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TMI Blog2020 (9) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance of expenditure being incurred under corporate social responsibility 4. Disallowance of expenditure on signages 5. Disallowance of sales tools expenses 6. Capitalisation of Royalty 7. Disallowance of claim of deduction of expenses in respect of Technical know-how 8. Claim of TDS 5. Representatives of both the sides were heard at length. Case record carefully perused and with the assistance of the counsel we have considered the relevant documentary evidences brought on record in the form of paper book in the light of Rule 18 (6) of the ITAT Rules. 6. On the agreement of both the representatives we have considered the facts of A.Y.2013-14 since facts of A.Y. 2014-15 are identical. 7. Appellant is a subsidiary of Honda Motor Company Ltd,. Japan, Group and is engaged in the business of manufacture and sale of motor cycles and scooters. The details of the international transactions and specified domestic transactions entered by the assessee with its AE during the year under consideration which are as under :- S. No. Nature of transactions Total value of transaction A. International transaction 1 Import of machine spares and consumables 68,24,46 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s placed on record the list of the expenditure before us. The perusal of the same reflects the expenditure on certain renovation work at Mohindergarh including providing chairs and tables by the assessee. Further expenses are debited on account of Tools for Honda Training Center Lab- Mohindergarh. All the said expenses are incurred for efficiently carrying out the business of the assessee and thus fulfill the condition of wholly and exclusively for the purpose of business. Further, the donation to Brahma Kumaris merits to be disallowed in the hands of the assessee, as it is case of charity. The same may be looked into as per the provision of section BOG of the Act. Further, expenditure incurred towards display of name/logo of the assessee on various items is undoubtedly for the promotion of the business of the assessee as it promotes goodwill. Hence, the expenditure is to be allowed as revenue expenditure. 14. Before parting, we may also refer to the alternate observations of the Assessing Officer that the Explanation (2) to section 37(1) which has been introduced w.e.f. 01.04.2015 is to be applied retrospectively. We find that the Raipur Bench of Tribunal in Jindal Power Ltd. (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer of the assessee before delivery at dealer's outlet. Such sales tools/ fixtures inter-alia includes the following:- * Reception Counter; * Customer Lounge Partition with Monitor Stand; * Shelf Partition for Parts and Accessories; * Frost Glass Partition; * Digital Graphic Panel; * Specifications Panel; * Two-Wheeler Display Base (Window); * Two-wheeler Display Base (Corner); * Sing Ring; * Catalogue Stand. 31. The question which arises is whether the assessee is incurring expenditure to maintain standard format of displaying its products all over India in order to induce prospective customers to clearly identify the exclusive dealers of assessee's products in India and expenditure incurred was wholly and exclusively for the purpose of his business. 32. The Ld. DR for the Revenue placed reliance on the orders of the authorities below. 33. We have heard the rival contentions and perused the record. We have perused the Agreement between the assessee and its dealer and Article 11.2 of the Dealership Agreement reads as under:- 11.2. ''The company shall provide the necessary information, materials and such other assistance from time to time at the deale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old accordingly. 5. Capitalisation of royalty - A similar issue was decided by the Tribunal in A.Y. 2012-13 in ITA No. 7714/Del/2017. The relevant findings read as under :- "37. Now coming to Ground of appeal No.8 raised by the assessee under which the assessee is aggrieved by the orders of the authorities below in disallowing 25% of Royalty expenses. The Ld.AR for the assessee pointed out that Ground of appeal No.9(a) which is the additional ground of appeal raised by the assessee may be taken up alongwith this ground of appeal. 38. Briefly in the facts of the case relating to the issue, the assessee has claimed expenses on technical knowhow fees and royalty during the year amounting to Rs. 488.65 crores (approx.). The said amount was paid to the foreign company i.e. Honda Motor Company, Japan, in view of technical knowhow and technology assistance received from them, the assessee claimed it to be revenue expenditure in its hand. The Assessing Officer after considering the reply of the assessee was of the view' that the Agreement executed between the assessee and Honda Motor Company, Japan for the purpose of transferring of technical know-how and technology reflects that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... know-how and royalty should be read, into one and cannot be bifurcated as the assesses has done. It is further noted that the royalty without technical knowhow do not have any existence per se. Therefore the same is inextricable from the technical know-how. The assessee claimed that the royalty paid was a running royalty therefore, the same would he allowable expenditure however it failed to acknowledge the. fact that the royalty was conjoint with the technical knowhow and without which the same did not have any existence therefore, the same should be treated, as capital in nature." 40. The Assessing Officer did not accept the plea of the assessee that the same Royalty being paid for more than 15 years and being allowed in the hands of the assessee, was not accepted in view of the decisions of Hon'ble Supreme Court and Hon'ble Allahabad High Court and 25% of the Royalty expenditure of Rs. 378,20 crores (approx.), which worked to Rs. 94,45,04,266/- was treated as capital expenditure being spent towards acquisition of capital assets. Depreciation on the same was allowed and balance sum of Rs. 70,83,78,.200/- was added in the hands of the assessee. The assessee is in appeal against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running Royalty, and lumpsum Royalty payment should also be allowed as expenses. In this regard, reliance was placed on the following decisions:- [ij CIT v. Hero Honda Motors Ltd. 372 ITR 481 (Del.HC) [lij CIT V. Munjal Showa Ltd. 329 ITR 449 (Del.HC) (in) Maruti Suzuki India Ltd. vs Addl. CIT (ITA No.6021/Del/2012) (Assessment Year 2008-09] 42. The Ld.AR for the assessee further pointed out that this was a legal issue raised by the assessee where the facts were already on record and in the light of the decision of Hon'ble Supreme Court in National Thermal. Power Co.Ltd. vs CIT (1998] 229 ITR 383 (SC), the additional ground to be admitted and claim to be allowed. He further stressed that there is no estoppel in law for raising the said issue; in view of correct legal position in the eyes of law. 43. The Ld.DR for the Revenue strongly opposed the admission of the additional ground of appeal. He stressed that the discretion of Court can be exercised only in extraordinary circumstances. He stressed that the assessee had claimed it to be capital expenditure so the Department was stopped from making investigation and it was pointed out that it was investigation into fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is model fee has been, allowed as an expenditure in the case of the CIT vs Hero Honda Motors Ltd. (supra), The SLP against the order of Hon'ble Delhi High Court has been dismissed. The Ld.AR for the assessee also pointed out that the amount has been paid in respect of the new models introduced during the year. 46. We have heard the rival contentions and perused the record. The assessee had entered into a technical know-how agreement with Honda Motors Company, Japan under which it was paying lumpsum fee which was the amount in connection with the new models introduced in a year. The total amount paid during the year was Rs. 110.45 crores (approx.) which was' capitalized by the assessee in its books of accounts and also in the P&L A/c. The assessee also paid running Royalty which was paid for grant of the right to license and manufacturing of two-wheelers in India. The total running Royalty paid was Rs. 378.20 crores (approx.). The said Royalty which is the recurring Royalty paid by the assessee from year to year had been allowed as revenue expenditure in the hands of the assessee in the preceding years. We find no merit in the said exercise carried out by the Assessing Officer and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee itself had not claimed as deductible in its hands, then the same cannot be allowed by the additional ground of appeal. We find no merit in the stand of the Ld. DR for the Revenue as there is no estoppel in law; especially where the issue has been decided by the Jurisdictional High Court on similar facts. Accordingly, we allow the additional ground of appeal raised by the assessee. 6.1 Respectfully following the findings of the coordinate bench we decide accordingly. 7. Now, we will address to the grievance relating to addition on account of payment of export commission - Under technical knowhow agreement dated 13.07.2000 the assessee was entitled to use technical knowhow provided by Honda Motor Company Limited Japan for manufacture and sale of two wheelers and parts in India and was not authorized to sell its products or part in any other territory than in India without prior written consent of HMJ. The assessee entered into a separate export agreement dated 13.07.2000 under which HMJ accorded consent to the assessee to export specific models of two wheelers to certain countries on payment of export commission @ 5% of the FOB value of such exports. 7.1 Under TNMM an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... function of the license manufacturers and contract manufacturers. 7.12 A perusal of the business profile of the assessee viz-a-viz agreement with the parent, we find that the assessee is a licensed manufacturer such as the assessee, the seller is entitled to compensation which includes returns attributable to exploitation of intangibles such technical know-how etc i.e. market determined prices. On the other hand, in the case of a contact manufacturer, the manufacturer acts in accordance with the instructions of the buyer and is only entitled to routine cost plus returns. It would be pertinent to refer to the decision of the Tribunal in assesee's own case in ITA No.132/Del/2013 held as under :- 7.13 A similar decision was taken by the Tribunal in the case of Hero Motocorp Limited in ITA No. 5130/Del/2010 wherein the Tribunal has held as under :- 7.14. In the light of the above the first limb of finding of the TPO/DRP is removed. 7.15. We find that while making the disallowance the TPO has held that assessee failed to demonstrate the benefits derive by it. This proposition of the TPO / DRP also do not hold any water in the light of the principle laid down by the Hon'ble juris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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