DCIT, New Delhi V. M/s Minda Fiamm Acoustic Ltd., New Delhi

ITA 1347/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86550 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 19-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 16-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P CHANDRAKAR
• Keywords: Depreciation; Fair market value
• Section: 32; 143(3)

Judgement Text

I.T.A. NO.: 1504 AND 1347/DEL/11 ASSESSMENT YEAR: 2007-08 PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI E BENCH, NEW DELHI [CORAM: PRAMOD KUMAR AM AND A. T. VARKEY JM] I.T.A. NO.: 1504/DEL/11 ASSESSMENT YEAR: 2007-08 MINDA ACOUSTIC LIMITED .APPELLANT (FORMERLY KNOWN AS MINDA FIAMM ACOUSTIC LIMITED) B 64/1, WAZIRPUR INDUSTRIAL AREA NEW DELHI 110 052 [PAN: AAACF8168K] VS. ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 6, NEW DELHI .RESPONDEN T I.T.A. NO.: 1347/DEL/11 ASSESSMENT YEAR: 2007-08 ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 6, NEW DELHI .APPELLANT VS. MINDA ACOUSTIC LIMITED .RESPON DENT (FORMERLY KNOWN AS MINDA FIAMM ACOUSTIC LIMITED) B 64/1, WAZIRPUR INDUSTRIAL AREA NEW DELHI 110 052 [PAN: AAACF8168K] APPEARANCES BY: PRADEEEP DINODIA, ALONGWITH R K KAPOOR , FOR THE ASSESSEE J P CHANDRAKAR, FOR THE REVENUE O R D E R PER PRAMOD KUMAR, AM: 1. THESE CROSS APPEALS CALL INTO QUESTION CORRECTNE SS OF ORDER DATED 26 TH NOVEMBER 2010, PASSED BY THE LEARNED COMMISSIONER ( APPEALS) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX A CT, 1961, FOR THE ASSESSMENT YEAR 2007-08. I.T.A. NO.: 1504 AND 1347/DEL/11 ASSESSMENT YEAR: 2007-08 PAGE 2 OF 11 2. WE WILL FIRST TAKE UP THE ITA NO. 1504/DEL/11. 3. IN THE FIRST GROUND OF THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 1.0 THAT THE LEARNED CIT(A) HAS GROSSLY ERRED IN LA W AND ON THE FACTS OF THE APPELLANTS CASE IN CONFIRMING THE ADDITION MAD E BY THE AO ON ACCOUNT OF DEPRECIATION ON GOODWILL AMOUNTING TO RS.5,48,62 2. 1.1 THAT THE LEARNED CIT(A) HAS FAILED TO APPRECIAT E THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT CASE DEPR ECIATION ON THE BUNDLE OF BUSINESS AND COMMERCIAL RIGHTS, WHICH WAS TITLE D AS GOODWILL IN THE BOOKS OF THE APPELLANT WAS LEGALLY AND PROPERLY ALL OWABLE U/S 32(1)(II) OF THE INCOME-TAX ACT. 4. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONC ERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. IN THE COURSE OF THE ASSESSME NT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED DEPRE CIATION, AMOUNT TO RS 5,48,622, ON GOODWILL. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE GOODWILL DOES NOT FORM PART OF THE INTANGIBLE ASSETS, WHICH ARE ELIGIBLE FOR DEPRECATION, THE DEPRECIATION ON GOODWILL CANNOT BE ALLOWED. WH EN THIS PROPOSITION WAS PUT TO THE ASSESSEE, IT WAS EXPLAINED BY THE ASSESSEE T HAT GOODWILL IN THE PRESENT CASE IS IN THE NATURE OF BUSINESS OR COMMERCIAL RIG HT AS PER SECTION 32 OF THE ACT. THIS PLEA WAS, HOWEVER, REJECTED BY THE ASSESSING O FFICER. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BUT WITHOUT ANY SUCCES S. THE ASSESSEE IS NOT SATISFIED EVEN WITH THE STAND SO TAKEN BY THE LEARN ED COMMISSIONER (APPEALS) AND IS IN FURTHER APPEAL BEFORE US. 5. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE IS SUE IS NOW COVERED, BY A DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07, IN FAVOUR OF THE ASSESSEE. VIDE ORDER DATE D 19 TH JULY 2013, THE COORDINATE BENCH HAS, INTER ALIA , HELD AS FOLLOWS: 10.4 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT THE FIGURE OF THE GOODWILL IN THE ASSESSEES CASE HAS I.T.A. NO.: 1504 AND 1347/DEL/11 ASSESSMENT YEAR: 2007-08 PAGE 3 OF 11 ARISEN WHEN THE EXISTING RUNNING UNIT WAS TRANSFERR ED BY MINDA INDUSTRIES LTD. TO THE ASSESSEE NEWLY FIRM COMPANY I.E. THE AS SESSEE FOR A CONSOLIDATED CONSIDERATION OF RS. 2.75 CRORES AND THE DIFFERENCE BETWEEN THE NET VALUE OF ASSETS, WHICH ASSETS WERE RECORDED AT BOOK VALUE, W AS RECOGNIZED AS GOODWILL IN THE BOOKS OF ACCOUNTS. WE FIND THAT T HE TRANSACTION TOOK PLACE IN THE PRECEDING ASSESSMENT YEARS AND THE FIGURE OF GOODWILL IS COMING FROM THE PREVIOUS BALANCE SHEET. WE AGREE WITH THE SUBMI SSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT THE HONBLE DELHI HIGH COURTS DECISION IN THE CASE OF AREVA T & D INDIA LTD. VS. DCIT (2012) 345 ITR 4 21 SUPPORTS THE CASE OF THE ASSESSEE. THE FACTS OF THIS CASE BEFORE THE HON BLE HIGH COURT WERE AS UNDER:- 'THE ASSESSEE VIDE A SLUMP SALE AGREEMENT REQUIRED, AS A GOING CONCERN, THE TRANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANSFEROR- COMPANY. THE BOOK VALUE OF THE NET TANGIBLE ASSETS (ASSETS MINUS LIABILITIES) ACQUIRED WAS RECORDED IN THE BALANCE S HEET OF THE TRANSFEROR AS ON THE DATE OF TRANSFER AS RS.28.11 C RORES. THE SAID ASSETS AND LIABILITIES WERE RECORDED IN THE BOOKS O F TRANSFEREE AT THE SAME VALUE AS APPEARED IN THE BOOKS OF THE TRANSFER OR. THE BALANCE PAYMENT OF RS.16,58,76,000/- OVER AND ABOVE THE BOO K VALUE OF NET TANGIBLE ASSETS, WAS ALLOCATED BY THE ASSESSEE TOWA RDS ACQUISITION OF BUNDLE OF BUSINESS AND COMMERCIAL RIGHTS, COMPENDIO USLY TERMED AS 'GOODWILL' IN THE BOOKS OF ACCOUNT, WHICH COMPRISED , INTER ALIA, THE FOLLOWING: - (I) BUSINESS CLAIMS, (BUSINESS INFORMA TION, (III) BUSINESS RECORDS, (IV) CONTRACTS, (V) SKILLED EMPLOYEES, (VI ) KNOW-HOW. THE ASSESSEE-COMPANY WHILE FILING ITS RETURN CLAIMED DE PRECIATION UNDER SECTION 32(1)(II) WITH RESPECT TO THE AFORESAID AMO UNT OF RS.16,58,76,000/- AS BEING A PRICE PAID FOR ACQUISI TION OF ABOVE MENTIONED INTANGIBLE ASSETS. THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION ON 'GOODWILL' AS CLAIMED IN THE RETURN . THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE COMPAN Y ON GROUNDS, NAMELY, (A) DEPRECIATION UNDER SECTION 32(2)(II) IS NOT AVAILABLE ON GOODWILL; (B) THE ASSESSEE WAS UNABLE TO DEMONSTRAT E THAT THE AMOUNT SHOWN AS GOODWILL IN THE BOOKS OF ACCOUNT WAS IN FA CT A PAYMENT MADE TOWARDS ACQUISITION OF 'CERTAIN BUSINESS AND C OMMERCIAL RIGHTS' AND THEREFORE ELIGIBLE FOR DEPRECIATION IN TAX AS P ER SECTION 32(1)(II).' THE HON'BLE DELHI HIGH COURT HAS FURTHER HELD AS UN DER: - 'APPLYING THE PRINCIPLE OF EJUSDEM GENERIS, WHICH P ROVIDES THAT WHERE THERE ARE GENERAL WORDS FOLLOWING PARTICULAR AND SP ECIFIC WORDS, THE MEANING OF THE LATTER WORDS SHALL BE CONFINED TO TH INGS OF THE SAME KIND, AS SPECIFIED FOR INTERPRETING THE EXPRESSION 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' SPECIFIED IN S ECTION 32(1)(II), IT IS SEEN THAT SUCH RIGHTS NEED NOT ANSWER THE DESCRI PTION OF 'KNOW- HOW, PATENTS, TRADEMARKS, LICENSES OR FRANCHISES' B UT MUST BE OF SIMILAR NATURE AS THE SPECIFIED ASSETS. ON A PERUSA L OF THE MEANING OF THE CATEGORIES OF SPECIFIC INTANGIBLE ASSETS REFERR ED IN SECTION 32(1)(II) PRECEDING THE TERM 'BUSINESS OR COMMERCIA L RIGHTS OF SIMILAR NATURE - IT IS SEEN THAT THE AFORESAID INTANGIBLE A SSETS ARE NOT OF THE I.T.A. NO.: 1504 AND 1347/DEL/11 ASSESSMENT YEAR: 2007-08 PAGE 4 OF 11 SAME KIND AND ARE CLEARLY DISTINCT FROM ONE ANOTHER . THE FACT THAT AFTER THE SPECIFIED INTANGIBLE ASSETS THE WORDS 'BU SINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' HAVE BEEN ADDI TIONALLY USED, CLEARLY DEMONSTRATES THAT THE LEGISLATURE DID NOT I NTEND TO PROVIDE FOR DEPRECIATION ONLY IN RESPECT OF SPECIFIED INTANGIBL E ASSETS BUT ALSO TO OTHER CATEGORIES OF INTANGIBLE ASSETS, WHICH WERE N EITHER FEASIBLE NOR POSSIBLE TO EXHAUSTIVELY ENUMERATE. IN THE CIRCUMST ANCES, THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS' CANNOT BE RESTRI CTED TO ONLY SIX CATEGORIES OF ASSETS, VIZ ., KNOW-HOW, PATENTS, TRA DEMARKS, COPYRIGHTS, LICENSES OR FRANCHISES. THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS' CAN BE OF THE SAME GENUS IN WHICH ALL THE AFORESAID SIX ASSETS FALL. ALL THE ABOVE FALL IN THE GENUS OF INTANGIBLE ASSETS TH AT FORM PART OF THE TOOL OF TRADE OF AN ASSESSEE FACILITATING SMOOTH CA RRYING ON OF THE BUSINESS. IN THE CIRCUMSTANCES, IT IS OBSERVED THAT IN CASE OF THE ASSESSEE, INTANGIBLE ASSETS, VIZ., BUSINESS CLAIMS; BUSINESS INFORMATION; BUSINESS RECORDS; CONTRACTS; EMPLOYEES AND KNOW-HOW, WERE ALL ASSETS, WHICH WERE INVALUABLE AND RESULT I N CARRYING ON THE TRANSMISSION AND DISTRIBUTION BUSINESS BY THE ASSES SEE, WHICH WAS HITHERTO BEING CARRIED OUT BY THE TRANSFEROR, WITHO UT ANY INTERRUPTION. THE AFORESAID INTANGIBLE ASSETS WERE, THEREFORE, COMPARABLE TO A LICENSE TO CARRY OUT THE EXISTING T RANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANSFEROR; IN THE ABS ENCE OF THE AFORESAID INTANGIBLE ASSETS, THE ASSESSEE WOULD HAV E HAD TO COMMENCE BUSINESS FROM SCRATCH AND GO THROUGH THE G ESTATION PERIOD WHEREAS BY ACQUIRING THE AFORESAID BUSINESS RIGHTS ALONG WITH THE TANGIBLE ASSETS, THE ASSESSEE GOT AN UP AND RUNNING BUSINESS. [PARA 13] IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD THAT TH E SPECIFIED INTANGIBLE ASSETS ACQUIRED UNDER SLUMP SALE AGREEMENT WERE IN THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' S PECIFIED IN SECTION 32(L)(II) AND WERE ACCORDINGLY ELIGIBLE FOR DEPRECI ATION UNDER THAT SECTION. [PARA 14]. 10.5 IN LIGHT OF THE ABOVE CASE LAWS, WE ARE IN AGR EEMENT WITH THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT THE GOODWILL THAT HAS BEEN RECOGNIZED IN THIS CASE REPRESENTS VARIOUS ASS ETS IN THE NATURE OF GOODWILL. WE FIND CONSIDERABLE COGENCY IN THE SUBMI SSIONS OF THE LD. COUNSEL OF THE ASSESSEE AS MENTIONED ABOVE. THUS, WE HOLD T HAT THE ASSESSEES CASE IS COVERED BY THE DECISION IN THE HONBLE DELHI HIGH C OURT AS ABOVE. THE CASE LAWS RELIED UPON BY THE LD. DEPARTMENTAL REPRESENTA TIVE ARE NOT APPLICABLE AS THEY ARE TRIBUNALS DECISIONS AND HONBLE JURISD ICTIONAL HIGH COURT TAKES A PRECEDENCE OVER THE SAME. 6. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. RESPECTFULLY FOLLOWI NG THE SAME, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS 5,48,622 IN RESPECT OF DEPRECIATION ON GOODWILL. I.T.A. NO.: 1504 AND 1347/DEL/11 ASSESSMENT YEAR: 2007-08 PAGE 5 OF 11 7. GROUND NO. 1 IS THUS ALLOWED. 8. IN SECOND GROUND OF APPEAL, THE ASSESSEE HAS RAI SED THE FOLLOWING GRIEVANCE: 2.0 THAT THE CIT(A) HAS GROSSLY ERRED IN LAW AND ON THE FACTS OF THE APPELLANTS CASE IN DENYING THE DEPRECIATION ON THE VEHICLES WHICH WERE ADMITTEDLY USED FOR THE PURPOSE OF BUSINESS AND WER E OWNED BY THE APPELLANT BUT HOWEVER, THESE WERE NOT REGISTERED IN THE NAME OF THE APPELLANT. 9. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER DISALLOWED DEPRECIATION OF RS 64,821 AS THE VEHICLE S, IN RESPECT OF WHICH THIS DEPRECIATION WAS CLAIMED, WERE REGISTERED IN THE NA ME OF MINDA INDUSTRIES LIMITED AND NOT THE ASSESSEE. IN APPEAL, IT WAS EXP LAINED TO THE ASSESSEE THAT THESE VEHICLES WERE TRANSFERRED TO THE ASSESSEE BY MINDA INDUSTRIES LIMITED, AS PART OF BUSINESS ON GOING CONCERN BASIS, AND AS SUC H THE VEHICLES WERE DE FACTO OWNED BY THE ASSESSEE. LEARNED CIT(A) DID NOT ACCE PT THIS PLEA. HE HELD THAT THE OWNERSHIP AND USAGE OF AN ASSET IS A SINE QUA NON FOR CLAIM OF DEPRECIATION IN RESPECT OF SUCH AN ASSET. IN SUPPORT OF THIS PROPOS ITION, HE PLACED RELIANCE ON THE JUDGMENTS OF HONBLE RAJASTHAN HIGH COURT IN THE CA SE OF CHANGANLAL AUTOMOBILES VS CIT [(1985) 156 ITR 58] . A REFERENCE WAS ALSO MADE TO THE DECISIONS OF HONBLE KERALA HIGH COURT IN THE CASE OF DCST VS JINACHANDRAN [(1994) 205 ITR 328] AND OF HONBLE MP HIGH COURT IN THE CASE OF SARDAR TARA SINGH VS CIT [(1963)47 ITR 756]. THE DISALLOWANCE WAS THUS UPHELD BY THE LEARNED COMMISSIONER (APPEALS) AS WELL. THE ASSESSE E IS AGGRIEVED OF THE STAND SO TAKEN BY THE LEARNED COMMISSIONER (APPEALS) AND IS IN FURTHER APPEAL BEFORE US. 10. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF T HE APPLICABLE LEGAL POSITION. 11. WE FIND THAT ALL THE THREE DECISIONS REFERRED T O AND RELIED UPON BY THE LEARNED COMMISSIONER (APPEALS) REFER TO THE SITUATI ONS IN WHICH THE ASSESSEE I.T.A. NO.: 1504 AND 1347/DEL/11 ASSESSMENT YEAR: 2007-08 PAGE 6 OF 11 WAS USING THE ASSETS UNDER HIRE PURCHASE AGREEMENT AND THE QUESTION AROSE WHETHER THE ASSESSEE IS ENTITLED TO DEPRECIATION IN RESPECT OF THESE ASSETS OR NOT. HONBLE COURTS WERE CONSISTENTLY OF THE VIEW THAT U NTIL THE POINT OF TIME THE OWNERSHIP VESTS IN THE HIRER, THE HIRER IS NOT ELIG IBLE FOR THE DEPRECIATION. THERE CANNOT BE ANY QUARREL WITH THIS PROPOSITION BUT THI S PROPOSITION HAS NOTHING TO DO WITH THE FACTS OF THE PRESENT CASE. HERE IS A C ASE IN WHICH THE ASSESSEE IS A DE FACTO OWNER OF THE VEHICLES, THERE IS NO DISPUTE ABOUT T HE FACT OF OWNERSHIP AND THE ONLY HURDLE IN THE WAY OF THE ASSESSEES ELIGIB ILITY OF DEPRECIATION IS THAT THE VEHICLES ARE NOT REGISTERED IN HIS NAME. THE OWNERS HIP OF A VEHICLE AND THE REGISTRATION OF A VEHICLE IN SOMEONES NAME ARE NOT EXACTLY THE SAME THING. THERE CAN BE SITUATIONS IN WHICH THE ASSESSEE MAY B E OWNER OF AN ASSET EVEN AS THE ASSET MAY BE NOT REGISTERED IN THE NAME OF THE ASSESSEE. DEALING WITH THIS KIND OF A SITUATION, I.E. IN WHICH THE ASSESSEE HAD PURCHASED AN ASSET BUT THE SAID ASSET WAS NOT REGISTERED IN THE NAME OF THE ASSESSE E EVEN AS THE ASSESSEE COULD EXERCISE THE RIGHTS OF THE OWNER QUA THE ASSETS, HO NBLE SUPREME COURT HAS, IN THE CASE OF MYSORE MINERALS LIMITED VS CIT [(1999) 239 ITR 775] , OBSERVED THAT, THE INTENTION OF THE LEGISLATURE IN ENACTING S. 32 OF THE ACT WOULD BE BEST FULFILLED BY ALLOWING DEDUCTION IN RESPECT OF DEPRECIATION TO THE PERSON IN WHOM FOR THE TIME BEING VESTS THE DOMINIO N OVER THE BUILDING AND WHO IS ENTITLED TO USE IT IN HIS OWN RIGHT AND IS USING THE SAME FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION. ASSIGNING A NY DIFFERENT MEANING WOULD NOT SUBSERVE THE LEGISLATIVE INTENT . IT IS THUS CLEAR THAT THE TECHNICALITY OF AN ASSET BEING REGISTERED IN THE NA ME OF THE ASSET CAN NOT COME IN THE WAY OF AN ASSESSEES ELIGIBILITY FOR DEPRECIATI ON AS LONG AS SUCH AN ASSET IS DE FACTO OWNED BY THE ASSESSEE AND IS USED FOR THE PUR POSES OF THE BUSINESS. IN THE PRESENT CASE, IN THE LIGHT OF THE BUSINESS TRANSFER AGREEMENT, THERE IS NO DOUBT THAT THE ASSET WAS OWNED BY THE ASSESSEE. IT IS NOT EVEN IN DISPUTE THAT THE ASSET WAS USED FOR THE PURPOSES OF THE BUSINESS, NOR HAS THAT BEEN THE CASE OF THE ASSESSING OFFICER. THE CONDITIONS FOR ELIGIBILITY T O CLAIM DEPRECIATION ARE THUS SATISFIED ON THE FACTS OF THE PRESENT CASE. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE I.T.A. NO.: 1504 AND 1347/DEL/11 ASSESSMENT YEAR: 2007-08 PAGE 7 OF 11 AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPU GNED DISALLOWANCE OF RS 64,821. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 12. GROUND NO. 2 IS THUS ALLOWED. 13. NO OTHER GROUND OF APPEAL WAS PRESSED BEFORE US . 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 15. WE NOW TAKE UP ITA NO. 1347/DEL/11. 16. GROUND NOS.1 & 4 ARE GENERAL IN NATURE, AS SUCH , REQUIRE NO SPECIFIC ADJUDICATION. 17. IN THE SECOND GROUND OF APPEAL, THE A.O. HAS RA ISED THE FOLLOWING GRIEVANCE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .1,30,09,738/- MADE BY ASSESSING OFFICER DISALLOWING THE 50% OF LEGAL A ND PROFESSIONAL FEES. 2.1 THE LD. CIT(A) IGNORED THE FINDING RECORDED BY THE ASSESSING OFFICER AND THE FACT THAT THE ASSESSEE DID NOT FILE EVIDENCE IN SUPPORT OF ITS CLAIM DURING THE ASSESSMENT PROCEEDINGS. 18. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTED THAT THE ASSESSEE HAS INTER ALIA MADE THE PAYMENT OF RS.60,19,476 IN RESPECT OF LEGAL A ND PROFESSIONAL CHARGES TO MINDA INDUSTRIES LIMITED. THE A.O. NOTED THAT THE ASSESSEE IS INCURRING THIS HEAVY EXPENDITURE WITHOUT ANY SPECIFIC MENTION OF T HE WORK UNDERTAKEN BY MINDA INDUSTRIES LIMITED, AND THAT THERE IS NO BUSI NESS PRUDENCE IN THIS EXPENDITURE. IT WAS ALSO NOTED THAT NO BUSINESSMAN WOULD SPEND SUCH HUGE AMOUNT FOR SERVICES MENTIONED AS TIME TO TIME ASSI STANCE, HANDLING CORPORATE I.T.A. NO.: 1504 AND 1347/DEL/11 ASSESSMENT YEAR: 2007-08 PAGE 8 OF 11 MATTERS ETC. WITH EXPERT KNOWLEDGE. IT WAS IN THI S BACKDROP THE A.O. CAME TO THE CONCLUSION THAT THE AMOUNT OF RS.60,19,476/- PA ID TO MINDA INDUSTRIES LIMITED IS EXCESSIVE AND UNREASONABLE, AND IS, THER EFORE, HIT BY PROVISIONS OF SECTION 40A(2)(A)/(B) OF THE ACT. HE THEN PROCEEDE D TO DISALLOW 50% OF THE EXPENDITURE BY OBSERVING AS FOLLOWS:- IN THE PRESENT CASE THE FACTS CLEARLY BRING OUT THA T THE PAYMENT MADE TO MIL IS EXCESSIVE AND UNREASONABLE. THE ASSESSEE HAS TO SUBSTANTIATE THE CLAIM OF EXPENDITURE MADE. HE HAS NEITHER SPECIFIED THE SER VICES RENDERED BY MIL NOR THE RATES AT WHICH PAYMENTS WERE MADE. IT IS D UE TO THESE HEAVY PAYMENTS MADE/EXPENSES INCURRED IN FAVOUR OF RELATE D PARTY THAT THE N.P. RATE IS ONLY 0.88%, WHILE THE GP RATE IS 25.80%. C ONSIDERING THAT ASSESSEE HAS FAILED TO JUSTIFY THESE EXPENSES, 50% OF RS.60, 19,476/- I.E. THE EXPENSES UNDER THIS HEAD ARE DISALLOWED. 19. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSIN G OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CI T(A). THE LEARNED CIT(A) NOTED THAT THERE IS NO DISPUTE ABOUT THE FACTUM OF RENDERING OF SERVICES AS THE A.O. HIMSELF ALLOWED 50% OF THE AMOUNT PAID BY THE ASSESSEE, AND THAT THE ONLY QUESTION WHICH NEEDS TO BE ANALYSED AND ADJUDICATED UPON IS WHETHER THE PAYMENTS MADE BY THE ASSESSEE TO M/S. MINDA INDUSTR IES LIMITED FOR THE SERVICES SO RENDERED WAS EXCESSIVE OR UNREASONABLE. THE LEARNED CIT(A) WAS OF THE VIEW THAT IT IS INCORRECT TO COME TO THE CONCLU SION THAT THERE IS NO BASIS FOR THE SAID PAYMENT AS THE PAYMENT HAS BEEN MADE PURSU ANT TO THE AGREEMENT ENTERED INTO AT THE TIME OF GETTING INTO THE JOINT VENTURE, AND THAT, ACCORDING TO THE SAID AGREEMENT ONLY THE PAYMENT HAS BEEN MADE. HE ALSO NOTED THAT IT IS A COMMON PRACTICE IN THE LARGE CORPORATE HOUSES TO CE NTRALISE CERTAIN SERVICES AND EMPLOY PERSONNEL IN THE CORPORATE OFFICE TO CAR RY OUT CERTAIN COMMON FUNCTIONS FOR ALL THE GROUP ENTITIES. THE LEARNED CIT(A) WAS OF THE VIEW THAT THERE IS NO TAX AVOIDANCE INVOLVED IN THE PRESENT C ASE AS BOTH THE COMPANIES HAVE TAXABLE INCOME AND ARE TAXED AT THE SAME RATE IN THE SAME ASSESSMENT YEAR. HE WAS THUS OF THE VIEW THAT THE SHIFTING OF EXPENSES, EVEN IF THAT BE SO, IS COMPLETELY REVENUE NEUTRAL EXERCISE. HE CAME TO TH E CONCLUSION THAT THE DISALLOWANCE MADE BY THE A.O. IS DEVOID OF LEGALLY SUSTAINABLE BASIS AND I.T.A. NO.: 1504 AND 1347/DEL/11 ASSESSMENT YEAR: 2007-08 PAGE 9 OF 11 ACCORDINGLY HE DELETED THE SAME. WHILE DOING SO, H E INTER ALIA CONCLUDED AS FOLLOWS:- 6.7 THEREFORE, KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, I AM OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE OUT OF THE PAYMENTS MADE TO M/S MINDA INDUSTRIES LIMITED, ESPECIALLY IN THE LIGHT OF THE FACT THAT THERE IS N O DISPUTE ABOUT THE SERVICES RENDERED BY THE SAID M/S. MINDA INDUSTRIES LIMITED AND NO TAX AVOIDANCE HAS BEEN ATTEMPTED IN THIS ARRANGEMENT AND THE WHOL E ARRANGEMENT IS TAX/REVENUE NEUTRAL. THEREFORE, I DIRECT THAT THE DISALLOWANCE OF RS.30,09,738/- BE DELETED. THE GROUND NO.4 IS ALLO WED TO THE APPELLANT 20. THE ASSESSING OFFICER IS AGGRIEVED AND IS IN AP PEAL BEFORE US. 21. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF T HE APPLICABLE LEGAL POSITION. WE FIND THAT THE DISALLOWANCE UNDER SECTION 40A(2)(A)/ (B) CAN BE INVOKED WHEN THE A.O. IS OF THE OPINION THAT, INTER ALIA, SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEG ITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE. IN THE PRESENT CAS E, THE DISALLOWANCE HAS BEEN MADE ON THE GROUND THAT THE PAYMENT IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE AND THE SERVICES FO R WHICH THE PAYMENT IS MADE BUT THEN THERE IS NO FINDING BY THE A.O. AS TO WHAT ACCORDING TO HIM IS FAIR MARKET VALE OF THE SERVICES IN QUESTION. A DISALLO WANCE UNDER SECTION 40A(2), ON PERCENTAGE BASIS, IS INHERENTLY CONTRARY TO THE ACT IN AS MUCH AS IT IS A CONDITION PRECEDENT FOR INVOKING SECTION 40A THAT T HE BENCHMARK TO BE SET AS TO WHAT IS A FAIR MARKET VALUE OF THE SERVICES QUESTIO N AND THEN THE EXPENDITURE IN EXCESS OF THE SAID BENCHMARK IS TO BE DISALLOWED BU T THEN SUCH BENCHMARK CANNOT BE IN TERMS OF PERCENTAGE OF PAYMENT BY THE ASSESSEE. FOR THIS REASON ALONE, THE IMPUGNED DISALLOWANCE INDEED DESERVES TO BE DISALLOWED. WE HAVE ALSO NOTED THAT IN THE PRESENT CASE, THERE IS NO DI SPUTE ABOUT THE FACTS OF SERVICE BEING RENDERED AND THERE IS NO BENCHMARK SET FOR AS TO WHAT WOULD CONSTITUTE A FAIR MARKET VALUE OF THE SERVICES IN QUESTION. UNLE SS THERE IS A CLEAR FINDING THAT THE MARKET VALUE OF THE SERVICES TAKEN FROM THE SIS TER-CONCERN IS LESS THAN THE I.T.A. NO.: 1504 AND 1347/DEL/11 ASSESSMENT YEAR: 2007-08 PAGE 10 OF 11 PRICE AT WHICH THE SERVICES ARE OBTAINED, THERE CAN NOT BE AN OCCASION TO APPLY THE DISABLING PROVISIONS OF S. 40A(2). THIS EXERCIS E, THEREFORE, NECESSITATES A FINDING ABOUT THE FAIR MARKET VALUE OF SUCH SERVICE S. THERE IS NO SUCH FINDING IN THE PRESENT CASE. IN THESE CIRCUMSTANCES AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE DISALL OWANCE MADE BY THE A.O. WAS DEVOID OF LEGALLY SUSTAINABLE BASIS. THE LEARNED CIT(A) WAS THUS QUITE JUSTIFIED IN DELETING THE SAME. GROUND NO.2 IS THUS DISMISSE D. 22. IN THE THIRD GROUND OF APPEAL, THE A.O. HAS RAI SED THE FOLLOWING GRIEVANCE: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS .1,00,000/- MADE BY ASSESSING OFFICER DISALLOWING THE FOREIGN TRAVELLIN G EXPENSES. 3.1 THE LD. CIT(A) IGNORED THE FINDING RECORDED BY THE ASSESSING OFFICER AND THE FACT THAT THE FOREIGN TOUR IN QUEST ION WAS NOT UNDERTAKEN EXCLUSIVELY FOR BUSINESS PURPOSES. 23. SO FAR AS THIS DISALLOWANCE IS CONCERNED, THE A .O. HAS MADE THE LUMP SUM DISALLOWANCE OF RS.1,00,000/- ON THE GROUND THAT TH E DETAILS OF FOREIGN TRAVELLING SUBMITTED BY THE ASSESSES ARE VERY GENERAL IN NATUR E, AND THAT THE TRIP TO JAPAN UNDERTAKEN FOR THE CURRENT YEAR MUST HAVE BEEN UNDE RTAKEN TO EXPLORE NEW MARKET AS THERE WAS NO SUCH TRIP IN THE IMMEDIATELY PRECEDING YEAR. HOWEVER, WHEN ASSESSEE APPEALED AGAINST THIS DISALLOWANCE B EFORE THE LD. CIT(A), THE LEARNED CIT(A) HELD THAT THE IMPUGNED DISALLOWANCE HAS BEEN MADE PURELY ON THE BASIS OF ASSUMPTION NOT BORNE OUT OF THE RECORD , AND WITHOUT ANY LEGALLY SUSTAINABLE BASIS. LEARNED CIT(A) ALSO NOTED THAT THE ASSESSEE HAD FILED COMPLETE DETAILS IN RESPECT OF EXPENSES AND NO SPEC IFIC DEFECTS WERE POINTED OUT IN THE SAME. AGGRIEVED BY THIS DELETION OF DISALLOW ANCE OF RS.1,00,000/-, THE A.O. IS IN APPEAL BEFORE US. 24. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD, WE SEE NO REASON TO INTERFERE IN THE MATTER, SINCE, AS RIGHTLY NOTED BY THE I.T.A. NO.: 1504 AND 1347/DEL/11 ASSESSMENT YEAR: 2007-08 PAGE 11 OF 11 LEARNED CIT(A), THE IMPUGNED DISALLOWANCE IS INDEED DEVOID OF ANY LEGALLY SUSTAINABLE BASIS. NO DISALLOWANCES CAN BE MADE SI MPLY ON THE BASIS OF ASSUMPTIONS, SURMISES AND CONJECTURES. WE HAVE NOT ED THAT NO SPECIFIC REQUISITIONS WERE MADE BY THE A.O. FOR FURTHER INFO RMATION IN RESPECT OF DETAILS OF FOREIGN TRAVEL EXPENSES AND YET THE A.O. HAS DIS ALLOWED THE EXPENSES FOR WANT OF FULL AND COMPLETE DETAILS. AS REGARDS THE A.O. S OBSERVATION OF EARLIER EXPENDITURE INCURRED ON EXPLORING NEW MARKET, WE AR E IN COMPLETE AGREEMENT WITH THE LEARNED+ CIT(A) THAT THERE IS NO BASIS WH ATSOEVER TO COME TO THIS CONCLUSION AND IT IS PURELY AN INFERENCE DRAWN ON T HE BASIS OF ASSUMPTION. CLEARLY, THEREFORE, THE LEARNED CIT(A) WAS JUSTIFI ED IN DELETING THIS DISALLOWANCE AS WELL. WE APPROVE HIS ACTION AND DECLINE TO INTE RFERE IN THE MATTER. 25. GROUND NO.3 IS ALSO DISMISSED. 26. IN THE RESULT, APPEAL FILED BY THE A.O. IS DISM ISSED. 27. TO SUM UP, WHILE APPEAL OF THE ASSESSEE IS ALLO WED, APPEAL FILED BY THE ASSESSING OFFICER IS DISMISSED. IT IS SO PRONOUNCE D IN THE OPEN COURT TODAY ON 16 TH JANUARY, 2015. SD/XX SD/XX A. T. VARKEY PRAMOD KUM AR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NEW DELHI, THE 16 TH DAY OF JANUARY, 2015. COPIES TO: (1) THE APPELLANT (2) THE RESPON DENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI