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TMI Blog2015 (9) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 147/ 148 of the Act on mere change of opinion as held by the Honourable Supreme Court in 'CIT v. Kelvinator of India Ltd.' [2010], 228 CTR 488' as the original assessment was completed under Section 143(3) of the Act wherein the issue regarding allowability of payment by the appellant on account of exclusive vendor status was duly examined and allowed by the then assessing officer. 2. That on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in computing the total income of the appellant at INR 389,408,700 by making a disallowance of INR 140,899,500 (INR 18,78,66,000 less 25% dep. on INR 187,866,000) on the purported ground that the same is in the nature of capital expenditure without appreciating that the said amounts were in the nature of normal trade/ volume discount allowed by the appellant to its customers during the normal course of business and is therefore fully allowable under Section 37(1) read with Section 28 of the Act. 3. a. Without prejudice to the above, on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in rejecting the contention of the appellant that in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50/-. Scrutiny of income tax assessment records revealed:- A. that the assessee had deducted an amount of ₹ 1,15,04,000/- on account of amount collected towards tools subsidy from the sales in the P&L Account. The amount comes under the definition of income. The mistake resulted in under assessment of income of ₹ 1,15,04,000/- involving tax effect of ₹ 61,03,921/- B. that as per the notes to accounts assessee had paid an amount of ₹ 18,78,66,000/- to obtain exclusive vendor status and this amount was set off against sales of current financial year. As the expenses incurred on exclusive commercial rights and covered under intangible assets, therefore, it needed to be capitalized. Only depreciation @ 25% was allowable on such capitalized amounts. Thus, depreciation of ₹ 4,69,66,500/- was only allowable in the current financial year out of total claim of the assessee amounting to ₹ 18,78,66,000/-. The mistaken resulted in under assessment of income of ₹ 14,08,99,500/- involving tax effect of ₹ 7,47,60,042/-. C. that as per schedule-IV attached to form 3CD report assessee had purchased software of ₹ 1,26,92,880/- and debite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer. He invited our attention to page no. 91 of the paper book where the explanation was furnished regarding the queries raised by the Assessing Officer during the course of assessment proceedings. Therefore, he submitted before us that it amounts to change of opinion on account of which no reassessment proceedings can be initiated. Reliance in this regard was placed on the following decisions: i. Aroni Commercials Ltd. Vs. DCIT [362 ITR 403 (Bom)] ii. Microsoft Corporation (I) P. Ltd. Vs. DCIT [357 ITR 50 (Del)] iii. Maruti Suzuki India Ltd. Vs. DCIT [356 ITR 209(Del)] iv. Moser Baer India Ltd. Vs. DCIT [WP (C) No. 1004 of 2013 (Del.)] v. Cartini India Ltd. Vs. ACIT [21 DTR 281 (Bom.)] vi. M.J. Pharmaceuticals Ltd. Vs. DCIT [297 ITR 119 (Bom.)] vii. Garden Silk Mills (P.) Ltd. Vs. DCIT, [237 ITR 668 (Guj.)] viii. CIT Vs. Eicher Ltd. [294 ITR 310 (Del.)] ix. Jal Hotels Co. Ltd. Vs. ADIT [24 DTR 37 (Del.)] x. ITO Vs. Object Connect India Pvt. Ltd. [1277 & 1278/Hyd/2011 (Hyd.)] xi. Usha International Ltd. [ITA No. 2026/2010]-Delhi High Court 3.2 On the other hand, learned Sr. DR placed reliance on the orders of the CIT(A). 3.3 We heard the rival submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its financial accounts as a reduction from the invoice value and a note no. 12 in the Note to Accounts included in Schedule-XXI of the balance-sheet is reflected as under: "12. In March, 2003, under an agreement, a total consideration of USD 6,000 was agreed with customer to obtain exclusive vendor status. This consideration being set off against sales based on pre-agreed rates/quantities are appropriate recorded as volume discount. USD 4,124 (equivalent of ₹ 187,866/-) has been adjusted towards above till end of this financial year. The total consideration will be paid off by the end of the next financial year." 4.2 During the course of original assessment proceedings, the appellant furnished following explanation on this issue as under: "Lear India is a manufacturer and supplier of specialized car seating systems. As Lear India is not itself a car automobile manufacturer, its business can be understood to be ancillary supplier of key components to a major automobile manufacture. In other words, Lear India can also be understood to be a contract manufacturer specific commissioned cars seating systems at the behest of independent car manufacturers like General Motors, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ahindra and Mahindra Ltd. for which it had been agreed that a total payment of 6 million USD would be made by the appellant. Perusal of the agreement filed by the appellant shows that the appellant had obtained exclusive vendor status by virtue of the agreement which means that only the appellant was to supply the goods to M/s. Mahindra and Mahindra Ltd. 4.4 From the perusal of the agreement, it is clear that the assessee obtained an exclusive right of supplying the seating systems to the M/s Mahindra & Mahindra. Now the issue that crops up for our consideration is whether it constitutes capital expenditure or revenue expenditure. To decide this issue, in our considered opinion, the principles laid down by the Hon'ble Supreme Court in the case of Assam Bengal Cement Vs. CIT, 27 ITR 34, should be applied. The relevant portion of the aforesaid case are as follows: "…………..Under clause 4 of the deed the lessors undertook not to grant any lease, permit or prospecting licence regarding limestone to any other party in respect of the group of quarries called the Durgasil area without a condition therein that no limestone shall be used for the manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as a volume trade discount cannot determine the true nature of the transaction. Nomenclature of a transaction is immaterial while deciding the true nature of the transaction. 4.6 Having regard to these principles, we have no hesitation to hold that the expenditure incurred by the assessee company in acquiring exclusive vendor status in terms of the agreement entered into by it is nothing but capital expenditure and hence this ground of appeal is also dismissed. 5. The ground no. 3 is regarding the contention of the assessee that the Assessing Officer had erred in computing the disallowance at ₹ 14,08,99,500/- without appreciating the fact that during the year the total expenditure incurred and claimed on account of trade/volume discount was only ₹ 9,23,23,607/-. We, in the above paragraphs, held that the entire expenditure is capital in nature and mere fact that the capital expenditure is spread over period of time, does not make any difference. Therefore, the argument that the expenditure incurred during the year under consideration was only ₹ 9,23,23,607/-, does not hold any water. Furthermore, this additional ground before the CIT(A) who had not admitt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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