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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 ..... red 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.In the light of the above we direct the AO to delete the impugned addition. However, we make it clear that amount being paid to Brahma Kumaris need not be deleted. Disallowance of expenditure on signages - HELD THAT:- As decided in own case [ 2020 (9) TMI 62 - ITAT DELHI] the expenditure was incurred on signage for display of the name of the assessee at the dealer s premises. However, once the same is fixed at dealers site then the Courts have held that it does not satisfy the test of ownership with the assessee and the expenditure is to be allowed as revenue expenditure, We find support from the ratio laid down by the Hon ble Delhi High Court in CIT vs Honda Siel Power Products Ltd. [ 2007 (8) TMI 251 - DELHI HIGH COURT] . Thus, we are of the view that the expenditure to the extent claimed by the assessee is to be allowed in the hands of the assessee and not/the entire expenditure. Disallowance of sales tools expenses - whether the assessee is incurring e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee 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 jurisdiction High Court of Delhi in the case of Cushman and Wakefield [ 2014 (5) TMI 897 - DELHI HIGH COURT] - It would not be out of place to Mention here that in earlier assessment years, this quarrel was restored to the files of the TPO to decide the issue afresh in the light principle laid down by the Hon ble High Court in the case of Cushman and Wakefield (supra). As told that in the set aside assessment proceedings the TPO has once again made the addition following the earlier findings that the assessee had failed to provide evidence - we are of the considered view that the assessee has successfully demonstrated not only the benefits but has also shown that the profitability is higher (as per the charts exhibited elsewhere). Considering the totality of the facts we have no hesitation in directing the AO / TPO to delete the impugned addition on account of export commission. - ITA No.7463 & 7464/DEL/2018 - - - Dated:- 30-9-2020 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL ME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Purchase of Finished Goods 3,72,39,286 4 Sale of Finished Goods 2,26,20,78,561 5 Purchase of Capital items 1,95,02,08,054 6. Payment of royalty and technical knowhow 6,15,64,20,046 7. Payment of technical assistance, consultancy fee and other service fee 38,53,15,184 8. Payment of Export commission 35,75,87,747 9 Reimbursement of expenses/ warranty claims to AEs 5,34,77,692 10. Issue of Equity Shares 3,00,00,00,000 11 Reimbursement of expenses of AEs 3,46,41,212 B Specified Domestic Transactions 1. Purchase of machine spares and consumables 2,62,99,319 2. Training Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (supra) and Delhi Tribunal in National Small Industries Corpn. Ltd. vs DCIT (supra) have held that the said explanation is prospective in nature. Consequently, we find no merit in the stand of the Assessing Officer in this regard except expenditure of ₹ 50,000/-, the balance expenditure is allowed in the hands of the assessee. Thus, Ground of appeal Nos. 3 to 3.3 are partly allowed. 2.1 In the light of the above we direct t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng; 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 dealer s cost and expense, wherever applicable, which support the dealer s advertising and sales promotion efforts for the products, in accordance with the provisions of the policy, guidelines, and operations standards with regard, to advertising issued, by the Company from time to time. The company may at discretion, provide subsidy on the advertising material. 34. Clause 7.2 of the Dealership Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ₹ 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 the payment in lumpsum as well as variable was paid for acquiring asset of enduring benefit. The plea of the assessee was that the aforesaid payment was in respect of information of production process of product which included the planning sheet of production, control sheet of quality, flow chart of the production process and drawings, concept drawings brochures, jigs, assemble and inspectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 378,20 crores (approx.), which worked to ₹ 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 ₹ 70,83,78,.200/- was added in the hands of the assessee. The assessee is in appeal against the order of the Assessing Officer. 41. The Ld.AR for the assessee pointed out that under same Agreement, the assessee had paid to Honda Motor Company, Japan two considerations i.e. one' was the lumpsum Royalty on account of model fee and second was the recurring Royalty. He further pointed out that both the payments flowed from the same Agreement and the ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 facts. Our attention was drawn to the Agreement placed at pages 44 onwards of the Paperbook and he pointed out that the parent company was ...Japanese Company and 99% holding of the assessee was with Japanese company. He objected to the Ld.AR s statement that the facts were on record and pointed out that all. the facts were not on record. He also stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 ₹ 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 accordingly we direct the Assessing Officer to allow the running Royalty as business expenditure in entirety. Ground of appeal No.8 raised by the assessee is thus allowed. 5.1 Respectfully following the decision of the Coordinate Bench, we hold accordingly. 6. Additional claim of deduction of expenses in respect of technical know-how- A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 analysis the operating profit ratio of the assessee @ 4.60% was higher than average of operating margin of -2.24% earned by the comparables companies. Considering that the operating profit margin of the selected comparable companies was lower than the OPM of the assessee, such international transactions were considered as being at arms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able 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 jurisdiction High Court of Delhi in the case of Cushman and Wakefield (367 ITR 730). It would not be out of place to mbention here that in earlier assessment years, this quarrel was restored to the files of the TPO to decide the issue afresh in the light principle laid down by the Hon ble High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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