TMI Blog2020 (9) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... n the hands of the assessee. - Decided in favour of assessee. Disallowance of corporate social responsibility ( CSR ) in books of accounts - expenses not incurred for the purpose of business - assessee claimed that the expenditure has been incurred towards maintenance charges of GSS, Gurgaon for the benefit of the children of the employees of the assessee company - HELD THAT:- The assessee has placed on record the list of the expenditure before us. The perusal of the same reflects the expenditure on certain renovation work at Mohindergarh including providing chairs and tables by the assessee. Expenses are debited on account of Tools for Honda Training Center Lab- Mohindergarh. All the said expenses are incurred for efficiently carrying out the business of the assessee and thus fulfill the condition of wholly and exclusively for the purpose of business - donation to Brahma Kumaris merits to be disallowed in the hands of the assessee, as it is case of charity. The same may be looked into as per the provision of section 80G of the Act. Further, expenditure incurred towards display of name/logo of the assessee on various items is undoubtedly for the promotion of the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed as business expenditure in the hands of the assessee u/s 31(1) of the Act. Expenditure in respect of repair and maintenance of existing structure and is to be allowed as an expenditure in the hands of the assessee - expenditure incurred on acquisition of chairs, which are detailed in Paperbook is capital in nature and amount needs to be capitalized in the hands of the assessee. The said expenditure is booked under the head furnishing furniture. Accordingly, we uphold the order of the Assessing Officer in this regard but direct the Assessing Officer to allow the expenditure incurred on repairs of plant machinery in entirety. Ground of assessee is partly allowed. Expenditure incurred on signages installed at the premises of dealers/sub dealers - HELD THAT:- The expenditure was incurred on signage for display of the name of the assessee at the dealer s premises. However, once the same is fixed at dealers site then the Courts have held that it does not satisfy the test of ownership with the assessee and the expenditure is to be allowed as revenue expenditure. We find support from the ratio laid down by the Hon ble Delhi High Court in CIT vs Honda Siel Power Products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it in the stand of the Ld.DR for the Revenue as there is no estoppel in law; especially where the issue has been decided by the Jurisdictional High Court on similar facts. Accordingly, we allow the additional ground of appeal raised by the assessee. - ITA No.7714/Del/2017 - - - Dated:- 31-8-2020 - Ms. Sushma Chowla, VP And Shri N.K. Billaiya, AM For the Appellant : Sh.Ajay Vohra, Sr.Adv., Sh. Gaurav Jain, Adv. And Sh. Karan Jain, CA For the Respondent : Sh.A.K.Saroha, CIT DR, Mrs. Sunita Singh, Sr.DR ORDER PER SUSHMA CHOWLA,VP The present appeal filed by assessee is against order of DCIT, Circle-2(1), Gurgaon dated 28.11.2017 relating to against the order passed under section 143(3)/144C of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised following grounds of appeal:- 1. That the assessing officer (AO) erred on facts and in law in completing the assessment under section 143(3)/144C of the Income Tax Act, 1961 ('the Act') at an income of ₹ 594,22,74,340 as against the income of ₹ 517,18,00,950 returned by the appellant. 2. That the Dispute Resolution Panel (DRP)/ AO erred on facts and in law in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the said expenses were capital in nature. 5.1. That the AO/ DRP erred on facts and in law in not appreciating that the above gross expenses aggregating to ₹ 1,92,48,229 were incurred on routine repairs and maintenance, which did not result in creation of capital asset and were, therefore, allowable as revenue expenditure. 6. That the AO/ DRP erred on facts and in law in disallowing expenditure incurred by the appellant on account of signages installed at the premises of dealers/ sub dealers amounting to ₹ 89,03,053 holding that the said expenditure resulted in enduring benefit and were capital in nature. 6.1. That the AO/ DRP erred on facts and in law in not appreciating that the above expenses aggregating to ₹ 89,03,053 were recurring expenses incurred for the purpose of business and did not result in creation of capital asset in the hands of appellant or imparting any enduring benefit of capital nature, and were, therefore, allowable as revenue expenditure. 6.2. Without prejudice, the AO/ DRP erred on facts and in law in not allowing depreciation on the aforesaid amount under section 32 of the Act 7. That the AO/ DRP erred on fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny to reduce Indian tax liability, without giving any cogent reasons. 8.7. That the AO/DRP erred on facts and in law in holding that the impugned expenditure shall not be allowed on deduction even on principles of consistency. 9. That on the facts and circumstances of the case, the technical knowhow expenses amounting to ₹ 110,45,71,000 incurred by the appellant during the relevant previous year in lieu of granting technical guidance/ knowhow under 'Technical Knowhow Agreement' was revenue in nature, and therefore, ought to be allowed as deduction while computing the taxable income of the appellant. 10 That the AO/ DRP erred on facts and in law in levying interest under section 234D of the Act. 3. Briefly in the facts of the case the assessee for the year under consideration had furnished return of income declaring income of ₹ 5,17,18,00,950/-. The assessee was a subsidiary of Honda Motor Co. Ltd., Japan (Honda) Group and is engaged in the business of manufacture and sale of Motorcycle and Scooters. As per assessee, Honda is one of the world leaders in manufacture and distribution of automobiles, motorcycle and power products and has substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer to examine the documents and pass the order on the issue. In the final assessment, the Assessing Officer held as under:- 5.5. As per the directions of the Hon ble DRP, the assessee has been provided an opportunity vide notice dated 30.10.2017 to file the submission to produce documentary evidence in support of its contention. The assessee has submitted that difference of ₹ 53,05,919/- was on account of foreign exchange gain on capital work in progress which is being capital receipt in nature not chargeable to tax. Thus, the receipt was not off from foreign exchange capital loss of ₹ 2,16,47,192/- and accordingly, balance ₹ 1,63,41,273/- was added back to the income of the assessee. However, no documentary evidence in support of the aforementioned claim that the said amount pertains to capital work in progress has been provided by the assessee. In view of above facts, amount of ₹ 53,05,919/- is disallowed and added to the returned income of the assessee. 5. The assessee is in appeal against the order of the Assessing Officer. 6. The Ld.AR for the assessee pointed out that Ground of appeal No.1 raised by the assessee is general i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss on acquisition of fixed assets totaling to ₹ 1.63 crores (approx.) is not allowable as an expenditure in view of the section 43A of the Act. Further, foreign exchange gain of ₹ 53,05,919/- is to be adjusted against the aforesaid loan and net amount of ₹ 1.63 crores (approx.) having been offered to tax, warrants no further disallowance in the hands of the assessee. Accordingly, we hold so and the issue raised in Ground of appeal Nos. 2 to 2.2 is thus allowed. 9. The issue raised vide Ground of appeal No.3 to 3.3 raised by the assessee is against the disallowing expenditure of ₹ 10,45,249/- which was debited under the head corporate social responsibility (in short CSR ) in books of accounts, on the ground that the same were not incurred for the purpose of business. 10. Briefly the facts of the case relating to the issue are that the assessee had incurred expenditure totaling ₹ 10,45,249/- towards grant to schools for employees welfare, refreshment expenses for labour welfare, sports, laying of pipe lines in Government Senior Secondary (in short GSS ) school, cotton bags with company logo of distribution in schools and community, flex banner pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusal of the same reflects the expenditure on certain renovation work at Mohindergarh including providing chairs and tables by the assessee. Further expenses are debited on account of Tools for Honda Training Center Lab- Mohindergarh. All the said expenses are incurred for efficiently carrying out the business of the assessee and thus fulfill the condition of wholly and exclusively for the purpose of business. Further, the donation to Brahma Kumaris merits to be disallowed in the hands of the assessee, as it is case of charity. The same may be looked into as per the provision of section 80G of the Act. Further, expenditure incurred towards display of name/logo of the assessee on various items is undoubtedly for the promotion of the business of the assessee as it promotes goodwill. Hence, the expenditure is to be allowed as revenue expenditure. 14. Before parting, we may also refer to the alternate observations of the Assessing Officer that the Explanation (2) to section 37(1) which has been introduced w.e.f. 01.04.2015 is to be applied retrospectively. We find that the Raipur Bench of Tribunal in Jindal Power Ltd. (supra) and Delhi Tribunal in National Small Industries Corpn. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Hon ble High Court held that the mandate of the Legislature is that on the acceptance of the compensation, there is condonation of the disobedience of a procedural requirement. This compensation was not a penalty payment, to save the assessee from criminal liability or criminal prosecution or to compound any offence committed by the assessee. Thus, the Tribunal was justified and the impugned sum was admissible as business expenditure under section 37(1) of the Act. 18. Following the said dictate of the Hon ble High Court, we hold that the composition fee of ₹ 22,36,130/- paid by the assessee merits to be allowed as business expenditure. Thus, Ground of appeal No.4 raised by the assessee is allowed. 19. Now coming to the Ground of appeal No.5 raised by the assessee of disallowance of ₹ 1,73,72,080/- i.e. expenditure incurred on repair and maintenance/replacement of existing assets. The Assessing Officer was of the view that the aforesaid expenditure incurred by the assessee booked under the head repair and maintenance is capital in nature and hence, disallowed the same after allowing the depreciation on the total expenditure. The assessee is in appeal aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer in this regard but direct the Assessing Officer to allow the expenditure incurred on repairs of plant machinery in entirety. Thus, Ground of appeal No.5 raised by the assessee is partly allowed. 23. Now coming to the Ground of appeal No.6 raised by the assessee i.e the expenditure incurred on signages installed at the premises of dealers/sub dealers amounting to ₹ 89,03,053/-. 24. Briefly in the facts relating to the issue, the assessee had debited expenditure of glow sign board/signages which were displayed at the location of the dealers of the assessee and the Assessing Officer was of the view that the expenditure was of enduring benefit and hence capital in nature. The Ld.AR for the assessee before us pointed out that the expenditure was revenue expenditure which merits to be allowed, as though the Signages were at dealer s places but the expenditure was for the benefit of the business of assessee company. In this regard, reliance was placed on the decision of Hon ble Delhi High Court in CIT vs Orient Ceramics Inds Ltd. 11 taxmann.com 418 (Del.HC) and the decision of Punjab Haryana High Court in CIT vs Liberty Group Marketing Division [2008] 173 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover of the assessee had increased from ₹ 64 crores in the preceding year to ₹ 8,539 crores during the year. 30. We have heard the rival contentions and perused the record. The expenditure incurred by the assessee on sales tools/fixtures which are placed at dealer s outlets are specifically manufactured by third party manufacturers in accordance with the specifications provided by the assessee. As per the terms of the agreement between the assessee and the third party manufacturers, 50% of the price of the sales tools is directly paid by the assessee as advance to the third party manufacturer at the time of placement of order and balance 50% is paid by the authorized dealers, post inspection and approval of the ordered items by the Inspecting Officer of the assessee before delivery at dealer s outlet. Such sales tools/ fixtures inter-alia includes the following:- Reception Counter; Customer Lounge Partition with Monitor Stand; Shelf Partition for Parts and Accessories; Frost Glass Partition; Digital Graphic Panel; Specifications Panel; Two-Wheeler Display Base (Window); Two-wheeler Display Base (Corner); Sing Ring; C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 37(1) of the Act. 36. The Assessing Officer while disallowing the claim of the assessee has strongly placed reliance on the decision of Hon ble Supreme Court in Honda Siel Cars India Ltd. vs CIT [395 ITR 713] (SC). However, the facts of the said case are distinct as in the facts of the said case expenditure was on account of setting up of manufacturing facility and was not for running of the business. The Tribunal in assessee s own case for Assessment Year 2011-12 while deciding the issue in appeal filed against the order passed u/s 263 of the Act had distinguished the said decision and allowed the claim of the assessee. Hence, Ground of appeal No.7 raised by the assessee is allowed. 37. Now coming to Ground of appeal No.8 raised by the assessee under which the assessee is aggrieved by the orders of the authorities below in disallowing 25% of Royalty expenses. The Ld.AR for the assessee pointed out that Ground of appeal No.9(a) which is the additional ground of appeal raised by the assessee may be taken up alongwith this ground of appeal. 38. Briefly in the facts of the case relating to the issue, the assessee has claimed expenses on technical knowhow fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted. In relation to the Royalty expenses incurred during the year, against which the assessee filed elaborate submissions before the Assessing Officer, the Assessing Officer noted that the arguments of the assessee that this was running Royalty, therefore, it was treated as revenue expenditure. The Assessing Officer on perusal of the technical know-how and Royalty Agreement came to a finding that the Royalty Agreement was extension of payment towards technical know-how. He thus observed that Any payment which has been made on account of technical know-how and royalty should be read into one and cannot be bifurcated as the assessee has done. It is further noted that the royalty without technical knowhow do not have any existence per se. Therefore the same is inextricable from the technical know-how. The assessee claimed that the royalty paid was a running royalty therefore the same would be allowable expenditure however it failed to acknowledge the fact that the royalty was conjoint with the technical know-how and without which the same did not have any existence therefore, the same should be treated as capital in nature. 40. The Assessing Officer did not accept the plea o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in existing business of manufacturing through dealers, the expenses was incurred for the purpose of business. He fairly pointed out that the lumpsum fee paid of ₹ 110 crores was capitalized in the books of accounts as well as for income tax purpose and the assessee was claiming depreciation on the same. But by way of Additional Ground of appeal No.9(a), the same is being claimed as revenue expenditure. The Ld.AR for the assessee stressed that where the assessee had acquired only limited rights in the Agreement, then same reasons are applicable for running Royalty, and lumpsum Royalty payment should also be allowed as expenses. In this regard, reliance was placed on the following decisions:- [i] CIT v. Hero Honda Motors Ltd. 372 ITR 481 (Del.HC) [ii] CIT V. Munjal Showa Ltd. 329 ITR 449 (Del.HC) [iii] Maruti Suzuki India Ltd. vs Addl. CIT (ITA No.6021/Del/2012) [Assessment Year 2008-09] 42. The Ld.AR for the assessee further pointed out that this was a legal issue raised by the assessee where the facts were already on record and in the light of the decision of Hon ble Supreme Court in National Thermal Power Co.Ltd. vs CIT [1998] 229 ITR 383 (SC), the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. vs CIT (supra) was with regard to the expenditure in first year wherein Hon ble Apex Court held that since the information was passed for establishing the manufacturing facilities, the same was capital in nature. The Ld.AR for the assessee stressed that under Ground of appeal No.8, the claim was made in respect of recurring Royalty which is always been allowed as revenue expenditure in the hands of the assessee. Ground No.9a was agaisnt allowance of technical know-how paid for new models, which come into the market and this lumpsum Royalty which in turn is model fee has been allowed as an expenditure in the case of the CIT vs Hero Honda Motors Ltd. (supra). The SLP against the order of Hon ble Delhi High Court has been dismissed. The Ld.AR for the assessee also pointed out that the amount has been paid in respect of the new models introduced during the year. 46. We have heard the rival contentions and perused the record. The assessee had entered into a technical know-how agreement with Honda Motors Company, Japan under which it was paying lumpsum fee which was the amount in connection with the new models introduced in a year. The total amount paid during the year was &# ..... X X X X Extracts X X X X X X X X Extracts X X X X
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