9911796707
TMI Blog2021 (4) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... es to cost of closing inventory - HELD THAT:- As decided in own case [ 2017 (1) TMI 266 - ITAT DELHI] tribunal deleted the aforesaid addition on the ground that in those years it has been held that the assessee was following consistent system of accounting, which was unnecessarily disturbed by the Revenue, without change in facts. It was further held that tinkering with the accounting method was unjustified when the exercise did not materially alter the profits of the assessee company. Addition on account of cost of rejection of semi-finished goods and obsolete items to the value of closing stock - HELD THAT:- As decided in own case [ 2017 (1) TMI 266 - ITAT DELHI] on reading of the assessment order as well as the direction of the Ld. Dispute resolution panel it was not found that how the loss of the assessee was found to be normal when the assessee submitted that it is an abnormal loss incurred by it during the course of manufacturing process. Further the Ld. dispute resolution panel has also stated that both the cost of normal and abnormal losses have to be loaded to the value of the closing stock is devoid of any merit as it is contrary to the accounting standard issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue is squarely covered in favour of the assessee Allowability of provision of Head office expense reversed in succeeding year - AR submitted that the aggregate provision for advertisement expenses incurred at the head office made at the end of the relevant previous year, which was reversed in succeeding year - HELD THAT:- In the present Assessment Year, detail of provisions for advertisement was submitted before the lower authorities. Further, the Assessing Officer, in the set-aside proceedings for A.Y. 2008-09, vide order dated 26.02.2015, accepted the claim of the assessee and allowed relief on the aforementioned identical issue by observing that the assessee had computed the provision on the basis of actual Purchase Orders, which was scientific and logical in nature. Thus, the Assessing Officer was not right in disallowing the said expenses and also adding back the same while computing book profit, holding the same to be unascertained liability. Thus, the issue is squarely covered by the orders the Tribunal in A.Ys. 2008-09 to 2013-14. Disallowance of alleged excessive purchases from related parties as per AS-18 - HELD THAT:- Tribunal order for A.Ys. 2010-11 and 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [ 2017 (1) TMI 266 - ITAT DELHI] Gains from sale of investments income treated as business income - HELD THAT:- In the year under consideration, the issue is identical to the AYs 2010- 11 and 2011-12 wherein the Tribunal allowed this issue in favour of the assessee after considering the legal position and intention of the assessee company, the Tribunal came to the conclusion that income from sale of shares/mutual funds/PMS etc. would be taxable as capital gains, instead of business income brought to tax by the assessing officer on the basis that the assessee (a) was not a trader in stock; (b) had no intention of holding the shares as stock; (c) sales were effected by delivery (d) that the department had itself in earlier years taxed such transactions under the head capital gains - Decided in favour of assessee. Addition u/s 14A r.w.r. 8D - HELD THAT:- Ends of justice would be met if in this year also, the issue is re-examined by the Assessing Officer in light of judgment of the Hon ble Apex Court in the case of Maxopp Investment Ltd. vs. CIT [ 2011 (11) TMI 267 - DELHI HIGH COURT] . Accordingly, the matter is restored to the file of the Assessing Officer. We direct the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Disallowance of Royalty Expenditure on the ground of being capital in nature - HELD THAT:- As relying on own case of assessee [ 2017 (1) TMI 266 - ITAT DELHI] Royalty paid in terms of license B agreement is held to be an allowable revenue deduction. Disallowance u/s 80IC on account of profit attributable to the brand value and marketing network - HELD THAT:- As decided in own case [ 2017 (1) TMI 266 - ITAT DELHI] head office is not a separate profit centre and, therefore, no profit is to be separately attributed to such activity. It further observed that, for the purpose of working out eligible deduction under section 80-IC of the Act, actual expenses incurred at the head office are to be allocated between various profit centers on a rational and scientific basis. Disallowance u/s 80IC on account of other income - Addition on the ground that such incomes were not derived from the business of manufacture of specified articles or things - HELD THAT:- Similar disallowance made by the assessing officer in assessment yea₹ 2010-11 and 2011-12 has been deleted by the Tribunal vide consolidated order [ 2017 (1) TMI 266 - ITAT DELHI] . The Tribunal, after examining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase hold rights acquired in Haridwar and Neemrana. As regards the land at Haridwar, the AO is directed to allow the claim of depreciation as per opening WDV carry forward from the earlier years. In so far as the depreciation of land at Neemrana is concerned the same shall be allowed after verification of the relevant payments claimed to have been made by the assessee. - ITA No. 9187/Del/2019 - - - Dated:- 13-4-2021 - Shri Sudhanshu Srivastava, Judicial Member And Shri O.P. Kant, Accountant Member For the Assessee : Shri Ajay Vohra, Sr. Adv., Shri Gaurav Jain, Adv., Ms. Monisha Sharma, Adv. For the Revenue : Shri Surenderpal, CIT DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: This appeal is filed against the assessment order passed under section 143(3) read with section 144C of the Income Tax Act, 1961 ( the Act ) passed by ACIT, Circle-11, New Delhi vide order dated 30/10/2019. 2.0 The assessee has raised the following grounds of appeal: 1. That the assessing officer erred on facts and in law in completing assessment under section 143(3) read with section 144C of the Income-tax Act, 1961 ('the Act'), vide order dated 30.10.2019, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of valuation of closing inventory. 4. That the assessing officer erred on facts and in law in enhancing the value of closing inventory of finished goods by an amount of ₹ 13.83 lacs (net disallowance of ₹ 3.95 lacs (13.83 9.87 lacs)), in respect of cost of rejection of semi-finished goods and obsolete items, on the ground that the aforesaid cost needs to be added to the value of closing stock in accordance with accounting standard-2 read with section 145A of the Act. 4.1 That on facts and circumstances of the case, the assessing officer failed to appreciate that the aforesaid costs were abnormal in nature and, therefore, in accordance with the consistent, regular and accepted method of accounting, was not considered for the purpose of valuation of closing inventory. 5. That the assessing officer erred on facts and in law in making a disallowance of ₹ 72,64,48,360, being the provision made at the end of the year towards increase/decrease in prices of raw material already supplied by the vendors upto 31.03.2015. 5.1 That on the facts and circumstances of the case, the assessing officer erred in observing that as per the terms of purchase o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not constitute prior period expenditure. 7.2 Without Prejudice, the assessing officer erred on facts and in law in not allowing or directing to allow the aforesaid expenses in the relevant preceding year(s). 8. That the assessing officer erred on facts and in law in disallowing a sum of ₹ 11,79,88,183 in respect of provision for advertisement expenses incurred at the head office at end of the relevant previous year, which were reversed in the succeeding year, alleging the same to be excessive. 8.1 That the assessing officer erred on facts and in law in alleging that the provision for expenses at the end of relevant previous year was not made on scientific basis and was not a reasonable estimate and, therefore, contingent in nature. 8.2 That the assessing officer erred on facts and in law in observing that the appellant failed to substantiate the method of creating the aforesaid provision. 8.3 That the assessing officer erred on facts and in law in adding back the provision for advertisement expenses incurred at head office, aggregating to ₹ 11,79,88,183, while computing book profit under section 115JB, holding the same to be an unascertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to the aforesaid transaction, since the loan or advance allegedly given by HFCL to the appellant was in the ordinary course of business of HFCL. 10.3 That the assessing officer erred on facts and in law in observing that the loan was not advanced by HFCL in the ordinary course of business of money lending. 11. That the assessing officer erred on facts and in law in disallowing expenditure of ₹ 30,25,34,878 (being 30% of total amount of ₹ 1,00,84,49,593) incurred towards quarterly target/turnover discount and trade discount of ₹ 16,05,24,888 (being 30% of total amount of ₹ 53,50,82,960) given to the dealers/customers under section 40(a)(ia) on the ground that the appellant failed to deducted tax at source therefrom under section 194H of the Act. 11.1 That the assessing officer erred on facts and in law in observing that since the impugned payments were not in the nature of discount to dealers, but incentives for meeting targets, the same was in the nature of commission , which was subject to TDS under section 194H of the Act. 11.2 That the assessing officer erred on facts and in law in not appreciating that the aforesaid discounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant with a view to earn profit from selling the same at a later stage and, therefore, profits were taxable under the head business income . 13.2 That the assessing officer erred on facts and in law in observing that the appellant had earned substantial turnover from sale of investments and was engaged in day to day monitoring of investments, therefore, the appellant was primarily engaged in activity of investments, which was to be regarded as business activity and, accordingly, income arising therefor was taxable under the head business income . 14. That the assessing officer erred on facts and in law in making additional disallowance of ₹ 1,65,07,000 under section 14A of the Act, by applying provisions of Rule 8D of the Rules. 14.1 That the assessing officer erred on facts and in law in applying provisions of Rule 8D of the Rules, without reaching a finding/recording satisfaction as to the incorrectness of the suo moto disallowance of expenses made by the appellant under section 14A of the Act. 14.2 That the assessing officer erred on facts and in law in attributing entire interest expenditure incurred during the year towards earning of exempt incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of ₹ 2,28,58,951 in respect of Dharuhera, Gurgaon, Haridwar and Neemrana plants and ₹ 5,09,68,426 in respect of head office expenses) out of expenditure incurred towards re-imbursement of foreign travel expenses incurred by employees, on the ground that the same were not supported with evidences/ bills of expenditure incurred abroad. 17. That the assessing officer erred on facts and in law in holding that expenditure aggregating to ₹ 127,48,17,707 (net disallowance of ₹ 95,61,13,280 after allowing depreciation @ 25%), incurred by the appellant during the relevant previous year on account of royalty paid to Honda Motor Co., Japan, ( Honda ) under the License and Technical Assistance Agreement ( LTAA ) was capital in nature and not allowable deduction. 17.1 That the assessing officer erred on facts and in law in observing that the assessee acquired capital assets in the nature of intellectual property rights and patents from Honda on payment of royalty and technical guidance fees under the License B Agreement. 17.2 That the assessing officer erred on facts and in law in observing that the assessee received benefit of enduring nature under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible unit, on the ground that such incomes were not derived from the business of manufacturing. 19.1 That the assessing officer erred on facts and in law in holding that the other income aggregating to ₹ 1,17,21,822 is taxable under the head income from other sources . 20. That the assessing officer erred on facts and in law in not allowing weighted deduction of ₹ 74,31,13,902 claimed under section 35(2AB) of the Act with respect to scientific research and development expenses incurred during the year on the ground that such expenses were not claimed in the original return of income or revised return of income permitted under section 139(5) of the Act. 20.1 That the assessing officer erred on facts and in law in not appreciating that since the aforesaid claim was raised through notes appended to computation of income, which formed an integral part of the original return of income and, therefore, the said claim was raised in the original return of income itself. 20.2 Without prejudice, that the assessing officer erred on facts and in law in not appreciating that since the aforesaid claim was, in any case, preferred during the course of assessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gating to ₹ 25.04 crores, were shown to have been procured from other units, i.e., Dharuhera and Gurgaon plants. Out of the aggregate transactions of ₹ 25.04 crores: (i) components having value of ₹ 0.73 crores were semi-finished goods for which nominal processing was carried out at other units before transfer to the Haridwar plant, and (ii) balance components having value of ₹ 24.31 were procured by the aforesaid non-eligible units from third parties and were transferred to the eligible unit at material cost. Freight charges on transfer of the aforesaid items were always booked at the receiving unit. 4.0.2 The Ld. AR further submitted that in the transfer pricing study report, the assessee company benchmarked the aforesaid inter-unit transaction(s) between eligible and non-eligible units applying Comparable uncontrolled price ( CUP ) method, being the most appropriate and preferred method in the facts of the present case. Alternatively, the assessee also applied Transactional Net Margin Method ( TNMM ) considering itself to be the tested party. It was submitted that since the operating profit margin of the comparable companies at 9.31% was within +/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her substitution of such price is warranted in terms of section 80IA(10) of the Act and the transaction was a genuine business transaction borne out of commercial expediency. It was further pointed out by the Ld. AR that following the order of the Tribunal for AY 2010-11 and 2011-12, the Tribunal has also decided the issue in favour of the assessee in appellate orders passed for AY 2009-10, 2012-13 and 2013-14. 5.0 The Ld. CIT-DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 6.0.0 We have heard both the parties and perused the material available on record. This Tribunal, in order passed for A.Ys. 2010-11 and 2011-12, held as under: 140) We have heard the rival contentions. We have observed that merely because there was inter-unit transfer of certain goods from non-eligible unit to eligible unit, the assessing officer automatically applied the provisions of section 80IA(8) of the Act to hold that such transfer should have been at market price without looking to the nature of transfer and the facts and circumstances of the case. It has been explained by the Appellant that substantive transfers were made on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of such goods; in other words, in a free market condition such goods would have also been sold at the same price at which they have been transferred by the non-eligible unit to the eligible unit. In that view of the matter, we find that the present issue was not decided by the assessing officer in correct perspective and, therefore, erred in disallowing deduction under section 80IC, by enhancing the purchase price by adding certain markup thereon. In view of this we allow ground No. 30 of the appeal of the assessee. 6.0.1 Therefore, the issue stands squarely covered in favour of the assessee by order dated 24.10.2016 passed by Tribunal in the immediately preceding assessment years, i.e. AY 2010-11 and AY 2011-12 wherein identical disallowance made by the assessing officer has been deleted. The Tribunal, while allowing the claim of the assessee under section 80-IC of the Act, held that for the purpose of computing market price of inter-unit transfer of goods, when the non-eligible units procured goods at market price from third party vendors and supplied the same to the eligible unit at the same purchase price as increased by the applicable freight cost, no further sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment years 2007-08 and 2008-09, deleted the aforesaid addition on the ground that in those years it has been held that the assessee was following consistent system of accounting, which was unnecessarily disturbed by the Revenue, without change in facts. It was further held that tinkering with the accounting method was unjustified when the exercise did not materially alter the profits of the assessee company. It was further pointed out by the Ld. AR that following the order of the Tribunal for AY 2010-11 and 2011-12, the Tribunal has also decided the issue in favour of the assessee in appellate orders passed for AYs 2009-10, 2012-13 and 2013-14. 8.0 The Ld. CIT-DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 9.0.0 We have heard both the parties and perused the material available on record. The Tribunal in assessee s own case for A.Ys. 2010-11 2011-12 held as under: 11) We have carefully considered the rival contentions. The company is a corporate entity therefore it has to value its closing stock according to the accounting standard 2 valuation of inventories issued by the Ministry of corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and method of accounting without any demur. 7.16 The contention of the DRP that, the principle of resjudicata does not apply in Income tax proceedings and therefore, the Assessing officer is correct to come to independent conclusion and is not bound by past acceptance of a factual legal point by the department is untenable. Technically the principle of res judicata may not apply to the income tax proceedings as each year is an independent year, yet there ought to be uniformity in treatment and consistency as propounded by Hon ble Supreme Court in the case of Radhasoami Satsang vs. CIT 193 ITR 321, when the facts and circumstances are identical. It is a judicially accepted principle that when the facts are same, a uniform view should be adopted for the subsequent years in the income tax proceedings. Unless there is a material change in the facts, which is neither demonstrated by assessing officer nor DRP, the view which is taken earlier, should not be changed, as held by various courts. We now discuss some of the case laws. 7.17 The Hon ble Supreme Court in the case of Radhasoami Satsang (supra), on the theory of consistency, has held as under: Strictly speakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 382 (Del.), the Hon ble Jurisdictional High Court has held as follows: If a particular accounting system has been followed and accepted and there is no acceptable reason to differ with it, the doctrine of consistency would come into play. The method of accounting cannot be rejected. The assessee was following the mercantile system of accounting. According to past business practice, the expenditure spilled over the next year and was debited in the second year and was allowed by the Assessing Officer. The Assessing Officer for the assessment year in question disallowed ₹ 13,46,299 claimed as expenditure of prior period allowable in the current year. The Commissioner (Appeals) deleted the disallowance and this was upheld by the Tribunal. On appeal to the High Court: Held, dismissing the appeal, that the assessee had claimed prior period expenses on the ground that the vouchers for such expenses from the employees/ branch employees were received after March 31st of the financial year. It had branch offices throughout the country. It debited the expenditure spill over the subsequent years and the Assessing officer had been allowing it in the past. The accounting practi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made is revenue neutral and at best may result in preponment or postponement of revenue. The issue is whether such exercise is at all required on the ground of materiality. Materiality is a concept which is well recognized both in accountancy and law. Accounting standards notified by the CBDT u/s 145(2) mandate that the concept of materiality be taken into consideration when finalizing the accounts of an assessee. 7.24 Further, the Hon ble Supreme Court in the case of Berger Paints India Ltd. vs. CIT (2004) 266 ITR 99 at page 103(SC), has noted with approval, the observations of the Special Bench of the ITAT in the case of Indian Communication Network Pvt. Ltd. vs. IAC (1994) 206 ITR (AT) 96 (Delhi). At page 114 it observed that: Before we part with the ground, we cannot help feeling that the litigation between the parties could have been avoided since it was quite immaterial, whether full deduction was allowed in one year or partly in one year and partly in the next, since the assessee is a company and rate of tax is uniform. The gain to one and the loss to the other is illusory since what is deferred in one year, would have to be discharged in the next. In that se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid expenditure for the purposes of valuation of closing inventory of finished goods. It was submitted that the Assessing Officer disallowed this expenditure and added the same to the income of the assessee. 10.0.1 The Ld. AR submitted that the aforesaid issue stood decided in favour of the assessee by the order of the Delhi Bench of the Tribunal in the assessee's own case for the assessment years 2007-08 and 2008-09 wherein similar adjustment made in that year was deleted on the same ground. The Ld. AR pointed out that the aforesaid issue has been decided in favour of the assessee by the order of the Tribunal in assessment year 2010-11 and 2011-12 wherein the Tribunal had held that only normal loss is to be loaded/added to the cost of closing inventory which was in consonance with the Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI). It was further pointed out by the Ld. AR that following the order of the Tribunal for AY 2010-11 and 2011-12, the Tribunal has also decided the issue in favour of the assessee in appellate orders passed for AYs 2009-10, 2012-13 and 2013-14. 11.0 The Ld. CIT-DR relied on the Assessment Order and Order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluded from the cost of inventories and recognized as expenses in the period in which they are incurred are: a)Abnormal amounts of wasted materials, labour or other production costs; storage costs, unless those costs are necessary in the production process before a further production stage; administrative overheads that do not contribute to bringing inventories to their present location and condition; and selling costs. 8.14 Keeping in view the treatment prescribed under AS-2 and the fact that the assessee has been regularly following the same method of accounting for valuation of charging such rejection to P L A/c and its closing inventory, we are of the view the addition in question is uncalled for. The adjustment is not material adjustment. Further, for the reasons staged by us on the issue of consistency, while disposing around no. 2 to 2.2, we allow this ground of the assessee. Both the parties have admitted that there is no difference in the facts and circumstances of the case of the appellant in the assessment year before us as well as the year for which the order of the coordinate bench pertains to. On reading of the assessment order as well as the direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure. The assessing officer held that provisions emanating from retrospective price amendments are contingent in nature and thus, not an allowable business expenditure. It was further submitted that the assessing officer also added back the aforesaid total provision while computing book profit under section 115JB, holding the same to be an unascertained liability. 13.0.1 The Ld. AR submitted that the provision for the material is worked out as under:- (1) Provision for purchase orders issued for price amendment as at 31.3.2015: ₹ 24.79 crores: The aforesaid provision was made on the basis of actual supplies made up to the end of the year as per price amendments actually issued as on 31.03.2015. Therefore, the assessee has made provision of ₹ 24.79 crores on the basis of actual POs issued to vendors for the change in prices during the year and it involved no estimation. (2) Provision made on best estimate basis of ₹ 47.85 crores of which price amendments were not finalized by the end of the year: The provision for price increase of ₹ 47.85 crores was made on the basis of per vehicle increase / decrease in metal cost during 3rd/ 4th Quart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case for this year compared to the year for which the tribunal has decided this issue in favour of the appellant. The coordinate bench in assessee s own case for assessment year 2007-08 has decided this issue as under:- 12.11 The addition in question is on account of provision for increase in price of material. When there is an excess provision on account of price revision made during the year, the assessee reversed the same in subsequent year i.e. when the actual figures are known. Similarly, when there is a short provision for increase in price of raw material supplied in immediately preceding year, the balance is recognized as expenditure during the year. A claim is made based on ascertainment of actual liability. The assessing officer disallowed the reversals of provision on ground that this was a prior period expenditure. 12.12 When provisions are made, what is to be seen is whether the assessee has done a bona fide and genuine exercise to estimate its liability with reasonable certainty. The term reasonable certainty means that the provision in question might be slightly higher or lower than the actual figure. When the provision is higher, it is revers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is accepted and allowed as revenue expenditure, the provision made for such are revenue neutral. Accordingly there is no justification in sustaining the aforesaid disallowance. Accordingly, we reverse the action of the assessing officer and allow the ground no. 4 of appeal raised by the appellant. 15.0.1 Following the aforesaid order, the Tribunal in AY 2013-14 decided the issue in favour of the assessee while holding as under: It is observed that it is common trade practice to contract with vendors on such express terms for payment of arrears in the event of substantial increase/ decrease in cost, in order to maintain continuous supply of raw materials without being affected by market fluctuations, especially in light of the volume of purchases made by the assessee. In the absence of such understanding/ contract with the vendors, the assessee would not be able to operate and continue manufacturing operations without disruption. This same process is followed when there is reduction in cost elements of component prices, company informs the vendors for reduction in price of components. Accordingly, while price revisions are pending or negotiations are on, the vendo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of manufacturing is not separately debited to the profit and loss account but is claimed as the part of cost of material consumed in the course of manufacturing. The Ld. AR submitted that the wastage generated in the manufacturing process is negligible compared to the overall consumption of material during the year. Further, such wastage is normal and inherent in the manufacturing process and in any case, within tolerable limits. Scrap generated in the aforesaid manner is transferred to scrap yard with proper approval of respective Shop head' and 'Process Planning Control department' in the manufacturing unit and is sold after necessary processing (e.g. crushing of components), if any. The Ld. AR further submitted that the sale proceeds from sale of scrap is directly credited to the profit and loss account and is shown as income. It was submitted that having regard to the nature of scrap/wastage generated during the course of business i.e. empty oil drums, corrugated wooden boxes, plastic bags, etc., it is not possible to maintain scrap register at the shop floor containing item wise details of scrap generated. However, the assessee maintains record/register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substantial question of law. It was further submitted that the AO in the set aside proceedings for AY 2007-08, vide order dated 31.10.2014, confirmed such disallowance on an ad- hoc basis by estimating the average of scrap lying in the closing stock as a proportion of scrap sales for the last 15 days for the ended 31.03.20007 and the first 15 days of the subsequent year and the Ld. CIT (A), vide order dated 01.02.2018, deleted the disallowance made by the AO in the set aside order. However, the Ld. AR pointed out that the aforesaid disallowance sustained by the Tribunal in assessment years 2007-08 and 2008-09 has been categorically distinguished by the ITAT in the AY 2010-11 (referred supra), wherein the Tribunal held that the earlier orders were passed without due consideration of AS-2 and application thereof to scrap generated during manufacturing process has not been examined. It was further pointed out by the Ld. AR that following the order of the Tribunal for AY 2010-11 and 2011-12, the Tribunal has also decided the issue in favour of the assessee in appellate orders passed for AYs 2012-13 and 2013-14. 17.0 The Ld. CIT DR relied upon the Assessment Order and Order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y held in multiple grounds supra that no adjustment should be made to returned income on issues, which are revenue neutral. Having held as above, it is difficult to take any different view for the issue under consideration, which is also purely revenue neutral, especially considering that if similar adjustment (which has not been carried out by the assessing officer) is made to the opening stock, no additional tax liability would delve upon the appellant It could also be seen that the addition of ₹ 3.02 lacs is miniscule having regard to the size of the company, which has declared turnover of ₹ 16,000 crores (approx.) during the year under consideration and net profit of ₹ 2232 crores. The aforesaid renders force in the arguments taken by the Ld. Counsel that an assessee engaged in the business of manufacturing, especially that of the size of the appellant, cannot be expected to keep quantitative tally of miniscule items like nuts and bolts lying in the scrap yard. In view of the aforesaid, keeping in mind the principle of materiality, we find that there is no error in the system and regular practice followed by the appellant of not estimating the value of scrap l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , relating to disallowance of prior period expenses amounting to ₹ 7.64 crores, it was the contention of the Ld. AR that the assessee is a large size manufacturing company which receives services from several vendors, running into hundreds. The Ld. AR submitted that the assessee had made reasonable attempt to quantify the liability incurred towards expenses during the relevant previous years and provided for it. It was submitted that it is not humanly possible to consider and provide for all expenses, in absence of relevant details/material/information for various reasons like, non-receipt of bills/invoices from the vendors, the contract terms with vendors not being settled, disputes in relation to bills received, services contracted by zonal/regional/branch officers not intimated to the head office, etc. Accordingly, the assessee claimed deduction for miscellaneous expenses aggregating to 7.64 crores pertaining to prior period. The Ld. AR submitted that in the assessment order, the assessing officer has disallowed the aforesaid expenses, on the ground that same pertained to prior period and are not allowable revenue expenditure against income of the relevant year. 19.0.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it is being consistently followed over the years and as the revenue has accepted the same. The assessee's claim that the amount of ₹ 23.86 lakhs is not prior period expenses is not seriously disputed by the revenue. As to the balance amount ₹ 90,000 under the festival offer scheme, it was marginal variation that arose due to estimation of liability towards sales discount to be given to dealers. Thus the disallowance cannot be sustained both on the grounds of materiality as well as consistency. Similar issues were dealt by us while disposing of ground nos. 7 and 7.1. Consistent with the view taken therein, we allow this ground of the assessee for statistical purposes. 6. During the argument, both the parties fairly agreed that the assessee claimed deduction for following miscellaneous expenses aggregating to ₹ 7,09,31,076 but in the assessment order, the amount of ₹ 7,15,91,826 has been incorrectly reported on account of totaling expenses. From page no. 14-16 of DRP order, we observe that the DRP has also pointed out mistake of totaling. At the outset, we observe that the Assessing Officer has nowhere disputed the genuineness of the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in the books of account. In case of shortfall, the profit and loss account was debited with the amount of shortfall. The Ld. AR submitted that the aggregate provision for advertisement expenses incurred at the head office made at the end of the relevant previous year, which was reversed in succeeding year amounted to ₹ 11.80 crores. In the assessment order, the Assessing Officer disallowed the provisions made at the end of the year of ₹ 11.80 crores which were reversed in the succeeding year on receipt of bills from the vendors on conclusion of negotiations with the vendors, on the ground that the provisions to that extent were excessive and represented contingent liability, which was not allowable deduction. That apart, the assessing officer also added back the aforesaid total provision while computing book profit under section 115JB, holding the same to be an unascertained liability. 22.0.1 The Ld. AR submitted that the provision for advertisement expenses, in the year under consideration as well, has been made on the basis of actual Purchase orders and agreements and, thus, has been made on reasonable and scientific basis. Detail of provisions for adve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Tribunal. 24.0.0 We have heard both the parties and perused the material available on record. On the issue under consideration, this Tribunal, in its orders for A.Ys. 2010-11 and 2011-12, has held as under: 33. We have heard the rival contentions. We agree with the submissions of the Ld. Counsel of the appellant, which, in fact, have even been agreed by the DRP and endorsed by Tribunal in the order for AY 2008-09, that a provision made for expenses on a scientific and rational basis is allowable business deduction. The provisions so made cannot be disallowed merely because; part thereof was reversed in the subsequent year at the time of actual quantification of the liabilities. We also find that the appellant had given complete details in respect of the method followed in creating the aforesaid provisions, which were made on the basis of details / information available with the company as at the end of the relevant year. We further reiterate and follow the finding given in the preceding ground of appeal that the Revenue should not make adjustment on the issues which are revenue neutral, having no impact on the overall tax liability of an assessee. While ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suppliers are based upon negotiations with such vendors and are different due to various factors, like level of automation of vendor, amount of investment by vendor, age of the plant, capacity utilization (impacting fixed cost recovery), volume of supply, geographical differences (which could impact cost of freight, labour, power), lead time, indirect tax Costs (CST Vs VAT) etc. Further, the assessee also prefers purchasing material from certain suppliers, due to business/commercial expediency, viz., de-risking the supply chain to reduce dependence, inability of existing supplier to meet demand increase, etc. The Ld. AR submitted that the said parties are not related to assessee in terms of the provisions of section 40A (2)(b) of the Act. In addition to above, the assessee, in the course of manufacturing two wheelers, places purchase orders on vendors of certain customized intermediary products like wheel assembly, seat assembly, etc. The assessee, while placing aforesaid purchase orders to the vendors, also specifies the specifications of the raw materials/components to be used in manufacture of customized intermediary products as also the name of suppliers from whom the forme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in appellate orders passed for AYs 2009-10, 2012-13 and 2013-14. 26.0.0 The Ld. CIT-DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 27.0.0 We have heard both the parties and perused the material available on record. On identical issue, this Tribunal in its order for A.Ys. 2010-11 and 2011-12 has held as under: 55. We have carefully considered the rival contention and perused the relevant records placed before us. It was submitted by the parties that there is no change in the facts and circumstances of the case in the present assessment year compared to the assessment year for which the coordinate bench is decided this issue in the favour of the appellant for assessment year 2007 08 and 2008 09 wherein this issue has been decided by the coordinate bench as under:- 13.14. The basic requirement for the applicability of section 40A(2) of the Act is that the payment should be made to a related person i.e. to a person referred to in clause (b), of sub-section (2) of section 40A of the Act. 13.15. In the present case, it is an undisputed fact that the payments are not made to a person ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned DR. Tax benefit alleged is factually wrong as the other compared assesses are profit making companies/assessees. There is no loss to the revenue if only the excess payment of price is taken, but this situation is not considered by the Revenue. Except for allegation that excess price is paid to reduce profit, no other evidence is gathered by assessing officer to prove that the assessee had in fact evaded or saved tax by such exercise. The argument of the Revenue fails. The allegation that the assessee has structured his associate concern so as to avoid sec. 40A (2) is also devoid of merit, as the revenue has failed to demonstrate as to how it has come to such a conclusion. The allegation means that profit is transferred to third parties, where the share holding of the assessee is not a major share holding. The allegation means that the assessee is distributing profits to companies with majority holding by unrelated parties for the purpose of reducing taxes. Such wild allegation cannot be endorsed by us. 13.19. The assessee does not dispute the fact that certain purchases are made at a rate higher than the rate paid to certain other parties for the same periods. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities must put themselves in the shoes of the assessee and see how a prudent business man would act. The authorities must not look at the matter from their own view point but that of a prudent businessman.... 13.25. It is a well settled principle that Commercial expediency cannot be judged by the Revenue from its point of view. In the present case, we are of the view that the assessing officer has made this disallowance based on surmises and conjectures without properly examining the facts on record and without bringing any evidence that the purchases were made at an excessive price compared to fair market value to evade tax. 13.26. In view of the above discussions, and bearing in mind entirety of the case, we are of the considered view that the impugned disallowance was indeed uncalled for on the facts of this case. Hence, we uphold the grounds of the assessee. In view of the above about decision of the coordinate bench in appellant s own case and further failure on part of the revenue to controvert any of the findings in the earlier order of the tribunal or pointing out any contrary decisions on this issue, the respectfully following the order of the coordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28.0.1 The Ld. AR submitted that in AY 2007-08, the Tribunal decided the issue in favour of the assessee by holding that assessee s intention did not reflect that the amount was received as loan or advance so as to attract the provisions of section 2(22)(e) of the Act. The Tribunal further held that the assessee was holding the money as a custodian and the amount would be exempted in terms of clause (ii) section 2(22)(e) since the amount was given in the ordinary course of business. It was also submitted that in assessment years 2008-09 to 2013-14, the Tribunal followed the order for Assessment Year 2007-08 and deleted the disallowance. 29.0 The Ld. CIT-DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 30.0.0 We have heard both the parties and perused the material available on record. The Tribunal in A.Ys. 2010-11 and 2011-12 held as under: 214) We have heard the rival contentions. We note that similar issue relating to addition of deemed dividend was deleted by the Tribunal in the assessee s own case for assessment year 2007-08 which was followed in assessment year 2008-09. The relevant observations of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case of the appellant as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectfully following the decision of the coordinate bench in the appellant s own case for the earlier years. We dismiss ground No.6 of the appeal of the revenue. 30.0.1 This issue is also squarely covered by the order of the Tribunal for A.Ys. 2010-11 and 2011-12. We also find that the Tribunal has in the appeals for the assessment years 2009-10, 2012-13 and 2013-14, decided the issue in favor of the assessee company following the aforesaid order passed for assessment years 2010-11 and 2011-12. 30.0.2 Therefore, Ground Nos. 10 to 10.3 are allowed in favour of the assessee. 31.0.0 As regards Ground Nos. 11 to 11.4 relating to TDS on quarterly targets and turnover discount and Sales Discount amounting to ₹ 46.31 crores, it was the contention of the Ld. AR that during the relevant year, the assessee incurred expenditure of ₹ 154,35,32,553/- on account of various incentives/discounts offered to dealers under various schemes on purchase of spare parts/vehicles from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al contentions. As dealership agreement entered between the appellant and dealers is on a principal-to-principal basis and dealers do not act as agents of the appellant while purchasing and further selling the vehicles. Accordingly, the incentives offered at the time of purchase of vehicles do not fall within the meaning of commission u/s 194H of the Act. Further, the issue is squarely covered by the decision of the ITAT in assessee s own case in AY 2008-09 wherein following the ITAT decision in assessee s own case for the year AY 2007-08, it was observed as under 148. From the bare reading of the decision of the Tribunal in assessee s own case for AY 2007-08 (supra), we observe that after dealing with rivals submissions and contentions of both the parties, the tribunal reached to the following finding and conclusion deciding the issue in favour of the assessee. The relevant operative part of the order of the Tribunal for AY 2007-08 in assessee s own case (supra) read as under86 45.11. The facts of this case clearly demonstrate that what is given to the stockiest/ dealers is discount on the purchase price and not any commission. The stockiest/ dealers purchase sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that in such circumstances S.194H is not attracted. 45.13. In the case of Jai Drinks (P) Ltd. 336 ITR 383 (Del.), the Hon ble Delhi High Court has held as follows: Held, dismissing the appeal, that a perusal of the agreement showed that the assessee had permitted the distributor to sell its products in a specified area. The distributor was to purchase products at a pre- determined price from the assessee for selling them. Both the assessee and the distributor had been collecting and paying their sales tax separately. The CIT(A) and also the Tribunal rightly held that the payments being made by the assessee to the distributor were incentives and discounts and not commission. 45.14. Respectfully following the propositions laid down in the aforementioned cases we allow this ground of the assessee. 76) In that view of the matter, the Ld. departmental representative could not point out any decision contrary to the above finding of the coordinate bench or change in the facts and circumstances of the case, therefore respectfully following the decision of the coordinate bench in the appellant s own case for assessment years 2007-08 and 2008-09 discussed supra, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of expenses following the order for assessment years 2007-08 and 2008-09. It was further pointed out by the Ld. AR that following the order of the Tribunal for AYs 2010-11 and 2011-12, the Tribunal has also decided the issue in favour of the assessee in appellate orders passed for AYs 2009-10, 2012-13 and 2013-14. 35.0 The Ld. CIT - DR relied upon the Assessment Order and Order of the TPO, but could not distinguish the decision of the Tribunal. 36.0.0 We have heard both the parties and perused the material available on record. The Tribunal held in A.Ys. 2010-11 and 2011-12 as under: 222) We have heard the rival contentions. We note that similar issue relating to disallowance relating to re-imbursement of professional expenses was deleted by the Tribunal in the assessee s own case for assessment year 2007-08 which was followed in assessment year 2008-09. The relevant observations of the Tribunal for assessment year 2007-08 are as under: 35.8. It is the case of the assessee that it had reimbursed the expenses incurred by various consultants and vendors on travelling and out of pocket expenses. It is also claimed that out of an amount of ₹ 10.68 lacs expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the relevant previous year, were disclosed under the head capital gains. The Assessing Officer held that, having regard to the magnitude/volume of total turnover from sale of investments, the aforesaid income was taxable under the head 'business income . 37.0.1 The Ld. AR submitted that the aforesaid issue is squarely covered in favour of the assessee by the decision of the Delhi Bench of the Tribunal in the assessee s own case for the AYs 2007-08 and 2008-09, wherein after considering the legal position and intention of the assessee company, the Tribunal came to the conclusion that income from sale of shares/mutual funds/PMS etc. would be taxable as capital gains, instead of business income brought to tax by the assessing officer on the basis that the assessee (a) was not a trader in stock; (b) had no intention of holding the shares as stock; (c) sales were effected by delivery (d) that the department had itself in earlier years taxed such transactions under the head capital gains. The Ld. AR pointed out that the Tribunal, vide order dated 24/10/2006, passed in the assessee s own case for AY 2010-11 and 2011-12, reversed the action of AO in changing the head of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the assessee at the time of the purchase of shares: 65.29. The business of the assessee is not to deal in shares and securities. The investment was made with a view to earn capital appreciation and to use the spare fund optimally instead of keeping it in the banks. For the year under appeal, the assessee earned dividend income of ₹ 22.61 crores from investments held in shares and mutual funds. Treatment in the books of accounts: 65.30. It is an undisputed fact that the assessee had treated the transaction as investment in its books of accounts and not as stock in trade. The assesse has shown the investments in shares both at the beginning and closing of the year as an investment only and not as stock in trade. 65.31. The assessee has valued the investments at cost as per Accounting standard 13- Accounting for Investments and not in accordance with Accounting Standard 2 which deals with valuation of inventories. 65.32. The assessee has been holding the securities/ shares as investments from year to year and consistently following the same method of accounting for the purpose of disclosure and valuation. This treatment by the assessee was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares as investment and not in stock in trade. Investments in mutual funds 65.39. Out of the total income earned from mutual funds, almost 67.34% of the total income earned from investments made in mutual funds was for a period of more than one year. Investments in shares 65.40. Investment in shares was primarily made either through PMS or under Initial Public Offer. Under PMS, the company advances funds to the Portfolio Manager, who in turn makes investment in various shares. In substance the investments under PMS are similar to investment in mutual funds. The assessee, reiterated that it is only interested in the return on funds invested and does not act as a dealer/trader, so as to be regarded as being engaged in business activity. 65.41. In view of the above factual matrix it emerges that assessee is: (i) not a trader in stocks (ii) Intention of holding the shares as investment/ stock is manifest. (iii) Sales are effected by delivery. (iv) Department has itself in earlier years taxed such transactions under the head Capital Gains . 65.42. Considering these facts and applicable judicial precedents on the issue, we are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 14A of the Act, the assessee had suo moto disallowed ₹ 66.88 lacs in the return of income, being salary of two employees of the company who were involved in treasury function along with portfolio management fee. It was submitted that in the assessment order, the Assessing Officer, did not accept the method of disallowance computed by the assessee under section 14A and made further disallowance of ₹ 1.65 crores invoking provisions of Rule 8D of the Rules after reducing the suo moto disallowance made by the assessee in the return of income. It was submitted that in the assessment order, the assessing officer, while computing `book profit , made an adjustment of ₹ 1.65 crores computed under section 14A read with Rule 8D of the Rules, without assigning any reason. 40.0.1 The Ld. AR submitted that as per section 14A(2), disallowance under that section as per Rule 8D can be made only if the Assessing Officer records satisfaction/finding as to the incorrectness in the method of disallowance followed by the assessee. In the absence of any satisfaction recorded in the assessment order, the disallowance as per Rule 8D needs to be deleted. Relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugar Mills Co. Ltd.: ITA No. 205 of 2018 (Del HC) - PCIT v. Reebok India Company: [2018] 259 Taxman 100 (Delhi) - Indian Explosives Ltd. V. CIT: 147 ITR 392 (Cal.) - Alkali Chemicals Corp of India Ltd. v CIT: 161 ITR 820 (Cal) - CIT v Radico Khaitan Ltd : 274 ITR 354 (All) - CIT v Dhampur Sugar Mills Ltd : 274 ITR 370 (All) - CIT v. United Collieries Ltd. : 49 Taxman 227 (Cal) - CIT v. Enamour Investment Ltd.: 72 Taxman 370 (Cal) - CIT v. Caroline Investment Ltd.: 87 Taxman 238 (Cal) - CIT v. Kanoria Investment (P) Ltd.: 232 ITR 7 (Cal) - CIT vs. Hotel Savera: 239 ITR 795 (Mad) - Smt. Chanchal Katyal v. CIT: 298 ITR 182 (All.) - CIT v. Reliance Utilities and Power Ltd.: 313 ITR 340 (Bom) - CIT v. HDFC Bank Ltd.: 284 CTR 414 (Bom.) - Hero Honda Finlease Ltd vs. ACIT: ITA No. 3726 6102/Del/2012 (Del) 40.0.4 Reliance was also placed on the following cases, wherein, the Courts have repeatedly held that interest expenditure cannot be disallowed under section 14A of the Act, where the assessee had sufficient surplus funds and there was no finding by the assessing officer of any direct nexus of borrowed funds with investments: - Godrej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e funds for making investment. 40.0.6 It was further pointed out by the Ld. AR that the Tribunal, vide recent order dated 31.05.2018, while dismissing the appeal of the Revenue for assessment year 2006-07, held that the assessing officer is bound to record satisfaction qua the incorrectness of the suo moto disallowance made by the assessee. It was submitted that in the relevant assessment year also, the assessing officer failed to record the mandatory satisfaction qua the incorrectness of the suo moto disallowance made by the assessee in the return of income. 40.0.7 Further, in all fairness, the Ld. Counsel pointed out that the Tribunal, while deciding the issue in the assessment years 2009-10, 2012-13 and 2013-14 restored the matter to the file of the assessing officer to decide the issue afresh after taking into consideration the decision of the Hon ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT: 402 ITR 640. 40.0.8 The Ld. AR further submitted that insofar as disallowance of ₹ 1.67 cores made under section 14A read with Rule 8D of the Rules was concerned, it cannot be added while computing book profits under section 115JB of the Act. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Industrial Infrastructure Ltd. v. ACIT: ITA Nos. 69 70/Mum/2009 - JCIT v. Reliance Capital Ltd.: ITA No. 3037/Mum/2008 - Bengal Finance and Investment (P) Ltd. v. CIT: ITA No. 5620/Mum/2010 - Essar Teleholdings Ltd v. DCIT : ITA 3850/Mum/2010 - Nahar Capital And Financial v. ACIT: ITA No. 1120/Chd/2011 - ACIT vs. Spray Engineering Devices Ltd: (2012) 53 SOT 70 (Chd.) (URO.) - GMM Pfaudler Ltd. v. JCIT : ITA Nos. 2627 2923/Ahd/2008 3280/Ahd/2010 - Cadila Healthcare Ltd. v. ACIT: 21 Taxmann.com 483 (Ahd.) - Reliance Petroproducts (P) Ltd. v. ACIT : ITA No. 2324/Ahd/2009 - Jindal Steel and Alloy Ltd. v. ACIT : ITA Nos. 961 962/Mum/2009 40.0.9 In view of the above, the Ld. AR submitted that applicability of provisions of section 14A is confined to computation of tax liability under the five heads of income enumerated in section 4 under normal provisions contained in Chapter-IV of the Act. The said section 14A cannot be extended and read into section 115JB falling under Chapter XII-B of the Act. 41.0 The Ld. CIT - DR relied upon the Assessment Order and Order of the TPO. 42.0.0 We have heard both the parties and perused the material availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove. 41) Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re allowed for statistical purposes. 43.0.0 It was submitted by the Ld. AR that Ground No. 15 relates to depreciation on Model Fee amounting to ₹ 39.5 lacs. It was submitted that the assessee manufactures two-wheelers under technical collaboration agreement entered into with Honda Motor Co. Ltd., Japan ( Honda ). In accordance with the above collaboration agreement, the assessee pays model fee to Honda to obtain design/know-how to manufacture a new model of twowheeler. The said expenditure is incurred prior to commencement of production of the new model. It was submitted that the assessing officer held that the expenditure incurred by the assessee towards model fee is directly related to manufacture of new models of twowheelers and. therefore, needs to be attributed to the value of closing stock of finished goods of two-wheelers. Accordingly, the assessing officer, on proportionate basis, worked out a sum of ₹ 39,50,000/- out of depreciation on model fee debited to the profit and loss account, as attributable to the value of closing stock and made addition of the said amount to the income of assessee. 43.0.1 The Ld. AR submitted that the aforesaid issue is squa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kind of adjustment/addition would be revenue neutral. On specific query from the Bench, the DR submitted that the treatment given by the revenue authorities on the issue in the preceding year is not known to him and in this situation, we hold that the / department has not disputed the claim of the assessee in the preceding years. 220. It is well accepted legal proposition that when the department has taken a particular stand on a particular issue, then the department cannot take a deviated stand on the issue in the succeeding year without any sound, justifiable and cogent reason. The department has not disputed the fact that impugned expenditure was incurred prior to commencement of production of new model and the same was neither incurred during the manufacturing of new model nor model fee expenditure is directly related to manufacture of new models. In this factual aspect and circumstances, we hold that the assessee incurred expenditure on new model fees prior to commencement of production of new models of two wheelers, even otherwise this exercise would be revenue neutral in a broader perspective as the same adjustment would be required to be done in the opening stock of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to any extra allowance in the event the actual expenditure incurred by the employee is in excess of such per diem allowance. It was submitted that for payment of per diem allowance, as per policy, the assessee does not require the expenses to be necessarily supported /backed by bills considering the practical difficulties/impossibilities in producing invoices for petty expenses like local conveyance, telephone bills, etc. The employees are only required to submit details of expenditure incurred in specified form, on basis of which travel bill is settled. It was submitted that in the assessment order, the AO made disallowance of ₹ 7,38,27,378/- (comprising of ₹ 2,28,58,951/- in respect of Dharuhera, Gurgaon, Haridwar and Neemrana plants and ₹ 5,09,68,426/- in respect of head office expenses) out of expenditure incurred towards re-imbursement of foreign travel expenses incurred by employees, on the ground that declaration furnished by the employees was not a sufficient evidence to establish the incurrence of actual expenses, which were required to be supported with bills/invoices of factual expenditure incurred by the employees. 46.0.1 The Ld. AR su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allow the same. The assessee submits that the fixed per diem allowance payable to employees depending on the grade is reasonable. When such rates are reasonable the question of disallowance does not arise unless the revenue demonstrates that the rates are excessive. In this case it is not that the expenses are not incurred for the stated purpose nor is it that the rates are unreasonable. The disallowance in question in our view on the sole ground that vouchers are not produced by the employees cannot be sustained. In the result this ground of the assessee is allowed. The Ld. departmental representative could not point out any change in the facts and circumstances of the case of the appellant as compared to the assessment year in which the above issue is decided by the coordinate bench. No other contrary decision was also pointed out therefore, respectfully following the decision of the coordinate bench in the appellant s own case for the earlier years, we dismiss ground No. 9 of the appeal of the revenue. 48.0.1 Thus, this Tribunal in A.Ys. 2010-11 and 2011-12 and earlier years has held that disallowance cannot be made merely on the basis that vouchers were not produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the License A agreement, therefore, in order to be able to manufacture the said models of motorcycles the assessee had to enter into separate agreement for manufacture of License B products. The Ld. AR submitted that the assessee, after separation from Honda Motors Corporation, Japan, was not in a position to independently develop and launch new models of motorcycles immediately. Therefore, in order to survive in a highly competitive market, the assessee requested the associated enterprise to provide right and technology for manufacture of four new models of motor cycles. Accordingly, the assessee and the associated enterprise entered into license B agreement allowing the assessee the right to manufacture a) Passion XPRO, (b) Ignitor, (c) Maestro and d) Impulse models of motorcycles. 49.0.2 It was further submitted by the Ld. AR that during the relevant previous year, in terms of the aforesaid license B agreement, the assessee booked ₹ 127.48 crores as royalty, to Honda, which was claimed revenue deduction. The aforesaid payments were made after deducting tax at source @10% being the rate of tax applicable in relation to payment of royalty and fees for technical serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-No sublicense iii) ARTICLE 9 - Use and Disclosure of Technical Information iv) ARTICLE 13 - Terms of agreement (upto 30.06.2007) v) ARTICLE 21/22 Termination/Effect of Expiry and Termination vi) ARTICLE 25/26 Certain Prohibitions/Maintenance of Secrecy 49.0.5 The Ld. AR further submitted that payment under the agreement is allowable revenue expenditure. It was submitted that as per the various clauses of the agreement, it would be appreciated that the royalty payable to Honda is only for the purpose of use of technical assistance in the manufacture and sale of products and the assessee has not acquired any capital asset, much less in the nature of intellectual property rights or patents belonging to Honda, which, in unequivocal terms, as provided in the agreement vested in absolute ownership of Honda at all times. Further, on perusal of Article 22 of the License B product agreement, it would be appreciated that on termination/expiration of the agreement, the assessee was required to return all the documents and materials to Honda and promptly discontinue the use of trademarks licensed by Honda and the assessee did not have any right to continue using such know-how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the assessee being a mere licensee with limited rights to use the technical assistance during the currency of the agreement, there is no explicit or implied intention to transfer or create ownership in the technical know-how /technical information in the assessee. It was argued that the expenditure by way of royalty incurred by the assessee was allowable revenue deduction since- payment was made for limited license to use the know-how provided by Honda, as the proprietary and ownership rights in the same continued to remain vested with Honda at all times and, therefore, there was no absolute parting of know-how in favour of the assessee resulting in acquisition of any asset, no benefit of enduring nature in the capital field accrued to the assessee, even if the license to manufacture and sell products in India is assumed to be exclusive, except for grant of license to HMSI, the subject payment made did not cover consideration paid for setting up of the manufacturing facility in India, On termination of the agreement, the assessee was required to return all the documents and materials to Honda and promptly discontinue the use of trademarks licensed by Honda and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied on various judicial pronouncements including the decision of Jurisdictional High Court in the case of Climate Systems India Ltd. and Sharda Motors Industrial Ltd. No change in facts and circumstances has been pointed out by the ld. DR. Therefore, respectfully following the same, we allow this ground of the assessee. Therefore respectfully following the above decisions of the Tribunal and High Court in the assessee s own case, we reverse the order of the Ld. Assessing officer in holding the above 3 payments as capital expenditure. In the result ground No. 19 of the appeal of the assessee is allowed. 51.0.1 We also find that the Tribunal has in the appeal for the assessment years 2009-10, 2012-13 and 2013-14, decided the issue in favor of the assessee company by following the aforesaid order passed for assessment years 2010-11 and 2011-12. The Tribunal, in its order passed for AY 2012-13, after examining the terms of license B agreement, held the royalty paid to be an allowable revenue deduction. The relevant observations of the coordinate Bench of the Tribunal are as under: It is pertinent to note that no proprietary rights in the know how vested in the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and (3) marketing assets whereas deduction under section 80IC is available only on profits derived from business of manufacturing of specified articles or things. It was further observed by the AO that the manufacturing and marketing activities were carried out at Head Office and, therefore, the brand developed was not owned by the eligible unit, which came into existence much later than the existence of the assessee-company as a whole. Thus, as per the AO, part of the profits earned by eligible unit should have been attributed to advertisement/marketing activities carried out by head office. In order to attribute profits to marketing/advertisement activities, the AO computed rate of net profit for the financial year 1984-85, being the first year of operations of the assessee company, at 6.85% on an arbitrary basis and applied the same to arrive at the profit solely attributable to the manufacturing activity of Haridwar unit. It was submitted that on the basis of above, the assessing officer computed profit attributable to the manufacturing activity at ₹ 213.15 crores. Accordingly, deduction under section 80IC qua remaining profit of ₹ 173.41 crores, allegedly attribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a separate profit centre and, therefore, no profit is to be separately attributed to such activity. It further observed that, for the purpose of working out eligible deduction under section 80-IC of the Act, actual expenses incurred at the head office are to be allocated between various profit centers on a rational and scientific basis. We also find that the Tribunal has, in the appeal for the assessment years 2009-10, 2012-13 and 2013-14, decided the issue in favor of the assessee company following the aforesaid order passed for assessment years 2010-11 and 2011-12. 54.0.2 Therefore, Ground Nos. 18 to 18.6 are allowed in favour of the assessee. 55.0.0 Ground Nos. 19 to 19.1 are relating to disallowance u/s 80IC on account of other income amounting to 1.17 crores on the ground that such incomes were not derived from the business of manufacture of specified articles or things. During the relevant previous year, the eligible unit at Haridwar earned the following other incomes, which were credited in the Profit and Loss Account of that unit: S.No Name /Type of Other Income Amount (in Rs.) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us issues raised by the assessing officer are given in seriatim hereunder: 1. Interest on loan given at subsidized rates to employees The Supreme Court in the case of Liberty India vs. CIT: 317 ITR 218, has held that source of income beyond the first degree nexus with the manufacturing operation cannot be considered as derived from such business/activity. Following the aforesaid decision, the Courts / Tribunal in certain cases have held that interest income earned from fixed deposits made by the eligible unit is not eligible for deduction under the relevant provisions of the Act. [Refer: Paswara Electronics (P) Ltd. v. ITO: ITA No. 71/D/2011; Reckit Benckiser India Ltd. v. Addl. CIT: 231 Taxman 585 (Cal.)] However, the facts under consideration are slightly different. The question that needs to be answered is whether interest income earned from loan given at subsidized rate to employees has first-degree nexus with the business operations carried on by the eligible unit. The appellant is engaged in the business of manufacturing two-wheelers and is not engaged in the activity of giving loans and advances to earn interest income. It is not the case of appellant or the assessing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Tribunal has in the appeal for the assessment years 2009-10, 2012-13 and 2013-14, decided the issue in favor of the assessee company following the aforesaid order passed for assessment years 2010-11 and 2011-12. 56.0.2 Therefore, Ground Nos. 19 to 19.1 are allowed in favour of the assessee. 57.0.0 Ground Nos. 20 to 20.3 relate to allowability of weighted deduction of ₹ 74,31,13,902/- under section 35(2AB) of the Act with respect to scientific research and development expenses incurred during the year. The Ld. AR submitted that the aforesaid claim of weighted deduction has been disallowed in the assessment order on the ground that the said claim was not raised by the assessee in the return of income filed for the relevant year, which is being disputed by the assessee. The Ld. AR submitted that the facts relating to the aforesaid claim are as under: 1. That the assessee had set up a dedicated in-house research and development ( R D ) centre at 69 K.M., Stone, Delhi Jaipur Highway, Dharuhera, Rewari, Haryana which was established in the year 1987, purely for the purposes of research activities. Having regard to substantial increase in R D expenses, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than land and building,) at the aforesaid in-house R D centre: Particulars 01.04.14 to 25.02.15 26.02.15 to 31.03.15 Total 2014-2015 A. Revenue Expenditure Electricity 3,01,89,809 31,01,068 3,32,90,877 Cutting tools 53,64,864 2,45,096 56,09,960 Indirect tools 12,79,201 26,39,080 39,18,281 Salary - of technical employees 56,99,90,817 6,58, 63,200 63,58,54,017 Any other expenditure directly related to R D 3,55,59,632 1, 77,42,465 5,33,02,097 TOTAL A 64,23,84,323 8,95,90,908 73,19,75,231 B. Capital Expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 35(2AB) is available to the centre approved by DSIR dehors the date of recognition accorded in the approval: CIT v. Claris Lifesciences Ltd.: 326 ITR 251(Guj) - Special Leave Petition ( SLP ) filed by the Revenue against the aforesaid decision of the Gujarat High Court was dismissed by the Supreme Court vide order 4.8.2009, bearing CC No.10181/2009 CIT vs Sandan Vikas India Ltd.: 335 ITR 117 (Del) SLP dismissed by the Supreme Court vide order 09.01.2012, bearing CC No.21706/2011 Maruti Suzuki India Ltd v. Union of India Anr (397 ITR 728) - The Special Leave Petition of the Revenue was dismissed by the Hon ble Supreme Court vide order dated 11.05.2018 in SLP No. 32458/2017. CIT vs. Wheels India Ltd.: 336 ITR 513 (Mad) Banco Products (India) Ltd. vs. DCIT (ITA No. 1057/2017)(Guj.) DCIT vs. International Tractors Ltd.: ITA No. 5817/ 6071 of 2010 (Del); ACIT vs Meco Instruments (P) Ltd.: ITA No. 4246/Mum/2009 (Mum.) DCIT vs. Famy Care Ltd: 67 SOT 85 (Mum) ACIT vs. Wockhardt Limited: ITA No.71/Mum/2007 7. That after considering that the aforesaid reply of the assessee, the assessing officer accepted the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised in the return form. 57.0.1 It was argued by the Ld. AR that notes to computation of income form an integral part of return of income and, therefore, any claim made in such notes is deemed to have been made in the return of income itself. In the present case, the applicant, it is submitted, claimed deduction of research and development expenses to the extent of ₹ 74,31,13,902/- by way of notes to the computation of income, which formed integral part of the return of income and therefore, was allowable under section 35(2AB) of the Act. Reliance for the aforesaid was placed on the decision of the Hon ble Delhi High Court in the case of CIT vs. Nav Sansar Agro Products: 392 ITR 399 and Hon ble Punjab and Haryana High Court in the case of Amritsar Transport Co. (P.) Ltd. vs. CIT: 272 ITR 403 wherein it was held that notes to the computation of income attached with the return of income formed integral part of the return form. 57.0.2 Analogy for the aforesaid proposition was also drawn from the following cases wherein it has been held that notes to accounts formed integral part of the accompanying financial statements: CIT vs. Sain Processing Wvg. Mills (P) Ltd.: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order, the impugned claim was not a completely new claim, but revision/modification of the existing claim already taken in the return form, for which the AO was under a bounden duty to allow while passing the assessment order as per mandate contained in Article 265 of the Constitution. Reliance in this regard was placed on the following decisions: Chokshi Metal Refinery vs. CIT: 107 ITR 63 (Guj) CIT vs. Geo Industries and Insecticides (I) Pvt Ltd: 234 ITR 541 (Mad) Subhash Chandra Sarvesh Kumar v. CIT: 132 ITR 619 (All.) CIT v Simon Carves Ltd.: 105 ITR 212 (SC) Anchor Pressings (P) Ltd. vs. CIT and Ors.: 161 ITR 159 (SC) CIT v Bharat General Reinsurance: 81 ITR 303 (Del) CIT vs. Hiranand: 136 Taxman 66 (Raj) CIT v. Ahmedabad Keiser-e-Hind Mills Co. Ltd.: 128 ITR 486 (Guj.) CIT v Archana R. Dhanwatay: 136 ITR 355 (Bom.) Sneh Lata Jain vs. CIT: 140 Taxman 156 (J K) PCIT v. Oracle (OFSS) BPO Services Ltd.:[2019] 102 taxmann.com 396 (Del.) CIT v. Bharat Aluminium Co Ltd: 303 ITR 256 (Del) CIT v. Ramco International : 332 ITR 306 (P H) Raghavan Nair vs. ACIT: 304 CTR 96 (Ker) JCIT v. Hero Honda Finlease Ltd.: 115 TTJ 752 (Thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Hon ble Supreme Court in the case of Goetze (India) Ltd. (supra) relied upon by the Ld. CIT - DR was not applicable to the facts of the present case since the same was applicable to a situation where a claim was not made in the return of income at all and was raised for the first time during the course of assessment proceedings, whereas the plea of the assessee herein is that, the impugned claim was raised in the return of income, albeit through notes in the computation of income, which constituted integral part of return of income. It was argued that even otherwise the aforesaid decision only bars completely new/fresh claim and not modification /enlargement of an existing claim already made in the return form. Thus, on both the aforesaid accounts, it was argued that the decision of the Hon ble Supreme Court in the case of Goetze India supra was not applicable to facts of assessee s case. As regards section 80A (5) referred by the Ld. CIT - DR, it was argued that the same shall not applicable to the claim of deduction under section 35 (2AB) and had restricted scope of specific sections mentioned therein. As regards the power of the Tribunal to entertain the additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcluded on the basis of the Income Tax Department's stand in other group cases that they could be included in the case of land and were done by way of abundant caution as a disallowance. (2) Similarly, the Hon ble Punjab and Haryana High Court in the case of Amritsar Transport Co. (P.) Ltd. vs. CIT: 272 ITR 403, while dealing with the issue of jurisdiction of assessing officer under section 154 of the Act, held that notes forming part of computation of income formed integral of the return of income and any oversight thereof while framing assessment is rectifiable under section 154 of the Act. The relevant observations of the Court are as under: 5. After hearing the counsel for the parties and having perused the orders of the authorities below, we are satisfied that it is a clear case of mistake apparent from the record which could have been rectified under section 154 of the Act. The assessee itself in the computation of income had given the note requesting the Assessing Officer to consider the payment of interest under section 244(1A) of the Act which appears to have escaped the notice of the Assessing Officer when he framed the original assessment. In view of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing by way of additional ground of appeal: 1. That on the facts and circumstances of the case, depreciation @ 25% on leasehold rights acquired in lands at Haridwar (₹ 9,79,51,067) and Neemrana (₹ 3,27,49,678), aggregating to ₹ 12,42,62,467/- be allowed under section 32(1)(ii) of the Act in accordance with the orders passed by the Hon ble Tribunal for earlier assessment years viz., AYs 2009-10 to 2011-12 and 2013-14. 61.0.1 In relation to the aforesaid additional ground, the Ld. AR submitted that the assessee had taken certain lands on lease for the purposes of constructing factory (ies) and carrying on business operations thereon. The land at Haridwar was purchased in the earlier year on payment of premium. From the assessment year 2009-10 i.e., the year in which commercial production begun on factory constructed on said land, the assesse claimed deduction for the proportionate amount of premium paid for acquiring lease as amortised revenue expenditure. It was further submitted that in assessment years 2010-11 and 2011-12 the assessing officer disallowed the aforesaid claim holding the premium paid to be capital expenditure. On further appeal, the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,678 on the aforesaid amount of premium/development charges paid for acquiring leasehold rights in the said land. 61.0.4 In support of the aforesaid ground of appeal, the Ld. AR explained the facts and relied upon the finding of the Tribunal, in the order for AY 2010-11 and 2011-12. 62.0 The Ld. CIT (DR) pointed that the Department has not accepted the aforesaid order has challenged the same in further appeal before the High Court. 63.0.0 We have heard both the parties and have perused the material available on record. Though this claim was not made before the lower authorities, we find that the additional ground raised by the assessee raises a pure question of law, facts for the same are on record. We accordingly admit the additional ground of appeal raised by the assessee following the decision of the Hon ble Supreme Court in the case of National Thermal Power Co Ltd vs CIT: 229 ITR 383 (SC) . 63.0.1 We also find that the issue on merits is squarely covered in favour of the assessee by the order dated 24.10.2016 passed by Tribunal in the preceding assessment years, i.e. AY 2010-11 and AY 2011-12 wherein the Tribunal held that lease premium charges were not allowab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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