Asst. CIT, Circle-7, Pune V. Tata Toyo Radiator Pvt. Ltd., Pune

ITA 1029/PUN/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2506 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-11-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 07-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANDIP
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; Business expenditure; Additional evidence; Question of law; Fair market value; Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 115JB; 37(1); 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , A M . / ITA NO. 1 029 /PN/201 3 / ASSESSMENT YEAR: 200 6 - 07 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / APPELLANT VS. TATA TOYO RADIATOR PVT. LTD., S.NO.235/245 , VILLAGE HIN J EWADI, TAL - MULSHI, DIST PUNE . . / RESPONDENT PAN: AAACT5566F . / ITA NO. 1 034 /PN/201 3 / ASSESSMENT YEAR: 200 6 - 07 TATA TOYO RADIATOR PVT. LTD., S.NO.235/245, VILLAGE HIN J EWADI, TAL - MULSHI, DIST PUNE. . / APPELLANT PAN: AA ACT5566F VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / RESPONDENT . / ITA NO. 10 30 /PN/2013 / ASSESSMENT YEAR: 200 7 - 0 8 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / AP PELLANT VS. TATA TOYO RADIATOR PVT. LTD., S.NO.235/245, VILLAGE HIN J EWADI, TAL - MULSHI, DIST PUNE. . / RESPONDENT PAN: AAACT5566F ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 2 . / ITA NO.1 03 5 /PN/2013 / ASSESSMENT YEAR: 200 7 - 0 8 TATA TOYO RADIATOR PVT. LTD., S.NO.235/245, VILLAGE HIN J EWADI, TAL - MULSHI, DIST PUNE. . / APPELLANT PAN: AAACT5566F VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / RESPONDENT . / ITA NO. 1 595 /PN/2013 / ASSESSMENT YEAR: 200 8 - 0 9 TATA TOYO RADIATOR PVT. LTD., S.NO.235/245, VILLAGE HINJEWADI, TAL - MULSHI, DIST PUNE. . / APPELLANT PAN: AAACT5566F PAN: AAACT5566F VS. THE ADDL . COMMISSIONER OF INCOME TAX, RANGE 7, PUNE . / RESPONDENT . / ITA NO.1 648 /PN/2013 / ASSESSMENT YEAR: 200 8 - 0 9 THE ADDL. COMMISSIONER OF INCOME TAX, RANGE 7, PUNE . / APPELLANT VS. TATA TOYO RADIATOR PVT. LTD., S.NO.235/245, VILLAGE HINJEWADI, TAL - MULSHI, DIST PUNE. . / RESPONDENT PAN: AAACT5566F ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 3 . / ITA NO. 159 6 /PN/2013 . / ITA NO. 159 6 /PN/2013 / ASSESSMENT YEAR: 200 9 - 1 0 TATA TOYO RADIATOR PVT. LTD., S.NO.235/245, VILLAGE HINJEWADI, TAL - MULSHI, DIST PUNE. . / APPELLANT PA N: AAACT5566F VS. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE 7, PUNE . / RESPONDENT . / ITA NO.1 64 9 /PN/2013 / ASSESSMENT YEAR: 200 9 - 1 0 THE ADDL. COMMISSIONER OF INCOME TAX, RANGE 7, PUNE . / APPELLANT RANGE 7, PUNE . / APPELLANT VS. TATA TOYO RADIATOR PVT. LTD., S.NO.235/245, VILLAGE HINJEWADI, TAL - MULSHI, DIST PUNE. . / RESPONDENT PAN: AAACT5566F ASSESSEE BY : S HRI P.J. PARDI W ALLA , MS. PUJA KUSHWA ASSESSEE BY : S HRI P.J. PARDI W ALLA , MS. PUJA KUSHWA AND SHRI SANDIP NAVALE DEPARTMENT BY : DR. SANTOSH KUMAR / DATE OF HEARING : 0 8 . 0 3 .201 6 / DATE OF PRONOUNCEMENT: 18 .0 3 .201 6 ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 4 / ORDER PER SUSHMA CHOWLA, J M : OUT OF THIS BUNCH OF FOUR CROSS APPEALS , TWO CROSS APPEALS FILED BY THE REVENUE AND THE ASSESSEE ARE AGAINST CONSOLIDATED ORDER OF CIT ( A ) - I II , PUNE , DATED 3 0 .0 4 .201 2 REL ATING TO ASSESSMENT YEAR S 200 6 - 07 AND 2007 - 08 AGAINST RESPECTIVE ORDERS PASSED UNDER SECTION 143 (3 ) OF THE INCOME TAX ACT , 1961 (IN SHORT THE ACT) . AN OTHER TWO CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE ARE AGAINST CONSOLIDATED ORDER OF CIT (A) - III, PUNE, DATED 19 . 1 0.201 2 RELATING TO ASSESSMENT YEAR S 200 8 - 0 9 AND 200 9 - 1 0 AGAINST RESPECTIVE ORDERS PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 19 61 (IN SHORT THE ACT) . 2. TH IS BUNCH OF FOUR CROSS APPEALS RELATING TO ASSESSMENT YEARS 2006 - 07 TO 2009 - 10 WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED 2009 - 10 WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. FIRST, WE SHALL TAKE UP CROSS APPEALS RE LATING TO ASSESSMENT YEAR 2006 - 07. 4 . THE ASSESSEE IN ITA NO. 1034 /PN/201 3 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF ADMINISTRATIVE SERVICE CHARGES PAID TO TATA AUTOCOMP SYSTEMS LTD. ('TACO' ) TO THE EXTENT OF RS.2,79,24,130 OUT OF RS.3,72,32,173 UNDER SECTION 40(A)(2)(B) OF THE INCOME - TAX ACT, 1961 ('THE ACT') ON THE GROUNDS THAT THE SAME IS EXCESSIVE AND UNREASONABLE HAVING REGARD TO SERVICES RENDERED BY TACO AND THE LEGITIMATE BUSINESS NEED S OF THE APPELLANT. 2. THE LEARNED CIT(A) ERRED IN MAKING THE FOLLOWING OBSERVATIONS: A) ... THE APPELLANT COMPANY WAS INCORPORATED IN THE YEAR 1997 AND THE INITIAL START - UP PHASE OF THE COMPANY INCLUDING LAND ACQUISITION, CONSTRUCTION OF FACTORY PREMI SES ETC. IS ALREADY OVER AND THEREFORE, QUESTION OF AVAILING ANY SERVICES BY THE APPELLANT FROM TACO, QUESTION OF AVAILING ANY SERVICES BY THE APPELLANT FROM TACO, DURING THE YEAR ON ACCOUNT OF START - UP PHASE OF THE COMPANY DOES NOT ARISE ... ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 5 B) ... EXCEPT FURNISHING THE ABOVE E - MAIL CORRESPONDENCE BETWEEN THE TWO GROUP CONCERNS, NO OTHER DOCUMENTARY EVIDENCE WAS FILED BY THE APPELLANT TO SHOW THAT SERVICES WERE ACTUALLY RENDERED BY TACO TO THE APPELLANT DURING THE YEAR ... C) ... IT WAS ALSO OBSERVED THAT SOME OF THE E - MAILS ARE TOO VAGUE AND GENERAL ... D) ... THE E - MAIL CORRESPONDENCE DOES NOT ESTABLISH CONCLUSIVELY THAT SERVICES AND SUPPORT TO THE EXTENT CLAIMED BY THE APPELLANT WERE RECEIVED FROM TACO DURING THE YEAR ... E) ... THE PAYMENTS TO TACO AT A FIXED PERCENTAGE OF THE TURNOVER IRRESPECTIVE OF ACTU AL SERVICES RENDERED IN A PARTICULAR YEAR ARE NOT AT ALL JUSTIFIED ... F) ... THERE COULD BE BUSINESS EXPEDIENCY TO AVAIL THE SERVICES OF TACO IN THE INITIAL FORMATIVE YEARS OF THE COMPANY I. E. DURING START - UP PHASE BUT ONCE THE COMPANY IS WELL ESTABLIS HED, IT CANNOT BE SAID THAT THE EXPENDITURE TO THE EXTENT CLAIMED BY THE APPELLANT AT A FIXED PERCENTAGE OF TURNOVER WAS INCURRED ON ACCOUNT OF BUSINESS EXPEDIENCY ... THE APPELLANT OBJECTS TO THE ABOVE OBSERVATIONS WHICH ARE CONTRARY TO THE FACTS OF THE CASE AND IN LAW. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES INCURRED ON ENGINEERING SERVICES AMOUNTING TO RS.26,50,000, ON THE GROUND THAT SUCH SERVICES ALSO INCLUDE SOFTWARE TOOLS WHICH PROVIDE ENDURING ADVANTAGE TO THE APPEL LANT. 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES INCURRED ON REPAIRS TO BUILDINGS AMOUNTING TO RS.11,85,657. 5. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES ON RENT, CRYSTALIZED DURING THE YEAR, AMOUNT ING TO RS.1,51,896. 6. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF SALES TAX EXPENSES, PAID BY THE APPELLANT, AMOUNTING TO RS.7,01,572. 7. THE LEARNED CIT(A) ERRED IN MAKING THE FOLLOWING OBSERVATIONS: (A) ... BUT AS ADMITTED BY THE AP PELLANT ITSELF, THE ABOVE TWO INSTALLMENTS WERE REMITTED TO THE SALES TAX DEPARTMENT UNDER PROTEST. TO A SPECIFIC QUERY, THE LEARNED COUNSEL ALSO STATED THAT THE ISSUE WAS EVENTUALLY DECIDED IN FAVOR OF THE APPELLANT AND THE DEMAND RAISED WAS CANCELLED ... (B) ... THE LIABILITY IS ONLY A CONTINGENT LIABILITY AND SUCH CONTINGENT LIABILITY CANNOT BE ALLOWED AS DEDUCTION U/S. 43B OR OTHERWISE ... THE APPELLANT OBJECTS TO THE ABOVE OBSERVATIONS WHICH ARE CONTRARY TO THE FACTS OF THE CASE AND IN LAW. 8. EAC H ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 9. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, TO ALTER, TO SUBSTITUTE, AND TO WITHDRAW ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL. ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 6 5 . THE REVENUE IN ITA NO. 1 029 /PN/201 3 HAS RAISED THE FOLLOWING CONCISE GROUNDS OF APPEAL : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.93,08,043/ - I.E. ERRED IN DELETING 25% OF THE DISALLOWANCE OF ADMINISTRATIVE SERVICE CHARGES M ADE BY THE ASSESSING OFFICER WHEN LEARNED CIT(A) HAD HIMSELF HELD IN HIS ORDER. THAT NO DOCUMENTARY EVIDENCE WAS FILED BY THE ASSESSEE TO SHOW THAT SERVICES WERE ACTUALLY RENDERED BY TACO TO THE ASSESSEE AND THAT THE ASSESSEE HAD DEVELOPED ITS OWN ESTABLIS HMENT, EMPLOYEES AND OTHER BASIC INFRA STRU CTURE, LOGISTICS AND RESOURCES TO TAKE CARE OF SUCH SERVICES. 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LEARNED CIT(A) HAS ERRED IN DELETING 25% OF THE DISALLOWANCE FOR THE VAGUE REASON THAT E - MAIL CORRESPOND ENCE BETWEEN TACO GROUP OFFICER AND THE ASSESSEE PRIMA FACIE INDICATED SOME SUPPORT FROM TACO TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL ON OR BEFORE THE APPEAL IS HEARD AND DISPOS ED OFF. IT IS PRAYED THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) BE SET ASIDE AND THAT OF THE A.O BE RESTORED. 6. THE ISSUE RAISED VIDE GROUNDS OF APPEAL NO.1 AND 2 BY THE ASSESSEE AND VIDE GROUND OF APPEAL NO.1 BY THE REVENUE IS ON THE ISSUE OF ALLOWABILITY OF EXPENDITURE OF ADMINISTRATIVE SERVICES CHARGES PAID TO TATA AUTOCOMP SYSTEMS LTD. (TACO) . THE ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS.3,72,32,173/ - WHICH WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THE SAME WAS EXCES SIVE AND UNREASONABLE HAVING REGARD TO THE SERVICES RENDERED BY TACO BY INVOKING THE PROVISIONS OF SECTION 40(A)(2)(B) OF THE ACT AND IT WAS HELD BY THE ASSESSING OFFICER THAT THE EXPENDITURE WAS NOT AS PER THE LEGITIMATE BUSINESS NEEDS OF THE ASSESSEE COM PANY. 7. THE CIT(A) IN TURN, FOLLOWING THE ORDER OF CIT(A) HIMSELF IN CASE OF TATA JOHNSON CONTROL S AUTOMOTIVE LTD. , WAS OF THE VIEW THAT ONLY EXPENDITURE TO THE EXTENT OF 25% OF THE TOTAL EXPENDITURE WAS ALLOWABLE IN ASSESSEES HANDS AND HENCE, DISALLOWA NCE WAS MADE TO THE EXTENT OF RS. 2,79,24,130/ - . ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 7 8. THE ASSESSEE IS IN APPEAL AGAINST THE SAID UPHOLDING OF DISALLOWANCE OF RS.2,79,24,130/ - AND THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A) IN DIRECTING THE ASSESSING OFFICER TO ALLOW 25% OF THE ADMINISTRATIVE SERVICE CHARGES TO THE EXTENT OF RS. 93,08,043/ - . 9. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.40,60,33,295/ - . THE ASSESSEE WAS ENGAGED I N THE BUSINESS OF MANUFACTURING AND SELLING OF ALUMINUM RADIATORS , ALUMINUM INTERCOOLERS AND HEATER CORES. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD CLAIMED ADMINISTRATIVE SERVICE CHARGES AMOUNTING TO RS. 3.72 CRORES. THE CLAIM OF THE ASSESSEE WAS THAT IT HAD ENTE RED INTO AN AGREEMENT WITH TACO AND HAD MADE PAYMENTS TO THE SAID CONCERN ON ACCOUNT OF ADMINISTRATIVE SUPPORT SERVICES TAKEN FROM TACO. THE ASSESSING OFFICER TOOK NOTE OF AGREEMENT BETWEEN TACO & TTR - SAP CONSULTING & IMPLEMENTATION DATED 17.11.2008 AND PROJECT CHARTER ENTERED INTO BETWEEN THE ASSESSEE AND TACO . DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSEE HAD SUBMITTED COPIES OF FEW E - MAIL CORRESPONDENCES BETWEEN THE EMPLOYEES OF THE ASSESSEE COMPANY AND THE EMPLOYEES OF TAC O. THE ASSESSING OFFICER ON PERUSAL OF THE AGREEMENT AND E - MAIL CORRESPONDENCE NOTED THAT THE AGREEMENT WAS FOR THE IMPLEMENTATION OF SAP IN TACO GROUP COMPANIES, WHICH WAS EXECUTED ON 02.05.2009. E - MAIL COMMUNICATION COPIES PRODUCED BY THE LEARNED AUTHO RIZED REPRESENTATIVE FOR THE ASSESSEE ALSO SHOWED THE COMMUNICATION FROM 2008 ONWARDS, WHICH WAS IRRELEVANT FOR THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2006 - 07 . THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE WAS INCURRING ADMINISTRATIVE A ND TECHNICAL EXPENSES INCLUDING PAYING SALARY TO TECHNICAL, ADMINISTRATIVE AND MARKETING STAFF. FURTHER, THE ASSESSEE WAS INCURRING ADMINISTRATIVE EXPENSES INCLUDING ADVERTISEMENT, ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 8 MARKETING STAFF TRAINING, SALES PROMOTION, AUDIT FEES, ETC. FURTHER, THE ASSESSEE WAS INCURRING EXPENDITURE BOTH ON DIRECT AND INDIRECT OVERHEADS REQUIRED FOR RUNNING OF THE ORGANIZATION. THE ASSESSING OFFICER OBSERVED THAT FEES PAYABLE BY THE ASSESSEE TO TACO WAS MADE AS A PERCENTAGE OF TOTAL TURNOVER OF THE ASSESSEE AND WAS OF THE VIEW THAT HOW THE PRICE FOR THE SERVICES RENDERED COULD BE FIXED AS A PERCENTAGE OF TOTAL SALES OF THE ASSESSEE, WHERE NEITHER THE AMOUNT OF EXPENDITURE NOR VOLUME OF TURNOVER WAS KNOWN. THE ASSESSING OFFICER FURTHER OBSERVED THAT THERE COULD NOT B E ANY SERVICES FOR WHICH THE COST WAS NOT KNOWN OR COST COULD NOT BE FIXED BY SERVICE PROVIDER BEFORE PROVIDING SERVICES. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASKED THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE TO PRO DUCE THE ADMINISTRATIVE SERVICES BILLS RAISED BY TACO AND ALSO DATE - WISE SERVICES PROVIDED BY TACO. HOWEVER, THE ASSESSEE FAILED TO FURNISH ANY DETAILS NOR COPIES OF BILLS WERE PRODUCED FOR VER IFICATION. IN THE CIRCUMSTANCES, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD NOT TAKEN ANY SERVICES FROM TACO AND PAYMENTS MADE WERE NOT JUSTIFIED. IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE AS TO WHETHER THE EXPENDITURE WAS DIRECTLY OR INDIRECTLY CONNECTED WITH THE TRADE, THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE SERVICES WERE AVAILED FROM PERSONS REFERRED TO IN SECTION 40(A)(2)(B) OF THE ACT , AND WHERE IT WAS NOT POSSIBLE TO COMPARE THE CHARGES PAID BY THE ASSESSEE WITH OTHER COMPARABLE MARKET RATES, THE SAID EXPEND ITURE WAS NOT ALLOWABLE AS AN EXPENDITURE IN THE HANDS OF ASSESSEE. IN VIEW THEREOF, ADDITION OF RS.3.72 CRORES WAS MADE TO THE INCOME OF ASSESSEE. 10. THE CIT(A) AFTER PERUSING THE TERMS AND CONDITIONS OF ADMINISTRATIVE SUPPORT AGREEMENT RENEWED ON 13.0 4.2006 , WAS OF THE VIEW THAT THE SAID TERMS AND CONDITIONS IN THE AGREEMENT TALK OF VARIOUS ACTIVITIES, WHICH BROADLY CONSIST OF SUPPORT IN ACTIVITIES DURING START - UP PHASE AND DURING OPERATIVE PHASE. THE ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 9 ASSESSEE HAD AGREED TO PAY FOR THE SERVICES PROVID ED AT AN AMOUNT EQUAL TO 2% OF EX - FACTORY SELLING PRICE AS FEES FOR THE SUPPORT RECEIVED. IN ADDITION TO THE SAID FEES PAYABLE, THE ASSESSEE WAS TO BEAR ALL OUT OF POCKET EXPENSES OR ANY OUTSOURCED CONSULTANCY FEES THAT MAY BE INCURRED BY TACO , ESPECIALLY IN THE PROVISIONS OF SUCH SUPPORT SERVICES TO THE ASSESSEE. THE CIT(A) FURTHER NOTED THAT THE ASSESSEE COMPANY WAS INCORPORATED IN THE YEAR 1997 AND THE INITIAL START - UP PHASE OF THE COMPANY WAS ALREADY OVER AND THEREFORE, THERE WAS NO QUESTION OF AVAILI NG ANY SERVICES BY THE ASSESSEE FROM TACO ON ACCOUNT OF START - UP PHASE OF THE COMPANY. FURTHER, THERE WAS NO EXPANSION IN THE COMPANY DURING THE YEAR AND CERTAIN SERVICES WERE AVAILED FROM TACO DURING START - UP PHASE OF THE COMPANY . THE CIT(A) THUS, CONCL UDED THAT IF AT ALL ANY SUPPORT SERVICES WERE RENDERED BY TACO, THE SAME COULD ONLY BE IN RESPECT OF ACTIVITIES CARRIED ON BY THE ASSESSEE DURING THE OPERATING PHASE OF THE COMPANY. IN SUPPORT THEREOF, THE ASSESSEE HAD PRODUCED E - MAIL CORRESPONDENCE BETWE EN TACO GROUP OFFICE AND THE ASSESSEE, WHICH AS PER THE ASSESSEE, PRIMA FACIE INDICATE RENDERING OF SOME SERVICES AND SUPPORT TO THE ASSESSEE IN VARIOUS FIELDS OF ACTIVITIES. IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE TO SHOW AS TO H OW THE SERVICES WERE ACTUALLY RENDERED BY TACO TO THE ASSESSEE DURING THE YEAR AND ALSO TO PROVIDE BREAK - UP OF EXPENSES INCURRED FOR EACH OF THE SUPPORT SERVICES, IF ANY, THE CIT(A) AFTER PERUSING THE CONTENTS OF E - MAIL FILED BY THE ASSESSEE WAS OF THE VIE W THAT THE SAME DOES NOT CONCLUSIVELY ESTABLISH THAT THE SERVICES AND SUPPORT TO THE EXTENT CLAIMED BY THE ASSESSEE WERE RECEIVED FROM TACO JUSTIFYING THE PAYMENTS TO THE EXTENT OF RS.3.72 CRORES IN ASSESSMENT YEAR 2006 - 07 AND RS.4.67 CRORES IN ASSESSMENT YEAR 2007 - 08. 11. THE SECOND ASPECT WHICH WAS CONSIDERED BY THE CIT(A) VIDE PARA 3.3.2 AT PAGES 13 ONWARDS WAS WHETHER PAYMENTS MADE AT 2% OF THE TOTAL TURNOVER WAS REASONABLE HAVING REGARD TO THE NATURE OF SERVICES RENDERED BY TACO OR THE ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 10 LEGITIMATE NE EDS OF THE BUSINESS OF THE ASSESSEE. ANOTHER ASPECT OF THE ISSUE WAS ITS ALLOWABILITY UNDER SECTION 37 OF THE ACT, WHICH WAS ALSO CONSIDERED AND ADJUDICATED BY THE CIT(A) VIDE PARA 3.3.4 AT PAGE 15 OF THE APPELLATE ORDER. ANOTHER ASPECT OF THE ISSUE WAS THE CLAIM OF THE ASSESSEE THAT TACO HAD ALREADY ADMITTED THE PAYMENTS IN ITS RETURN OF INCOME AND THEREFORE, THE DISALLOWANCE OF EXPENDITURE IN THE HANDS OF ASSESSEE WOULD AMOUNT TO DOUBLE TAXATION. THIS ASPECT WAS ALSO CONSIDERED BY THE CIT(A) AND IT WAS NOTED THAT WHERE TACO HAD ADMITTED NIL INCOME FOR ASSESSMENT YEAR 2006 - 07 AFTER SET - OFF OF BROUGHT FORWARD LOSSES UNDER REGULAR PROVISIONS OF ACT AND PAID TAXES ON THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT , IT COULD NOT BE SAID THAT IT WAS REVENUE N EUTRAL. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER IN APPLYING THE PROVISIONS OF SECTION 40(A)(2)(B) OF THE ACT . HOWEVER, THE CIT(A) WAS OF THE VIEW THAT IN VIEW OF THE CORRESPONDENCE BETWEEN THE ASSESSEE AND TACO, THERE WAS PRIMA FACIE CASE THAT S OME SUPPORT FROM TACO WAS RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, CLAIM TO THE EXTENT OF 25% WAS ALLOWED IN THE HANDS OF ASSESSEE. THE CIT(A) ALLOWED THE CLAIM AT RS. 93,08,043/ - AND DISALLOWED THE BALANCE EXPENDITURE OF RS. 2,79,24,130/ - FOR THE INSTANT ASSESSMENT YEAR. 12. BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL AGAINST THE ORDER OF CIT(A). 13. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AFTER TAKING US TO THE FACTS OF THE CASE POINTED OUT THAT IDENT ICAL ISSUE OF ALLOWABILITY OF CLAIM OF EXPENDITURE AROSE BEFORE THE TRIBUNAL IN CROSS APPEALS IN TATA JOHNSON CONTROLS AUTOMOTIVE LTD. VS. DCIT AND VICE - VERSA IN ITA NO.1450/PN/2011 AND 1454/PN/2011 , RELATING TO ASSESSMENT YEAR 2006 - 07, ORDER DATED 09.12.2 015. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 11 CIT(A) WHILE DECIDING THE PRESENT APPEAL AGAINST THE ASSESSEE HAD ALSO REFERRED TO HIS ORDER IN TATA JOHNSON CONTROLS AUTOMOTIVE LTD. UNDER PARA 3.2.8 AT PAGE 8 OF THE APPELL ATE ORDER AND HAD HELD THAT THE EXPENDITURE CLAIMED WAS RESTRICTED TO 25% OF THE TOTAL EXPENDITURE CLAIMED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE TOOK US TO THE VARIOUS PARAS OF ORDER OF TRIBUNAL, WHEREIN ALL THE ASPECTS RELATING TO ALLOW ABILITY OF EXPENDITURE WERE CONSIDERED AND ADJUDICATED BY THE TRIBUNAL AND IT WAS STRESSED BY HIM THAT THE ISSUE WAS COVERED BY THE ORDER OF TRIBUNAL. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF ASSESSING OF FICER AND FAIRLY CONCEDED THAT THE ISSUE HAS BEEN CONSIDERED IN TATA JOHNSON CONTROLS AUTOMOTIVE LTD. 15. WE FIND THAT IDENTICAL ISSUE OF ALLOWABILITY OF CLAIM AROSE BEFORE THE TRIBUNAL IN TATA JOHNSON CONTROLS AUTOMOTIVE LTD. VS. DCIT (SUPRA), WHERE THE JV WAS FORMED BETWEEN TACO AND JOHNSON CONTROL INC. (JCI) AND THE CONCERN ED JV ENTERED INTO AN AGREEMENT WITH TACO FOR PROVIDING ADMINISTRATIVE SERVICES BOTH AT START - UP AND OPERATING PHASES. EVEN IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS A JV COMPANY WITH 51:49 SHARE BETWEEN TACO AND TATA TOYO RADIATOR PVT. LTD. THE ASSESSEE BEFORE US WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF ALUMINUM RADIATORS, ALUMINUM INTERCOOLERS AND HEATER CORES AND THERE WAS AN AGREEMENT ENTERED INTO BE TWEEN THE ASSESSEE AND TACO FOR PROVIDING ADMINISTRATIVE SERVICES, AGAINST WHICH THE ASSESSEE HAD PAID THE ADMINISTRATIVE SERVICE CHARGES. THE ISSUE ARISING BEFORE US IS WITH REGARD TO ALLOWABILITY OF THE SAID EXPENDITURE. THE TRIBUNAL IN TATA JOHNSON CO NTROLS AUTOMOTIVE LTD. VS. DCIT (SUPRA) HAD DELIBERATED UP ON THE ISSUE AT LENGTH AND AFTER CONSIDERATION OF VARIOUS ASPECTS OF THE CASE, HAD HELD AS UNDER: - ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 12 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN THE FACTS OF THE PRESENT CASE AS REFERRED TO BY US IN THE PARAS HEREINABOVE, THE ASSESSEE WAS A JOINT VENTURE COMPANY WITH 50:50 SHARE BETWEEN TACO AND JOHNSON CONTROL INC. AFTER FORMATION OF JOINT VENTURE COMPANY, IT WAS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES ON ACCOUNT OF AUT OMOBILE SECTOR I.E. SEATING SYSTEMS FOR MOTOR CARS. EQUAL CONTROL WAS BETWEEN TWO I.E. TACO AND JOHNSON CONTROL INC. AN AGREEMENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND TACO FOR PROVIDING ADMINISTRATIVE SERVICES BOTH ON ACCOUNT OF START - UP PHASE AND O PERATING PHASE. THE SAID AGREEMENT WAS IN PLACE FOR THE PAST SEVERAL YEARS AND AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT, THE ASSESSEE WAS TO PAY REMUNERATION TO TACO @ 1% OF TURNOVER IN ADDITION TO REIMBURSING ALL THE EXTERNAL COSTS INCURRED BY TA CO, IF ANY. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD PAID SUM OF RS.2,00,84,162/ - TO TACO AND THE QUESTION OF ITS DEDUCTIBILITY HAS ARISEN BY WAY OF PRESENT GROUNDS OF APPEAL RAISED. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE TACO WAS A RELATED PARTY, IN VIEW OF THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT, THE SAID EXPENDITURE HAS TO BE LOOKED INTO ACCORDINGLY. THE ASSESSEE FURNISHED CERTAIN INFORMATION BEFORE THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THA T THERE WAS NO JUSTIFICATION IN THE CLAIM OF ASSESSEE SINCE THE ASSESSEE HAD ESTABLISHED ITS ADMINISTRATIVE SET UP AND WAS ALSO INCURRING EXPENDITURE ON PROFESSIONAL SERVICES AND OTHER EXPENSES AND THERE WAS NO MERIT IN THE CLAIM OF ASSESSEE VIS - - VIS SAID EXPENDITURE BEING PAID TO TACO. THE CIT(A) ALSO REFERRED TO THE PROVISIONS OF SECTION 40A(2)(A) OF THE ACT AND AFTER CONSIDERING THE VARIOUS EVIDENCES FILED BY THE ASSESSEE, WAS OF THE VIEW THAT CERTAIN SERVICES HAVE BEEN RENDERED BY TACO AND HE WAS OF T HE VIEW THAT ONLY 25% OF THE EXPENDITURE HAS TO BE ALLOWED IN THE HANDS OF ASSESSEE. BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL AGAINST THE SAID ORDER OF CIT(A). 24. THE FIRST ISSUE TO BE ADDRESSED IN THIS REGARD IS WHETHER IN ORDER TO JUDGE COMME RCIAL EXIGENCY OF THE AGREEMENT AND THE QUANTUM OF REMUNERATION PAID IN VIEW OF THE TERMS OF AGREEMENT ENTERED INTO BETWEEN TWO PARTIES, CAN THE VIEW OF THE TERMS OF AGREEMENT ENTERED INTO BETWEEN TWO PARTIES, CAN THE REASONABLENESS OF EXPENDITURE BE VIEWED BY THE AUTHORITIES OR REASONABLENESS HAS TO BE ESTABLISHED FROM THE VIE W POINT OF BUSINESSMAN. THE FIRST ASPECT IN THIS REGARD IS THAT WHERE THERE IS A JOINT VENTURE BETWEEN TWO CONCERNS TO THE EXTENT OF 50:50 AND ADDITIONAL REMUNERATION IS BEING PAID BY JOINT VENTURE COMPANY FORMULATED BY THEM TO ONE OF THE CONCERNS, THEN T HE ISSUE HAS TO BE SEEN FROM THE VIEW POINT OF OTHER CONCERN WHO IS PART OF JOINT VENTURE AND IS INCURRING 50% COST OF THE SAID REMUNERATION PAID. THERE IS A COMMERCIAL AGREEMENT BETWEEN THE ASSESSEE AND TACO, UNDER WHICH CERTAIN SERVICES HAD TO BE PROVID ED BY TACO, FOR WHICH REMUNERATION WAS DUE TO THEM. THE LIST OF SERVICES ARE ENLISTED IN THE AGREEMENT AND UNDOUBTEDLY, THE SAID AGREEMENT HAS BEEN IN FORCE FOR MORE THAN 7 YEARS AND THE AMOUNTS HAVE BEEN PAID AND ALLOWED AS EXPENDITURE IN THE HANDS OF AS SESSEE FROM YEAR TO YEAR. IN THE ENTIRETY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER IN HOLDING THAT THE ENTIRE EXPENDITURE MERITS TO BE DISALLOWED IN THE HANDS OF THE ASSESSEE, SINCE THE QUANTUM OF REMUN ERATION HAS BEEN FIXED AT PERCENTAGE OF TURNOVER. THE EXPLANATION OF THE ASSESSEE BEFORE US WAS THAT TACO WAS THE HOLDING COMPANY OF ALL JOINT VENTURE COMPANIES AND IT WAS PROVIDING THE SAID SERVICES TO ALL THE JOINT VENTURES AND THE ASSESSEE WAS ONE SUCH JOINT VENTURE, TO WHICH THE SAID SERVICES WERE PROVIDED. THE REMUNERATION PAID IN THIS REGARD IS ALLOWABLE IN THE HANDS OF ASSESSEE AS THE SAME IS PAID ON ACCOUNT OF BUSINESS EXIGENCY. 25. NOW, COMING TO THE QUANTUM OF REMUNERATION WHICH IS TO BE ALLO WED IN THE HANDS OF ASSESSEE. BOTH THE AUTHORITIES BELOW HAVE CONSIDERED THE RELATED PARTY TRANSACTION AS REFERRED TO IN SECTION 40A(2) OF THE ACT. THE SAID PROVISIONS OF THE ACT LAY DOWN THAT THE SERVICES TO A RELATED PARTY, AS ENVISAGED IN SECTION 40A( 2)(B) OF THE ACT, SHALL NOT BE ALLOWED AS DEDUCTION UNDER SECTION 40A(2)(A) OF THE ACT, WHERE THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH PAYMENT IS MADE. HOWEVER, WHERE THE ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 13 EXPENDITURE IS INCURRED FOR THE LEGITIMATE NEEDS OF THE BUSINESS, THE SAME IS TO BE ALLOWED AS AN EXPENDITURE IN THE HANDS OF ASSESSEE. THOUGH, UNDER THE ACT, PART OF EXPENDITURE WHICH IS EXCESSIVE OR UNREASO NABLE HAVING REGARD TO THE MARKET VALUE OF THE SERVICES, CAN BE DISALLOWED IN THE HANDS OF ASSESSEE, BUT IN ORDER TO INVOKE THE SAID PROVISIONS OF THE ACT, FIRST STEP IS TO FIND OUT FAIR MARKET VALUE OF THE SERVICES, FOR SUCH INVOKING OF THE POWERS, THE AS SESSING OFFICER IS NOT EMPOWERED TO SIT IN THE SEAT OF BUSINESSMAN TO DECIDE THE MERITS OF QUANTUM OF CLAIM TO BE ALLOWED IN THE HANDS OF ASSESSEE. THE AUTHORITIES BELOW IN THE PRESENT CASE HAVE NOT DISPUTED THE TERMS OF AGREEMENT, BUT WERE OF THE VIEW TH AT REMUNERATION PAID AT A PERCENTAGE OF TURNOVER, IN VIEW OF THE ASSESSEE HAVING ESTABLISHED ITS BUSINESS, WAS EXCESSIVE. THE CONTENTION OF THE ASSESSEE ON THE OTHER HAND WAS THAT FOR SMOOTH RUNNING OF ITS BUSINESS, SERVICES WERE PROVIDED BY TACO, WHICH W ERE AS TERMS OF THE AGREEMENT. 26. WE FIND SIMILAR ISSUE OF ALLOWABILITY OF EXPENDITURE PURSUANT TO AGREEMENT BETWEEN THE ASSESSEE AND THE THIRD PARTY, AROSE BEFORE COCHIN BENCH OF TRIBUNAL IN HARRISONS MALAYALAM LTD. VS. ACIT (SUPRA) AND THE FACTUAL AS PECTS OF THE CASE WERE AS UNDER: - 16. THE NEXT ISSUE IS IN RESPECT OF THE DISALLOWANCE OF FEES PAID TO M/S. R.P.G. ENTERPRISES LTD. (RPGEL' FOR SHORT) AND THIS ISSUE ARISES IN ALL THE APPEALS BEFORE US. THE ID. CA SUBMITTED THAT THE ASSESSEE IS ENGAGED IN MULTIPLE BUSINESS ACTIVITIES LIKE TEA AND RUBBER CULTIVATION BY TECHNOLOGY, STRUCTURAL, CIVIL, MECHANICAL AND ELECTRICAL ENGINEERING, TRADING IN TEA, COFFEE, SPICES AND EXPORT OF THE SAME ESTATE SUPPLIES AND TRADING, CLEARING AND SHIPPING, AIR TRAVEL AN D AIR CARGO. THE ASSESSEE - COMPANY HAS ENTERED INTO AN AGREEMENT DATED 8 - 8 - 1994 WITH M/S. RPGEL TO ACQUIRE THE NON - EXCLUSIVE LICENCE TO USE 'RPG' LOGO OWNED BY RPGEL FOR THE PURPOSE OF ASSESSEE'S BUSINESS INCLUDING IN RELATION TO OR UPON ITS PRODUCTS, LABEL , LETTER - HEAD, BROCHURE, PAMPHLETS AND ADVERTISEMENT MATERIALS, ETC., THE ID. CA REFERRED TO THE COPY OF AGREEMENT WHICH IS MATERIALS, ETC., THE ID. CA REFERRED TO THE COPY OF AGREEMENT WHICH IS PLACED AT PAGES 162 TO 167 OF THE PAPER BOOK. IT IS FURTHER ARGUED THAT THE SAID RPGEL HAS ITS OBJECTIVES, DEVELOPMENT OF CODE OF CO NDUCT AND CREATION OF GOODWILL WHICH COULD BE SUITABLY IDENTIFIED TO THE PUBLIC MIND AND THE LOGO 'RPG' IS HAVING A HIGH GOODWILL IN THE MARKET. IT IS FURTHER SUBMITTED, THAT DUE TO THE USE OF THE LOGO RPGEL PROVIDES THE INFRASTRUCTURE FOR DEVELOPING CERTA IN CODE OF CONDUCT AND TO OPERATE AND RUN THE ORGANIZATION FOR PROMOTING AND MONITORING STANDARD INDUSTRIAL, COMMERCIAL AND TRADE PRACTICES IN THE PURSUIT OF ATTAINMENT OF EXCELLENCE IN QUALITY OF THEIR PRODUCTS AND SERVICES. THE COSTS OF RENDERING THE GRO UP RESOURCES WERE SHARED BY THE LICENSEE COMPANIES AND THAT ENABLES THE LICENSEE COMPANY LIKE THE PRESENT ASSESSEE TO AVAIL THE BENEFITS OF THE GROUP RESOURCES WITHOUT INCURRING THE FULL COST OF SUCH FACILITIES. THE TOTAL ACTUAL EXPENSES OF THE CORPORATE C ENTRE ARE SHARED BY LICENSEE COMPANY IN RELATION TO THEIR SIZE AND PROFITABILITY AND THE SAME ARE PAID BY THE COMPANIES LIKE THE ASSESSEE'S WHO ARE THE LICENSEES TO RPGEL AS A LICENSE FEE. AS PER THE AGREEMENT THE LICENSEES UTILISED THE BENEFITS OF THE EXP ERTISE DEVELOPED AS A GROUP RESOURCES BY RPGEL IN THE IMPORTANT FIELD LIKE HRD, STRATEGIC PLANNING, CORPORATE FINANCE, MANAGEMENT INFORMATION, TAXATION, QUALITY MANAGEMENT, PROJECT DEVELOPMENT, INFORMATION TECHNOLOGY AND CORPORATE GOVERNANCE, ETC. THE SAID RPGEL WITH GROUP RESOURCES ARE HAVING TALENTED AND HIGHLY QUALIFIED EXPERTS IN DIVERSIFIED FIELDS AND ASSESSEE AND OTHER COMPANIES WHO ARE LICENSEES AVAILED, THE EXPERTISE IN THE REQUIRED FIELD FOR THE EXCELLENCE IN THE CORPORATE MANAGEMENT AS WELL AS PRO MOTING BUSINESS STANDARDS. HE FURTHER SUBMITTED THAT IF THE ASSESSEE HAS TO ACQUIRE THIS EXPERTISE, THE COST OF INFRASTRUCTURE WILL BE 10 TIMES MORE THAN THE LICENSE FEE PAID AND CERTAINLY IT IS IN THE NATURE OF BUSINESS EXPEDIENCY AND THE SAME IS ALLOWABL E. HE FURTHER ARGUED THAT THE CIT(A) HAS NOT DISPUTED THE NATURE OF THE EXPENSES AS CAPITAL OR REVENUE. THE ONLY RESERVATION OF THE CIT(A) ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 14 IS THAT IT IS NOT AN ALLOWABLE EXPENDITURE. THE ID. CA RELIED ON THE FOLLOWING PRECEDENTS : - ( I ) CIT VS. DELHI SAFE DEPO SIT CO. LTD. (1982) 133 ITR 750 (SC) ( II ) SASOON J. DAVID & CO. LTD. VS. CIT (1979) 118 ITR 261 (SC) ( III ) BOMBAY STEAM NAVIGATION CO. (1953) (P.) LTDD. VS. CIT (1965) 56 ITR 52 (SC) ( IV ) CIT VS. MALAYALAM PLANTATIONS LTD. (1964) 53 ITR 140 (SC) 17. 18. 19. 20. TH E AUTHORITIES BELOW HAVE NOT DISPUTED THE TERMS OF THE AGREEMENT BUT IT APPEARS FROM THE REASONS GIVEN BY THE CIT(A) THAT THE SAID PAYMENT WAS NOT REQUIRED AT ALL. THE CONCEPT OF BUSINESS IS CHANGING DUE TO GLOBALIZATION. THE MARKET STRATEGIES OF THE CORPO RATE ORGANIZATIONS ARE ALSO CHANGING FAST. IF ANY BUSINESS HOUSE IS REQUIRED TO STAND IN THE MARKET, THEN IT HAS TO IMPROVE THE QUALITY OF THE PRODUCTS AND IMPROVEMENT OF THE QUALITY OF THE PRODUCTS AS WELL AS THE MARKET STRATEGIES WILL DEPEND ON LOT OF SU PPORTING INFRASTRUCTURE. THE CONTENTION OF THE ASSESSEE IS THAT RPGEL IS ONE OF THE LOGO HAVING GOODWILL IN THE MARKET AND USE OF GOODWILL GIVES AN INDICATION TO THE BUYERS AND CONSUMERS THAT THE ASSESSEE COMPANY IS HAVING THE BACK UP OF EXCELLENCE WITH CO DE OF CONDUCT AND QUALITY. IN THE CHANGING SCENARIO OF GLOBALIZATION, ONE CANNOT GO WITH THE CONSERVATIVE CONCEPT OF THE EARLY FIFTIES. AS FAR AS HRD IS CONCERNED, IT HAS GAINED IMPORTANCE IN THE INDUSTRIAL AND BUSINESS WORLD. WE FIND FORCE IN THE ARGUMENT OF THE ID. CA THAT RPGEL IS HAVING THE INFRASTRUCTURE WHICH IS USED BY THE ASSESSEE - COMPANY FOR THE DEVELOPMENT OF ITS BUSINESS. WHETHER ANY PARTICULAR PAYMENT IS ON ACCOUNT OF BUSINESS EXPEDIENCY OR NOT IS TO BE CONSIDERED PAYMENT IS ON ACCOUNT OF BUSINESS EXPEDIENCY OR NOT IS TO BE CONSIDERED FOR ALLOWING THE SAME UNDER SEC TION 37 OF THE ACT. 21. ANOTHER ASPECT TO BE CONSIDERED HERE IS THAT SECTION 37 PROVIDES THAT ANY EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS BUT IT DOES NOT MEAN THAT THE SAID EXPRESSION CONTEMPLATES THAT THE SAID EXPENDITURE MUST BE INCURRED NECESSARILY FOR THE PURPOSE OF BUSINESS. 22. IN THE CASE OF SASOON J. DAVID & CO. (P.) LTD. (SUPRA), THE HON'BLE SUPREME COURT HAS HELD THAT THE EXPRESSION 'WHOLLY AND EXCLUSIVELY' USED IN SECTION 10(2)(XV) OF INDIAN INCOME - TAX ACT, 1922 DOES NOT MEAN 'NECESSARILY'. ORDINARILY IT IS FOR THE ASSESSEE TO DECIDE, WHETHER ANY EXPENDITURE SHOULD BE INCURRED IN THE COURSE OF HIS OR ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROM OTING THE BUSINESS AND TO EARN PROFIT THEN HE CAN CLAIM THE DEDUCTION EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE (HEAD NOTES). THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT WHILE INTERPRETING SECTION 10(2)(XV) OF THE 19 22 ACT ARE SQUARELY APPLICABLE TO SECTION 37(1) OF 1961 ACT. IN OUR OPINION, THE PAYMENTS MADE BY THE ASSESSEE TO RPGEL IS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE IN ALL THE AS SESSMENT YEARS BEFORE US AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITIONS. 27. IN THE FACTS OF THE CASE BEFORE COCHIN BENCH OF TRIBUNAL, THE REMUNERATION WAS ALSO FIXED AT PRESCRIBED RATE ON TURNOVER AS REFERRED TO IN PARA 16 OF THE DECISION. 28. NEXT ASPECT OF THE ISSUE, WHERE THE PAYMENTS HAVE BEEN MADE TO TACO, ON WHICH TAXES HAVE BEEN PAID BY TACO, DISALLOWANCE MADE IN THE HANDS OF ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 15 ASSESSEE WOULD RESULT IN DOUBLE TAXATION. ADMITTEDLY, THE CONCERN TACO HAS FURNISHED NIL RETURN OF INCOME UND ER NORMAL PROVISIONS, BUT HAS PAID TAXES UNDER SECTION 115JB OF THE ACT. THE HONBLE BOMBAY HIGH COURT IN CIT VS. INDO SAUDI SERVICES (TRAVEL) (P.) LTD. (2008) 219 CTR 562 (BOM) HAVE CONSIDERED FACTS OF THAT CASE, WHICH READ AS UNDER: - 3. THE RELEVANT FACTS GIVING RISE TO THE PRESENT APPEALS ARE BRIEFLY SET OUT HEREUNDER: - ( I ) THE ASSESSEES BUSINESS IS THAT OF BEING GENERAL SALES AGENTS OF SAUDI ARABIAN AIRLINES. THE ASSESSEE EARNED COMMISSION @ 12 PER CENT FROM SAUDI ARABIAN AIRLINES ON THE TICKETS BOOK ED/SOLD BY THEM. THE ASSESSEE APPOINTED SEVERAL AGENTS INCLUDING THEIR SISTER CONCERN, VIZ., M/S MIDDLE EAST INTERNATIONAL AND PAID INCENTIVE COMMISSION TO SUCH AGENTS, BY WAY OF HANDLING CHARGES. ( II ) FOR THE ASST. YRS. 1991 - 92 AND 1992 - 93 THE AO BY HIS ORDE RS DATED 25 TH MARCH, 1994 AND 31ST JAN., 1995 RESPECTIVELY HELD THAT THE INCENTIVE COMMISSION PAID TO M/S MIDDLE EAST INTERNATIONAL (SISTER CONCERN OF THE ASSESSEE) WAS HALF PER CENT MORE THAN OTHER SUB - AGENTS. THE AO INVOKED SECTION 40A(2) OF THE IT ACT A ND DISALLOWED THE EXCESS COMMISSION PAID TO THE ASSESSEE'S SISTER CONCERN @ 1/2 PER CENT. THE CIT(A) BY ORDERS DATED 5TH JAN., 1995 AND 14TH NOV., 1995 CONFIRMED THE DISALLOWANCE FOR ASST. YRS 1991 - 92 AND 1992 - 93 RESPECTIVELY. ( III ) THE ASSESSEE CARRIED THE MAT TER FURTHER BY FILING AN APPEAL BEFORE THE TRIBUNAL. INITIALLY THE TRIBUNAL BY ITS COMMON ORDER DATED 3RD APRIL, 1997 DISMISSED THE ASSESSEE'S APPEALS FOR THE ASST. YRS. 1991 - 92 AND 1992 - 93. THEREAFTER THE ASSESSEE FILED AN APPLICATION UNDER SECTION 254 OF THE IT ACT, 1961 BEFORE THE APPLICATION UNDER SECTION 254 OF THE IT ACT, 1961 BEFORE THE TRIBUNAL AND TRIBUNAL BY ITS ORDER DATED 3RD MARCH, 1999 ALLOWED THE SAID APPLICATION OF THE ASSESSEE ARISING OUT OF THE TRIBUNAL'S ORDER DATED 3RD APRIL, 1997. THEREAFTER THE TRIBUNAL BY ITS ORDER DATED 21 ST OCT., 1999 ALLOWED THE APPEAL OF THE ASSESSEE PARTLY AND DELETED THE ADDITIONS WHICH WERE EARLIER CONFIRMED. ( IV ) THE APPELLANT (REVENUE) BEING AGGRIEVED BY THE TRIBUNAL'S ORDER DATED 21ST OCT., 1999 FILED THE ABOVE APPEALS, INTER ALIA CONTENDING THAT THE TRIBUNAL WAS NOT RIGHT IN LAW IN ALLOWING THE ASSESSEE'S CLAIM OF INCENTIVE COMMISSION PAID TO ITS SISTER CONCERN WHICH WAS HALF PER CENT MORE THAN THE OTHER SUB - AGENTS AND WHICH HAS BEEN CORRECTLY DISALLOWED IN TERMS OF SECTION 40A(2)(B) OF THE ACT. 29. THE HONBLE BOMBAY HIG H COURT HELD AS UNDER: - 4. WE HAVE HEARD THE LEARNED ADVOCATES APPEARING FOR BOTH SIDES. WE HAVE ALSO PERUSED THE ORDER PASSED BY THE TRIBUNAL DATED 21ST OCT., 1999 WHICH IS IMPUGNED BY THE REVENUE IN THE PRESENT APPEALS. WE FIND THAT THE FOLLOWING FACT S WERE ESTABLISHED BEFORE THE TRIBUNAL AND THE SAME HAVE BEEN ACCEPTED BY THE REVENUE EVEN BEFORE US. (I) THAT THE ASSESSEE APART FROM PAYING HANDLING CHARGES @ 9 1/2 PER CENT TO ITS SISTER CONCERN, HAVE PAID HANDLING CHARGES AT THE SAME RATE TO OTHER AG ENTS VIZ., M/S A.K.TRAVELS, M/S OM TRAVELS AND M/S JET AGE TRAVELS. (II) FOR ASST. YRS. 1986 - 87 AND 1987 - 88 THE ASSESSEE HAD PAID THE HANDLING CHARGES @ 10 PER CENT TO THE SISTER CONCERN OF THE ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 16 ASSESSEE AND SUCH CHARGES PAID WERE CONSIDERED TO BE REASON ABLE BY THE APPELLANT. (III) FOR ASST.YRS. 1989 - 90 AND 1990 - 91 THE ASSESSEE HAD REDUCED THE PAYMENT OF HANDLING CHARGES TO 9 1/2 PER CENT TO ITS SISTER CONCERN. THE AO HAS CONSIDERED THE PAYMENT OF COMMISSION TO THE SISTER CONCERN IN THE ASST. YR. 1989 - 90 AND ALLOWED THE CLAIM AFTER DUE SCRUTINY. FOR ASST. YR. 1990 - 91 ALSO THE CLAIM OF THE ASSESSEE @ 9 1/2 PER CENT HAS BEEN ALLOWED THOUGH THE SAME HAS NOT BEEN DEALT WITH BY THE AO SPECIFICALLY IN THE ORDER. (IV) FOR ASST.YRS. 1993 - 94 AND 1994 - 95 THE ASSE SSMENT HAS BEEN MADE BY THE AO UNDER SECTION 143(3) AND HANDLING CHARGES PAID TO THE SISTER CONCERN @ 9.5 PER CENT HAVE BEEN CONSIDERED TO BE REASONABLE AND ALLOWED. (IV) THE SISTER CONCERN OF THE ASSESSEE M/S MIDDLE EAST INTERNATIONAL IS ALSO ASSESSED T O TAX AND INCOME ASSESSED FOR THE ASST. YR. 1991 - 92 IS RS.9,38,510 AND FOR ASST.YR. 1992 - 93 IS RS.14,65,880 AND THE SAID ASSESSMENT ORDERS HAVE BEEN PLACED ON RECORD. (V) UNDER THE CBDT CIRCULAR NO. 6 - P, DATED 6TH JULY, 1968 IT IS STATED THAT NO DISALLOW ANCE IS TO BE MADE UNDER SECTION 40A(2) IN RESPECT OF THE PAYMENTS MADE TO THE RELATIVES AND SISTER CONCERNS WHERE THERE IS NO ATTEMPT TO EVADE TAX. 5. IN VIEW OF THE AFORESAID ADMITTED FACTS WE ARE OF THE VIEW THAT THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSION THAT THE CIT(A) WAS WRONG IN DISALLOWING HALF PER CENT COMMISSION PAID TO THE SISTER CONCERN OF THE ASSESSEE DURING THE ASST. YRS.1991 - 92 AND 1992 - 93. THE LEARNED ADVOCATE APPEARING FOR THE APPELLANT WAS 1992 - 93. THE LEARNED ADVOCATE APPEARING FOR THE APPELLANT WAS ALSO NOT IN A POSITION TO POINT OUT H OW THE ASSESSEE EVADED PAYMENT OF TAX BY ALLEGED PAYMENT OF HIGHER COMMISSION TO ITS SISTER CONCERN SINCE THE SISTER CONCERN WAS ALSO PAYING TAX AT HIGHER RATE AND COPIES OF THE ASSESSMENT ORDERS OF THE SISTER CONCERN WERE TAKEN ON RECORD BY THE TRIBUNAL. 6. WE, THEREFORE, ANSWER THE ABOVE QUESTION OF LAW RAISED IN THESE APPEALS IN AFFIRMATIVE AND DISMISS THE ABOVE APPEALS FILED BY THE APPELLANT. THERE WILL, HOWEVER, BE NO ORDER AS TO COSTS. 30. APPLYING THE ABOVE RATIO LAID DOWN BY THE HONBLE BOMBAY H IGH COURT IN CIT VS. INDO SAUDI SERVICES (TRAVEL) (P.) LTD. (SUPRA) TO THE FACTS OF THE PRESENT CASE, WHERE ADMITTEDLY TACO HAD PAID TAXES UNDER SECTION 115JB OF THE ACT, WE REVERSE THE FINDINGS OF CIT(A) THAT THERE WAS EVASION OF TAXES BY THE ASSESSEE IN MAKING SUCH PAYMENT. 31. ANOTHER ASPECT OF THE ISSUE RAISED IS THE OBSERVATIONS OF REVENUE AUTHORITIES THAT NO SERVICES HAVE BEEN RENDERED BY ASSOCIATE ENTERPRISES AND IF ANY SERVICES HAVE BEEN RENDERED, THEY ARE NOT SUFFICIENT TO JUSTIFY THE PAYMENT. TH E ASSESSEE BEFORE US HAS FILED COMPILATION OF PAPERS INCLUDING THE COPIES OF REPORTS, E - MAILS AND OTHER DOCUMENTS EVIDENCING THE RENDERING OF SERVICES FROM DAY TO DAY. ALL THESE DOCUMENTS WERE NOT CONSIDERED BY THE AUTHORITIES BELOW AND WE FIND NO MERIT I N THE ORDERS OF REVENUE AUTHORITIES IN BRUSHING ASIDE THOSE DOCUMENTS IN A SUMMARY MANNER WITHOUT PROPERLY ANALYZING THE SAME. WE FIND IN SIMILAR CIRCUMSTANCES, THE MUMBAI BENCH OF TRIBUNAL IN DRESSER - RAND INDIA (P.) LTD. VS. ADDL.CIT (SUPRA) HAD OBSERVED AS UNDER: - 8. WE FIND THAT THE BASIC REASON OF THE TRANSFER PRICING OFFICER'S DETERMINATION OF ALP OF THE SERVICES RECEIVED UNDER COST CONTRIBUTION ARRANGEMENT AS 'NIL' IS HIS PERCEPTION THAT THE ASSESSEE DID NOT NEED ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 17 THESE SERVICES AT ALL, AS THE ASSES SEE HAD SUFFICIENT EXPERTS OF HIS OWN WHO WERE COMPETENT ENOUGH TO DO THIS WORK. FOR EXAMPLE, THE TRANSFER PRICING OFFICER HAD POINTED OUT THAT THE ASSESSEE HAS QUALIFIED ACCOUNTING STAFF WHICH COULD HAVE HANDLED THE AUDIT WORK AND IN ANY CASE THE ASSESSEE HAS PAID AUDIT FEES TO EXTERNAL FIRM. SIMILARLY, THE TRANSFER PRICING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD MANAGEMENT EXPERTS ON ITS ROLLS, AND, THEREFORE, GLOBAL BUSINESS OVERSIGHT SERVICES WERE NOT NEEDED. IT IS DIFFICULT TO UNDERSTAND, MUCH LE SS APPROVE, THIS LINE OF REASONING. IT IS ONLY ELEMENTARY THAT HOW AN ASSESSEE CONDUCTS HIS BUSINESS IS ENTIRELY HIS PREROGATIVE AND IT IS NOT FOR THE REVENUE AUTHORITIES TO DECIDE WHAT IS NECESSARY FOR AN ASSESSEE AND WHAT IS NOT. AN ASSESSEE MAY HAVE ANY NUMBER OF QUALIFIED ACCOUNTANTS AND MANAGEMENT , EXPERTS ON HIS ROLLS, AND YET HE MAY DECIDE TO ENGAGE SERVICES OF OUTSIDE EXPERTS FOR AUDITING AND MANAGEMENT CONSULTANCY; IT IS NOT FOR THE REVENUE OFFICERS TO QUESTION ASSESSEE'S WISDOM IN DOING SO. THE T RANSFER PRICING OFFICER WAS NOT ONLY GOING MUCH BEYOND HIS POWERS IN QUESTIONING COMMERCIAL WISDOM OF ASSESSEE'S DECISION TO TAKE BENEFIT OF EXPERTISE OF DRESSER RAND US, BUT ALSO BEYOND THE POWERS OF THE ASSESSING OFFICER. WE DO NOT APPROVE THIS APPROACH OF THE REVENUE AUTHORITIES. WE HAVE FURTHER NOTICED THAT THE TRANSFER PRICING OFFICER HAS MADE SEVERAL OBSERVATIONS TO THE EFFECT THAT, AS EVIDENT FROM THE ANALYSIS OF FINANCIAL PERFORMANCE, THE ASSESSEE DID NOT BENEFIT, IN TERMS OF FINANCIAL RESULTS, FROM THESE SERVICES. THIS ANALYSIS IS ALSO COMPLETELY IRRELEVANT, BECAUSE WHETHER A PARTICULAR EXPENSE ON SERVICES RECEIVED ACTUALLY BENEFITS AN ASSESSEE IN MONETARY TERMS OR NOT EVEN A CONSIDERATION FOR ITS BEING ALLOWED AS A DEDUCTION IN COMPUTATION OF INCOM E, AND, BY NO STRETCH OF LOGIC, IT CAN HAVE DETERMINING ARM'S LENGTH PRICE OF THAT SERVICE. WHEN EVALUATING THE ARM'S LENGTH PRICE OF A SERVICE, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFITS FROM IT OR NOT; THE REAL QUESTION WHICH IS TO BE DE TERMINED IN SUCH CASES IS WHETHER THE PRICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID PRICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME. SIMILARLY, WHETHER THE AE GAVE THE SAME SERVICES TO THE ASSESSEE IN THE PRECEDING YEARS WITHOUT ANY CONSIDERATION OR NOT IS ALSO IRR ELEVANT. THE AE MAY HAVE GIVEN THE SAME SERVICE ON GRATUITOUS BASIS IN THE EARLIER PERIOD, BUT THAT DOES NOT MEAN THAT ARM'S LENGTH PRICE OF THESE SERVICES IS 'NIL'. THE AUTHORITIES BELOW HAVE BEEN SWAYED BY THE CONSIDERATIONS WHICH ARE NOT AT ALL RELEVAN T IN THE CONTEXT OF DETERMINING THE ARM'S LENGTH PRICE OF THE COSTS INCURRED BY THE ASSESSEE IN COST CONTRIBUTION ARRANGEMENT. WE HAVE ALSO NOTED THAT THE STAND OF THE REVENUE AUTHORITIES IN THIS CASE IS THAT NO SERVICES WERE RENDERED BY THE AE AT ALL, AND THAT SINCE THERE IS NO EVIDENCE OF SERVICES HAVING BEEN RENDERED AT ALL, THE ARM'S LENGTH PRICE OF THESE SERVICES IS 'NIL'. THE DISPUTE RESOLUTION PANEL HAS ALSO CONFIRMED THESE FINDINGS OF THE TRANSFER PRICING OFFICER AND THE ASSESSING OFFICER. HOWEVER, WE HAVE NOTED THAT VIDE LETTER DATED 25TH JANUARY 2010 (ACKNOWLEDGED TO HAVE BEEN RECEIVED IN DRP OFFICE ON 28 TH JANUARY 2010), THE ASSESSEE HAS FILED A HUGE COMPILATION OF PAPERS, RUNNING INTO ALMOST THREE HUNDRED PAGES, INCLUDING COPIES OF REPORTS, EMAIL S AND OTHER DOCUMENTS EVIDENCING THE RENDERING OF SERVICES. YET, THE DRP SIMPLY BRUSHED ASIDE THESE DOCUMENTS BY SIMPLY OBSERVING THAT 'THE DRP HAS PERUSED THE SUBMISSIONS OF THE ASSESSEE AND THE DOCUMENTS. IN VIEW OF THE DRP, SUCH DOCUMENTS DO NOT PROVE T HE RECEIPT OF SERVICES BY THE ASSESSEE ASCERTAINED (ASSERTED ?) TO BE PROVIDED BY ITS AE, AND, ACCORDINGLY, THE ACTION OF THE AO IN TREATING THE COST OF SUCH SERVICES AT ZERO IS CONFIRMED'. ALL THESE EVIDENCES WERE BEFORE THE DRP, BUT THERE IS NOT EVEN A W HISPER ABOUT WHAT WAS THE NATURE OF THESE DOCUMENTS, WHY DOES THE DRP FIND THESE DOCUMENTS TO BE NOT SATISFACTORY, WHAT IS THE KIND OF EVIDENCE THAT WAS NECESSARY TO PROVE THE FACTUM OF SERVICES HAVING BEEN AVAILED, AND WHAT PRECISELY IS THE REASON THAT TH ESE DOCUMENTS CANNOT BE RELIED UPON. THE SOUL OF AN ORDER IS IN ITS REASONING, AND UNLESS THE REASONS FOR COMING TO A CONCLUSION IN THE ORDER ARE NOT SET OUT, IT IS NOT POSSIBLE TO DO ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 18 A MEANINGFUL SCRUTINY OF THE ORDER, BUT WE FIND NO REASONING AT ALL IN T HE ORDER PASSED BY THE DRP. WE MAY IN THIS REGARD REFER TO THE OBSERVATIONS MADE BY HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA V. MOHANLAL CAPOOR AIR 1974 SC 87, WHEREIN THEIR LORDSHIPS HAVE, INTER ALIA, OBSERVED AS FOLLOWS: 'IF THE STATUTE REQUI RES RECORDING OF REASONS, THEN IT IS THE STATUTORY REQUIREMENT AND, THEREFORE, THERE IS NO SCOPE FOR FURTHER INQUIRY. BUT EVEN WHEN THE STATUTE DOES NOT IMPOSE SUCH AN OBLIGATION IT IS NECESSARY FOR THE QUASI - JUDICIAL AUTHORITIES TO RECORD REASON AS IT IS ONLY VISIBLE SAFEGUARD AGAINST POSSIBLE INJUSTICE AND ARBITRARINESS AND AFFORDS PROTECTION TO THE PERSON ADVERSELY AFFECTED. REASONS ARE THE LINKS BETWEEN THE MATERIAL ON WHICH CERTAIN CONCLUSIONS ARE BASED AND THE ACTUAL CONCLUSIONS. THEY DISCLOSE HOW THE MIND IS APPLIED TO THE SUBJECT - MATTER FOR A DECISION, WHETHER IT IS PURELY ADMINISTRATIVE OR QUASI JUDICIAL. THEY SHOULD REVEAL RATIONAL NEXUS BETWEEN THE FACTS CONSIDERED AND THE CONCLUSION REACHED. ONLY IN THIS WAY CAN OPINIONS OR DECISIONS RECORDED BE SHOWN TO BE MANIFESTLY JUST AND REASONABLE. ' 9. IN OUR CONSIDERED VIEW, IT IS NOT OPEN TO DISPUTE RESOLUTION PANEL TO REJECT THE OBJECTIONS OF THE ASSESSEE IN A SUMMARY MANNER WITHOUT PROPERLY ANALYZING THE OBJECTIONS OF THE ASSESSEE AND DEALING WITH EVI DENCES FILED BY THE ASSESSEE. UNDER SECTION 144 C (6), THE DISPUTE RESOLUTION PANEL CAN ISSUE DIRECTIONS AFTER, INTER ALIA, CONSIDERING OBJECTIONS OF THE ASSESSEE AND EVIDENCES FILED BY THE ASSESSEE. THAT EXERCISE IS CLEARLY NOT DONE. IN THE CASE OF VODAFO NE ESSAR LTD. V. DISPUTE RESOLUTION PANEL II [2011] 196 TAXMAN 423 / [20I0] 8 TAXMANN.COM 297, HON'BLE DELHI HIGH COURT HAS OBSERVED THAT, 'WHEN A QUASI JUDICIAL AUTHORITY (LIKE THE DRP) DEALS WITH A LIS, IT IS OBLIGATORY ON ITS PART TO ASCRIBE COGENT AND GERMANE REASONS AS THE SAME IS THE HEART AND SOUL OF ASCRIBE COGENT AND GERMANE REASONS AS THE SAME IS THE HEART AND SOUL OF THE MATTER. AND FURTHER, THE SAME ALSO FACILITATES APPRECIATION WHEN THE ORDER IS CALLED IN QUESTION BY THE SUPERIOR FORUM'. YET, MORE OFTEN THAN NOT, THE ORDERS PASSED BY THE DISPUTE RESOLUTION PANELS, LIKE ONE BEFORE US, ARE NOT ONLY WANTING IN TERMS OF THEIR ANALYSIS OF FACTS AND LAW AND LACKING IN REASONS FOR ARRIVING AT CONCLUSIONS, THESE ORDERS ALSO OFFER US NO ASSISTANCE IN ANY MANNER AT ALL. IN THIS VIEW OF THE MATTER, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION ON THE QUESTION, OF SERVICES HAVING BEEN ACTUALLY RENDERED, IN THE LIGHT OF EVIDENCES FILED BY THE ASSESSEE. 32. NOW, COMING TO THE CASE OF QUANTUM OF REMUNERATION TO BE ALLOWED IN THE HANDS OF ASSESSEE, WHERE THE CIT(A) HAS ALLOWED EXPENDITURE @ 25% OF TOTAL EXPENSES AND NO BASIS HAS BEEN GIVEN BY THE CIT(A) TO ALLOW THE SAID EXPENDITURE @ 25% OF THE TOTAL. THERE IS NO BASIS FOR MEASURING SUCH SERVICES AND IN THE ABSENCE OF ANY EVIDENCE BROUGHT ON RECORD TO ESTABLISH THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS EXCESSIVE I.E. MORE THAN MARKET VALUE OF THE SAID SERVICES, WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN INVOKING PROVISIONS OF SECTION 40A(2)(A) OF THE AC T. ACCORDINGLY, WE MODIFY THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE IN TOTALITY IN THE HANDS OF THE ASSESSEE AS THE SAID EXPENDITURE HAS BEEN LAID DOWN IN TERMS OF THE AGREEMENT AGREED UPON BETWEEN THE PARTIES AND IS FO R CARRYING ON OF THE BUSINESS OF THE ASSESSEE MORE EFFICIENTLY AND IS ALLOWABLE AS BUSINESS EXPENDITURE. THE GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE ASSESSEE ARE ALLOWED AND GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IS DISMISSED. ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 19 16. ADMITTEDLY, THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN TATA JOHNSON CONTROLS AUTOMOTIVE LTD. VS. DCIT (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE SAID EXPENDITURE IS TO BE ALLOWED IN ENTIRETY IN THE HANDS OF A SSESSEE BEING PAID IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT AGREED UPON BETWEEN THE PARTIES AND FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF ASSESSEE MORE EFFICIENTLY. IT MAY BE POINTED OUT HEREIN THAT THE ASSESSEE HAD INITIALLY ENTERED INTO AN AGR EEMENT WITH TACO IN 1997 AND THE SAID EXPENDITURE HAD BEEN ALLOWED IN THE HANDS OF ASSESSEE FROM YEAR TO YEAR. HOWEVER, THE ASSESSEE RENEWED THE AGREEMENT IN 2006 AND THE EXPENDITURE FOR THE FIRST TIME WAS NOT ALLOWED IN THE HANDS OF ASSESSEE IN ASSESSMEN T YEAR 2006 - 07. WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN THIS REGARD AND ACCORDINGLY, WE MODIFY THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE IN ENTIRETY IN THE HANDS OF ASSESSEE. IT MAY BE POINTED OUT HEREIN ONLY TH AT THE ISSUE VIDE GROUNDS OF APPEAL NO.1 AND 2 RAISED BY THE ASSESSEE IN ASSESSMENT YEAR 2006 - 07 AND GROUND S OF APPEAL NO.1 AND 2 RAISED BY THE REVENUE ARE SIMILARLY RAISED BY BOTH THE PARTIES IN ASSESSMENT YEARS 2007 - 08 TO 2009 - 10 . ACCORDINGLY, W E ALLOW THE CLAIM OF ASSESSEE VIS - - VIS THE SAID EXPENDITURE IN ALL THE YEARS I.E. ASSESSMENT YEARS 2006 - 07 TO 2009 - 10 . THE GROUNDS OF APPEAL NO.1 AND 2 RAISED BY THE ASSESSEE IN ALL THE APPEALS ARE THUS, ALLOWED AND THE GROUND S OF APPEAL NO.1 AND 2 RAISE D BY THE REVENUE IN ALL THE APPEALS IS THUS, DISMISSED. 17. NOW, WE PROCEED TO TAKE UP THE OTHER GROUND S OF APPEAL, WHICH ARE RAISED IN DIFFERENT ASSESSMENT YEARS. 18. THE ASSESSEE IN ASSESSMENT YEAR 2006 - 07 HAS RAISED GROUNDS OF APPEAL NO.3 TO 7 ON AC COUNT OF OTHER DISALLOWANCES. ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 20 1 9 . THE FIRST ISSUE RAISED VIDE GROUND OF APPEAL NO.3 IS AGAINST THE DISALLOWANCE OF EXPENSES INCURRED ON ENGINEERING SERVICES AMOUNTING TO RS.26,50,000/ - . 20. BRIEFLY, IN THE FACTS RELATING TO THE ISSUE, FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD DEBITED PRODUCT DEVELOPMENT CHARGES OF RS. 73,80,971/ - TO THE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER ON VERIFICATION NOTED THAT SUM OF RS.26,50,000/ - WAS DEBITED ON 05.09.2005 WITH THE NARRATION CFD ANALYSIS OF UNDER HOOD COMPONENTS . THE SAID PAYMENT WAS MADE TO CSM SOFTWARE PVT. LTD. FOR THE PURCHASE OF SOFTWARE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SOFTWARE WAS AN INTANGIBLE ASSET AND WAS OF CAPITAL NATURE AND HENCE, THE SAME WAS ADDED TO THE TOTAL INCOM E OF THE ASSESSEE. 21. THE CIT(A) HELD AS UNDER: - IT IS GATHERED FROM THE WEBSITE OF CSM THAT THEY HAVE A FULL SPECTRUM OF SERVICES CATERING TO ALL THE ENGINEERING NEEDS DURING PRODUCT DEVELOPMENT, FROM BASIC COMPUTER AIDED DESIGNS (CAD) TO HIGH - END COMP UTATIONAL FLUID DYNAMICS (CFD) AND FINITE ELEMENT ANALYSIS (FEA) SERVICES. FOR THIS PURPOSE, CSM ALSO PROVIDE SOFTWARE TOOLS KNOWN AS ICEM TETRA AND HEXA, PRO*AM, STAR - CD FOR CFD ANALYSIS. THE CFD ANALYSIS WAS DONE FOR TESTING OF FLOW THROUGH HEAT EXCHA NGERS MANUFACTURED BY THE APPELLANT UNDER COMPUTER AIDED SIMULATED CONDITIONS AND TO FIND OUT WHETHER THE PRODUCT MANUFACTURED BY IT COMPLIED WITH THE PARAMETERS LAID DOWN BY THE CUSTOMER OF THE APPELLANT. THE ENGINEERING SERVICES PROVIDED FOR CFD ANALYSI S OF UNDER HOOD COMPONENTS ALSO INCLUDE SOFTWARE TOOLS WHICH PROVIDE ENDURING ADVANTAGE TO THE APPELLANT OVER A PERIOD OF TIME AND THEREFORE, THE EXPENDITURE INCURRED BY THE APPELLANT FOR ENGINEERING SERVICES FROM CSM IS RIGHTLY TREATED AS CAPITAL EXPENDIT URE BY THE ASSESSING OFFICER AND DEPRECIATION WAS ALLOWED AT THE RATE APPLICABLE TO SOFTWARE. 22. THE ASSESSEE IS IN APPEAL AGAINST THE FINDING OF CIT(A). 23. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DREW OUR ATTENTION TO THE COPIES OF IN VOICES PLACED AT PAGES 197 AND 198 OF THE PAPER BOOK AND POINTED OUT THAT THE ASSESSEE HAD NOT ACQUIRED ANY TOOLS. HOWEVER, ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 21 THE SAID CONCERN WHILE PROVIDING SERVICES TO THE ASSESSEE, HAD USED TOOLS AND HENCE, EXPENDITURE WAS NOT CAPITAL EXPENDITURE. RELI ANCE IN THIS REGARD WAS PLACED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS. RAYCHEM RPG LTD. (2012) 346 ITR 138 (BOM) , WHEREIN THE EXPENDITURE INCURRED ON ACQUISITION OF SAP SOFTWARE WAS HELD TO BE REVENUE IN NATURE. 24. THE LEARNED DEPARTMEN TAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF CIT(A). 25. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD DEBITED AN EXPENDITURE OF RS.26,50,000/ - ON ACCOUNT OF ENGINEERIN G SERVICE CHARGES PROVIDED FOR CFD ANALYSIS OF HOOD COMPONENTS. THE SAID SERVICES WERE PROVIDED BY CSM SOFTWARE PVT. LTD. AND HAD RAISED TWO INVOICES DATED 29.07.2005 AND 12.08.2005 FOR SUM OF RS. 13,25,000/ - X 2 . THE ASSESSEE UNDER THE HEAD PRODUCT DEVE LOPMENT CHARGES HAD BOOKED THE EXPENSES OF INVOICE VALUE OF RS. 13,25,000/ - X 2 , WHEREAS THE SERVICE TAX AND THE EDUCATION CESS CHARGED BY THE SAID CONCERN IS NOT BOOKED UNDER THE HEAD PRODUCT DEVELOPMENT CHARGES. ONLY THE VALUE OF SERVICES I.E. AT RS.1 3,25,000/ - X 2 HAS BEEN BOOKED BY THE ASSESSEE AS AN EXPENDITURE, WHICH IN TURN, WAS DISALLOWED BY THE ASSESSING OFFICER BEING CAPITAL IN NATURE. BEFORE THE CIT(A), THE ASSESSEE HAD EXPLAINED THE NATURE OF EXPENSES THAT THE SAID EXPENSES WERE INCURRED FOR TESTING OF FLOW THROUGH HEAT EXCHANGERS MANUFACTURED BY THE ASSESSEE UNDER COMPUTER AIDED SIMULATED CONDITIONS . THE SAID TESTING IS CALLED AS CFD ANALYSIS. THE ASSESSEE HAD UNDERTAKEN THE SAID TESTING TO FIND OUT WHETHER THE PRODUCT MANUFACTURED BY IT C OMPLIED WITH THE PARAMETERS LAID DOWN BY THE CUSTOMER OF THE ASSESSEE . THE SAID TESTING WAS DONE BY CSM SOFTWARE PVT. LTD. IN ANOTHER REPLY, THE ASSESSEE FURTHER EXPLAINED THAT FROM THE INVOICE ITSELF IT WAS CLEAR THAT THE SAID CHARGES ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 22 WERE PURELY IN THE NATURE OF ENGINEERING SERVICES AS TESTING CHARGES AND NO SOFTWARE WAS ACQUIRED BY THE ASSESSEE. THE PERUSAL OF THE ABOVE SAID DETAILS REFLECTS THAT WHILE INCURRING THE SAID EXPENDITURE OF RS.26,50,000/ - , THE ASSESSEE HAS NOT ACQUIRED ANY SOFTWARE PERSE . HOWEVER, ENGINEERING SERVICES WERE PROVIDED BY CSM SOFTWARE PVT. LTD. IN ORDER TO CARRY OUT THE CFD ANALYSIS OF HOOD COMPONENTS MANUFACTURED BY THE ASSESSEE. WE FIND MERIT IN THE PLEA OF THE ASSESSEE IN THIS REGARD. THE HONBLE BOMBAY HIGH COURT IN CIT VS. RAYCHEM RPG LTD. (SUPRA) HAS LAID DOWN THE RATIO THAT WHERE THE SOFTWARE FACILITATES THE ASSESSEES TRADING OPERATIONS OR ENABLES THE MANAGEMENT TO CONDUCT ITS BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY, THEN SUCH PACKAGE SOFTWARE WAS NOT I N THE NATU RE OF PRO FIT MAKING APPARATUS, AND SOFTWARE EXPENDITURE WAS ALLOWABLE AS REVENUE EXPENDITURE . T HOUGH AS MENTIONED BY US IN THE PARAS HEREINABOVE, THE ASSESSEE HAD NOT ACQUIRED ANY SOFTWARE PACKAGE, BUT HAD UTILIZED THE SERVICES OF ANOTHER CONCERN, WHO IN TURN, HAS UTILIZED ITS SOFTWARE TO CARRY OUT THE JOB WORK OF THE ASSESSEE . F OLLOWING THE PRINCIPLE LAID DOWN BY THE HONBLE BOMBAY HIGH COURT, WE HOLD THAT IN THE ALTERNATE, IN CASE THE EXPENDITURE IS SAID TO BE ON ACQUISITION OF SOFTWARE PACKAGE BY THE A SSESSEE, THEN THE SAME IS ALLOWABLE AS EXPENDITURE IN THE HANDS OF ASSESSEE. ACCORDINGLY, WE HOLD SO. WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE OF RS.26,50,000/ - AS REVENUE EXPENDITURE. THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 26. THE ISSUE IN GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF EXPENSES ON REPAIRS TO BUILDING AMOUNTING TO RS.11,85,657/ - . 27. THE PERUSAL OF THE ASSESSMENT ORDER REFLECTS TH E BREAK - UP OF SUM OF RS.11,85,6 57/ - , OUT OF TOTAL DEBIT TO REPAIRS TO BUILDING ACCOUNT OF RS.29,51,934/ - . ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 23 THE ASSESSING OFFICER NOTED THAT THE SAID AMOUNT WAS OF CAPITAL NATURE AND MERITS TO BE DISALLOWED IN THE HANDS OF ASSESSEE. 28. THE CIT(A) NOTED THE PLEA OF THE ASSESSEE THAT IT HAD INCURRED EXPENSES ON INTERNAL ALTERATIONS LIKE TEMPORARY WOOD EN PARTITION, PANEL ING, ETC. EXCLUSIVELY FOR THE PURPOSE OF BUSINESS TO MAKE THE OFFICE AND EXISTING SCRAP YARD FIT FOR REGULAR USE AND TO CARRY ON THE BUSINESS MORE EFFECTIVELY. HOWEVER, FR OM THE PERUSAL OF INVOICES, THE CIT(A) NOTED THAT SCRAP YARD WAS CONSTRUCTED AT A NEW LOCATION BY INCURRING EXPENDITURE TOTALING RS. 4,59,804/ - . SINCE THE EXPENDITURE WAS INCURRED FOR THE CONSTRUCTION OF SCRAP YARD AT NEW LOCATION AND NOT FOR REPAIRS TO TH E EXISTING SCRAP YARD, THE CIT(A) IN TURN, RELYING ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN BALIMAL NAVAL KISHORE VS. CIT REPORTED IN 224 ITR 414 (SC) , HELD THAT WHERE A NEW SCRAP YARD WAS CONSTRUCTED, THE SAME WAS AT THE RO OT OF FIXED CAPITA L ASSET AND THE SAME WAS NOT ALLOWABLE AS REVENUE EXPENDITURE. WITH REGARD TO EXPENDITURE ON INTERIORS, THE CIT(A) NOTED THAT THE ASSESSEE HAS FAILED TO FURNISH ANY DETAILS OF THE EXPENSES NOR THE COPIES OF INVOICES OF BILLS FOR EXPENSES INCURRED HAVE BEE N FILED AND IN THE ABSENCE OF THE SAME, THE ASSESSING OFFICER WAS HELD TO BE JUSTIFIED IN TREATING THE EXPENDITURE AS CAPITAL EXPENDITURE AND ALLOWING DEPRECIATION THEREON. 29. THE ASSESSEE IS IN APPEAL AGAINST THE AFORESAID DISALLOWANCE MADE BY THE ASSES SING OFFICER, WHICH HAS BEEN CONFIRMED BY THE CIT(A). 30. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT OUT OF TOTAL EXPENDITURE CONSIDERED BY THE CIT(A) AT RS.4,59,804/ - , THE ASSESSING OFFICER HAD DISALLOWED SUM OF RS.4,42,775/ - ONLY. IT WAS STRESSED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE EXPENDITURE WAS REVENUE IN NATURE AND WAS ALLOWABLE IN THE HANDS OF ASSESSEE. ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 24 31. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE O RDER OF CIT(A). 32. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE BREAK - UP OF EXPENDITURE AT PAGE 8 OF THE ASSESSMENT ORDER REFLECTS THE ASSESSEE TO HAVE INCURRED A SUM OF RS.1,18,889/ - VIDE BILL DATED 17.09.2005 TO CARRY OUT THE WORK A T NEW SCRAP YARD. FURTHER, SUM OF RS.4,42,775/ - WAS ALSO INCURRED ON 21.09.2005 ON SCRE YARD CONSTRUCTION AT NEW LOCATION . B OTH THESE AMOUNTS WERE PAID TO SUN INTERIORS. THE CIT(A) HAS GIVEN A FINDING THAT THE AMOUNT WAS INCURRED FOR CONSTRUCTION OF SCR AP YARD AT NEW LOCATION AND WHERE THE AMOUNT HAS BEEN SPENT FOR BRINGING INTO EXISTENCE A NEW ASSET, THE SAME IS DEFINITELY CAPITAL EXPENDITURE AND IS TO BE DISALLOWED IN THE HANDS OF ASSESSEE. 33. NOW, COMING TO THE STAND OF THE LEARNED AUTHORIZED REPR ESENTATIVE FOR THE ASSESSEE BEFORE US THAT , THE ASSESSING OFFICER HAD DISALLOWED SUM OF RS. 4,42,775/ - AS AGAINST THE EXPENDITURE CONSIDERED BY THE CIT(A) AT RS. 4,59,804/ - . THE PERUSAL OF THE DETAILS AT PAGE 27 OF THE APPELLATE ORDER REFLECTS THAT THE TOTA L OF RS .4,59,804/ - IS INCLUDING VAT. AS REFERRED TO BY US IN THE PARAS HEREINABOVE, THE ASSESSEE HAS BOOKED THE EXPENDITURE UNDER THE RESPECTIVE HEADS AND ANY OTHER LEVIES OR TAXES HAVE BEEN BOOKED BY THE ASSESSEE UNDER SEPARATE HEADS. DURING THE COURSE OF HEARING ALSO, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS ASKED TO EXPLAIN IN THIS REGARD. WHERE EXPENDITURE IS BEING DISALLOWED IN THE HANDS OF ASSESSEE , THEN EVEN THE SAID LEVIES I.E. INCLUDING VAT, EDUCATION CESS, ETC. IS TO BE DISALL OWED IN THE HANDS OF ASSESSEE. ACCORDINGLY, WE FIND NO MERIT IN THE CLAIM OF THE ASSESSEE IN THIS REGARD AND THE SAME IS DISMISSED. THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS DISMISSED. ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 25 34. THE ISSUE IN GROUND OF APPEAL NO.5 RAISED BY THE ASSES SEE IS WITH REGARD TO DISALLOWANCE OF RENT EXPENSES TOTALING RS.1,51,896/ - . 35. THE CASE OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT THE SAID EXPENDITURE WAS CRYSTALLIZED DURING THE YEAR THOUGH RELATES TO PRIOR YEAR, HENCE WAS BOOKED AS EXPEND ITURE DURING THE YEAR. BOTH THE AUTHORITIES BELOW HAVE DISALLOWED THE CLAIM OF ASSESSEE SINCE THE EXPENDITURE DID NOT RELATE TO THE YEAR UNDER CONSIDERATION. THE ASSESSEE BEFORE US HAS FAILED TO FURNISH ANY EVIDENCE TO ESTABLISH THAT THE SAID EXPENDITURE DID CRYSTALLIZE DURING THE YEAR, WHICH IN TURN, RELATES TO PRIOR YEAR . SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, WE FIND NO MERIT IN THE CLAIM OF ASSESSEE AND THE SAID EXPENDITURE ON RENT RELATING TO PRIOR YEARS, IS NOT ALLOWABLE A S EXPENDITURE DURING THE YEAR. ACCORDINGLY, WE CONFIRM THE ADDITION OF RS.1,51,896/ - . THE GROUND OF APPEAL NO.5 IS THUS, DISMISSED. 36. THE ISSUE IN GROUNDS OF APPEAL NO.6 AND 7 IS WITH REGARD TO DISALLOWANCE OF SALES TAX EXPENSES OF RS. 7,01,572/ - . 37. THE ASSESSING OFFICER FROM THE DETAILS OF MISCELLANEOUS EXPENSES OF RS. 42,13,164/ - DEBITED BY THE ASSESSEE, NOTED THAT SUM OF RS.1 LAKH ON 09.10.2005 AND RS.6,01,572/ - ON 31.03.2006 WAS DEBITED AS SALES TAX DUES 2001 - 02 . THE EXPENDITURE DID NOT PERTAIN T O CURRENT ASSESSMENT YEAR AND THE SAME WAS DISALLOWED IN THE HANDS OF ASSESSEE BY THE ASSESSING OFFICER. 38. THE CIT(A) VIDE PARA 7.3.1 AT PAGE 32 OF THE APPELLATE ORDER NOTED THAT THE SALES TAX ASSESSMENT ORDER FOR THE YEAR 2001 - 02 WAS PASSED ON 30.06. 2005 AND AS PER THE DEMAND NOTICE, SUM OF RS.2.45 CRORES WAS SHOWN AS PAYABLE BY ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 26 THE ASSESSEE. THE CLAIM OF THE ASSESSEE WAS THAT THE LIABILITY THOUGH RELATING TO THE YEAR 2001 - 02 , AROSE IN THE YEAR UNDER CONSIDERATION CONSEQUENT TO THE SALES TAX ASSESSME NT ORDER PASSED ON 30.06.2005 . HOWEVER, IN THE COURSE OF APPELLATE PROCEEDINGS, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE INFORMED THE CIT(A) THAT THE LIABILITY IN QUESTION WAS CHALLENGED BY THE ASSESSEE IN APPEAL. THOUGH THE ASSESSEE CLAIME D TO HAVE PAID TWO SUMS I.E. RS.1 LAKH AND RS.6,01,572/ - , BUT THE ASSESSEE FURNISHED ONLY ONE CHALLAN FOR THE REMITTANCE OF RS.1 LAKH. SINCE THE ASSESSEE HAD PAID THE ABOVE TWO INSTA L LMENTS TO THE SALES TAX DEPARTMENT UNDER PROTEST AND WHERE THE ISSUE WAS EVENTUALLY DECIDED IN FAVOUR OF THE ASSESSEE AND THE DEMAND RAISED WAS CANCELLED, THE CIT(A) WAS OF THE VIEW THAT THE LIABILITY WAS ONLY A CONTINGENT LIABILITY AND THE SAME COULD NOT BE ALLOWED AS DEDUCTION UNDER SECTION 43B OF THE ACT OR OTHERWISE. 39 . THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 40. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT EVEN UNDER THE PROVISIONS OF SECTION 43B OF THE ACT, IRRESPECTIVE OF THE YEAR TO WHICH THE SALES TAX DEMAND RELATES, THE S AME IS ALLOWABLE IN THE HANDS OF ASSESSEE ONLY ON PAYMENT. SINCE THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS PAID THE ABOVE SAID AMOUNT, HENCE, THE SAME WAS ALLOWABLE IN THE HANDS OF ASSESSEE. 41. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE PLACED RELIANCE ON THE ORDER OF CIT(A). 42. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING BEFORE US IS IN RELATION TO THE AMOUNT PAID BY THE ASSESSEE TO THE SALES ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 27 TAX DEPARTMENT AGAINST DISPUTED DEMAND RELATING TO THE YEAR 2001 - 02 . THE YEAR IN APPEAL BEFORE US IS ASSESSMENT YEAR 2006 - 07 AND THE QUESTION IS WHETHER THE AFORESAID AMOUNT RELATING TO THE DEMAND RAISED FOR THE YEAR UNDER CONSIDERATION 2001 - 02 IS ALLOWABLE IN THE HANDS OF ASSESSEE, IN THE YEAR UNDER APPEAL OR NOT. WE FIND UNDER THE PROVISIONS OF SECTION 43B OF THE ACT, NOTWITHSTANDING ANY OTHER PROVISION OF THE ACT, IT IS PROVIDED UNDER THE STATUTE THAT CERTAIN AMOUNTS SHALL BE ALLOWED AS DEDUCTION ONLY ON PAYMENT. ONE SUCH CLAUSE UNDER SECTION 43B OF THE ACT DEALS WITH THE SALES TAX PAYMENT. ADMITTEDLY, THE DEMAND WAS RAISED AGAINST THE ASSESSEE FOR THE YEAR 2001 - 02 AND THE SAID DEMAND WAS DISPUTED. HOWEVER, UNDER PROTEST, THE ASSESSEE DEPOSITED SUM OF RS. 7,01,572/ - DURING THE YEAR UNDER CONSIDERATION. ONCE THE AMOUNT HAS BEEN DEPOSITED BY THE ASSESSEE DURING THE YEAR AND NO DEDUCTION ON THIS ACCOUNT HAS BEEN TAKEN BY THE ASSESSEE IN ANY OF THE EARLIER YEARS, THEN UNDER THE PROVISIONS OF SECTION 43B OF THE ACT, SUCH SALES TAX PAYMENT IS DULY ALLOWABLE AS DEDUCTION IN THE HANDS OF ASSESSEE. HOWEVER, THE ASSESSEE HAD FURNISHED A CHALLAN OF SALES TAX PAYMENT OF ONLY RS.1 LAKH BEFORE THE CIT(A) AND NO CHALLAN OF PAYMENT OF RS.6,01,572/ - WAS FILED. EVEN BEFORE US, THE ASSESSEE HAS FAILED TO FU R NISH THE SAID CHALLAN. ACCORDINGLY, WE REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO ALLOW THE CLAIM OF ASSESSEE ON SATISFACTION THAT BOTH THE AMOUNTS HAVE BEEN PAID BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, THOUGH THE DEMAND RELATES TO THE YEAR 2001 - 02 . THUS, THE GROUNDS OF APPEAL NO.6 AND 7 ARE ALLOWED FOR STATISTICAL PURPOSES. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 43. THE ASSESSEE IN ITA NO.1035/PN/2013 RELATING TO ASSESSMENT YEAR 2007 - 08 HAS RAISED FURTHER G ROUNDS OF APPEAL NO.3 AND 4 AGAINST THE DISALLOWANCE OF PERFORMANCE INCENTIVE AMOUNTING TO RS.32,69,953/ - . ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 28 44. BRIEFLY, IN THE FACTS RELATING TO THE ISSUE, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD DISALLOWED SUM OF RS. 62,92,822/ - UNDER SECTION 43 B OF THE ACT IN THE AUDIT REPORT ITSELF IN FORM NO.3CD . HOWEVER, UNDER CLAUSE 21(I)(B) , THE AUDITOR HAD REPORTED THAT THE AMOUNT DISALLOWED UNDER SECTION 43B OF THE ACT WAS RS. 95,62,775/ - . THE ASSESSING OFFICER THUS, ASKED THE ASSESSEE TO EXPLAIN AS TO W HY THE DISALLOWANCE UNDER SECTION 43B OF THE ACT WAS MADE LESSER BY RS.32,69,953/ - . ON ENQUIRY, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STATED THAT THE AMOUNT OF INCENTIVE PAID TO THE EMPLOYEES AFTER SIGNING OF TAX AUDIT REPORT, BUT BEFORE FILING THE RETURN OF INCOME , WAS CLAIMED AS DEDUCTION ON PAYMENT BASIS. SINCE THE ASSESSEE HAD FAILED TO FURNISH ANY PROOF OF PAYMENT, THE ASSESSING OFFICER DISALLOWED SUM OF RS.32,69,953/ - . 45. BEFORE THE CIT(A), THE ASSESSEE HAS RAISED TWO CONTENTIONS THAT THE PROVISIONS OF SECTION 43B OF THE ACT WERE NOT APPLICABLE TO THE PERFORMANCE INCENTIVE PAID BY THE ASSESSEE. FURTHER, IT WAS POINTED OUT THAT SUM OF RS.32,69,953/ - WAS PAID BEFORE THE DATE OF FILING THE RETURN OF INCOME AND HENCE, SAME WAS ALLOWAB LE. THE CIT(A) VIDE PARA 9.3 AT PAGE 36 OF THE APPELLATE ORDER NOTED THE CONTENTIONS OF ASSESSEE AND ALSO THE DETAILS FURNISHED OF PAYMENT TO EMPLOYEES, WHICH IN TURN, WAS APPENDED AS ANNEXURE A TO THE APPELLATE ORDER. THE CIT(A) WAS OF THE VIEW THAT T HE DETAILS FURNISHED BY THE ASSESSEE REQUIRES FURTHER VERIFICATION WITH REFERENCE TO RELEVANT BANK ACCOUNT EXTRACT OF THE ASSESSEE. SINCE THESE DETAILS WERE NOT FURNISHED BEFORE THE ASSESSING OFFICER, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO VERIFY TH E CLAIM OF ASSESSEE VIS - - VIS PAYMENT OF INCENTIVE TO THE EMPLOYEES ON OR BEFORE DUE DATE OF FILING THE RETURN OF INCOME AND I F THE SAID INCENTIVE WAS SO PAID AND THE SAME WAS DIRECTED TO BE ALLOWED AS DEDUCTION BY THE CIT(A). 46. THE ASSESSEE IS IN APP EAL AGAINST THE FINDING OF CIT(A). ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 29 47. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE FIRST OBJECTION WAS THAT THE PROVISIONS OF SECTION 43B OF THE ACT WERE NOT APPLICABLE AND HENCE, THERE IS NO MERIT IN THE SAID EXERCISE. HO WEVER, IN THE ALTERNATE, IN CASE THE SAID STAND OF THE ASSESSEE IS NOT ACCEPTED, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE AUDIT REPORT IS DATED 30.10.2010 , THE RETURN OF INCOME WAS DUE TO BE FILED ON 15.11.2007 AND OUR AT TENTION WAS DRAWN TO THE DETAILS OF PAYMENT PLACED AT PAGE 49 OF THE PAPER BOOK. IT WAS THE CASE OF LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT NO DISALLOWANCE IS WARRANTED IN THE HANDS OF ASSESSEE. 48. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF CIT(A). 49. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING BEFORE US IS IN RELATION TO THE PERFORMANCE INCENTIVE PAID TO THE EMPLOYEES. ADMITTEDLY, THE AFORESAID PAYMENT WAS DUE TO BE PAID TO THE EMPLOYEES AS ON 31.03.2007 I.E. CLOSE OF THE ASSESSMENT YEAR . HOWEVER, THE ASSESSEE CLAIMS TO HAVE MADE THE SAID PAYMENT BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME AS PER THE DETAILS FURNISHED AT PAGE 49 OF THE PAPER BOOK. THE CIT(A) IN THIS REGARD HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE CONTENTIONS OF THE ASSESSEE AND IF FOUND TO BE CORRECT , THEN ALLOW THE SAID EXPENDITURE IN THE HANDS OF ASSESSEE. THE ASSESSEE ON THE OTHER HAND, IS AGGRIEVED BY THE PROPOSITION OF CIT(A) IN HOLDING THAT THE PAYMENT OF PERFORMANCE INCENTIVE IN THE HANDS OF ASSESSEE IS GOVERNED BY THE PROVISIONS OF SECTION 43B OF THE ACT. THE PERUSAL OF SAID SECTION REFLECTS THAT UNDER CLAUSE (C) TO SECTION 43B OF THE ACT, ANY SUM REFERRED TO IN SEC TION 36(1)(II) OF THE ACT IS COVERED . IT IS PROVIDED UNDER THE SAID SECTION 43B OF THE ACT THAT NOTWITHSTANDING ANYTHING CONTAINED IN ANY ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 30 OTHER PROVISIONS OF THE ACT, THE DEDUCTION ON ACCOUNT OF THE S UMS REFERRED TO THEREUNDER , IN VARIOUS CLAUSES IS TO BE ALLOWED AS DEDUCTION IN THE HANDS OF PERSON CLAIMING THE SAME, ONLY ON PAYMENT OF THE SAME DURING THE YEAR. HOWEVER, IN THE PROVISO, IT IS FURTHER PROVIDED THAT IN CASE THE SAID AMOUNT IS PAID ON OR BEFORE DUE DATE OF FILING THE RETURN OF INCOME, THEN TH E SAME MAY BE ALLOWED AS DEDUCTION IN THE HANDS OF ASSESSEE. UNDER SECTION 36(1)(II) OF THE ACT, IT IS PROVIDED THAT DEDUCTION ON ACCOUNT OF SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION FOR SERVICES RENDERED IS TO BE ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME UNDER SECTION 28 OF THE ACT. IN THE FACTS OF THE PRESENT CASE BEFORE US, THE ASSESSEE CLAIMS TO HAVE PAID PERFORMANCE INCENTIVE TO THE EMPLOYEES WHICH IS COVERED BY THE TERM COMMISSION FOR SERVICES RENDERED AND HENCE, WE FIND NO MERIT IN THE C LAIM OF THE ASSESSEE IN THIS REGARD. 50. NOW, COMING TO THE SECOND ASPECT OF THE APPLICATION OF PROVISIONS OF SECTION 43B OF THE ACT, WE FIND THAT THE CIT(A) HAS ALREADY DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF ASSESSEE AFTER VERIFICATION, I N CASE THE AMOUNT DUE TO THE EMPLOYEES HAS BEEN PAID BY THE ASSESSEE BEFORE DUE DATE OF FILING THE RETURN OF INCOME . T HE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE SAID CLAIM BY SEEING BANK ENTRIES IN THE HANDS OF ASSESSEE. WE FIND NO ERROR IN THE SAID DIRECTIONS GIVEN BY THE CIT(A) AND CONFIRM THE SAME. WE DISMISS THE GROUNDS OF APPEAL NO.3 AND 4 RAISED BY THE ASSESSEE. 51. THE ASSESSEE IN ITA NO.1595/PN/2013 RELATING TO ASSESSMENT YEAR 2008 - 09 HAS RAISED NO OTHER GROUNDS OF APPEAL EXCEP T AGAINST THE DISALLOWANCE OF ADMINISTRATIVE SERVICE CHARGES. WE HAVE ALREADY ADJUDICATED THE SAME IN PARAS HEREINABOVE , AND HENCE THE SAME ARE ALLOWED . ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 31 52. IN ITA NO.1596/PN/2013 RELATING TO ASSESSMENT YEAR 2009 - 10, THE ISSUE VIDE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF EXPENSES ON RENT TOTALING RS.3,36,393/ - . 53. THE ASSESSING OFFICER HAD DISALLOWED THE SAID CLAIM OF THE ASSESSEE SINCE THE ASSESSEE FAILED TO FURNISH THE BASIC DETAILS AND THE SAME HAS BEEN CONFIRMED B Y THE CIT(A). 54. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAIRLY ADMITTED THAT THE AFORESAID DETAILS ARE NOT AVAILABLE WITH THE ASSESSEE, HENCE, DISALLOWANCE OF RS. 3,36,393/ - IS CONFIRMED AND THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS DISMISSED. 5 5 . THE ISSUE IN GROUND OF APPEAL NO.4 IS AGAINST THE DISALLOWANCE OF EQUATED RENT AMOUNTING TO RS.14,62,772/ - . 5 6 . THE ASSESSING OFFICER NOTED FROM THE DETAILS FILED BY THE ASSESSEE THAT SUM OF RS. 14,62,772/ - WAS CLAIMED UNDER THE HEAD E QUATED RENT AS PER AS19 ON FEM LEASE . HOWEVER, NO DETAILS WERE FURNISHED AND THE SAID AMOUNT WAS ADDED IN THE HANDS OF ASSESSEE. THE CIT(A) CONFIRMED THE SAID DISALLOWANCE. 5 7 . THE ASSESSEE IS IN APPEAL AGAINST THE SAME AND THE LEARNED AUTHORIZED REPRE SENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE HAD ACCOUNTED FOR LEASE EQUALIZATION CHARGES IN A CCORDANCE WITH ACCOUNTING STANDARDS - 19 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE DETAILS I.E. COMPUTATION OF EQUALIZED RENT ALON G WITH LEASE AGREEMENT BETWEEN THE ASSESSEE AND THE LESSOR WERE FILED BEFORE THE CIT(A). THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THOUGH ADMITTEDLY, THE SAID ISSUE IS COVERED AGAINST ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 32 THE ASSESSEE BY THE SPECIAL BENCH DECISIO N WHICH WAS THE CASE OF LESSOR , WHEREIN IT WAS HELD THAT THE PROVISIONS OF SECTION 5 OVERRIDES THE PROVISIONS OF SECTION 145 OF THE ACT. 58 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF CIT(A). 59 . WE HAVE HEA RD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE EXPENDITURE CLAIMED ON ACCOUNT OF LEASE EQUALIZATION CHARGES AMOUNTING TO RS.14,62,772 / - . IN VIEW OF THE CONCESSION OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE, WE DECIDE THE PRESENT ISSU E AGAINST THE ASSESSEE, IN TURN, FOLLOWING THE PRINCIPAL LAID DOWN BY SPECIAL BENCH OF TRIBUNAL. THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS, DISMISSED. 6 0 . THE ISSUE IN GROUND OF APPEAL NO.5 IS WITH REGARD TO THE PROVISION MADE ON ACCOUNT O F REPAIRS TO BUILDING AMOUNTING TO RS.29 LAKHS. 6 1 . THE ASSESSING OFFICER HAD DISALLOWED THE SAID PROVISION MADE, WHICH WAS CONFIRMED BY THE CIT(A). THE ASSESSEE BEFORE US HAS NOT FURNISHED ANY DETAILS IN THIS REGARD AND IN ANY CASE, PROVISION MADE FOR THE REPAIRS IS NOT ALLOWABLE AS EXPENDITURE IN THE HANDS OF ASSESSEE. ACCORDINGLY, WE CONFIRM THE DISALLOWANCE OF RS.29 LAKHS AND THE GROUND OF APPEAL NO.5 IS DISMISSED. 6 2 . NOW, COMING TO THE APPEAL IN ITA NO.1649/PN/2013 RELATING TO ASSESSMENT YEAR 20 09 - 10 . BESIDES THE COMMON GROUNDS OF APPEAL , THE REVENUE HAS ALSO RAISED GROUND OF APPEAL NO.3, WHICH READS AS UNDER: - 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.3,61,000/ - AND RS.6,14 ,768/ - BY ADMITTING ADDITIONAL EVIDENCE WITHOUT FOLLOWING THE MANDATORY PROCEDURE FOR ADMISSION OF THE SAME PRESCRIBED IN RULE 46A OF THE INCOME TAX RULES, 1962. ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 33 6 3 . THE GRIEVANCE OF THE REVENUE IS THAT THE SAID RELIEF HAS BEEN ALLOWED BY THE CIT(A) BY A DMITTING FRESH EVIDENCE IN VIOLATION TO THE PROVISIONS OF RULE 46A OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES) . ON THE OTHER HAND, THE CLAIM OF THE ASSESSEE IS THAT THE AFORESAID DETAILS WERE FILED BEFORE THE ASSESSING OFFICER AS IS EVIDENT FROM THE PAPER BOOK FILED WITH SPECIAL REFERENCE TO PAGES 81 TO 100. 6 4 . ON PERUSAL OF RECORD AND AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT THE ISSUE RAISED VIDE GROUND OF APPEAL NO.3 BY THE REVENUE IS AGAINST THE DISALLOWANCE MADE BY THE ASSESSING O FFICER BEING 10% OUT OF REPAIRS TO MACHINERY AT RS.3,61,000/ - . ANOTHER DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS ON ACCOUNT OF SELLING AND DISTRIBUTION EXPENSES OF RS. 6,14,768/ - . BOTH THESE DISALLOWANCES WERE MADE SINCE THE ASSESSEE HA D FAILED TO FU RNISH THE RELEVANT DETAILS AND SUPPORTING EVIDENCE BEFORE THE ASSESSING OFFICER. HOWEVER, THE FIRST DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF REPAIRS TO MACHINERY WAS ALLOWED BY THE CIT(A) SINCE THE ASSESSING OFFICER HAD FAILED TO ESTABLISH THAT THE EXPENDITURE WAS NOT GENUINE AND IT WAS IN THE NATURE OF CAPITAL EXPENDITURE. REFERENCE WAS MADE TO THE DETAILS FURNISHED BY THE ASSESSEE BEFORE THE CIT(A) AND ON VERIFICATION OF THE SAID DETAILS, THE CIT(A) HELD THAT THE EXPENDITURE INCURRED WAS TOWARDS RECURRING REPAIRS TO THE MACHINERY AND SAME WAS NOT IN THE NATURE OF CAPITAL EXPENDITURE. WITH REGARD TO SELLING AND DISTRIBUTION EXPENSES, THE ASSESSING OFFICER HAD STATED THAT DESPITE SEVERAL OPPORTUNITIES, THE ASSESSEE HAD NOT FURNISHED THE DE TAILS OF EXPENDITURE INCURRED TOTALING RS.6,14,768/ - . THE CLAIM OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT MOST OF THE DETAILS WERE MADE AVAILABLE BEFORE THE ASSESSING OFFICER AND HENCE, THERE WAS NO MERIT IN ANY DISALLOWANCE. THE CIT(A) AFTER GOING THRO UGH THE EXPENSES, DELETED THE ADDITION OF RS.6,14,768/ - . ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 34 6 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IS AGGRIEVED BY THE ORDER OF CIT(A) IN NOT FORWARDING THE REQUISITE INFORMATION TO THE ASSESSING OFFICER FOR VERIFICATION AND IN TURN, VIO LATING THE PROVISIONS OF RULE 46A OF THE RULES. 6 6 THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ON THE OTHER HAND, HAS REFERRED TO THE PAPER BOOK AT SERIAL NOS.10 AND 11, WHEREIN IT IS MENTIONED THAT THE COPY OF DETAILS WERE SUBMITTED BEFORE T HE LEARNED ADDL. CIT FOR RENT EXPENSES IN RELATION TO REPAIRS TO MACHINERY AND IN RELATION TO SELLING AND DISTRIBUTION EXPENSES. ALL THESE DETAILS ARE FURNISHED AT PAGES 81 TO 100 OF THE PAPER BOOK. HOWEVER, AT THE END OF INDEX, THE ASSESSEE WHILE CERTIFYING AS TO WHE THER THE DOCUMENTS ATTACHED IN THE PAPER BOOK WERE FURNISHED, HAS CERTIFIED THAT PAGES 1 TO 100 ARE FILED BEFORE THE CIT(A) . THE PERUSAL OF THE DETAILS AT PAGES 81 AND 98 OF PAPER BOOK DOES NOT REFLECT WHE THER THESE DETAILS WERE FILED AS NO COVERING LETTER OF FURNISHING THE DETAILS BEFORE THE ASSESSING OFFICER HAS BEEN FILED. IN THIS REGARD, IT IS NOT CLEAR AS TO WHETHER THE EVIDENCE HAS BEEN FILED BEFORE THE ASSESSING OFFICER AND IN VIEW OF CATEGORICAL ORDER OF THE ASSESSING OFF ICER THAT THE ASSESSEE HAS FAILED TO FURNISH THE AFORESAID DETAILS BEFORE HIM, WE FIND MERIT IN THE CLAIM OF THE REVENUE. UNDER THE PROVISIONS OF RULE 46A OF THE RULES, THE CIT(A) IS EMPOWERED TO ADMIT ADDITIONAL EVIDENCE, HOWEVER, WITH RESTRICTION THAT T HE SAME SHOULD BE PUT TO THE ASSESSING OFFICER FOR VERIFICATION. IN THE FACTS OF THE PRESENT CASE, THE CIT(A) HAS FAILED TO DO SO AND HENCE HAS VIOLATED THE PROVISIONS OF RULE 46A OF THE RULES. ACCORDINGLY, WE REMIT THE ISSUE OF ALLOWANCE OF DEDUCTION ON ACCOUNT OF REPAIRS TO MACHINERY AND SELLING AND DISTRIBUTION EXPENSES, BACK TO THE FILE OF ASSESSING OFFICER, WHO SHALL VERIFY THE NATURE OF EXPENDITURE AND DECIDE THE SAME IN ACCORDANCE WITH LAW. THE ASSESSEE IS DIRECTED TO FILE COMPLETE DETAILS BEFORE THE ASSESSING OFFICER. THE ITA NO S. 1029 & 1030 /PN/201 3 ITA NO S.1034 & 1035 /PN/201 3 ITA NO S.1 595 & 1 596 /PN/201 3 ITA NO S.1 648 & 1649 /PN/201 3 35 GROUND OF APPEAL NO.3 RAISED BY THE REVENUE IS THUS, ALLOWED FOR STATISTICAL PURPOSES. 67 . IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR ASSESSMENT YEARS 2006 - 07, 2007 - 08 AND 2009 - 10 ARE PARTLY ALLOWED AND THE APPEAL FOR ASSES SMENT YEAR 2008 - 09 IS ALLOWED AND THE APPEALS OF REVENUE FOR ASSESSMENT YEARS 2006 - 07, 2007 - 08 AND 2008 - 09 ARE DISMISSED AND THE APPEAL FOR ASSESSMENT YEAR 2009 - 10 IS ALLOWED FOR STATISTICAL PURPOSES . ORDER P RONOUNCED ON THIS 18 TH DAY OF MARCH , 2016 SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 18 TH MARCH , 2016 GCVSR GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3 . ( ) / THE CIT(A) - I I I, PUNE; 4. / THE CIT I V , PUNE; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE