TMI Blog2018 (1) TMI 1716X X X X Extracts X X X X X X X X Extracts X X X X ..... nses by the taxpayer is not an international transaction of brand building of Goodyear brand undertaken by the taxpayer with AE and as such, no adjustment can be made. Netting off of export incentive from the cost of goods sold and set aside the issue of netting off of rebate/ discount from the cost of goods sold to the file of AO/TPO for verification of the claim in view of the decision rendered by the Tribunal for AY 2006-07 [ 2012 (12) TMI 1166 - ITAT DELHI] by providing an opportunity of being heard to the taxpayer. Disallowance of provision made by the taxpayer for replacement loss - taxpayer has not incurred expenditure on account of replacement of goods in the subsequent years; that the same is not ascertained and is contingent in nature - HELD THAT:- The taxpayer has filed complete details on the basis of past trends and experience of actual guarantee claims on a scientific and actual basis, we are of the considered view that provision for warranty made by the taxpayer is allowable one. Disallowance being 30% of the total expenditure - taxpayer has incurred the said advertisement and publicity expenditure for brand building for the entities owning the brand - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame are found to be genuine on filing necessary evidence in support of its claim by the taxpayer. When the accounts are audited and duly supported with evidences discussed in the preceding paras, the AO is to allow the same after verifying its genuineness and to proceed accordingly. Decided in favour of the taxpayer. Disallowance being the provision for obsolete stocks and spares - it was only a provision and not an actual write off and on the ground that the taxpayer has failed to provide the basis and working of the provision of the obsolete stores and spares - HELD THAT:- The taxpayer has brought on record the complete details of obsolete stocks and spares, available - DRP directed the AO to allow the provision of obsolete stocks and spares in case the same has been scientifically worked out. However, the AO proceeded to disallow the same on the ground that the taxpayer has failed to produce the details of the stocks and spares written off. When the taxpayer has brought on record details of amount and items of slow moving article and the Revenue has not disputed that this system is being followed bonafidely by the taxpayer, the AO was required to follow the rule of consiste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and law have been raised in the aforesaid appeals, the same are being disposed off by way of consolidated order to avoid repetition of discussion. 2. The Appellant, M/s. Goodyear India Limited (hereinafter referred to as the taxpayer ) by filing the present appeals sought to set aside the impugned order dated 29.12.2015, Nil 27.01.2017, passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short the Act ) qua the assessment years 2010-11. 2011-12 2012-13 on the grounds inter alia that :- ITA No. 1516/Del./2015 (AY : 2010-11) 1. That the assessing officer erred on facts and in law in completing assessment under section 144C/143(3) of the Income tax Act, 1961 ('the Act') at an income of Rs. 134,76,30,400 as against the income of Rs. 112,28,90,705 returned by the appellant. 2. That the assessing officer erred on facts and in law in making an addition of Rs. 16,65,18,068 allegedly on account of difference from the arm's length price of the international transactions entered into by the appellant with its associated enterprise, on the basis of order pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be characterized as an international transaction as per section 92B, in the absence of any proved understanding / arrangement between the appellant and the associated enterprise, so as to invoke the provisions of section 92 of the Act. 4.3 The assessing officer / TPO erred on facts and in law in not appreciating that the only Transfer Pricing adjustment permitted by Chapter X of the Act was in respect of the difference between the arm's length price (ALP) and the contract or declared price, but the said provision could not be invoked to determine the 'quantum' / extent of business expenditure. 4.4 The assessing officer/TPO erred on facts and in law in holding that expenditure incurred by the appellant which incidentally resulted in brand building for the foreign AE, was a transaction of creating and improving marketing intangibles for and on behalf of its foreign AE and further that such a transaction was in the nature of provision of a service by the appellant to the AE. 4.5 That assessing officer/TPO erred on facts and in law in not appreciating that such a Transfer Pricing adjustment could not at all be made in respect of AMP expenses which were foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that incentive received in respect of export of finished goods, should not be taken into account for determining the profit/cost in respect of the international transaction of export. 5.3 That the assessing officer I TPO has erred on facts and in law in holding that if the appellant's method of calculation of 'cost of goods sold' is followed, it would tantamount to a claim that benefit, which has not yet accrued at the time of sale of goods, being treated as a component of cost of goods sold. 5.4 That the assessing officer I IPO erred on facts and in law in ignoring that the Global Transfer Pricing Policy of the group company provides for reducing the cost of merchandise by the export incentives available to the exporting entity. 5.5 That the assessing officer / TPO erred on facts and in law in holding that the export incentive does not form part of invoice price of goods sold and hence the same cannot be reduced from the cost of goods sold. 6. That the assessing offer erred on facts and in law in making disallowance of provision for replacement loss amounting to Rs. 61,53,000 allegedly on the ground that the appellant did not incur expenditure on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of obsolete stores and spares. 10. That the assessing officer erred on facts and in law in making an ad-hoc disallowance of Rs. 25,00,000 holding 50% of the salary paid to administrative staff of the appellant which was allegedly attributed to the capital work in progress and was ought to be capitalized along with the capital work in progress. 11. That the assessing officer erred on facts and in law in making disallowance of stores and spares written off amounting to Rs. 53,93,000 allegedly holding that such details and supporting evidence of write off of stores and parts were not furnished and also such write off was not verifiable with reference to physical disposal. 12. That the assessing officer erred on facts and in law in under Section 234B and Section 234C of the Act. ITA No. 1004/Del./2016 (AY : 2011-12) 1. That the assessing officer erred on facts and in law in completing assessment under section 144C/143(3) of the Income-tax Act, 1961 ('the Act') at an income of Rs. 132,46,38,800 as against the income of Rs. 109,38,32,595 determined by the appellant in its income tax return. 2. That the DRP/assessing officer erred on facts and in law in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .7 Without prejudice, that the assessing officer/ TPO erred on facts and in law in disregarding the comparable uncontrolled price of royalty submitted during the course of assessment proceedings, for benchmarking the transaction of payment of royalty applying CUP method . 4. That the DRP/assessing officer erred on facts and in law in making transfer pricing adjustment amounting to Rs. 9,54,44,000 in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as 'the AMP expenses') incurred by the appellant. 4.1 That the DRP/assessing officer erred on facts and in law in making the said additional allegedly holding that the appellant was promoting the brand of the associated enterprise and instead of payment of the trademark fee to the AE of Rs. 9,54,44,000, the appellant ought to have received equivalent amount as compensation for creating and developing marketing intangibles in India. 4.2 The DRP/assessing officer erred on facts and in law in not appreciating that the AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an international transaction as per section 92B, in the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd publicity following the finding in the preceding assessment year allegedly holding that the expenditure was incurred for the benefit of the enterprise who owns brand name. 6.1 That the assessing officer erred on facts and in law in not appreciating that the advertisement and publicity expenses were incurred by the appellant in the course of carrying on of its business and were allowable deduction as business expenditure. 6.2 That the assessing officer erred on facts and in law in making disallowance of Rs. 54,17,314 allegedly on account of short fall of interest on provident fund. 7. That the assessing officer erred on facts and in law in under Section 234B and Section 234C of the Act. ITA No. 1706/Del./2017 (AY: 2012-13) 1. That the assessing officer erred on facts and in law in completing assessment under section 144C/143(3) of the Incometax Act, 1961 ('the Act') at an income of Rs. 1,19,58,49,260 as against the income of Rs. 92,07,70,135 determined by the appellant in its income tax return. 2. That the DRP/assessing officer erred on facts and in law in making an addition of Rs. 22,36,02,000 allegedly on account of difference from the arm's l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law in making transfer pricing adjustment amounting to Rs. 11,18,01,000 in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as 'the AMP expenses') incurred by the appellant. 4.1 That the DRP/assessing officer erred on facts and in law in making the said additional allegedly holding that the appellant was promoting the brand of the associated enterprise and instead of payment of the trademark fee to the AE of Rs. 11,18,01,000, the appellant ought to have received equivalent amount as compensation for creating and developing marketing intangibles in India. 4.2 The DRP/assessing officer erred on facts and in law in not appreciating that the AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an international transaction as per section 92B, in the absence of any proved understanding / arrangement between the appellant and the associated enterprise, so as to invoke the provisions of section 92 of the Act. 4.3 The DRP/TPO erred on facts and in law in not appreciating that the only Transfer Pricing adjustment permitted by Chapter X of the Act was in respect of the difference b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of provision for warranty (replacement loss) amounting to Rs. 1,49,77,293 allegedly holding that the same was contingent in nature. 5.1 That the DRP erred on facts and in law in observing that the provision for warranty is based on estimate and the behavior pattern of customer to claim warranty or not cannot be predicted. 6. That the assessing officer erred on facts and in law in making an ad hoc disallowance of Rs. 3,64,99,828 being 30% of the total expenditure of Rs. 12,16,66,095 incurred by the appellant on advertisement and publicity following the finding in the preceding assessment year allegedly holding that the expenditure was incurred for the benefit of the enterprise who owns brand name. 6.1 That the assessing officer erred on facts and in law in relying on the decision of Hon ble Delhi High Court in the case of Maruti Suzuki India Limited to held that if the brand name is not owned by the assessee, such expenditure is incurred for the benefits of the enterprise who own the brand name, not appreciating that the said decision was made redundant by the Hon ble Supreme Court. 6.1 That the assessing officer erred on facts and in law in not appreciating that the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reimbursement of expenses from group companies CUP 3,365,016 4. The taxpayer in its TP documentation by using Transactional Net Margin Method (TNMM) for Class-1 manufacturing and Class-2 trading with operating profit/sales calculated its margin at 10.99% and 8.41% as against arm s length margin of 6.05% and 1.91% respectively, hence found its international transaction at arm s length as Profit Level Indicator (PLI) of the manufacturing and trading segment are more than that of the comparables. However, TPO by applying the doctrine of benefit determined the ALP of trademark payments to be nil and consequently proposed adjustment of Rs. 7,84,24,000/-. TPO further held that since the taxpayer was promoting the brand of its Associated Enterprise (AE) for which the taxpayer was not compensated determined the value of compensation on brand building further proposed adjustment of Rs. 7,84,24,000/- on this score. TPO also questioned the taxpayer s approach of benchmarking by reducing the export incentive from the total cost and then determined the mark up of 5% on total cost to arrive at the value of export and proceeded to ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia and the brand has thereby grown in value and significant economic substance has been added to it and marketing intangibles have been created by the taxpayer benefiting the parent company but no recognizable benefit has been passed to the taxpayer. However, the ld. DR has not controverted the fact that there is no change in the business model of the taxpayer since AYs 2007-08, 2008-09 2009-10 when the issue as to payment of trademark fee has been decided. 9. Coordinate Bench of the Tribunal in assessee s own case for AYs 2007-08, 2008-09 2009-10 decided identical issue as to determining the ALP of international transaction regarding trademark fee to be nil in favour of the taxpayer by returning following findings :- 8. We have heard the rival contentions in light of the material produced and the decisions relied upon. Ld. Counsel of the assessee has emphasized on the benchmarking of payment of trademark as closely linked transaction with the manufacturing segment. The Ld. Counsel of the assessee has submitted that the royalty relates to the entire turnover/production of the appellant and constitutes an essential part of the cost of sales. The entire business model of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inked transactions. Royalty, then, is a transaction closely linked with production and sales. It cannot be segregated from these activities of an enterprise, being embedded therein. That being so, royalty cannot be considered and examined in isolation on a standalone basis .. Royalty is to be calculated on a specified agreed basis, on determining the net sales which, in the present case, are required to be determined after excluding the amounts of standard bought out components, etc., since such net sales do not stand recorded by the assessee in its books of account. Therefore, it is our considered opinion that the assessee was correct in employing an overall TNMM for examining the royalty. The TPO worked out the difference in the PLI of the outside party (the assessee) at 4.09% and the comparables at 7.05%. This has not been shown to fall outside the permissible range. The Hon ble Tribunal accordingly held that the assessee was correct in applying overall TNMM for examining royalty. 10. The aforesaid decision of this Tribunal has been upheld by the Hon ble High Court in the case of ACIT vs. Lumax Industries Ltd. (ITA No. 102/2014). 11. The assessee has also rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pvt. Ltd. with Goodyear Inc. USA. 14. The AR of the assessee has rightly palced reliance on the decision of third Member Bench of the Mumbai Tribunal, in the case of Tecnimont ICB Pvt. Ltd. vs. ACIT (ITA No. 4608 5085/Mum/2010), wherein, while explaining the import of clause (i) of Rule 10B(e) of the Act, held that the Rules strictly provides that an uncontrolled transaction shall be a transaction undertaken between two unrelated parties and cannot be given a wider term to include transaction entered between two other related parties, as under: 14. What is an uncontrolled transaction has been clearly defined under Rule 10A(a) to mean a transaction between enterprises other than associated enterprises whether resident or non-resident . A plain reading of the meaning given to the expression uncontrolled transaction leaves no room for any doubt that it is a transaction between two non-associated enterprises. If he transaction is between two associated enterprises, it goes out of the ambit of uncontrolled transaction under Rule 10A. When section 92C is read along with Rule 10B(e) and 10A, it becomes abundantly clear that in computing ALP under the transactional net ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prise, i.e. The Goodyear Tire Rubber Company, USA explaining the reasons for not charging royalty in the earlier years; (ii) Copy of extracts of Minutes of Board of Directors meeting dated 31.07.2006 regarding approval for execution of Trademark License Agreement and (iii) copy of an email exchanged between the appellant and the associated enterprise regarding payment of trade mark fee in July 2006. These evidences are admitted on record. The ld. DR has no objection to admit these evidences on record. In these evidences, the AE has clarified that it did not charge royalty in the earlier years in order to support the appellant who was yet to achieve higher market share, stabilize operations, maintain competitive pricing and was recovering from financial difficulties. Subsequently, when the financial position of the assessee improved, the AE started charging royalty in consideration for allowing the assessee to use its valuable brand name. The reasons given by the AR of the assessee, for not charging royalty by the AE, prior to the year under consideration is duly corroborated from the year to year profits shown by the company. It is valid reason that the AE was not charging royalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are of the opinion that since the operating margin of the assessee at 6.96% is higher than the comparables at 2.77%, the international transaction of payment of royalty entered into by the assessee are to be considered being at arm s length applying TNMM as the most appropriate method. 18. We therefore direct the assessing officer to delete the adjustment on this account. 10. So, following the decision rendered by the coordinate Bench of the Tribunal in assessee s own case (supra), confirmed by the Hon ble Delhi High Court, we are of the considered view that since there is a direct nexus between the revenue earned by the taxpayer and the payment made by the taxpayer on account of royalty, the transaction of payment of royalty cannot be analyzed in isolation. Furthermore, the doctrine of benefit test applied by the TPO cannot be invoked as it is prerogative of the businessman to see if any service is beneficial to the promotion of its business or not. So, consequently, the AO is directed to delete the adjustment made on account of ALP of international transaction of payment of trademark fees of Rs. 7,84,24,000/-, Rs. 9,54,44,000/- Rs. 11,18,01,000/- for AYs 2010-11, 2011- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sales of licensed products. The mere existence of such an agreement whereby a license has been granted to the Assessee to use the brand name would not ipso facto imply any further understanding or arrangement between the Assessee and its foreign AE regarding the AMP expense for promoting the brand of the foreign AE. 27. Turning to the TP report, a reference has been made by the Revenue to para 4.8 thereof which shows that market development is the function of the AE as well as the Assessee in India. Para 4.9 of the TP report has been referred for the purposes of pointing out export market related information for the products and the competitors and other assistance in tapping potential export markets is provided by the Honda Group. It is further pointed out that para 4.47 of the TP report records that HSPP is responsible for brand building and maintaining brand loyalty in domestic market. Reference is made to the statement that this brand name has been developed and popularised by HSPP in India. According to the Revenue, therefore, there is no dispute that the Assessee is engaged in developing and maintenance of brand/trade name in India. 28. A reference is made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. We accordingly direct the assessing officer to delete the adjustment made on this account. 39. In the result, the appeal is allowed on this ground. 12. So, following the aforesaid decision in assessee s own case rendered by the coordinate Bench of the Tribunal and confirmed by the Hon ble Delhi High Court, we are of the considered view that transfer pricing adjustment made by AO/TPO to the tune of Rs. 7,84,24,000/-, Rs. 9,54,44,000/- Rs. 11,18,01,000/- for AYs 2010-11, 2011-12 2012-13 respectively are not sustainable, hence ordered to be deleted. Consequently, Grounds No.4, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10 4.11 of ITA No. 1516/Del./2015, Grounds No.4, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6 4.7 of ITA No. 1004/Del./2016 and Grounds No.4, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9 4.10 of ITA No. 1706/Del./2017 are determined in favour of the taxpayer. GROUNDS NO.5, 5.1, 5.2, 5.3, 5.4 5.5 of ITA No. 1516/Del./2015 (AY 2010-11) 13. The taxpayer during the year under assessment made purchases from Goodyear South Asia Tyres Pvt. Ltd. and resold to AE s overseas. The taxpayer contended that export incentives are a valid source of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y enterprise which is a member of global transfer pricing policy. The very purpose of global transfer pricing is to provide a minimum amount of return to the members of global transfer pricing policy. If India provide tax incentive or other incentive to compensate its taxpayers on the basis of the economic situation, then this benefit is available to Indian taxpayers and the same cannot be transferred or traded to other entity which is not located in India. This kind of shifting of economic and tax incentives offered to local company will disturb the fiscal structure of a country and will result in shifting of profits from one tax jurisdiction to other tax jurisdiction. The economic and tax incentives offered to Indian entities are not meant to subsidize the entity in foreign jurisdiction. The assessee who is involved in controlled transaction this approach actually results in transferring, benefit from Government granted incentives to AE. Moreover, the entities transfer pricing policy cannot override the basic fundamental of transfer pricing analysis. If assessee s method of calculation of cost of goods sold is followed, it would tantamount to a claim of benefit, which has not yet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt. (ii) In the details forwarded by the Addl. C.I.T. (Transfer Pricing) Pune there is no reference to any rebate being allowed by M/s GSATL. (iii) The rebate claimed does not seem to appear anywhere in the audited financials of the assessee. (iv) The only conclusion that can be arrived at is that the issue / claim of rebate has been raised to offset the freight cost which has entered the cost base at this stage. For these reasons the claim of rebate shall not be allowed. 12.1 In this regard, we find that as per the agreement assessee is entitled for rebate of 3% on cost of goods purchased for exports to AE as well as to unrelated parties. We find that the above reasoning adopted by the Assessing Officer in disallowing the deduction is not cogent. That the assessee has not made any such claim initially cannot act as estoppel against the proper and valid claim. We agree with the ld. Counsel of the assessee company that the rebate received is inextricably linked with the cost of purchase. We further note that in subsequent assessment years for Assessment Year 2007-08 and 2008-09 the TPO has accepted the contention of the assessee that the rebate received upon purchase of goods is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch 2007 the appellant, had incurred /made provision for warranty claims to the extent of Rs. 17,72,000 on the basis of past trend and experience of actual warranty claims. The provision for warranty is made on a scientific and actual basis and not an adhoc provision. It will be appreciated, that the provision for warranty is not a future or a contingent liability. The liability towards warranty expenses is incurred as soon as the sale is made by the appellant and, therefore, it is a liability in presenti and has definitely arisen in the accounting year. Deduction therefore should be allowed in the year of sales, to which the liability is attached, although the exact liability may be quantified at a future date. Reliance is placed in this regard on the recent decision of Supreme Court in the case of Rotork Controls India Ltd. vs. CIT: 223 CTR 425, wherein, the Supreme Court laid down three conditions for allowability of provision for warranty - (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No.6 of ITA No. 1516/Del./2015 and Grounds No.5 5.1 of ITA No. 1004/Del./2016 ITA No. 1706/Del./2017 are determined in favour of the taxpayer. GROUNDS NO.7, 7.1, 7.2, 7.3 OF ITA NO. 1516/DEL./2015 (AY 2010-11) GROUNDS NO.6 6.1 OF ITA NO. 1004/DEL./2016 (AY 2011-12) GROUNDS NO.6, 6.1 6.2 OF ITA NO. 1706/ DEL./2017 (AY 2012-13) 20. AO has made ad hoc disallowance of Rs. 3,80,12,100/-, Rs. 3,33,17,400/- Rs. 3,64,99,828/- for AYs 2010-11, 2011-12 2012-13 respectively being 30% of the total expenditure on the grounds that the taxpayer has incurred the said advertisement and publicity expenditure for brand building for the entities owning the brand. The ld. AR for the taxpayer contended that this issue has also been decided by the coordinate Bench of the Tribunal in favour of the taxpayer in AYs 2007-08, 2008-09 and 2009-10 (supra). However, on the other hand, the ld. DR for the Revenue relied on the orders of the AO/DRP. 29. The coordinate Bench of the Tribunal has ordered to delete ad hoc disallowance made by the AO on account of advertisement expenses u/s 37 of the Act by making following observations :- 64. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll . Ld. AO has proposed to disallow the 'PF Interest Shortfall' of Rs. 54,17,314 on the premise that assessee has not produced any supportings to substantiate the same. The detailed break up of PF Interest Shortfall sought by the AO was duly submitted by the assessee along with copies of necessary supportings on sample basis vide its reply dated 25 March 2015. A copy of the reply along with the relevant annexure is enclosed at pages _ to _ of the paperbook. Basis the above, it is humbly submitted that the Ld. AO has erred in making the proposed disallowance relying on the decisions of the Hon'ble Supreme Court in the cases of Calcutta Agency Ltd. (19 ITR 191) and Lashimara tan Cotton Mills Co. (73 ITR 634). The case laws relied upon by the Ld. AO do not apply to the facts of the case since the assessee has duly filed the break-up of the expense on account of shortfall, as desired by the Ld. AO. In view of the above discussion, the assessee humbly appeals before the Bench that the said allowance is unsustainable in law and is liable to be deleted. 32. The ld. AR for the taxpayer further contended that this is a purely legal issue and the Hon ble Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out payment of the cess, interest begins to accrue. It is not a penalty, for which provisions has been separately made by Section 3(5). Nor is it a penalty within the meaning of Section 4, which provides for a criminal liability and a criminal prosecution. The penalty payable Under Section 3(5) lies in the discretion of the collecting officer or authority............. (emphasis supplied) 12. It is clear from the reading of the aforesaid judgment that when the dues are paid belatedly and it attracts interest, which is statutorily payable, such an interest becomes part and parcel of the cess dues. On the same analogy, when the provident dues are not deposited by the employer in time, interest payable thereupon under the PF Act (which is also a statutory liability), the said interest would become part of the provident fund dues. Thus, even if the interest is not penal in nature but only compensatory, having regard to the fact that it partakes the character of the provident dues itself, Section 43B of the Act would be attracted and unless this interest is actually paid the assessee would not be entitled to claim deduction in respect thereof. 37. The ratio of the judgment (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accept auditor s report but also to draw the proper inference from the same. Reliance in this regard is placed on the decision rendered by Hon ble Delhi High Court in the case of Jay Engineering Ltd. reported in 113 ITR 389. 42. When the taxpayer raised specific objection before the ld. DRP qua disallowance of the aforesaid expenses, the ld. DRP has issued specific direction to the AO to allow these expenses if the same are found to be genuine on filing necessary evidence in support of its claim by the taxpayer. We are of the considered view that when the accounts are audited and duly supported with evidences discussed in the preceding paras, the AO is to allow the same after verifying its genuineness and to proceed accordingly. Consequently, Ground No.8 8.1 of ITA No. 1516/Del/2015 is determined in favour of the taxpayer. GROUND NO.9 9.1 OF ITA NO. 1516/DEL/2015 (AY 2010-11) 43. AO has made disallowance of Rs. 13,05,000/- being the provision for obsolete stocks and spares on the ground that the same was only a provision and not an actual write off and on the ground that the taxpayer has failed to provide the basis and working of the provision of the obsol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc.. Hon ble Delhi High Court in case of CIT vs. Relaxo Footwears Limited cited as 293 ITR 231 (Del.) decided the identical issue in favour of the taxpayer by returning the following findings :- Held, dismissing the appeal, that the new unit was a part of the existing business and there was no dispute that there was unity of control and interlacing of the units. Thus the expenses incurred by the assessee for the setting up of the new unit which was a part of the existing business were therefore to be allowed as a revenue expenditure. 47. Similarly, Hon ble Delhi High Court in case of Jay Engineering Works Ltd. vs. CIT cited as 311 ITR 405 (Del.) held as under :- Held, that it was clear that the control over the two units was in the hands of the same management and administration. There was no doubt on this score and in fact, the annual report of the assessee made a reference to the project at Hyderabad. The facts on record showed that the new venture was managed from common funds and there was the necessary unity of control leading to an interconnection, interdependence and interlacing of the two ventures such that it would be said that the fuel injection equipment proj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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