M/s V. F. Tech Hydro India Pvt. Ltd., V. The ACIT, 3(1),

CO 53/IND/2007

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6758 (ITAT-INDORE)
• Duration Of Justice: 4 year(s) 7 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-04-2011
• Assessment Year: misc
• Appeal Filed On: 14-05-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R N GUPTA
• Assessee Lawyers: ANADI VERMA
• Keywords: Business expenditure; Double taxation relief; Permanent establishment; Advance ruling; Wholly owned subsidiary; Difference of opinion; Change of opinion
• Section: 43B; 201(1); 145

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.29/IND/2005 A.Y. 2000-01 DCIT-3(1), BHOPAL ... APPELLANT VS V.A. TECHHYDRO INDIA PVT. LTD., MANDIDEEP PAN AABCV 2466 R ... RESPONDENT CROSS-OBJECTION NO.39/IND/2005 (ARISING OUT OF ITA NO.29/IND/2005) A.Y. 2000-01 V.A. TECHHYDRO INDIA PVT. LTD., MANDIDEEP PAN AABCV 2466 R ... APPELLANT VS DCIT-3(1), BHOPAL ... RESPONDENT 2 ITA NOS.253 & 254/IND/2007 A.YS. 2001-02 & 2002-03 DCIT-3(1), BHOPAL ... APPELLANT VS V.A. TECHHYDRO INDIA PVT. LTD., MANDIDEEP PAN AABCV 2466 R ... RESPONDENT CROSS-OBJECTION NOS.52 & 53/IND/2007 (ARISING OUT OF ITA NOS.253 & 254/IND/2007) A.YS. 2001-02 & 2002-03 V.A. TECHHYDRO INDIA PVT. LTD., MANDIDEEP PAN AABCV 2466 R ... APPELLANT VS DCIT-3(1), BHOPAL ... RESPONDENT ITA NO.255/IND/2007 A.Y. 2003-04 DCIT-3(1), BHOPAL ... APPELLANT VS V.A. TECHHYDRO INDIA PVT. LTD., MANDIDEEP PAN AABCV 2466 R ... RESPONDENT 3 APPELLANT BY : SHRI ANADI VERMA, CIT/DR RESPONDENT BY : SHRI R.N. GUPTA, CA DATE OF HEARING : 13.12.2011 DATE OF PRONOUNCEMENT : 28.12.2011 O R D E R PER JOGINDER SINGH AGGRIEVED BY THE DIFFERENT ORDERS DATED 20.10.2004 & 19.1.2007 OF THE LD. CIT(A)-II, BHOPAL, THE REVENU E AND THE ASSESSEE ARE IN APPEAL & CROSS-OBJECTION, RESPECTIV ELY. FIRST, WE SHALL TAKE UP THE APPEAL OF THE REVENUE FOR ASSE SSMENT YEAR 2000-01 (ITA NO.29/IND/2005) WHEREIN FIRST GRO UND PERTAINS TO GRANTING RELIEF OF RS.4,14,18,313/- REP RESENTING DISALLOWANCE OF EXPENDITURE UNDER THE HEAD TECHNIC AL DESIGN & DRAWINGS. THE CRUX OF ARGUMENTS ON BEHALF OF THE R EVENUE IS IN SUPPORT TO THE ASSESSMENT ORDER WHEREAS THE LEAR NED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE IMPUGNE D ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL. IN REPLY, THE LD. CIT/DR SHRI ANADI VARMA INVITED OUR 4 ATTENTION TO PAGES 2 TO 5 AND PARA 37 OF PAGE 13 OF THE ASSESSMENT ORDER. 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON FILE. SINCE COMMON GROUND S ARE INVOLVED, THEREFORE, THESE CAN BE DISPOSED OF BY TH IS COMMON & CONSOLIDATED ORDER FOR THE SAKE OF BREVITY. WITHOUT GOING INTO MUCH DELIBERATION, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION OF THE ORDER FOR ASSESSMENT YEAR 1999-00 TO 2002-03 (ITA NOS.112 TO 115/IND/2007), ORDER DATED 30.4.201 0: 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE COMPA NY IS A MANUFACTURER OF DYDROELECTRIC AND TURBO-GENERATORS FOR HYDEL AND TURBO PROJECTS AND SELLING THE SAME IN INDIA AND AB ROAD. THE ASSESSEE IS A 100% SUBSIDIARY OF VA TECH HYDRO GMBH AUSTRIA FROM 1.4.2001. VA TECH HYDRO IS AN ESTABLISHED NAM E IN THE WORLD IN THE FIELD OF MANUFACTURING AND ERECTION OF HYDRO AND TURBO PROJECTS SINCE LAST ABOUT 100 YEARS. THE ASSESSING OFFICER, ON SCRUTINY OF BOOKS OF ACCOUNTS OF THE ASSESSEE COMPA NY AND FORM NO. 27 FOR THE ASSESSMENT YEARS, IN QUESTION, FOUND THAT THOUGH THE ASSESSEE COMPANY HAS SPENT HUGE AMOUNTS AS EXPENDIT URE ON TECHNICAL DRAWINGS AND DESIGNS ON ACCOUNT OF PAYMEN TS TO PARENT COMPANY, NEITHER THE TAX WAS DEDUCTED AT SOURCE, NO R THE ASSESSEE COMPANY OBTAINED NO DEDUCTION CERTIFICATE FROM THE ASSESSING OFFICER. THE ASSESSING OFFICER, CALLED FOR THE EXP LANATIONS OF THE ASSESSEE AND AFTER CONSIDERING THE SAME, MADE THE F OLLOWING OBSERVATIONS :- 6.1 ARGUMENTS OF THE ASSESSEE ARE HOVERING AROUND INCORRECT REASONING THAT A) IT HAS PURCHASED THE DESIGN ON OU T RIGHT BASIS AS COMMODITY AND B) ON THE DICTIONARY MEANING OF ROYAL TY. 6.2. ROYALTY HAS BEEN GIVEN WIDER MEANING BOTH IN T HE INCOME TAX ACT AND DTAA, WHICH INCLUDES PAYMENT FOR 5 DESIGN/DRAWING. ASSESSEE HAS RELIED ON JUDGMENT IN THE CASE OF CIT V/S DAVY ASHMORE INDIA LTD. 190 ITR, CIT VS. NE YVELI LIGNITE CORPORATION LTD. 243 ITR 459,ETC. HOWEVER, THESE CASES ARE DISTINGUISHABLE ON FACTS WHICH ARE DIFFERENT AND NO T OF ANY SUPPORT TO THE ASSESSEE. THE DESIGN PURCHASED BY THE ASSES SEE ARE NOT IN RESPECT OF COMMISSIONING OF PLANT BUT THESE ARE IN RESPECT OF A PARTICULAR GENERATOR WHICH IS BEING MANUFACTURED AN D SOLD TO THE CUSTOMERS. SUCH DESIGNS ARE PURCHASED SEPARATELY FO R EVERY GENERATOR THE ASSESSEE HAS MANUFACTURED SO FAR. IN THESE CASE LAWS THERE WAS AN OUTRIGHT PURCHASE OF PLANT ALONG WITH DESIGN THROUGH A BID PROCESS. WHERE AN ASSESSEE IS GETTIN G THE DESIGN PREPARED FOR EVERY GENERATOR FROM THE PARENT AUSTRI AN COMPANY. ASSESSEES ARGUMENTS AREBASELESS AND DENYING THE BA SIC DEFINITION OF ROYALTY AS MENTIONED IN ARTICLE 12 OF DTAA AND EXPLANATION 2 TO SECTION 9(VI) OF THE I.T. ACT, ACC ORDING TO WHICH PAYMENTS IN THE HEAD OF DESIGN IN REFERENCE TO ASSE SSEES CASE IS WITHIN THE AMBIT OF THE DEFINITION OF ROYALTY AS PR OVIDED THEREIN. IN FACT THE CASE ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES COMPANY LTD. IN RE (AAR) 271 ITR 193 MAKES THE POSITION OF TAXAB ILITY CLEAR. 6.3. THE NON-RESIDENT AUSTRIAN PARENT COMPANY IS NO T MARKETING DESIGN AS GOODS FOR SALE TO ALL. AND AL SO THE ASSESSEE COMPANY V A TECH INDIA IS NOT KEEPING, NOR HAS AN Y INTENTION TO KEEP, THE DESIGN AS GOODS. IT IS IN FACT MORE LIKE A SECRET FORMULA. THE WEB SITE OF THE ASSESSEE COMPANY GIVES THE DETA ILS ABOUT THE ALGORITHMS AND THE DESIGN PROCESS (ENCLOSED AS ANNE XURE A). THAT DESIGN IS BEING USED BY IT TO MANUFACTURE THE END P RODUCT (GENERATOR) WHICH IS MEANT FOR SALE AFTER THAT IT I S OF NO USE TO THE ASSESSEE. THEREFORE, DESIGN OF A GENERATOR CANNOT BE EQUATED WITH SOFTWARE PACKAGE OR ANY OTHER COPY RIGHTED ART ICLES WHOSE UNLIMITED NUMBER CAN BE SOLD IN MARKET. 6.4. NO OUTRIGHT SALE OF DESIGNS HAS TAKEN PLACE. I T IS ONLY THE LIMITED USE FOR MANUFACTURING THAT THE ASSESSEE COM PANY IS HOLDING AUTHORITY TO USE DESIGN. ASSESSEE COMPANY CANNOT P URCHASE THESE DESIGN FROM ANY OTHER THIRD COMPANY AS THE TRADE NA ME UNDER WHICH ASSESSEE COMPANY AND NON-RESIDENT AUSTRIAN CO MPANY ARE MANUFACTURING AND SELLING THE GENERATOR IS SAME AND BOTH THE COMPANIES ARE KNOWN FOR THEIR SPECIFIC DESIGNS OF G ENERATORS. IT HAS SPECIFICALLY BEEN MENTIONED ON THE DESIGNS THAT IT IS THE PROPERTY OF THE PARENT AUSTRIAN COMPANY. THE ASSES SEE HAD RIGHT TO USE A PARTICULAR DESIGN FOR SINGLE TIME. THE AS SESSEE HAS BEEN BARRED TO SALE THE DESIGN AS SUCH TO ANOTHER MANUFA CTURER BY THE SPECIFIC CONDITION AND WARNING PRINTED ON THE DESIG N. WHEN THE DESIGN CANNOT BE SOLD AS ABOVE HOW IT CAN BE TERMED AS OUTRIGHT PURCHASE AS CLAIMED BY THE ASSESSEE. THUS, THE ASS ESSEE HAS ONLY BEEN GIVEN THE RIGHT TO USE THE DESIGN. 6 6.5. THE DESIGNS ARE NOT PURCHASED THROUGH OPEN TEN DER OR BID BECAUSE ASSESSEE IS MANUFACTURING GENERATORS WI TH A UNIQUE TECHNOLOGY WHICH IS POSSESSED BY THE PARENT AUSTRIA N COMPANY ONLY HENCE THE DESIGNS ARE SPECIFIC TO THE PARENT C OMPANY. BECAUSE OF THIS SPECIAL RELATIONSHIP ASSESSEE IS BO UND TO PURCHASE THE DESIGN FROM ITS PARENT AUSTRIAN COMPANY ONLY. THE DESIGN IS FIRST RECEIVED THROUGH INTERNET AND ITS HARD COPY A LONG WITH BILL IS RECEIVED THROUGH CUSTOMS TO JUSTIFY THE PAYMENTS MA DE TO THE PARENT COMPANY FROM THE ANGLE OF ALLOWABILITY OF EX PENDITURE. 6.6. THERE IS NO AGREEMENT/TERMS AND CONDITIONS IN PURCHASE OF THE DESIGNS FROM THE PARENT AUSTRIAN COMPANY. A SSESSEE IS JUST PLACING THE ORDERS FOR SUPPLY OF THE DESIGNS TO ITS PARENT COMPANY AND IN EACH CASE THE COST OF THE DESIGN IS ALSO DET ERMINED BY THE AUSTRIAN COMPANY ON ITS OWN PARAMETERS. 6.7. THE DESIGN PURCHASED BY THE COMPANY ARE NOT AV AILABLE OFF THE SHELF. THESE DESIGNS ARE PREPARED AND SUPPL IED EXCLUSIVELY AS PER THE SPECIFICATION AND REQUIREMENTS OF THE CU STOMERS WHICH IS PROVIDED TO AUSTRIAN COMPANY BY THE ASSESSEE. AS I NFORMED BY THE ASSESSEE THESE DESIGNS ARE DIFFERENT FOR EACH GENER ATOR ASSESSEE HAS MANUFACTURED. 6.8. INCOME IS ARISING TO THE PARENT AUSTRIAN COMPA NY ON SALE OF GENERATORS BY ITS 100% SUBSIDIARY COMPANY IN IND IA, ORDERS FOR WHICH ARE RECEIVED IN INDIA AND BEING MANUFACTURED IN INDIA AS PER DESIGNS PROVIDED BY THE PARENT AUSTRIAN COMPANY. A SSESSEE COMPANY HAS NOT OBTAINED THE DESIGN FROM ANYWHERE E LSE AND IT MANUFACTURES EVERY GENERATOR ON THE DESIGN PROVIDED BY THE PARENT AUSTRIAN COMPANY ONLY. THUS THE INCOME IS ACCRUING /ARISING IN INDIA DIRECTLY THROUGH BUSINESS CONNECTION OF AUSTR IAN COMPANY WITH ITS 100% SUBSIDIARY COMPANY IN INDIA AS ENVISA GED IN SECTION 9(1)(VI) OF THE INCOME TAX ACT, 1961 AND ARTICLE 12 (2) OF THE DTAA. 6.9. THE LEGAL PROVISIONS HAVE BEEN EXAMINED IN PAR A 2 SUPRA AND THE DTAA IN PARA 3. THE PAYMENT MADE BY A SSESSEE COMPANY IS COVERED IN DEFINITION OF ROYALTY AS PER DTAA, WHICH DEFINES ROYALTY AS CONSIDERATION FOR THE USE OF OR THE RIGHT TO USE DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS I NFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXP ERIENCE. 6.10. THE PAYMENT MADE BY ASSESSEE COMPANY IS ALSO COVERED IN DEFINITION OF ROYALTY AS PER IT ACT, 19 61 EXPLANATION 2 SECTION 9(1)(VI); EXPLANATION 2.- FOR THE PURPOSE O F THIS CLAUSE ROYALTY MEANS ..(II) THE IMPARTING OF ANY INFORMATION CONCERNING THE WORKING OF..DESIGN, SECRET FORMULA OR PROCESS 7 6.11. THE FACTS ALONG WITH THE CASE LAWS HAVE BEEN EXAMINED IN PARA 4 AND 5. AFTER THE DETAILED EXAMINATION OF FACTS AND CIRCUMSTANCES OF THE CASE IT IS HELD THAT VA TECH H YDRO INDIA PVT. LTD. HAS FAILED TO DEDUCT TAX ON SUMS PAID TO THE PAREN T AUSTRIAN COMPANY WHICH WAS CHARGEABLE TO TAX WITHIN INDIA BY VIRTUE OF THE IT ACT, 1961 AND AS PER THE PROVISION S OF DTAA BETWEEN INDIA AND AUSTRIA. 6.12. ASSESSEE COMPANY IS MANUFACTURING GENERATOR A ND ITS ACCESSORIES I.E. ONLY THE ELECTRICAL PART OF THE CO MPLETE TURN KEY PROJECT FOR GENERATION OF ELECTRICITY. TURBINE IS MANUFACTURED BY THE VATECH ESCHER VYAS FLOVAL LTD., FARIDABAD, WHICH IS AGAIN AUSTRIA 100% SUBSIDIARY COMPANY OF AUSTRIA IN INDIA . INTERNATIONAL ORDERS FOR SUPPLY OF GENERATORS ARE RECEIVED THROUG H ITS PARENT COMPANY IN AUSTRIA FOR WHICH THE ASSESSEE COMPANY S UPPLIES GENERATOR AND ITS ACCESSORIES TO ITS PARENT AUSTRIA N COMPANY. TURBINE AND ERECTION INFRASTRUCTURE IS SUPPLIED BY THE AUSTRIAN COMPANY IN SUCH PROJECTS. PROJECTS IN INDIA ARE CO MPLETED BY THE ASSESSEE COMPANY WITH THE TURBINE SUPPLIED BY THE A NOTHER 100% SUBSIDIARY COMPANY I.E. VATECH ESCHER VYAS FLOVAL L TD., FARIDABAD. IN ALL THE CASES DESIGN OF GENERATOR IS SUPPLIED BY THE PARENT AUSTRIA COMPANY ONLY. 6.13. THE V AUSTRIA TECH INDIA HAS STATED THAT IT S PARENT AUSTRIAN COMPANY DOES NOT HAVE AUSTRIA PERMANENT ES TABLISHMENT. IN FACT, THERE IS NO NEED FOR THE AUSTRIAN COMPANY TO HAVE ANOTHER PERMANENT ESTABLISHMENT IN INDIA, AS THEY HAVE THEI R 100% SUBSIDIARY COMPANY IN INDIA (VA TECH INDIA) WHICH IS ACTING ON THEIR BEHALF FOR PROCURING ORDERS ETC. FURTHER THE VA TECH INDIA IS MANUFACTURING EVERY GENERATOR ON THE BASIS OF D ESIGN PROVIDED BY THE AUSTRIAN COMPANY. THUS THE ASSESSEE COMPANY VA TECH INDIA IS MEANS FOR ACCRUAL OF INCOME TO THE AUSTR IAN COMPANY ON ACCOUNT OF ITS BUSINESS ACTIVITIES IN INDIA.MOREOVE R, FOR TAXABILITY OF ROYALTY, PERMANENT ESTABLISHMENT IS NOT AN ESSENTIA L CRITERION. (ALSO HELD IN LEONHARDT ANDRA UND PARTNER, GMBH V. COMMISSIONER OF INCOME TAX; 249 ITR 418 (CAL) . IN VIEW OF THE ABOVE IT IS HELD IN THE CASE OF VA TECH INDIA THA T THE PAYMENT MADE BY THE ASSESSEE IS IN THE NATURE OF ROYALTY. H OWEVER, EVEN IF THE CLAIM OF THE ASSESSEE IS TAKEN UP FOR ARGUMENT S SAKE AS PAYMENT FOR TECHNICAL SERVICES STILL THE PAYMENT SH ALL BE TAXABLE @ 10% IN INDIA IN VIEW OF THE EARLIER DISCUSSION IN T HIS ORDER. 6.14. GENERATOR IS DESIGNED AS PER THE REQUIREMENT OF THE CUSTOMER THEREFORE ITS DESIGN IS AN INTEGRAL PART O F IT, ON THE BASIS OF WHICH IT IS MANUFACTURED AND FOR THAT GENERATOR THE CUSTOMER MAKING PAYMENTS. THEREFORE, PROVIDING OF THE DESIG N TO THE CUSTOMER CANNOT BE TERMED AS AUSTRIA SEPARATE SALE AS CLAIMED BY THE ASSESSEE. WITHOUT DESIGN GENERATOR CANNOT BE MA NUFACTURED. 8 HENCE THE PRICE OF GENERATOR OR ANY PLANT WILL ALWA YS BE INCLUSIVE OF DESIGN WITHOUT WHICH IT IS OF NO USE. THE DESIGN OF PARTICULAR GENERATOR IS SPECIFIC TO THAT ONLY AND IS OF NO USE IN CASE OF ANY OTHER GENERATOR. HENCE THE ARGUMENTS OF THE ASSESSE E THAT THEY ARE SELLING THE DESIGN ALONG WITH GENERATOR IS SIMP LY MISLEADING AND NOT RELEVANT TO THE ISSUE OF TAXABILITY. 6.15. AS DISCUSSED EARLIER IN PARA 1.9 THE DRAWINGS AND DESIGNS ARE MADE WITH THE HELP OF SOPHISTICATED COM PUTER PROGRAMS AND ALGORITHMS. (PLEASE SEE ANNEXURE AUSTR IA). THE COMPUTER PROGRAM ALONG WITH THE BRAIN OF THE DESIGN ENGINEER IS THE INPUT IN THE PROCESS AND OUTPUT IS CERTAIN DESIGN AND OTHER PARAMETERS. THESE PARAMETERS ARE FOR THE HELP OF DE TAILED DESIGN WHICH IS PREPARED IN INDIA BY THE ASSESSEE VA TEC H INDIA. THE PARENT AUSTRIAN COMPANY HAS NEITHER GIVEN THE SOPHI STICATED COMPUTER PROGRAMS NOR THE ALGORITHMS TO VA TECH IND IA. ONLY THE OUTPUT OF THE SOPHISTICATED COMPUTER PROGRAMS AND A LGORITHMS IS PROVIDED TO THE ASSESSEE VA TECH INDIA WHICH IT CALLS AS DESIGN. RIGHTS OVER THESE DESIGNS IS WITH PARENT AUSTRIAN COMPANY. THE ASSESSEE COMPANY FURTHER PREPARES DETA ILED DESIGNS ON THE BASIS OF THE PARAMETERS AND DESIGNS PROVIDED BY ITS PARENT COMPANY. THE RIGHTS OVER THESE DETAILED DESIGNS PREPARED BY THE ASSESSEE VA TECH INDIA WITH VA TECH INDIA ITSELF. THUS IT IS CLEAR THAT THERE ARE TWO SETS OF DESIGNS, ONE PREPARED BY THE PARENT AUSTRIAN COMPANY FOR WHICH A SSESSEE MAKES PAYMENT AND ANOTHER IN HOUSE DETAILED DESIGN PREPARED BY VA TECH INDIA BASED ON THE ORIGINAL DESIGN. 6.16. FROM THE DISCUSSION, IT IS CLEAR THAT WITH TH E DESIGN AND OTHER PARAMETERS SUPPLIED BY THE PARENT AUSTRIAN CO MPANY, THE ASSESSEE CANNOT CREATE ANOTHER OUTPUT IN AUSTRIA DI FFERENT CASE OR EVEN AUSTRIA SIMILAR CASE. FROM ALL THE DISCUSSION AND CASE LAWS CITED ABOVE, IT IS BEYOND DOUBT THAT THE PAYMENTS M ADE BY THE ASSESSEE VA TECH INDIA ARE IN THE NATURE OF ROYAL TY AND ARE SQUARELY COVERED BY THE DECISION OF ROYALTY BOTH IN THE DTAA AND IT ACT, 1961. I HOLD THAT THE PAYMENTS MADE BY THE ASSESSEE VA TECH INDIA ARE IN THE NATURE OF ROYALTY AND THAT T HE ASSESSEE VA TECH INDIA HAVING FAILED TO DEDUCT TAX HAS COMMITT ED DEFAULT WITHIN THE MEANING OF SEC.195(1) READ WITH DTAA BETWEEN AU STRIA AND INDIA AND READ WITH SEC.9(1)(VI) OF THE INCOME TAX ACT, 1961. THE ASSESSING OFFICER, FOR THE REASONS MENTIONED AB OVE, FINALISED THE PROCEEDINGS INITIATED EARLIER CULMINATING IN TH E ORDER UNDER SECTION 195(1) READ WITH SECTION 9(1)(VI) AND 201(1 )/ 201(1A), BY HOLDING THAT THE PAYMENTS MADE BY THE ASSESSEE COMP ANY TO ITS PARENT AUSTRIAN COMPANY VA TECH HYDRO GMBH AUSTRIA, FOR THE PURCHASE OF DESIGN, DURING THE F.Y.2002-03, 2001-02 , 2000-01 AND 1999-2000, ARE TREATED AS ROYALTY WITHIN THE MEAN ING OF EXPLANATION 2 TO SECTION 9(1)(VI) AND ARTICLE 12 OF THE DTA 9 AGREEMENT, ON WHICH THE ASSESSEE HAS FAILED TO DEDU CT TAX AT THE RATE OF 10% UNDER SECTION 195 OF THE INCOME TAX ACT , 1961. THE CALCULATION MADE BY THE ASSESSING OFFICER IN THIS B EHALF IS AS UNDER :- DEFAULT UNDER SECTION 201(1) RS. 1,16,28,072 INTEREST UNDER SECTION 201(1A) RS. 71,28,172 TOTAL DEMAND PAYABLE RS.1,87,56,244 . 4. FELT AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) WHEREIN DETAILED SUBMISSIONS WERE MADE. THE LEARNED CIT(AUSTRIA), AF TER CONSIDERING THE SUBMISSIONS AND THE LEGAL POSITION EXPLAINED BY THE ASSESSEE, MADE THE FOLLOWING OBSERVATIONS :- THE ENTIRE TRANSACTION BETWEEN THE APPELLANT AND T HE NON-RESIDENT COMPANY IS OF SALE AND PURCHASE OF GOODS ON PRINCIP AL TO PRINCIPAL BASIS. THE MEANING OF ROYALTY HAS BEEN DEFINED I N THE DTAA. THE APEX COURT IN THE CASE OF UNION OF INDIA VS AZADI BACHO ANDOLAN AND ANOTHER REPORTED IN 263 ITR 706 (SC) HELD THAT IN CASE OF DIFFERENCE BETWEEN THE PROVISIONS OF THE ACT AND TH E AGREEMENT, THE PROVISIONS OF THE AGREEMENT WOULD PREVAIL OVER THE PROVISIONS OF THE ACT, THEREFORE, THE DEFINITION OF ROYALTY IS UNDER THE DOMESTIC LAW IS NOT APPLICABLE FOR THE PURPOSE OF UNDERSTAND ING THE CONCEPT OF ROYALTY UNDER THE DOUBLE TAXATION AVOIDANCE AGRE EMENT BETWEEN INDIA AND AUSTRIA AND, THEREFORE, THE A.O. IS NOT JUSTIFIED IN APPLYING THE PROVISIONS OF SECTION 9(1)(VI) OF THE IT ACT. AS REGARDS THE OWNERSHIP IS CONCERNED, AS RIGHTLY EXPLAINED BY THE LEARNED COUNSELS THAT THE TRANSFER OF OWNERSHIP IN THE CASE OF MOVABLE GOODS IS GOVERNED BY THE SALES OF GOODS ACT. THE S ALE BILL ISSUED BY THE SELLING PARTY CONTAINS THE TERMS AND CONDITI ON ON THE BASIS OF WHICH THE GOODS ARE BEING SOLD AGAINST THE PRICE. IN THE SALE BILLS ISSUED BY THE NON-RESIDENT AUSTRIAN COMPANY, THERE IS NO MENTION THAT DESPITE THE SALE OF DRAWINGS AND DESIGNS AGAIN ST THE PRICE, THEY HAVE RETAINED THE OWNERSHIP IN THE DRAWINGS AN D DESIGNS. THE A.O. HAS FAILED TO ESTABLISH AS TO HOW THE INCOME A RISING TO THE NON- RESIDENT COMPANY FROM THE SALE OF THE DRAWINGS AND DESIGNS FROM OUTSIDE COUNTRY TO THE APPELLANT COMPANY IS CHARGEA BLE TO TAX IN INDIA, WHEN THE NON RESIDENT COMPANY IS NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA, IS TAXABLE IN INDIA AND, TH EREFORE, IN THE ABSENCE OF ANY CONCRETE FINDING THAT SUCH PAYMENTS ARE CHARGEABLE TO TAX IN INDIA, SECTION 195 HAS NO APPL ICATION. HAVING REGARD TO THE DETAILED AND EXHAUSTIVE SUBMISSION AN D THE CASE LAWS RELIED UPON BY THE APPELLANT, I HOLD THAT THE PAYME NTS MADE FOR THE PURCHASE OF DRAWINGS AND DESIGNS DO NOT GIVE RISE T O ANY INCOME IN 10 INDIA AND NO TAX NEEDS TO BE DEDUCTED U/S 295 OF TH E IT ACT. THE SAID PAYMENTS ARE ALSO NOT IN THE NATURE OF ROYALTY AS DEFINED IN THE DTAA ENTERED INTO BETWEEN INDIA AND AUSTRIA. IN AN Y CASE, IT IS NOT A CASE OF THE A.O. THAT THERE IS A TRANSFER OF COPY RIGHT BY THE AUSTRIAN COMPANY IN FAVOUR OF THE APPELLANT COMPANY BUT ITS IS A CASE OF SALE OF COPYRIGHTED ARTICLES AND THEREFORE ALSO THE PAYMENTS MADE BY THE INDIAN COMPANY TO NON RESIDENT COMPANY ARE NOT IN THE NATURE OF ROYALTY. HENCE THE DEMANDS RAISED U/S 201(1A) FOR INTEREST PAYABLE FROM THE DATE OF DEFAULT IN NOT DE DUCTING THE TAX AT SOURCE TILL PASSING OF THE ORDER BY THE A.O. IN FIN ANCIAL YEARS 1999- 2000, 2000-01, 2001-02 & 2002-03 ARE CANCELLED. 5. NOW, THE REVENUE IS IN APPEAL BEFORE US. 6. THE LEARNED CIT DR SUBMITTED THAT ON THE HARD CO PY OF DRAWINGS AND DESIGNS SUPPLIED BY THE FOREIGN COMPAN Y, IT WAS SPECIFICALLY MENTIONED THAT SUCH DRAWING WAS THE PR OPERTY OF THAT COMPANY AND IT COULD NEITHER BE KEPT, NOR COULD BE USED IN ANY OTHER MANNER, WITHOUT THE WRITTEN CONSENT OF THE FO REIGN CONCERN. THE LEARNED CIT DR FURTHER SUBMITTED THAT IT COULD NEITHER BE HANDED OVER, NOR IN ANY OTHER WAY COULD BE COMMUNIC ATED TO A THIRD PARTY, HENCE, THE ASSESSING OFFICER LOGICALLY INFERRED THAT THE ASSESSEE COMPANY COULD NOT BE CONSIDERED AS OWNER O F SUCH DESIGNS. THE ASSESSING OFFICER, ACCORDING TO THE L EARNED CIT DR, IN THE ABSENCE OF ANY MATERIAL BROUGHT ON RECORD BY THE ASSESSEE COMPANY, RIGHTLY HELD THAT THE PARENT NON-RESIDENT COMPANY HAD PROPRIETARY RIGHTS IN SUCH DRAWINGS. THE LEARNED C IT DR THEREAFTER REFERRED TO THE PROVISIONS OF SECTION 9(1)(VI) AND EXPLANATION 2 THERETO AND ALSO TO THE PROVISIONS OF ARTICLE 12 OF DTAA WITH AUSTRIA WHICH ARE REPRODUCED AS UNDER FOR THE SAKE OF CONVE NIENCE :- PROVIDED THAT NOTHING CONTAINING CONTAINED IN THIS CLAUSE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROY ALTY AS CONSISTS OF LUMP SUM CONSIDERATION FOR THE TRANSFER OUTSIDE INDIA OF , OR THE IMPARTING OF INFORMATION OUTSIDE INDIA IN RESPECT OF ANY DATA, DOCUMENTATIO N, DRAWING OR SPECIFICATION RELATING TO ANY PATENT, INVENTION, MODEL, DESIGN, S ECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERLTY, IF SUCH INCOME IS PAYABLE IN PURSUANCE OF AN AGREEMENT MADE BEFORE THE IST DAY OF APRIL, 1976, AND THE AGREEMENT IS APPROVED BY THE CENTRAL GOVERNMENT. PROVIDED FURTHER THAT NOTHING CONTAINED IN THIS CL AUSE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROYALTY AS CONSISTS OF LUMP SUM PAYMENT MADE BY A PERSON, WHO IS A RESIDENT, FOR THE TRANSFER OP F ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF COMPUTER S OFTWARE SUPPLIED BY A NON- RESIDENT MANUFACTURER ALONG WITH A COMPUTER OR COMP UTE-BASED EQUIPMENT UNDER ANY SCHEME APPROVED UNDER THE POLICY ON COMPUTER SO FTWARE EXPORT, SOFTWARE DEVELOPMENT AND TRADING, 1986 OF THE GOVERNMENT OF INDIA. EXPLANATION 2.- FOR THE PURPOSE OF THIS CLAUSE. R OYALTY MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UND ER THE HEAD CAPITAL GAINS) FOR (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING T HE GRANTING OF A LICENSE) IN RESPECT OF A PATEN, INVENTION, MODEL, DESIGN, SECRE T FORMULA OR PROCESS OR 11 TRADE MARK OR SIMILAR PROPERTY . (II) THE IMPARTING OF ANY INFORMATION CONCERNING T HE WORKING OF, OR THE USE OF A PATENT, INVENTION, MODEL, DESIGN, SECRET F ORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY . (III) THE USE OF ANY PATENT, INVENTION, MODEL, DES IGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING T ECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR S KILL; (IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMM ERCIAL OR SCIENTIFIC EQUIPMENTS BUT NOT INCLUDING THE AMOUNT REFERRED T O IN SECTION 44AB (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING T HE GRANTING OF A LICENSE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCI ENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPE S FOR USE IN CONNECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION W ITH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO (IV), (IVA) AND (V) THE TERM ROYALTIES AND FEES FOR TECHNICAL SERVICES HAS BEEN DEFINED IN ARTICLE 12 OF DTAA WITH AUSTRIA WHICH READS AS UNDE R :- ARTICLE 12 : ROYALTIES AND FEES FOR TECHNICAL SER VICES (1) ROYALTIES AND FEES FOR TECHNICAL SERVICES ARI SING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTH ER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. (2) HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICA L SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THE Y ARISE AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE BENEFICIAL OWNER OF THE ROYALTIES AND FEES FOR TECHNICAL SERVICES IS A RESIDENT OF THE OTHER CONTR ACTING STATE, THE TAX SO CHARGED SHALL NOT EXCEED 10% OF THE GROSS AMOUNT OF THE ROY ALTIES AND FEES FOR TECHNICAL SERVICES. (3) THE TERM ROYALTIES AS USED IN THIS ARTICLE, MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPHY FILMS OR FILMS OR TAPES USED FOR RADIO OR TELEVISION BROADCA STING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, O R FOR THE USE OF, OR THE RIGHT TO USE, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT , OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. THE LEARNED CIT DR CONTENDED THAT AS PER THE MEANIN G OF THE TERM ROYALTY, AS PER BOTH THESE PROVISIONS, THE TRANSA CTION BETWEEN THE ASSESSEE COMPANY AND ITS PARENT NON-RESIDENT COMPAN Y, FELL WITHIN THE REALM THEREOF, HENCE, THE ASSESSEE SHOULD HAVE DEDUCTED THE TAX AT SOURCE. THE LEARNED CIT DR THEREAFTER ALSO DREW OUR ATTENTION TO THE OBSERVATIONS OF THE ASSESSING OFFI CER AS REGARD TO PROCUREMENT OF THE SAME DESIGNS FOR THE SAME CONTRA CT, WHICH ALSO INDICATED THAT IT WAS A CASE OF ROYALTY AND NOT A C ASE OF OUT-RIGHT PURCHASE THEREOF. THE LEARNED CIT DR PLACED HEAVY RELIANCE ON THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER WHIC H HAVE ALREADY BEEN REPRODUCED HEREINBEFORE. THE LEARNED CIT DR, T HEREAFTER, 12 CONTENDED THAT THE PARENT COMPANY WAS NOT SELLING T HE DESIGNS IN THE OPEN MARKET I.E. TO ANY OTHER PARTY OTHER THAN ITS SUBSIDIARIES. HENCE, IT WAS NOT A CASE OF SALE OF COPY RIGHTED AR TICLES. THE LEARNED CIT DR FURTHER EMPHASIZED ON THE FACT THAT IT WAS USED BY THE ASSESSEE IN MANUFACTURING OF THE TURBINE/GENERA TOR AND WAS NOT SOLD AS SUCH IN THE OPEN MARKET LIKE PURCHASE AND S ALE OF A COPY RIGHTED BOOK OR SOFTWARE, ETC. THE LEARNED CIR DR FURTHER EMPHASIZED ON THE FACT THAT IF THE VIEW OF THE ASSE SSEE WAS ACCEPTED THEN EVERY TRANSACTION WOULD BECOME A CASE OF SALE AND IN THAT CASE, PROVISIONS RELATING TO ROYALTY WOULD BECOME REDUNDANT. AT THIS STAGE, A QUESTION WAS POSED TO HIM THAT IF THE VIEW OF THE REVENUE IS ACCEPTED, THEN EVERY TRANSACTION WOULD B ECOME A CASE OF ROYALTY, TO WHICH THE LEARNED CIT DR COULD NOT G IVE ANY EFFECTIVE REPLY. THE LEARNED CIR DR THEREAFTER PLACED RELIAN CE ON THE ORDER OF THE ASSESSING OFFICER. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED A DDITIONAL EVIDENCE AS REGARDS THE TREATMENT OF SUCH TRANSACTI ONS IN THE BOOKS OF NON-RESIDENT PARENT COMPANY WHICH WAS ADMI TTED AS THE LEARNED CIT DR DID NOT OBJECT FOR ADMISSION OF THE SAME. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER THIS INFORMATION, IT WAS ABUNDANTLY CLEAR THAT SUCH TRAN SACTIONS WERE TREATED AS TRANSACTIONS OF SALE AND PURCHASE IN THE BOOKS OF PARENT COMPANY AND HAD BEEN TAXED AS BUSINESS PROFITS AND NOT AS A ROYALTY. IT WAS FURTHER POINTED OUT THAT THE TAX RATE ON BUSINESS PROFIT WAS HIGHER THAN THE TAX RATE APPLICABLE TO R OYALTIES. THE LEARNED COUNSEL FOR THE ASSESSEE THEREAFTER CONTEND ED THAT THE OWNERSHIP IN SUCH DRAWINGS WAS TRANSFERRED TO THE A SSESSEE COMPANY ON DELIVERY OF DRAWINGS BY SUCH COMPANY TO THE ASSESSEE. HOWEVER, AS PER THE CONDITION OF SUCH SA LE TRANSACTION, THE ASSESSEE COULD NOT REPRODUCE IT ON ITS OWN OR C OULD USE IT IN A MANNER NOT BEING PERMITTED BY THE SELLER. THUS, TH E SALE TRANSACTION WAS SUBJECT TO CERTAIN CONDITION AND WH ICH WAS A NORMAL CONDITION IN THE CASE OF PURCHASE OF ALL COP Y-RIGHTED ARTICLES/GOODS. HENCE, SUCH TRANSACTION WAS A CASE OF OUT-RIGHT PURCHASE FOR A SPECIFIED PURPOSE. THE LEARNED COUNS EL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE DELIVE RED THESE DRAWINGS TO THE BUYERS OF PLANT AND MACHINERY AND S UCH CONDITION ALSO RESTRICTED SUCH BUYERS FROM USING SUCH DRAWING S FOR COMMERCIAL MANNER BENEFITS. THE LEARNED COUNSEL FOR THE ASSESSED, THEREAFTER, CONTENDED THAT THESE WERE SUB JECT TO THE CUSTOM DUTY AND REFUND OF CUSTOM DUTY HAD ALSO NOT BEEN CLAIMED WHICH WAS GENERALLY A CASE IN RESPECT OF AN ITEM RE CEIVED FOR A LIMITED USE OR FOR A LIMITED PERIOD. IT WAS ALSO S PECIFICALLY POINTED OUT THAT SUCH DESIGNS WERE PROCURED FOR SPECIFIC PR OJECTS ON A SINGLE USER BASIS AS THE SAME HAD TO BE GIVEN TO TH E BUYER OF PLANT AND MACHINERY MANUFACTURED BY THE ASSESSEE COMPANY. THE LEARNED COUNSEL FOR THE ASSESSEE THEREAFTER CONTROV ERTED THE FACTUAL FINDINGS OF THE ASSESSING OFFICER, PARTICULARLY IN REGARD TO THE ASSESSING OFFICERS CONTENTION THAT THE ASSESSEE HA D PAID MONEY 13 FOR THE SAME DRAWING THREE TIMES AND REFERRED TO TH E VARIOUS PAGES OF THE PAPER BOOK IN THIS REGARD. THE LEARNED COUN SEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE ACTION OF THE ASSE SSING OFFICER WAS A CASE OF CHANGE OF OPINION IN RESPECT OF THE S AME TRANSACTION WHICH HAD BEEN FOUND TO BE OF THE NATURE OF PURCHAS ES, BOTH IN THE COURSE OF PROCEEDINGS UNDER SECTION 144A AS WELL AS UNDER SECTION 92CA OF THE ACT. HENCE, FOR THIS REASON ALSO, THE ACTION OF THE ASSESSING OFFICER WAS NOT JUSTIFIED. THE LEARNED C OUNSEL FOR THE ASSESSEE THEREAFTER CONTENDED THAT IT WAS A SETTLED LAW THAT THE SALE TRANSACTION DID NOT RESULT IN ROYALTY AND IN T HIS REGARD AGAIN SUBMITTED THAT THE TRANSFER OF SUCH DESIGNS BY THE ASSESSEE TO THE BUYERS OF GENERATORS IN AN UNBRIDLED MANNER ESTABLI SHED THIS FACT. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER REITER ATED THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS), PARTICULARLY IN RESPECT OF DRAWINGS BEIN G GOODS AND THE ACQUISITION OF DRAWINGS ON OUT-RIGHT PURCHASE BASIS COULD NOT BE CONSIDERED AS A TRANSACTION OF THE NATURE OF ROYALT Y. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE PROVISIONS OF DTAA WERE TO SUPERCEDE THE PROVISIONS OF THE INCOME TAX ACT AND FOR THIS PROPOSITION THE LEARNED CIT DR ALSO DID NO T DISAGREE. THE LEARNED COUNSEL FOR THE ASSESSEE THEREAFTER PLACED RELIANCE ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DAVY ASHMORE INDIA LIMITED V. CIT; 190 ITR 626, WHEREIN THE HONBLE HIGH COURT HAD POINTED OUT THAT THE TRANSFEROR RETA INED THE PROPRIETARY RIGHT IN THE DESIGNS AND ALLOWED THE US E OF SUCH RIGHTS, THE CONSIDERATION RECEIVED FOR SUCH USER WAS IN THE NATURE OF ROYALTY. HOWEVER, IN THE PRESENT CASE, THE ASSESSEE COMPANY WAS NOT ALLOWED TO USE SUCH RIGHT I.E. TO MAKE SIMILAR DESIGNS AT ITS LEVEL AND TO SELL THE SAME TO THIRD PARTIES AND TO PAY CO NSIDERATION OUT OF SUCH SALES TO THE PARENT COMPANY AS IT WAS AN UNDIS PUTED FACT THAT SUCH DESIGN WAS USED FOR A SPECIFIED PROJECT AND HA D BEEN HANDED OVER TO THE BUYER OF THE PLANT AND MACHINERY FOR TH EIR REFERENCE, IF THE SITUATION SO REQUIRED. HE FURTHER CONTENDED TH AT THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF LEON HARDT ANDHRA UND PARTNER,GMBH V. CIT; 249 ITR 418 WAS NOT APPLIC ABLE AS IN THAT CASE THE ROYALTY WAS NOT DEFINED IN DTAA BETWE EN INDIA AND GERMANY AND IN THE ABSENCE OF SUCH DEFINITION, THE STATUTORY DEFINITION AS CONTAINED IN SECTION 9(1)(VI) WAS APP LIED, WHEREAS IN THE PRESENT CASE, ARTICLE 12(3) EXISTED BETWEEN TWO COUNTRIES AND AS PER THAT DEFINITION, CONSIDERATION PAID WAS NOT TOWARDS RIGHT TO USE BUT IT WAS FOR THE USE OF DESIGNS AS SUCH AND, THEREFORE, THE AFORESAID DECISION OF THE HONBLE HIGH COURT WAS NO T APPLICABLE. THE LEARNED COUNSEL FOR THE ASSESSEE THEREAFTER REF ERRED TO THE RULING OF THE LEARNED COMMISSIONER OF INCOMETAX (AP PEALS) FOR ADVANCE RULING IN THE CASE OF PRE-QUIP CORPORATION V. CIT, AS REPORTED IN 255 ITR 354 (PAGES 140 TO 150 OF THE PA PER BOOK) WHEREIN IT HAS BEEN OPINED THAT TRANSACTION OF SALE OF ENGINEERING DRAWINGS AND DESIGNS BY US COMPANY TO INDIAN COMPAN Y DID NOT AMOUNT TO A TRANSACTION RESULTING INTO PAYMENT OF R OYALTY. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FACTS OF THIS 14 CASE ARE IDENTICAL WITH THE FACTS OF THE PRESENT CA SE BEFORE THE TRIBUNAL AND THE ROYALTY AS PER ARTICLE 12(3) OF IN DO US DTAA WAS ALSO SIMILAR. HENCE, THE RATIO LAID DOWN IN THIS CA SE IS SQUARELY APPLICABLE TO THE PRESENT CASE. THE LEARNED COUNSE L FOR THE ASSESSED, THEREAFTER, REFERRED TO THE DECISION OF T HE TRIBUNAL IN THE CASE OF LUCENT TECHNOLOGIES HINDUSTAN LIMITED V. IT O AS REPORTED IN 270 ITR 62 (AT) WHEREIN THE ASSESSEE HAD ACQUIRE D HARDWARE AND SOFTWARE AND THE DEPARTMENT BIFURCATED THE TRAN SACTION AS ONE OF SUPPLY OF HARDWARE AND THE OTHER OF THE SOFTWARE , TREATING THE SOFTWARE PART AS ROYALTY, THE TRIBUNAL HELD THAT TH E ASSESSEES TRANSACTION WITH THE NON-RESIDENT COMPANY WAS FOR T HE PURCHASE OF INTEGRATED EQUIPMENT WHICH CONSISTED HARDWARE AS WE LL AS SOFTWARE AND IT WAS INSEPARABLE AND HAVING REGARD TO THE NAT URE OF AGREEMENT, WHAT THE ASSESSEE HAD PURCHASED WAS A CO PY RIGHTED ARTICLE AND NOT COPY RIGHT OF THE RIGHTS AND SIMILA R WAS THE POSITION HERE, HENCE, THIS DECISION OF THE TRIBUNAL ALSO SUP PORTED THE CLAIM OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSES SEE THEREAFTER REFERRED TO THE DECISION OF THE TRIBUNAL IN THE CAS E OF INDIAN HOTELS CO. LTD. V. ITO IN ITA NO.553/MUM/00 (REFER PAGES 1 63 TO 167 OF THE PAPER BOOK),WHEREIN INDIAN OIL HAD OBTAINED THE SERVICES OF A FOREIGN COMPANY TO PREPARE THE INTERIOR DESIGN WHIC H HAD TO BE USED BY THE INDIAN COMPANY FOR THE PURPOSE OF RE-DE SIGNING OR RENOVATING THE INTERIORS OF TAJ MAHAL HOTEL AT MUMB AI AND THE DESIGN SUPPLIED BY THE FOREIGN COMPANY BECAME THE P ROPERTY OF INDIAN HOTEL COMPANY LIMITED (ASSESSEE) AND IN THAT BACKGROUND, THE TRIBUNAL HELD THAT THE ASSESSEE COMPANY HAD PUR CHASED AND ACQUIRED INTERIOR DESIGN ON A PRINCIPAL TO PRINCIPA L BASIS I.E. AS A BUYER AND IN THAT VIEW OF THE MATTER, THE PAYMENT B Y THAT COMPANY DID NOT AMOUNT TO ROYALTY. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CAS E OF WIPRO LIMITED V. ITO AS REPORTED IN 94 ITD 9 FOR THE PROPOSITION THAT WHERE THE PAYMENT WAS FOR OBTAINING THE DATA AND USE IT THE W AY THE ASSESSEE WANTED TO USE IT, IT WAS THE USE OF A COPY -RIGHTED ARTICLE AND NOT A CASE OF TRANSFER OF RIGHT IN THE COPY-RIG HT OF THAT ARTICLE AND SIMILAR WAS THE CASE HERE WHEREIN THE ASSESSEE COMPANY GOT THE RIGHT TO USE OF A COPY-RIGHTED ARTICLE AND NO R IGHT IN THE COPY- RIGHT OF THE DRAWINGS/DESIGNS AND THE NOTE ON THE H ARD COPY OF SUCH DESIGNS CONFIRMED THIS POSITION I.E. THE ASSESSEE H AD NO RIGHT IN THE COPY RIGHT OF THESE DRAWINGS/DESIGNS I.E. THE ASSES SEE HAD NO RIGHT IN THE COPY RIGHT OF THESE DRAWINGS/DESIGNS AND IT COULD USE ONLY AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT WITH ITS PARENT COMPANY FOR ITS OWN PURPOSES IN THE CAPACITY OF THE OWNER THEREOF. THEREAFTER, THE LEARNED COUNSEL FOR THE ASSESSEE RE FERRED TO THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT V. FIN OLEX PIPES LIMITED AS REPORTED IN 106 TTJ (PUNE) 741 WHEREIN T HE TRIBUNAL HAD HELD THAT FEE PAYMENT FOR DESIGN DOCUMENTATION TO GERMAN COMPANY BY THE ASSESSEE INDIAN COMPANY FOR OUT-RIGH T SALE OF SUCH DOCUMENTATION WAS NOT ROYALTY AS PER DTAA. THE LEA RNED COUNSEL FOR THE ASSESSEE ALSO RELIED UPON THE DECISION OF T HE HONBLE KARNATAKA HIGH COURT IN THE CASE OF JINDAL THERMAL POWER 15 COMPANY LIMITED V. DCIT (2009) 225 CTR (KAR) 220. 8. THE LEARNED CIT DR, IN THE REJOINDER, CONT ENDED THAT IN THE CASE OF PRO-QUIP CORPORATION V. CIT (SUPRA), THE LA NGUAGE OF ARTICLE 12(3) OF DTAA WAS MATERIALLY DIFFERENT AND THE SAID DECISION WAS BASED ON SUCH LANGUAGE, HENCE, NOT APPLICABLE TO TH E FACTS OF THE CASE. THE LEARNED CIT DR FURTHER SUBMITTED THAT TH E OTHER DECISIONS RELIED UPON BY THE ASSESSEE WERE FACTUALL Y DIFFERENT AS IN THOSE CASES, THE ASSESSEE WAS THE ULTIMATE USER OF THOSE DESIGNS/DRAWINGS ALONG WITH THE PLANT AND MACHINERY , WHEREAS IN THE PRESENT CASE, THE ASSESSEE MANUFACTURED TURBINE /GENERATOR AND SOLD SUCH TURBINE/GENERATORS. THE CIT DR FURTHE R SUBMITTED THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF LU CENT TECHNOLIGIES HINDUSTAN LIMITED (SUPRA) RATHER SUPPORTED THE CASE OF THE REVENUE. THE CIT DEPARTMENTAL REPRESENTATIVE FURT HER SUBMITTED THAT THE BASIC DESIGN OBTAINED BY THE ASSESSEE COMP ANY WAS FURTHER MODIFIED AND SUCH MODIFIED DESIGN WAS GIVEN TO THE BUYER OF THE TURBINE/GENERATOR AND NOT BASIC DESIGN, AS CONT ENDED BY THE LEARNED COUNSEL FOR THE ASSESSED. 9. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. IT IS NOTED THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF TURBINE/GENERATOR AS PER THE SPECIFICATIONS/REQUIRE MENTS OF ITS CUSTOMERS. FOR THIS PURPOSE, THE ASSESSEE PROCURES BASIC DESIGN FROM ITS PARENT COMPANY AND ACCORDINGLY MANUFACTURE S SUCH PLANT AND MACHINERY. IT IS ALSO NOTED THAT SUCH BASIC DE SIGN IS ALSO GIVEN TO THE BUYER OF PLANT AND MACHINERY BY THE ASSESSEE COMPANY. THE DISPUTE BEFORE US IS REGARDING THE NATURE OF PA YMENT MADE BY THE ASSESSEE COMPANY TO ITS PARENT NON-RESIDENT COM PANY FOR OBTAINING SUCH DESIGNS. THE CONCLUSIONS OF THE ASS ESSING OFFICER AS WELL AS THE FINDINGS OF THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) HAVE ALREADY BEEN REPRODUCED WHICH CONTAI N DETAILS OF JUDICIAL DECISIONS RELIED UPON BY BOTH THE SIDES. IN OUR OPINION, IF THE VIEW OF THE ASSESSING OFFICER IS ACCEPTED, THEN THERE WILL NOT BE ANY TRANSACTION OF SALE AND PURCHASE IN SUCH SITUAT IONS AND EVERY TRANSACTION WOULD COME WITHIN THE MEANING OF TERM ROYALTY. FURTHER, IN OUR OPINION, THE BASIC DISTINCTION BETW EEN A TRANSACTION OF ROYALTY AND OF OUT-RIGHT SALE AND PURCHASE IS TRANSFER OF OWNERSHIP TO THE BUYER AND THIS DISTINCTION HAS BEE N MAINTAINED EVEN IN THE PROVISIONS OF SECTION 9(1)(VI) AS WELL AS OF DTAA. WE HAVE ALSO PERUSED THE NOTE ON THE HARD COPY OF SUCH DESIGNS. IN OUR OPINION, SUBSTANCE OF SUCH NOTE IS NOTHING BUT AN INDICATION THAT SUCH PRODUCT IS SOLD ONLY FOR SPECIFIC USE AND NO R IGHT IN COPY-RIGHT THEREOF HAS BEEN GIVEN TO THE BUYER BY THE TRANSFER OR/SELLER, MEANING THEREBY THAT SUCH ARTICLE/GOODS IN THE FORM OF DESIGNS COULD BE USED FOR SPECIFIC PURPOSES AND CANNOT BE U SED FOR OTHER COMMERCIAL GAINS BY THE BUYER. THIS CAN BE PUT IN DIFFERENT WORDS I.E. IT IS A CASE OF PURCHASE OF COPY RIGHTED ARTICLE AND NOT OF COPY RIGHTS THEREIN. THUS, ON THIS VERY FACT, WE DO NOT CONSI DER ANY NECESSITY TO GO INTO THE ISSUE FURTHER AND DEAL WIT H THE JUDICIAL 16 DECISIONS CITED BY BOTH THE SIDES. HOWEVER, BEFORE PARTING, WE CONSIDER IT APPROPRIATE TO OBSERVE THAT IF THE VIEW OF THE REVENUE THAT COPY RIGHTED ARTICLE COULD ONLY BE A TRADING ITEM OR OF THE NAT URE OF FINISHED GOODS ONLY, THEN A TRANSACTION OF SALE AND PURCHASE OF SUCH DRAWINGS/DESIGNS WOULD NECESSARILY BE CONSIDER ED AS A TRANSACTION OF PAYMENT OF ROYALTY, WHICH CANNOT B E CORRECT AS EVEN THE SOFTWARE HAS BEEN JUDICIALLY CLASSIFIED AS GOOD S. WE ALSO DO NOT AGREE WITH THE CONTENTION OF THE REVENUE THAT WHEN THE GOODS ARE ACQUIRED FOR SELF-CONSUMPTION, THAT WOULD AMOUNT ON LY TO USE OF SUCH ITEMS, RESULTING INTO ROYALTY BECAUSE ITEMS FOR SELF- CONSUMPTION FOR USE IN INTERMEDIATE PROCESS ARE ALS O ACQUIRED ON PRINCIPAL TO PRINCIPAL BASIS BY WAY OF PURCHASE. I T IS ALSO TO BE NOTED THAT IN THE HANDS OF NON-PARENT COMPANY, SUCH TRANSACTIONS HAVE BEEN ACCEPTED BY THE REVENUE AUTHORITIES OF TH AT COUNTRY AS OF THE NATURE OF BUSINESS PROFITS RESULTING FROM THE S ALE OF SUCH DRAWINGS. HENCE, WHEN THE SAME PROVISIONS OF DTAA ARE APPLICABLE THEN THIS ACTION OF SUCH REVENUE AUTHORI TIES ALSO SUPPORTS THE CLAIMS OF THE ASSESSEE. TO SUM UP, EVE N AT THE COST OF REPETITION, WE STATE THAT IT IS A CASE OF PURCHASE OF A COPY-RIGHTED ARTICLE ON PRINCIPAL TO PRINCIPAL BASIS AND NOT A C ASE OF PAYMENT FOR TRANSFER OF RIGHT IN THE COPY RIGHT OF SUCH DESIGNS . IN THIS VIEW OF THE MATTER, WE CONFIRM THE FINDINGS OF THE LEARNED COMM ISSIONER OF INCOMETAX (APPEALS). 10. IN THE RESULT, ALL THE APPEALS OF THE REVENUE F AIL AND ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30 TH APRIL, 2010. 3. IN THE AFORESAID ORDER, AN ELABORATE DISCUSSION HAS BEEN MADE BY THE TRIBUNAL. IF THE AFORESAID FACTS ARE KE PT IN JUXTAPOSITION WITH THE FACTS OF THE APPEAL IN HAND, WE FIND THAT THE ASSESSEE PURCHASES TECHNICAL DRAWINGS AND DESIG N FOR RS.4,14,18,313/- FROM ITS AUSTRIAN JOINT VENTURE CO MPANY I.E. VA SPACE TECH ELIN, AUSTRIA AND THE SAID EXPENDITUR E WAS DIRECTLY CLAIMED TO BE MANUFACTURING EXPENSES AND W AS CLAIMED IN ITS P & L ACCOUNT UNDER THE HEAD MANUFA CTURING 17 EXPENSES WHICH WERE DISALLOWED BY THE LD. ASSESSIN G OFFICER DOUBTING THE GENUINENESS OF THE EXPENSES. ADMITTEDL Y, THE AUDITED ACCOUNTS, TRADING AND P & L ACCOUNT AND DET AILS OF TECHNICAL DRAWINGS EXPENSES WERE DULY FURNISHED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER AS WELL AS BE FORE THE LD. CIT(A). THE STAND OF THE ASSESSEE BEFORE THE REVENU E AUTHORITIES AS WELL AS BEFORE US IS THAT THE EXPENS ES WERE INCURRED FOR PURCHASE OF TECHNICAL DRAWINGS AND DES IGN FROM ITS JOINT VENTURE COMPANY FOR BUSINESS EXPEDIENCY. UNCONTROVERTEDLY, THE IMPUGNED EXPENDITURE WAS FULL Y SUPPORTED BY BILL OF ENTRIES, CUSTOM CLEARANCE, SHI PPING AGENTS DOCUMENTS, PAYMENTS THROUGH BANKING CHANNEL WITH COMPLIANCE OF RULES AND REGULATION OF FOREIGN REGUL ATION ACT (AT THE RELEVANT TIME). ALL THESE DOCUMENTS WERE NO T DISPUTED BY THE ASSESSING OFFICER AND WERE DULY EXAMINED BY THE LD. CIT(A), MEANING THEREBY, THE EXPENSES WERE CLAIMED TO BE GENUINE BUSINESS EXPENDITURE. THERE IS CATEGORICAL FINDING IN THE IMPUGNED ORDER THAT THE GENUINENESS OF THE EXPE NSES FOR INCURRING THE TECHNICAL DRAWINGS AND DESIGN WAS DUL Y 18 ESTABLISHED AS THE COPIES OF THE INVOICES, PURCHASE ORDERS WERE DULY PRODUCED RIGHT FROM ASSESSMENT STAGE. EVEN OTH ERWISE, THE LD. ASSESSING OFFICER HAS NOWHERE MENTIONED IN THE ASSESSMENT ORDER THAT THE PAYMENTS FOR THE IMPUGNED EXPENSES WERE NOT MADE. THE SUSPICION OF THE LD. AS SESSING OFFICER IS THAT THE TRANSACTIONS RELATING TO DRAWIN GS & DESIGN EXPENSES ARE NOTHING BUT AN AFTERTHOUGHT. HOWEVER, NOTING CONCRETE HAS BEEN BROUGHT ON RECORD BY THE ASSESSIN G OFFICER IN SUPPORT OF HIS SUSPICION AS TO HOW THE PURCHASE ORDERS ARE NOT GENUINE. THE ASSESSEE HAS FURNISHED VARIOUS DOC UMENTS TO ESTABLISH THE GENUINENESS OF SUCH EXPENSES AND THE TECHNICAL DESIGN WAS PURCHASED AS A MATTER OF BUSINESS EXPEDI ENCY TO IMPLEMENT THE PROJECT, THEREFORE, WE FIND NO INFIRM ITY IN THE STAND OF THE LD. CIT(A) ON THIS ISSUE. CONSEQUENTLY , AFFIRMED. OUR CONCLUSION WILL COVER GROUND NO.1 OF ITA NO.253 /IND/2007 (ASSESSMENT YEAR 2001-02) AND GROUND NO.2 OF ITA NO.255/IND/2007 (ASSESSMENT YEAR 2003-04) ALSO. 4. THE NEXT GROUND PERTAINS TO GRANTING RELIEF OF RS.7,31,541/- OUT OF THE TOTAL ADDITION OF RS.9,06, 541/- MADE 19 UNDER THE HEAD FOREIGN TRAVELLING EXPENSES. THE C RUX OF ARGUMENTS ON BEHALF OF THE LD. CIT/DR IS THAT THESE EXPENSES WERE INCURRED FOR NON-BUSINESS PURPOSES ONLY WHEREA S THE LEARNED COUNSEL FOR THE ASSESSEE DEFENDED THE IMPUG NED ORDER BY SUBMITTING THAT THE EXPENSES WERE DULY INCURRED FOR BUSINESS EXPEDIENCY. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON FILE. THE FACTS, IN BRIEF , ARE THAT IN ITS P & L ACCOUNT, THE ASSESSEE CLAIMED RS.9,06,541/- AS FOREIGN TRAVELLING EXPENSES, WHICH WERE DISALLOWED BY THE L D. ASSESSING OFFICER ON THE PLEA THAT THE ASSESSEE DID NOT PROCURE CONTRACT FROM FOREIGN AGENCY AND THE CONTRACTS ARE SUB- CONTRACTED BY ITS PARENT COMPANY IN AUSTRIA BY FURT HER OBSERVING THAT THE ASSESSEE DID NOT TRAVEL OUTSIDE INDIA FOR REALISATION OF DEBTS AS THE INVOICES OF SALES WERE ALSO MADE IN FAVOUR OF PARENT COMPANY IN AUSTRIA, THEREFORE, HE DOUBTED THE GENUINENESS OF THESE EXPENSES. HOWEVER, WE FIND THA T THE ASSESSEE WAS REGULARLY GETTING EXPORT ORDERS FROM I TS AUSTRIAN JOINT VENTURE COMPANY AND THE ASSESSEE WAS GETTING ORDERS FOR 20 SPECIFIC ITEMS AT PREDETERMINED PRICES, THAT TOO, U NDER THE SPECIFIED TERMS & CONDITIONS AS AGREED UPON. ADMITT EDLY, FOR SMOOTH FUNCTIONING OF BUSINESS, THERE MAY BE HUNDRE DS OF REASONS LIKE FINALISATION OF ACCOUNTS, PROCUREMENT OF CONTRACTS TO CHECK THE QUALITY OF THE IMPLEMENTS AND OTHER BU SINESS NEEDS FOR WHICH THE EMPLOYEES AND THE DIRECTORS ARE SUPPOSED TO TRAVEL ABROAD. THE LD. ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY EVIDENCE ESTABLISHING THAT THE FOREIGN T RAVEL WAS A PLEASURE TRIP. EVEN OTHERWISE, THE SUPERVISION AND ERECTION WORK AT THE SITES BY THE ENGINEERS WAS THE BUSINESS EXPEDIENCY. THE NECESSARY DOCUMENTS, BILLS AND VOUC HERS WERE DULY FURNISHED BEFORE THE LD. ASSESSING OFFICE R WHEREIN NOTHING OBJECTIONABLE WAS POINTED OUT, THEREFORE, T HE LD. CIT(A) RIGHTLY CONCLUDED THAT THESE EXPENSES ARE ALLOWABLE EXPENSES WHICH WERE WHOLLY & EXCLUSIVELY INCURRED FOR BUSINE SS PURPOSES. EVEN OTHERWISE, THERE IS UNCONTROVERTED F INDING IN THE IMPUGNED ORDER THAT AT THE FIRST APPELLATE STAG E, THE NECESSARY DETAILS OF FOREIGN TRAVEL EXPENSES WERE F URNISHED AND THE SAME WERE EXAMINED. IT IS FURTHER SEEN THAT WHEREVER 21 THE LD. CIT(A) FOUND THE EXPENSES FOR NON-BUSINESS PURPOSES, THE PART DISALLOWANCE WAS MADE, THEREFORE, THE STAN D OF LD. CIT(A), ON THIS ISSUE, IS AFFIRMED. THIS CONCLUSION WILL ALSO COVER GROUND NO.5 OF ITA NO.253/IND/2007 (ASSESSMENT YEAR 2001- 02) ALSO. 6. THE NEXT GROUND PERTAINS TO GRANTING RELIEF AMOU NTING TO RS.78,75,385/- OUT OF THE ADDITION OF RS.81,00,385/ - MADE ON ACCOUNT OF TRAINING EXPENSES. THE LD. CIT/DR DEFE NDED THE IMPUGNED ORDER BY SUBMITTING THAT THE TRAINING EXPE NSES ARE NOTHING BUT A COLOURABLE DEVICE, ADOPTED BY THE ASS ESSEE. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSE E DEFENDED THE IMPUGNED ORDER. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON FILE. WE FIND THAT THE AS SESSEE CLAIMED TO HAVE INCURRED RS.81,00,365/- FOR THE TRAINING OF ITS EMPLOYEES AND DEBITED THE EXPENSES IN ITS P & L ACCOUNT. THE CLAIM WAS DISALLOWED BY THE ASSESSING OFFICER ON THE PLEA THA T SUCH TRAINING WAS NOT FOR THE LEGITIMATE NEED OF THE BUS INESS AND THE 22 COMPANY WAS NOT UNDER OBLIGATION TO INCUR SUCH A HU GE EXPENDITURE ON THE TRAINING OF WORKERS/EMPLOYEES. P URSUANT TO THIS OBSERVATION, A DETAILED QUESTIONNAIRE WAS ISSU ED BY HIM AGAINST WHICH THE ASSESSEE FILED ITS CLARIFICATION/ EXPLANATION TO EACH AND EVERY OBSERVATION/POINT ALONG WITH COPY OF ACCOUNTS AND NECESSARY BILLS AND VOUCHERS WERE ALSO PRODUCED . NO SPECIFIC DEFECT WAS POINTED OUT BY THE ASSESSING OF FICER IN THESE BILLS/VOUCHERS. SO FAR AS THE OBSERVATION OF LEGITIMATE NEED IS CONCERNED, IT HAS TO BE DECIDED BY THE ASSE SSEE AS THE ASSESSEE IS THE BEST JUDGE OF ITS BUSINESS. THE ASS ESSING OFFICER IS NOT EXPECTED TO SIT AS AN ARMCHAIR PHILO SOPHER IN THE NEEDS OF BUSINESS EXPEDIENCY. THE PERIODICAL TRAINI NG OF THE WORKERS/EMPLOYEES RATHER FORTIFIES THEIR SKILLS IN ENHANCING MORE PRODUCTIVITY. THEREFORE, WE FIND NO INFIRMITY IN TH E STAND OF THE LD. CIT(A). THIS WILL COVER GROUND NO.4 OF ITA NO.2 53/IND/2007 (ASSESSMENT YEAR 2001-02) AND GROUND NO.3 OF ITA NO.254/IND/2007 (ASSESSMENT YEAR 2002-03) ALSO. 8. THE LAST GROUND IN ITA NO.29/IND/2005 PERTAINS T O DELETING THE ADDITION OF RS.5 LACS UNDER THE HEAD VEHICLE H IRE 23 EXPENSES. THE LD. CIT/DR DEFENDED THE DISALLOWANCE WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE IMPUGNED ORDER. WE HAVE PERUSED THE RECORD AND FIND THAT THE ASSESSEE CLAIMED RS.23,25,134/- TOWARDS VEHICLE HIRE CHARGES OUT OF WHICH LD. ASSESSING OFFICER DISALLOWED RS.5 LACS ON PRESUMPTIVE BASIS THAT THE SAME WERE INCURRED FOR N ON- BUSINESS PURPOSES. DETAILED QUESTIONNAIRE WAS ISSUE D TO THE ASSESSEE TO WHICH THE ASSESSEE FILED ITS EXPLANATIO N ON EACH POINT ALONG WITH THE COPY OF P & L ACCOUNT AND NECE SSARY BILLS/VOUCHERS. HOWEVER, AN ADHOC DISALLOWANCE WAS MADE ON THE PLEA THAT ALL EXPENSES WERE NOT ESTABLISHED THA T THE SAME RELATE TO BUSINESS. THE STAND OF THE ASSESSEE IS TH AT NO SPECIFIC DEFECT WAS POINTED OUT IN ITS BILLS AND VOUCHERS, T HEREFORE, NO ADHOC DISALLOWANCE IS PERMITTED. THERE IS A SPECIFI C FINDING IN THE IMPUGNED ORDER THAT BEFORE THE LD. CIT(A), THE DETAILS OF VEHICLE HIRE CHARGES ALONG WITH LETTER FROM SWARTHI TRAVELS & LALA TRAVELS WAS FILED AS A PROOF OF INCURRING SUCH EXPENSES. THIS FINDING OF THE LD. CIT(A) WAS NOT CONTROVERTED BY THE REVENUE BY BRINGING ANY CONTRARY EVIDENCE. THEREFOR E, THE 24 STAND OF THE LD. CIT(A) IS AFFIRMED. OUR CONCLUSION WILL COVER GROUND NO.7 OF ITA NO.254/IND/2007 (ASSESSMENT YEAR 2002- 03) AND GROUND NO.6 OF ITA NO.253/IND/2007 (ASSESSM ENT YEAR 2001-02) ALSO. 9. NOW, WE SHALL TAKE THE REMAINING GROUNDS OF ITA NO.253/IND/2007 (ASSESSMENT YEAR 2001-02). THE REVE NUE IS ALSO AGGRIEVED BY THE OBSERVATION OF THE LD. CIT(A) THAT THE PROVISIONS OF SECTION 145 ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT APPEAL. THE LD. CIT/DR DEFENDED THE ASSESSM ENT ORDER WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE SUPPOR TED THE IMPUGNED ORDER. WE FIND THAT THE ASSESSEE CHALLENGE D THE APPLICABILITY OF SECTION 145 OF THE ACT AND DISALLO WANCE OF EXPENDITURE OF RS.4,97,13,082/- INCURRED ON PURCHAS E OF TECHNICAL DRAWINGS & DESIGN WITHOUT CONSIDERING THE COST OF TECHNICAL DRAWINGS & DESIGN IN THE VALUE OF WORK-IN -PROGRESS ON THE GROUND THAT SIMILAR DISALLOWANCE WAS MADE BY TH E ASSESSING OFFICER FOR ASSESSMENT YEAR 2000-01, THER EFORE, BASED ON THE SAME REASONING, SUCH DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER. ADMITTEDLY, THE ASSESSEE IS IN THE 25 BUSINESS OF MANUFACTURING AND SALE OF GENERATORS, H EAVY ELECTRICAL EQUIPMENTS SUCH AS HYDRO GENERATORS, TUR BO GENERATORS, MONITORING SYSTEM, EXCITATION EQUIPMENT S AND PLANT ENGINEERING FOR HYDRO POWER PLANTS. THE CLAIM OF TH E ASSESSEE IS THAT THE AMOUNT OF RS.4,97,13,087/- WAS INCURRED FOR PURCHASING TECHNICAL DRAWINGS & DESIGNS FROM THE AU STRIAN COMPANY AND THE EXPENSES WERE INCURRED IN RELATION TO EXECUTION OF THE PROJECTS, THEREFORE, THE COST OF T HE SAME FORMS PART & PARCEL OF THE COST OF PROJECT. WE FURTHER FI ND THAT THE ASSESSING OFFICER HAS NOT PINPOINTED ANY SINGLE ITE M WHICH IS OF NON-VERIFIABLE NATURE AND THERE IS ALSO NO MATERIAL OMISSION OR SUPPRESSION OF RECORDING THE INCREASE BY THE ASSESS EE IN ITS ACCOUNTS. EVEN OTHERWISE, WE HAVE ALSO AFFIRMED THE STAND OF THE LD. CIT(A) (SUPRA) WITH REGARD TO EXPENDITURE I NCURRED BY THE ASSESSEE ON TECHNICAL DRAWINGS & DESIGNS WHICH FORM S PART OF THE COST OF THE MANUFACTURING, THEREFORE, WE FIND N O INFIRMITY IN THE IMPUGNED ORDER WHEREIN IT WAS HELD THAT THE PRO VISIONS OF THE SECTION 145 OF THE ACT ARE NOT APPLICABLE TO TH E FACTS OF THE PRESENT APPEAL, CONSEQUENTLY, THIS GROUND OF APPEAL OF THE 26 REVENUE IS ALSO HAVING NO MERIT. OUR VIEW WILL COVE R GROUND NO.1 OF ITA NO.254/IND/2007 (ASSESSMENT YEAR 2002-0 3) ALSO. 10. THE NEXT GROUND PERTAINS TO ALLOWING RELIEF OF RS.81,72,801/- MADE ON SALE OF BHANDAR DHARA PROJEC T. THE LEARNED COUNSEL FOR THE REVENUE SUPPORTED THE ASSES SMENT ORDER WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE DEFENDED THE IMPUGNED ORDER. 11. ON PERUSAL OF RECORD AND AFTER HEARING THE RIVA L SUBMISSIONS, WE FIND THAT THE ASSESSING OFFICER EST IMATED NET PROFIT ON THE BHANDAR DHARA PROJECT AND THE INVOICE VALUE STOOD AT RS.4.10 CRORE AS HAS BEEN DISCUSSED BY THE LD. A SSESSING OFFICER AT PAGE 6 (PARA 3) (D) WHEREIN IT HAS BEEN RECORDED THAT THE COST OF THE PROJECT, AS ARRIVED IN CALCULATIONS , SHOWED NOMINAL PROFIT, CONSEQUENTLY, THE ASSESSING OFFICER APPLIED NET PROFIT RATE OF 10% ON THE SALE OF THIS PROJECT WHIC H RESULTED INTO ADDITION OF RS.81,72,801/- TO THE TOTAL INCOME OF T HE ASSESSEE. IT IS FURTHER FOUND THAT THE ASSESSING OFFICER HAS NOT SUBSTANTIATED IT FINDINGS WITH EVIDENCE AND ADDITIO N HAS BEEN 27 MADE MERELY ON PRESUMPTIVE BASIS, IGNORING OVERALL SALES AND NET RESULT, APPEARING IN THE P & L ACCOUNT WHICH WA S AUDITED ONE. ADMITTEDLY, THE BOOKS OF ACCOUNT, VOUCHERS, BI LLS AND OTHER NECESSARY DOCUMENTS WERE FILED BY THE ASSESSEE DURI NG ASSESSMENT PROCEEDINGS, WITHOUT PINPOINTING AS TO H OW THE SALES AND THE NET PROFIT WAS NOT VERIFIABLE. WE ARE IN AGREEMENT WITH THE FINDING OF THE LD. CIT(A) THAT THE PRESUMP TIVE ESTIMATION MADE BY THE ASSESSING OFFICER IS NOT BASED UPON ANY MATERIAL, CONSEQUENTLY, THE STAND OF THE LD. CIT(A) IS AFFIRM ED. 12. THROUGH GROUND NO.7, THE REVENUE HAS ALSO CHALL ENGED DELETION OF DISALLOWANCE OF RS.5,03,508/- MADE ON A CCOUNT OF PROVISION FOR ACCRUED UNPAID INTEREST. THE LD. CIT/ DR SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LEARNED COUNSEL FO R THE ASSESSEE DEFENDED THE IMPUGNED ORDER. WE FIND THAT ASSESSEE MADE PROVISION OF INTEREST AT RS.5,53,508/- ON FORE IGN CURRENCY LOAN, OBTAINED FROM CITY BANK AND STATE BANK OF IND IA, BAHRIN. THE STAND OF THE ASSESSEE IS THAT THE STATE BANK OF INDIA IS AN INDIAN BANK AND THE FOREIGN CURRENCY LOAN WAS ARRAN GED BY THE BANK THROUGH ITS BAHRIN BRANCH AND FURTHER IT WAS A RRANGED WITH 28 DUE PERMISSION AND APPROVAL FROM RESERVE BANK OF IN DIA. THE DETAILS OF INTEREST PROVISIONS WERE ALSO FILED BY T HE ASSESSEE AND THE PROVISION OF THE ACCRUED INTEREST WAS MADE. SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING, THEREFORE, IT IS AN ALLOWABLE DEDUCTION U/S 36(1)(I II) OF THE ACT. THERE IS A CATEGORICAL FINDING IN THE IMPUGNED ORDE R THAT THE PAYMENT OF INTEREST TO THE SAID BANK, AFTER CLOSE O F THE ACCOUNTING YEAR, BUT BEFORE DUE DATE OF RETURN WERE ALSO FILED BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS ALONG WITH COPY OF EXEMPTION FROM WITHHOLDING TAX ON PAYMENT O F INTEREST FROM CITY BANK, BAHRIN. THESE DETAILS WERE ALSO FIL ED DURING FIRST APPELLATE STAGE, CONSEQUENTLY, WE FIND NO INFIRMITY IN THE STAND OF THE LD. CIT(A). IT IS AFFIRMED. 13. THE LAST GROUND (IN ITA NO.253/IND/2007) PERTAI NS TO DELETING THE ADDITION OF RS.43,00,800/- AND RS.70,8 5,625/- MADE ON ACCOUNT OF, BEING NET PROFIT ON DESPATCH OF TURBO GENERATOR AND ON SALE ITEM OF COMPENSATION OF HIGH COST. THE LD. CIT/DR SUPPORTED THE ASSESSMENT ORDER BY INVITI NG OUR ATTENTION TO THE RELEVANT PORTION FROM ASSESSMENT A S WELL AS 29 FROM IMPUGNED ORDER WHEREAS LEARNED COUNSEL FOR THE ASSESSEE DEFENDED THE IMPUGNED ORDER. WE FIND THAT THE LD. ASSESSING OFFICER HAS DISCUSSED THE ADDITION IN PAR A 9 & 10 OF THE ASSESSMENT ORDER. THE FOLLOWING TABLE SHOWS THE BREAKUP OF THE SALES: SALES AS PARTS & COMPONENTS 56760601 RENOVATION OF EXCITATION 2346000 COMPENSATION FOR HIGH COST 24000000 DESIGN OF TURBO GENERATOR 4300800 87407401 THE RELEVANT PORTION FROM THE IMPUGNED ORDER IS REP RODUCED HEREUNDER: THE COUNSEL OF THE APPELLANT SUBMITTED BEFORE ME HAS ALSO DRAWN MY ATTENTION TO THE AUDITED PROFIT & LOSS ACCOUNT OF THE ASSESSEE AND SUBMITTED THAT IN THE RELEVANT YEAR, THE AGGREGATE TURNOVER SHOWN IS RS.261915153 WHICH INCLUDED THE FOREIGN SALES OF RS.87407401. IT IS FURTHER SUBMITTED BY THE COUNSEL THAT THE FOREIGN SALES INCLUDE THE RECEIPTS OF RS.24000000 FOR THE COMPENSATION FOR HIGH COST & RS.4300800 FOR THE SALE OF DESIGN OF TURBO GENERATOR. THE COUNSEL THEN ALSO DRAWN MY ATTENTION ON THE COST OF MATERIAL AND THE MANUFACTURING EXPENSES INCURRED DURING THE YEAR, THE DETAILS OF WHICH ARE 30 IN SCHEDULE-10 & SHEDULE-11 OF THE PROFIT & LOSS ACCOUNT. THE AGGREGATE OF THESE TWO EXPENDITURE IS RS.194333622 (126036826 + 68296796). THE COUNSEL THUS SUBMITTED THAT THE OPERATING PROFIT IN THE RELEVANT YEAR WAS OF RS.67581531 (261915153 194333622) AND THE SAID OPERATING PROFIT INCLUDED THE PROFIT ARISEN ON THE TWO RECEIPTS I.E. COMPENSATION FOR HIGH COST AND SALE OF DESIGN OF TURBO GENERATOR. IT HAS BEEN FURTHER SUBMITTED BY THE APPELLANT THAT ALL EXPENDITURES INCURRED DURING THE YEAR HAVE BEEN SHOWN ON THE DEBIT SIDE OF THE PROFIT & LOSS ACCOUNT AND ALL THE REVENUE RECEIPTS HAVE BEEN TRULY AND PROPERLY REFLECTED ON THE CREDIT SIDE OF THE PROFIT & LOSS ACCOUNT AND, THEREFORE, THE NET RESULT SHOWN IN THE PROFIT & LOSS ACCOUNT NEEDS TO BE ACCEPTED. THE COUNSEL SUBMITTED THAT THE A.O. WHOLLY ERRED IN SEPARATELY TAXING THE INCOME ON THE ABOVE TWO RECEIPTS OVER AND ABOVE SHOWN AND INCLUDED IN THE OPERATING PROFIT. THE A.O. HAS ALSO NOT GIVEN ANY BASIS OF HIS ESTIMATION. THE ENTIRE ADDITION OF THE A.O. IS BASED ON THE ASSUMPTIONS AND PRESUMPTIONS. THE A.O. HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN THE ACCOUNT BOOKS AND IN ANY OF THE EXPENDITURE APPEARING IN THE PROFIT & LOSS ACCOUNT. THE LEARNED COUNSEL SUBMITTED THAT THE DETAILED WORKING OF THE VALUE OF THE WORK-IN-PROGRESS HAS ALSO BEEN SUBMITTED BEFORE THE A.O. AND HE HAS ALSO NOT DISPUTED THE 31 CORRECTNESS OF THE SAME AND, THEREFORE, THE ADDITION MADE AT RS.43008300 FOR THE INCOME FROM SALE OF DESIGNS AND ANOTHER ADDITION OF RS.7085625 FOR THE COMPENSATION FOR HIGH COST ARE WHOLLY UNJUSTIFIED AND WARRANTS DELETION. IT HAS BEEN FURTHER POINTED OUT BY THE LEARNED COUNSEL BY REFERRING A LETTER DATED 7.12.2000, IN WHICH THE APPELLANT HAD CLAIMED THAT DUE TO THE COST ESCALATION THE MANUFACTURING COST OF THE ITEM SUPPLIED SUBSTANTIALLY INCREASED AND, THEREFORE, REQUESTED THE CUSTOMER TO COMPENSATE FOR THE ESCALATED COST. THIS RECEIPT, THE COUNSEL SAID, IS ALSO A PART OF THE TURNOVER OF THE ASSESSEE SO ALSO THE AMOUNT RECEIVED FOR THE SALE OF DESIGNS AND WHATEVER THE INCOME ARISEN ON SUCH RECEIPTS HAS ALREADY FORMED A PART OF THE TOTAL OPERATING PROFIT AND, THEREFORE, SEPARATE ADDITION ON ASSUMPTIONS IS NOT JUSTIFIED. IF THE AFORESAID FINDING OF THE LD. CIT(A) AND THE SUBMISSIONS OF THE ASSESSEE ALONG WITH FACTS ARE ANALYSED, ADMITTE DLY, NO DEFECT HAS BEEN PINPOINTED BY THE ASSESSING OFFICER IN THE ACCOUNTS OF THE ASSESSEE. EVEN OTHERWISE, NO BASIS HAS BEEN GIVEN IN THE ASSESSMENT ORDER IN ARRIVING AT A CONC LUSION, THEREFORE, WE AFFIRMED THE STAND OF THE LD. CIT(A). 32 14. THE REMAINING GROUNDS IN ITA NO.255/IND/2007 (2 003-04) PERTAIN TO DELETING THE DISALLOWANCE OF RS.15,88,08 0/- MADE ON ACCOUNT OF WARRANT EXPENSES. THE CIT/DR SUPPORTED T HE ASSESSMENT ORDER WHEREAS THE CONTENTION ON BEHALF O F THE ASSESSEE IS THAT FOR EXECUTING A LOAN CONTRACT OF S UBSTANTIAL VALUE AND ALSO IN TERMS OF THE CONTRACT, THE WARRAN T CLAUSES ARE BUSINESS NECESSITY. IT WAS ALSO SUBMITTED THAT AS P ER ACCOUNTING STANDARDS, NOTIFIED UNDER SUB-SECTION 2 OF SECTION 145, VIDE NOTIFICATION NO.9949 DATED 25.1.1996, PRO VISION IS TO BE MADE FOR ALL LOAN LIABILITIES AND LOSSES EVEN TH OUGH THE AMOUNT CANNOT BE DETERMINED WITH A CERTAINTY AND ON LY REPRESENTS A BEST ESTIMATE, ON THE BASIS OF AVAILAB LE INFORMATION, THEREFORE, THE PROVISION IN THE ACCOUN T WAS MADE OF THE IMPUGNED AMOUNT. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON FILE. WE FIND THAT THE FO LLOWING PROVISION WAS MADE OF THE WARRANTY CLAIM IN THE ACC OUNTS OF THE ASSESSEE: 33 PROJECT NAME TOTAL COST INCURRED (IN RS.) PROVISION @1% (IN RS.) WARRANTY PERIOD BHANDARDHARA 53230000 532300 18 MONTHS FROM TEST RU N TRIVENI SUGARS 12000000 120000 2 CRUSHING SEASONS VAJRA 6550000 65500 18 MONTHS FROM SUPPLY CHASKAMAN 7550000 75500 18 MONTHS FROM SUPPLY RANA SUGARS 5190000 51900 2 CRUSHING SEASONS TRIVENI TURBO 4915000 49150 24 MONTHS FROM SUPPLY HPCL 6600000 66000 24 MONTHS FROM SUPPLY RENUKA SUGARS 9150000 91500 2 CRUSHING SEASONS NA LOI 25450000 254500 24 MONTHS/8 HRS. OF OPERATIO N PAN AFRICA 9028000 90280 18 MONTHS FROM COMMISSIONI NG SHRI RAM 5315000 53150 18 MONTHS FROM COMMISSIONING KORADI 1630000 16300 12 MONTHS FROM COMMISSIONING WEST COAST 12200000 122000 24 MONTHS FROM OPERATION TOTAL 15,88,080 THE DETAILS OF WARRANTY PROVISION AND ITS REVERSALS ARE REPRODUCED HEREUNDER: S.NO. ASSESSMENT YEAR WARRANTY PROVISION CREATED DURING THE PERIOD (IN RS.) WARRANTY PROVISION OF EARLIER YEARS REVERSED DURING THE PERIOD (IN RS.) 1 2003-04 1588080 - 2 2004-05 3024128 680100 3 2005-06 6954871 529718 4 2006-07 6810422 487755 5 2007-08 6572822 2872949 TOTAL: 24950323 45701522 IF THE TOTALITY OF THE FACTS ARE ANALYSED, WARRANTY CLAIMED IS INBUILT IN THE SALE MECHANISM AND THE WARRANT PROVI SION WAS MADE DUE TO CONTRACTUAL LIABILITY WHICH CAN BE BASE D UPON 34 ESTIMATED LIABILITY WHICH IS OTHERWISE ELIGIBLE FOR DEDUCTION U/S 37 OF THE ACT. INCURRING OF LIABILITY IS CERTAINTY WHEREAS THE QUANTIFICATION DEPENDS UPON CERTAIN BUSINESS EXIGEN CY AND AT THE SAME TIME, EXACT QUANTIFICATION MAY NOT BE POSS IBLE WHEN SUCH PROVISION IS ESTIMATED, WHICH IS TO BE DISCHAR GED AT A FUTURE DATE, THEREFORE, IT IS LAWFULLY DEDUCTIBLE. OUR VIEW IS SUPPORTED BY THE RATIO LAID DOWN IN DECISIONS FROM HONBLE APEX COURT IN BHARAT EARTH MOVERS LTD. VS. CIT (245 ITR 428) (SC), CIT VS. VINITEC CORPORATION PVT. LTD. (278 ITR 337) (DEL) AND CIT VS. MAJESTIC AUTO LTD. (204 ITR (AT) 14) (CHD). THEREFORE, THE STAND OF THE LD. CIT(A) IS AFFIRMED. 16. SO FAR AS DELETING THE DISALLOWANCE OF RS.20,21 ,688/- MADE ON ACCOUNT OF PAYMENT FOR EXCISE DUTY AND SALE S TAX (ITA NO.254/IND/2007) ARE CONCERNED, THE LD. CIT/DR SUPP ORTED THE ASSESSMENT ORDER WHEREAS THE LEARNED COUNSEL FOR TH E ASSESSEE DEFENDED THE IMPUGNED ORDER. WE FIND THAT FOR THE SHIVA PROJECT, THE AMOUNT OF RS.15,67,200/- WAS PAI D IN THE FORM OF EXCISE DUTY WHEREAS THE AMOUNT OF RS.4,54,4 88/- WAS PAID AS SALES TAX. THERE IS A FINDING IN THE IMPUGN ED ORDER, AS 35 CLAIMED BY THE ASSESSEE, THAT THE ASSESSEE RECEIVED AN ORDER FOR SUPPLY OF TEN GENERATORS FROM VISVESWARAYYA VID YUT NIGAM LTD., THE CRANE CARRYING THE GENERATORS BROKE DOWN AND THE GENERATORS RAN INTO KAVERI RIVER AND DESTROYED. THE ASSESSEE RECEIVED THE CLAIM OF THE ACCIDENT WHICH WAS DULY A CCOUNTED FOR IN THE BOOKS. IN TURN, THE ASSESSEE MANUFACTURED NE W GENERATOR AND PAID EXTRA EXCISE DUTY AND SALES TAX THEREON WHICH WAS CLAIMED AS BUSINESS EXPENDITURE, THEREFOR E, WE ARE IN AGREEMENT WITH THE FINDING OF THE LD. CIT(A) THA T IT IS AN ALLOWABLE EXPENDITURE U/S 37 R.W. SECTION 43B OF TH E ACT, ESPECIALLY WHEN IT IS AN UNDISPUTED FACT THAT THE E XCISE DUTY AND THE SALES TAX WERE PAID BY THE ASSESSEE TO THE CUST OMERS, CONSEQUENTLY, IT IS AN ALLOWABLE DEDUCTION. WE, THE REFORE, AFFIRM THE STAND OF THE LD. CIT(A). 17. THE REVENUE IS ALSO AGGRIEVED IN DELETING THE A DHOC DISALLOWANCE OF RS.10 LACS MADE BY THE ASSESSING OF FICER. AFTER HEARING THE RIVAL SUBMISSIONS, WE FIND THAT I DENTICAL DISALLOWANCE WAS MADE FOR ASSESSMENT YEAR 2001-02 A ND THE SAME WAS AFFIRMED, THEREFORE, IN VIEW OF UNCONTROVE RTED FACTUAL 36 POSITION, WE FIND NO INFIRMITY IN THE STAND OF THE LD. CIT(A). EVEN OTHERWISE, IN THE ABSENCE OF ANY INFIRMITY IN THE B OOKS OF ACCOUNT, NO ADHOC DISALLOWANCE IS REQUIRED, THAT TO O, WITHOUT PINPOINTING ANY DEFECT IN THE AUDITED BOOKS OF ACCO UNT. 18. THE LAST GROUND PERTAINS TO DELETING THE DISALL OWANCE OF RS.1,91,487/- ON ACCOUNT OF BED DEBTS. THE SUBMISSI ON OF LD. CIT/DR IS IN SUPPORT TO THE ASSESSMENT ORDER WHEREA S THE CONTENTION ON BEHALF OF THE ASSESSEE IS THAT DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE WRITTEN OFF THE IMPUGNED AMOUNT IN ITS ACCOUNT DUE TO REJECTION OF GOODS FROM VENDORS AND WERE DEBITED TO THE P & L ACCOUNT WHICH WERE DISALLOWED BY THE ASSESSING OFFICER ON T HE PLEA THAT NO EFFORTS WERE MADE BY THE ASSESSEE TO RECOVER THE AMOUNT. WE ARE OF THE VIEW THAT AFTER 1.4.1989, IT IS NOT N ECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, H AS BECOME IRRECOVERABLE, IT IS ENOUGH IF THE BAD DEBT IS WRIT TEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. EFFE CT OF AMENDMENT TO SECTION 36 (1) (VII) R.W. SECTION 36 ( 2) OF THE ACT IS VERY CLEAR. THEREFORE, WE FIND NO INFIRMITY IN T HE STAND OF THE 37 LD. CIT(A). OUR VIEW IS FURTHER SUPPORTED BY THE DE CISIONS IN TRF LTD. VS. CIT (323 ITR 397) (SC), CIT VS. KOHLI BROS. COLOUR LAB P. LTD. (186 TAXMAN 62) (ALL), CIT VS. AUTO MET ERS LTD. (292 ITR 345) (DEL) AND DIT VS. OMAN INTERNATIONAL BANK SAOG (184 TAXMAN 314) (BOM). 19. NOW, WE SHALL TAKE UP THE CROSS-OBJECTIONS RAIS ED BY THE ASSESSEE. IN CO NO.52/IND/2007 (ASSESSMENT YEAR 200 1-02), THE ASSESSEE HAS DISPUTED DISALLOWANCE OF RS.1,25,0 00/- OUT OF TRAINING EXPENSES AND RS.50,000/- OUT OF DONATION. ON PERUSAL OF RECORD AND AFTER HEARING THE RIVAL SUBMISSIONS, SINCE WE HAVE AFFIRMED THE STAND OF THE LD. CIT(A), THEREFOR E, WE FIND NO JUSTIFICATION IN THIS GROUND OF CO OF THE ASSESSEE. SO FAR AS THE DONATION IS CONCERNED, THERE IS NO JUSTIFICATION IN THESE EXPENSES INCURRED BY THE ASSESSEE, THAT TOO, WITHOU T BUSINESS EXIGENCY, CONSEQUENTLY, BOTH THE GROUNDS OF CO NO.52/IND/2007 ARE DISMISSED. 20. IN CO NO.53/IND/2007 (ASSESSMENT YEAR 2002-03), THE ASSESSEE HAS CHALLENGED SUSTAINANCE OF DISALLOWANCE OF RS.1 38 LAC OUT OF FOREIGN TRAVELLING EXPENSES, RS.1,23,389 /- FOR LOSS ON SCRAP ASSET AND RS.37,631/- FOR PROVISION OF COST R ISK. NO SUBSTANTIAL REASONS HAVE BEEN ADDUCED BEFORE US DEB ITING FROM THE CONCLUSION ARRIVED AT IN THE IMPUGNED ORDER. WH EREVER THE LD. CIT(A) FINDS ANY JUSTIFICATION IN SUSTAINANCE O F THE DISALLOWANCE, THAT HAS BEEN DONE, IN WHICH, NO INFI RMITY WAS PINPOINTED, THEREFORE, WE FIND NO JUSTIFICATION TO INTERFERE WITH THE IMPUGNED ORDER, CONSEQUENTLY, THESE GROUNDS OF THE CO NO.53/IND/2007 ARE ALSO DISMISSED. 21. THE LAST CROSS-OBJECTION RAISED THROUGH CO NO.39/IND/2005 PERTAINS TO SUSTAINING THE DISALLOWA NCE OF RS.1,75,000/- OUT OF TRAVELLING EXPENSES AND RS.2,2 5,000/- OUT OF TRAINING EXPENSES ARE CONCERNED, WE FIND THAT WH EREVER THE LD. CIT(A) FOUND THE TRAVELLING EXPENSES FOR NON-BU SINESS PURPOSES OR EXCESSIVE OR WITHOUT SUPPORT OF PROPER BILLS OR VOUCHERS, THE SAME WERE DISALLOWED. SIMILAR IS THE POSITION FOR TRAINING EXPENSES. CONSEQUENTLY, WE FIND NO MERIT I N THE CLAIM OF THE ASSESSEE, RESULTING INTO DISMISSAL OF BOTH T HE GROUNDS OF THE CO NO.39/IND/2005). 39 FINALLY, THE APPEALS OF THE REVENUE AND CROSS-OBJE CTIONS OF THE ASSESSEE ARE DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 2 8 TH DECEMBER, 2011. SD SD (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28 .12.2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE !VYS!