TMI Blog2021 (4) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... restore the matter back to the file of the AO to compute disallowance on the same basis in the year under consideration after taking requisite details from the assessee and giving opportunity of hearing by following the principle of natural justice. The ground is allowed for statistical purposes. Disallowance of deduction claimed under section 80IA in respect of captive power generating unit situated at Gurgaon - HELD THAT:- As relying on own case [ 2018 (12) TMI 1613 - ITAT DELHI] we hold that the disallowance made by the Assessing Officer (AO) under 80IA of the Act in relation to the generation of power cannot be sustained. We, accordingly, allow this ground of appeal raised by the assessee. Additional depreciation on new plant and machinery acquired and installed during the year - AO disallowed the aforesaid claim of additional depreciation holding that there was no correlation between installed capacity and installation of machine - HELD THAT:- No condition requiring nexus of the relevant plant and machinery acquired and installed during the year with the increase in installed capacity of the relevant industrial undertakings during the year. As per our reading, the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal in the aforesaid order has also accepted the aforesaid alternate plea of the assessee. We, however, further find that the nexus of the aforesaid expenditure with earning of exempt dividend cannot be completely ruled out. Accordingly, we accept the alternate contention of the assessee and direct the assessing officer to disallow part of the aforesaid expenditure in the ratio of dividend income to capital gains under section 14A and the balance expenditure to be allowed as deduction under section 48 from income declared by the assessee under the head capital gains. Such expenditure can be further apportioned by the assessing officer in the ratio of short term or long term capital gain declared by the assessee. Disallowance under Section 40(a)(i) - Disallowance of professional fee paid to resident of USA for want of TDS or alternatively as capital expenditure - HELD THAT:- The foreign national had only made available its findings of the scenario planning exercises conducted by him as a professional, but did not make available his knowledge, which was used for conducting the aforesaid exercise.The legal position in this regard is no longer res integra and is settled by caten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal as upheld by the Hon ble jurisdictional High Court and Hon ble Apex court. Therefore, the issue is no longer res integra and is in favour of the assessee. We uphold the findings of the Ld. CIT (A). Accordingly, we dismiss the ground of appeal raised by the Revenue. TDS u/s 195 - Disallowance of export commission paid to Honda Motor Company Ltd. (Honda), Japan under Section 40(a)(i) - addition on ground that the same constituted royalty/fee for technical services on which the assessee was obliged to deduct tax at source - HELD THAT:- We find that the issue is squarely covered in favour of the assessee by the order passed by the Tribunal in AY 2006-07[ 2018 (12) TMI 1613 - ITAT DELHI] . Disallowance being provision for warranty made in respect of sales made during the year - HELD THAT:- We find that the issue has been decided in favor of the assessee company by order passed by the Tribunal in the earlier years and since appeal filed by the Revenue has not been admitted by the High Court, the issue has attained finality. We find that the order passed by the CIT (A) is correct in law. We accordingly uphold the order of the Ld. CIT (A) and dismiss the ground of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 80IA of the Act in respect of captive power generating unit situated at Gurgaon. 2.1 That the CIT (A) erred on facts and in law in affirming the action of the assessing officer in computing income of the power generating unit by considering the rate of ₹ 3.99 per unit, at which power was supplied by Haryana State Electricity Board ( HSEB ), as the market price of the power, as against rate of ₹ 6.30 per unit (cost of generation of power at ₹ 5.48 per unit + mark-up of 15%) adopted by the appellant. 2.2 That the CIT (A) 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 the appellant s requirement and other manufacturers in the vicinity were procuring power from the prime supplier, viz., Maruti at a higher price. 3. That the CIT (A) erred on facts and in law in not deleting the disallowance of additional depreciation of ₹ 14.93 crores claimed by the appellant under section 32(1)(iia) of the Act with respect to plant and machinery acquired during the year. 3.1 Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that since operating profit margin of the appellant was within an acceptable range vis-a-vis unrelated parties, no further adjustment of arm s length price of any other international transaction, including the impugned import of components, was warranted. 6.4 That the CIT (A) erred on facts and in law in sustaining the order of the TPO / assessing officer in applying CUP method in respect of international transaction of import of components from the AE by comparing incomparable transactions, viz., price of the international transaction with prices of purchase of similar components from the domestic vendors. 6.5 That the CIT (A) erred on facts and in law in not appreciating that the TPO in the succeeding assessment year(s) had accepted that price for import of components in the facts of the appellant s case cannot be compared with price for procurement of similar components from the domestic vendors. 2.2 ITA 6302/Del/2015 (Department s Appeal: 1. Whether on the facts that circumstances of the case, Ld. CIT (A) erred in deleting the addition of ₹ 1250773885 on account of disallowance of royalty and technical guidance fee? 2. Whether on the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,100/- on account of interest expenditure to the assessing officer who, vide set aside order dated 31.03.2017, deleted the disallowance made under section 14A of the Act to the extent of ₹ 78,55,100/-. 3.0.3 The Ld. AR submitted that the disallowance of ₹ 3,26,03,500/- which was sustained by the Ld. CIT (A) deserves to be deleted at the threshold itself since disallowance under section 14A of the Act cannot be made by applying the provisions of Rule 8D since the provisions of said Rule are prospective in nature and are, thus, applicable from assessment year 2008-09 onwards and were not applicable during the relevant assessment year 2005-06. The Ld. Counsel relied on the following decisions: - CIT v. Essar Teleholdings Ltd: 401 ITR 445 (SC) - Maxxop Investment Ltd. v. CIT: 402 ITR 640 (SC) 3.0.4 The Ld. AR for the assessee further submitted that the assessing officer made an ad hoc disallowance of 0.5% of the average investment by applying Rule 8D automatically, without pointing out any specific expenditure having being incurred by the assessee to earn dividend income. It was submitted that the assessing officer, thus, failed to record any satisfaction in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Hero Honda Finlease Ltd. ₹ 1.49 crores ₹ 12.24 crores 3.0.7 It was further submitted that even for the balance dividend of ₹ 2.17 crores earned from investment in mutual funds and investment in shares, these treasury activities were looked after by two staff members of the finance department, out of total strength of 70 employees. It was submitted that the treasury function carried out by these two persons comprised of four activities, i.e., funds mobilization (borrowing), working capital management, financial risk management and funds deployment (investments). Investment is only one of the functions performed by them. The Ld. AR submitted that the aforesaid investments did not involve any expenditure on account of administrative or other managerial expenses and that any portion of such expenses, if at all, is to be attributed to making or handling of such investment, would be minuscule or insignificant, which has not been pointed by the assessing officer. 3.0.8 Without prejudice to the above, the Ld. AR submitted that disallowance, if any, has to be restricted to the proportionate amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the power generated at the aforesaid unit and captively consumed by the assessee. The deduction claimed was duly supported by Chartered Accountant s Report. It was submitted that for the purposes of computing deduction under section 80IA, the assessee adopted transfer price of power, captively consumed, at the cost of generation of power per unit with mark-up of 15%. The cost of generation of power was adopted at ₹ 5.48, which was based on cost certified in the cost audit report. Accordingly, the assessee adopted the rate of transfer of power @ ₹ 6.30 per unit (₹ 5.48 + 15% of ₹ 5.48). It was submitted that the assessing officer, in the assessment order, relying on the assessment order for the assessment years 2003-04 and 2004-05 held that the inter-unit transfer price of power from the power plant should have been at the price at which HSEB is supplying, i.e. ₹ 3.99 per unit. Since the cost of generation was more than the market value taken by the assessing officer, there was no profit from the generation of power as per the Assessing Officer eligible for deduction under section 80 IA of the Act. It was further submitted by the Ld. AR that the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 92BA. The aforesaid definition endorses the meaning of market price explained by the Courts in several decisions, i.e., the price that such goods or services would ordinarily fetch in the open market. In the present case, we note that there are two prices available at which buyers are paying price for procurement of power, i.e., the rate at which power is supplied by HSEB and the rate at which power is supplied by the private entity, i.e., Maruti Udyog Ltd. The issue, thus, arises is what should be the market price of power? The market rate (or going rate ) for goods or services is the usual price charged for them in a free market. If demand goes up, manufacturers and laborers will tend to respond by increasing the price they require, thus setting a higher market rate. Had power been provided by HSEB in abundant quantity to meet the needs of consumers, especially manufacturing entities, there was no occasion for any other player to supply the power at higher rates. In such a situation, the free market conditions would have forced a private player to supply the power at the same rate at which power is supplied by HSEB or at a lower rate. But since the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscretion. So long as the assessee has adopted a 'market value' as the transfer price that is sufficient compliance of law. AO can adopt a different value only where the value adopted by assessee does not correspond to the 'market value'. Even if assessee's cement unit has purchased power also from the grid or that assessee's power unit has also partly sold its power to grid or third parties that by itself, does not compel the assessee or permit the Revenue to adopt only the 'grid price' or the price at which the eligible unit has partly sold its power to grid or third parties, as the 'market value' for captive consumption of power to compute the profits of the eligible unit. Any such attempt is clearly beyond the explicit provisions of s. 80-IA(8) of the Act. Underlying principles forming the basis of our findings given hereinbefore in this order are also supported by the decision of Special Bench of Hon'ble Bangalore Tribunal in Aztec Software Technology Services Ltd. v. Asstt. CIT [2007] 107 ITD 141/15 SOT 49/162 Taxman 119 (Bang.) (SB) as well as Mumbai Tribunal decision in the case of Asstt. CIT v. Maersk Global Service Center ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, which represents its power which is sold when not required by the cement unit, does not constitute 'market value' in terms of Explanation to s. 80-IA(8). It is the 'principle' and not the 'quantum' which is deciding factor; (c) where a basket of 'market values' are available for the relevant period and relevant geographical area where the eligible unit is situated, the assessee has discretion to adopt any one of them as market value; and (d) If the value adopted by the assessee is 'market value' as explained above, it is not permissible for Revenue to recompute the profits and gains of the eligible unit by substituting the said value (as adopted by the assessee) by any other 'market value'. 14. Accordingly, we delete the disallowance as made by the AO in order under s. 143(3) on account of deduction under s. 80-IA of the Act and hence the grounds 1 and 2 are accordingly decided in favour of the assessee. 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 the assessee and mark up the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us/co-relation with the increase in installed capacity. Ld. AR submitted that during the relevant previous year, the assessee invested ₹ 105.8 crores and ₹ 79.57 crores in plant and machinery in Gurgaon and Daruhera units respectively. Due to the said investment, the installed capacity increased by 75% in Gurgaon plant (from 8,00,000 to 14,00,000 units) and by 43.75% in Dharuhera plant (from 8,00,000 units to 11,50,000 units) from 31.03.2002 to 31.03.2005. The Ld. AR submitted that in terms of section 32(1)(iia) of the Act, additional depreciation of ₹ 14.93 crores was claimed by the assessee in respect of plant and machinery installed in factory premises in the aforesaid plants but the assessing officer, disallowed the aforesaid claim of additional depreciation holding that there was no correlation between installed capacity and installation of machine by observing as under: As per assessee there has been increase in installed capacity as compared to last year of 12% and 15% in respect of its two plants. The records of the assessee indicates the claimed increase in installed capacity as under: Installed capacity plant wise Ay 2005-06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n capacity. It appears that more production is linked to the demand and supply position rather than increase in the capacity. This fact gets further reinforced that the peak production in respect of both the plants of 123351 units in Gurgaon and 117000 units in Dharuhera had simultaneously taken place in the month of October 2004. This factor clearly establishes the fact that the machinery acquired by the assessee was more related to the change in the technology for producing a newer engine i.e. core 1 technology rather than addition to the installed capacity. Even in case of Gurgaon plant where an argument could be raised that there has been investment of ₹ 37.57 crores before October and that had resulted due to the increased production. However, that also doesn't appear to be a correct view because in the month of May, 2004 when there has not been large investment the production has been of 103535 units whereas in the month of June and August the production has been of 98273 and 92781 units respectively. Therefore, the correlation between installed capacity and installation of machine is not established and in any case if Dharuhera is an indicator the addition to plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hinery or plant shall be allowed as deduction under clause (ii) : Provided that such further deduction of fifteen per cent shall be allowed to- (A)a new industrial undertaking during any previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or (B)any industrial undertaking existing before the 1st day of April, 2002, during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than ten per cent: Provided further that no deduction shall be allowed in respect of- a) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or b) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; or c) any office appliances or road transport vehicles; or d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or other-wise) in computing the income chargeable under the head Pro-fits and gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extend the benefit of additional depreciation on new investments in plant and machinery without any further condition. 9.0.5 It was further argued that, even otherwise the AO and the Ld. CIT (A) have erred in denying the aforesaid claim of deduction, since what they were comparing was the nexus of increase in production with installation of relevant plant and machinery, whereas the requirement of law was only increase in overall installed capacity of the relevant industrial undertaking. 9.0.6 The Ld. AR, thereafter, invited our attention to the details of the installed capacity at the relevant Gurgaon and Dharuhera plants, which was undisputed by the lower authorities to contend that the relevant plants satisfied the condition of increase in installed capacity of more than 10%, as per the table below: Gurgaon Plant Daruhera Plant Total Installed capacity as on 31.03.2002 8,00,000 8,00,000 16,00,000 Installed capacity as on 31.03.2004 12,50,000 10,00,000 22,50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondition of increase in installed capacity only amplified that the increase in such investment was concomitant of the eligible plant and machinery. It was further argued that, the assessee had erred in filing the present ground of appeal, since there was no grievance to the assessee from the order of CIT (A), in as much as the CIT (A) had only remitted the matter back to the AO for verification. 11.0 In the rejoinder the Ld. Counsel for the assessee only made an additional argument that the ground of appeal filed by the assessee was valid, since if the provisions of section 32(1)(iia) are to be understood in the right spirit, then there was no need for the verification directed to be carried out by the Ld. CIT (A). 12.0.0 We have heard both the parties and find substantial force in the contentions of the assessee company. We find that the language of section 32(1)(iia) reproduced supra, is plain and unambiguous. On a plain and literal reading of the said section, we find no condition requiring nexus of the relevant plant and machinery acquired and installed during the year with the increase in installed capacity of the relevant industrial undertakings during the year. As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed up to (sic. after) 31-3-2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a wind mill has nothing to do with the power industry, namely, manufacture of oil seeds etc. is totally not germane to the specific provision contained in section 32(1)( iia) of the Act. 6. In such circumstances, we are not able to appreciate the contention of the learned standing counsel for the appellant on the ground that the order of the Commissioner of Income-tax (Appeals) as confirmed by the Tribunal should be interfered with. It cannot also be said that setting up of a windmill will not fall within the expression setting up of a new machinery or plant. We do not find any error in the conclusion of the Tribunal in confirming the order of the Commissioner of Income-tax (Appeals). We, therefore, do not find any question of law much less substantial question of law to entertain this appeal. The appeal fails and the same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncrease in the installed capacity for claiming benefit of additional depreciation under the above provision can be in the production of intermediary viz., pulp. We therefore agree with the finding of the Tribunal and dismiss the department appeal. CIT v. Hi Tech Arai Ltd: 321 ITR 477 (Mad) CIT v. Texmo Precision castings: 321 ITR 481 (Mad) 12.0.1 The ratio emanating from the aforesaid decisions squarely supports the aforesaid interpretation of section 32(1)(iia) of the Act. As regards the condition of increase in installed capacity, we have seen the facts and there is no dispute by the AO/Ld. CIT (A) as well on the increase in installed capacity of assessee. The same is certified by auditors and also reported in notes to audited accounts reproduced supra. In view of the above, we delete the disallowance made by the AO and hence the ground of appeal is allowed. 13.0.0 The Ld. AR submitted that Grounds of Appeal Nos. 4 4.1 relate to disallowance of portfolio management expenditure of ₹ 27,68,039/- claimed by the assessee as deduction against business income. It was submitted that during the relevant previous year, the assessee had incurred expenditure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wable as deduction under Section 48 while computing capital gains arising from sale of shares. It was the plea of the Ld. AR that section 48 allows deduction of - (i) expenditure incurred wholly and exclusively in connection with transfer of capital asset or (ii) cost of acquisition of asset, which are reduced from the sale consideration at the time of computing capital gains under section 45 of the Act. It was argued that if the portfolio management expenditure is not to be considered as business expenditure, then the only nexus of such expenditure is either with purchase or sale of relevant instrument, which is clearly allowable deduction under either clause (i) or clause (ii) of section 48 of the Act. 13.0.4 As regards the finding of the Ld. CIT (A), that the said expenditure is related to earning of exempt income, the Ld. Counsel argued that the expenditure was incurred to make investment and earn capital appreciation there from, but not dividend income and, therefore, the said expenditure cannot be attributed to earing of exempt income. 13.0.5 Without prejudice, it was submitted that if at all disallowance is to be made for nexus with exempt income, then only proportiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards portfolio management fee and entry load PMS fee in respect of investment made in shares/mutual funds are not allowable as business expenditure and the same deserve to be allowed as deduction from income from capital gains as per provisions of the Act. Thus, ground no. 52 of the assessee is allowed by accepting alternate submission of the assesse and AO is directed to allow the impugned expenditure incurred by the assessee towards portfolio management fee and entry load PMS fee from the income under the head of capital gains in accordance with relevant provisions of the Act. Finally, ground no. 52 of the assessee is allowed. 15.0.1 We respectfully agree with the aforesaid findings of the co-ordinate Bench of the Tribunal. We also find that if the expenditure is not allowed as business deduction, then the same ought to be allowed as deduction under either clause (i) or clause (ii) of section 48 of the Act while computing income arising from investments under the head capital gains. The Tribunal in the aforesaid order has also accepted the aforesaid alternate plea of the assessee. We, however, further find that the nexus of the aforesaid expenditure with earning of exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 9(1)(vii). The Ld. CIT (A), however, did not agree to contentions of the assessee and upheld the disallowance. It was submitted that the Ld. CIT (A) did not allow the benefit of Treaty on the ground that there was no exemption available in as much as the vendor had made available advice to the assesee, which was not exempt under the relevant provision of Treaty. It was submitted that the Ld. CIT (A), however, did not give any finding on the alternate contention of the AO regarding the expenditure to be capital or revenue in nature. 16.0.1 In support of the grounds of appeal, the Ld. AR argued that it is now settled by the decision of the Hon ble Supreme Court in the case of G.E. India Technology Centre (P) Ltd. vs. CIT: 327 ITR 456, that if the payment is not taxable in India as per the provisions of Treaty, then the payer-assessee is not liable to deduct tax at source under section 195 of the Act. It was argued that the aforesaid payment was not taxable in India as per Article 12 of Indo-USA DTAA which was applicable to income earned by non-resident in the nature of fees for included services . The Ld. AR submitted that, as per the said definition, income is taxable in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nduring benefit increasing the profit earning apparatus of the company. The services were rendered in connection with the existing business of the assessee company and, therefore, benefit, if any, derived, formed integral part of the existing business/apparatus and not for addition thereto. Thus, the fees paid by the assessee to Shri Tarun Khanna cannot be characterized as capital asset. Reliance was placed on the decision of the Hon ble Delhi High Court in assessee s own case, reported at 372 ITR 481 wherein disallowance of royalty paid to foreign JV partner on the similar issue was deleted on the ground that payment of royalty does not result in enduring benefit in the capital field to be treated as capital expenditure. It was submitted that the disallowance of fee paid by the assessee to Shri Tarun Khanna on the alternate ground of being capital expenditure also deserves to be deleted. 17.0 The Ld. CIT (DR) heavily relied upon by the orders passed by the AO and the Ld. CIT (A). 18.0.0 We have heard the rival contentions. We agree with the contentions of the Ld. Counsel of the assessee that the impugned payment did not make available technical know-how/ knowledge of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benchmarking. The TPO, however, made a transfer pricing adjustment of ₹ 6,57,195/- applying CUP method by comparing the prices of import of two components, viz., sprocket timing and sprocket camp, from the associated enterprises with that of the prices of components sourced locally from domestic suppliers, after their indigenization. The Ld. CIT (A) upheld the transfer pricing adjustment holding that the associated enterprise charged excessively high price for the two components which cannot be attributed to geographical variation. 19.0.1 The Ld. AR submitted that the assessee imported only those components/spare parts from the associated enterprise where such products were not available in the domestic market (throughout the relevant previous year) or could not be supplied by the domestic vendors in desired quantity and quality. The price paid to the local vendor(s), cannot, in such circumstances, be regarded as benchmark to determine the arm s length price for products imported from the associated enterprise. It was submitted that it needs to be appreciated that the domestic vendor(s) had limited capacity to supply products/components, which fell short of the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at out of the total purchases of ₹ 20,46,58,682/- from the domestic market, the assessee imported from associated enterprises the components worth ₹ 22,83,666/- which does not constitute any significant portion thereof. We, therefore, having regard to the directions given by the Tribunal for earlier years and the approach adopted by the ld. AO while deleting the addition on this score, hold that the transfer pricing adjustment to the tune of ₹ 7,05,334/- made by the TPO cannot be sustained and accordingly while allowing the ground delete the same. 21.0.1 In view of the latest order of the Tribunal wherein this issue has been dealt with in detail, which we respectfully follow, we hold this issue in favour of the assessee and hold that the transfer pricing adjustment to the tune of ₹ 7,05,334/- made by the TPO cannot be sustained and accordingly while allowing the grounds delete the same. 22.0 In the result, the appeal of the assessee stands partly allowed. 6302/Del/2015 (Departmental appeal): 23.0.0 We now take up the appeal filed by the Revenue. Ground no. 1 relates to disallowance of net expenditure of ₹ 12507.73 lacs on account of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e basis of technology provided by M/s Honda Motors Co. Ltd., Japan ( Honda ) and pursuant to the agreement dated 2.06.2004 had paid Model fee of ₹ 26,47,07,683/- to Honda. The assessing officer held the same to be capital in nature and made a net disallowance of ₹ 19,85,30,762/- after allowing depreciation @ 25%. It was further submitted that following the appellate orders for the earlier years, the Ld. CIT (A) had deleted the disallowance made by the assessing officer. 26.0.1 The Ld. Counsel for the assessee pointed out that in assessee s own case for the AY 1996-97, the Tribunal took the view that the model fee paid by the assessee to Honda is allowable u/s 37(1) of the Act as revenue expenditure on the ground that the payment was only for right to use the technology/know-how and there was no ownership of the intellectual property which remained to be with Honda. This view of the Tribunal was challenged by the revenue but the Hon ble Delhi High Court declined to entertain the appeal. The decision of the Hon ble High Court was accepted by the Department and has become final, as no SLP has been filed there against. The Ld. Counsel further pointed out that in the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble jurisdictional High Court and Hon ble Apex court. Therefore, the issue is no longer res integra and is in favour of the assessee. We uphold the findings of the Ld. CIT (A). Accordingly, we dismiss the ground of appeal raised by the Revenue. 29.0.0 Ground no. 3 relates to disallowance of export commission of ₹ 8,69,26,848/- paid to Honda Motor Company Ltd. (Honda), Japan under Section 40(a)(i) on ground that the same constituted royalty/fee for technical services on which the assessee was obliged to deduct tax at source under section 195 of the Act. Alternatively, the AO disallowed the aforesaid amount on the following grounds: (i) The export agreement was for the benefit of Honda and not the assessee company, therefore, the payment of export commission was held to be not allowable under Section 37(1) (ii) The export agreement was in the nature of license acquired by the assessee for the purpose of making export to other countries where Honda had exclusive privilege to operate. The license was for a longer period of time and, therefore, it constitutes an intangible asset. Accordingly, the expenditure was held to be a capital expenditure. 29.0.1 On appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent parts of time, one in the year 1984 and, the other in the year 2004 and both the agreements operate under different fields. By the first agreement, HMCL provided technical knowhow for manufacture and sale of two wheelers within the territory of India. By the export agreement, HMCL permitted the assessee to export the designated goods to the designated countries outside India. Therefore, both the agreements are to be interpreted independently. On the perusal of the export agreement, we are unable to agree with the Revenue that the export agreement is in the nature of royalty or fees for technical services. We find that the Authority for Advance Ruling has considered the issue of TDS on the export commission in the case of Spahi Project P.Ltd. (supra). .. 73. Similarly, fee for technical services has been defined by way of Explanation-2 after Section 9(1)(vii) of the Income-tax Act. From a plain reading of the above definitions of royalty as well as fee for technical services , it would be evident that the payment of export commission would not fall in any of the above definitions. By way of technical agreement, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of running royalty cannot be said to be capital expenditure. While doing so, we have also relied upon several decisions of Hon ble Jurisdictional High Courts at pages 17 to 24. For the sake of brevity, we are not reproducing the same again but, we reiterate that the ratio of those decisions in the cases of Lumax Industries Ltd. (supra), Shriram Pistons Rings Ltd. (supra), Sharda Motor Industrial Ltd. (supra), J. K. Synthetics Ltd. (supra), Climate systems India Ltd. (supra) and Munjal Showa Ltd. (supra) would also be applicable so as to arrive at the conclusion that the payment of running export commission paid as a percentage of export amount every year cannot be said to be capital expenditure. In view of the above, we delete the disallowance of export commission made by way of transfer pricing adjustment and also by way of general provisions of the Income-tax Act. 31.0.1 The aforesaid order passed by the Tribunal in AY 2006-07 has further been affirmed by the Hon ble Delhi High Court in ITA No. 923/2015. Considering the aforesaid, we find that the order passed by the Ld. CIT (A) is correct in law. We accordingly uphold the order of the Ld. CIT (A) and dismiss the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal, vide recent order dated 31.07.2019 passed in assessment year 2004-05, dismissed the appeal of the revenue holding as under: 36. Even for the Asstt. Year 2002-03, while following the decision of the Hon ble Apex Court in the case of Rotork Controls India Ltd. vs CIT, 314 ITR 62, the Tribunal deleted the addition and subsequently, similar addition was disallowed in respect of Asstt. Years 1999-2000, 1996-97, 1997-98, 2006-07, 2007-08 to 2009-10 by several orders of the Tribunal, which are to be found place in the paper book. On a reading of these orders, we are of the considered opinion that the issue is fairly settled and there is no need to reopen the same for taking fresh view. Learned CIT (A) deleted the addition by following the appellate orders and, therefore, we do not find any perversity in such finding. We uphold the order of ld. CIT (A). 34.0.1 In view of the aforesaid, we find that the issue has been decided in favor of the assessee company by order passed by the Tribunal in the earlier years and since appeal filed by the Revenue has not been admitted by the High Court, the issue has attained finality. We find that the order passed by the CIT (A) is c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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