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TMI Blog2014 (6) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... see be subjected to a new regime of opinion without analysis of peculiar facts - The model fee expenditure is to be treated as revenue expenditure – Decided against Revenue. Addition of software expenses u/s 37(1) of the Act – Held that:- As decided in assessee's own case for the earlier assessment year, it has been held that the application software, which were used in day to day operation and conduct of assessee’s business - they do not provide any enduring benefit to the assessee - The assessee only had the license to use the software and the proprietary, intellectual rights contained in the software continued to vest with the vendor i.e. licensor of the software - thus, the order of the CIT(A) is upheld – Decided against Revenue. Transfer pricing adjustment - Difference in arm’s length price in international transactions of purchase of spare parts – Held that:- Following M/s Hero MotoCorp Limited Versus Additional Commissioner of Income tax [2013 (9) TMI 796 - ITAT DELHI] - for determining the ALP of purchase of the spare parts/ components, CUP method would be most appropriate method - the selection of CUP method by the TPO - while applying the CUP method, it is to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower generation undertaking of the assessee, thus, there was no eligible profit for allowing deduction u/s 80IA – Decided against Assessee. Levy of interest u/s 234D of the Act – Held that:- Explanation (2) to section 234D of the act has been clearly stated that the provision of the section shall also apply to an AYs before 1st June 2003 if the assessment for such year commences before 1st June 2003, and if the proceedings in respect of such assessment year is completed after the date - assessment was completed only on 28.02.2006 – thus, the provision of section 234D would apply – thus, the order of the CIT(A) is upheld – Decided against Assessee. - ITA No. 2048/Del/2011, ITA No. 2045/Del/2011 - - - Dated:- 15-5-2014 - Shri B. C. Meena And Shri A. T. Varkey,JJ. For the Appellant : Ajay Vohra, Adv For the Respondent : R. S. Gill, Sr. DR ORDER Per A. T. Varkey, Judicial Member Both these appeals have been preferred against the order of the ld CIT(A)-XX, New Delhi dated 31.01.2011 for the Assessment Year 2003-04. 2. The grounds of appeal raised by revenue in ITA No. 2048/Del/2011are as follows:- 1. On the facts and circumstances of the case and in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of business finally assessed in the assessment order. 2. That the CIT(Appeals) erred on facts and in law in upholding the action of the Assessing Officer in disallowing deduction under section 80IA of the Act, amounting to Rs. 2,28,86,196/-, claimed by the appellant in respect of the captive power generating unit at Gurgaon. 2.1 That the CIT(Appeals) erred on facts and in law in upholding the action of the Assessing Officer in computing profits of the power generating unit by adopting the rate of supply of power at Rs. 4.05 per unit, at which power was supplied by State Electricity Board, as the market price of the power, as against rate of Rs. 5.92 per unit (cost of generation of power at Rs. 5.15 per unit + mark-up of 15% adopted by the appellant for the purposes of computing deduction under section 80IA of the Act for captive power generating unit. 3. That the CIT(Appeals) erred on facts and in law in upholding the levy of interest under section 234D of the Act. 4. First of all we will decide the Revenue‟s Appeal. Ground No. 1. Apropos, deletion of addition of Rs. 17,22,60,688/- made by the Assessing Officer on account of Royalty Expenses by CIT(A). 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now-how and technical information and any other non-public technical or business information being the sole and exclusive property of licensor to be held in trust and confidence by licensee. (b) use of trademark (c) the know-how is not limited to drawings, specifications, process manuals etc. 11. According to the ld DR the technical assessment agreement is renewable, the initial term being for ten year, since extended to another ten years, as on date. Therefore, according to the ld DR it is crystal clear that a capital asset in terms of intellectual property rights and patented have been transferred for whole by the licensor to the assessee company. The licensor has parted with its assets in pursuance to the Agreement. For acquiring this capital for which payment made, would also have to fall within the four walls of capital expenditure. Therefore according to the ld DR the Assessing Officer was right in holding that royalty formed an integral element of capital expenditure. Therefore the Assessing Officer was right in holding that Rs. 17,22,60,688/- capital in nature, therefore the said order may be restored. On the other hand, the ld counsel for the assessee Shri Ajay Vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ump sum payment and also running royalty at a specified percentage based upon the production. The lump sum payment was treated as capital expenditure and running royalty was claimed as revenue expenditure. The Assessing Officer treated the royalty as capital expenditure and the Hon'ble Jurisdictional High Court affirmed the views of the Tribunal that the payment of running royalty was revenue expenditure. In this case, the Hon'ble Jurisdictional High Court has considered the decision of Hon'ble Apex Court in the case of Southern Switchgears Ltd. (supra) relied upon by the Revenue. 29. In the case of Lumax Industries Ltd. (supra), the assessee was paying license fee on year to year basis for acquisition of technical knowledge. The LIL claimed the said payment as revenue expenditure which was disallowed by the Assessing Officer holding that by virtue of the agreement, the LIL had derived an asset of enduring nature. On appeal, the CIT(A) allowed the assessee's claim and the Tribunal upheld the order of the CIT(A). On further appeal, the Hon'ble Jurisdictional High court upheld the order of the ITAT and has also observed that even if the assessee had obtained th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tfully follow the orders of the co-ordinate Bench, and we confirm the order of the ld CIT(A) and dismiss the appeal of the revenue on this ground. 14. Apropos deletion of addition of Rs. 2,65,37,236/- made by the Assessing Officer on account of model fee for obtaining use of technical know-how. 15. Brief facts of the case is that assessee during the relevant previous year had paid total amount of Rs. 10,61,48,944/- towards know-how fee for new models to M/s Honda Motor Co. Ltd. Japan (Honda) under the third supplementary agreement dated 25.09.2001 to the Technical collaboration agreement dated 02.06.1995. Since, said fee was paid for use of know-how of new model and not for acquisition thereof, the same was claimed allowable deduction u/s 37(1) of the Act. The Assessing Officer disallowed 25% of the total model fees alleging that the said expenditure provided long term benefit to the assessee and in essence is a capital expenditure. On appeal, the ld CIT(A) while observing that characterization of payment of royalty under the same technical collaboration agreement cannot be different from payment of model fee, held that expenditure on model fee was allowable revenue expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly eligible to be treated as revenue expenditure and even if it is assumed that there is any shred of doubt, the rule of consistency does help assessee s case and it will not be desirable that assessee be subjected to a new regime of opinion without analysis of peculiar facts. The model fee expenditure has already been settled by ITAT and Hon ble Delhi High court as revenue expenditure in assessee s own case. In view of all these facts, assessee succeeds on merits on the issue about Model Fee and TGF expenditure being fully allowable revenue expenditure. 17. Respectfully following the aforesaid decision in assessee s own case, we confirm the order of the ld CIT(A) and dismisses the appeal of the Revenue on this ground. 18. Apropos addition of Rs. 73,98,784/- made by Assessing Officer on account of expenditure on software claimed u/s 37(1) of the Act. 19. The assessee, during the year incurred expenditure amounting to Rs. 73,98,784/- towards user charges/ license fee for use of the software. The expenditure related to purchase of application software e.g., lotus notes, Catia ADD + ASS, Tivoli TSM client etc. for Research and Development department and some other department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only license to use software, documentation and information etc. The assessee is not permitted to sub-license or rent the software and otherwise transfer any of its rights or obligations under this agreement. According to the ld counsel, it may be appreciated that since the assessee only had the license to use the aforesaid software and the proprietary, intellectual rights therein continued to vest with the vendor(s), the licensor of the software. It will be appreciated that there was no outright sale of the aforesaid software to the assessee and the aforesaid expenditure did not result in acquisition/ creation for an asset in the capital feild as the assessee did not acquire any ownership rights in the aforesaid software. The ld counsel stressed that the assessee s rights were confined to the use of software alone and the assessee was prohibited from making copies of the aforesaid software for commercial exploitation. The ld counsel submitted that in the event of termination of the agreement, the assessee was prohibited from using the software and was to return the same to the licensor or destroy all copies of such software and delete/ remove the same from all its computer hardwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld CIT(A). We have heard both the parties and gone through the records and perused the case laws cited by both sides. We find that for the Assessment Year 2002-03, the same issue was decided in ITA No. 1052/Del/2011 ITA No. 902/Del/2011 dated 31.07.2013 33. We have duly considered the rival contentions and gone through the record carefully. From perusal of the details, exhibiting the nature of software available on page 18 of the ld CIT(A)‟s order as well as page 77 of the paper book-I, it reveals that these are application software, which were used in day to day operation and conduct of assessee s business. Basically, they do not provide any enduring benefit to the assessee. The assessee only had the license to use the software and the proprietary, intellectual rights contained in the software continued to vest with the vendor I.e. licensor of the software. Therefore, in our opinion, ld First Appellate Authority has rightly appreciated the facts and circumstances and no interference is called for in her finding. This ground of appeal is rejected. 22. Since there is no change in the facts and laws, we respectfully following the decision rendered in assessee s own ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006-07 (ITA No. 5130/Del/2010) and 2002-03 (902/De/2011) remanded the matter back to the TPO with the direction to verify if raw material was available to the assessee from domestic sources. 99. We have carefully considered the arguments of both the sides and perused the material placed before us. After considering the facts of the case and the arguments of both sides, we agree with the Revenue that for determining the ALP of purchase of the spare parts/ components, CUP method would be most appropriate method. Therefore, we uphold the selection of CUP method by the TPO. However, while applying the CUP method, it is to be ascertained whether similar goods were available indigenously. If the goods were not available indigenously, then naturally the rate of indigenous goods cannot be applied for determining the ALP. It is the contention of the assessee that when the goods were not available indigenously then only the same were purchased from AE. However, no evidence in this regard is produced by the assessee. At the same time, we find that no specific opportunity was allowed to produce such evidence. In view of above, in our opinion, it would meet the ends of justice if the orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for statistical purpose. 28. Coming to the appeal preferred by the assessee in ITA No. 2045/Del/2011, the ground No. 1 and 1.1 of assessee is denial of benefit of deduction u/s 80HHC of the Income-tax Act, 1961, 1961(herein after the Act‟) on the custom duty benefit under DEPB Scheme, amounting to Rs. 16,31,41,138/- and other claims of the assessee while computing deduction under section 80HHC. 29. Brief facts of the case is as follows. The assessee is engaged in the business of manufacture and sale of motorcycles. 30. The assessee in the return of income claimed deduction u/s 80HHC of the Act of Rs. 4,08,99,897/-. The deduction claimed was duly supported by Chartered Accountant‟s Report in Form 10CAC. 31. The assessee in the return of income claimed deduction u/s 80HHC of the Act of Rs. 7,08,99,897/-. The deduction claimed was duly supported by Chartered Accountant‟s Report in Form 10CCAC. The Assessing Officer, however, while completing assessment allowed deduction u/s 80HHC of the Act at Rs. 5,80,86,196/- by inter-alia: (a) not regarding custom duty benefit under DEPB scheme amounting to Rs. 16,31,41,138/- as benefit under section 28(iiib) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), subject to satisfaction of certain conditions. According to him, the Bombay High Court in the case of CIT Vs. Kalpataru Colours and Chemicals Ltd., 328 ITR 451, had held that section (iiid) covers full amount of DEPB benefit including amount of credit utilized by an assessee, which is not eligible for deduction under section 80HHC, if conditions stipulated in proviso to that section are not satisfied. 35. According to him, the ld CIT(A), while following the amendments to section 28(iii) read with second proviso to section 80HHC(3) of the Act, inserted by the Taxation Laws (Amendment) Act, 2005, w.e.f. 01.04.1998 and the decision of Bombay High Court in the case of CIT Vs. Kalpataru Colours and Chemicals Ltd. (supra) confirmed the disallowance of DEPBV benefit. 36. The ld counsel for the assessee Shri Ajay Vohra pointed out that assessee s own case for the Assessment Year 2002-03 is set aside and this issue has been remanded back to the file of the Assessing Officer for verification in the light of the Hon ble Supreme Court‟s order in the case of Topman Exports Vs. CIT reported in 342 ITR 49, and decision of Hon ble Delhi High Court in the case of CIT Vs. K.R.B.L. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Topman Exports was pronounced on 8th of February, 2012. The benefit of both these decisions was not available to the Ld. Revenue authorities because CIT(A) has decided the appeal of assessee on 29.11.2010, therefore, we set aside this issue to the file of assessing officer for verification and readjudication. The Ld. Assessing officer shall keep in mind, the decision of Hon ble Supreme Court in the case of Topman Exports Vs. CIT reported in 342 ITR 49, decision of Hon ble Delhi High Court in the case of CIT Vs. K.R.B.L. Ltd. reported in 82 DTR page 241 and the decision of Hon ble Gujarat High Court in the case of Avni Export reported in 348 ITR 391, while deciding, whether any amount from DEPB receipt deserves to be reduced from the eligible profit for computing deduction u/s 80HHC? 37. Since there is no change in the facts and law on this issue we respectfully following the decision in assessee s own case for Assessment Year 2002-03 above and we set aside the impugned order and direct the Assessing Officer to verify the claim in the light of the decision of the Hon ble Supreme Court in the case of Topman Exports (supra), K.R.B.L. Ltd (supra) and Avni Exports (supra). 38 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of the net interest income is to be excluded under clause (baa) of the explanation. Respectfully following this decision, we direct the assessing officer to verify the claim of assessee and then re-compute the deduction admissible u/s 80HHC in the light of Hon ble Delhi High Court‟s decision. The next component under these grounds is exclusion of 90% of miscellaneous income. The assessee has a miscellaneous income of Rs. 3,11,00,000/-. The Ld. Counsel for the assessee has submitted this miscellaneous income is under 11 heads, which include royalty, rent mutual fund, bill discounting, etc. He pointed out that assessee itself has excluded 90% of the receipts representing miscellaneous interest income royalty, rent and miscellaneous income from commission. The other receipts have arisen during the course of business and is an operational income and cannot be considered as of the nature of any other receipts in terms of clause (baa) of explanation to section 80HHC of the Act. He made detail written submission in his note and made reference to a large number of decisions. The Ld. DR on the other hand, pointed out that no discussion is discernable in the order of Ld. CIT(A) on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort. Accordingly, the appellant adopted the rate of transfer of power @ Rs. 5.92 per unit (Rs. 5.15 + 15% of Rs. 5.15). The Assessing Officer, in the assessment order, has held that the inter-unit transfer of power from the Power Plant should have been at the price at which HSEB (government body) is supplying to appellant‟s Dharuhera/ Gurgaon Plant, i.e. Rs. 3.90 per unit. Since the cost of generation was more than the market value taken by the Assessing Officer, no deduction u/s 80IA of the Act has been allowed in the assessment order by the Assessing Officer following the earlier year assessment order which stand has been upheld by the ld CIT(A). Aggrieved by the said order of the ld CIT(A) the assessee is before us. 42. The ld counsel, Shri Ajay Vohra submitted that the rate of transfer price of power power, adopted by the appellant for the purpose of computing deduction u/s 80IA of the Act is correct and no disallowance of deduction claimed under the said section is called for. According to him, in terms of sub-section(8) of Section 80-IA of the Act, profits of the eligible business are required to be computed on the basis of inter unit transfer of goods and services a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld counsel contended that the re-computation of the allowable deduction made by the Assessing Officer by substitution the said price with Rs. 3.90, at which electricity was not available in the open market is contrary to the mandate of sub-section (8) of Section 80-IA of the Act. The ld counsel relied on the decision of Mumbai Bench of the Tribunal in the case of Reliance Infrastructure Ltd. Vs. Addl. CIT: ITA No. 4631/Mum/2009, wherein price paid for purchase of power form third party, other than government body, was accepted to be constituting market price for the purpose of computing deduction u/s 80IA(4) of the Act. It was submitted by the ld counsel that the rate as adopted by the appellant, as the market price of power be taken to compute the profits of the Power Plant for computing deduction u/s 80IA of the Act. Therefore the ld counsel pleads that the impugned order may be set aside. On the other hand the ld DR supported the decision of the ld CIT(A) and pointed out that the aforesaid issue has been decided against the assessee by co-ordinate Bench of this Tribunal in the assessee s own case for the Assessment Year 2006-07, 2007-08 and 2002-03. 44. We find that for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit while the assessee had computed the profit of the eligible business by taking the rate of power at Rs. 7.08 per unit. The assessee has computed the rate of power by the cost of generation per unit with mark of 15%. However, the Assessing Officer has pointed out that the government undertaking i.e. Haryana State Electricity Board has supplied the power to the assessee and other industrial units in the area at the rate of Rs. 3.90 per unit. Now, the question is, what is the market rate at which power is being supplied. In our opinion, the rate at which power is being supply by the Haryana State Electricity Board, to each and every industrial unit situated in the area, in which the assessee s manufacturing unit is situated, is the market rate at which power is available. The rate at which Maruti Udyog Limited is claimed to supply the power to its AE cannot be said to be the market rate of the power in that area because as per assessee s own claim, Maruti Udyog Limited is supplying the power to its AE and not to unrelated parties in general. In view of the above, we hold that the Assessing Officer was fully justified in arriving at the conclusion that there was a loss, in the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (4) of section 245D, the amount of refund granted under sub-section (1) of section 143 is held to be correctly allowed, either in whole or in part, as the case may be, then, the interest chargeable, if any, under sub-section (1) shall be reduced accordingly. Explanation (1)-Where, in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section. Explanation (2)-For the removal of doubts, it is hereby declared that the provisions of this section shall also apply to an assessment year commencing before the 1st day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date. 50. In view of the explanation (2) it has been clearly stated that the provision of this section shall also apply to an assessment years before 1st June 2003 if the assessment for such year commences before 1st June 2003, and if the proceedings in respect of such assessment year is completed after the said date. Admittedly in this case assessment was completed only on 28.02.2006. We find force in the argument of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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