessee introduced a policy fixing per diem allowance payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh 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 founder and exmanaging director of the appellant, on the ground that he was family member of the promoters family, losing sight of the fact he was also exemployee of the company who served in the capacity of managing director during his lifetime. He was, thus, simply not a distant family member of the promoters, but had strong nexus with the business of the appellant company. The expression "for the purpose of business" used in section 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Director, Shri Sunil Kant Munjal u/s 36(1)(ii) of the Act. Sh. Pawan Munjal has been appointed as Managing Director & CEO of the assesssee company in the Annual General Meeting of the shareholders and continued to render services in that capacity. The consideration in lieu of services to be rendered by Executive Directors was payable, inter alia, as basic salary per month along with commission payable with reference to profits subject to the condition that the amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 earlier years, which was approved by the Board of Directors (comprising of independent directors as well) and ratified by the shareholders. The aforesaid total remuneration package, including commission, is in lieu of services rendered by him in the capacity of Managing Director. There is no quarrel or doubt that Mr. Munjal had not been rendering services to the appellant company in the capacity as Managing Director. More so, since the other part of his remuneration package, i.e., basic salary and other benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Rs. 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 employee and the amount of commission has no link with the dividend that the recipient would be entitled to as a shareholder, such payment is outside the purview of section 36(1)(ii) of the Act. The relevant observations of the High Court are as under: "19. The revenue's contention that the Tribunal erred in allowing the bonus payment to the directors cannot be accepted. It has not disputed the facts viz., (a) that the payment was supported by board resolutions and (b) that none of the directors would have received a lesser a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Rs. 29.54 crores paid the managing director as commission disallowed by the Ld. assessing officer is deleted and accordingly the above ground of appeal of the assessee is allowed." 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. In the said order, the Tribunal held that the commission paid to directors with reference to percentage of profits of the company for the services rendered as per the terms of appointment, constitutes part of the remuneration package, and in the absence of any disallowance on other compo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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 payment of lease premium to be in the nature of 'capital expenditure' following the decision of Delhi High Court in the case of GAIL India (supra). However, the Tribunal considered and allowed the alternate claim of the assessee regarding allowance of depreciation on such payment. In coming to the aforesaid conclusion, the Tribunal held that premium paid for acquiring of leasehold rights of land to be used for the purpose of business is an asset which is different from land and would be considered as an intangible asset in the nature of 'business or commercial right' which is eligible for depreciation under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions 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 order, further elaborated 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. The Ld. AR also pointed out that no appeal has been filed by the Department in assessment year 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. The Ld. AR relied upon the following decisions: * Mysore Kirloskar Ltd. vs. CIT: 166 ITR 836 (Kar.) * Mahindr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /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 that the expenditure was not incurred wholly and exclusively for the purpose of business of the assessee. The Hon'ble High Court did not approve the approach of the ITAT and allowed the claim of the assessee by observing as under: "Held, (i) that the words " for the purpose of business " used in section 37(1) should not be limited to the meaning of " earning profit alone ". Business expediency or commercial expediency may require providing facilities like schools, hospitals, etc., for the employees or their children or for the children of the ex-employees. Any expenditure laid out or expended for their benefit, if it satisfies the other requirements, must be allowed as deduction under section 37(1) of the Act. The fact that somebody other than the assessee was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contribution made by the assessee to the Panchayat has resulted in the benefit of the assessee's business in the sense that the assessee's employees are the beneficiaries in getting preferential admission in the school. The fact that the benefit has percolated to the general public would not stand in the way of assessee getting the necessary deduction once the expenditure is held to be business expenditure. Hence, the Tribunal has come to the correct conclusion that the expenditure incurred by the assessee was a revenue expenditure. It should also be noted that the contribution made to the Panchayat was not in contravention of any law, nor was it opposed to public policy. In this view of the matter, the contribution made by the assessee to the Panchayat for the upgradation of the elementary school should be regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with the business of the assessee because the beneficiaries of the expenditure were not employees of the assessee nor had the assessee any statutory obligation to incur such expenditure. On second appeal, by making reference to various authorities including the decision of the Hon'ble Karnataka High Court in the case of Mysore Kirloskar Ltd. Vs. CIT (supra), the ITAT upheld the claim of the assessee. The relevant observations of the Tribunal are as under: "It has been held by the Karnataka High Court in the case of Mysore Kirloskar Ltd. Vs. CIT (1987] 166 ITR 836/30 Taxman 467 that while the basic requirements for invoking sections 37(1) and 80G are quite different, but nonetheless the two sections are not mutually exclusive. Thus, there are overlapping areas between theT donations givenT byT the assessee and the business. In other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 order, further elaborated 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. It is pertinent to point out that no appeal has been filed by the Department in assessment year 2011-12. Thus, the decision of the Tribunal attains finality. Therefore, Ground No. 37 to 37.1 are allowed in favour of the assessee." The role of the assessee was not restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The Ld. AR pointed out that no appeal has been filed by the 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. 94. The Ld. DR relied upon the Assessment Order and order of the TPO, but could not distinguish the decision of the Tribunal. 95. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2012-13 held as under: "100. 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: "150) We have heard the rival contentions. On query from the bench, the appellant had furnished the process chart for manufacturing of final products followed in all the three u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 & 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. 38 to 38.1 are allowed in favour of the assessee." 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 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. 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 Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that part of the manufacturing activities were outsourced. 97. The Ld. AR submitted that the aforesaid issue stands squarely covered in favour of the assessee in light of the fact that disallowance made by the assessing officer on identical ground 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 the Tribunal noted that difference in consumption of electricity was on account of the fact that the plant at Haridwar was more energy-efficient and hence certain processes were carried out in said plant. The Tribunal further 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. The Ld. AR pointed out 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 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id issue stands squarely covered in favour of the assessee in light of the fact that disallowance made by the assessing officer on identical ground 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 the Tribunal noted that difference in consumption of electricity was on account of the fact that the plant at Haridwar was more energy-efficient and hence certain processes were carried out in said plant. The Tribunal further 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 field by the Department before the High Court. These facts are identical with the present Assessment Year. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transferred to the eligible unit at material cost. Freight charges on transfer of the aforesaid items were always booked at the receiving unit. In the assessment order, the assessing officer applied the provisions of section 80IA(8) read with section 80IC(7) of the Act and disallowed deduction under section 80-1C by an amount of 1,21.00,000, holding that for the purpose of computing deduction under the latter section, inter-unit transfer of goods should have been recorded at market price, instead of cost price as carried out by the assessee. Accordingly, the assessing officer attributed markup of Rs. 0.36%, being the net profit rate of Gurgaon Unit, on the cost of goods aggregating to Rs. 5.66 crores, procured by the eligible unit at Haridwar from Gurgaon unit, which was purchased and transferred without processing, thus reducing the quantum of deduction by Rs. 0.59 crores. With respect to the other purchase of Rs. 4.78 crores, being semi-finished goods for which nominal processing was carried out at other units before transfer to the Haridwar plant, the assessing officer, for reasons similar discussed in ground of appeal No. 28-33 (supra), viz., outsourcing of manufacturing acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished components procured by the non-eligible unit from third party vendors, due to proximity of location/relationship, for further transfer to the eligible unit. The freight charges incurred in relation to the procurement and further transfer from non-eligible to eligible unit have been stated to be borne by the eligible unit. We find force in the aforesaid facts stated by the appellant, considering that the unit at Haridwar was a new unit, whereas the other non-eligible units at Gurgaon and Dharuhera were old, established way back in years 1984 and 1997, having up and running operations during the year under consideration. Various ancillary units manufacturing components for such plants were also established near the old plants, which were continuously supplying such components to the non-eligible units. There was thus strong business/commercial reasons for such ancillary units to supply the components to the non-eligible unit first, by virtue of the existing relationship / process for supply of goods in place, which were further transferred at cost to the eligible unit at Haridwar. We do not find any in-genuineness in the aforesaid practice, which is backed by strong commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of section 80IA(8) of the Act and the transaction was a genuine business transaction borne out of commercial expediency. Therefore, Ground No. 40 to 40.2 are allowed in favour of the assessee." The Tribunal, while 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. 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. 34 to 34.2 are allowed. 104. As regards Ground No. 35 to 35.1 are relating to Disallowance of deduction u/s 80IC of the Act on account of inflation of profit by charging higher basic price. The assessee is engaged in the business of manufacturing two-wheel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 801C of Rs. 190,38,38,681/- is disallowed on the aforesaid account in the assessment order. 105. In this regard, the Ld. AR it is pointed out that the aforesaid issue stands squarely covered in favour of the assessee, in as much as 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. In the said order, the Tribunal, while allowing the claim of assessee under section 80-IC of the Act, held that there was basic fallacy in the case made by the AO since the higher basic price was on account of excise duty exemption given to the eligible unit. The Tribunal further observed that the final price charged to the end customer was the same irrespective of the unit of manufacture. The Tribunal also rejected the reliance placed by the AO on the provisions of section 80IA (10) by holding that the said provision was applicable to transactions entered with related parties whereas the alleged higher price charged by the assessee was from customers/ dealers. As regards the allegation of the AO qua role of Head Office, it was observed that the HO w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is basic price at noneligible unit due to non-availment of CENVAT credit of excise duty paid on purchases at the said unit, we hold that even assuming higher profits were earned by the eligible unit, the same cannot be disallowed by applying provisions of section 80IA(10) read with section 80IC(7) of the Act which reads as under: "(10) Where it appears to the Assessing Officer that, owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom" 145) The aforesaid section is applicable where the eligible unit has entered into transaction with related parties. In the given situation, as taken-up by the assessing officer, the alleged higher sale pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arm of the assessee and the cost incurred is allocated to these respective units on the basis of appropriate allocation key of sales. Ld. AR of the appellant relying on the decision of coordinate bench of Cadila Healthcare Ltd vs. ACIT 21 Taxmann.com 483 has submitted that there cannot be any specific demarcation between manufacturing and selling activities of the assessee and profit accrues only at the time of sales of the goods only. Therefore, the contention of the revenue that selling and distribution function of the assessee is a separate profit center is required to be rejected at threshold. We have carefully considered the argument of ld. AR and of the revenue on this point as well as the ld. AO and Ld. DRP. We are of the view that this argument is almost similar to the argument raised by the revenue in the case of Cadila Healthcare Ltd vs. ACIT 21 Taxmann.com 483. We have carefully perused this decision and note that the controversy in this ground of appeal with respect to applicability of section 80 IA (8) of the act, on marketing and other selling distribution as well as research and development services provided by the undertaking as a whole to the eligible industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing units of the appellant-company, including the unit eligible for deduction under section 80IC, on a rational and scientific basis. In that view of the matter, the expenses on brand /advertisement, etc. incurred at Head Office were duly allocated to manufacturing units and have been deducted, while computing profits of the unit eligible for claim of deduction under section 80IC of the Act. The price realized on sale of the products, i.e., two wheelers, is credited to the profit and loss account and direct and indirect expenses, including advertisement expenses, incurred in relation to sale of the products are reduced therefrom, for purpose of computing profits of the eligible unit and corresponding claim of deduction under section 80IC of the Act. The Assessing Officer held that profits are derived by the assessee company on account of three assets, viz., (1) manufacturing assets, (2) brand assets and (3) marketing assets whereas deduction under section 80IC is available only on profits derived from business of manufacturing of specified articles or things. The Assessing Officer further observed that the manufacturing and marketing activities were carried out at Head Office and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: "154) We have heard the rival contentions. We have already discussed the aforesaid issue at length while disposing the ground of appeal No. 31 to 31.2 supra, wherein we have dealt with that head office is a separate cost centre and expenses incurred thereat needs to be allocated to various profit centers/manufacturing units on a rational and scientific basis, without any element of profit/markup. The issue raised by the assessing officer in the present ground of appeal is categorically similar to that raised in the aforesaid ground. Accordingly following our findings stated above, we reverse the action of the assessing officer and delete the disallowance made under section 80IC. Accordingly, the ground No. 33 of appeal is allowed." 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 AO has been deleted. The Tribunal, in coming to the aforesaid discussion, reiterated that the head office is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly, the Assessing Officer disallowed deduction under section 80IC by an amount of Rs. 40,47,87,664. However, since the Assessing Officer had disallowed the entire amount of deduction under section 80IC on various grounds which have been challenged in Grounds of appeal No. 28 to 36 and no further disallowance for the aforesaid amount, was made in the assessment order. 113. The Ld. AR pointed out that 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. Deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. The first-degree nexus of such income, in our view, is the eligible business carried on by the appellant. Therefore, such income would be eligible for deduction u/s 80IC of the Act. The action of the assessing officer on this account is thus reversed. 2. Interest on loans provided for making capital support to vendors The present issue is similar to the immediately preceding issue. In our view, loan has been given to vendors to provide uninterrupted supply of goods to the appellant. The first-degree nexus of giving loan is, thus, business of manufacturing. Accordingly following our findings in the preceding issue, the action of the assessing officer on this account is reversed. 3. Freight recovery from customers The assessing officer has completely gone wrong in considering freight charges recovered from customers as an independent source of income. The freight charges 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 afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible business, such benefit has direct nexus with the said business, which is eligible for deduction under section 80IC of the Act. We draw support for the aforesaid conclusion from the decision of the Bombay High Court in the case of CIT v. Rachna Udyog : 233 CTR 72. Accordingly the action of the assessing officer on this ground is reversed and we hold that assessee is eligible for deduction under section 80 IC of the income tax act on interest on loans given at subsidized rates to the employees of Rs. 1 62975/-, interest on loans provided for working capital support to vendors Rs. 6626854/-, freight recovery from customer Rs. 935418395/-, sundry sales of Rs. 9 2410 3150/-, cash discount received from the vendor is Rs. 5 673 2831/- and exchange fluctuation of Rs. 2 416 7060/-. In the result ground No. 34 of the appeal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the appropriate authority, in accordance with local State Government Factory Rules, i.e., Uttar Pradesh Factory Rules, 1950. which were applicable in the present case. No separate license was required to carry on the business of manufacture of two wheelers as also to claim deduction for such activity under section 80IC of the Act. The only permission required was the aforesaid license to work as factory, which was submitted along with audit report in Form 10CCB read with Rule 18BBB(4) of the Rules. In view of the aforesaid, the assessee claimed deduction of Rs. 1129.63 crore under section 80IC of the Act during the relevant assessment year. In the assessment order, the Assessing Officer disallowed the entire amount of deduction claimed u/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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Secretary, Industrial Development to Director, Industries, Uttranchal] c) The appellant failed to meet the condition of continuous employment of specified number of employees on any given day, as contained in the factory license. As regards the first condition prescribed in Rule 18BBB regarding approval to carry on the eligible business, it was explained by the appellant that for the purposes of carrying on business of manufacturing two-wheelers other than obtaining factory license as per the Factory Act, 1948, no other approval / permission was required from any Central / State government under any law. No such requirement has even been prescribed by the assessing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction u/s 80IC to the appellant of Rs. 9972535090/-. In view of this ground No. 29 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. 44 to 44.4 are allowed in favour of the assessee." The assessee company has given all the necessary details to the Assessing Officer and fulfilled all statutory conditions for the claim 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial / components, to be sourced by such vendors. Since the price paid by the assessee to the vendors of intermediary products / components is, in turn dependent on prices of inputs paid by the vendors to suppliers of raw material / components, it is in the best interest of the assessee to ensure that the prices of raw material / components sourced by the vendors from independent manufacturers are kept to the minimum. It is in this background that the assessee seeks to leverage its strength, given the magnitude of its business and requirement of intermediary products to extract the best prices from the manufacturers of raw material or components. The benefit of lower prices enjoyed by the vendors is, in turn, passed on to the 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the aforesaid section, the entire purchases aggregating to Rs. 3,517.67 crores made from the aforesaid vendors was disallowable under section 40(a)(ia) of the Act. 121. The Ld. AR submitted that the aforesaid issue is squarely covered by the decision of Delhi bench of Tribunal in the assessee's own case for the assessment year 2007-08 and 2008-09, wherein after exhaustive consideration of the facts, it was held that the impugned transactions are in the nature of contract of sale and not contract for carrying out work to be covered within the scope of section 194C of the Act. The Tribunal also found force in the arguments 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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal expenditure. 122. The Ld. DR relied upon the Assessment Order and order of the TPO. 123. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2012-13 held as under: "45. 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: "65) We note that the Ld. assessing officer had adopted the findings and reasons given in the assessment order for AY 2007-08, while repeating the disallowance in the assessment year under consideration. The Tribunal 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substance and not the form of the contract is material in determining the nature of transactions. 14.87. Applying the principals laid by the Courts to the facts of the present case, we now proceed to examine whether the contract in the case on hand is "contract for sale" or "contract for work". (1) All the nine parties are independent legal establishments engaged in the manufacturing of finished products and are not captive units of the assessee. (2) The vendors have their own manufacturing 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 manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... void of merit and not supported by evidence. It is not the case of revenue that there are any financial transactions between the assessee and the raw material suppliers of the vendors. The test is to see the fact whether the assessee acquired any title to the raw material purchased by the vendors from the suppliers. The answer to this is no. We are unable to understand as to how the assessing officer as well as the DRP has considered 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however acquired by the vendor on their own account and not on behalf of the assessee. 14.98. The right of ownership passes to the assessee only after the goods come into existence, on manufacture and are supplied to the assessee as finished goods. Prior thereto, the risk in the goods vests with the vendor/supplier. All the other terms of purchase/sale between the vendor and supplier, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial year, which is voluminous, the regional/zonal office provides information about the number of vehicles sold to institutional customers. The amount of compensation of dealers is computed by applying specific percentage to the value of vehicles sold and provision is made thereof in the books. Accordingly, at the end of year, the assessee made provision of Rs. 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) amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleted by the Tribunal vide order dated 24.10.2016, following the aforesaid orders for earlier years, viz. AY 2007-08 and 2008-09. 126. The Ld. DR relied upon the Assessment Order and order of the TPO. 127. We have heard both the parties and perused the material available on record. The Tribunal in A.Y. 2012-13 held 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separate legal relationships. The income tax authorities were not justified or correct in law in mixing up the two distinct relationships or telescoping one into the other to hold that because the concessionaires were selling the milk and the other products from the booths owned by the Diary and were using the equipment and furniture in the course of sale of the milk and other products, they were carrying on the business only as agents of the Diary." 45.12. The Hon'ble High Court held that in such circumstances S.194H is not attracted. 45.13. In the case of Jai Drinks (P) Ltd. 336 ITR 383 (Del.), the Hon'ble Delhi High Court has 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. Respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he form of free service coupons only and the company honours such free service coupons when the same are presented by the dealers to the company, in terms of the reciprocal obligation of the company towards the dealers, 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 Rs. 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 includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2007-08, the Tribunal decided the issue in favor of the assessee in the assessment years 2008-09, 2010-11 and 2011-12. 130. The Ld. DR relied upon the Assessment Order and order of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinguishing factors pointed out by the Ld. DR. Thus, repair services do not fall within the meaning of professional services defined 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 Rs. 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 offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factory premises. The plea of the appellant has been that for the purpose of additional depreciation, distinction has to be drawn between the computers installed in the supervisory offices of the manufacturing plant with the computers installed at the head office / corporate office, which is involved in the overall supervision of the business function. It has been argued that in the former case, although the computers are not directly involved in the manufacturing operations, but are indirectly facilitating the manufacturing activity as opposed to the computers installed at head office / corporate office. It was the submission that the exclusion of "machinery or plant installed in any office premises" under clause (b) of the proviso to section 32(1)(iia) of the Act is applicable to office premises like head office / corporate offices where there is no direct or indirect nexus with the manufacturing operations. The plant and machinery installed in the offices supervising the manufacturing operations should be viewed distinctly and are outside the ambit of exclusion provided in the aforesaid section. We have, however, found that the aforesaid plea was not accepted by the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lways kept in the office and in this case, when the computer and the data processing machines are used in the office, then, the additional depreciation would not be allowable. 11. It is to be noted that the words "office premises" have not been defined in the Income-tax Act. The word "office" would partake its character with the activities carried on in the said premises. In a given case, a doctor's clinic would be his office, but, would also be his clinic and if he installs a computer or some machine for the purposes of pathology, then, his office would be taken to be industrial premises for the purposes of depreciation and investment allowance. In a given case, a computer kept in the office of a manager for his personal use or for some other purpose, then, such computer would not be entitled to investment allowance and/or additional depreciation. In the present case, the words "office premises" though would be covering office but, industrial premises would not come within the office premises if the said premises are used for data processing. In the present case, undisputedly, the office premises are used as industrial premises for production of the data processors. The sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrived at base price of Rs. 8.95 per unit and computed deduction under section 80IA of the Act at Rs. 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., Rs. 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 Rs. 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 consumers for supply of electricit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 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, (ii) the cost of production of the power by the legible unit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed 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 CIT(A), on an analysis of the method of making provision for warranty held that actual expenses were debited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided 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 commission of Rs. 11,67.48,507 crores @ 5% of the FOB value of export sales in accordance with the agreement dated 15.01.2005 (effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee. In the present Assessment year also the facts remains the identical. Therefore, Ground Nos. 45 to 45.8 are allowed. 148. As regards Ground No. 46 is related to ad-hoc disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 (less than 0.03%). The Ld. AR submitted that it defies logic for the assessee to engage in such a miniscule transaction of shifting of loss of Rs. 10.17.628 when it had offered a capital gain of Rs. 145.43 crores to tax in the return of income of the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8/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 Rs. 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 assessee are duly supported by relevant documentary evidences and payments are settled there against through banking channel. It is categorically confirmed by the assessee that the assessee did not issue instructions to any broker for shifting of losses or profits through the stated mechanism of client code modifica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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