M/s Honda Motorcycle and Scooter India Pvt. Ltd., Gurgaon V. ACIT, Gurgaon

ITA 132/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90983 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 31-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JUDY JAMES
• Assessee Lawyers: VIJAY IYER
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I : NEW DELHI) BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.132/DEL./2013 (ASSESSMENT YEAR : 2008-09) M/S. HONDA MOTORCYCLE AND SCOOTER INDIA VS. ACIT, CIRCLE 1 (1), PRIVATE LIMITED, GURGAON. PLOT NO.1, SECTOR 3, IMT MANESAR, GURGAON. (PAN : AAACH7467D) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VIJAY IYER, CA REVENUE BY : SHRI JUDY JAMES, STANDING COUNSEL DR DATE OF HEARING : 31.03.2015 DATE OF PRONOUNCEMENT : .04.2015 O R D E R PER GEORGE GEORGE K., JM : THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE, IS DI RECTED AGAINST THE FINAL ASSESSMENT ORDER PASSED U/S 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (ORDER DATED 29.11.2012). THE RELEVANT ASSESSMENT YEAR IS 2008-09. 2. THE ASSESSEE HAS PRIMARILY RAISED TWO GROUNDS. THE FIRST GROUND RELATES TO TRANSFER PRICING ADJUSTMENTS AMOUNTING T O RS.8,09,08,657/- ON ACCOUNT OF TWO INTERNATIONAL TRANSACTIONS, NAMELY, THE PAYMENT OF EXPORT ITA NO.132/DEL./2013 2 COMMISSION AMOUNTING TO RS.6,87,02,000/- AND PAYMEN T OF ROYALTY FOR EXPORT TO ASSOCIATED ENTERPRISES (AES) OF RS.1,22,0 6,657/-. THE SECOND GROUND IS REGARDING CORPORATE TAX MATTERS. WE SHAL L FIRST ADJUDICATE THE TRANSFER PRICING ISSUE. 3. BRIEFLY STATED, THE FACTS WITH REFERENCE TO TRAN SFER PRICING ISSUE ARE AS FOLLOWS. THE ASSESSEE IS A COMPANY ENGAGED IN MANU FACTURING, SALE AND SERVICE OF TWO WHEELERS, PARTS AND ACCESSORIES THER EOF. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF M/S. HONDA MOTORS COMPAN Y LTD., JAPAN. THE ASSESSEE HAD REPORTED TEN INTERNATIONAL TRANSAC TIONS. ON REFERENCE MADE BY THE ASSESSING OFFICER, THE TRANSFER PRICING OFFICER (TPO) ACCEPTED EIGHT INTERNATIONAL TRANSACTIONS AT ARMS LENGTH PRICE (ALP). AS REGARDS THE INTERNATIONAL TRANSACTION OF PAYMENT OF EXPORT COMMISSION, THE TPO HELD THAT NO SERVICES WERE RENDERED BY THE AES TO DESERVE THE EXPORT COMMISSION. IT IS IN THIS CONTEXT THE TPO D ETERMINED THE ALP OF THIS INTERNATIONAL TRANSACTION AT NIL. AS REGARD S INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY, THE TPO ACCEPTED PAYMENT OF ROYALTY AT ALP IN RESPECT OF DOMESTIC SALES AND EXPORT SALES MADE TO NON-AES. HOWEVER, HE DISPUTED THE PAYMENT OF ROYALTY IN RESPECT OF EXPOR TS MADE TO AES. IN DOING SO, THE TPO HELD THAT THE ASSESSEE IS A CONT RACT MANUFACTURER. ACCORDINGLY, HE OPINED THAT SINCE ASSESSEE IS MAKIN G A PART OF ITS SALES TO ITS RELATED PARTIES AND BENEFIT OF PRODUCING COMPON ENTS IS REAPED BY THE AE, THE PAYMENT OF ROYALTY DID NOT CONFORM TO THE A RMS LENGTH PRINCIPLE. ITA NO.132/DEL./2013 3 HE, THEREFORE, MADE THE TP ADJUSTMENT AMOUNTING TO RS.1,22,06,657/- IN RESPECT OF PAYMENT OF ROYALTY FOR EXPORTS TO AES. THE ASSESSING OFFICER ADOPTED THE ABOVE FIGURES FROM TPOS ORDER AS SUCH, WITHOUT ANY FURTHER EVALUATION. 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPLICATION BEFORE THE DISPUTES RESOLUTION PANEL (DRP). THE DRP VIDE ITS DIRECTION S DATED 24.09.2012 U/S 144C(5) REJECTED THE ASSESSEES PLEA AND CONFIRMED THE DRAFT ASSESSMENT ORDER WITH REGARD TO THE TRANSFER PRICING ADJUSTMEN T. THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFORE US. 5. AS REGARDS THE ISSUE WITH REGARD TO PAYMENT OF E XPORT COMMISSION, IT WAS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE T HAT THE MATTER NEEDS TO BE RESTORED TO THE AO/TPO FOR FRESH CONSIDERATION I N THE LIGHT OF JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT-I VS. CUSHMAN AND WAKEFIELD (INDIA) (P.) LTD. REPORTED IN [2014] 46 TAXMANN.COM 317 (DELHI), SINCE THE EXPORT COMMISSION HAS BEEN DISAL LOWED PRIMARILY BY THE TPO FOR THE REASON THAT ASSESSEE HAS NOT RECEIVED A NY BENEFIT FOR THE PAYMENT OF SUCH SUM. THE LD. DR ALSO DID NOT HAVE ANY OBJECTION WITH REGARD TO REMANDING OF THE ISSUE OF EXPORT COMMISSI ON TO AO/TPO. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT-I VS. CUSHMAN AND WAKEFIELD (INDIA) (P.) LTD. (SUPRA) HELD THAT T PO CANNOT DETERMINE ARMS LENGTH PRICE OF THE PAYMENTS MADE BY THE ASSE SSEE TO ITS AE AT NIL ITA NO.132/DEL./2013 4 FOR THE REASON THAT ASSESSEE DID NOT DERIVE ANY BEN EFIT FROM SERVICES RENDERED BY AE. THE RELEVANT FINDING OF THE HONBLE JURISDICTIONAL HIGH COURT READS AS UNDER:- 34. THE COURT FIRST NOTES THAT THE AUTHORITY OF TH E TPO IS TO CONDUCT A TRANSFER PRICING ANALYSIS TO DETERMINE TH E ALP AND NOT TO DETERMINE WHETHER THERE IS A SERVICE OR NOT FROM WHICH THE ASSESSEE BENEFITS. THAT ASPECT OF THE EXERCISE IS LEFT TO THE AO. THIS DISTINCTION WAS MADE CLEAR BY THE IT AT IN DRESSER- RAND INDIA (P.) LTD V. ADDL. CIT (2011) 47 SOT 423/ 13 TAXXMANN. COM 82 (MUM.): 8. WE FIND THAT THE BASIC REASON OF THE TRANSFER PRICING OFFICER'S DETERMINATION OF ALP OF THE SERVI CES RECEIVED UNDER COST CONTRIBUTION ARRANGEMENT AS 'NI L' IS HIS PERCEPTION THAT THE ASSESSEE DID NOT NEED TH ESE SERVICES AT ALL, AS THE ASSESSEE HAD SUFFICIENT EXP ERTS OF HIS OWN WHO WERE COMPETENT ENOUGH TO DO THIS WORK. FOR EXAMPLE, THE TRANSFER PRICING OFFICER HAD POINT ED OUT THAT THE ASSESSEE HAS QUALIFIED ACCOUNTING STAF F WHICH COULD HAVE HANDLED THE AUDIT WORK AND IN ANY CASE THE ASSESSEE HAS PAID AUDIT FEES TO EXTERNAL F IRM. SIMILARLY, THE TRANSFER PRICING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD MANAGEMENT EXPERTS ON ITS ROL LS, AND. THEREFORE, GLOBAL BUSINESS OVERSIGHT SERVICES WERE NOT NEEDED. IT IS DIFFICULT TO UNDERSTAND, MUCH LES S APPROVE, THIS LINE OF REASONING. IT IS ONLY ELEMENT ARY THAT HOW AN ASSESSEE CONDUCTS HIS BUSINESS IS ENTIR ELY HIS PREROGATIVE AND IT IS NOT FOR THE REVENUE AUTHO RITIES TO DECIDE WHAT IS NECESSARY FOR AN ASSESSEE AND WHA T IS NOT. AN ASSESSEE MAY HAVE ANY NUMBER OF QUALIFIED ACCOUNTANTS AND MANAGEMENT EXPERTS ON HIS ROLLS, AN D YET HE MAY DECIDE TO ENGAGE SERVICES OF OUTSIDE EXP ERTS FOR AUDITING AND MANAGEMENT CONSULTANCY; IT IS NOT FOR THE REVENUE OFFICERS TO QUESTION ASSESSEE'S WISDOM IN DOING SO. THE TRANSFER 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 N OT APPROVE THIS APPROACH OF THE REVENUE AUTHORITIES. W E ITA NO.132/DEL./2013 5 HAVE FURTHER NOTICED THAT THE TRANSFER PRICING OFFI CER HAS MADE SEVERAL OBSERVATIONS TO THE EFFECT THAT, A S EVIDENT FROM THE ANALYSIS OF FINANCIAL PERFORMANCE, THE ASSESSEE DID NOT BENEFIT, IN TERMS OF FINANCIAL RES ULTS, FROM THESE SERVICES. THIS ANALYSIS IS ALSO COMPLETE LY 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 INCOME, AND, BY NO STRETCH OF LOGIC, IT CAN HAVE AN Y ROLE IN DETERMINING ARM'S LENGTH PRICE OF THAT SERV ICE. WHEN EVALUATING THE ARM'S LENGTH PRICE OF A SERVICE , IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BEN EFITS FROM IT OR NOT; THE REAL QUESTION WHICH IS TO BE DETERMINED IN SUCH CASES IS WHETHER THE PRICE OF TH IS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAV E PAID FOR THE SAME. SIMILARLY, WHETHER THE AE GAVE T HE SAME SERVICES TO THE ASSESSEE IN THE PRECEDING YEAR S WITHOUT ANY CONSIDERATION OR NOT IS ALSO IRRELEVANT . 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 RELEVANT IN THE CONTEXT OF DETERMINING THE ARM'S LENGTH PRICE OF TH E COSTS INCURRED BY THE ASSESSEE IN COST CONTRIBUTION ARRANGEMENT. WE HAVE ALSO NOTED THAT THE STAND OF T HE REVENUE AUTHORITIES IN THIS CASE IS THAT NO SERVICE S WERE RENDERED BY THE AE AT ALL, AND THAT SINCE THERE IS NO. EVIDENCE OF SERVICES HAVING BEEN RENDERED AT ALL, T HE ARM'S LENGTH PRICE OF THESE SERVICES IS 'NIL'. 35. THE TPO'S REPORT IS, SUBSEQUENT TO THE FINANCE ACT, 2007, BINDING ON THE AO. THUS, IT BECOMES ALL THE M ORE IMPORTANT TO CLARIFY THE EXTENT OF THE TPO'S AUTHOR ITY IN THIS CASE, WHICH IS TO DETERMINING THE ALP FOR INTERNATI ONAL TRANSACTIONS REFERRED TO HIM OR HER BY THE AO, RATH ER THAN DETERMINING WHETHER SUCH SERVICES EXIST OR BENEFITS HAVE ACCRUED. THAT EXERCISE - OF FACTUAL VERIFICATION IS RETAINED BY THE AO UNDER SECTION 37 IN THIS CASE. INDEED, THIS IS NOT TO SAY THAT THE TPO CANNOT - AFTER A CONSIDERATION OF THE FACTS - STATE THAT THE ALP IS 'NIL' GIVEN THAT AN INDEPENDE NT ENTITY IN A COMPARABLE TRANSACTION WOULD NOT PAY ANY AMOUNT. ITA NO.132/DEL./2013 6 HOWEVER, THIS IS DIFFERENT FROM THE TPO STATING THA T THE ASSESSEE DID NOT BENEFIT FROM THESE SERVICES, WHICH AMOUNTS TO DISALLOWING EXPENDITURE. THAT DECISION IS OUTSID E THE AUTHORITY OF THE TPO. THIS ASPECT WAS MADE CLEAR B Y THE ITAT IN DELLOITE CONSULTING INDIA (P.) LTD. V. DY. CIT/ITO [2012] 137 ITD 21122 TAXMANN.COM 107 (MUM): 37. ON THE ISSUE AS TO WHETHER THE TRANSFER PRICIN G OFFICER IS EMPOWERED TO DETERMINE THE ARM'S LENGTH PRICE AT 'NIL', WE FIND THAT THE BANGALORE BENCH OF THE TRIBUNAL IN GEMPLUS INDIA (P.) LTD. V. ASSTT. CIT [ IT APPEAL NO. 352 (BANG.) OF 2009, DATED 20-10-2010] HELD THAT THE ASSESSEE HAS TO ESTABLISH BEFORE THE TRANSFER PRICING OFFICER THAT THE PAYMENTS MADE WER E COMMENSURATE TO THE VOLUME AND QUALITY SERVICE AND THAT SUCH COSTS ARE COMPARABLE. WHEN COMMENSURATE BENEFIT AGAINST THE PAYMENT OF SERVICES IS NOT DERI VED, THEN THE TRANSFER PRICING OFFICER IS JUSTIFIED IN M AKING AN ADJUSTMENT UNDER THE ARM'S LENGTH PRICE. 38. IN THE CASE ON HAND, THE TRANSFER PRICING OFFIC ER HAS DETERMINED THE ARM'S LENGTH PRICE AT 'NIL' KEEP ING IN VIEW THE FACTUAL POSITION AS TO WHETHER IN A COMPARABLE CASE, SIMILAR PAYMENTS WOULD HAVE BEEN MADE OR NOT IN TERMS OF THE AGREEMENTS. THIS IS A C ASE WHERE THE ASSESSEE HAS NOT DETERMINED THE ARM'S LEN GTH PRICE. THE BURDEN IS INITIALLY ON THE ASSESSEE TO DETERMINE THE ARM'S LENGTH PRICE. THUS, THE ARGUMEN T OF THE ASSESSEE THAT THE TRANSFER PRICING OFFICER HAS EXCEEDED HIS JURISDICTION BY DISALLOWING CERTAIN EXPENDITURE, IS AGAINST THE FACTS. THE TRANSFER PRI CING OFFICER HAS NOT DISALLOWED ANY EXPENDITURE. ONLY TH E ARM'S LENGTH PRICE WAS DETERMINED. IT WAS THE ASSESSING OFFICER WHO COMPUTED THE INCOME BY ADOPTING THE ARM'S LENGTH PRICE DECIDED BY THE TRAN SFER PRICING OFFICER AT 'NIL'. THIS IS A SLENDER YET CRUCIAL DISTINCTION THAT REST RICTS THE AUTHORITY OF THE TPO. WHILST THE REPORT OF THE TPO IN THIS CASE ULTIMATELY NOTED THAT THE ALP WAS 'NIL', SINCE A COMPARABLE ENTITY WOULD PAY 'NIL' AMOUNT FOR THESE SERVICES, THIS COURT NOTED THAT REMARKS CONCERNING, AND THE F INAL ITA NO.132/DEL./2013 7 DECISION RELATING TO, BENEFIT ARISING FROM THESE SE RVICES ARE PROPERLY RESERVED FOR THE AO. 36. IN THIS CASE, THE ISSUE IS WHETHER AN INDEPENDE NT ENTITY WOULD HAVE PAID FOR SUCH SERVICES. IMPORTANTLY, IN REACHING THIS CONCLUSION, NEITHER THE REVENUE, NOR THIS COUR T, MUST QUESTION THE COMMERCIAL WISDOM OF THE ASSESSEE, OR REPLACE ITS OWN ASSESSMENT OF THE COMMERCIAL VIABILITY OF T HE TRANSACTION. THE SERVICES RENDERED BY CWS AND CWHK IN THIS CASE CONCERN LIAISING AND CLIENT INTERACTION W ITH IBM ON BEHALF OF THE ASSESSEE - ACTIVITIES FOR WHICH, ACCO RDING TO THE ASSESSEE'S CLAIM - INTERACTION WITH IBM'S REGIONAL OFFICES IN SINGAPORE AND THE UNITED STATES WAS NECESSARY. THES E SERVICES CANNOT - AS THE ITAT CORRECTLY SURMISED - BE DUPLICATED IN INDIA INSOFAR AS THEY REQUIRE INTERAC TION ABROAD. WHETHER IT IS COMMERCIALLY PRUDENT OR NOT T O EMPLOY OUTSIDERS TO CONDUCT THIS ACTIVITY IS A MATTER THAT LIES WITHIN THE ASSESSEE'S EXCLUSIVE DOMAIN, AND CANNOT BE SECO ND GUESSED BY THE REVENUE. 37. AT THIS POINT, IT IS NOTEWORTHY THAT THE CIRCUM STANCE THAT THE ASSESSEE HAD MARKET RESEARCH FACILITIES IN INDIA DOES NOT CORRESPOND TO THE PERFORMANCE OF SERVICES ABROA D, ESPECIALLY IN RELATION TO CLIENT INTERACTION SERVIC ES LOCATED OUTSIDE INDIA - ALBEIT FOR ULTIMATELY SOURCING THEM INTO THE INDIAN MARKET. THE E-MAILS CONSIDERED BY THE ITA T FROM MR. BRAGANZA AND MR. CHOUDHARY SO FAR AS THEY DEAL WITH SPECIFIC INTERACTION WITH IBM BY THOSE PERSONS, AND RELATE IT TO BENEFITS OBTAINED BY THE ASSESSEE, PROVIDE A SUF FICIENT BASIS TO HOLD THAT BENEFIT ACCRUED TO THE ASSESSEE. HOWEV ER, THIS DETERMINATION REMAINS UNCLEAR AND INCHOATE. THE DEV IL HERE LIES IN THE DETAILS. THE DETAILS OF THE SPECIFIC AC TIVITIES FOR WHICH COST WAS INCURRED BY BOTH CWS AND CWHK (FOR T HE ACTIVITIES OF MR. BRAGANZA AND MR. CHOUDHARY), AND THE ATTENDANT BENEFIT TO THE ASSESSEE, HAVE NOT BEEN CO NSIDERED TILL DATE. THIS MUST BE PROVIDED, IN ADDITION TO A CONSIDERATION OF THE ALP VIS-AVIS THE TOTAL COST CL AIMED BY THESE AES. TO THIS EXTENT, FOR THE CONSIDERATION OF ALP IN RESPECT OF THESE TRANSACTIONS, THE MATTER IS REMAND ED BACK TO THE FILE OF THE CONCERNED AO, FOR AN ALP ASSESSMENT BY THE TPO, FOLLOWED BY THE AO'S ASSESSMENT ORDER IN ACCOR DANCE WITH LAW. ITA NO.132/DEL./2013 8 7. THE HONBLE HIGH COURT CATEGORICALLY HELD THAT T HE TPO IS TO CONDUCT A TRANSFER PRICING ANALYSIS TO DETERMINE TH E ARMS LENGTH PRICE (ALP) AND NOT TO DETERMINE WHETHER THERE IS A SERVI CE FROM WHICH ASSESSEE HAS DERIVED BENEFIT OR NOT. THE HONBLE COURT HELD THAT THE EXERCISE TO DETERMINE WHETHER ASSESSEE HAD DERIVED ANY BENEFIT OR NOT FROM PAYMENT OF SUCH MANAGEMENT FEE IS TO BE EXAMINED BY THE AO AND APPROPRIATE DISALLOWANCE U/S 37 IS CALLED FOR. IN THE INSTANT C ASE, THE TPO HAD DETERMINED THE ALP OF PAYMENT OF EXPORT COMMISSION AT NIL BY HOLDING THAT THE ASSESSEE DID NOT DERIVE ANY BENEFIT FROM S ERVICES RENDERED BY THE AE. THEREFORE, KEEPING IN VIEW THE DICTUM LAID DOWN BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT, NECESSARILY AO AS TO DETERMINE WHETHER THE ASSESSEE HAS DERIVED ANY BENEFIT FROM P AYMENT OF EXPORT COMMISSION AND IF ANY BENEFIT HAD DERIVED, WHETHER SUCH PAYMENT IS COMMENSURATE TO COMPARABLE TRANSACTION HAS TO BE EX AMINED BY THE TPO. FOR THE ABOVE SAID PURPOSE, THE TRANSFER PRICING IS SUE IS RESTORED TO AO/TPO FOR DENOVO CONSIDERATION. WE ORDER ACCORDING LY. 8. AS REGARDS THE PAYMENT OF ROYALTY, THE TPO DISAL LOWED THE SAME, PRIMARILY FOR THE REASON THAT THE ASSESSEE IS A CON TRACT MANUFACTURER AND THE BENEFIT OF PRODUCING THE COMPONENTS IS REAPED BY TH E AE. THE RELEVANT FINDINGS OF THE TPO READ AS FOLLOWS :- 5.1 THE POSITION OF THE ASSESSEE COMPANY WITH REGA RD TO MANUFACTURING FOR THE AES IS THAT OF A CONTRACT MANUFACTURER, AS DISCUSSED ABOVE. GOODS ARE MANUF ACTURED ITA NO.132/DEL./2013 9 IN INDIA AND THEN A PART OF IT IS EXPORTED TO AES. THE ROYALTY PAID AS A PERCENTAGE OF SALES TO THE ASSOCIATED ENT ERPRISE IS NOT AT ARMS LENGTH BECAUSE IT AMOUNTS TO COLLECTIN G ROYALTY ON THE SALES TO ITSELF. ALL THE AES ARE TYPICALLY W ITHIN THE BROAD UMBRELLA OF THE MULTINATIONAL CORPORATION. EV EN THOUGH, IT APPEARS THAT THE TECHNICAL KNOWHOW IS COMMERCIALLY EXPLOITED IN INDIA, IN REALTY THE PRIC E FOR THESE ACTIVITIES IS NOT FIXED BY MARKET FORCES. WHETHER T HE SALES OF THE ASSESSEE ARE MADE WITHIN INDIA TO ITS AE OR TO THE PARENT COMPANY DOES NOT MAKE MUCH DIFFERENCE TO THE PRINCI PLES OF ARM'S LENGTH TRANSACTIONS. IN THIS CASE THE CAPACIT Y AND OTHER PARAMETERS ARE TIED TO THE AES CAPACITY AND IT CANN OT ACT LIKE AN ENTREPRENEUR. THEREFORE, BOTH THE RISK AND REWA RD ARE LIKE A CONTRACT MANUFACTURER. NO CONTRACT MANUFAC TURER WOULD LIKE TO MAKE THIS KIND OF TRANSACTION WITH AN INDEPENDENT THIRD PARTY. ..... 5.4 IN THE PRESENT CASE WHERE THE ASSESSEE COMPANY IS MAKING A PART OF ITS SALES TO ITS RELATED PARTIES A ND THE BENEFIT OF PRODUCING COMPONENTS IS REAPED BY AE, THE PAYMEN T OF CHARGES FOR ROYALTY DOES NOT CONFORM TO THE ARM'S L ENGTH PRINCIPLE. THIS VIEW HAS BEEN UPHELD IN THE RECENT CASE OF ACIT V. SONO OKEGAWA PRECISION FORGING LTD. [2010-T II-41- ITAT-DEL-TP], WHERE IT WAS HELD THAT PAYMENT OF ROY ALTY BY A CONTRACT MANUFACTURER IS NOT AT ARM'S LENGTH. BASED ON THE DISCUSSION ABOVE THE ALP OF THE TRANSACTION RELATED TO PAYMENT OF ROYALTY FOR EXPOR TS TO AE OF RS.12,206,657 IS HELD TO BE NIL. 9. THE DRP CONFIRMED THE ABOVE TRANSFER PRICING ADJ USTMENT MADE BY THE TPO BY OBSERVING AS UNDER :- 4.3 AS FAR AS PAYMENT OF ROYALTY IS CONCERNED, TH E TPO HAS DETERMINED THE ALP OF THE SAME AT NIL FOR THE E XPORT SALES MADE TO AES. NEEDLESS TO SAY, THE ANALYSIS HAS GERM INATED FROM THE ABOVE FINDINGS OF THE ASSESSEE BEING A CON TRACT MANUFACTURER, WHICH IN OUR OPINION IS CORRECT. THE ASSESSEE HAS SAID THAT UNDER INDEPENDENT CIRCUMSTANCES NO ON E WOULD ITA NO.132/DEL./2013 10 IMPART WITH THE TECHNOLOGY WITHOUT A COMPENSATION. IN OUR OPINION THIS FACT HAS TO BE EXAMINED UNDER EACH SIT UATION. THOUGH WE ARE OF THE OPINION THAT THIS STATEMENT HO LDS GOOD BUT AT THE SAME TIME, IF AN ENTERPRISE IS IMPARTING A TECHNOLOGY FOR MANUFACTURE OFF SHORE AND IMPORTS ARE MADE THEN THE PAYMENT OF ROYALTY IS NOT JUSTIFIED. IN SUCH A SIT UATION, THE TECHNOLOGY IS REAPED BY THE ASSESSEE FOR ITS OWN SA LES BUT ONLY FOR EXPORTS TO THE ENTITY OR THE GROUP FROM WHOM TH E TECHNOLOGY FLOWS IN. THE TPO HAS CORRECTLY DETERMI NED THE ALP OF ROYALTY ON EXPORT SALES TO ITS AES AT NIL. 10. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. IT WAS SUBMITTED BY THE LD. COUNSEL THAT THE AO/TPO HAS ALLOWED THE ROY ALTY PAYMENT ON DOMESTIC SALES AS WELL AS EXPORT SALES TO THE NON-A ES. IT WAS STATED THAT THE ASSESSEE IS NOT A CONTRACT MANUFACTURER AND ON THE CONTRARY, IT IS A FULL RISK BEARING INDEPENDENT MANUFACTURER THAT ALSO EXP ORT ITS PRODUCTS TO AE AND NON-AES. IT WAS SUBMITTED THAT THE SAME IS ALS O EVIDENT FROM THE FINANCIAL RESULTS OF THE ASSESSEE THAT IT HAS INDEP ENDENT SALES, BOTH DOMESTIC AS WELL AS EXPORTS. THE ASSESSEE DERIVES PREMIUM P RICE OF 30% ON EXPORT OF SOME OF THE PRODUCTS, NET OF EXPORT COMMISSION F OR THE ASSESSMENT YEAR 2008-09. THE ASSESSEE HAS ALSO EARNED A PROFIT OF 7% IN EXPORT SEGMENT AGAINST THE PROFIT OF 2.7% IN DOMESTIC SEGMENT DURI NG THE RELEVANT YEAR. THE LD. AR HAS FURTHER SUBMITTED THAT THE AO/TPO HA S NOT DISPUTED AT ANY POINT OF TIME THE TRANSFER OF TECHNOLOGY. THE ONLY QUESTION THAT IS RAISED IS THE TRANSACTION MODEL, NAMELY, PRINCIPAL MANUFACTUR ER OR THE CONTRACT MANUFACTURER. IT WAS SUBMITTED THAT THE ASSESSEE I S A PRINCIPAL MANUFACTURER AND EARNS ADJUSTED PROFIT OF 18% IN TH E ASSESSMENT YEAR ITA NO.132/DEL./2013 11 2008-09 AGAINST THE ROUTINE RETURNS AS A CONTRACT M ANUFACTURER. IT WAS CONTENDED THAT AS A PRINCIPAL, ASSESSEE IS OBLIGED TO PAY FOR TECHNOLOGY IN RESPECT OF ITS SALES INCLUDING SALES TO ITS AES. T HE LD. AR HAD SUBMITTED A COMPARISON CHART OF EXPORT SALES MADE TO AES AND NO N-AES WHEREIN IT HAS SHOWED THAT THE PRICE OF THE EXPORTS TO AES IS MUCH HIGHER THAN TO THE NON- AES, EVEN AFTER CONSIDERING THE ROYALTY AND COMMISS ION PAYMENTS. THE LD. AR TOOK US THROUGH THE TECHNICAL KNOW-HOW AGREEMENT DATED 13.07.2000 AND THE AMENDMENTS TO THE AGREEMENTS ON DECEMBER 20 06 AND NOVEMBER 2007. THE LD. AR HAS ALSO PLACED RELIANCE ON THE O RDER OF THE TRIBUNAL IN ASSESSEES OWN SISTER CONCERN, NAMELY, M/S. HERO MO TOCORP LIMITED VS. ADDL.CIT IN ITA NO.5130/DEL/2010 ORDER DATED 23.11. 2012 WHEREIN A SIMILAR PAYMENT OF ROYALTY WAS ALLOWED BY THE TRIBU NAL AND NO ADJUSTMENT WAS MADE TO THE ALP. 11. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTE D THE ASSESSMENT ORDER / TPOS ORDER. 12. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS MADE PAYMENT OF ROYALTY AS PER THE TECHNOLOGY KNOW- HOW AGREEMENT DATED JULY 13, 2000. THE RELEVANT CL AUSES OF THE AGREEMENT, NAMELY, ARTICLES 2, 3 & 11 REGARDING PAY MENT OF CONSIDERATION READ AS UNDER :- ITA NO.132/DEL./2013 12 ARTICLE 2 - GRANT OF LICENSE 2.1 SUBJECT TO THE TERMS AND CONDITIONS HEREIN CON TAINED, THE LICENSOR HEREBY GRANTS TO THE LICENSEE AN INDIVISIBLE AND NON-TRANSFERABLE EXCLUSIVE RIGHT AN D LICENSE, WITHOUT THE RIGHT TO GRANT SUBLICENSES, TO MANUFACT URE, USE AND SELL THE PRODUCTS AND THE LICENSED PARTS WITHIN THE TERRITORY UNDER THE INTELLECTUAL PROPERTY RIGHTS AN D BY USING THE TECHNICAL INFORMATION AND TECHNICAL MATERIAL PR OVIDED BY THE LICENSOR TO THE LICENSEE HEREUNDER. 2.2 NOTWITHSTANDING THE PROVISION OF ARTICLE 2.1 A BOVE, THE LICENSOR RESERVES THE RIGHT TO SELL OR OTHERWISE SU PPLY EVEN WITHIN THE TERRITORY TO ANY THIRD PARTY THE PARTS F OR REPAIR OR REPLACEMENT OF THE PRODUCTS OR OTHER PRODUCTS OF TH E LICENSOR. ARTICLE 3 - FURNISHING OF TECHNICAL INFORMATION 3.1 DURING THE TERM OF THIS AGREEMENT, THE LICENSOR SHALL FURNISH THE LICENSEE WITH THE TECHNICAL INFOR MATION AND TECHNICAL MATERIAL TO THE EXTENT DEEMED NECESSA RY BY THE LICENSOR, BY DISCLOSING IT IN A DOCUMENTARY FORM, A ND ADVISING THEM AS TO THE APPLICATION OF THE TECHNICA L INFORMATION AND/OR OTHERWISE, IN THE MANNER MENTION ED IN THIS ARTICLE 3. 3.2 FURNISHING OF THE TECHNICAL INFORMATION IN DOCUMENTARY FORM, THAT IS THE TECHNICAL MATERIALS, THE ITEMS OF WHICH ARE DESCRIBED IN EXHIBIT II HERETO AS WRIT TEN IN THE ENGLISH LANGUAGE, SHALL BE EFFECTED WITHIN ONE YEAR AFTER THE EFFECTIVE DATE HEREOF, WITH REGARD TO THE TECHNICAL INFORMATION EXISTING AS OF THE EFFECTIVE DATE HEREO F, AND SHALL BE EFFECTED FROM TIME TO TIME AT THE TIME WHEN THE LICENSOR DEEMS IT NECESSARY TO DO SO, OR EFFECTED WITHIN ONE YEAR FROM THE DAY WHEN THE LICENSOR APPROVES THE LICENSEE'S REQUEST, OR EFFECTED WITHIN ONE YEAR FROM THE DAY W HEN THE LICENSOR AND THE LICENSEE AGREE TO A MODEL CHANGE O F THE PRODUCTS PURSUANT TO ARTICLE 1 (2) HEREOF. ITA NO.132/DEL./2013 13 ARTICLE 11- CONSIDERATION 11.1 IN CONSIDERATION OF THE RIGHT AND LICENSE GRAN TED TO THE LICENSEE UNDER ARTICLE 2 HEREOF AND UPON FURNISHING OF THE TECHNICAL INFORMATION UNDER ARTICLE 3.2 HERE OF, THE LICENSEE SHALL PAY TO THE LICENSOR THE FOLLOWING : A) THE AMOUNT OF LUMP-SUM FEE IN RESPECT OF THE INITIAL MODEL AT THE RATE SPECIFIED IN THE EXHIBIT I HERETO . B) THE AMOUNT OF ADDITIONAL LUMP-SUM FEE AND THE MANNER OF PAYMENT THEREOF SHALL, FOR EACH ADDITIONAL MODEL OR TYPE OF PRODUCT AS AGREED UPON BY THE PARTIES, BE DECIDED UNDER NEW MODEL AGREEMENT FOR EACH SUCH ADDITIONAL MODEL OR TYPE OF PRODUCT. C) THE AMOUNT OF ADDITIONAL JUMP-SUM FEE AND THE MANNER OF PAYMENT THEREOF SHALL, FOR EACH MODEL CHANGE AS AGREED UPON BY THE PARTIES, BE DECIDED UNDER THE CHANGE MODEL AGREEMENT FOR EACH SUCH MODEL CHANGE. SUCH LUMP SUM FEE SHALL BE NON-REFUNDABLE TO THE LICENSEE NON-CREDITABLE AGAINST ANY OTHER PAYMENTS MADE OR TO BE MADE BY THE LICENSEE TO THE LICENSOR FOR ANY REASON WHATSOEVER. 11.2 THE AMOUNT OF LUMP-SUM FEE IN RESPECT OF THE I NITIAL MODEL, TWO MILLION U.S. DOLLARS (US$ 2,000,000), SH ALL BE PAID BY THE LICENSEE IN U.S. DOLLARS BY BANK TRANSFER REMITTANCE TO THE BANK ACCOUNT DESIGNATED BY THE LICENSOR IN THREE (3) INSTALLMENTS IN ACCORDANC E WITH THE FOLLOWING PAYMENT SCHEDULE; (A) THE FIRST INSTALLMENT IN THE AMOUNT OF SIX HUNDRED SIXTY SIX THOUSAND SIX HUNDRED SIXTY SIX (US$666.666) SHALL BE PAID WITHIN SIXTY (60) DAYS AFTER THE DAY ON WHICH THE MANUFACTURE OF THE PRODUCTS ON A COMMERCIAL BASIS HAS STARTED; ITA NO.132/DEL./2013 14 PROVIDED THAT SUCH DAY SHALL BE CONFIRMED IN WRITING BY THE PARTIES HERETO. (B) THE SECOND INSTALLMENT IN THE AMOUNT OF SIX HUNDRED SIXTY SIX THOUSAND SIX HUNDRED SIXTY SEVEN (US$666,667) SHALL BE PAID WITHIN ONE HUNDRED TWENTY DAYS (120) DAYS AFTER THE DAY ON WHICH THE MANUFACTURE OF THE PRODUCTS ON A COMMERCIAL BASIS HAS STARTED. (C) THE THIRD INSTALLMENT IN THE AMOUNT OF SIX HUNDRED SIXTY SIX THOUSAND SIX HUNDRED SIXTY SEVEN (US$666,667) SHALL BE PAID WITHIN ONE HUNDRED EIGHTY DAYS (180) DAYS AFTER THE DAY ON WHICH THE MANUFACTURE OF THE PRODUCTS ON A COMMERCIAL BASIS HAS STARTED. 11.3 PAYMENTS AND REMITTANCES BY THE LICENSEE HEREUNDER SHALL BE FREE AND CLEAR OF ANY DEDUCTIONS FOR TAXES OR OTHER CHARGES IN THE TERRITORY, EXCEPT FOR THE TAXES AND OTHER GOVERNMENTAL CHARGES SET FORTH IN ARTICLE 12 HEREOF. RECEIPT BY THE LICENSOR OF ANY PAYMENT TENDERED HEREUNDER SHALL NOT CONSTITUTE THE LICENSOR'S ACCEPTANCE OF ANY ACCOUNT, SCHEDULE OR FIGURE ON WHICH SUCH PAYMENT IS BASED. ALL PAYMENTS MADE OR TO BE MADE BY THE LICENSEE TO THE LICENSOR HEREUNDER SHALL NOT BE REFUNDABLE TO THE LICENSEE, EVEN IF ANY OF THE INTELLECTUAL PROPERTY RIGHTS LICENSED TO THE LICENSEE WILL HAVE BEEN EXTINGUISHED OR OTHERWISE COME INTO NONEXISTENCE FO R ANY REASON WHATSOEVER, OR EVEN IF ANY OF THE KNOW- HOW CONTAINED IN THE INFORMATION FURNISHED TO THE LICENSEE WILL HAVE BECOME PUBLIC FOR ANY REASON WHATSOEVER. IF THE LICENSEE FAILS TO MAKE ANY PAYMENT HEREUNDER ON THE DUE DATE, THE LICENSEE AGREES TO PAY A LATE PAYMENT FEE IN THE AMOUNT EQUIVALENT TO FOUR PERCENT (4%) PER ANNUM CALCULATE D ON THE BASIS OF A 365-DAY YEAR, SUBJECT TO ANY REGULATORY APPROVALS, THAT MAY BE REQUIRED. ITA NO.132/DEL./2013 15 AS PER THE AGREEMENT, THE ASSESSEE IS ENTITLED TO U SE THE TECHNOLOGY KNOW- HOW PROVIDED BY THE M/S. HONDA MOTORS COMPANY LTD., JAPAN FOR MANUFACTURER AND SALE OF TWO WHEELERS AND PARTS. THE ASSESSEE I S LIABLE TO PAY THE ROYALTY OF THE GOODS MANUFACTURED WHETHER THE SAME IS SOLD IN INDIA OR OUTSIDE INDIA. IT IS NOT IN DISPUTE THAT THE GOODS WHICH ARE EXPORTED BY THE ASSESSEE WERE MANUFACTURED BY USING TECHNICAL KNOW- HOW PROVIDED BY M/S. HONDA MOTORS COMPANY LTD., JAPAN UNDER AGREEME NT DATED JULY 13, 2000. THE FINDING OF THE TPO THAT THE POSITION OF THE ASSESSEE WITH REGARD TO EXPORT WAS THAT OF A CONTRACT MANUFACTURER, IS W ITHOUT ANY BASIS AND IS CONTRARY TO THE FACTS ON RECORD. IT IS EVIDENT FRO M THE FINANCIAL RESULTS OF THE ASSESSEE THAT IT HAS INDEPENDENT SALES BOTH DOM ESTIC AS WELL AS EXPORTS. THE ASSESSEE HAS SOLD THE GOODS TO THE AES ON PRINC IPAL TO PRINCIPAL BASIS AND HAS RECEIVED THE SALES CONSIDERATION. THE ROYA LTY IS PAYABLE ON THE BASIS OF MANUFACTURE OF GOODS. BASED ON THE SUBMIS SIONS MADE BEFORE US AND ALSO THE CHART SHOWING THE PRICE EARNED BY THE ASSESSEE FROM EXPORTS OF GOODS TO THE AES AS WELL AS NON-AES, THE ASSESSEE H AS EARNED A PREMIUM WHICH WOULD NOT BE IN THE CASE OF A CONTRACT MANUFA CTURER. IN CASE OF SISTER CONCERN OF THE ASSESSEE, IDENTICAL PAYMENT O F ROYALTY WAS HELD TO BE ALLOWABLE BY THE TRIBUNAL IN THE CASE OF M/S. HERO MOTOCORP LTD. IN ITA NO.5130/DEL/2010. THE RELEVANT FINDING OF THE TRIB UNAL READS AS UNDER :- 92. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. WE HAVE ALREADY CONSIDER ED SIMILAR ISSUE WHILE CONSIDERING THE DISALLOWANCE OF ROYALTY ITA NO.132/DEL./2013 16 AND THE EXPORT COMMISSION. WHILE CONSIDERING THE DISALLOWANCE OF THE EXPORT COMMISSION, WE HAVE NOTE D THAT THE PAYMENT OF ROYALTY AND THE EXPORT COMMISSION AR E FOR TWO DIFFERENT PURPOSES. THE ASSESSEE IS PAYING ROYALTY AS PER TECHNICAL KNOW-HOW AGREEMENT DATED 02.06.2004 WITH HMCL. AS PER THIS AGREEMENT, THE ASSESSEE IS ENTITL ED TO USE TECHNICAL KNOW-HOW PROVIDED BY HMCL FOR MANUFACTURE AND SALE OF TWO WHEELERS AND PARTS. ROYALTY IS TO BE PA ID FOR THE GOODS MANUFACTURED BY THE ASSESSEE, WHETHER SOLD WI THIN INDIA OR OUTSIDE INDIA. IT IS NOT IN DISPUTE THAT T HE 92 ITA- 5130/DEL/2010 MOTORCYCLES WHICH WERE EXPORTED BY TH E ASSESSEE, WERE MANUFACTURED BY USING THE TECHNICAL KNOW- HOW PROVIDED BY HMCL UNDER THE TECHNICAL KNOW-HOW AGREEMENT DATED 02.06.2004. THEREFORE, ROYALTY IS P AYABLE ON SUCH MANUFACTURING OF GOODS. THE CONTENTION OF THE LEARNED TPO THAT THE GOODS ARE EXPORTED TO SUBSIDIARIES OF THE ASSOCIATE ENTERPRISE I.E. AE OF HONDA JAPAN AND THE ASSESSEE ALSO PAID EXPORT COMMISSION, WOULD BE NO GROUND FOR DISALLOWANCE OF THE ROYALTY OR DETERMINING ARMS LE NGTH PRICE OF THE ROYALTY AT NIL. THE ASSESSEE IS EXPORTING GO ODS TO AE OF HONDA ON PRINCIPAL TO PRINCIPAL BASIS AND THE PRICE AT WHICH EXPORT IS MADE IS HIGHER THAN THE DOMESTIC PRICE. W HILE DISCUSSING THE DISALLOWANCE OF EXPORT COMMISSION, W E HAVE DISCUSSED THIS ISSUE AT LENGTH AND HAVE NOTED THAT EVEN AFTER REDUCING THE EXPORT COMMISSION, THE ASSESSEE DERIVE D THE BENEFIT OF `13.05 CRORES BY EXPORT. AT THE COST OF REPETITION, WE WOULD LIKE TO MENTION THAT THE EXPORT SALE VALUE WAS MORE THAN THE DOMESTIC SALE RATE AND THE ASSESSEE HAS GI VEN A DETAILED WORKING THEREOF, WHICH IS ENCLOSED WITH TH IS ORDER IN THE FORM OF ANNEXURE-I. IN THE ABOVE WORKING, THE A SSESSEE HAS REDUCED THE EXPORT COMMISSION. THEREFORE, BY EX PORT TO THE AE OF HONDA JAPAN, THE ASSESSEE HAS BEEN BENEFI TED AND WAS NOT AT A LOSS. THE FURTHER FINDING OF THE TPO T HAT THE POSITION OF THE ASSESSEE COMPANY WITH REGARD TO EXP ORT WAS THAT OF A CONTRACT MANUFACTURER, IN OUR OPINION, IS WITHOUT ANY BASIS AND IN FACT CONTRARY TO THE FACTS ON RECO RD. THE RAW MATERIALS HAVE BEEN PURCHASED BY THE ASSESSEE IN IT S OWN RIGHT. IT IS NOT THE CASE OF THE TPO THAT THE RAW M ATERIALS HAVE BEEN SUPPLIED BY THE AE. THE ASSESSEE HAS SOLD THE GOODS TO AE ON PRINCIPAL TO PRINCIPAL BASIS AND HAS RECEIVED THE SALE CONSIDERATION. IN VIEW OF THE ABOVE, IN OU R OPINION, THERE IS NO JUSTIFICATION FOR DISALLOWANCE OF THE R OYALTY ON THE EXPORT. WE MAY REITERATE THAT THE REVENUE HAS DISAL LOWED THE ITA NO.132/DEL./2013 17 ENTIRE ROYALTY PAID EVEN ON DOMESTIC SALE WHICH HAS BEEN CONSIDERED AT LENGTH BY US IN THE EARLIER PARAGRAPH OF THIS ORDER AND WE HAVE ARRIVED AT THE CONCLUSION 93 ITA- 5130/DEL/2010 THAT THE PAYMENT OR ROYALTY WAS A REV ENUE EXPENDITURE, INCURRED FOR THE PURPOSE OF BUSINESS. ACCORDINGLY, THE ADDITION MADE BY THE TPO BY DETERM INING ARMS LENGTH PRICE OF ROYALTY ON EXPORT AT NIL IS D ELETED. 13. IN VIEW OF THE ABOVE REASONING, WE ARE OF THE V IEW THAT THERE IS NO JUSTIFICATION FOR DISALLOWANCE OF ROYALTY ON THE EX PORT MADE TO THE AES. ACCORDINGLY, THE ADDITION MADE BY THE AO/TPO BY DET ERMINING THE ALP OF ROYALTY ON EXPORTS TO THE AES AT NIL IS DELETE D.\ CORPORATE TAX MATTERS 14. THE SOLITARY GROUND RAISED IN THE CORPORATE TAX ISSUE READS AS FOLLOWS:- THAT THE LEARNED AO HAS ERRED ON FACTS AND IN LAW IN DISALLOWING AN AMOUNT OF INR 7,359,000 BEING SALES TOOLS EXPENSE INCURRED BY THE ASSESSEE FOR SUBSIDIZING 50 PERCENT OF THE BASIC COST OF STANDARD TOOLS / FIXTURES FOR STANDARDIZATION OF HONDA EXCLUSIVE AUTHORIZED DEAL ERS [HEAD] OUTLETS, BEING EXPENSE INCURRED BY ASSESSE E WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. 15. BRIEFLY STATED, THE FACTS OF THE CASE ARE AS FO LLOWS. DURING THE YEAR, THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION FOR SALE S TOOLS EXPENSES SUBSIDY AMOUNTING TO RS.73,59,000/-. THE ASSESSEE WAS ASKED DURING THE ASSESSMENT PROCEEDINGS AS TO WHY THESE EXPENSES SHO ULD NOT BE DISALLOWED. THE ASSESSEE VIDE LETTER DATED 13.12.2 011 HAS SUBMITTED THAT THE EXPENSES WERE INCURRED FOR SUBSIDIZING 50% OF T HE BASIC COST OF ITA NO.132/DEL./2013 18 STANDARD SALES TOOLS/FIXTURES FOR STANDARDIZATION O F HEAD (HONDAS EXCLUSIVE AUTHORIZED DEALER) OUTLETS, THUS IT HAS B EEN INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. FOLLOWING THE VIE W TAKEN IN THE EARLIER YEARS, THE AO DISALLOWED THIS AMOUNT. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT POSITION ON THIS ISSUE IS SIMILAR TO THAT OF THE IMMEDIATELY PRECEDING ISSUE INASMUCH AS NEITHER THE LD. AR NOR THE LD. DR IS AWARE OF THE FINAL POSITION ON THIS I SSUE IN THE EARLIER YEARS. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF AO FOR DECIDING IT IN CONSONA NCE WITH THE FINAL VIEW TAKEN ON IT IN EARLIER YEARS. 17. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATI STICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 24 TH DAY OF APRIL, 2015. SD/- SD/- (R.S. SYAL) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 24 TH DAY OF APRIL, 2015 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.