M/s. Yamaha Motor India Sales Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 1095/DEL/2014

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5387 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 28-06-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 26-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Reopening of assessment; Depreciation; Transfer pricing; International transaction; Tangible material; Corroborative evidences
• Section: 143(3); 142(1); 32; 147; 92

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I - 1 BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA , ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE , JUDICIAL MEMBER ITA NO. 992 /DEL/201 4 [A.Y 20 06 - 07 ] THE DY . C . I . T, VS. M/S YAMAHA MOTOR INDIA SALES CIRCLE 18 ( 1 ), PVT. LTD., 1 ST FLOOR NEW DELHI. THE GREA T EASTER N CENTRE 70, NEHRU PLACE, BEHIND IFCI TOWER NEW DELHI [ PAN : AA ACY 2505 K] ITA NO. 1095 /DEL/201 4 [A.Y 2006 - 07] M/S YAMAHA MOTOR INDIA SALES VS. THE DY. C . I . T, PVT. LTD., 1 ST FLOOR CIRCLE 18 ( 1 ), THE GREAT EASTERN CENTRE NEW DELHI. 70, NEHRU PLACE, B EHIND IFCI TOWER, NEW DELHI [ PAN : AA ACY 2505 K] [APPELLANT] [RESPONDENT] DATE OF HEARING : 1 6 . 1 0 .201 8 DATE OF PRONOUNCEMENT : 2 2 . 1 0.2018 ASSESSEE BY : S HRI VED JAIN, ADV REVENUE BY : SHRI SANJAY I. BARA, CIT - DR 2 ORDER PER N.K. BILLAIYA , ACCOUNTANT MEMBER, T H E ABOVE TWO CROSS APPEAL S BY THE ASSESSEE AND REVENUE ARE PREFERRED AGAINST THE VERY SAME ORDER DATED 06.01.2014 FRAMED U/S 143(3) R.W.S 144C (4) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT]' PERTAINING TO A.Y 2011 - 12 . BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 1095/DEL/2014 [ASSESSEES APPEAL] 2. IN ADDITION TO THE CHALLENGE OF THE DISALLOWANCE, THE ASSESSEE HAS ALSO CHALLENGED THE REOPENING OF THE ASSESSMENT U/S 147 OF THE ACT. SINCE THIS GOES TO THE ROOT OF THE MATTER, WE WILL FIRST ADDRESS TO THE CHALLENGE OF REOPENING OF THE ASSESSMENT. 3. THE FACTS ON RECORD SHOW THAT THE ORIGINAL ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER DATED 30.12.2008. 3 4. SUBSEQUENTLY, VIDE NOTIC E DATED 14.09.2011, THE ASSESSING OFFICER SOUGHT TO REOPEN THE ASSESSMENT. THE REASONS RECORDED FOR REOPENING OF ASSESSMENT READ AS UNDER: RE ASONS RECORDED FOR RE - OPENING U/S 147/148 OF THE IT ACT, 1961 IN THE CASE OF M/S. YAMAHA M OTOR INDIA SALES PVT. LTD. FOR THE ASSESSMENT YEAR 2006 - 07 ARE AS UNDER 1. DURING THE YEAR THE ASSESSEE HAD CLAIMED DEPRECIATION ON GOODWILL AMOUNTING TO RS. 27,03,40 ,000/ - TREATING IT AS INTANGIBLE ASSET. AS PER ACCOUNTING STANDARDS GOODWILL WAS NOT CONSIDERED AS AN INTANGIBLE ASSET FOR THE PURPOSE OF AMORTIZATION. FURTHER, GOODWILL CANNOT BE CONSIDERED AS ANY OTHER BUSINESS OR COMMERCIAL RIGHT AND DEPRECIATION CANNOT BE ALLOWED. SE CTION 32 OF THE IT ACT, PROVIDED THAT FROM 1 ST APRIL 1999, DEPRECIATION WOULD BE ALLOWED ON TANGIBLE ASSETS WHICH INCLUDE COPYRIGHTS, PATENTS, TECHNICAL KNOW - HOW, FRANCHISE CHARGES AND IY OTHER COMMERCIAL RIGHTS. INTANGIBLE ASSETS, THEREFORE , CANNOT INCLUDE GOODWILL, STOCK CHANGE MEMBERSHIP FEES, INTELLECTUAL PROPERTY RIGHTS OR INVESTMENT IN SHARES 2. THE ASSESSEE HAD CLAIMED AND ALLOWED ADVERTISEMENT EXPENSES OF RS. 23,31,91,930/ - TO THE P& L A/C. ADVERTISEMENT EXPENDITURE WAS INCURRED BY THE ASSESSEE COMPANY ON BEHALF OF YAMAHA MOTOR CO., JAPAN ON 4 REIMBURSABLE BASIS. OUT OF THE ABOVE ADVERTISEMENT EXPENSES THE ASSESSEE ALREADY REIMBURSED RS. 10,97,55,358/ - AND BALANCE OF RS. 11,50,38,160/ - SHOWN UNDER THE HEAD LOAN AND ADVANCES RECOVERABLE TOWARD 0 REIMBURSEMENT . AS THE ADVERTISEMENT EXPENDITURE WAS INCURRED ON BEHALF OF Y AMAHA MOTOR CO., JAPAN THE SAME SHOULD HAVE BEEN DISALLOWED. 5. BEFORE US, THE LD. AR FOR THE ASSESSEE VEHEMENTLY CONTE NDED THAT THE ISSUES, WHICH PROMPTED THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT WERE SPECIFICALLY CONSIDERED BY THE ASSESSING OFFICER DURING ORIGINAL ASSESSMENT PROCEEDINGS BY RAISING SPECIFIC QUERIES TO WHICH THE ASSESSEE HAS NOT ONLY FURNISHED SPECIF IC REPLY, BUT ALSO RELEVANT SUPPORTING EVIDENCES. 6. WE FIND THAT VIDE NOTICE DATED 4.7.2008 ISSUED U/S 142(1) OF THE ACT , WHICH IS EXHIBITED AT PAGES 155 TO 160 OF THE PAPER BOOK, THE ASSESSING OFFICER HAD RAISED, INTER ALIA, THE FOLLOWING QUER IES : POIN T 7 GIVE NATURE AND DETAILS OF THE EXPENSES CLAIMED IN THE P & L A/C IN RESPECT OF THE FOLLOWING EXPENSES: 5 (A) GIVE BREAKUP OF SALARY PERSONS WISE WITH DESIGNATION FOR PERSONS DRAWING MORE THAN 10 LACS YEARLY. GRATUITY AND OTHER SUCH PAYMENTS BE GIVEN SEPARATELY. (B) LOSS ON FOREIGN EXCHANGE FLUCTUATION - GIVE EVIDENCE OF THE LOSS AND WHERE THE LOAN/AMOUNT ON WHICH THE LOSS IS CLAIMED WAS UTILIZED. HAVE YOU MADE PAYMENT FOR THIS LOSS? IF NO THE N IT IS NOTIONAL LOSS AND THERE FORE IS CONTINGENT IN NATURE. HENCE, IT CANNOT BE ALLOWED GIVE A NOTE JUSTIFYING THE CLAIM. (C) TRAVELING AND CONVEYANCE. GIVE BREAK - UP OF INLAND TRAVELING . IF F OREIGN TRAVELING EXPENSES HAVE ALSO BEEN CLAIMED GIVE DETAILS SEPARATELY FOR AIR TICKET BOARDING LODGING, PURPOS E AND DATES OF VISITS AND EVIDENCE OF WORK DONE ON THE FOREIGN VISIT. A) LEGAL AND PROFESSIONAL CHARGES E ) ADVERTISEMENT AND SALES PROMOTION F ) AFTER SALES SERVICE - GIVE FULL DETAILS WITH BASIS OF CLAIM. G ) RENT, RATES AND TAXES. POINT 18 P 18 ARE YOU COVERED BY THE PROVISIONS OF ARMS LENGTH PRICING? IF YES THEN SUP PORTIVE EVIDENCE FOR INTERNATIONAL TRANSACTIONS SHOWN IN FORM NO.3CEB. GIVE A NOTE T HA T YOU HAVE COMPLIED WITH THE REQUIREMENT OF SECTION 92 OF THE IT ACT. ALSO EXPLAIN THE ; CO RRECTNESS OF METHOD ADO PTED BY YOU FOR CALCULATING ARMS LENGTH PRICING. 6 7. VIDE REPLY DATED 29.08.2008, THE ASSESSEE POINTED OUT THAT DETAILS OF ADVERTISEMENT AND SALES PROMOTION SHALL BE PROVIDED ON THE NEXT DATE OF HEARING AND IN REPLY TO POINT NO. 18, THE ASSESSEE STATED TH AT DURING THE YEAR UNDER CONSIDERATION, THE ONLY INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WAS IN THE FORM OF FINANCIAL SUPPORT RECEIVED FROM PARENT COMPANY TOWARDS ADVERTISEMENT AND OTHER SALES PROMOTION EXPENSES AMOUNTING TO RS. 10,97,55,358 / - . COPY OF FORM NO. 3CEB WAS ALSO SUPPLIED. VIDE REPLY DATED 10.10.2008, THE ASSESSEE FURNISHED DETAILS OF ADVERTISEMENT AND SALES PROMOTION EXPENSES. SUCH DETAILS ARE EXHIBITED AT PAGES 238 TO 255 OF THE PAPER BOOK AND THE RELEVANT EXTRACT OF THE AUDI TED REPORT IS AT PAGES 111 AND 113 OF THE PAPER BOOK. THE ANALYSIS OF INTERNATIONAL TRANSACTION S, UNDERTAKEN BY THE ASSESSEE , ARE EXHIBITED AT PAGES 114 TO 118 OF THE PAPER BOOK , AND THE SAME READ AS UNDER : NATURE OF TRANSACTION AMOUNT AS RECORDED IN THE BOOKS OF ACCOUNT (IN RS.) AMOUNT COMPUTED AS PER ARM'S LENGTH (IN RS.) METHOD USED FOR JUSTIFICATION FINANCIAL SUPPORT RECEIVED FROM ASSOCIATED | MTERPRISE TOWARDS ' ADVERTISEMENT ACTIVITIES 10,97,55,358/ - 10,97,55,358/ - FINANCIAL SUPPORT RECEIVED FROM THE ASSOCIATED ENTERPRISE ON NO PROFIT/LOSS BASIS. ___________________________________________________________ 7 8. IN SO FAR AS OTHER ISSUE RELATING TO THE CLAIM OF DEPRECIATION ON GOOD WILL TREATED AS INTANGIBLE ASSET IS CONCERNED, WE FIND THAT THIS ISSUE IS BY NOW WELL SETTLED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF CIT VS. SMITH SECURITIES LTD. 348 ITR 302. 9. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER , DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS , HAD MADE SPECIFIC QUERIES TO WHICH THE ASSESSEE NOT ONLY GAVE SPECIFIC REPLIES , BUT THE REPLY OF THE ASSESSEE WAS WELL SUPPORTED BY THE EVIDENCES/DETAILS. IN OUR CONSIDERED OPINION, IF THE ACTION OF THE ASSESSING OFFICER IS ACCEPTED, THEN IT WOULD CONFER ARBITRARY POWER UPON THE ASSESSING OFFICER TO REOPEN THE PROCEEDINGS ON THE SLIGHTEST PRETEXT. WE ARE ALSO OF THE CONSIDERED OPINION THAT MERE CHANGE IN THE OPINION WOULD NOT CONFER JURISDICTION UPON THE ASSESSING OFFICER TO INITIATE A PROCEEDING U/S 147 OF THE ACT. 10. A PERUSAL OF THE REASONS FOR REOPENING SHOW S THAT THERE WAS NO NEW TANGIBLE MATERIAL EVIDENCE WHICH PROMPTED THE ASSESSING OFFICER TO ISSUE NOTICE FOR REOPENING OF THE ASSESSMENT. FOR THIS PROPOSITION, WE DERIVE SUPPORT FROM THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH 8 COURT OF DELHI IN THE CASE OF KELVINATOR OF INDIA LTD 256 ITR 1 WHICH WAS AFFIRMED BY THE HON'BLE SUPREME COURT IN 320 ITR 561. 11. IN HIS REASONS FOR REOPENING THE ASSESSMENT, THE ASSESSING OFFICER HAD OBSERVED THAT TH E ASSESSEE HAD CLAIMED AND ALLOWED ADVERTISEMENT EXPENSES OF RS. 23.31 CRORES OUT OF WHICH THE ASSESSEE WAS REIMBURSED RS. 10.97 CRORES AND BALANCE OF RS. 11.50 CRORES HAS BEEN SHOWN UNDER THE HEAD LOAN AND ADVANCE RECOVERED TOWARDS REIMBURSEMENT. THIS OBSERVATION OF THE ASSESSING OFFICER FOR REOPENING THE ASSESSMENT IS FACTUALLY INCORRECT. ADVERTISEMENT AND PUBLICITY EXPENSES ARE AT RS. 10.66 CRORES AND SELLING AND DISTRIBUTION EXPENSES ARE AT RS. 24.76 CRORES. THE BALANCE OF ADVERTISEMENT AND PUBLICI TY EXPENSES IS COVERED BY FINANCIAL SUPPORT OF RS. 10.97 CRORES RECEIVED FROM AE YAMAHA MOTOR COMPANY, JAPAN. IT APPEARS THAT THE ASSESSING OFFICER HAS TAKEN THE FIGURE FROM THE BALANCE SHEET. 12. EXHIBIT 56 , SCHEDULE S TO THE ACCOUNTS SCHEDULE 5 LOAN S AND ADVANCES SHOWING RS. 1339.90 LAKHS, THE DETAILS O F TH E SAME ARE AT PAGE 197 OF THE PAPER BOOK AND IN THE BIFURCATION, THE ASSESSEE HAS TO RECEIVE RS. 11.50 CRORES FROM YAMAHA MOTOR COMPANY, JAPAN AS 9 AMOUNT RECOVERED TOWARDS REIMBURSEMENT OF ADVERTISEM ENT EXPENSES AND OTHER FINANCIAL SUPPORT PROVIDED BY YAMAHA MOTOR COMPANY, JAPAN. THIS AMOUNT HAS NEVER BEEN CLAIMED AS EXPENDITURE BY THE ASSESSEE. THUS, IT CAN BE SEEN THAT THE ASSESSING OFFICER HAD PROCEEDED TO REOPEN THE ASSESSMENT ON WRONG ASSUMPTIO N OF FACTS IN SO FAR AS CLAIM OF ADVERTISEMENT EXPENDITURE ARE CONCERNED AND WRONG ASSUMPTION OF LAW IN SO FAR AS CLAIM OF DEPRECIATION IS CONCERNED. IN ANY CASE, THERE WAS NO NEW TANGIBLE MATERIAL EVIDENCE BROUGHT ON RECORD BY THE ASSESSING OFFICER. ASS ESSMENT WAS REOPENED ONLY ON THE BASIS OF DETAILS AVAILABLE ON RECORD AND WRONGLY INTERPRETED BY THE ASSESSING OFFICER. 13. ON SUCH, WE ARE OF THE CONSIDERED OPINION THAT REOPENING IS BAD IN L A W. WE ACCORDINGLY QUASH THE REOPENING PROCEEDINGS AND ACCORDINGLY, THE ASSESSMENT ORDER SO FRAMED IS ALSO QUASHED. 14. SINCE WE HAVE QUASHED THE ASSESSMENT, WE DO NOT FIND IT NECESSARY TO DWELL INTO THE MERITS OF THE CASE. 10 15 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO. 1095 /DEL/201 4 IS A LLOWED AND THAT OF THE REVENUE IN ITA NO. 992/DEL/2014 IS DISMISSED. THE ORDER IS PRON OUNCED IN THE OPEN COURT ON 2 2 . 1 0.2018. S D / - S D / - [ SUCHITRA KAMBLE ] [ N.K. BILLAIYA ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 2 N D OCTOBER , 2018 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI 11 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER