Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 7942 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-04-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I1
Assessment Year
2009-2010
Appeal Filed On
26-02-2018
Judgement Text
1 ITA NO. 1351/DEL/2018 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 1351/DEL/2 018 (A.Y 2009-10) M/S HERO MOTO CORP LTD. 34, BASANT LOK, VASANT VIHAR NEW DELHI 110 034. PAN : AAACH0812J (APPELLANT) VS DCIT CIRCLE-11(1) C. R. BUILDING NEW DELHI. (RESPONDENT) ASSESSSEE BY SH. AJAY VOHRA, SENIOR ADVOCATE AND SH. GAURAV JAIN, MS. DEEPIKA AGARWAL, ADV RESPONDENT BY SH. SANJAY. I. BARA, CIT-DR & SH. B. RAMANJANEYULA, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS AGAINST THE ASSESSMENT ORDER U/S 143 (3) READ WITH SECTION 144C PASSED BY DCIT, RANGE-11(1), NEW DELHI VIDE OR DER DATED 27/10/2017. DATE OF HEARING 25.01.2019 DATE OF PRONOUNCEMENT 23.04.2019 2 ITA NO. 1351/DEL/2018 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN COMPLETING ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 1 44C OF THE INCOME-TAX ACT, 1961 ('THE ACT'), VIDE ORDER DATED 30.01.2018, AT AN INCOME OF RS. 5871,58,67,760/- UNDER THE NORMAL PROVISIONS AND AT BOOK PROFIT OF RS. 1799,03,00,809 UNDER SECTION 115JB OF THE ACT. 2. THAT THE ASSESSING OFFICER / THE TRANSFER PRICIN G OFFICER (THE TPO) ERRED ON FACTS AND IN LAW IN MAKING ADJUSTMENT OF R S.42,60,02,783 TO THE INCOME OF THE ASSESSSEEON ACCOUNT OF THE FOLLOWING INTERNATIONAL TRANSACTIONS DISREGARDING THE BENCHMARKING ANALYSIS APPLYING TRANSACTIONAL NET MARGIN METHOD (TNMM) UNDERTAKEN BY THE APPELLANT: 3. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN HO LDING THAT BENCHMARKING ANALYSIS UNDERTAKEN BY THE APPELLANT IN RESPECT OF THE INTERNATIONAL TRANSACTIONS OF PAYMENT OF EXPORT COMMISSION, MODEL FEE AND ROYALTY BY AGGREGATING WITH OTHER TRANSACTIONS AND APPLYING TN MM WAS INCORRECT AND EACH SUCH TRANSACTION IS REQUIRED TO BE ANALYZED SE PARATELY. 4. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NO T APPRECIATING THAT THE TRANSACTION OF PAYMENT OF MODEL FEE, EXPORT COMMISS ION AND ROYALTY WERE IN S. NO. INTERNATIONAL TRANSACTIONS AMOUNT OF INTERNATIONAL TRANSACTION SHOWN BY THE APPELLANT PROPOSED ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION DIFFERENCE 1. PAYMENT OF EXPORT COMMISSION 11,67,48,507 NIL 11,67,48,507 2. PAYMENT OF MODEL FEE 30,77,53,454 NIL 30,77,53,454 3. ROYALTY PAID ON EXPORTS MADE TO THE AES. 15,00,822 NIL 15,00,822 TOTAL 42,60,02,783 3 ITA NO. 1351/DEL/2018 ACCORDANCE WITH THE APPROVAL GRANTED BY THE CENTRAL GOVERNMENT/LIMITS PRESCRIBED BY THE RBI AND WERE THEREFORE AT ARMS L ENGTH. 5. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN DE TERMINING THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION OF PAYMEN T OF EXPORT COMMISSION OF RS. 11,67,48,507 AT NIL, ALLEGEDLY APPLYING CUP MET HOD HOLDING THAT NO INDEPENDENT PARTY SHALL PAY SUCH COMMISSION IN SIMI LAR CIRCUMSTANCES SINCE - (A) AN INDEPENDENT ENTERPRISE WOULD COMPENSATE ANOTHER PARTY FOR CEDING TERRITORY TO IT ONLY WHEN THE LATTER PARTY EITHER W ITHDRAWS FROM THAT TERRITORY OR SOME RESTRICTIONS ARE PLACED UPON IT. NOTHING OF TH AT SORT HAS HAPPENED TO THE AE. THE AE CONTINUES ITS BUSINESS AS USUAL IN THOSE OVERSEAS TERRITORIES. (B) THE APPELLANTS EXPORT TO SOUTH EAST ASIAN COUNTRIE S CONSISTS OF MOTORCYCLES OF 1OOCC, 125CC AND 150CC CAPACITY. THE AE DOES NOT HAVE A MANUFACTURING FACILITY FOR THESE CLASSES OF MOTORCY CLES IN THESE COUNTRIES. (C) IF ONE LOOKS AT THE ENTIRE ARRANGEMENT IN ITS ENTIR ETY, IT WILL BE ABUNDANTLY CLEAR THAT THE AE HAS SIMPLY USED THE APPELLANT TO POSITION THESE PRODUCTS IN THE SOUTH EAST ASIAN MARKETS AT COMPETITIVE PRICES. NEITHER HAS IT ACTUALLY CEDED THE MARKET NOR HAS IT CONFERRED ANY SPECIAL B ENEFIT UPON THE APPELLANT. (D) THE AE IS NOT MAKING ANY SPECIAL EFFORT FOR THE APP ELLANT. HENCE, IF THE APPELLANT WISHES TO OPERATE AS AN INDEPENDENT ENTER PRISE, IT WOULD HAVE FIRST ASSESSED AS TO WHAT IS THE DAMAGE THAT IS BEING CAU SED TO THE AE BY ITS ENTERING THOSE TERRITORIES. (E) IF THE PARENT COMPANY ALLOWS AN AE TO USE AN ALREAD Y ESTABLISHED MARKETING NETWORK IT DOES NOT MEAN THAT A SPECIAL B ENEFIT IS PASSING TO THE APPELLANT. THE PARENT COMPANY WILL NOT ALLOW A THIR D PARTY ACCESS TO ITS NETWORK. HENCE, THE ACCESS THAT THE APPELLANT HAS G AINED TO THE MARKETING / DEALER NETWORK OF HMCL IS INCIDENTAL TO ITS BEING P ART OF THE GROUP. AS PER THE OECD GUIDELINES SUCH INCIDENTAL SERVICES DO NOT CAL L FOR A SEPARATE PAYMENT. 6. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN DE TERMINING THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION OR PAYMEN T OF MODEL FEE OF RS. 4 ITA NO. 1351/DEL/2018 30,77,53,454 AT NIL, ALLEGEDLY ON THE FOLLOWING GRO UNDS - A. THE APPELLANT IS EQUALLY RESPONSIBLE FOR THE TE CHNOLOGY UPGRADATION THAT IS TAKING PLACE IN INDIA; B. THE APPELLANT PAYS MODEL FEE AND ROYALTY FOR TH E SAME SET OF SERVICE; 7. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN HO LDING THAT THE APPELLANT WAS ENGAGED IN UNDERTAKING R&D ACTIVITY FOR DEVELO PMENT OF NEW MODELS. 8. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN HO LDING THAT ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION OF PAYMENT OF R OYALTY ON EXPORTS MADE TO AES OF RS. 15,00,822 WAS NIL ON THE GROUND THAT - (A) THE APPELLANT WAS ACTING AS A CONTRACT MANUFACTURER AND HENCE ROYALTY PAID AS PERCENTAGE OF SALE TO THE ASSOCIATED ENTERP RISES IS NOT AT ARMS LENGTH AS IT AMOUNTS TO COLLECTING ROYALTY ON THE SALE TO ITSELF. (B) THE APPELLANT IS MAKING PART OF ITS SALES TO RELATE D PARTIES AND THE BENEFIT OF PURCHASING COMPONENTS IS REAPED BY THE ASSOCIATE D ENTERPRISE, THE PAYMENT OF ROYALTY DOES NOT CONFORM TO ARMS LENGTH PRICE. 9. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NO T APPRECIATING THAT THE ROYALTY IS PAID BY THE APPELLANT ON NET SALES AFTER DEDUCTING THE COST OF IMPORTED COMPONENTS, STANDARD BOUGHT OUT COMPONENTS AND EXPORT COMMISSION. 10. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT THE PAYMENT OF EXPORT COMMISSION, MODEL FEE AND ROY ALTY WAS VALIDLY BENCHMARKED APPLYING TNMM METHOD AS MOST APPROPRIAT E METHOD AND THAT NO ADVERSE INFERENCE COULD BE DRAWN ON THIS ACCOUNT . 11. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN C OMPUTING 5 ITA NO. 1351/DEL/2018 ADJUSTMENT ON ACCOUNT OF INTERNATIONAL TRANSACTION OF PAYMENT OF EXPORT COMMISSION, MODEL FEE AND ROYALTY WITHOUT APPLYING ANY OF THE PRESCRIBED METHODS. 12. THAT THE DRP ERRED ON FACTS AND IN LAW IN UPHOL DING THE ADJUSTMENT MADE BY THE TPO HOLDING THAT THE DIRECTION OF THE D RP ARE NOT APPEALABLE BY THE REVENUE AND TO PROTECT THE INTEREST OF THE REVE NUE, THE ADJUSTMENT MADE BY THE TPO IS UPHELD. 13. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN ENHANCING THE VALUE OF CLOSING INVENTORY OF RAW MATERIALS/COM PONENTS BY RS. 90.58 LACS (NET ADDITION OF RS. (-) 17.81 LACS AFTER ADJU STING OPENING STOCK) IN RESPECT OF FREIGHT INWARD EXPENSES AND IMPORT CLEAR ING CHARGES INCURRED IN RELATION TO PROCUREMENT OF RAW-MATERIAL/COMPONENTS AND ATTRIBUTABLE TO THE CLOSING STOCK OF THE AFORESAID GOODS ON THE GROUND THAT THE AFORESAID COST NEEDS TO BE ADDED TO THE VALUE OF CLOSING STOCK IN ACCORDANCE WITH ACCOUNTING STANDARD-2 READ WITH SECTION 145 A OF TH E ACT. 13.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE ASSESSING OFFICER FAILED TO APPRECIATE THAT IN ACCORDANCE WIT H THE CONSISTENT, REGULAR AND ACCEPTED METHOD OF VALUATION OF INVENTORY FOLLO WED BY THE APPELLANT, THE AFORESAID COSTS BEING INCURRED IN EXCEPTIONAL SITUA TIONS, ARE NOT TO BE CONSIDERED FOR THE PURPOSES OF VALUATION OF CLOSING INVENTORY. 14. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN ENHANCING THE VALUE OF CLOSING INVENTORY OF FINISHED GOODS BY AN AMOUNT OF RS. 2,43,000, IN RESPECT OF COST OF REJECTION OF SEMI-FINISHED GOODS AND OBS OLETE ITEMS, ON THE GROUND THAT THE AFORESAID COST NEEDS TO BE ADDED TO THE VA LUE OF CLOSING STOCK IN ACCORDANCE WITH ACCOUNTING STANDARD-2 READ WITH SEC TION 145 A OF THE ACT. 14.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN FAILING TO APPRECIATE THAT THE EXPENDITURE ON ACCOUNT OF REJEC TION OF VARIOUS GOODS DEBITED IN THE PROFIT AND LOSS ACCOUNT DID NOT COMP RISE OF NORMAL REJECTIONS. 6 ITA NO. 1351/DEL/2018 14.2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE AFORESAID COSTS WERE ABNORMAL IN NATURE AND, THEREFORE, IN ACCORDANCE WITH THE CONSISTENT, REGUL AR AND ACCEPTED METHOD OF ACCOUNTING, WAS NOT CONSIDERED FOR THE PURPOSE OF V ALUATION OF CLOSING INVENTORY. 15. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN MAKING A DISALLOWANCE OF RS. 10,43,44,673 IN RESPECT OF PROV ISIONS MADE AT THE END OF THE YEAR TOWARDS NET INCREASE IN PRICES OF RAW MATE RIAL ALREADY SUPPLIED BY THE VENDORS UPTO 31.03.2009, WITH RETROSPECTIVE EFF ECT, ON THE GROUND THAT - (I) THE SAID PROVISIONS WERE MADE FOR CONTINGENT LIABIL ITY AND (II) THERE WAS NO CONDITION OF REVISION OF PRICES IN THE PURCHASE ORD ER PLACED BY THE APPELLANT ON SUCH VENDORS. 15.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE APPELLANT DID NOT SUBMIT INFORMATION/DETAI LS QUA THE METHOD FOLLOWED FOR COMPUTING THE AFORESAID PROVISIONS. 15.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT TOTAL PROVISION OF RS 10,43,44,67 3WAS MADE ON THE BASIS OF ACTUAL PRICE REVISIONS APPROVED UPTO THE END OF THE RELEVANT YEAR, WHICH IS AN ALLOWABLE BUSINESS EXPENDITURE, AS PER MERCANTILE S YSTEM OF ACCOUNTING, UNDER SECTION 37(1) OF THE ACT. 15.3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ALTERNATIVELY OBSERVING THAT THE AFORESAID AMOUNT OF PROVISION FO R INCREASE IN PRICE OF MATERIAL IS FURTHER LIABLE TO BE ADDED TO THE COST OF CLOSING STOCK, WITHOUT APPRECIATING THE CORRECT FACTS AND THE LEGAL POSITI ON. 16. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING VARIOUS EXPENSES TO THE EXTENT OF RS.17,83,68,791/-, WHICH PERTAINED TO SERVICES AVAILED FROM THE VENDORS IN THE IMMEDIATELY PRECEDI NG YEAR, AND WERE CLAIMED AS DEDUCTION DURING THE YEAR UNDER CONSIDERATION, S INCE BILLS FOR SUCH EXPENSES 7 ITA NO. 1351/DEL/2018 WERE RECEIVED OR LIABILITIES WERE RECOGNIZED DURING THE YEAR, ALLEGING THE SAME TO BE PRIOR PERIOD EXPENDITURE AND NOT BUSINESS EXP ENDITURE OF THE RELEVANT PREVIOUS YEAR. 16.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN FAILING TO APPRECIATE THAT THE LIABILITY IN RESPECT OF AFORESAID EXPENSES AGGREGATING TO RS. 17,83,68,791 PERTAINING TO SERVICES RENDERED BY VAR IOUS VENDORS/CREDITORS IN THE EARLIER YEARS, CRYSTALLIZED DURING THE RELEVANT YEAR ONLY ON RECEIPT OF BILLS AND ACCEPTANCE OF SAME BY THE APPELLANT AND, THEREF ORE, THE SAME DID NOT CONSTITUTE PRIOR PERIOD EXPENDITURE. 16.2 WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING OR DIRECTING TO ALLOW THE AFORESAID EXPENS ES IN THE RELEVANT PRECEDING YEAR(S). 17. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING A SUM OF RS. 10,18,89,332 IN RESPECT OF PROVISION FOR ADV ERTISEMENT EXPENSES INCURRED AT THE HEAD OFFICE MADE AT THE END OF THE RELEVANT PREVIOUS YEAR, WHICH WERE REVERSED IN THE SUCCEEDING YEAR, ALLEGING THE SAME TO BE EXCESSIVE. 17.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ALLEGING THAT THE PROVISION FOR EXPENSES AT THE END OF RELEVANT PREVI OUS YEAR WAS NOT MADE ON SCIENTIFIC BASIS AND WAS NOT A REASONABLE ESTIMATE AND, THEREFORE, CONTINGENT IN NATURE. 17.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE APPELLANT FAILED TO SUBSTANTIATE THE METHOD OF CREA TING THE AFORESAID PROVISION. 17.3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ADDING BACK THE PROVISION FOR ADVERTISEMENT EXPENSES INCURRED AT HE AD OFFICE, AGGREGATING TO RS. 10,18,89,332, WHILE COMPUTING BOOK PROFIT UNDER S ECTION 115JB, HOLDING THE SAME TO BE AN UNASCERTAINED LIABILITY. 8 ITA NO. 1351/DEL/2018 18. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING PURCHASES TO THE EXTENT OF RS. 64.75 CRORES MADE FR OM CERTAIN PARTIES RELATED WITH THE APPELLANT, IN TERMS OF ACCOUNTING STANDARD 18 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, ALLEGING THE SAM E TO BE EXCESSIVE, WITHOUT APPRECIATING THE COMMERCIAL EXPEDIENCY BEHIND SUCH PURCHASES. 18.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE ASSESSING OFFICER ERRED IN NOT APPRECIATING THAT THE AFORESAID PARTIE S WERE NOT RELATED TO THE APPELLANT IN TERMS OF SECTION 40A(2)(B) OF THE ACT AND HENCE NO DISALLOWANCE OF EXPENSE ON THE GROUND THAT PAYMENT MADE TO SUCH PAR TIES WAS EXCESSIVE, COULD BE MADE. 18.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ALLEGING THAT THE APPELLANT HAD MAINTAINED ITS RELATIONSHIP WITH THE PARTIES IN A MANNER THAT THEY DO NOT QUALIFY FOR BEING RELATED PARTIES AS PE R THE PROVISIONS OF SECTION 40A(2) OF THE ACT. 18.3. WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING PURCHASES TO THE EXTENT OF RS. 48.76 CR ORES, WITH RESPECT TO PURCHASES FROM AFORESAID RELATED PARTIES (IN TERMS OF AS-18) FOR WHICH NO COMPARABLE INSTANCE SUPPORTING THE ALLEGATION OF EX CESSIVE PAYMENT, WAS AVAILABLE, ON PURE ESTIMATE BASIS. 19. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN MAKING ADDITION OF RS. 84,08,000 TO THE INCOME OF THE APPELLANT UNDER SECTION 2(22)(E) OF THE ACT ON ACCOUNT OF PAYMENTS GIVEN BY THE CUSTOMERS OF HERO FIN CORP LTD. (HFCL) TO THE APPELLANT. 19.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE PAYMENT GIVEN BY THE CUSTOMERS OF HFCL TO THE APPELLANT WAS NOT IN THE NATURE OF LOAN OR ADVANCE GIVEN BY HFCL TO APPELLANT SO AS TO CONSTITUTE DEEMED DIVIDEND UNDER SECTION 2 (22)(E) OF THE ACT. 9 ITA NO. 1351/DEL/2018 19.2 WITHOUT PREJUDICE, THAT ON THE FACTS AND CIRCU MSTANCES OF THE CASE, THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE PRO VISIONS OF SECTION 2(22)(E) OF THE ACT WERE NOT APPLICABLE TO THE AFORESAID TRANSACTIO N, SINCE THE LOAN OR ADVANCE ALLEGEDLY GIVEN BY HFCL TO THE APPELLANT WAS IN THE ORDINARY COURSE OF BUSINESS OF HFCL. 19.3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE LOAN WAS NOT ADVANCED BY HFCL IN THE ORDINARY COURS E OF BUSINESS OF MONEY LENDING. 20. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING EXPENDITURE OF RS. 2 CRORES INCURRED ON ACCOUNT OF ADVISORY SERVICES AVAILED FROM HERO CORPORATE SERVICES LTD. (HCSL) ALLEGING THAT THE APPELLANT FAILED TO ESTABLISH THE BUSINESS EXPEDIENCY OF THE SAID EXPEN DITURE OR NEXUS OF SERVICES AVAILED FROM THE AFORESAID PARTY WITH THE BUSINESS OF APPELLANT COMPANY AND, THEREFORE, SUCH EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 20.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE REVENUE HAD POWERS TO DETERMINE THE REASONABLENESS OF THE AFORESAID PAYMENT MADE BY THE APPELLANT TO HCSL ON THE GROUND THAT THE SAID PARTY WAS RELATED TO APPELLANT IN TERMS OF AS 18, ALTHOUGH NO T RELATED IN TERMS OF SECTION 40A(2)(B) OF THE ACT. 21. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING EXPENDITURE OF RS. 22,84,20,063/- INCURRED TOWARDS QUARTERLY TARGET/TURNOVER DISCOUNT AND TRADE DISCOUNT OF RS. 31,51,28,137/- G IVEN TO THE DEALERS/CUSTOMERS UNDER SECTION 40(A)(IA) ON THE GR OUND THAT THE APPELLANT FAILED TO DEDUCTED TAX AT SOURCE THEREFROM UNDER SE CTION 194H OF THE ACT. 21.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT SINCE THE IMPUGNED PAYMENTS WERE NOT IN THE NATURE OF DI SCOUNT TO DEALERS, BUT INCENTIVES FOR MEETING TARGETS, THE SAME WAS IN THE NATURE OF COMMISSION, 10 ITA NO. 1351/DEL/2018 WHICH WAS SUBJECT TO TDS UNDER SECTION 194H OF THE ACT. 21.2. THAT THE ASSESSING OFFICER ERREDON FACTS AND IN LAW IN NOT APPRECIATING THAT THE AFORESAID DISCOUNTSWERE OFFERED UNDER CONTRACTS ENTERED INTO WITH THE DEALERS ON A PRINCIPAL TO PRINCIPAL TO BASIS, AND D ID NOT CONSTITUTE COMMISSION AS REFERRED TO IN SECTION 194H OF THE ACT. 21.3. WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE APPELLANT WA S UNDER A BONA FIDE BELIEF THAT NO TAX WAS WITHOUT PREJUDICE, THE ASSESSING O FFICER ERRED ON FACTS AND IN LAW IN REQUIRED TO BE DEDUCTED THEREFROM, NO DISALL OWANCE WAS WARRANTED UNDER SECTION 40(A)(IA) OF THE ACT. 21.4. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRE D ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE PAYEES HAVE ALSO PA ID TAX ON THE INCOME RECEIVABLE FROM THE APPELLANT, NO DISALLOWANCE COUL D BE MADE UNDER SECTION 40(A)(IA) OF THE ACT FOR ALLEGED DEFAULT IN DEDUCTI ON OF TAX AT SOURCE BY THE APPELLANT. 21.5. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERR ED ON FACT AND IN LAW IN NOT NOT APPRECIATING THAT THE DISALLOWANCE COULD NOT HA VE EXCEEDED 30% OF THE TOTAL EXPENDITURE IN VIEW OF THE AMENDED PROVISIONS OF SE CTION 40(A)(IA) OF THE ACT. 22. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING REIMBURSEMENT OF CONVEYANCE EXPENSES AGGREGATING TO RS. 9,68,081/- UNDER SECTION 40(A)(IA), ON THE GROUND THAT THE APPELLANT FAILED TO DEDUCT TAX AT SOURCE THEREFROM UNDER SECTION 194J OF THE ACT. 22.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN TREATING REIMBURSEMENT OF CONVEYANCE EXPENSES AS LEGAL AND P ROFESSIONAL EXPENSES. 22.2. THAT THE ASSESSING OFFICER ERRED ON FACT AND IN LAW IN NOT ACCEPTING THE INVOICES RAISED BY THE VENDORS FOR REIMBURSEMENT OF EXPENSES ON THE GROUND THAT THE SAID CLAIMS WERE RAISED ON THE BASIS OF SELF-SE RVING VOUCHERS. 11 ITA NO. 1351/DEL/2018 22.3. WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE APPELLANT WAS UNDER A BONA FIDE BELIEF THAT NO TAX WAS REQUIRED TO BE DEDUCTED THEREFROM, NO DISAL LOWANCE WAS WARRANTED UNDER SECTION 40(A)(IA) OF THE ACT. 22.4. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRE D ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE PAYEES HAVE ALSO PAID T AX ON THE INCOME RECEIVABLE FROM THE APPELLANT, NO DISALLOWANCE COULD BE MADE U NDER SECTION 40(A)(IA) OF THE ACT FOR ALLEGED DEFAULT IN DEDUCTION OF TAX AT SOUR CE BY THE APPELLANT. 22.5. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRE D ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE DISALLOWANCE COULD NOT HAVE E XCEEDED 30% OF THE TOTAL EXPENDITURE IN VIEW OF THE AMENDED PROVISIONS OF SE CTION 40(A)(IA) OF THE ACT. 23. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN HOLDING THAT EXPENDITURE AGGREGATING TO RS. 340,87,05,721, INCUR RED BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR ON ACCOUNT OF ROYALTY AN D TECHNICAL GUIDANCE FEES AND INCLUDING CESS THEREON; AND RS. 32,29,18,453 ON ACC OUNT OF MODEL FEES INCLUDING CESS PAID TO HONDA MOTOR CO., JAPAN, (HONDA) UNDE R THE LICENSE AND TECHNICAL ASSISTANCE AGREEMENT (LTAA) WAS CAPITAL IN NATUR E AND NOT ALLOWABLE DEDUCTION. 23.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE APPELLANT ACQUIRED CAPITAL ASSETS IN THE NATURE OF INTELLECTUAL PROPERTY RIGHTS AND PATENTS FROM HONDA ON PAYMENT OF ROYALTY AND TECHNI CAL GUIDANCE FEES UNDER THE LTAA. 23.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE APPELLANT RECEIVED BENEFIT OF ENDURING NATURE UNDER THE LTAA, SINCE - (I) THE APPELLANT OBTAINED EXCLUSIVE RIGHT TO MANUFACTURE A ND SELL THE PRODUCTS WITHIN THE TERRITORY OF INDIA AND, (II)THE LICENSE HAD A D EGREE OF PERPETUITY, AS IT WAS 12 ITA NO. 1351/DEL/2018 BEING RENEWED AND EXTENDED YEAR AFTER YEAR. 23.3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT PAYMENTS UNDER THE LTAA COVERED CONSIDERATION FOR S ETTING UP OF MANUFACTURING FACILITY FOR THE APPELLANT. 23.4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT EXPENDITURE INCURRED ON ROYALTY/ TECHNICAL GUIDANCE FEE/ MODEL FEE WERE NOT INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE APP ELLANT, WITHOUT GIVING ANY COGENT REASONS. 23.5. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRE D ON FACTS AND IN LAW IN INADVERTENTLY NOT ALLOWING DEPRECIATION ON ROYALTY/ TECHNICAL FEE AND MODEL FEE PAID AFTER THE TREATING THE SAME TO BE CAPITAL EXPE NDITURE. 24. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN TREATING GAINS ARISING FROM SALE OF INVESTMENTS MADE DURING THE YE AR AS BUSINESS INCOME, INSTEAD OF CAPITAL GAINS AS CONSIDERED BY THE APP ELLANT AND CONSEQUENTLY MAKING AN ADDITION OF RS. 145,43,08,968/- UNDER THE HEAD BUSINESS INCOME, AS OPPOSED TO INCOME OF RS. 81,80,74,967/- DISCLOSED U NDER THE HEAD CAPITAL GAINS. 24.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT INVESTMENTS WERE MADE BY THE APPELLANT WITH A VIEW TO EARN PROFIT FROM SELLING THE SAME AT A LATER STAGE AND, THEREFORE, PROFITS W ERE TAXABLE UNDER THE HEAD BUSINESS INCOME. 24.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN OBSERVING THAT THE APPELLANT HAD EARNED SUBSTANTIAL TURNOVER FROM SALE OF INVESTMENTS AND WAS ENGAGED IN DAY TO DAY MONITORING OF INVESTMENTS, TH EREFORE, THE APPELLANT WAS PRIMARILY ENGAGED IN ACTIVITY OF INVESTMENTS, WHICH WAS TO BE REGARDED AS BUSINESS ACTIVITY AND, ACCORDINGLY, INCOME ARISING THEREFORE WAS TAXABLE UNDER 13 ITA NO. 1351/DEL/2018 THE HEAD BUSINESS INCOME. 25. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN MAKING ADDITIONAL DISALLOWANCE OF RS. 124.88 LACS UNDER SECTION 14A O F THE ACT, BY APPLYING PROVISIONS OF RULE 8D OF THE RULES. 25.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN APPLYING PROVISIONS OF RULE 8D OF THE RULES, WITHOUT REACHING A FINDING /RECORDING SATISFACTION AS TO THE INCORRECTNESS OF THE SUO MOTO DISALLOWANCE OF E XPENSES MADE BY THE APPELLANT UNDER SECTION 14A OF THE ACT. 25.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ATTRIBUTING ENTIRE INTEREST EXPENDITURE INCURRED DURING THE YEAR TOWAR DS EARNING OF EXEMPT INCOME BY MECHANICALLY APPLYING PROVISIONS OF RULE 8D OF T HE RULES. 25.3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ALTERNATIVELY HOLDING THAT INTEREST EXPENSES TO THE EXTENT OF RS. 13.03 LACS AND ADMINISTRATIVE EXPENSES TO THE EXTENT OF RS. 111.85 LACS DISALLOWE D UNDER SECTION 14A AND CHALLENGED IN GROUND OF APPEAL NO. 16 TO 16.2 SUPRA , ARE EVEN OTHERWISE NOT ALLOWABLE BUSINESS DEDUCTIONS UNDER SECTION 36(L)(I II) AND SECTION 37(1) OF THE ACT, RESPECTIVELY. 25.4. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN NOT APPRECIATING THAT EXPENSES INCURRED DURING THE YEAR, INCLUDING I NTEREST EXPENDITURE, WAS FOR THE PURPOSE OF REGULAR BUSINESS ACTIVITIES AND HAD NO NEXUS WITH INVESTMENTS, AND WERE, THEREFORE, ALLOWABLE BUSINESS DEDUCTION U NDER SECTION 36(L)(III) AND 37(1) OF THE ACT. 25.5. WITHOUT PREJUDICE, THAT THE ASSESSING OFFICE R ERRED ON FACTS AND IN LAW IN HOLDING THAT INTEREST EXPENDITURE, IF ANY, ATTRIBUT ABLE TO INVESTMENTS WAS NOT ALLOWABLE UNDER SECTION 48 OF THE ACT, WITHOUT APPR ECIATING THAT SUCH FINDING WAS EXTRANEOUS AND BEYOND JURISDICTION TO THE ASSESSMEN T YEAR UNDER CONSIDERATION INASMUCH AS THE SAID ISSUE COULD BE RAISED ONLY IN THE YEAR OF SALE OF 14 ITA NO. 1351/DEL/2018 INVESTMENT(S). 26. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN ENHANCING THE VALUE OF CLOSING INVENTORY AND THEREBY INCOME OF APPELLAN T BY RS. 19,26,000 IN RESPECT OF PROPORTIONATE AMOUNT OF DEPRECIATION ON MODEL FE E INCURRED DURING THE YEAR AND DEBITED TO THE PROFIT AND LOSS ACCOUNT, ALLEGIN G THE SAME TO BE DIRECTLY RELATED TO MANUFACTURE OF FINISHED GOODS AND, THERE FORE, ATTRIBUTABLE TO THE CLOSING STOCK OF SUCH GOODS. 27. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN MAKING DISALLOWANCE OF RS. 1,50,92,608/- (COMPRISING OF RS . 48,55,673/- IN RESPECT OF DHARUHERA, GURGAON AND HARIDWAR PLANTS AND RS. 1,02 ,36,935/- IN RESPECT OF HEAD OFFICE EXPENSES) OUT OF EXPENDITURE INCURRED T OWARDS RE-IMBURSEMENT OF FOREIGN TRAVEL EXPENSES INCURRED BY EMPLOYEES, ON T HE GROUND THAT THE SAME WERE NOT SUPPORTED WITH EVIDENCES / BILLS OF EXPENDITURE INCURRED ABROAD. 28. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING EXPENDITURE OF RS. 13,04,554/- INCURRED ON ADVERTIS EMENT FOR REMEMBERING DEATH ANNIVERSARY OF LATE SHRI RAMAN MUNJAL, BEING THE FO UNDER OF THE APPELLANT- COMPANY, ON THE GROUND THAT SAME WAS AN EXPENDITURE OF PERSONAL NATURE, NOT BEING INCURRED FOR THE PURPOSE OF APPELLANTS BUSIN ESS. 29. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN MAKING DISALLOWANCE OF RS. 18,61,00,000/- ON ACCOUNT OF CO MMISSION PAID TO MANAGING DIRECTOR & CEO, VIZ., SHRI PAWAN MUNJAL UNDER SECTI ON 36(L)(II) ON THE GROUND THAT COMMISSION WAS PAID IN LIEU OF DISTRIBUTION OF DIVI DEND TO THEM, WHO WERE ALSO SHAREHOLDER OF THE APPELLANT COMPANY. 29.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT FAILED TO JUSTIFY THE COMMERCIAL EXPEDIEN CY FOR MAKING THE AFORESAID PAYMENT OF COMMISSION TO THE MANAGING DIRECTOR. 29.2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE ASSESSING OFFICER 15 ITA NO. 1351/DEL/2018 FAILED TO APPRECIATE THAT THE COMMISSION WAS PAID T O THE DIRECTORS IN LIEU OF SERVICES RENDERED BY THEM AND NOT IN LIEU DISTRIBUT ION OF PROFITS. 29.3. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN NOT APPRECIATING THAT DIVIDEND WAS SEPARATELY DISTRIBUTED AMONGST AL L THE SHAREHOLDERS, INCLUDING SHRI MUNJAL AND THUS, PAYMENT OF COMMISSI ON WAS NOT IN LIEU OF DISTRIBUTION OF DIVIDEND. 30. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING DEDUCTION CLAIMED FOR THE PROPORTIONATE AMOUNT OF P REMIUM PAID FOR TAKING LAND ON LEASE FOR A PERIOD OF 99 YEARS, AMOUNTING TO RS. 1,29,67,963, ON THE GROUND THAT THE SAME WAS CAPITAL EXPENDITURE, HAVING RESUL TED IN ACQUISITION OF CAPITAL ASSET IN THE FORM OF LAND OR BENEFIT OF ENDURING NA TURE IN THE CAPITAL FIELD. 30.1 THAT THE ASSESSING OFFICER ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IS NOT FOLLOWING THE DIRECTIONS OF THE DRP IN NOT GRANTING DEPRECIATION ON LEASE PREMIUM SINCE SUCH PREMIUM CONSTITUTES BUSIN ESS OR COMMERCIAL RIGHTS UNDER SECTION 32(1 )(II) OF THE ACT. 31. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING EXPENDITURE OF RS.23,44,222/- INCURRED UNDER THE HE AD OF COMMUNITY DEVELOPMENT ON THE GROUND THAT THE SAME WAS NOT IN CURRED WHOLLY AND EXCLUSIVELY FOR EARNING BUSINESS INCOME. 31.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE AFORESAID PAYMENT WAS IN THE NATURE OF APPLICATION OF INCOME AND NOT EXPENDITURE ALLOWABLE AGAINST BUSINESS INCOME UNDER THE PROVISIONS OF THE ACT. 32. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING DEDUCTION UNDER SECTION 80IC OF THE ACT BY AN AMOUN T OF RS. 7.53 CRORES, BEING THE PROPORTIONATE AMOUNT OF PURCHASES FROM VENDORS AFTER PROCESSING OF SEMI- FINISHED GOODS SUPPLIED BY THE APPELLANT, AMOUNTING TO RS. 57.72 CRORES, COMPUTED ON AD-HOC BASIS, ON THE GROUND THAT MANUFA CTURING ACTIVITY TO THE 16 ITA NO. 1351/DEL/2018 AFORESAID EXTENT OF PURCHASES WAS OUTSOURCED AND, T HEREFORE, PROPORTIONATE AMOUNT OF PROFIT DERIVED FROM SUCH PURCHASES WAS NO T ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. 32.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT PURCHASE OF FINISHED COMPONENTS FROM THE VENDORS FO R FURTHER CONSUMPTION IN ASSEMBLY/MANUFACTURE OF TWO WHEELERS CONSTITUTED OU TSOURCING OF MANUFACTURING ACTIVITY. 33. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING DEDUCTION UNDER SECTION 80IC OF THE ACT BY AN AMOUN T OF RS. 71.62 CRORES, ON THE GROUND THAT PART OF THE MANUFACTURING ACTIVITY(IES) AT HARIDWAR WERE OUTSOURCED ON THE BASIS OF LOWER CONSUMPTION OF POWER PER UNIT AT HARIDWAR PLANT VIS-A-VIS RATE OF POWER CONSUMPTION AT OTHER TWO PLANTS AND, THEREFORE, PROFIT ATTRIBUTABLE TO SUCH OUTSOURCED ACTIVITY(IES) SHALL NOT BE ALLOW ABLE AS DEDUCTION. 34. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING DEDUCTION UNDER SECTION 80IC BY AN AMOUNT OF RS. 1, 21,00,000, WITH RESPECT TO GOODS/ITEMS, AGGREGATING TO RS. 10,44,47,042 PROCUR ED FROM OTHER NON-ELIGIBLE UNITS, BY APPLYING THE PROVISIONS OF SECTION 80IA(8 ) READ WITH SECTION 80IC(7) OF THE ACT. 34.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING DEDUCTION UNDER SECTION 80IC TO THE EXTENT OF RS. 0 .62 CORES, BEING THE PROPORTIONATE AMOUNT OF AGGREGATE PURCHASES OF RS. 4.78 CRORES FROM NON-ELIGIBLE UNIT(S) AFTER PROCESSING OF SEMI-FINISHED GOODS, CO MPUTED ON AD-HOC BASIS, ON THE GROUND THAT MANUFACTURING ACTIVITY TO THE AFORESAID EXTENT OF PURCHASES WAS OUTSOURCED AND, THEREFORE, PROPORTIONATE AMOUNT OF PROFIT DERIVED FROM SUCH PURCHASES WAS NOT ELIGIBLE FOR DEDUCTION UNDDER SEC TION 80IC OF THE ACT. 34.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN DISALLOWING DEDUCTION UNDER SECTION 80IC BY AN AMOUNT OF RS. 0. 59 CORES, BEING THE AMOUNT OF MARKUP (ADOPTED @10.36%, BEING THE NP OF GURGAON UNIT, APPLIED TO 17 ITA NO. 1351/DEL/2018 PURCHASES OF RS. 5.66 CRORES FROM THAT UNIT) ATTRIB UTED OVER THE VALUE OF GOODS, AGGREGATING TO RS. 20.89 CRORES PROCURED FROM GURGA ON UNITS, BY APPLYING THE PROVISIONS OF SECTION 80IA(8) READ WITH SECTION 80I C(7) OF THE ACT, ON THE GROUND THAT DEDUCTION UNDER THE FORMER SECTION NEEDS TO BE COMPUTED BY RECORDING INTER- UNIT TRANSFER AT MARKET PRICE. 35. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING DEDUCTION UNDER SECTION 80IC BY AN AMOUNT OF RS. 22 7,47,04,870, (RESTRICTED TO RS. 190,38,38,681), INVOKING PROVISIONS OF SECTION 80IA(10) OF THE ACT, ON THE GROUND THAT ELIGIBLE BUSINESS AT HARIDWAR EARNED EX TRAORDINARY PROFITS AS COMPARED TO OTHER NON-ELIGIBLE UNITS BY WAY OF CHAR GING HIGHER AMOUNT FOR BASIC PRICE PER UNIT OF TWO-WHEELERS VIS- A-VIS PRICE CHA RGED BY OTHER NON-ELIGIBLE UNITS. 35.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT PART OF THE ALLEGED EXTRAORDINARY PROFITS EARNED BY THE ELI GIBLE UNIT SHOULD HAVE BEEN ATTRIBUTED TO THE HEAD OFFICE ON ACCOUNT OF SALES/M ARKETING SET-UP AT HEAD-OFFICE. 36. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING DEDUCTION UNDER SECTION 80IC OF THE ACT BY AN AMOUN T OF RS.128.45 CRORES (RESTRICTED TO RS. NIL) ON THE GROUND THAT PART OF PROFITS EARNED BY THE ELIGIBLE UNIT SHOULD HAVE BEEN ATTRIBUTED TO ADVERTISEMENT AND MA RKETING ACTIVITIES CARRIED OUT AT HEAD-OFFICE, AND SUCH PROFITS WERE NOT DERIV ED FROM THE BUSINESS OF MANUFACTURING, WHICH WERE ONLY ELIGIBLE FOR DEDUCTI ON UNDER THE AFORESAID SECTION. 36.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT PART OF EXTRAORDINARY PROFITS EARNED BY ELIGIBLE UNIT AT HA RIDWAR WERE ATTRIBUTABLE TO PROFIT EARNED FROM MARKETING OF PRODUCTS AND BRAND VALUE. 36.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN HOLDING THAT SINCE MARKETING ACTIVITIES WERE CARRIED OUT AT HEAD OFFIC E, THEREFORE, THE APPELLANT SHOULD HAVE TRANSFERRED GOODS TO HEAD OFFICE AT COS T PLUS REASONABLE MARGIN AND THE HEAD-OFFICE SHOULD HAVE EARNED HIGHER PROFI T ON ACCOUNT OF SALES AND 18 ITA NO. 1351/DEL/2018 MARKETING ACTIVITIES. 36.3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE ASSETS, SUCH AS, BRAND VALUE AND MARKETING NETW ORK, WERE NOT OWNED BY THE ELIGIBLE UNDERTAKING AT HARIDWAR. 36.4 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ATTRIBUTING PROFITS TO THE MANUFACTURING ACT IVITIES AT HARIDWAR BY APPLYING NET PROFIT RATE OF 6.85%, ON AN ARBITRARY BASIS. 36.5. WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE NET PROFIT RATE OF THE FIRS T YEAR OF OPERATION OF BUSINESS WOULD BE THE RATE OF PROFIT DERIVED SOLELY FROM MAN UFACTURING ACTIVITIES. 36.6. WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPUTING THE NET PROFIT RATE OF 6.85% FOR A TTRIBUTING PROFITS TO THE MANUFACTURING ACTIVITY AT HARIDWAR, BY COMPUTING NE T PROFIT RATE FOR THE FIRST YEAR OF OPERATION OF THE APPELLANT COMPANY ON AN ARBITRA RY BASIS. 37. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING DEDUCTION UNDER SECTION 80IC OF THE ACT BY AN AMOUN T OF RS. 40,47,87,664 (RESTRICTED TO NIL) IN RESPECT OF CERTAIN INCOMES E ARNED BY THE ELIGIBLE UNIT, ON THE GROUND THAT SUCH INCOMES WERE NOT DERIVED FROM THE BUSINESS OF MANUFACTURE OF SPECIFIED ARTICLES OR THINGS. 37.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE OTHER INCOME AGGREGATING TO RS. 40,47,87,664 IS TAX ABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. 38. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING DEDUCTION UNDER SECTION 80IC OF THE ACT, AGGREGATIN G TO RS. 270,74,38,681/- (RESTRICTED TO RS. NIL), ON THE GROUND THAT THE APP ELLANT DID NOT SATISFY THE FOLLOWING CONDITIONS ALLEGED AS PRE-REQUISITES FOR CLAIM OF DEDUCTION UNDER THE SAID SECTION: 19 ITA NO. 1351/DEL/2018 (I) THE APPELLANT DID NOT COMPLY WITH PROVISIONS OF RU LE 18BBB(4) OF THE RULES, BY NOT ATTACHING THE APPROVAL OBTAINED FROM AN APPROPRIATE AUTHORITY FOR CARRYING ON THE ELIGIBLE BUSINESS; (II) THE APPELLANT DID NOT COMPLY WITH THE CONDITIONS S PECIFIED IN THE INDUSTRIAL POLICY AND CONSEQUENT NOTIFICATION ISSUED BY UTTARA NCHAL GOVERNMENT; AND (III) THE APPELLANT VIOLATED THE TERMS OF FACTORY LICENS E REGARDING CONTINUOUS EMPLOYMENT OF SPECIFIED NUMBER OF EMPLOYEES ON ANY GIVEN DAY. 38.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE APPELLANT FAILED TO SATISFY THE CONDITIONS PRECEDEN T OF OBTAINING APPROVAL FROM AN APPROPRIATE AUTHORITY TO CARRY ON THE ELIGIBLE BUSI NESS FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 80IC OF THE ACT. 38.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT NO SEPARATE APPROVAL WAS REQUIRED BY THE APPEL LANT TO CARRY ON THE ELIGIBLE BUSINESS OF MANUFACTURING TWO-WHEELERS AT A SPECIFI ED LOCATION, UNDER SECTION 80IC OF THE ACT. 38.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT FAILURE TO COMPLY WITH CONDITIONS CONTAINED IN INDU STRIAL POLICY FOR THE RELEVANT STATE WOULD DISENTITLE THE APPELLANT TO CLAIM OF DE DUCTION UNDER SECTION 80IC OF THE ACT. 38.4 THAT THE ASSESSING OFFICER FAILED TO APPRECIA TE THAT SECTION 80IC WAS AN INDEPENDENT AND SELF-CONTAINED PROVISION AND DID NO T STIPULATE ANY PRE-REQUISITE CONDITIONS, AS CONTAINED IN THE INDUSTRIAL POLICY, FOR CLAIMING DEDUCTION UNDER THAT SECTION. 39. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT PURCHASES MADE FROM CERTAIN VENDORS AGGREGATING TO RS. 3517,66,84,000 ARE DISALLOWABLE UNDER SECTION 40(A)(IA) OF THE ACT ON THE GROUND THAT FAILED TO DEDUCT TAX AT SOURCE (TDS) THEREFROM UNDER SECTION 194C OF THE ACT. 20 ITA NO. 1351/DEL/2018 39.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT CONTRACTS ENTERED WITH THE AFORESAID VENDORS WERE I N THE NATURE OF WORK CONTRACT AND, THEREFORE, PAYMENTS MADE THEREUNDER WERE SUBJECT TO TDS UNDER SECTION 194C OF THE ACT. 39.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 194C OF THE ACT WERE NOT APPLICABLE IN RELATION TO THE AFORESAID TRANSACTION S, AS THE SAME WERE IN THE NATURE OF CONTRACT OF SALE. 39.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN TREATING THE AFORESAID PURCHASE CONTRACT AS WORK CONTRACTS, SI MPLY BECAUSE THE APPELLANT, WHILE PLACING THE PURCHASE ORDERS TO THE VENDORS, I N ADDITION TO SPECIFICATIONS OF THE PRODUCTS TO BE PURCHASED FROM THE VENDORS, ALSO SPECIFIED TO THE VENDORS THE NAME OF SUPPLIERS AND PURCHASE PRICE OF RAW MATERIA LS/COMPONENTS TO BE USED IN MANUFACTURE OF PRODUCTS BY SUCH VENDORS. 39.4 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT BY ARRANGING THE TRANSACTION IN THE AFORESAID MANNER, THE APPELLANT HAD ADOPTED COLORABLE DEVICE TO AVOID DEDUCTION OF TAX AT SOURC E. 39.5 WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE APPELLANT HAD A BONAFIDE BELI EF THAT TAX WAS NOT DEDUCTIBLE AT SOURCE ON AFORESAID TRANSACTION OF SUPPLY OF GOO DS. 39.6 WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE DISALLOWANCE COULD NOT HAVE E XCEEDED 30% OF THE TOTAL EXPENDITURE IN VIEW OF THE AMENDED PROVISIONS OF SE CTION 40(A)(IA) OF THE ACT. 39.7. WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING THE AFORESAID PURCHASES FOR ALLEGED FAI LURE TO DEDUCT TAX AT SOURCE FROM PAYMENTS MADE THEREAGAINST, WITHOUT APPRECIATI NG THAT AMENDMENT TO SECTION 40(A)(IA) DISABLING DISALLOWANCE IN CASES W HERE RECIPIENTS HAVE 21 ITA NO. 1351/DEL/2018 CONSIDERED RECEIPTS AS PART OF THE TAXABLE INCOME O N WHICH TAX WAS DULY PAID, HAD RETROSPECTIVE APPLICATION AND, THEREFORE, NO PA RT OF THE PAYMENTS MADE COULD HAVE BEEN DISALLOWED IN THE HANDS OF APPELLANT UNDE R THE SAID SECTION. 40. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING AMOUNT OF RS. 89,31,800/- ON ACCOUNT OF PROVISION MADE TOW ARDS COMMISSION PAID ON INSTITUTIONAL SALES TO DEALERS, ON THE GROUND THAT THE APPELLANT FAILED TO DEDUCT TAX AT SOURCE UNDER SECTION 194H FROM THE AMOUNT OF AFORESAID PROVISION INVOKING PROVISION OF SECTION 40(A)(IA) OF THE ACT. 40.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE APPELLANT WAS LIABLE TO DEDUCT TAX AT SOURCE, SINCE THE AFORESAID PROVISION WAS MADE IN RELATION TO IDENTIFIED PARTIES. 40.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE APPELLANT WAS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 194H OF THE ACT AS THE DEALERS WERE ACTING ON A PRINCIPAL T O PRINCIPAL BASIS QUA THE COMPANY AND NOT AS AN AGENT. 40.3 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE PAYEES WERE NOT IDENTIF IED NOR ANY RIGHT TO RECEIVE COMMISSION ACCRUED IN THE HANDS OF PAYEES, THERE WA S NO OBLIGATION ON THE APPELLANT TO DEDUCT TAX AT SOURCE UNDER SECTION 194 H OF THE ACT. 41. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING UNDER SECTION 40(A)(IA), EXPENDITURE OF RS 71.42 CRORES B EING PAYMENT MADE TO DEALERS TOWARDS REPAIR/MAINTENANCE OF VEHICLES OF THE CUSTO MERS UNDER FREE SERVICE COUPONS ON THE GROUND THAT THE APPELLANT FAILED TO DEDUCT TAX AT SOURCE THEREFROM UNDER SECTION 194J OF THE ACT. 41.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT CARRYING OUT REPAIR AND MAINTENANCE SERVICES OF VEH ICLES OF CUSTOMERS, WHICH WAS THE OBLIGATION OF THE APPELLANT UNDER THE CONTR ACT OF SALE OF VEHICLES TO 22 ITA NO. 1351/DEL/2018 CUSTOMERS TANTAMOUNT TO RENDERING OF PROFESSIONAL/T ECHNICAL SERVICES BY THE DEALERS TO THE APPELLANT AND THE PAYMENT MADE BY TH E APPELLANT TO THE DEALERS WAS FOR AVAILING SUCH SERVICES. 41.2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THERE WAS AN INDEPENDENT CONTRACT FOR SERVICE OF VEHICLES BETWEEN THE DEALERS AND THE CUSTOMERS AND NO SERVICE WAS EITHER RENDERED BY THE DEALERS TO THE APPELLANT OR TO THE CUSTOMERS FOR AND ON BEHALF OF THE APPELLANT. 41.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE PAYMENTS AGAINST SERV ICE OF VEHICLE BY DEALERS WAS MADE BY THE CUSTOMERS IN THE FORM OF FREE SERVICE C OUPONS, WHICH WERE SIMPLY REIMBURSED/HONORED BY THE APPELLANT IN VIEW OF RECI PROCAL OBLIGATION UNDERTAKEN BY THE APPELLANT AT THE TIME OF SALE OF VEHICLE UND ER THE CONTRACT OF SALE. 41.4 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE APPELLANT WAS UNDER A BONA FIDE BELIEF THAT NO TAX WAS REQUIRED TO BE DEDUCTED THEREFROM, NO DISAL LOWANCE WAS WARRANTED UNDER SECTION 40(A)(IA) OF THE ACT. 41.5. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERR ED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE DISALLOWANCE COULD NOT HAVE E XCEEDED 30% OF THE TOTAL EXPENDITURE IN VIEW OF THE AMENDED PROVISIONS OF SE CTION 40(A)(IA) OF THE ACT. 41.6. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRE D ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE PAYEES HAD ALSO PAID TA X ON THE INCOME RECEIVABLE FROM THE APPELLANT, NO DISALLOWANCE COULD BE MADE U NDER SECTION 40(A)(IA) OF THE ACT FOR ALLEGED DEFAULT IN DEDUCTION OF TAX AT SOUR CE BY THE APPELLANT. 42. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING AMOUNT OF RS. 2.01 CRORES ON ACCOUNT OF ADDITIONAL DEPRECI ATION CLAIMED UNDER SECTION 32(L)(IIA) OF THE ACT, IN RESPECT OF COMPUTERS INST ALLED AT SUPERVISORY OFFICES 23 ITA NO. 1351/DEL/2018 LOCATED IN THE COMPOUND OF FACTORY AT GURGAON / DHA RUHERA / HARIDWAR PLANT, HOLDING THAT IN TERMS OF PROVISO TO SECTION 32(L)(I IA), ADDITIONAL DEPRECIATION IS NOT ADMISSIBLE ON ANY MACHINERY OR PLANT INSTALLED IN A NY OFFICE PREMISES. 42.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW ON HOLDING THAT SINCE COMPUTERS AT SUPERVISORY OFFICES LOCATED WITHIN THE FACTORY PREMISES WERE NOT DIRECTLY INVOLVED IN MANUFACTURING ACTIVITY, WERE N OT ELIGIBLE FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(L)(IIA) OF THE ACT. 42.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT SINCE THE APPELLANT WAS CLAIMING DEPRECIATION ON COMPUTER S @60%, THE SAME CANNOT BE SAID TO BE PLANT AND MACHINERY FOR THE PURPOSES OF THE CLAIM OF ADDITIONAL DEPRECIATION UNDER SECTION 32(L)(IIA) OF THE ACT. 43. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING DEDUCTION OF RS. 7,59,98,664/- CLAIMED UNDER SECTIO N 80IA OF THE ACT IN RESPECT OF CAPTIVE POWER GENERATING UNIT SITUATED AT GURGAO N. 43.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPUTING INCOME OF THE POWER GENERATING UNIT BY CONSIDERING THE RAT E OF RS. 4.36 PER UNIT, AT WHICH POWER WAS SUPPLIED BY STATE ELECTRICITY BOARD , AS THE MARKET PRICE OF THE POWER, SUPPLIED BY THAT UNIT TO THE VEHICLE MANUFAC TURING UNIT OF THE APPELLANT, AS AGAINST RATE OF RS. 8.95 PER UNIT (COST OF GENER ATION OF POWER AT RS. 7.78 PER UNIT + MARK-UP OF 15%) ADOPTED BY THE APPELLANT. 43.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE PRICE AT WHICH ELECTRICITY WAS SUPPLIED BY HSEB WAS NOT REFLECTIVE OF MARKET PRICE SINCE ELECTRICITY SUPPLY WAS NOT ADE QUATELY AVAILABLE FROM HSEB AT GURGAON AS PER ITS REQUIREMENT. 44. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING DEDUCTION OF RS. 1,24,71,776 CLAIMED BY THE APPELLA NT ON ACCOUNT OF PROVISION FOR WARRANTY MADE IN RESPECT OF SALES MADE DURING THE R ELEVANT PREVIOUS YEAR, ON 24 ITA NO. 1351/DEL/2018 THE GROUND THAT SAME IS AN UNASCERTAINED LIABILITY. 44.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT SINCE PROVISION FOR WARRANTY WAS ALWAYS HIGHER THAN ACTUA L WARRANTY EXPENSE INCURRED DURING THE YEAR, SAME WAS AN UNASCERTAINED LIABILITY. 44.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE METHOD FOLLOWED BY THE APPELLANT FOR CREATING PROVI SION FOR WARRANTY IN RESPECT OF SALES MADE DURING THE YEAR IS NOT RATIONAL AND SCIE NTIFIC. 45. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN HOLDING THAT EXPENDITURE OF RS.11.67 CRORES INCURRED ON ACCOUNT OF EXPORT COMMISSION PAID TO HONDA MOTOR CO. LTD., JAPAN (HONDA), IS DISALLOWABL E UNDER SECTION 40(A)(I) OF THE ACT ON THE GROUND THAT THE SAID AMOUNT WAS IN T HE NATURE OF ROYALTY/FEE FOR TECHNICAL SERVICE ON WHICH THE APPELLANT FAILED TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT. 45.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE EXPORT COMMISSION PAID TO HONDA WAS IN THE NATURE O F ROYALTY/FEE FOR TECHNICAL SERVICES ON THE GROUND THAT THE SAME WAS IN CONSIDE RATION FOR, (I) RIGHT TO USE TRADEMARK, (II) PERMISSION TO EXPORT, AND (III) MAN AGERIAL AND TECHNICAL SERVICES PROVIDED BY HONDA, AND ACCORDINGLY THE APPELLANT WA S UNDER OBLIGATION TO DEDUCT TAX AT SOURCE THEREFROM UNDER SECTION 195 RE AD WITH SECTION 9(L)(VI)/(VII) OF THE ACT. 45.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE PAYMENT OF EXPORT COMMISSION WAS MADE TO H ONDA IN CONSIDERATION OF ACCORDING CONSENT/FOR CEDING OVERSEAS TERRITORY AND ALLOWING EXPORT OF MOTORCYCLE AND SPARES BY THE APPELLANT AND THE SAME WAS NOT LIABLE TO TAX IN INDIA. 45.3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SERVICES / ASSISTANCE PROVIDED BY HONDA WERE I NCIDENTAL TO THE RIGHT FOR 25 ITA NO. 1351/DEL/2018 EXPLOITING THE FOREIGN TERRITORY AND WERE NOT IN TH E NATURE OF FEE FOR TECHNICAL SERVICES. 45.4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE PAYMENT OF EXPORT COMMISSION WAS NOT IN CO NSIDERATION FOR USE OF TRADE MARK OR PROVISION OF TECHNICAL ASSISTANCE, FOR WHIC H SEPARATE PAYMENT WAS BEING MADE, ON WHICH TAX WAS REQUIRED TO BE DEDUCTED UNDE R SECTION 195 OF THE ACT BY THE APPELLANT. 45.5. WITHOUT PREJUDICE THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT PAYMENT OF EXPORT COMMISSION BEING FOR EARNING INCOME FROM SOURCE OUTSIDE INDIA, WOULD NOT BE CHARACTERIZ ED AS ROYALTY OR FEE FOR TECHNICAL SERVICE AS PER SECTION 9(L)(VI)(B) OR SEC TION 9(L)(VII)(B) OF THE ACT, RESPECTIVELY. 45.6. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT WAS BOUND TO TAKE A CERTIFICATE FROM THE ASSESSING OFFICER UNDER SECTION 195(2) OF THE ACT IN VIEW OF THE DECISION O F THE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATION OF INDIA LTD. VS. CIT: 239 ITR 587, BEFORE REMITTING EXPORT COMMISSION TO HONDA AND IN ABSENCE OF SUCH C ERTIFICATE THE APPELLANT WAS REQUIRED TO WITHHOLD TAX ON EXPORT COMMISSION PAID TO HONDA. 45.7. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ALTERNATIVELY HOLDING THAT EXPORT COMMISSION CONSTITUTES CAPITAL EXPENDITURE ON THE GROUND THAT THE SAME WAS INCURRED FOR ACQUIRING PERMISSION / LICENSE FOR MAKING EXPORT AND WAS NOT ALLOWABLE UNDER SECTION 37(1) OF THE AC T. 45.8. WITHOUT PREJUDICE THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT HOLDING THAT DEPRECIATION WAS ALLOWABLE ON THE PAYM ENT OF EXPORT COMMISSION IF THE SAME WERE TO CONSTITUTE CAPITAL EXPENDITURE. 46. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AD-HOC DISALLOWANCE OF RS.12,99,205/- ON THE GROUND THAT T HE APPELLANT HAD ALLEGEDLY 26 ITA NO. 1351/DEL/2018 ENGAGED IN SHIFTING OF PROFITS AND/OR LOSSES THROUG H CLIENT CODE MODIFICATION (CCM), MERELY ON SURMISES AND CONJECTURES, WITHOUT PROVIDING ANY COGENT BASIS THERETO. 3. AS REGARDS GROUND NO. 1 TO12 ARE RELATING TO TRA NSFER PRICING ADJUSTMENT U/S 92CA. DURING THE RELEVANT PREVIOUS YEAR, THE AS SESSEE FOR THE PURPOSE OF ITS BUSINESS ENTERED INTO INTERNATIONAL TRANSACTIO NS OF PAYMENT OF MODEL FEE AMOUNTING TO RS. 307,753,454. ROYALTY OF RS. 3,240, 128,779 (ROYALTY ON SALES AMOUNTING TO RS. 15,00,822) AND PAYMENT OF EXPORT C OMMISSION RS. 116.748.507. SINCE THE OPERATING PROFIT/SALES RATI O OF THE ASSESSEE @ 12.91% IS HIGHER THAN THE AVERAGE OF THE OPERATING PROFIT RATIO OF COMPARABLE COMPANIES, I.E., (-) 21.97%, THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WERE CONSIDERED AS HAVING BEEN ENTERED AT ARMS LENGTH PRICE, APPLYING TNMM. 4. AS REGARDS TO PAYMENT OF MODEL FEE, THE TRANSFER PRICING OFFICER (TPO) DETERMINED THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION OF PAYMENT OF MODEL FEE AT NIL HOLDING AS UNDER: A) THE ASSESSEE IS EQUALLY RESPONSIBLE FOR THE TECHNOL OGY UPGRADATION THAT IS TAKING PLACE IN INDIA; B) THE ASSESSEE PAYS MODEL FEE AND ROYALTY FOR THE SAM E SET OF SERVICE THE DRP CONFIRMED THE AFORESAID ADJUSTMENTS MADE BY THE TPO. 5. THE LD. AR SUBMITTED THAT THE ADJUSTMENT MADE BY THE TPO IS BAD IN LAW AND IS LIABLE TO BE DELETED. THE TPO OBSERVED THAT THE PAYMENT OF MODEL FEE HAS BEEN MADE IN TERMS OF LICENSE AND TECHNICAL ASSISTA NCE AGREEMENT (APPROVED BY THE GOVERNMENT) IN CONSIDERATION OF LICENSE TO M ANUFACTURE 'PRODUCTS' AND USING TECHNICAL KNOW-HOW A PROVIDED BY THE ASSOCIAT ED ENTERPRISES DURING THE CURRENCY OF THE AGREEMENT. THE TPO FURTHER HELD THA T THE PAYMENT OF MODEL FEE, THEREFORE, IT WOULD BE APPRECIATED, IS A CONSI DERATION IN TERMS OF AGREEMENT 27 ITA NO. 1351/DEL/2018 WITH THE ASSOCIATED ENTERPRISES FOR AVAILING LICENS E TO USE THEIR PROPRIETARY TECHNOLOGY. IN OTHER WORDS, THE PAYMENT OF MODEL FE E IS NECESSARY COST INCURRED FOR OBTAINING KNOWHOW FOR MANUFACTURE OF PRODUCTS B Y THE ASSESSEE. THE LD. AR SUBMITTED THAT WHILE IMPLEMENTING THE TRANSFER PRICING REGULATIONS, IT WOULD NOT BE APPROPRIATE FOR THE INDIAN TAX ADMINIS TRATION TO DENY PAYMENT OF RIGHTFUL CONSIDERATION TO A NON RESIDENT RELATED PA RTY (AE) PURSUANT TO A BONAFIDE AGREEMENT FOR USE OF THEIR PROPRIETARY TEC HNOLOGY BY THE FOR MANUFACTURE OF FINISHED PRODUCTS IN INDIA. THEREFOR E, THE LD. AR SUBMITTED THAT PAYMENT OF ROYALTY IS MADE IN CONSIDERATION FO R RIGHT TO MANUFACTURE PRODUCTS AND USING THE TECHNICAL KNOWHOW OWNED BY T HE ASSOCIATED ENTERPRISES. THE LD. AR SUBMITTED THAT THE TRIBUNAL , FOLLOWING THE ORDER OF THE COORDINATE BENCHES, THE AFORESAID ISSUES HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE CONSOLIDATED ORDER DATED 24.10.2016 PASSED BY THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEAR 2010-11 AND 2011-12 FOLLOWING ASSESSEES OWN CASE FOR THE ASSES SMENT YEAR 2006- 07, 2007-08 AND 2008-09 DELETED THE AFORESAID ADDITION. FURTHER, THE LD. AR SUBMITTED THAT THE HONBLE HIGH COURT UPHELD THE OR DER OF THE TRIBUNAL FOR AY 2006-07 (ITA NO. ITA 923/2015) DELETING THE ADJUSTM ENT ON ACCOUNT OF PAYMENT OF MODEL FEE. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEAR 2012- 13, THE TRIBUNAL DECIDED THE ISSUE FOLLOWING THE OR DERS FOR ASSESSMENT YEAR 2010-11 AND 2011-12 WHEREIN THE TRIBUNAL, FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2006-07, 2007-08 AND 2008-09 HAD D ELETED SIMILAR TRANSFER PRICING ADJUSTMENT MADE IN THOSE YEARS. 6. AS RELATES TO PAYMENT OF ROYALTY ON SALES TO A. ES, THE ASSESSEE IS PAYING ROYALTY TO ASSOCIATED ENTERPRISE IN CONSIDER ATION FOR GRANTING LICENSE TO MANUFACTURE MOTORCYCLES USING TECHNICAL KNOW PROVID ED BY THE ASSOCIATED ENTERPRISE. THE TPO HELD THE ARM'S LENGTH PRICE OF THE INTERNAT IONAL TRANSACTION OF PAYMENT OF ROYALTY TO THE EXTENT OF RS. 15,00,82 2 RELATABLE TO EXPORT OF PRODUCTS TO THE ASSOCIATED ENTERPRISE TO BE NIL ON THE GROUND THAT: . 28 ITA NO. 1351/DEL/2018 (I) THE POSITION OF THE ASSESSEE WITH REGARD TO MAN UFACTURING FOR THE AES IS THAT OF A CONTRACT MANUFACTURER. THE ASSESSE E IS PURCHASING RAW MATERIAL FROM THE AES. GOODS ARE MANUFACTURED IN IN DIA AND THEN PART OF IT IS EXPORTED TO AES. THE ROYALTY PAID AS A PERCEN TAGE OF SALES TO THE ASSOCIATED ENTERPRISE IS NOT AT ARM'S LENGTH BECAUS E IT AMOUNTS TO COLLECTING ROYALTY ON THE SALES TO ITSELF. (II) ALL THE AES ARE TYPICALLY WITHIN THE BROAD UMB RELLA OF THE MULTINATIONAL CORPORATION. EVEN THOUGH, IT APPEARS THAT THE TECHNICAL KNOW-HOW IS COMMERCIALLY EXPLOITED IN INDIA, IN REA LITY, THE PRICE FOR THESE ACTIVITIES ARE NOT FIXED BY MARKET FORCES. (III) IN THE PRESENT CASE, WHERE ASSESSEE IS MAKIN G A PART OF ITS SALES TO ITS RELATED PARTIES AND THE BENEFIT OF PRODUCING CO MPONENTS IS REAPED BY AE, THE PAYMENT OF CHARGES FOR ROYALTY DO NOT CONFI RM TO ARMS LENGTH PRINCIPLE. 7. THE LD. AR SUBMITTED THAT THE ADJUSTMENT BY THE TPO IS NOT SUSTAINABLE AND IS LIABLE TO BE DELETED FOR THE REASONS HEREINA FTER. THE LD. AR FURTHER SUBMITTED THAT THE CONTENTION OF THE ASSESSING OFFI CER THAT THE ASSESSEE IS ACTING AS CONTRACT MANUFACTURER WITH REGARD TO THE TRANSACTION OF EXPORT TO THE AE IS ERRONEOUS AND INCONSISTENT WITH THE FACTS ON RECORD. THE ASSESSEE ACTS AS AN INDEPENDENT MANUFACTURER OF PRODUCTS, VIZ., TWO WHEELERS AND NOT AS A CONTRACTOR MANUFACTURER AS OBSERVED BY THE TPO. THE SALE OF SUCH PRODUCTS ARE MADE TO THE AE ON PRINCIPAL TO PRINCIPAL BASIS, AT PRICE AGREED UPON BY THE PARTIES. THE LD. AR SUBMITTED THAT THE TRIBUNAL, FO LLOWING THE ORDER OF THE COORDINATE BENCHES, THE AFORESAID ISSUES HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE CONSOLIDATED ORDER DATED 24.10.2016 PASSED BY THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR AS SESSMENT YEAR 2010-11 AND 2011- 12 FOLLOWING ASSESSEE'S OWN CASE FOR THE ASSE SSMENT YEAR 2006- 07, 2007-08 AND 2008-09 DELETED THE AFORESAID ADDITION. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEAR 2012-13, THE TRIBUNA L DECIDED THE ISSUE 29 ITA NO. 1351/DEL/2018 FOLLOWING THE ORDERS FOR ASSESSMENT YEAR 2010-11 AN D 2011-12, WHEREIN THE TRIBUNAL, FOLLOWING THE ORDERS FOR THE ASSESSMENT Y EARS 2006-07, 2007-08 AND 2008-09 HAD DELETED SIMILAR TRANSFER PRICING ADJUST MENT MADE IN THOSE YEARS. 8. AS RELATES TO PAYMENT OF EXPORT COMMISSION, TECH NICAL KNOW HOW AGREEMENT THE ASSESSEE WAS ENTITLED TO USE TECHNICA L KNOW-HOW PROVIDED BY HONDA MOTOR CO. LTD, JAPAN (HMCL) FOR MANUFACTURE A ND SALE OF TWO WHEELERS AND PARTS IN INDIA AND WAS NOT AUTHORIZED TO SELL I TS PRODUCTS OR PARTS IN ANY OTHER TERRITORY THAN IN INDIA WITHOUT THE PRIOR WRI TTEN CONSENT OF HMCL. THE ASSESSEE ENTERED INTO A SEPARATE EXPORT AGREEMENT D ATED 15.01.2005 UNDER WHICH HMCL ACCORDED CONSENT TO THE ASSESSEE TO EXPO RT SPECIFIC MODELS OF TWO WHEELERS TO CERTAIN COUNTRIES ON PAYMENT OF EXPORT COMMISSION @ 5% OF THE FOB VALUE OF SUCH EXPORTS. THE TPO DETERMINED THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS ON PAYMENT OF EXPORT COM MISSION OF RS. 116,748,507 AT NIL, APPLYING CUP METHOD HOLDING THA T THE TRANSACTION OF PAYMENT OF EXPORT COMMISSION IS REQUIRED TO BE BENC HMARKED SEPARATELY AS WELL AS AN INDEPENDENT ENTERPRISE WOULD COMPENSATE ANOTHER PARTY FOR CEDING TERRITORY TO IT ONLY WHEN THE LATTER PARTY EITHER W ITHDRAWS FROM THAT TERRITORY OR SOME RESTRICTIONS ARE PLACED UPON IT. NOTHING OF TH AT SORT HAS HAPPENED TO THE AE. THE AE CONTINUES ITS BUSINESS AS USUAL IN THOSE OVERSEAS TERRITORIES. IT IS ONLY THE ASSOCIATED ENTERPRISE THAT HAS ONLY BENEFI TED FROM THE EXPORT OF THE PRODUCT BY THE ASSESSEE AS THE SAME IS TO SUPPORT I TS EXISTING SUBSIDIARIES OR GROUP COMPANIES AND TO PROMOTE MARKET FOR ITS PRODU CTS IN THOSE COUNTRIES. THE LD. AR SUBMITTED THAT THE EXPORT COMMISSION IS PAID BY THE ASSESSEE FOR PROVIDING ACCESS BY HMCL TO THE ASSESSEE FOR PROCUR ING EXPORT ORDERS USING THEIR NETWORK AND INFRASTRUCTURE IN RELATION TO EXP ORTS. IN TERMS OF TECHNICAL KNOWHOW AGREEMENT, THE ASSESSEE WAS ENTITLED TO US E TECHNICAL KNOWHOW PROVIDED BY HMCL FOR MANUFACTURE AND SALE OF TWO WH EELERS AND PARTS IN INDIA AND THE WAS NOT AUTHORIZED TO SELL ITS PRODUCTS OR PARTS IN ANY TERRITORY OTHER THAN INDIA WITHOUT PRIOR WRITTEN CONSENT OF HMCL. T HE EXPORT AGREEMENT WITH HMCL ACCORDED CONSENT TO THE ASSESSEE FOR EXPORT OF SPECIFIC MODELS OF TWO 30 ITA NO. 1351/DEL/2018 WHEELERS TO CERTAIN COUNTRIES ON PAYMENT OF EXPORT COMMISSION (A) 5% OF THE FOB VALUE OF SUCH EXPORTS. THE PAYMENT OF EXPORT COMMISSION WAS MADE BY THE ASSESSEE TO HMCL AS CONSIDERATION FOR ACCORDING CONSENT TO THE ASSESSEE TO EXPORT TWO WHEELERS IN THE OVERSEAS TERRITORY(IES), WHICH WERE EARLIER BEING SUPPLIED BY HMCL OR ITS OTHER AFFILIATES. IN OTHER WORDS, THE PAYMENT OF COMMISSION WAS MADE TO HMCL IN LIEU OF HMCL AGREEIN G TO CEDE THE OVERSEAS MARKET. IT IS TO BE APPRECIATED THAT THE ASSESSEE B Y VIRTUE OF THE AFORESAID PAYMENT GAINED ACCESS TO NEW MARKET FOR ITS PRODUCT S, WHICH ENABLED IT TO ENHANCE ITS SALES. THE EXPORT COMMISSION IS ALSO PAID BY THE ASSESSEE TO HMCL FOR PROCURING EXPORT ORDERS USING THEIR NETWOR K AND INFRASTRUCTURE IN RELATION TO EXPORTS. THE LD. AR SUBMITTED THAT THE TRIBUNAL, FOLLOWING THE ORDER OF THE COORDINATE BENCHES, THE AFORESAID ISSUES HAV E BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE CONSOLIDATED ORDER DATED 24.10. 2016 PASSED BY THE DELHI BENCH OF THE TRIBUNAL IN ASSESEES OWN CASE FOR ASS ESSMENT YEAR 2010-11 AND 2011- 12, FOLLOWING ASSESSEES OWN CASE FOR ASSESSM ENT YEAR 2010-11 AND 2011-12, FOLLOWING ASSESEES OWN CASE FOR THE ASSES SMENT YEAR 2006-07, 2007- 08 AND 2008-09 DELETED THE AFORESAID ADDITION. 9. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS OF THE PRESENT ASSESSMENT YEAR AR E IDENTICAL WITH THAT OF THE SUBSEQUENT ASSESSMENT YEAR 2012-13 BEING ITA NO. 16 16/DEL/2017. NO DISTINGUISHING FACTS WERE PLACED ON RECORD BY THE L D. DR. THE TRIBUNAL HELD AS UNDER: 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE IS COVERED IN FAVOUR OF THE ASSES SEE FOR A.Y. 2006-07 BY THE HONBLE HIGH COURTS DECISIONS IN ASSESSEES CASE. FOR A.YS. 2006-07, 2007- 08 AND 2008-09, THE TRIBUNAL DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. 31 ITA NO. 1351/DEL/2018 THE TRIBUNAL IN IMMEDIATE PRECEDING YEAR I.E. A.YS. 2010-11 & 2011-12 HELD AS UNDER: 43) FOR THE SUBSEQUENT YEAR ALSO THE COORDINATE BE NCHES FOLLOWED THE SIMILAR VIEW WITH RESPECT TO ALL THE PAYMENTS. FURT HER WITH RESPECT TO THE ALLOWANCE OF THE MODEL FEE THE HONBLE DELHI HIGH C OURT IN APPELLANTS OWN CASE FOR ASSESSMENT YEAR 2006-07 HAS NOT ADMITTED T HE APPEAL OF THE REVENUE ON THIS ASPECT, AND FURTHER WITH RESPECT TO THE ARMS LENGTH PRICE OF PAYMENT OF ROYALTY ON SALES TO ASSOCIATED ENTERPRIS E THE APPELLANT HAS SUBMITTED THAT REVENUE HAS NOT CHALLENGED THE AFORE SAID FINDING OF THE TRIBUNAL BEFORE THE HONBLE HIGH COURT WHICH FACT I S NOT CONTROVERTED BY LD. DRP THEREFORE ACCORDINGLY THE FINDING OF THE COORDI NATE BENCH HAS ATTAINED FINALITY. IN VIEW OF ABOVE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN APPELLANTS OW N CASE FOR AY 2006-07, 2007-08 AND 2008-09, WE HOLD THAT THE ISSUE IS SQUA RELY COVERED IN FAVOUR OF THE APPELLANT. THEREFORE WE REVERSE THE FINDING OF THE LOWER AUTHORITIES IN DETERMINING THE ARMS LENGTH PRICING OF PAYMENT OF EXPORT COMMISSION OF RS. 15.91 CRORES, MODEL FEES PAYMENT OF RS.15904 49 86/- AND PAYMENT OF ROYALTY ON SALES OF RS. 17.25 LACS AT RS. NIL. THER EFORE, GROUND NO. 8 OF THE APPEAL OF ASSESSEE IS ALLOWED. IN THE PRESENT ASSESSMENT YEAR, THE ASSESSEE, FOR T HE PURPOSE OF ITS BUSINESS ENTERED INTO INTERNATIONAL TRANSACTIONS OF PAYMENT OF MODEL FEE AMOUNTING TO RS.1,720,872,877/- AND ROYALTY OF RS.35,282,665/-. SINCE THE OPERATING PROFIT RATIO OF THE ASSESSEE @ 10.99% IS HIGHER THA N THE AVERAGE OF THE OPERATING PROFIT RATIO OF COMPARABLES COMPANIES, I. E., 10.79%, THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WERE CONS IDERED AS HAVING BEEN ENTERED AT ARMS LENGTH PRICE, APPLYING TNMM. FROM THE RECORDS IT CAN BE SEEN THAT THE ASSESSEE HAS NOT SOLD ANY PRODUCTS TO THE ASSOCIATED ENTERPRISES ON WHICH ROYALTY WAS PAYABLE AND THE ENTIRE AMOUNT OF ROYALTY WAS PAID BY THE ASSESSEE ON SALES MADE TO INDEPENDENT ENTERPRISES. THEREFORE, THE TPO/AO 32 ITA NO. 1351/DEL/2018 AS WELL AS DRP WERE NOT CORRECT IN DETERMINING THE ARMS LENGTH PRICING OF MODEL FEES AND PAYMENT OF ROYALTY. THIS ISSUE IS SQ UARELY COVERED BY THE EARLIER ASSESSMENT YEARS IN ASSESSEES FAVOUR. THER EFORE, GROUND NO. 1 TO 15 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. THE PAYMENT OF MODEL FEE HAS BEEN MADE IN TERMS OF LICENSE AND TECHNICAL ASSISTANCE AGREEMENT APPROVED BY THE GOVERNMENT IN CONSIDERATION OF LICENSE TO MANUFACTURE PRODUCTS AND USING TECHNICAL KNOW HOW PROVIDED BY THE ASSOCIATED ENTERPRISES DURING THE PREVALENCE OF THE AGREEMENT. THE PAYMENT OF MODEL FEE IS A CONSIDERATION IN TERMS OF AGREEMENT WITH THE ASSOCIATED ENTERPRISES FOR AVAILING LICENSE TO USE THEIR PROPR IETARY TECHNOLOGY AND IT IS A NECESSITY FOR THE ASSESSEE FOR MANUFACTURING OF THE PRODUCTS TO HAVE KNOWLEDGE OF KNOW-HOW FROM THE ASSOCIATED ENTERPRISE. THUS, P AYMENT OF ROYALTY IS MADE IN CONSIDERATION FOR RIGHT TO MANUFACTURE PRODUCTS AND USING THE TECHNICAL KNOW-HOW OWNED BY THE ASSOCIATED ENTERPRISES. AS RE GARDS ROYALTY ON SALES TO AES, FROM THE RECORDS IT CAN BE SEEN THAT THE ASSES SEE IS AN INDEPENDENT MANUFACTURER OF PRODUCTS IN RESPECT OF TWO WHEELERS AND NOT A CONTRACTOR MANUFACTURER. THE SALE OF SUCH PRODUCTS MADE TO THE AE ON PRINCIPAL TO PRINCIPAL BASIS, AT PRICE AGREED UPON BY THE PARTIE S. AS REGARDS PAYMENT OF EXPORT COMMISSION, THE ASSESSEE PAID THIS EXPORT CO MMISSION FOR PROVIDING ACCESS BY HMCL TO THE ASSESSEE FOR PROCURING EXPORT ORDERS USING THEIR NETWORK AND INFRASTRUCTURE IN RELATION TO EXPORT. I N FACT THE EXPORT AGREEMENT WITH HMCL IMPART THE CONSENT TO THE ASSESSEE FOR EX PORT OF SPECIFIC MODELS OF TWO WHEELERS TO CERTAIN COUNTRIES ON PAYMENT OF EXP ORT COMMISSION @ 5% OF THE FOB VALUE OF SUCH EXPORT. IT IS NOTED HERE THAT BY VIRTUE OF THE SAID PAYMENT THE ASSESSEE GAINED THE ACCESS TO NEW MARKE T FOR ITS PRODUCTS, WHICH ENABLED IT TO ENHANCE SALES. THUS, THE TPO/DRP WAS NOT CORRECT IN DISALLOWING THESE THREE COMPONENTS IN THE TRANSFER PRICING ADDI TIONS AND WE ARE ALLOWING GROUND NO. 1 TO 12 OF THE ASSESSEES APPEAL. 11. AS REGARDS GROUND NOS. 13 TO 13.1 ARE RELATING TO ADDITION OF FREIGHT 33 ITA NO. 1351/DEL/2018 INWARD/IMPORT CLEARING EXPENSES TO COST OF. THE ASS ESSEE ORDINARILY PURCHASES RAW MATERIAL ON CIF BASIS AND, THEREFORE, FREIGHT C OST FOR DELIVERY OF GOODS IS ORDINARILY INCLUDED IN PURCHASE PRICE AND ARE FACTO RED IN THE VALUE OF CLOSING INVENTORY; IN EXCEPTIONAL CIRCUMSTANCES VIZ. MATER IAL SHORTAGE, WHERE ASSESSEE HAS TO IMMEDIATELY LIFT MATERIAL, TRANSPORT CHARGES ARE PAID, WHICH ARE NOT LOADED TO THE PURCHASE PRICE, BUT ARE SEPARATELY DE BITED TO PROFIT AND LOSS ACCOUNT, SINCE INVOICES OF TRANSPORTERS ARE RECEIVE D AFTER CONSUMPTION OF MATERIAL; SUCH FREIGHT AMOUNT IS NOT INCLUDED IN T HE VALUATION OF CLOSING STOCK, AS PER REGULARLY AND CONSISTENTLY FOLLOWED METHOD O F VALUATION OF STOCK ACCEPTED BY THE REVENUE IN THE PAST. THE AO/DRP H ELD THAT PROPORTIONATE AMOUNT OF RS. 90.58 LACS OUT OF THE TOTAL AMOUNT OF FREIGHT INWARD CHARGES AND IMPORT CLEARING CHARGES INCURRED AS ATTRIBUTABLE TO THE VALUE OF CLOSING STOCK ON ACCOUNT OF ABOVE EXPENSES. HOWEVER, SINCE THE ASSES SING OFFICER HAD MADE SIMILAR ADDITION OF RS. 108.39 LACS ON ACCOUNT OF A BOVE IN THE CLOSING STOCK OF THE LAST YEAR, WHICH CONSTITUTED OPENING STOCK OF T HE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER ALLOWED DEDUCTION FOR THE SAI D AMOUNT, RESULTING IN NET REDUCTION OF (-) 17.81 LACS (I.E. RS. 90.58-108.39 LACS). 12. THE LD. AR POINTED OUT THAT THE AFORESAID ISSUE HAS BEEN DECID ED IN FAVOUR OF THE ASSESSEE BY THE RECENT CONSOLIDATED O RDER DATED, 24.10.2016 PASSED BY THE DELHI BENCH OF THE TRIBUNAL IN APPELL ANT'S OWN CASE FOR ASSESSMENT YEAR 2010-11 AND 2011- 12, WHEREIN THE T RIBUNAL, FOLLOWING THE ORDER OF THE COORDINATE BENCHES OF THE TRIBUNAL PAS SED IN THE ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2007-08 AND 2008-09, D ELETED THE AFORESAID ADDITION ON THE GROUND THAT IN THOSE YEARS IT HAS B EEN HELD THAT THE ASSESSEE WAS FOLLOWING CONSISTENT SYSTEM OF ACCOUNTING, WHIC H WAS UNNECESSARILY DISTURBED BY THE REVENUE, WITHOUT CHANGE IN FACTS. IT WAS FURTHER HELD THAT TINKERING WITH THE ACCOUNTING METHOD WAS UNJUSTIFIE D WHEN THE EXERCISE DID NOT MATERIALLY ALTER THE PROFITS OF THE ASSESSEE CO MPANY. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14 , THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE OR DERS FOR THE ASSESSMENT YEARS 34 ITA NO. 1351/DEL/2018 2010-11 AND 2011-12. 13. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y S. 2010-11 & 2011-12 HELD AS UNDER: 11) WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS. THE COMPANY IS A CORPORATE ENTITY THEREFORE IT HAS TO VALUE ITS CL OSING STOCK ACCORDING TO THE ACCOUNTING STANDARD 2 VALUATION OF INVENTORIES IS SUED BY THE MINISTRY OF CORPORATE AFFAIRS AND ICAI. ACCORDING TO THAT ACCOU NTING STANDARD THE CLOSING STOCK OF THE FINISHED GOODS IS REQUIRED TO BE VALUED INCLUDING ALL COST OF THE FINISHED GOODS IS REQUIRED TO BE VALUED INCLUDING ALL COST OF PURCHASES, COST OF CONVERSION AND OTHER COST INCURR ED IN BRINGING THE INVENTORY TO THEIR PRESENT LOCATION AND CONDITIONS. THE CONTENTIONS OF THE APPELLANT IS THAT THAT ITS ALL PURCHASES ARE ACCOU NTED FOR ON CIF BASIS AND THEREFORE THE SUPPLIERS ARE REQUIRED TO PROVIDE THE GOODS AT THE FACTORY LOCATION AND THEREFORE IN THE CLOSING STOCK OF INVE NTORY THERE CANNOT BE ANY ELEMENT OF FREIGHT ETC., THIS ISSUE HAS BEEN CONSID ERED BY THE COORDINATE BENCH IN APPELLANTS OWN CASE FOR A Y 2007-08 WHERE IN IT HAS BEEN HELD THAT :- 7.13. WE HAVE CONSIDERED THE SUBMISSIONS AND THE M ATERIAL FILED BY BOTH THE PARTIES. THE ISSUE IN QUESTION IS REGARDIN G METHOD OF VALUATION OF CLOSING STOCK. THE PRIMARY CONTENTION OF THE ASS ESSEE IS THAT IT HAD TO MAKE EMERGENCY PURCHASES AND THAT THESE STOCKS SO P URCHASED WERE IMMEDIATELY CONSUMED. IN SUCH EXCEPTIONAL SITUATION S, THE ASSESSEE HAS DIRECTLY ACCOUNTED THE FREIGHT AND IMPORT CLEAR ING CHARGES TO THE 35 ITA NO. 1351/DEL/2018 PROFIT AND LOSS ACCOUNT. THIS MEANS THAT SUCH RAW M ATERIAL STOCKS ARE NOT PART OF CLOSING STOCK AT ALL. FURTHER, THIS FAC T IS NOT REBUTTED BY THE DR. 7.14 THOUGH TECHNICALLY IT CAN BE ARGUED THAT THE V ALUE OF CLOSING INVENTORY MUST INCLUDE FREIGHT/ IMPORT CLEARING CHA RGES, THE FACTS EXPLAINED BY THE ASSESSEE ARE THAT THE PURCHASES IN QUESTION ARE DONE UNDER EXCEPTIONAL CIRCUMSTANCES (WHICH ARE WELL KNO WN IN THIS TYPE OF INDUSTRY) FOR IMMEDIATE CONSUMPTION. THEY ARE IN FA CT CONSUMED IMMEDIATELY I.E. AS SOON AS RAW MATERIAL ENTERS THE FACTORY PREMISES WHICH IS NOT DISPUTED BY ASSESSING OFFICER, HENCE T HE QUESTION OF SUCH PURCHASES BEING PART OF CLOSING STOCK DOES NOT ARIS E AT ALL. IN SUCH A SITUATION, WHEN FREIGHT/ IMPORT CHARGES ARE DIRECTL Y DEBITED TO THE P& L A/C ALONG WITH THE VALUE OF THE PURCHASES, NATURALL Y THE QUESTION OF TREATING THEM AS PART OF CLOSING INVENTORY DOES NOT ARISE. THE ASSESSEE HAS ACTED AND ACCOUNTED IN A PROPER AND ACCEPTABLE METHOD. THEREFORE, THE RELIEF SHOULD BE GRANTED ON THIS COUNT ALONE. 7.15 ALTERNATIVELY, THE UNDISPUTED FACT REMAINS THA T THE ASSESSEE HAS CONSISTENTLY FOLLOWING THE SAID METHOD OF ACCOU NTING IN THE LAST MANY YEARS AND THE REVENUE HAS BEEN ACCEPTING THESE FACTS AND METHOD OF ACCOUNTING WITHOUT ANY DEMUR. 7.16 THE CONTENTION OF THE DRP THAT, THE PRINCIPLE OF RES-JUDICATA DOES NOT APPLY IN INCOME TAX PROCEEDINGS AND THEREF ORE, THE ASSESSING OFFICER IS CORRECT TO COME TO INDEPENDENT CONCLUSIO N AND IS NOT BOUND BY PAST ACCEPTANCE OF A FACTUAL LEGAL POINT BY THE DEP ARTMENT IS UNTENABLE. TECHNICALLY THE PRINCIPLE OF RES JUDICATA MAY NOT A PPLY TO THE INCOME TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEAR, YE T THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY AS PROPOUND ED BY HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT 193 ITR 321, WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL . IT IS A JUDICIALLY 36 ITA NO. 1351/DEL/2018 ACCEPTED PRINCIPLE THAT WHEN THE FACTS ARE SAME, A UNIFORM VIEW SHOULD BE ADOPTED FOR THE SUBSEQUENT YEARS IN THE INCOME T AX PROCEEDINGS. UNLESS THERE IS A MATERIAL CHANGE IN THE FACTS, WHI CH IS NEITHER DEMONSTRATED BY ASSESSING OFFICER NOR DRP, THE VIEW WHICH IS TAKEN EARLIER, SHOULD NOT BE CHANGED, AS HELD BY VARIOUS COURTS. WE NOW DISCUSS SOME OF THE CASE LAWS. 7.17 THE HONBLE SUPREME COURT IN THE CASE OF RADHA SOAMI SATSANG (SUPRA), ON THE THEORY OF CONSISTENCY, HAS HELD AS UNDER: .STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY T O THE INCOME TAX PROCEEDINGS. THOUGH, EACH ASSESSMENT YEAR BEING A U NIT, WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWIN G YEAR, WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH DIFFERENT ASS ESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND P ARTIES HAVE ALLOWED THAT POSITION TO NE SUSTAINED BY NOT CHALLE NGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITI ON TO BE CHANGED IN A SUBSEQUENT YEAR. 7.18 THIS VIEW HAS BEEN FOLLOWED BY THE HONBLE DEL HI HIGH COURT IN THE CASE OF CIT VS. NEO PLOY PACK (P) LTD. [2000 ] 245 ITR 492 AND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GO PAL PUROHIT [2011] 336 ITR 287. 7.19 FURTHER, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. REALEST BUILDERS AND SERVICES LIMITED (2008) 307 IT R 202 HELD AS : IN CASE WHERE THE DEPARTMENT WANTS TO TAX AN ASSES SEE ON THE GROUND OF THE LIABILITY ARISING IN A PARTICULAR YEAR, IT S HOULD ALWAYS ASCERTAIN THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE I N THE PAST AND WHETHER CHANGE IN METHOD OF ACCOUNTING WAS WARRANTE D ON THE GROUND THAT PROFIT IS BEING UNDERESTIMATED UNDER THE IMPUG NED METHOD OF ACCOUNTING. IF THE ASSESSING OFFICER COMES TO THE C ONCLUSION THAT THERE IS 37 ITA NO. 1351/DEL/2018 UNDERESTIMATION OF PROFITS, HE MUST GIVE FACTS AND FIGURES IN THAT REGARD AND DEMONSTRATE TO THE COURT THAT THE IMPUGNED METH OD OF ACCOUNTING ADOPTED BY THE ASSESSEE RESULTS IN UNDERESTIMATION OF PROFITS AND IS, THEREFORE, REJECTED. OTHERWISE, THE PRESUMPTION WOU LD BE THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL. IN THE INSTANT CASE, T HAT EXERCISE HAD NEVER BEEN UNDERTAKEN. THE ASSESSING OFFICER WAS REQUIRED TO DEMONSTRATE BOTH THE METHODS, ONE ADOPTED BY THE ASSESSEE AND T HE OTHER BY THE DEPARTMENT. IN THE CIRCUMSTANCES, THERE WAS NO REAS ON TO INTERFERE WITH THE CONCLUSION GIVEN BY THE HIGH COURT. 7.20 THE HONBLE SUPREME COURT IN THE CASE OF CIT V S. BILAHARI INVESTMENT P. LTD. 299 ITR 1 (SC) HELD AS FOLLOWS: EVERY ASSESSEE IS ENTITLED TO ARRANGE ITS AFFAIRS AND FOLLOW THE METHOD OF ACCOUNTING, WHICH THE DEPARTMENT HAS EARLIER ACC EPTED. IT IS ONLY IN THOSE CASES WHERE THE DEPARTMENT RECORDS A FINDING THAT THE METHOD ADOPTED BY THE ASSESSEE RESULTS IN DISTORTION OF PR OFITS THAT THE DEPARTMENT CAN INSIST ON SUBSTITUTION OF THE EXISTI NG METHOD. 7.21 IN THE CASE OF CIT VS. JAGATJIT INDUSTRIES LTD . (2011) 399 ITR 382 (DEL.), THE HONBLE JURISDICTIONAL HIGH COURT H AS HELD AS FOLLOWS: IF A PARTICULAR ACCOUNTING SYSTEM HAS BEEN FOLLOWE D AND ACCEPTED AND THERE IS NO ACCEPTABLE REASON TO DIFFER WITH IT, TH E DOCTRINE OF CONSISTENCY WOULD COME INTO PLAY. THE METHOD OF ACC OUNTING CANNOT BE REJECTED. THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. ACCORDING TO PAST BUSINESS PRACTICE, THE EXPENDITUR E SPILLED OVER THE NEXT YEAR AND WAS DEBITED IN THE SECOND YEAR AND WA S ALLOWED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER FOR THE AS SESSMENT YEAR IN QUESTION DISALLOWED RS.13,46,299 CLAIMED AS EXPENDI TURE OF PRIOR PERIOD ALLOWABLE IN THE CURRENT YEAR. THE COMMISSIO NER (APPEALS) 38 ITA NO. 1351/DEL/2018 DELETED THE DISALLOWANCE AND THIS WAS UPHELD BY THE TRIBUNAL. ON APPEAL TO THE HIGH COURT: HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE HAD CLAIMED PRIOR PERIOD EXPENSES ON THE GROUND THAT THE VOUCHERS FOR SUCH E XPENSES FROM THE EMPLOYEES/ BRANCH EMPLOYEES WERE RECEIVED AFTER MAR CH 31 ST OF THE FINANCIAL YEAR. IT HAD BRANCH OFFICES THROUGHOUT TH E COUNTRY. IT DEBITED THE EXPENDITURE SPILL OVER THE SUBSEQUENT YEARS AND THE ASSESSING OFFICER HAD BEEN ALLOWING IT IN THE PAST. THE ACCOU NTING PRACTICE HAD BEEN CONSISTENTLY FOLLOWED BY IT AND ACCEPTED BY TH E REVENUE. NOTHING HAD BEEN BROUGHT ON RECORD TO SHOW THAT THERE HAD B EEN DISTORTION OF PROFITS OR THAT THE BOOKS OF ACCOUNT DID NOT REFLEC T THE CORRECT PICTURE. IN THE ABSENCE OF ANY REASON WHATSOEVER, THERE WAS NO WARRANT OR JUSTIFICATION TO DEPART FROM THE PREVIOUS ACCOUNTIN G SYSTEM WHICH WAS ACCEPTED BY THE DEPARTMENT IN RESPECT OF THE PREVIO US YEARS. 7.22 IN THE PRESENT CASE, THE REVENUE HAS REJECTED THE METHOD OF ACCOUNTING WHICH IS CONSISTENTLY FOLLOWED BY THE AS SESSEE ON THE GROUND THAT THERE MAY BE CHANCE WHERE IN A PARTICUL AR YEAR, THE METHOD ADOPTED BY THE ASSESSEE MAY RESULT IN UNDERE STIMATION OF PROFITS. HOWEVER, THE REVENUE FAILED TO DEMONSTRATE WITH FACTS AND FIGURES THAT THE IMPUGNED METHOD OF ACCOUNTING MAY RESULT IN MATERIAL UNDERESTIMATION OF PROFITS. ON THE CONTRARY, THE AS SESSEE HAS DEMONSTRATED THAT THE CHANGE IN THE METHOD OF ACCOU NTING FOR YEAR UNDER APPEAL WOULD RESULT IN LOSS TO THE REVENUE AS THE OPENING STOCK WOULD ALSO REQUIRE SIMILAR ADJUSTMENT AND THE CASCA DING EFFECT WILL BE LOSS TO REVENUE. WE OBSERVE THAT IN MANY OF THE ADD ITIONS MADE IN THIS CASE BY THE REVENUE, THE CONSISTENT METHOD OF ACCOU NTING IS UNNECESSARILY DISTURBED, THOUGH IT HAS BEEN ACCEPTE D IN MANY YEARS. IN OUR VIEW SUCH TINKERING WITH THE METHOD IS UNJUSTIF IED WHEN THE EXERCISE DOES NOT MATERIALLY ALTER THE PROFITS. THE FACTS AND FIGURES IN 39 ITA NO. 1351/DEL/2018 MANY ADDITIONS DEMONSTRATE THAT THE ISSUE RAISED IS REVENUE NEUTRAL IN THE LONG RUN. SUCH PETTY ADDITIONS SHOULD BE AVOIDE D ON THE GROUND OF MATERIALITY, AS AS-1 WHICH TALKS ABOUT MATERIALITY, CONSISTENCY, PRUDENCE ETC. IS PART OF THE I.T. ACT AFTER IT IS N OTIFIED U/S 145(2). 7.23 IN VIEW OF THE FOREGOING AND PROPOSITION LAID DOWN BY THE HONBLE SUPREME COURT AND THE HONBLE HIGH COURTS, WE ARE OF THE OPINION THAT ADJUSTMENT OF RS. 31.18 LACS MADE TO T OTAL VALUE OF CLOSING STOCK OF RS. 275 CRORES AND CONSUMPTION OF STOCKS O F RS. 7178 CRORES IS UNCALLED FOR. IF VALUATION OF CLOSING STOCK IS CHAN GED THEN THE VALUE OF OPENING STOCK SHOULD ALSO BE CHANGED ON THE SAME BA SIS OR METHOD. THE CLOSING STOCK OF A PARTICULAR YEAR IS THE OPENI NG STOCK OF THE SUBSEQUENT YEAR. IT IS NOT THE CASE OF THE REVENUE THAT THE METHOD OF VALUATION OF CLOSING STOCK IS MATERIALLY AFFECTING THE ACCOUNTS AND PROFITS DISCLOSED BY THE ASSESSEE. THIS ADJUSTMENT SOUGHT TO BE MADE IS REVENUE NEUTRAL AND AT BEST MAY RESULT IN PREPONMEN T OR POSTPONEMENT OF REVENUE. THE ISSUE IS WHETHER SUCH EXERCISE IS A T ALL REQUIRED ON THE GROUND OF MATERIALITY. MATERIALITY IS A CONCEPT WHI CH IS WELL RECOGNIZED BOTH IN ACCOUNTANCY AND LAW. ACCOUNTING STANDARDS N OTIFIED BY THE CBDT U/S 145(2) MANDATE THAT THE CONCEPT OF MATERIA LITY BE TAKEN INTO CONSIDERATION WHEN FINALIZING THE ACCOUNTS OF AN AS SESSEE. 7.24 FURTHER, THE HONBLE SUPREME COURT IN THE CASE OF BERGER PAINTS INDIA LTD. VS. CIT (2004) 266 ITR 99 AT PAG E 103(SC), HAS NOTED WITH APPROVAL, THE OBSERVATIONS OF THE SPECIAL BENC H OF THE ITAT IN THE CASE OF INDIAN COMMUNICATION NETWORK PVT. LTD. VS. IAC (1994) 206 ITR (AT) 96 (DELHI). AT PAGE 114 IT OBSERVED THAT: BEFORE WE PART WITH THE GROUND, WE CANNOT HELP FEE LING THAT THE LITIGATION BETWEEN THE PARTIES COULD HAVE BEEN AVOI DED SINCE IT WAS QUITE IMMATERIAL, WHETHER FULL DEDUCTION WAS ALLOWE D IN ONE YEAR OR PARTLY IN ONE YEAR AND PARTLY IN THE NEXT, SINCE TH E ASSESSEE IS A 40 ITA NO. 1351/DEL/2018 COMPANY AND RATE OF TAX IS UNIFORM. THE GAIN TO ONE AND THE LOSS TO THE OTHER IS ILLUSORY SINCE WHAT IS DEFERRED IN ONE YEA R, WOULD HAVE TO BE DISCHARGED IN THE NEXT. IN THAT SENSE, NOBODY HAS W ON AND NOBODY HAS LOST. 7.25 EVEN ON THIS PLEA ALSO, THE ASSESSEE SUCCEEDS. WE HAVE DEALT WITH THIS ISSUE ELABORATELY AS, IN A NUMBER OF GROU NDS, THIS ISSUE WOULD BECOME APPLICABLE. IN VIEW OF ABOVE DISCUSSION, WE ALLOW THIS GROUND OF THE ASSESSEE. 25) BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY CHANGES IN THE FACTS AND CIRCUMSTANCES OF THE C ASE FOR THIS YEAR COMPARED TO THE YEAR IN WHICH THE TRIBUNAL HAS DECI DED THIS ISSUE. HE ALSO DID NOT POINT OUT ANY CONTRARY DECISION AND THEREFO RE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH WE A LLOW GROUND NO. 2 OF THE APPEAL OF THE ASSESSEE. IN THE PRESENT ASSESSMENT YEAR, THE AO/DRP HELD THA T PROPORTIONATE AMOUNT OF RS. 170.01 LACS OUT OF THE TOTAL AMOUNT OF FREIG HT CHARGES OF RS. 6.162.22 LACS INCURRED AS ATTRIBUTABLE TO THE VALUE OF CLOSI NG STOCK ON ACCOUNT OF ABOVE EXPENSES. HOWEVER, SINCE THE ASSESSING OFFICER HAD MADE SIMILAR ADDITION OF RS. 177.26 LACS ON ACCOUNT OF ABOVE IN THE CLOSING STOCK OF THE LAST YEAR, WHICH CONSTITUTED OPENING STOCK OF THE YEAR UNDER C ONSIDERATION, THE ASSESSING OFFICER ALLOWED DEDUCTION FOR THE SAID AM OUNT, RESULTING IN NET REDUCTION OF RS.7.25 LACS (I.E. RS.170.01-177.26 LA CS). IN THE EARLIER YEARS THIS ADDITION WAS DELETED BY THE TRIBUNAL FOR A.Y. 2010- 11 AND 2011-12, THEREFORE, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. THEREFORE, GROUND NO. 16 IS ALLOWED IN FAVOUR OF THE ASSESSEE. THE ASSESSEE IS FOLLOWING CONSISTENT SYSTEM OF ACCO UNTING WHICH WAS WITHOUT ANY REASONS WAS DISTURBED BY THE ASSESSING OFFICER DESPITE THAT THE FACTS REMAINS SAME IN THIS YEAR AS WELL. THERE IS NO ALTE RATION IN THE PROFIT OF THE 41 ITA NO. 1351/DEL/2018 ASSESSEE COMPANY. THEREFORE, THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN EARLIER A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. HENCE, GROUND NO. 13 TO 13.1 ARE ALLOWED. 15. AS REGARDS GROUND NO. 14 TO 14.2 ARE RELATING T O ADDITION ON ACCOUNT OF COST OF REJECTION OF SEMI-FINISHED GOODS AND OBSOLE TE ITEMS TO THE VALUE OF CLOSING STOCK. THE ASSESSEE HAD DEBITED TO THE PROF IT AND LOSS ACCOUNT RS. 1,356.22 LACS REPRESENTING THE COST OF MATERIAL / S EMI-FINISHED GOODS REJECTED IN THE COURSE OF MANUFACTURING OR OBSOLETE ITEMS. T HE AFORESAID REJECTIONS COMPRISED OF ABNORMAL REJECTIONS ARISING IN THE COU RSE OF MANUFACTURING, LIKE REJECTIONS ON ACCOUNT OF OBSOLESCENCE, ETC. ACCORDI NG TO PRINCIPLES OF ACCOUNTING (AS-2), AS ALSO THE CONSISTENT, REGULAR AND ACCEPTED METHOD OF ACCOUNTING, THE ASSESSEE ONLY CONSIDERS NORMAL WAST AGES ARISING IN THE COURSE OF MANUFACTURING FOR THE PURPOSES OF ALLOCATION TO CLOSING INVENTORY. SINCE, THE AFORESAID EXPENDITURE COMPRISED OF ABNORMAL WASTAGE S, IT WAS NOT PRACTICALLY FEASIBLE TO SEGREGATE NORMAL AND ABNORMAL WASTAGES AND, THEREFORE, THE ASSESSEE AS PER THE CONSISTENT METHOD OF ACCOUNTING DID NOT CONSIDER AFORESAID COSTS FOR PURPOSES OF ALLOCATION TO CLOSING INVENTO RY. THE ASSESSING OFFICER HELD THAT COST OF REJECTION NEEDS TO BE ATTRIBUTED AND I NCLUDED IN THE VALUE OF CLOSING INVENTORY, AND ACCORDINGLY COMPUTED THE PROPORTIONA TE AMOUNT OF RS. 7.39 LACS OUT OF THE TOTAL COST OF REJECTIONS AS ATTRIBUTABLE TO THE VALUE OF CLOSING STOCK. HOWEVER, SINCE THE ASSESSING OFFICER HAD MADE SIMIL AR ADDITION OF RS. 4.95 LACS ON SIMILAR ACCOUNT IN THE CLOSING STOCK OF THE LAST YEAR, WHICH CONSTITUTED OPENING STOCK OF THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER MADE NET ADDITION OF RS.2.43 LACS (I.E. RS. 7.39-4.95 LACS). 16. THE LD. AR THAT IT IS NOT PRACTICALLY POSSIBLE FOR THE ASSESSEE TO SEGREGATE NORMAL AND ABNORMAL WASTAGES EMBEDDED IN THE AFORES AID COSTS AND, THEREFORE, THE ASSESSEE, AS PER CONSISTENT AND REGULAR METHOD OF ACCOUNTING, ACCEPTED BY THE REVENUE AS SUCH IN THE EARLIER YEARS, DID NOT C ONSIDER THE AFORESAID EXPENDITURE FOR THE PURPOSES OF VALUATION OF CLOSIN G INVENTORY OF FINISHED GOODS. 42 ITA NO. 1351/DEL/2018 THE LD. AR SUBMITTED THAT AFORESAID ISSUE STANDS DE CIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF DELHI BENCH OF THE TRIBUN AL IN THE ASSESEES OWN CASE FOR ASSESSMENT YEAR 2007-08 AND 2008-09, WHEREBY SI MILAR ADJUSTMENT MADE IN THAT YEAR WAS DELETED ON THE SAME GROUND. THE LD . AR SUBMITTED THAT THE AFORESAID ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2010-11 AND 2011-12, WH EREIN THE TRIBUNAL HELD THAT ONLY NORMAL LOSS IS TO BE LOADED/ADDED TO THE COST OF CLOSING INVENTORY WHICH WAS IN CONSONANCE WITH THE ACCOUNTING STANDAR DS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14, THE TRIBU NAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. 17. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.YS. 2010-11 & 2011-12 HELD AS UNDER: 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT ION AND HAS ALSO PERUSED THE RELEVANT PROVISIONS OF THE ACCOUNTING S TANDARD 2 WHICH HAS BEEN RELIED BY THE LD. ASSESSING OFFICER. WE HAVE C AREFULLY PERUSED THE DECISION OF THE COORDINATE BENCH IN THE APPELLANTS OWN CASE FOR ASSESSMENT YEAR 2007-08 WHEREIN THE IDENTICAL ISSUE IS DEALT WITH AS UNDER:- 8.9 THE ISSUE IN QUESTION IS WHETHER THE COST OF A BNORMAL REJECTIONS HAVE TO BE CONSIDERED FOR THE PURPOSE OF VALUATION OF CLOSING STOCK. THE ASSESSEE RELIED ON ACCOUNTING STANDARD - 2- VALUATION OF INVENTORIES WHICH IS A NOTIFIED ACCOUNTING STANDARD BY THE COMPANIES 43 ITA NO. 1351/DEL/2018 ACT WHICH STIPULATES THAT ABNORMAL WASTAGES SHOULD NOT BE CONSIDERED FOR VALUATION OF INVENTORY. 8.10 IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT IT IS IN THE MANUFACTURING OF PRECISION AND QUALITY PRODUCT AND IN CASE OF UNFIT MATERIAL IT HAS BEEN CONSISTENTLY FOLLOWING THE MET HOD OF CHANGING THE ABNORMAL REJECTION OF MATERIAL TO ITS PROFIT AND LO SS ACCOUNT, WITHOUT ANY ALLOCATION TO THE VALUE OF CLOSING INVENTORY. 8.11 THE ASSESSING OFFICERS CASE IS THAT COST OF REJECTIONS NEEDED TO BE INCLUDED IN THE VALUE OF CLOSING STOCK. ASSES SING OFFICER WORKED OUT AN AMOUNT OF RS. 9.24 LACS AS ATTRIBUTABLE TO C LOSING STOCK OUT OF TOTAL EXPENDITURE OF RS. 12.49 CRORES AND CLOSING S TOCK VALUE OF RS. 275 CRORES. THE ASSESSEE AS A CONSISTENT ACCOUNTING POL ICY HAS BEEN CLAIMING THE COST OF ABNORMAL REJECTIONS AS REVENUE EXPENDITURE FOR THE PREVIOUS YEARS AND THIS HAS BEEN REGULARLY ACCEPTED BY DEPARTMENT IN PAST. 8.12 THE AMOUNT OF RS. 9.24 LACS ATTRIBUTED BY THE ASSESSING OFFICER, IN OUR VIEW, IS MATERIALLY INCONSEQUENTIAL SO AS TO WARRANT DISTURBING THE REGULAR METHOD OF VALUATION OF CLOSI NG STOCK BEING FOLLOWED BY THE ASSESSEE COMPANY. THE QUANTUM OF TH E ADDITION OF RS. 9.24 LACS IS LESS THAN 0.74% OF THE VALUE OF ABNORM AL REJECTIONS. AS A PERCENTAGE OF TOTAL STOCKS / TURN OVER / PROFITS DE CLARED, THIS FIGURE IS MINISCULE. 8.13 ACCOUNTING STANDARD-2 STIPULATES THAT ABNORMAL WASTAGES SHOULD NOT BE CONSIDERED FOR VALUATION OF INVENTORY . IT READS AS FOLLOWS: 16. EXAMPLES OF COSTS EXCLUDED FROM THE COST OF IN VENTORIES AND RECOGNIZED AS EXPENSES IN THE PERIOD IN WHICH THEY ARE INCURRED ARE: A)ABNORMAL AMOUNTS OF WASTED MATERIALS, LABOUR OR O THER PRODUCTION COSTS; STORAGE COSTS, UNLESS THOSE COSTS ARE NECESS ARY IN THE PRODUCTION 44 ITA NO. 1351/DEL/2018 PROCESS BEFORE A FURTHER PRODUCTION STAGE; ADMINIST RATIVE OVERHEADS THAT DO NOT CONTRIBUTE TO BRINGING INVENTORIES TO T HEIR PRESENT LOCATION AND CONDITION; AND SELLING COSTS. 8.14 KEEPING IN VIEW THE TREATMENT PRESCRIBED UNDER AS-2 AND THE FACT THAT THE ASSESSEE HAS BEEN REGULARLY FOLLOWING THE SAME METHOD OF ACCOUNTING FOR VALUATION OF CHARGING SUCH REJECTION TO P&L A/C AND ITS CLOSING INVENTORY, WE ARE OF THE VIEW THE ADDITION IN QUESTION IS UNCALLED FOR. THE ADJUSTMENT IS NOT MATERIAL ADJUST MENT. FURTHER, FOR THE REASONS STAGED BY US ON THE ISSUE OF CONSISTENCY, W HILE DISPOSING AROUND NO. 2 TO 2.2, WE ALLOW THIS GROUND OF THE AS SESSEE. BOTH THE PARTIES HAVE ADMITTED THAT THERE IS NO DIF FERENCE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT IN THE A SSESSMENT YEAR BEFORE US AS WELL AS THE YEAR FOR WHICH THE ORDER OF THE C OORDINATE BENCH PERTAINS TO. ON READING OF THE ASSESSMENT ORDER AS WELL AS T HE DIRECTION OF THE LD. DISPUTE RESOLUTION PANEL IT WAS NOT FOUND THAT HOW THE LOSS OF THE ASSESSEE WAS FOUND TO BE NORMAL WHEN THE ASSESSEE SUBMITTED THAT IT IS AN ABNORMAL LOSS INCURRED BY IT DURING THE COURSE OF M ANUFACTURING PROCESS. FURTHER THE LD. DISPUTE RESOLUTION PANEL HAS ALSO S TATED THAT BOTH THE COST OF NORMAL AND ABNORMAL LOSSES HAVE TO BE LOADED TO THE VALUE OF THE CLOSING STOCK IS DEVOID OF ANY MERIT AS IT IS CONTR ARY TO THE ACCOUNTING STANDARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOU NTANTS OF INDIA WHICH HAS BEEN MANDATED BY THE MINISTRY OF CORPORATE AFFA IRS, WHICH ONLY SAYS THAT, ONLY NORMAL LOSSES ARE REQUIRED TO BE INCLUDE D AND ABNORMAL LOSSES ARE REQUIRED TO EXCLUDED FOR THE PURPOSE OF THE VAL UATION OF THE CLOSING STOCK OF THE FINISHED GOODS AND SEMI FINISHED GOODS . IN VIEW OF THE ABOVE, WE RESPECTFULLY FOLLOWING THE DECISION OF THE COORD INATE BENCH IN THE APPELLANTS OWN CASE FOR THE PREVIOUS YEAR ALLOW GR OUND NO. 3 OF THE APPEAL OF THE ASSESSEE. 45 ITA NO. 1351/DEL/2018 IT IS PERTINENT TO NOTE THAT IT IS NOT PRACTICALLY POSSIBLE FOR THE ASSESSEE TO SEGREGATE NORMAL AND ABNORMAL WASTAGES EMBEDDED IN THE AFORESAID COSTS AND THEREFORE, THE ASSESSEE, AS PER CONSISTENT AND REGULAR METHOD OF ACCOUNTING, ACCEPTED BY THE REVENUE AS SUCH IN THE EARLIER YEARS, DID NOT CONSIDER THE AFORESAID EXPENDITURE FOR THE PURPOSES OF VALUATION OF CLOSING INVENTORY OF FINISHED GOODS. THE AO/DRP WAS NOT COR RECT IN MAKING THIS ADDITION. THE ISSUE IS SQUARELY COVERED IN ASSESSEE S FAVOUR BY THE ORDER OF EARLIER ASSESSMENT YEARS. THEREFORE, GROUND NO. 17- 17.1 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. IT IS PERTINENT TO NOTE THAT THE ASSESSEE FOLLOWED THIS METHOD OF ACCOUNTING CONSISTENTLY AND REGULARLY WHICH WAS ACCEPTED BY TH E REVENUE IN THE EARLIER YEARS. THUS, THE REVENUE AT THIS JUNCTURE CANNOT DI STURB THE SAID METHOD. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE SIMI LAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. HENCE GROUND NOS. 14 TO 14.2 ARE ALLOW ED. 19. AS REGARDS TO GROUND NO. 15 TO 15.3 ARE RELATIN G TO DISALLOWANCE OF PROVISION FOR INCREASE IN PRICE OF MATERIAL. THE AS SESSEE HAS APPOINTED VARIOUS VENDORS FOR SUPPLY OF MATERIAL TO BE USED IN THE PR OCESS OF MANUFACTURING OF VEHICLES. THE ASSESSEE AT THE TIME OF ISSUING OF PU RCHASE ORDER, NEGOTIATES THE PRICE AT WHICH THE PARTICULAR COMPONENT/ COMPONENTS SHALL BE SUPPLIED BY THE VENDOR. SUBSEQUENTLY, VENDORS ARE PROVIDED SUPPLY O F COMPONENT SCHEDULE ANNUALLY. IN THE BUSINESS OF MANUFACTURING VEHICLES , THE ASSESSEE PURCHASES RAW MATERIAL FROM VENDORS WITH THE EXPRESS UNDERSTA NDING THAT THE RATES WOULD BE REVISED, IF THERE IS SUBSTANTIAL INCREASE/DECREA SE IN COST OF MATERIALS, AT THE AGREED INTERVAL. THE ASSESSEE SUBMITTED DURING THE ASSESSMENT PROCEEDINGS THAT IT IS COMMON TRADE PRACTICE TO CONTRACT WITH V ENDORS ON SUCH EXPRESS TERMS FOR PAYMENT OF ARREARS IN THE EVENT OF SUBSTA NTIAL INCREASE/ DECREASE IN COST, IN ORDER TO MAINTAIN CONTINUOUS SUPPLY OF RAW MATERIALS WITHOUT BEING AFFECTED BY MARKET FLUCTUATIONS, ESPECIALLY IN LIGH T OF THE VOLUME OF PURCHASES 46 ITA NO. 1351/DEL/2018 MADE BY THE ASSESSEE. THE ASSESSEE FURTHER SUBMITTE D THAT IN THE ABSENCE OF SUCH UNDERSTANDING/ CONTRACT WITH THE VENDORS, THE ASSESSEE WOULD NOT BE ABLE TO OPERATE AND CONTINUE MANUFACTURING OPERATIO NS WITHOUT DISRUPTION. THIS SAME PROCESS IS FOLLOWED WHEN THERE IS REDUCTI ON IN COST ELEMENTS OF COMPONENT PRICES, COMPANY INFORMS THE VENDORS FOR R EDUCTION IN PRICE OF COMPONENTS. ACCORDINGLY, WHILE PRICE REVISIONS ARE PENDING OR NEGOTIATIONS ARE ON, THE VENDORS KEEP ON SUPPLYING THE MATERIAL PROV ISIONALLY AT THE AGREED RATES, WITH THE UNDERSTANDING THAT PURSUANT TO NEGO TIATIONS BEING FINALIZED, THE ARREARS OF THE AMOUNT DUE TO THEM WOULD BE PAID TO THEM RETROSPECTIVELY. SUCH PRICE REVISIONS, BEING AN ACCRUED LIABILITY AT THE TIME OF PURCHASE OF RAW MATERIALS, ARE RECORDED IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE. AT THE YEAR END, THE COMPANY ESTIMATES THE ADDITIONAL LIABILITY ON ACCOUNT OF PRICE REVISION UNDER NEGOTIATION AND MAKES UPWARD/DOWNWARD PROVISI ON, AS THE CASE MAY BE, IN RELATION TO MATERIAL SUPPLIED UNTIL THE END OF THE RELEVANT YEAR. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HELD THAT T HE AFORESAID PROVISION OF RS. 10.43 CRORES IS NOT ALLOWABLE BUSINESS EXPENDITURE. THE ASSESSING OFFICER HELD THAT PROVISIONS EMANATING FROM RETROSPECTIVE PRICE AMENDMENTS ARE CONTINGENT IN NATURE AND THUS, NOT AN ALLOWABLE BUSINESS EXPEN DITURE. THE ASSESSING OFFICER ALSO ADDED BACK THE AFORESAID TOTAL PROVISI ON WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB, HOLDING THE SAME TO BE AN UNASCERTAINED LIABILITY. 20. THE LD. AR SUBMITTED THAT THE PROVISION FOR THE MATERIAL IS WORKED OUT IN RESPECT OF PRICE AMENDMENTS WHICH WERE ALREADY ISSU ED ON 31.03.2009. THE AFORESAID PROVISION WAS MADE ON THE BASIS OF ACTUAL SUPPLIED MADE UPTO THE END OF THE YEAR AS PER PRICE AMENDMENTS ACTUALLY IS SUED AS ON 31.03.2009 OF WHICH DETAILED WORKING WAS SUBMITTED DURING THE HEA RING OF THE APPEAL BY THE LD. AR. THEREFORE, THE LD. AR SUBMITTED THAT THE AS SESSEE MADE PROVISION ON THE BASIS OF ACTUAL PO ISSUED TO VENDORS FOR THE CH ANGE IN PRICES DURING THE YEAR AND IT INVOLVED NO ESTIMATION. THE LD. AR SUBM ITTED THAT IN ASSESSMENT YEAR 2008-09, THE TRIBUNAL DELETED THE DISALLOWANCE HOLDING THAT SIMILAR DISALLOWANCE OF PROVISION WAS MADE BY THE ASSESSING OFFICER IN COMPLETE 47 ITA NO. 1351/DEL/2018 DISREGARD OF THE FINDINGS OF THE ASSESSING OFFICER IN THE PRECEDING ASSESSMENT YEAR. VIZ. AY 2007-08 AS ALSO THE CONSISTENT METHOD FOLLOWED BY THE ASSESSEE. IN THAT YEAR, THE DELHI BENCH OF THE TRIBUNAL, VIDE ORDER DATED 13.06.2014 PASSED IN THE ASSESEES OWN CASE FOR ASSESSMENT YEA R 2008-09 WAS PLEASED TO DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER KEEPING IN VIEW THE PRINCIPLE OF MATERIALITY AND CONSISTENCY FOLLOWED B Y THE ASSESSEE. FURTHER, THE DELHI BENCH OF THE TRIBUNAL, VIDE CONSOLIDATED ORDE R DATED 24.10.2016 PASSED IN ASSESSEE 'S OWN CASE FOR ASSESSMENT YEAR 2010-11 AND 2011-12, HAS DECIDED THE AFORESAID ISSUE IN FAVOUR OF THE ASSESSEE HOLD ING THAT THE PROVISIONS WAS MADE ON SCIENTIFIC BASIS AND THE TRANSACTION IS REV ENUE NEUTRAL. 21. THE LD. AR FURTHER SUBMITTED THAT UNDER THE PRO VISIONS OF SECTION 115JB OF THE ACT, THE ASSESSING OFFICER HAS LIMITED POWERS OF ONLY MA KING ADJUSTMENTS OF ITEMS AS PROVIDED IN EXPLANATION TO THAT SECTION . THE ASSESSING OFFICER DOES NOT. IT IS RESPECTFULLY SUBMITTED, HAS THE AUTHORIT Y TO MAKE ADJUSTMENTS WHICH ARE NOT CONSISTENT WITH THE ITEMS SPECIFIED IN EXP LANATION TO SECTION 115JB OF THE ACT. IN TERMS OF CLAUSE (C) OF EXPLANATION 1 TO SECTION 115JB, THE PROFIT AS SHOWN IN THE PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT, PREPARED IN ACCORDANCE WITH PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, CAN BE ADJUSTED BY THE AMOUNT OF PROVISION FOR UNASCERTAIN ED LIABILITIES. THE LD. AR SUBMITTED THAT THE AFORESAID PROVISION IS APPLICABL E ONLY TO UNASCERTAINED LIABILITIES AND NOT WHERE PROVISION HAS BEEN MADE O N AN ACTUAL AND SCIENTIFIC BASIS, WHICH CONSTITUTES A REAL AND ACCRUED LIABILI TY. IN THIS REGARD, THE LD. AR SUBMITTED THAT THE AUDITORS WHILE ISSUING REPORT IN FORM 29B UNDER SECTION 115JB OF THE ACT, SPECIFICALLY EXAMINED THE AFORESA ID PROVISION AND NO QUALIFICATION THEREOF WAS MADE IN THE REPORT WHEREI N NIL AMOUNT WAS STATED AGAINST THE COLUMN OF UNASCERTAINED LIABILITY ON A CCOUNT OF PROVISION FOR ADVERTISEMENT EXPENSES.' THEREFORE, IT WOULD BE NOT ED THAT NO QUALIFICATION WAS MADE BY THE AUDITORS TO THE BOOK PROFIT' AS SHOWN IN THE P&L ACCOUNT OF THE COMPANY. THE LD. AR RELIED UPON THE FOLLOWING DECIS IONS, WHEREIN IT HAS BEEN HELD THAT PROVISION FOR ACCRUED LIABILITIES, MADE O N THE BASIS OF MANAGEMENT'S 48 ITA NO. 1351/DEL/2018 BEST ESTIMATE ON SCIENTIFIC BASIS OR ON THE BASIS O F ACTUARIAL VALUATION, ETC., WILL NOT BE REGARDED AS PROVISION FOR UNASCERTAINED LIAB ILITY, LIABLE TO BE ADDED BACK TO BOOK PROFITS' UNDER SECTION 115JB OF THE ACT: - CIT VS. H.P. TOURISM TAXMAN 148 (HP) - ACIT VS. NHPC LTD.: 67 SOT 317 (DEL. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSING OFF ICER, THUS, HAS LIMITED POWER OF ADJUSTING THE BOOK PROFIT AS SHOWN IN THE P&L ACCOUNT IN ACCORDANCE WITH THE ADJUSTMENTS PROVIDED IN THE EXPLANATION TO SECTION 115JB OF THE ACT AND DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVID ED IN THE SAID EXPLANATION. EVEN OTHERWISE, IT IS A SETTLED LAW THAT WHERE LIAB ILITY HAS ACCRUED DURING THE PREVIOUS YEAR, THE SAME NEEDS TO BE PROVIDED IN THE BOOKS, PROVIDED THE SAME IS CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTA INTY, EVEN IF THE LIABILITY IS QUANTIFIED AND DISCHARGED AT A FUTURE DATE. [REFER: BHARAT EARTH MOVERS V. CIT: 245 1TR 428 (SC): CIT V. ARMOUR CONSULTANTS (P.) LT D. 214 TAXMAN 444 (MAD.): BAYER BIO SCIENCE (P) LTD.: 148 TTJ 73 (MUM .)] IN VIEW THEREOF, THE LD. AR SUBMITTED THAT THE PROVISION FOR INCREASE IN PRI CE OF MATERIAL BEING AN ASCERTAINED LIABILITY MADE ON AN ACTUAL AND SCIENTI FIC BASIS FOR THE REASONS SUBMITTED ABOVE WOULD ALSO BE ALLOWABLE WHILE COMPU TING BOOK PROFITS UNDER SECTION 115.1 B OF THE ACT. 22. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 23. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.YS. 2010-11 & 2011-12 HELD AS UNDER: 49 ITA NO. 1351/DEL/2018 20) WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS AND ALSO PERUSED ORDER OF THE COORDINATE BENCH IN THE APPELLANTS OW N CASE FOR EARLIER YEARS. WE HAVE ALSO PERUSED THE PAGE NO. 1130 TO 1140 OF T HE PAPER BOOK VOLUME 3 SUBMITTED BY THE ASSESSEE BEFORE THE LD. ASSESSIN G OFFICER IN PURSUANCE OF DIRECTION OF THE LD. DISPUTE RESOLUTION PANEL. T HE PARTIES BEFORE US HAVE CONFIRMED THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THIS YEAR COMPARED TO THE YEAR FOR WHICH T HE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE APPELLANT. THE COORDINA TE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 HAS DECIDED TH IS ISSUE AS UNDER:- 12.11 THE ADDITION IN QUESTION IS ON ACCOUNT OF PR OVISION FOR INCREASE IN PRICE OF MATERIAL. WHEN THERE IS AN EXCESS PROVI SION ON ACCOUNT O PRICE REVISION MADE DURING THE YEAR, THE ASSESSEE R EVERSED THE SAME IN SUBSEQUENT YEAR I.E. WHEN THE ACTUAL FIGURES ARE KN OWN. SIMILARLY, WHEN THERE IS A SHORT PROVISION FOR INCREASE IN PRI CE OF RAW MATERIAL SUPPLIED IN IMMEDIATELY PRECEDING YEAR, THE BALANCE IS RECOGNIZED AS EXPENDITURE DURING THE YEAR. A CLAIM IS MADE BASED ON ASCERTAINMENT OF ACTUAL LIABILITY. THE ASSESSING OFFICER DISALLOW ED THE REVERSALS OF PROVISION ON GROUND THAT THIS WAS A PRIOR PERIOD EX PENDITURE. 12.12 WHEN PROVISIONS ARE MADE, WHAT IS TO BE SEEN IS WHETHER THE ASSESSEE HAS DONE A BONA FIDE AND GENUINE EXERCISE TO ESTIMATE ITS LIABILITY WITH REASONABLE CERTAINTY. THE TERM REASO NABLE CERTAINTY MEANS THAT THE PROVISION IN QUESTION MIGHT BE SLIGH TLY HIGHER OR LOWER THAN THE ACTUAL FIGURE.. WHEN THE PROVISION IS HIGH ER, IT IS REVERSED IN SUBSEQUENT YEAR, WHEN THE ACTUAL FIGURES ARE KNOWN. SIMILARLY, WHEN THE PROVISION IS LOWER, THE SAME IS CLAIMED IN THE LATTER ASSESSMENT YEAR. IT CANNOT BE SAID THAT THESE ARE PRIOR PERIOD EXPENDITURE. THE ACTUAL LIABILITY IN QUESTION IS ASCERTAINED ONLY DU RING THE YEAR AND HENCE THE LIABILITY CRYSTALLIZES DURING THE YEAR. E STIMATION OF AN EXPENSE HAS TO BE CONSIDERED IN CONTRADICTION TO AC TUAL ASCERTAINMENT 50 ITA NO. 1351/DEL/2018 OF THE EXPENSES. ONCE THE ACTUAL EXPENSE HAS BEEN A SCERTAINED, THE LIABILITY ACCRUES IN THAT YEAR TO THE EXTENT NOT PR OVIDED IN THE EARLIER YEAR AND IS TO BE ALLOWED AS REVENUE EXPENDITURE IN THE YEAR OF CRYSTALLIZATION. CONCEPTS OF GOING CONCERN, ACCRUAL AND CONSISTENCY HAVE TO BE TAKEN INTO ACCOUNT BY THE REVENUE AUTHOR ITIES WHILE EVALUATING SUCH PROVISIONS AND MAKING SUCH ADJUSTME NTS. THE ASSESSEE IS DISPUTING THE FIGURES OF DISALLOWANCE A ND THE DRP IS ALSO EXPRESSING ITS INABILITY TO CORRECT THE FIGURES. IN OUR VIEW THE DRP IS NOT HELPLESS AND COULD HAVE DIRECTED THE ASSESSING OFFI CER TO VERIFY THE FIGURES AND CORRECT THE MISTAKES, IF ANY. IN VIEW O F THE ABOVE DISCUSSION, WE ALLOW THIS GROUND OF ASSESSEE FOR ST ATISTICAL PURPOSE AND DIRECT THE ASSESSING OFFICER TO PROPERLY VERIFY THE FIGURES AND ALLOW THE CLAIM OF THE ASSESSEE. SUBSEQUENTLY FOR THE ASSESSMENT YEAR 2008-09 WHEN T HE SIMILAR DISALLOWANCE WAS MADE BY THE LD. ASSESSING OFFICER THE COORDINATE BENCH VIDE ITS ORDER DATED 13.04.2014 HAS HELD DELETED TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER KEEPING IN VIEW THE PRINCI PLE OF MATERIALITY AND CONSISTENCY FOLLOWED BY THE APPELLANT. ON THE GROUN D THAT THE MENTION HAS BEEN MADE IN THE PURCHASE ORDER THAT THERE CANNOT B E ANY REVISION OF THE PRICES SUBSEQUENTLY AND THE PRICES MENTIONING THE P URCHASE ORDER OF FINAL BASED ON WHICH THE LD. ASSESSING OFFICER HAS RELIED VERY HEAVILY WE ARE OF THE VIEW THAT THAT THESE ARE THE GENERAL TERMS AND CONDITIONS OF THE PURCHASE ORDER CLAIMED BY THE APPELLANT UPON ITS VA RIOUS VENDORS AND THERE IS NO PROHIBITION IN THE SAID PURCHASE ORDERS THAT SUBSEQUENTLY THE PRICES CANNOT BE REVISED. MANY TIMES THE PRICES ARE DEPENDENT UPON THE COST OF THE RAW MATERIAL SUCH AS METAL ETC OF THE V ENDORS WHICH IS HIGHLY FLUCTUATING, WHICH MAY RESULT INTO SUBSEQUENT PRICE REVISION. FURTHER WHEN THE ACTUAL PAYMENTS ARE MADE TO THE VENDORS ON THE BASIS OF SUCH RETROSPECTIVE INCREASE IN PRICE OF MATERIAL SUPPLIE D, WHICH IS ACCEPTED AND ALLOWED AS REVENUE EXPENDITURE, THE PROVISION MADE FOR SUCH ARE REVENUE 51 ITA NO. 1351/DEL/2018 NEUTRAL. ACCORDINGLY THERE IS NO JUSTIFICATION IN S USTAINING THE AFORESAID DISALLOWANCE. ACCORDINGLY, WE REVERSE THE ACTION OF THE ASSESSING OFFICER AND ALLOW THE GROUND NO. 4 OF APPEAL RAISED BY THE APPELLANT. IT IS OBSERVED THAT IT IS COMMON TRADE PRACTICE TO CONTRACT WITH VENDORS ON SUCH EXPRESS TERMS FOR PAYMENT OF ARREARS IN THE EV ENT OF SUBSTANTIAL INCREASE/ DECREASE IN COST, IN ORDER TO MAINTAIN CO NTINUOUS SUPPLY OF RAW MATERIALS WITHOUT BEING AFFECTED BY MARKET FLUCTUAT IONS, ESPECIALLY IN LIGHT OF THE VOLUME OF PURCHASES MADE BY THE ASSESSEE. IN TH E ABSENCE OF SUCH UNDERSTANDING/ CONTRACT WITH THE VENDORS, THE ASSES SEE WOULD NOT BE ABLE TO OPERATE AND CONTINUE MANUFACTURING OPERATIONS WITHO UT DISRUPTION. THIS SAME PROCESS IS FOLLOWED WHEN THERE IS REDUCTION IN COST ELEMENTS OF COMPONENT PRICES, COMPANY INFORMS THE VENDORS FOR R EDUCTION IN PRICE OF COMPONENTS. ACCORDINGLY, WHILE PRICE REVISIONS ARE PENDING OR NEGOTIATIONS ARE ON, THE VENDORS KEEP ON SUPPLYING THE MATERIAL PROV ISIONALLY AT THE AGREED RATES, WITH THE UNDERSTANDING THAT PURSUANT TO NEGO TIATIONS BEING FINALIZED, THE ARREARS OF THE AMOUNT DUE TO THEM WOULD BE PAID TO THEM RETROSPECTIVELY. SUCH PRICE REVISIONS, BEING AN ACCRUED LIABILITY AT THE TIME OF PURCHASE OF RAW MATERIALS, ARE RECORDED IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE. AT THE YEAR END, THE COMPANY ESTIMATES THE ADDITIONAL LIABILITY ON ACCOUNT OF PRICE REVISION UNDER NEGOTIATION AND MAKES UPWARD/DOWNWAR D PROVISION, AS THE CASE MAY BE, IN RELATION TO MATERIAL SUPPLIED UNTIL THE END OF THE RELEVANT YEAR. THUS, THE ASSESSING OFFICER WAS INCORRECT IN DISALLOWING THIS CLAIM. THEREFORE, GROUND NO. 18 TO 18.2 ARE ALLOWED IN FAV OUR OF THE ASSESSEE. FROM THE RECORDS IT CAN BE SEEN THAT THE PROVISION FOR THE MATERIAL IS WORKED OUT IN RESPECT OF PRICE AMENDMENTS WHICH WERE ALREA DY ISSUED ON 31.03.2009 WHICH WAS MADE ON THE BASIS OF ACTUAL SUPPLIED MADE UPTO THE END OF THE YEAR AS PER PRICE AMENDMENTS ACTUALLY ISSUED ON 31.03.20 09. THE PROVISION WAS MADE ON THE BASIS OF ACTUAL PO ISSUED TO THE VENDOR S FOR CHANGE IN THE PRICES DURING THE YEAR AND THUS, DOES NOT INVOLVED ANY EST IMATION. THEREFORE, THE 52 ITA NO. 1351/DEL/2018 ASSESSING OFFICER WAS NOT RIGHT IN MAKING ADJUSTMEN TS WHICH ARE NOT CONSISTENT WITH THE EXPLANATION TO SECTION 115JB OF THE INCOME TAX ACT, 1961. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE S IMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. HENCE GROUND NOS. 15 TO 14.3 ARE ALLOW ED. 24. AS REGARDS GROUND NO. 16 TO 16.2 IS RELATING TO DISALLOWANCE OF PRIOR PERIOD EXPENSES. THE ASSESSEE IS A LARGE SIZE MANUF ACTURING COMPANY WHICH RECEIVES SERVICES FROM SEVERAL VENDORS, RUNNING INT O HUNDREDS. THE ASSESSEE MADE ATTEMPT TO QUANTIFY THE LIABILITY INCURRED TOW ARDS EXPENSES DURING THE RELEVANT PREVIOUS YEARS AND PROVIDE FOR IT. THE ASS ESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT IT NOT POSSIBLE TO CONSIDER AND PROVIDE FOR ALL EXPENSES, IN ABSENCE OF RELEVANT DETAILS/MATERIAL/INFORMATION FOR VARIOUS REASONS LIKE NON-RECEIPT OF BILLS/INVOICES FROM THE VENDORS, THE CONTRACT TERMS WITH VENDORS NOT BEING SETTLED, DISPUTES IN RELATION TO BILLS RE CEIVED, SERVICES CONTRACTED BY ZONAL/REGIONAL/BRANCH OFFICER NOT INTIMATED TO THE HEAD OFFICE, ETC. ACCORDINGLY, THE ASSESSEE CLAIMED DEDUCTION FOR MIS CELLANEOUS EXPENSES AGGREGATING TO RS. 17.83,68,791 PERTAINING TO PRIOR PERIOD. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER/DRP HAS DISALLOWED THE AFORESAID EXPENSES, ON THE GROUND THAT SAME PERTAINED TO PRIOR PERIOD AND ARE NOT ALLOWABLE REVENUE EXPENDITURE AGAINST INCOME OF THE RELEVANT YEAR. 25. THE LD. AR SUBMITTED THAT THE AFORESAID ISSUE I S COVERED BY THE ORDER PASSED BY THE TRIBUNAL IN THE ASSESEES OWN CASE FO R ASSESSMENT YEAR 2008- 09 WHEREIN, THE TRIBUNAL TAKING INTO CONSIDERATION THE FINDING OF THE DRP PRINCIPALLY DECIDED THE ISSUE IN FAVOR OF THE ASSES SEE AND REMANDED THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR CORRECTING CALCULATION ERRORS. FURTHER, THE AFORESAID ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE BY THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2010-11 AND 2011-12. W HILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14, THE T RIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR T HE ASSESSMENT YEARS 2010-11 53 ITA NO. 1351/DEL/2018 AND 2011-12. 26. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 27. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 25. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2010-11 AND 2011-12 HELD AS UNDER: 201. WE HAVE HEARD THE RIVAL CONTENTIONS. WE NOTE THAT SIMILAR ISSUE RELATING TO DISALLOWANCE OF PRIOR-PERIOD EXPENSES W AS DELETED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL FOR ASSESSMEN T YEAR 2008-09 ARE AS UNDER: 5. ON CAREFUL CONSIDERATION OF ABOVE CONTENTION AND SUBMISSIONS OF BOTH THE PARTIES AND CAREFUL PERUSAL OF THE RECORD PLACE D BEFORE US, INTER ALIA DECISION IN ASSESSEE'S OWN CASE FOR AY 2007-08 (SUP RA), WE OBSERVE THAT THE SAME ISSUE WAS DECIDED BY COORDINATE BENCH OF T HIS TRIBUNAL IN FAVOUR OF THE ASSESSEE WITH FOLLOWING FINDINGS AND CONCLUS IONS:- ' 61.10. THE ISSUE HEREIN IS YEAR OF DEDUCTIBILITY. A DDITIONAL GROUND OF APPEAL WAS FILED FOR A. Y. 2006-07 BEFORE THE TRIBU NAL AND THIS ADDITIONAL GROUND WAS NOT DISPOSED OF MISC. APPLICA TION IS PENDING. THE ASSESSEE'S CONTENTION IS THAT THE CORRECT AMOUNT IS RS. 23.86 LAKHS AND NOT RS. 643.05 LAKHS AS MENTIONED BY THE A.O. DETAI LS ARE GIVEN IN THE PAPER BOOK WE FIND THAT THE D.R.P. HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE PRICE. THIS WORKING GIVEN BY THE ASSESSE E IS NOT PROPERLY VERIFIED BY THE A.O. THE AO SHOULD HAVE VERIFIED TH E CLAIM OF THE ASSESSEE. WE DIRECT THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE. BE IT AS IT MAY, THE GENUINENESS OF THE E XPENDITURE IS NOT IN DOUBT AND AS IT IS A QUESTION OF EXCESS/ SHORT PROV ISION OF DISCOUNT IN RESPECT OF SALES EFFECTED, WE ARE OF THE CONSIDERED OPINION THAT METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE NEED NOT TO BE DISTURBED AS IT IS BEING CONSISTENTLY FOLLOWED OVER THE YEARS AND AS T HE REVENUE HAS 54 ITA NO. 1351/DEL/2018 ACCEPTED THE SAME. THE ASSESSEE'S CLAIM THAT THE AM OUNT OF RS. 23.86 LAKHS IS NOT PRIOR PERIOD EXPENSES IS NOT SERIOUSLY DISPUTED BY THE REVENUE. AS TO THE BALANCE AMOUNT RS. 90,000 UNDER THE FESTIVAL OFFER SCHEME, IT WAS MARGINAL VARIATION THAT AROSE DUE TO ESTIMATION OF LIABILITY TOWARDS SALES DISCOUNT TO BE GIVEN TO DEA LERS. THUS THE DISALLOWANCE CANNOT BE SUSTAINED BOTH ON THE GROUND S OF MATERIALITY AS WELL AS CONSISTENCY. SIMILAR ISSUES WERE DEALT BY U S WHILE DISPOSING OF GROUND NOS. 7 AND 7.1. CONSISTENT WITH THE VIEW TAK EN THEREIN, WE ALLOW THIS GROUND OF THE ASSESSEE FOR STATISTICAL P URPOSES. 6. DURING THE ARGUMENT, BOTH THE PARTIES FAIRLY AGR EED THAT THE ASSESSEE CLAIMED DEDUCTION FOR FOLLOWING MISCELLANEOUS EXPEN SES AGGREGATING TO RS.7,09,31,076 BUT IN THE ASSESSMENT ORDER, THE AMO UNT OF RS.7,15,91,826 HAS BEEN INCORRECTLY REPORTED ON ACCOUNT OF TOTALIN G EXPENSES. FROM PAGE NO. 14-16 OF DRP ORDER, WE OBSERVE THAT THE DRP HAS ALSO POINTED OUT MISTAKE OF TOTALING. AT THE OUTSET, WE OBSERVE THAT THE ASSESSING OFFICER HAS NOWHERE DISPUTED THE GENUINENESS OF THE EXPENDI TURE CLAIMED BY THE ASSESSEE AND IF ASSESSEE IS DENIED DEDUCTION, THEN IT WOULD NEVER GET DEDUCTION FOR SUCH EXPENSES. FROM DRP ORDER, WE ALS O OBSERVED THAT THE DRP HAS FOLLOWED ITS DECISION IN RESPECT OF IMMEDIA TELY PRECEDING YEAR. AT THE SAME TIME, WE OBSERVE THAT THE MISTAKE OF TOTAL ING AND THE WORKING GIVEN BY THE ASSESSEE HAS NOT BEEN PROPERLY VERIFIE D AT THE END OF ASSESSING OFFICER AND THE SAME SHOULD HAVE BEEN VER IFIED BY THE ASSESSING OFFICER. UNDER ABOVE CIRCUMSTANCES, WE HO LD THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF HON'BLE ITAT 'C' BENCH IN ASSESSEE'S OWN CASE FOR AY 2007-08 (SU PRA) AND WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSE E AFTER PROPER EXAMINATION AND VERIFICATION. ACCORDINGLY, GOING CO NSISTENT WITH THE VIEW TAKEN BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR T HE IMMEDIATELY PRECEDING YEAR TO THE YEAR UNDER CONSIDERATION IN T HIS APPEAL, WE HOLD THAT GROUND NO. 1 OF THE REVENUE BEING DEVOID OF MERITS DESERVES TO BE DISMISSED AND WE DISMISS THE SAME . 55 ITA NO. 1351/DEL/2018 THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLAN T AS COMPARED TO THE ASSESSMENT YEAR IN WHICH THE ABOVE ISSUE IS DECIDED BY THE COORDINATE BENCH. NO OTHER CONTRARY DECISION WAS ALSO POINTED OUT THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN THE APPELLANTS OWN CASE FOR THE EARLIER YEARS. WE DIS MISS GROUND NO. 3 OF THE APPEAL OF THE REVENUE. IT CAN BE SEEN THAT THE ASSESSEE IS A LARGE SIZED M ANUFACTURING COMPANY WHICH RECEIVES SERVICES FROM SEVERAL VENDORS, RUNNI NG INTO HUNDREDS. THE ASSESSEE MADE REASONABLE ATTEMPT TO QUANTIFY THE LI ABILITY INCURRED TOWARDS EXPENSES DURING THE RELEVANT PREVIOUS YEARS AND PRO VIDE FOR IT WHICH WAS NOT DOUBTED BY THE ASSESSING OFFICER. IT IS NOT PRACTIC ALLY POSSIBLE TO CONSIDER AND PROVIDE FOR ALL EXPENSES, IN ABSENCE OF RELEVANT DE TAILS/MATERIAL/INFORMATION FOR VARIOUS REASONS LIKE, NON-RECEIPT OF BILLS/INVO ICES FROM THE VENDORS, THE CONTRACT TERMS WITH VENDORS NOT BEING SETTLED, DISP UTES IN RELATION TO BILLS RECEIVED, SERVICES CONTRACTED BY ZONAL/REGIONAL/BRA NCH OFFICER NOT INTIMATED TO THE HEAD OFFICE, ETC. THEREFORE, THE ASSESSEE IN OUR OPINION HAS RIGHTLY CLAIMED DEDUCTION FOR MISCELLANEOUS EXPENSES AGGREG ATING TO RS. 18,01,39,937 PERTAINING TO PRIOR PERIOD. THE FACTS ARE IDENTICAL IN THE PREVIOUS ASSESSMENT YEAR 2010-11 & 2011-12 AND SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE. THEREFORE, GROUND NO. 20 TO 20.1 ARE ALLO WED IN FAVOUR OF THE ASSESSEE. FROM THE RECORDS IT CAN BE SEEN THAT THE ASSESSEE M ADE REASONABLE ATTEMPT TO QUANTIFY THE LIABILITY INCURRED TOWARDS EXPENSES DU RING THE RELEVANT PREVIOUS YEARS AND PROVIDE FOR IT. BUT IT WAS NOT HUMANLY PO SSIBLE TO CONSIDER AND PROVIDE FOR ALL THE EXPENSES, IN ABSENCE OF RELEVAN T DETAILS/MATERIAL/INFORMATION FOR VARIOUS REASONS LI KE NON-RECEIPT OF BILLS/INVOICES FROM THE VENDORS, THE CONTRACT TERMS WITH VENDORS NOT BEING SETTLED, DISPUTES IN RELATION TO BILLS RECEIVED, SE RVICES CONTRACTED BY 56 ITA NO. 1351/DEL/2018 ZONAL/REGIONAL/BRANCH OFFICER NOT INTIMATED TO THE HEAD OFFICE, ETC. THEREFORE, ASSESSEE IN OUR OPINION RIGHTLY CLAIMED MISCELLANEO US EXPENSES AGGREGATING TO RS. 17,83,68,791 PERTAINING TO PRIOR PERIOD. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 20 13-14. HENCE GROUND NOS. 16 TO 16.2 ARE ALLOWED. 28. AS REGARDS GROUND NO. 17 TO 17.3 IS RELATING TO ADVERTISEMENT PROVISIONS OF HEAD OFFICE. AT THE END OF YEAR, THE ASSESSEE MA KES PROVISION FOR VARIOUS EXPENSES INCURRED DURING THE YEAR ON THE BASIS OF R EASONABLE ESTIMATE SINCE IN THE ABSENCE OF RECEIPT OF BILLS/INVOICES FROM THE V ENDORS, WHICH ARE RECEIVED IN THE SUCCEEDING YEAR, THE EXACT AMOUNT PAYABLE THERE AGAINST WAS NOT ASCERTAINABLE. IN THE SUCCEEDING YEAR, ON RECEIPT O F BILLS FROM VENDORS, EXACT AMOUNT PAYABLE TO VENDORS WAS ASCERTAINED. THE AMOU NT OF PROVISION IN EXCESS OF ACTUAL AMOUNT PAY ABLE WAS REVERSED IN TH E BOOKS OF ACCOUNT. IN CASE OF SHORTFALL, THE PROFIT AND LOSS ACCOUNT IS DEBITE D WITH THE AMOUNT OF SHORTFALL. THE AGGREGATE PROVISION FOR ADVERTISEMENT EXPENSES INCURRED AT THE HEAD OFFICE MADE AT THE END OF THE RELEVANT PREVIOUS YEAR, WHIC H WAS REVERSED IN SUCCEEDING YEAR AMOUNTED TO RS. 10.19, CRORES. IN T HE ASSESSMENT ORDER, THE ASSESSING OFFICER DISALLOWED THE PROVISIONS MADE AT THE END OF THE YEAR, TO THE EXTENT OF RS. 10.19 CRORES. WHICH WERE REVERSED IN THE SUCCEEDING YEAR ON RECEIPT OF BILLS FROM THE VENDORS ON CONCLUSION OF NEGOTIATIONS WITH THE VENDORS, ON THE GROUND THAT THE PROVISIONS TO THAT EXTENT WERE EXCESSIVE AND REPRESENTED CONTINGENT LIABILITY, WHICH IS NOT ALLO WABLE DEDUCTION. APART FROM THAT THE ASSESSING OFFICER ALSO ADDED BACK THE AFOR ESAID TOTAL PROVISION WHILE COMPUTING 'BOOK PROFIT UNDER SECTION 115JB, HOLDIN G THE SAME TO BE AN UNASCERTAINED LIABILITY. 29. THE LD. AR SUBMITTED THAT THE PROVISION FOR ADV ERTISEMENT /EXPENSES, IN THE YEAR UNDER CONSIDERATION AS WELL, HAS BEEN MADE ON THE BASIS OF ACTUAL PURCHASE ORDERS AND AGREEMENTS AND THUS, HAS BEEN M ADE ON REASONABLE AND 57 ITA NO. 1351/DEL/2018 SCIENTIFIC BASIS. THE LD. AR POINTED OUT THAT THE T RIBUNAL, IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS, VIZ. AY 2010-11 AND 201 1-12, HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2008-09 HOLDING THAT THE PROVISION WAS MADE ON RATIONAL AND SCIENTIFIC BASIS, AND THUS THE SAME WAS TO BE ALLOWED AS BUSINESS DEDUCTION, N OTWITHSTANDING THAT PART THEREOF WAS REVERSED IN THE SUCCEEDING YEAR. THE TR IBUNAL, IN COMING TO THE AFORESAID CONCLUSION, ALSO HELD THAT THE DISALLOWAN CE CANNOT BE MADE ON THE ISSUES WHICH ARE REVENUE NEUTRAL. THE AFORESAID ISS UE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09, WHEREIN THE TRIBUNAL REVER SED THE ACTION OF ASSESSING OFFICER IN DISALLOWING PROVISION ON THE G ROUND THAT THE AMOUNT REVERSED THERE AGAINST IN THE SUCCEEDING YEAR EXCEE DED 15% OF THE AMOUNT OF PROVISION. THE TRIBUNAL HELD THAT THE SAID APPROACH FOLLOWED BY THE AO HAD NO VALID BASIS AND WAS PURELY AD-HOC. THE TRIBUNAL ALS O HELD THAT THE ASSESSING OFFICER WAS BOUND TO FOLLOW THE PRACTICE AND STAND TAKEN BY THE DEPARTMENT ON THIS ISSUE IN THE EARLIER YEARS AND, ACCORDINGLY, R ESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO RECONSIDER THE ISS UE, HAVING REGARD TO THE METHOD OF MAKING PROVISIONS FOLLOWED BY THE ASSESSEE AND A CCEPTED BY THE REVENUE IN PRECEDING YEARS. THE ASSESSING OFFICER, IN THE SET- ASIDE PROCEEDINGS VIDE ORDER 26.02.2015, ACCEPTED THE CLAIM OF THE ASSESSEE AND ALLOWED RELIEF ON THE AFOREMENTIONED IDENTICAL ISSUE BY OBSERVING THAT TH E ASSESSEE HAD COMPUTED THE PROVISION ON THE BASIS OF ACTUAL PURCHASE ORDER S, WHICH WAS SCIENTIFIC AND LOGICAL IN NATURE. WHILE DECIDING THE APPEAL FOR TH E ASSESSMENT YEARS 2012-13 AND 2013-14, THE TRIBUNAL DECIDED THE ISSUE IN FAVO R OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 201 1-12. THE LD. AR FURTHER SUBMITTED THAT THE PROVISION FOR ADVERTISEMENT EXPE NSES AMOUNTING TO RS. 10.19 CRORES WOULD ALSO BE ALLOWABLE WHILE COMPUTIN G BOOK PROFITS UNDER SECTION 115JB OF THE ACT FOR THE SUBMISSION/LEGAL P OSITION SUBMITTED IN GOA NO. 15-15.3 ABOVE. 30. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT 58 ITA NO. 1351/DEL/2018 COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 31. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 29. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.YS. 2010-11 AND 2011- 12 HELD AS UNDER: 1) 33. WE HAVE HEARD THE RIVAL CONTENTIONS. WE AGREE WITH THE SUBMISSIONS OF THE LD. COUNSEL OF THE APPELLANT, WH ICH, IN FACT, HAVE EVEN BEEN AGREED BY THE DRP AND ENDORSED BY TRIBUNAL IN THE ORDER FOR AY 2008-09, THAT A PROVISION MADE FOR EXPENSES ON A SC IENTIFIC AND RATIONAL BASIS IS ALLOWABLE BUSINESS DEDUCTION. THE PROVISI ONS SO MADE CANNOT BE DISALLOWED MERELY BECAUSE; PART THEREOF WAS REVERSE D IN THE SUBSEQUENT YEAR AT THE TIME OF ACTUAL QUANTIFICATION OF THE LI ABILITIES. WE ALSO FIND THAT THE APPELLANT HAD GIVEN COMPLETE DETAILS IN RESPECT OF THE METHOD FOLLOWED IN CREATING THE AFORESAID PROVISIONS, WHICH WERE MA DE ON THE BASIS OF DETAILS / INFORMATION AVAILABLE WITH THE COMPANY AS AT THE END OF THE RELEVANT YEAR. WE FURTHER REITERATE AND FOLLOW THE FINDING GIVEN IN THE PRECEDING GROUND OF APPEAL THAT THE REVENUE SHOULD NOT MAKE ADJUSTMENT ON THE ISSUES WHICH ARE REVENUE-NEUTRAL, HAVING NO IMPACT ON THE OVERALL TAX LIABILITY OF AN ASSESSEE. WHILE FOLLOWING THE A FORESAID PRINCIPLES, WE OBSERVE THAT THE PRESENT DISALLOWANCE IS ALSO REVEN UE-NEUTRAL, SINCE THE IMPUGNED AMOUNT OF PROVISION, AS ALSO ADMITTED BY T HE ASSESSING OFFICER ITSELF, WAS REVERSED IN THE SUCCEEDING YEAR AND CON SEQUENTIAL OFFERED TO TAX IN THAT YEAR. IF SUCH PROVISION IS DISALLOWED I N THIS YEAR, THE CORRESPONDING REDUCTION WOULD NEED TO BE MADE IN TH E RETURN OF THE SUCCEEDING YEAR, NEUTRALIZING THE ENTIRE TAX LIABIL ITY ON THE APPELLANT COMPANY. FOR THE AFORESAID CUMULATIVE REASONS, WE H EREBY DELETE THE DISALLOWANCE MADE BY THE BY THE LD. ASSESSING OFFIC ER OF RS. 1 9658 1820/ IN RESPECT OF PROVISION FOR ADVERTISEMENT EX PENSES INCURRED AT THE HEAD OFFICE MADE AT THE END OF THE RELEVANT PREVIOU S YEAR WHICH WERE 59 ITA NO. 1351/DEL/2018 REVERSED IN THE SUCCEEDING YEAR AND ALLOW THE GROUN D NO. 7 OF APPEAL RAISED BY THE ASSESSE. IN THE PRESENT ASSESSMENT YEAR ALSO, THE PROVISION FOR ADVERTISEMENT EXPENSES, HAS BEEN MADE ON THE BASIS OF ACTUAL PURC HASE ORDERS AND AGREEMENTS AND THUS, HAS BEEN MADE ON REASONABLE AN D SCIENTIFIC BASIS. DETAIL OF PROVISIONS FOR ADVERTISEMENT WAS SUBMITTE D BEFORE THE LOWER AUTHORITIES. FURTHER, THE ASSESSING OFFICER, IN THE SET-ASIDE PROCEEDINGS FOR A.Y. 2008-09, VIDE ORDER DATED 26.02.2015, ACCEPTED THE CLAIM OF THE ASSESSEE AND ALLOWED RELIEF ON THE AFOREMENTIONED I DENTICAL ISSUE BY OBSERVING THAT THE ASSESSEE HAD COMPUTED THE PROVIS ION ON THE BASIS OF ACTUAL PURCHASE ORDERS, WHICH WAS SCIENTIFIC AND LO GICAL IN NATURE. THUS THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBU NAL IN A.YS. 2010-11 & 2011-12. THEREFORE, GROUND NO. 21 TO 21.2 ARE ALLOW ED IN FAVOUR OF THE ASSESSEE. IT IS PERTINENT TO NOTE THAT THE PROVISION FOR ADVE RTISEMENT EXPENSES WAS MADE ON THE BASIS OF ACTUAL PURCHASE ORDERS AND AGREEMEN TS AND THUS, HAS BEEN MADE ON REASONABLE AND SCIENTIFIC BASIS IN THIS YEA R AS WELL. THUS, THE ASSESSING OFFICER WAS NOT RIGHT IN DISALLOWING THE SAID EXPENSES. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12 , 2012-13 AND 2013-14. HENCE GROUND NOS. 17 TO 17.3 ARE ALLOWED. 32. AS REGARDS GROUND NO. 18 TO 18.3 ARE RELATING T O DISALLOWANCE OF EXCESSIVE PURCHASE FROM RELATED PARTIES AS PER AS- PARTIES. IN THE COURSE OF BUSINESS OF MANUFACTURING TWO-WHEELERS, THE ASSESSE E , INTER ALIA, PROCURES CERTAIN CRITICAL COMPONENTS LIKE SHOCK ABSORBERS, C ARBURETORS, ETC., WHICH ARE FITTED IN THE TWO- WHEELERS MANUFACTURED BY THE ASS ESSEE, FROM A SINGLE VENDOR, HAVING THE REQUISITE TECHNOLOGY TO MANUFACT URE THE SAME, IN ACCORDANCE WITH THE SPECIFICATIONS GIVEN BY THE ASS ESSEE. THE ASSESSEE POINTED OUT BEFORE THE ASSESSING OFFICER THAT IT DOES NOT P ROCURE SUCH COMPONENTS 60 ITA NO. 1351/DEL/2018 FROM ANY OTHER VENDORS. THE PURCHASE PRICE OF COMPO NENTS WHICH ARE PURCHASED FROM VARIOUS SUPPLIERS ARE BASED UPON NEG OTIATIONS WITH SUCH VENDORS AND ARE DIFFERENT DUE TO VARIOUS FACTORS, L IKE LEVEL OF AUTOMATION OF VENDOR, AMOUNT OF INVESTMENT BY VENDOR, AGE OF THE PLANT, CAPACITY UTILIZATION (IMPACTING FIXED COST RECOVERY), VOLUME OF SUPPLY, GEOGRAPHICAL DIFFERENCES (WHICH COULD IMPACT COST OF FREIGHT, LABOUR, POWER) , LEAD TIME, INDIRECT TAX COSTS (CST VS. VAT) ETC. FURTHER, THE ASSESSEE ALSO PREFE RS PURCHASING MATERIAL FROM CERTAIN SUPPLIERS, DUE TO BUSINESS/COMMERCIAL EXPED IENCY, VIZ. DE-RISKING THE SUPPLY CHAIN TO REDUCE DEPENDENCE, INABILITY OF EXI STING SUPPLIER TO MEET DEMAND INCREASE, ETC. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE SAID PARTIES ARE NOT RELATED TO ASSESSEE, IN TERMS OF THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. IN ADDITION TO ABOVE, THE ASSESSEE IN THE COURSE OF MANUFACTURING TWO WHEELERS, PLACES PURCHASE ORDERS ON VENDORS OF CERTAIN CUSTOMIZED INTERMEDIARY PRODUCTS LIKE WHEEL ASSEMBL Y, SEAT ASSEMBLY, ETC. THE ASSESSEE WHILE PLACING AFORESAID PURCHASE ORDER S TO THE VENDORS, ALSO SPECIFIES THE SPECIFICATIONS OF THE RAW MATERIALS/C OMPONENTS TO BE USED IN MANUFACTURE OF CUSTOMIZED INTERMEDIARY PRODUCTS AS ALSO THE NAME OF SUPPLIERS FROM WHOM THE FORMER VENDOR WOULD PURCHAS E SUCH MATERIALS/COMPONENTS AT PRICES PREDETERMINED BY THE ASSESSEE. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE MADE TOTAL PUR CHASES OF VARIOUS RAW MATERIALS, ETC. AGGREGATING TO RS. 9366.88 CRORES. OUT OF THE AFORESAID TOTAL PURCHASES, PURCHASES FROM RELATED PARTIES, I.E.. PA RTIES RELATED TO THE ASSESSEE, IN ACCORDANCE WITH DEFINITION GIVEN IN AS-18 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) AND AS DISCLO SED IN THE NOTES TO ACCOUNTS OF THE AUDITED ACCOUNTS OF THE RELEVANT PR EVIOUS YEAR, BUT ADMITTEDLY NOT RELATED IN TERMS OF DEFINITION PROVIDED IN SECT ION 40A (2) OF THE ACT, AMOUNTED TO RS.2711.12 CRORES. THE ASSESSING OFFICE R AFTER COMPARING PURCHASE PRICE OF CERTAIN PRODUCTS, WHICH WERE PURC HASED FROM THE AFORESAID RELATED PARTIES AS ALSO FOR RELATED PARTIES, HELD THAT THE PURCHASE PRICE FROM 'RELATED PARTIES WAS EXCESSIVE IN ORDER TO REDUCE T HE TAXABLE INCOME. THE ASSESSING OFFICER ALSO HELD THAT THE ASSESSEE HAS C ONDUCTED ITSELF IN SUCH A 61 ITA NO. 1351/DEL/2018 MANNER THAT THE PARTIES DO NOT QUALIFY AS RELATED PARTY' UNDER SECTION 40A(2) OF THE ACT, EVEN THOUGH SAID PARTIES WERE RELATED T O ASSESSEE IN TERMS OF AS- 18. THE ASSESSING OFFICER HAD THE POWER TO LIFT THE CORPORATE VEIL, TO DISALLOW EXCESSIVE PURCHASE PRICE PAID TO THE AFORESAID PART IES, NOTWITHSTANDING THAT THE SAID PARTIES WERE NOT RELATED, IN TERMS OF PROV ISIONS OF SECTION 40A(2) OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER COMPUTED EX CESSIVE PURCHASE PRICE AT RS. 15.99 CRORES IN RESPECT OF PURCHASES FROM RELAT ED PARTIES FOR WHICH INTERNAL COMPARABLE OF SIMILAR PRODUCTS PURCHASED FROM RELAT ED PARTIES WERE AVAILABLE. IN RESPECT OF OTHER CATEGORY OF PURCHASES FROM RELA TED PARTIES FOR WHICH NO INTERNAL COMPARABLE WAS AVAILABLE, THE ASSESSING OF FICER WORKED OUT AN AMOUNT OF RS. 48.76 CRORES, IN THE SAME PROPORTION AS THAT OF PURCHASES FOR WHICH INTERNAL COMPARABLE WERE AVAILABLE AS THE SAM E ARE EXCESSIVE. THUS, ASSESSING OFFICER MADE TOTAL DISALLOWANCE OF RS. 64 .75 CR OUT OF RELATED PARTIES PURCHASES. 33. THE LD. AR SUBMITTED THAT THE AFORESAID ISSUE I S SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE DELHI BENCH OF TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT 'YEAR 2007-08 AN D 2008-09, WHEREIN IDENTICAL DISALLOWANCE MADE IN THAT YEAR WAS DELETE D ON THE GROUND THAT SINCE IN THE FIRST PLACE, THE PARTIES WERE NOT RELATED TO THE ASSESSEE COMPANY IN TERMS OF SECTION 40A (2), DISALLOWANCE ON GROUND OF EXCESSIVE PURCHASE PRICE COULD NOT HAVE BEEN MADE UNDER THAT SECTION. FURTHE R, THE TRIBUNAL HELD THAT THE TRANSACTIONS WERE ENTERED BY THE ASSESSEE ON AC COUNT OF COMMERCIAL EXPEDIENCY AND WHEN THE RECIPIENTS HAD PAID TAX ON PAYMENTS RECEIVED FROM THE ASSESSEE COMPANY, DISALLOWANCE COULD NOT BE MAD E BY APPLYING PROVISIONS OF SECTION 40A(2) OF THE ACT. THE LD. AR POINTED OU T THAT SIMILAR DISALLOWANCE MADE IN THE IMMEDIATELY PRECEDING TWO ASSESSMENT YE ARS, VIZ. AY 2010-11 AND 2011-12 WAS ALSO REVERSED BY THE TRIBUNAL, FOLL OWING THE AFOREMENTIONED ORDER OF THE TRIBUNAL FOR ASSESSMENT YEARS 2007-08 AND 2008-09. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-1 3 AND 2013-14, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE 62 ITA NO. 1351/DEL/2018 ASSESSMENT YEARS 2010-11 AND 2011-12. 34. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 35. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 33. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.YS. 2010-11 AND 2011- 12 HELD AS UNDER: 55. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT ION AND PERUSED THE RELEVANT RECORDS PLACED BEFORE US. IT WAS SUBMITTED BY THE PARTIES THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES O F THE CASE IN THE PRESENT ASSESSMENT YEAR COMPARED TO THE ASSESSMENT YEAR FOR WHICH THE COORDINATE BENCH IS DECIDED THIS ISSUE IN THE FAVOU R OF THE APPELLANT FOR ASSESSMENT YEAR 2007 08 AND 2008 09 WHEREIN THI S ISSUE HAS BEEN DECIDED BY THE COORDINATE BENCH AS UNDER:- 13.14. THE BASIC REQUIREMENT FOR THE APPLICABILITY OF SECTION 40A(2) OF THE ACT IS THAT THE PAYMENT SHOULD BE MADE TO A REL ATED PERSON I.E. TO A PERSON REFERRED TO IN CLAUSE (B), OF SUB-SECTION (2 ) OF SECTION 40A OF THE ACT. 13.15. IN THE PRESENT CASE, IT IS AN UNDISPUTED FAC T THAT THE PAYMENTS ARE NOT MADE TO A PERSON MENTIONED IN CLAUSE (B) OF SECTION 40A (2) OF THE ACT. 13.16. CLAUSE (A ) OF SUB-SECTION (2) OF SECTION 40 A OF THE ACT PROVIDES THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN R ESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REF ERRED TO IN CLAUSE (B) OF THE SUB-SECTION AND THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVIN G REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES F OR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE 63 ITA NO. 1351/DEL/2018 NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THERE FROM, SO MUCH O F THE EXPENDITURE AS IT SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASON ABLE, SHALL NOT BE ALLOWED AS A DEDUCTION. THE OBJECT OF SECTION 40A (2) IS TO PREVENT DIVERSI ON OF INCOME. AN ASSESSEE WHO HAS LARGE INCOME AND IS LIABLE TO PAY TAX AT THE HIGHEST RATE PRESCRIBED UNDER THE ACT OFTEN SEEKS TO TRANSF ER A PART OF HIS INCOME TO A RELATED PERSON WHO IS NOT LIABLE TO PAY TAX AT ALL OR LIABLE TO PAY TAX AT A RATE LOWER THAN THE RATE AT WHICH THE ASSESSEE PAYS THE TAX. IN ORDER TO CURB SUCH TENDENCY OF DIVERSION OF INCOME AND THEREBY REDUCING THE TAX LIABILITY BY ILLEGITIMATE MEANS, S ECTION 40-A WAS ADDED TO THE ACT BY AN AMENDMENT MADE BY THE FINANCE ACT, 1968. CLAUSE (B) OF SECTION 40A (2) GIVES THE LIST OF RELATED PERSON S. 13.17. IN THE PRESENT CASE, IT IS AN UNDISPUTED FAC T THAT NONE OF THE PARTIES FALL WITHIN THE PERSONS SPECIFIED AS DEFINE D UNDER CLAUSE (B) OF SECTION 40A (2) OF THE ACT. RELATED PARTIES ARE TO BE CONSIDERED IN TERMS OF PROVISIONS OF SEC. 40A (2) OF THE ACT AND NOT AS MENTIONED IN AS-18 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT. TH US, WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 40A (2) DO NOT APPLY TO THE PRESENT CASE. FURTHER, THERE IS NO PROVISION UNDER THE ACT WHICH AUTHORIZES THE ASSESSING OFFICER TO LIFT THE CORPORATE VEIL AND DI SALLOW AN EXPENDITURE ON THE GROUND OF REASONABLENESS AND COMMERCIAL EXPE DIENCY UNLESS IT IS ESTABLISHED THAT THE TRANSACTION IS PRIMARILY DE VISED TO EVADE TAX. 13.18. IN THE PRESENT CASE, IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT THE RELATED PARTIES ARE PROFIT-MAKING COMPANIES AND ARE SUBJECT TO TAX TO AT SOME LESS OR THE SAME RATE OF TAX. THUS, THERE IS NO LOSS OF REVENUE. THIS SUBMISSION OF THE ASSESSEE HA S NOT BEEN CONTROVERTED BEFORE US BY THE LEARNED DR. TAX BENEF IT ALLEGED IS FACTUALLY WRONG AS THE OTHER COMPARED ASSESSES ARE PROFIT MAKING COMPANIES/ ASSESSES. THERE IS NO LOSS TO THE REVENU E IF ONLY THE EXCESS PAYMENT OF PRICE IS TAKEN, BUT THIS SITUATION IS NO T CONSIDERED BY THE 64 ITA NO. 1351/DEL/2018 REVENUE. EXCEPT FOR ALLEGATION THAT EXCESS PRICE I S PAID TO REDUCE PROFIT, NO OTHER EVIDENCE IS GATHERED BY ASSESSING OFFICER TO PROVE THAT THE ASSESSEE HAD IN FACT EVADED OR SAVED TAX BY SUCH E XERCISE. THE ARGUMENT OF THE REVENUE FAILS. THE ALLEGATION THAT THE ASSESSEE HAS STRUCTURED HIS ASSOCIATE CONCERN SO AS TO AVOID SEC . 40A (2) IS ALSO DEVOID OF MERIT, AS THE REVENUE HAS FAILED TO DEMON STRATE AS TO HOW IT HAS COME TO SUCH A CONCLUSION. THE ALLEGATION MEANS THAT PROFIT IS TRANSFERRED TO THIRD PARTIES, WHERE THE SHARE HOLDI NG OF THE ASSESSEE IS NOT A MAJOR SHARE HOLDING. THE ALLEGATION MEANS THA T THE ASSESSEE IS DISTRIBUTING PROFITS TO COMPANIES WITH MAJORITY HOL DING BY UNRELATED PARTIES FOR THE PURPOSE OF REDUCING TAXES. SUCH WIL D ALLEGATION CANNOT BE ENDORSED BY US. 13.19. THE ASSESSEE DOES NOT DISPUTE THE FACT THAT CERTAIN PURCHASES ARE MADE AT A RATE HIGHER THAN THE RATE PAID TO CER TAIN OTHER PARTIES FOR THE SAME PERIODS. THE ASSESSEE AT PAGES 1523 TO 152 3.18 OF THE PAPER BOOK ALSO FURNISHED INSTANCES WHERE PURCHASES WERE MADE FROM THESE PARTIES AT PRICE LOWER THAN THE PURCHASES MADE FROM UNRELATED PARTIES. FURTHER, THE DISALLOWANCE WAS MADE ON ADHOC BASIS W ITHOUT SETTING ANY BENCHMARK FOR THE DISALLOWANCE. 13.20. NOTWITHSTANDING THE ABOVE VIEW, EVEN ASSUMIN G FOR A MOMENT THAT THE PROVISIONS OF THE SECTION 40A (2) WOULD AP PLY TO THE PRESENT CASE, THEN THE FOLLOWING PROPOSITIONS LAID DOWN BY VARIOUS COURTS HAVE TO BE CONSIDERED. 13.21. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. INDO SAUDI SERVICES (TRAVEL) (P.) LTD. [2009] 310 ITR 306 REL YING ON CBDT CIRCULAR NO. 6-P, DATED 6-7-1968 HELD THAT NO DISALLOWANCE SHOULD BE MADE UNDER SECTION 40A(2) OF THE INCOME-TAX ACT IN RESPE CT OF THE PAYMENTS MADE TO THE RELATIVES AND SISTER CONCERNS WHERE THE RE IS NO ATTEMPT TO EVADE TAX. 13.22. HAVING HELD THAT THE PROVISIONS OF SECTION 4 0A (2) OF THE ACT DOES NOT APPLY TO THE FACTS OF THE CASE. WE NOW PROCEED TO ANSWER WHETHER 65 ITA NO. 1351/DEL/2018 THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE EXPENDITURE ON THE GROUND OF COMMERCIAL EXPEDIENCY IS JUSTIFIED. 13.23. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS WALCHAND & CO [1967] 65 ITR 381 IN THE CONTEXT OF DEDUCTIBILITY O F EXPENDITURE UNDER SECTION 37(1) OF THE INCOME-TAX ACT, 1961 [CORRESPO NDING TO SECTION 10(2)(XV) OF THE INDIAN INCOME-TAX ACT, 1922] HELD AS UNDER: IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT O F THE REVENUE. 13.24. FURTHER, REFERENCE IS ALSO DRAWN TO THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. V. CIT (APPEALS) [2007] 288 ITR 1 (SC) , WHERE IN IT WAS HELD AS UNDER: '....THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEX US BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINESS OF THE ASSESSEE ITSELF) , THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME T HE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMI ZE HIS PROFIT. THE INCOME-TAX AUTHORITIES MUST PUT THEMSELVES IN THE S HOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESS MAN WOULD A CT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN....' 13.25. IT IS A WELL SETTLED PRINCIPLE THAT COMMERCI AL EXPEDIENCY CANNOT BE JUDGED BY THE REVENUE FROM ITS POINT OF VIEW. I N THE PRESENT CASE, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS M ADE THIS DISALLOWANCE BASED ON SURMISES AND CONJECTURES WITH OUT PROPERLY EXAMINING THE FACTS ON RECORD AND WITHOUT BRINGING ANY EVIDENCE THAT THE PURCHASES WERE MADE AT AN EXCESSIVE PRICE COMPA RED TO FAIR MARKET VALUE TO EVADE TAX. 66 ITA NO. 1351/DEL/2018 13.26. IN VIEW OF THE ABOVE DISCUSSIONS, AND BEARIN G IN MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE IM PUGNED DISALLOWANCE WAS INDEED UNCALLED FOR ON THE FACTS O F THIS CASE. HENCE, WE UPHOLD THE GROUNDS OF THE ASSESSEE. IN VIEW OF THE ABOVE ABOUT DECISION OF THE COORDINA TE BENCH IN APPELLANTS OWN CASE AND FURTHER FAILURE ON PART OF THE REVENUE TO CONTROVERT ANY OF THE FINDINGS IN THE EARLIER ORDER OF THE TRIBUNAL OR PO INTING OUT ANY CONTRARY DECISIONS ON THIS ISSUE, THE RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH TO NOT INCLINED TO UPHOLD THE DISA LLOWANCE MADE BY THE LD. ASSESSING OFFICER ON ACCOUNT OF THE PURCHASES O F RS. 72.40 CRORES MADE FROM THE PARTIES WHO ARE RELATED PARTIES IN TERMS O F ACCOUNTING STANDARD 18 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA BUT NOT IN TERMS OF PROVISIONS OF SECTION 40A (2) OF THE INCOM E TAX ACT. IN THE RESULT GROUND NO. 11 OF THE APPEAL OF THE ASSESSEE IS ALLO WED. THE PURCHASE PRICES OF COMPONENTS WHICH ARE PURCHAS ED FROM VARIOUS SUPPLIERS ARE BASED UPON NEGOTIATIONS WITH SUCH VEN DORS AND ARE DIFFERENT DUE TO VARIOUS FACTORS. THE ASSESSEE ALSO PREFERS P URCHASING MATERIAL FROM CERTAIN SUPPLIERS, DUE TO BUSINESS/COMMERCIAL EXPED IENCY. THE SAID PARTIES ARE NOT RELATED TO ASSESSEE, IN TERMS OF THE PROVIS IONS OF SECTION 40A(2)(B) OF THE ACT. DURING THE RELEVANT PREVIOUS YEAR, THE ASS ESSEE MADE TOTAL PURCHASES OF VARIOUS RAW MATERIALS, ETC. AGGREGATING TO RS. 1 7,791.60 CRORES. OUT OF THE AFORESAID TOTAL PURCHASES, PURCHASES FROM RELATED P ARTIES, I.E., PARTIES RELATED TO THE ASSESSEE, IN ACCORDANCE WITH DEFINITION GIVE N IN AS-18 ISSUED BY THE ICAI AND AS DISCLOSED IN THE NOTES TO ACCOUNTS OF T HE AUDITED ACCOUNTS OF THE RELEVANT PREVIOUS YEAR, BUT ADMITTEDLY NOT RELATED IN TERMS OF DEFINITION PROVIDED IN SECTION 40A (2) OF THE ACT, AMOUNTED TO RS. 1886.15 CRORES. THUS, THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE T RIBUNAL FOR A.YS. 2010-11 AND 2011-12. THEREFORE, GROUND NOS. 22 TO 22.3 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 67 ITA NO. 1351/DEL/2018 THE PURCHASE PRICES OF COMPONENTS WHICH ARE PURCHAS ED FROM VARIOUS SUPPLIERS ARE BASED UPON NEGOTIATIONS WITH SUCH VEN DORS AND ARE DIFFERENT DUE TO VARIOUS FACTORS. THE ASSESSEE ALSO PREFERS PURCH ASING MATERIAL FROM CERTAIN SUPPLIERS, DUE TO BUSINESS/COMMERCIAL EXPEDIENCY. T HE SAID PARTIES ARE NOT RELATED TO ASSESSEE, IN TERMS OF THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE MAD E TOTAL PURCHASES OF VARIOUS RAW MATERIALS, ETC. AGGREGATING TO RS. 9366 .88 CRORES. OUT OF THE AFORESAID TOTAL PURCHASES, PURCHASES FROM RELATED P ARTIES, I.E., PARTIES RELATED TO THE ASSESSEE, IN ACCORDANCE WITH DEFINITION GIVE N IN AS-18 ISSUED BY THE ICAI AND AS DISCLOSED IN THE NOTES TO ACCOUNTS OF T HE AUDITED ACCOUNTS OF THE RELEVANT PREVIOUS YEAR, BUT ADMITTEDLY NOT RELATED IN TERMS OF DEFINITION PROVIDED IN SECTION 40A (2) OF THE ACT, AMOUNTED TO RS. 2711.12 CRORES. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11 , 2011-12, 2012-13 AND 2013-14. HENCE GROUND NOS. 18 TO 18.3 ARE ALLOWED. 36. AS REGARDS GROUND NO. 19 TO 19.3 ARE RELATING T O PAYMENT RECEIVED ON BEHALF OF HERO HONDA FIN CORP. LTD. (HFCL) DEEMED A S DIVIDEND U/S 2(22)(E). HERO FIN CORP LIMITED (HFCL) IS A RELATED COMPANY W HICH IS ENGAGED PRIMARILY IN THE BUSINESS OF FINANCING OF VEHICLES. IN PURSUA NCE OF THE SAID BUSINESS, HFCL EXTENDS TO THE DEALERS OF THE ASSESSEE COMPANY , FACILITY OF FINANCING VEHICLES PURCHASED BY THE DEALERS FROM THE ASSESSEE COMPANY. THE DEALERS ON PURCHASE OF VEHICLES FROM THE ASSESSEE, GET THE BIL L OF PURCHASE RAISED BY THE ASSESSEE, DISCOUNTED FROM HFCL AND REMIT PAYMENT TO THE APPELLANT. THE DEALERS ARE REQUIRED TO MAKE PAYMENT OF AFORESAID D ISCOUNTED BILLS TO HFCL ON MATURITY THEREOF. SUBSEQUENTLY, WHEN PAYMENTS BY DE ALERS TO HFCL ARE DUE, THE DEALERS, DUE TO CONVENIENCE OF FACILITY OF COLL ECTION CENTERS OF THE ASSESSEE AVAILABLE ALL OVER INDIA, MAKE PAYMENT INTO THE ASS ESSEES BANK ACCOUNT, FOR AND ON BEHALF OF HFCL, WHICH IS IN TURN REMITTED BY THE ASSESSEE TO HFCL IN 2- 68 ITA NO. 1351/DEL/2018 3 DAYS. THE ASSESSING OFFICER HELD THE AFORESAID AM OUNT RECEIVED BY ASSESSEE FROM DEALERS AS LOAN/ADVANCE GIVEN BY HFCL TO ASSES SEE AND CONSEQUENTLY DEEMED THE SAME AS DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE AFORESAID ADVANCE S WERE NOT GIVEN BY HFCL TO THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS SIN CE THE AFORESAID PAYMENTS WERE GIVEN BY CUSTOMERS OF HFCL AND NOT BY HFCL DIR ECTLY. 37. THE LD. AR SUBMITTED THAT IN AY 2007-08, THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE HOLDING THAT ASSESSEES INTENTION DID NOT REFLECT THAT THE AMOUNT WAS RECEIVED AS LOAN OR ADVANCE TO AS TO ATTRACT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE TRIBUNAL FURTHER H ELD THAT THE ASSESSEE WAS HOLDING THE MONEY AS A CUSTODIAN AND THE AMOUNT WOU LD BE EXEMPTED IN TERMS OF CLAUSE (II) SECTION 2(22)(E) SINCE THE AMOUNT WA S GIVEN IN THE ORDINARY COURSE OF BUSINESS. IN ASSESSMENT YEAR 2008-09, 2010- 11 A ND 2011-12, THE TRIBUNAL FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2007-08 DEL ETED THE DISALLOWANCE. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. 38. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 39. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 37. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-1 2 HELD AS UNDER: 214) WE HAVE HEARD THE RIVAL CONTENTIONS. WE NOTE THAT SIMILAR ISSUE RELATING TO ADDITION OF DEEMED DIVIDEND WAS DELETED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 WHI CH WAS FOLLOWED IN ASSESSMENT YEAR 2008-09. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08 ARE AS UNDER: 69 ITA NO. 1351/DEL/2018 16.27.SECTION 2(22)(E), IS A DEEMING SECTION AND IT IS WELL SETTLED THAT IT SHOULD BE STRICTLY INTERPRETED. IN THE PRESENT CASE , THE INTENTION OF THE PARTIES DID NOT REFLECT THAT IT WAS AN ADVANCE OR L OAN SO AS TO ATTRACT SECTION 2(22)(E). THE ASSESSEE IN THIS CASE WAS HOL DING THE MONEY RECEIVED FROM DEALERS AS CUSTODIAN OF HHFL. THERE I S NO PRIVITY OF CONTRACT BETWEEN THE ASSESSEE AND HHFL. THERE IS NO POSITIVE ACT OF GRANTING LOAN OR ADVANCE GIVEN BY HHFL TO THE ASSES SEE. THERE IS NEITHER A STIPULATION FOR PAYMENT OF INTEREST OR PE RIOD OF REPAYMENT. FURTHER, THE ASSESSEE HAS NOT USED THE FUNDS FOR IT S OWN PURPOSES, AS ADMITTEDLY THE ASSESSEE IS A CASH RICH COMPANY, NOT REQUIRING LOANS. THIS FACT IS NOT DISPUTED BY THE REVENUE. THE ASSES SEE WAS USED AS CHANNEL FOR REMITTANCE OF MONEY BY THE DEALERS TO H HFL FOR THE PURPOSE OF CONVENIENCE AND FROM ASSESSEES A STANDPOINT THI S IS BUSINESS EXPEDIENCY. WE ARE UNABLE TO APPRECIATE THE CONCLUS IONS DRAWN BY THE ASSESSING OFFICER THAT THIS IS A DEEMED LOAN. IN OU R VIEW, BY NO STRETCH OF IMAGINATION IT CAN BE SAID THAT THERE WAS ANY AM OUNT OF ADVANCE OR LOAN GIVEN BY HHFL TO THE ASSESSEE. 16.28.EVEN A SSUMING THAT THE TRANSACTION IS IN THE NATURE OF LOAN, WE HAVE TO AG REE WITH THE ARGUMENTS OF THE LD. AR OF THE ASSESSEE THAT THE TR ANSACTION CANNOT BE DEEMED AS DIVIDEND IN TERMS OF EXEMPTION PROVIDED I N CLAUSE (II) OF SECTION 2(22)(E) OF THE ACT, SINCE THE LOAN WOULD BE CONSIDERED AS GIVEN BY HHFL, WHICH IS ENGAGED IN THE BUSIN ESS OF MONEY LENDING, IN THE ORDINARY COURSE OF ITS BUSINESS. THEREFORE, THE AMOUNT CANNOT BE DEEMED AS DIVIDEND IN THE HANDS OF THE AS SESSEE. THE ARGUMENTS OF THE LD. DR THAT SINCE NO INTEREST WAS CHARGED/ CHARGEABLE THEREON FROM THE ASSESSEE, THE AFORESAID LOAN CANNOT BE SAID TO BE GIVEN IN THE ORDINARY COURSE OF BUSINESS OF HHFL IS TAKEN TO ITS LOGICAL CONCLUSION, SUPPORTING OUR VIEW THAT THIS IS NOT A LOAN OR ADVANCE. 70 ITA NO. 1351/DEL/2018 16.29.CONSIDERING THE DECISION OF THE HONBLE DELHI HIGH COURT AND THE INTENT OF THE LEGISLATURE IN INTRODUCTION OF SECTIO N 2(22)(E) OF THE ACT, WE ARE OF THE VIEW THAT THE TRANSACTION IN QUESTIO N WOULD NOT FALL WITHIN THE PROVISIONS OF SECTION 2(22)(E) OF THE AC T. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALLOWED. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLAN T AS COMPARED TO THE ASSESSMENT YEAR IN WHICH THE ABOVE ISSUE IS DECIDED BY THE COORDINATE BENCH. NO OTHER CONTRARY DECISION WAS ALSO POINTED OUT THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN THE APPELLANTS OWN CASE FOR THE EARLIER YEARS. WE DISM ISS GROUND NO.6 OF THE APPEAL OF THE REVENUE. IT IS PERTINENT TO NOTE THAT WHEN PAYMENTS BY DEALE RS TO HFCL ARE DUE TO THE DEALERS, DUE TO CONVENIENCE OF FACILITY OF COLLECTI ON CENTERS OF THE ASSESSEE AVAILABLE ALL OVER INDIA, MAKE PAYMENT INTO THE ASS ESSEE'S BANK ACCOUNT, FOR AND ON BEHALF OF HFCL, WHICH IS IN TURN REMITTED BY THE ASSESSEE TO HFCL IN 2-3 DAYS. THUS, THE ASSESSEE IS MERE CUSTODIAN OF T HE SAID AMOUNT. THUS, SECTION 2(22)(E) WILL NOT BE APPLICABLE IN THE PRES ENT CASE. THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL FOR A .YS. 2010-11 AND 2011-12. THEREFORE, GROUND NOS. 23 TO 23.3 ARE ALLOWED IN FA VOUR OF THE ASSESSEE. IN THIS ASSESSMENT YEAR AS WELL WHEN PAYMENTS BY DE ALERS TO HFCL ARE DUE TO THE DEALERS, DUE TO CONVENIENCE OF FACILITY OF COLL ECTION CENTERS OF THE ASSESSEE AVAILABLE ALL OVER INDIA, MAKE PAYMENT INTO THE ASS ESSEE'S BANK ACCOUNT, FOR AND ON BEHALF OF HFCL, WHICH IS IN TURN REMITTED BY THE ASSESSEE TO HFCL IN 2- 3 DAYS. THUS, THE ASSESSEE IS MERE CUSTODIAN OF THE SAID AMOUNT. THUS, SECTION 2(22)(E) WILL NOT BE APPLICABLE IN THE PRESENT CASE . IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE SIMILAR AND IS SQUARELY COV ERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 20 13-14. HENCE GROUND NOS. 19 TO 19.3 ARE ALLOWED. 71 ITA NO. 1351/DEL/2018 40. AS REGARDS GROUND NOS. 20 TO 20.1 ARE RELATING TO DISALLOWANCE OF PAYMENTS MADE FOR ADVISORY SERVICES AVAILED FROM HE RO CORPORATE SERVICES LTD.(HCSL). DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE PAID RETAINER SHIP FEE OF RS. 2 CR. (RS. 50 LACS PAYABLE QUARTERLY) TO HERO CORPORATE SERVICES LTD. (HCSL) IN CONNECTION WITH AVAILING ADVISORY SERVICE S FOR THE PURPOSES OF BUSINESS. IN THE ASSESSMENT ORDER, THE ASSESSING OF FICER, DESPITE THE ELABORATE SUBMISSIONS EXPLAINING THE NATURE OF SERVICES RECEI VED FROM HERO CORPORATE SERVICES LTD. AND NEXUS OF SAME WITH THE BUSINESS O F THE ASSESSEE SIMPLY ON SURMISES AND CONJECTURES OBSERVED THAT THE ASSESSEE HAS NOT EXPLAINED THE BUSINESS EXPEDIENCY OF SUCH EXPENDITURE INCURRED BY THE ASSESSEE. 41. THE LD. AR SUBMITTED THAT THE AFORESAID ISSUE I S SQUARELY COVERED BY THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 AND 2008-09, WHEREIN THE AD -HOC DISALLOWANCE MADE OUT OF TOTAL EXPENDITURE INCURRED IN THAT YEAR WAS DELETED ON THE GROUND THAT SERVICES WERE RENDERED BY HCSL TO THE ASSESSEE AND THE ASSESSING OFFICER COULD NOT SIT IN THE ARM CHAIR OF A BUSINESSMEN TO DECIDE REASONABLENESS OF AN EXPENDITURE. THE AFORESAID FINDINGS OF THE TRIBUNA L HAD BEEN FOLLOWED AND REITERATED BY THE TRIBUNAL IN APPELLANTS OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENTS YEARS, VIZ. AY 2010-11 AND 20 11-12. THE LD. AR ALSO MENTIONED THAT NO APPEAL HAS BEEN FILED BY THE DEPA RTMENT BEFORE THE HIGH COURT. WHILE DECIDING THE APPEAL FOR THE ASSESSMEN T YEARS 2012-13 AND 2013- 14, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. 42. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 43. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 72 ITA NO. 1351/DEL/2018 41. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-1 2 HELD AS UNDER: 56) WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS. WE HAVE ALSO NOTED THE DOCUMENTS IN RELATION TO VARIOUS SERVICES PROVIDED BY HCSL, THE NECESSITY THEREOF WAS EXPLAINED BY THE APPELLANT IN HIS SUBMISSIONS DISCUSSED ABOVE. WE HAVE ALSO GONE THROUGH THE ORD ER OF THE TRIBUNAL FOR AY 2007-08, WHEREIN WHILE FOLLOWING THE SETTLED LEG AL PROPOSITIONS THAT AN ASSESSING OFFICER CANNOT SIT IN THE ARM CHAIR OF T HE BUSINESS MAN AND DECIDE THE REASONABLENESS OF EXPENDITURE INCURRED O R COMMERCIAL EXPEDIENCY THEREOF, DELETED THE IMPUGNED DISALLOWAN CE MADE BY THE ASSESSING OFFICER AS UNDER :- 15.12. THE ASSESSING OFFICER IN THIS CASE MADE AN AD HOC DISALLOWANCE BY ALLOWING AN AMOUNT OF RS. 20 LACS AS EXPENDITURE FOR THE SERVICES AVAILED BY THE ASSESSEE FROM HCSL AND DISALLOWING T HE REST. THE ASSESSING OFFICER HAS BY OBSERVING IN HIS ORDER THA T VARIOUS REPORTS HAVE BEEN PROVIDED BY HCSL ADMITTED THE FACT THAT C ERTAIN SERVICES WERE RENDERED IN THIS CASE. HIS ONLY DOUBT IS HOW T HESE SERVICES WERE NEEDED IN THE BUSINESS OF THE ASSESSEE. WE ALSO NO TE THAT THE PARTIES ARE NOT RELATED TO EACH OTHER IN TERMS OF SEC. 40A( 2)(B). WHILE IT IS SO, THE ACTION OF THE REVENUE IN DISALLOWING THE CERTAIN PO RTION OF THE EXPENDITURE IS NOT JUSTIFIED UNLESS THE REVENUE DEM ONSTRATES THAT THE TRANSACTION IS PRIMARILY A DEVICE TO EVADE TAX. 15.13. THE HONBLE SUPREME COURT IN THE CASE OF CIT V. WALCHAND & CO. (P.) LTD. [1967] 65 ITR 381 HELD THAT THE INCOME-TA X AUTHORITIES HAVE TO DECIDE WHETHER THE EXPENDITURE CLAIMED AS AN ALLOWA NCE WAS INCURRED VOLUNTARILY AND ON GROUNDS OF COMMERCIAL EXPEDIENCY . IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETH ER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS, THE SUPREME COURT LAID DOWN THAT THE REASONABLENESS OF THE EXPENDITURE 73 ITA NO. 1351/DEL/2018 HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF THE BU SINESSMAN AND NOT OF THE REVENUE. 15.14. THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. DHARAMRAJ GIRIJI RIYA NARSINGIRIJI 91 ITR 544 HELD THAT 'IT IS NOT O PEN TO THE DEPARTMENT TO PRESCRIBE WHAT EXPENDITURE AN ASSESSEE SHOULD IN CUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE. EVE RY BUSINESSMAN KNOWS ITS INTEREST BEST'. 15.15. IT IS WELL SETTLED THAT THE ASSESSING OFFICE R CANNOT PLACE HIMSELF IN THE ARM CHAIR OF BUSINESSMAN AND DECIDE THE AMOU NT OF EXPENDITURE THAT IS TO BE INCURRED FOR THE PURPOSE OF RUNNING O F THE BUSINESS. THE EXPENDITURE IN QUESTION CANNOT BE DISALLOWED FOR TH E REASON THAT THE EXPENDITURE WAS INCURRED FOR BUSINESS AND WAS IN TH E REVENUE FIELD AND WAS NOT A PERSONAL EXPENDITURE. IN THE RESULT, THIS GROUND OF THE ASSESSEE IS ALLOWED. HAVING REGARDS TO THE FACTS AND CIRCUMSTANCES OF TH E CASE UNDER CONSIDERATION, AND IN ABSENCE OF ANY CONTRARY DECIS ION POINTED OUT BY THE LD. DEPARTMENTAL REPRESENTATIVE AND ANY CHANGES IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE PRESENT ASSESSMENT YEAR WE RESPECTFULLY FOLLOWING THE AFORESAID FINDING GIVEN BY THE COORDI NATE BENCH IN APPEAL ORDER FOR AY 2007-08 IN CASE OF APPELLANT. DIRECT T HE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE OF RS. 2 CRORES ON ACC OUNT OF ADVISORY SERVICES EXPENDITURE INCURRED ON PAYMENT TO HERO CO RPORATE SERVICES LTD. THEREFORE GROUND NOS. 12 OF THE APPEAL OF THE ASSES SEE IS ALLOWED. FROM THE RECORDS IT CAN BE SEEN THAT THE ASSESSEE M ADE ELABORATE SUBMISSIONS EXPLAINING THE NATURE OF SERVICES RECEI VED FROM HERO CORPORATE SERVICES LTD. AND NEXUS OF SAME WITH THE BUSINESS O F THE ASSESSEE. THIS FACT IS IDENTICAL WITH THE EARLIER ASSESSMENT YEARS. THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS ORDER F OR A.YS. 2010-11 & 2011- 12. BESIDES THIS THE REVENUE HAS ACCEPTED THIS ISSU E AND HAS NOT CHALLENGED 74 ITA NO. 1351/DEL/2018 THE SAME IN HONBLE HIGH COURT. THUS, THIS ISSUE AT TAINS FINALITY. THEREFORE, GROUND NO. 24 TO 24.1 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. IN THE PRESENT ASSESSMENT YEAR ALSO SERVICES WERE R ENDERED BY HCSL TO THE ASSESSEE AND THE ASSESSEE EXPLAINED THE NATURE OF S ERVICES RECEIVED FROM HERO CORPORATE SERVICES LTD. AND NEXUS OF SAME WITH THE BUSINESS OF THE ASSESSEE BEFORE THE ASSESSING OFFICER. THUS, THE ASSESSING O FFICER WAS NOT RIGHT IN DISALLOWING THE PAYMENTS MADE FOR ADVISORY SERVICES AVAILED FROM HCSL. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE SIMILAR AND IS SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 201 1-12, 2012-13 AND 2013-14. HENCE GROUND NOS. 20 TO 20.1 ARE ALLOWED. 44. AS REGARDS GROUND NO. 21 TO 21.5 ARE RELATING T O TDS ON QUARTERLY TARGET AND TURNOVER DISCOUNT AND SALES DISCOUNT. DURING TH E RELEVANT YEAR, THE ASSESSEE INCURRED EXPENDITURE OF RS. 54,35,48,200/- ON ACCOUNT OF VARIOUS INCENTIVES/DISCOUNTS OFFERED TO DEALERS UNDER VARIO US SCHEMES ON PURCHASE OF SPARE PARTS/VEHICLES FROM THE ASSESSEE. THE AFORESA ID EXPENDITURE, AGGREGATING TO RS. 22,84,20,063, RELATE TO AMOUNT OF DISCOUNTS OFFERED BY THE COMPANY TO VARIOUS STOCKIEST/DEALERS ON PURCHASE OF SPARE PART S MADE BY THE LATTER IN ACCORDANCE WITH SALES INCENTIVE/DISCOUNT SCHEME PRE VALENT DURING THE RELEVANT PREVIOUS YEAR. THE ASSESSEE HAS FURTHER GIVEN TRADE DISCOUNT AMOUNTING TO RS. 31,51,28,137 TO THE DEALERS ON THE SALES INVOICE AT THE TIME OF SALES. THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX FROM AFORESAID DISCOUNTS/INCENTIVES UNDER SECTION 194H OF THE ACT SINCE THE PAYMENTS MADE WERE ON THE BASIS OF PERFORMANCE OF DEALERS AND TAR GETS ACHIEVED BY DEALERS WHICH WAS NOT IN THE NATURE OF 'DISCOUNT AS THE SA ME WAS NOT GIVEN AT THE TIME OF TAKING DELIVERY OF GOODS BY THE DEALERS BUT WAS GIVEN SUBSEQUENTLY. THE ASSESSING OFFICER HELD THAT INCENTIVE PAID BY THE A SSESSEE TO DEALERS WAS NOT IN THE NATURE OF 'DISCOUNT, BUT FELL WITHIN THE MEANI NG OF THE TERM COMMISSION AS DEFINED IN SECTION 19411 OF THE ACT AND THUS DIS ALLOWED THE ENTIRE EXPENDITURE UNDER SECTION 40(A)(IA) OF THE ACT. FUR THER, THE ASSESSING OFFICER 75 ITA NO. 1351/DEL/2018 DISALLOWED TRADE DISCOUNT GIVEN TO DEALERS ON SALES INVOICE AT THE TIME OF SALE OBSERVING THAT THE SAME WAS BASED ON ACHIEVEMENT OF TURNOVER TARGETS WHICH REPRESENTED COMMISSION ON WHICH TDS UNDER SECTION 1 94H WAS LIABLE TO BE DEDUCTED. 45. THE LD. AR SUBMITTED THAT THE TRIBUNAL IN ASSES SMENT YEAR 2007-08 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE RELYING ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF CIT VS. MOTHER DAIRY LTD. (ITA NO. 1925/2010) AND JAI DRINKS PVT. LTD. (336 ITR 383), HOLDING THAT THE DI SCOUNT IN QUESTION IS NOT IN THE NATURE OF COMMISSION BUT AN INCENTIVE FOR HIGHE R SALE TARGETS. THE LD. AR SUBMITTED THAT THE AFORESAID FINDING WAS FOLLOWED B Y THE TRIBUNAL IN THE AY 2010-11 AND 2011-12, WHEREIN SIMILAR DISALLOWANCE M ADE BY THE ASSESSING OFFICER WAS DELETED. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012- 13 AND 2013-14, THE TRIBUNAL DECIDED THE ISSUE IN F AVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010- 11 AND 2011-12. FURTHER WITHOUT PREJUDICE TO THE ABOVE, THE LD. AR SUBMITTE D THAT THE ASSESSING OFFICER ERRED IN DISALLOWING 100% OF THE IMPUGNED EXPENDITU RE INCURRED, INSTEAD OF RESTRICTING THE DISALLOWANCE TO 30% OF THE SAID TOT AL EXPENDITURE, IN TERMS OF THE PROVISIONS OF SECTION 40(A)(IA) AS AMENDED BY T HE FINANCE (NO.2) ACT, 2014. THE LD. AR POINTED OUT THAT ALTHOUGH THE FINANCE (N O.2) ACT, 2014 STATES THE AFORESAID AMENDMENT TO BE EFFECTIVE FROM 01.04.2015 , HOWEVER THE AFORESAID AMENDMENT WAS MADE WITH AN INTENT TO REMOVE THE HAR DSHIP, THE SAME IS ALSO APPLICABLE RETROSPECTIVELY INCLUDING THE YEAR UNDER CONSIDERATION. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS WHEREIN IT HAS BEEN HELD THAT THE AFORESAID AMENDMENT OF REDUCING THE AMOUNT OF DISALLOWANCE FR OM 100% TO 30% IS RETROSPECTIVE: SMT. KANTA YADAV VS. ITO (ITA NO. 6312/DEL/2016) SHRI RAJENDRA YADAV VS. ITO (ITA NO. 895/JP/2012) S MT. SONU KHANDELWAL VS. ITO (ITA NO. 597/JP/2013) IN THAT VIEW OF THE MATTER, WITHOUT PREJUDICE TO TH E SUBMISSIONS ABOVE THAT 76 ITA NO. 1351/DEL/2018 THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT TAX AT SOURCE FROM THE IMPUGNED PAYMENT, THE DISALLOWANCE, IF ANY SHOU LD BE DIRECTED TO BE REDUCED TO 30% OF THE TOTAL EXPENDITURE. 46. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 47. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 49. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.YS. 2010-11 AND 2011- 12 HELD AS UNDER: 75) WE HAVE HEARD THE RIVAL CONTENTIONS. AS DEALER SHIP AGREEMENT ENTERED BETWEEN THE APPELLANT AND DEALERS IS ON A P RINCIPAL-TO-PRINCIPAL BASIS AND DEALERS DO NOT ACT AS AGENTS OF THE APPEL LANT WHILE PURCHASING AND FURTHER SELLING THE VEHICLES. ACCORDINGLY, THE INCENTIVES OFFERED AT THE TIME OF PURCHASE OF VEHICLES DO NOT FALL WITHIN THE MEANING OF COMMISSION U/S 194H OF THE ACT. FURTHER, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE IN AY 2008-09 WH EREIN FOLLOWING THE ITAT DECISION IN ASSESSEES OWN CASE FOR THE YEAR A Y 2007-08, IT WAS OBSERVED AS UNDER 148. FROM THE BARE READING OF THE DECISION OF TH E TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2007-08 (SUPRA), WE OBSE RVE THAT AFTER DEALING WITH RIVALS SUBMISSIONS AND CONTENTIONS OF BOTH THE PARTIES, THE TRIBUNAL REACHED TO THE FOLLOWING FINDING AND CONCLUSION DEC IDING THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT OPERATIVE PART OF THE ORDER OF THE TRIBUNAL FOR AY 2007-08 IN ASSESSEES OWN CASE (SUP RA) READ AS UNDER- 45.11. THE FACTS OF THIS CASE CLEARLY DEMONSTRATE THAT WHAT IS GIVEN TO THE STOCKIEST/ DEALERS IS DISCOUNT ON THE PURCHA SE PRICE AND NOT ANY COMMISSION. THE STOCKIEST/ DEALERS PURCHASE SPARE P ARTS/ VEHICLES FROM THE ASSESSEE. THEY ARE NOT COMMISSION AGENTS. SALE CONSIDERATION 77 ITA NO. 1351/DEL/2018 IS PAID BY THESE PARTIES TO THE ASSESSEE. AS A MATT ER OF INCENTIVE FOR HIGHER SALE THE ASSESSEE GRANTS DISCOUNT IF THE STO CKIEST/ DEALERS ACHIEVE A PARTICULAR VOLUME OF TRANSACTION. THUS, I N OUR VIEW THE DISCOUNT IN QUESTION IS NOT IN THE NATURE OF COMMIS SION OR THE BROKERAGE WHICH ATTRACTS SEC. 194H. IN THE CASE OF CIT VS. MO THER DAIRY LTD. (ITA NO. 1925/2010(DEL) THE HONBLE DELHI HIGH COURT WAS CONSIDERING SIMILAR CASE AND HELD AS FOLLOWS: 3. THE ASSESSEE EXPLAINED IN WRITING THAT IT SOLD THE PRODUCTS TO THE CONCESSIONAIRES ON A PRINCIPAL TO PRINCIPAL BASIS, THAT THE CONCESSIONAIRES BUY THE PRODUCTS AT A GIVEN PRICE AFTER MAKING FULL PAYMENT FOR THE PURCHASES ON DELIVERY, THAT THE MILK AND OTHER PRODUCTS ONCE SOLD TO THE CONCESSIONAIRES BECAME TH EIR PROPERTY AND CANNOT BE TAKEN BACK FROM THEM, THAT ANY LOSS ON AC COUNT OF DAMAGE, PILFERAGE AND WASTAGE IS TO THE ACCOUNT OF THE CONCESSIONAIRES AND THAT IN THESE CIRCUMSTANCES TH E PAYMENT MADE TO THE CONCESSIONAIRES CANNOT BE TREATED AS COMMIS SION FOR SERVICES RENDERED AND CONSEQUENTLY THERE WAS NO LI ABILITY ON THE PART OF THE ASSESSEE TO DEDUCT TAX. IT IS IRRELEVANT THAT THE CONCESSIONAIRES WERE OPER ATING FROM THE BOOTHS OWNED BY THE DAIRY AND WERE ALSO USING THE E QUIPMENT AND FURNITURE PROVIDED BY THE DAIRY. THAT FACT IS NOT DETERMINATIVE OF THE RELATIONSHIP BETWEEN THE DAIRY AND THE CONCESSIONAI RES WITH REGARD TO THE SALE OF THE MILK AND OTHER PRODUCTS. THEY WERE LICENSEES OF THE PREMISES AND WERE PERMITTED THE USE OF THE EQUI PMENT AND FURNITURE FOR THE PURPOSE OF SELLING THE MILK AND O THER PRODUCTS. BUT SO FAR AS THE MILK AND THE OTHER PRODUCTS ARE CONCE RNED, THESE ITEMS BECAME THEIR PROPERTY THE MOMENT THEY TOOK DELIVERY OF THEM. THEY WERE SELLING THE MILK AND THE OTHER PRODUCTS IN THE IR OWN RIGHT AS OWNERS. THESE ARE TWO SEPARATE LEGAL RELATIONSHIPS . THE INCOME TAX AUTHORITIES WERE NOT JUSTIFIED OR CORRECT IN LAW IN MIXING UP THE TWO 78 ITA NO. 1351/DEL/2018 DISTINCT RELATIONSHIPS OR TELESCOPING ONE INTO THE OTHER TO HOLD THAT BECAUSE THE CONCESSIONAIRES WERE SELLING THE MILK A ND THE OTHER PRODUCTS FROM THE BOOTHS OWNED BY THE DIARY AN D WERE USING THE EQUIPMENT AND FURNITURE IN THE COURSE OF SAL E OF THE MILK AND OTHER PRODUCTS, THEY WERE CARRYING ON THE BUSINESS ONLY AS AGENTS OF THE DIARY. 45.12. THE HONBLE HIGH COURT HELD THAT IN SUCH CIR CUMSTANCES S.194H IS NOT ATTRACTED. 45.13. IN THE CASE OF JAI DRINKS (P) LTD. 336 ITR 3 83 (DEL.), THE HONBLE DELHI HIGH COURT HAS HELD AS FOLLOWS: HELD, DISMISSING THE APPEAL, THAT A PERUSAL OF THE AGREEMENT SHOWED THAT THE ASSESSEE HAD PERMITTED THE DISTRIBU TOR TO SELL ITS PRODUCTS IN A SPECIFIED AREA. THE DISTRIBUTOR WAS TO PURCHASE PRODUCTS AT A PRE- DETERMINED PRICE FROM THE ASSESS EE FOR SELLING THEM. BOTH THE ASSESSEE AND THE DISTRIBUTOR HAD BEE N COLLECTING AND PAYING THEIR SALES TAX SEPARATELY. THE CIT(A) AND A LSO THE TRIBUNAL RIGHTLY HELD THAT THE PAYMENTS BEING MADE BY THE AS SESSEE TO THE DISTRIBUTOR WERE INCENTIVES AND DISCOUNTS AND NOT C OMMISSION. 45.14. RESPECTFULLY FOLLOWING THE PROPOSITIONS LAID DOWN IN THE AFOREMENTIONED CASES WE ALLOW THIS GROUND OF THE AS SESSEE. 76) IN THAT VIEW OF THE MATTER, THE LD. DEPARTMENTA L REPRESENTATIVE COULD NOT POINT OUT ANY DECISION CONTRARY TO THE ABOVE FI NDING OF THE COORDINATE BENCH OR CHANGE IN THE FACTS AND CIRCUMSTANCES OF T HE CASE, THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN THE APPELLANTS OWN CASE FOR ASSESSMENT YEARS 2007-08 A ND 2008-09 DISCUSSED SUPRA, WE DELETE THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER ON ACCOUNT OF EXPENDITURE OF RS. 3 6880 259 8 TOWARDS THE QUARTERLY TARGET ON TURNOVER DISCOUNT ON TRADE DISCOUNT OF RS . 2 7744 7608 GIVEN TO THE DEALERS. IN THE RESULT GROUND NO. 15 OF THE APP EAL OF THE ASSESSEE IS ALLOWED. 79 ITA NO. 1351/DEL/2018 THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER FOR A.YS. 2010-11 AND 2011-12 AS WELL AS, THE DECISION OF THE HONBLE HIGH COURT IN CASE OF MOTHER DAIRY LTD. (SUPRA). THEREFORE, GROUN D NO. 26 TO 26.3 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. FROM THE PERUSAL OF RECORDS IT CAN BE SEEN THAT AS DEALERSHIP AGREEMENT ENTERED BETWEEN THE APPELLANT AND DEALERS IS ON A P RINCIPAL-TO-PRINCIPAL BASIS AND DEALERS DO NOT ACT AS AGENTS OF THE APPELLANT W HILE PURCHASING AND FURTHER SELLING THE VEHICLES. ACCORDINGLY, THE INCENTIVES OFFERED AT THE TIME OF PURCHASE OF VEHICLES DO NOT FALL WITHIN THE MEANING OF COMMI SSION U/S 194H OF THE ACT. THUS, THE ASSESSING OFFICER WAS NOT CORRECT IN HOLD ING THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX FROM DISCOUNTS/INCENTIVES UNDE R SECTION 194H OF THE ACT. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE S IMILAR AND IS SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. HENCE GROUND NOS. 21 TO 21.5 ARE ALLOW ED. 48. AS REGARDS GROUND NO. 22 TO 22.5 IS RELATING TO DISALLOWANCE OF LEGAL AND PROFESSIONAL EXPENSES U/S 40(A)(IA). DURING THE R ELEVANT YEAR, THE ASSESSEE INCURRED LEGAL AND PROFESSIONAL EXPENSES, AMOUNTING TO RS. 9,68,081. THE ASSESSING OFFICER DISALLOWED THE AFORESAID EXPENSES , INVOKING SECTION 40(A)(IA) FOR THE FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SO URCE THEREFROM UNDER SECTION 194J OF THE ACT. WHILE THE ASSESSING OFFICER DID NO T DOUBT THAT THE PAYMENT WAS MADE BY ASSESSEE TOWARDS REIMBURSEMENT OF EXPEN SES, IT WAS STILL HELD THAT ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE UN DER SECTION 194J OF THE ACT. 49. THE LD. AR SUBMITTED THAT THE AFORESAID ISSUE I S SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF DELHI BEN CH OF TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2007-0 8 AND 2008-09 WHEREIN DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF RE-IMBURS EMENT OF OUT-OF-POCKET EXPENSES INCURRED BY PROFESSIONALS/VENDORS UNDER SE CTION 40(A)(IA) WAS DELETED ON THE GROUND THAT SAME DID NOT HAVE ANY EL EMENT OF INCOME IN THE HANDS OF THE RECIPIENT. THE LD. AR POINTED OUT THAT SIMILAR DISALLOWANCE 80 ITA NO. 1351/DEL/2018 MADE IN THE DRAFT ASSESSING OFFICER ORDER, BUT SUBS EQUENTLY DELETED BY THE DRP, WAS CHALLENGED IN REVENUE'S APPEAL FOR AY 201 0-11 AND 2011-12. HOWEVER, THE TRIBUNAL UPHELD THE ORDER OF THE DRP A ND CONFIRMED THE DELETION OF DISALLOWANCE ON ACCOUNT OF NON-DEDUCTION OF TAX ON REIMBURSEMENT OF EXPENSES FOLLOWING THE ORDER FOR ASSESSMENT YEARS 2 007-08 AND 2008-09. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-1 3 AND 2013-14, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. 50. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 51. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 53. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL HELD IN A.YS. 2010-11 AND 2 011-12 AS UNDER: 222) WE HAVE HEARD THE RIVAL CONTENTIONS. WE NOTE THAT SIMILAR ISSUE RELATING TO DISALLOWANCE RELATING TO RE-IMBURSEMENT OF PROFESSIONAL EXPENSES WAS DELETED BY THE TRIBUNAL IN THE ASSESSE ES OWN CASE FOR ASSESSMENT YEAR 2007-08 WHICH WAS FOLLOWED IN ASSES SMENT YEAR 2008- 09. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL FOR A SSESSMENT YEAR 2007-08 ARE AS UNDER: 35.8. IT IS THE CASE OF THE ASSESSEE THAT IT HAD REIMBURSED THE EXPENSES INCURRED BY VARIOUS CONSULTANTS AND VENDOR S ON TRAVELLING AND OUT OF POCKET EXPENSES. IT IS ALSO CLAIMED THAT OUT OF AN AMOUNT OF RS. 10.68 LACS EXPENSES TO THE EXTENT OF RS. 6.01 LACS WERE MADE AFTER VERIFYING THE SUPPORTING VOUCHERS FOR CLAIMS RAISED BY THE VENDORS. BALANCE AMOUNT OF RS. 4.66 LACS WERE BASED ON SELF CERTIFICATION. IN OUR VIEW SUCH REIMBURSEMENT OF EXPENDITURE HAS NO ELEME NT OF INCOME EMBODIED IN IT. THUS, WE APPLY THE FOLLOWING DECISI ONS WHEREIN IT IS HELD 81 ITA NO. 1351/DEL/2018 THAT PAYER IS NOT OBLIGED TO DEDUCT TAX AT SOURCE F ROM REIMBURSEMENT OF EXPENSES: - UNITED HOTELS LTD. VS. ITO 93 TTJ 822; - KARNAVATI CO-OP. BANK LTD. VS. DCIT 134 TTJ 486 ( AHD.). 35.9. RESPECTFULLY FOLLOWING THE SAME, THE GROUND IS ALLOWED IN FAVOUR OF THE ASSESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLAN T AS COMPARED TO THE ASSESSMENT YEAR IN WHICH THE ABOVE ISSUE IS DECIDED BY THE COORDINATE BENCH. NO OTHER CONTRARY DECISION WAS ALSO POINTED OUT THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN THE APPELLANTS OWN CASE FOR THE EARLIER YEARS, WE DISM ISS GROUND NO.8 OF THE APPEAL OF THE REVENUE. IN THE PRESENT ASSESSMENT YEAR, THE ASSESSING OFFIC ER DISALLOWED THE AFORESAID EXPENSES, INVOKING SECTION 40(A)(IA), FOR THE FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE THERE FROM UNDER SECTION 19 4J OF THE ACT. BUT IT IS PERTINENT TO NOTE HERE THAT THE ASSESSING OFFICER D ID NOT DOUBT THAT THE PAYMENT WAS MADE BY ASSESSEE TOWARDS REIMBURSEMENT OF EXPENSES, IT WAS STILL HELD THAT ASSESSEE WAS LIABLE TO DEDUCT TAX A T SOURCE UNDER SECTION 194J OF THE ACT. THUS, THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL FOR A.YS. 2010-11 AND 2011-12. THEREFORE, GROUND NOS. 2 7 TO 27.4 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE S IMILAR AND IS SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. HENCE GROUND NOS. 22 TO 22.5 ARE ALLOW ED. 52. AS REGARDS GROUND NO. 23 TO 23.5 ARE RELATING T O DISALLOWANCE OF ROYALTY EXPENDITURE ON THE GROUND OF BEING CAPITAL IN NATUR E; AND DISALLOWANCE ON ACCOUNT OF CESS ON MODEL FEE. THE ASSESSEE COMPANY HAS BEEN MANUFACTURING 82 ITA NO. 1351/DEL/2018 TWO WHEELERS IN INDIA SINCE 1985 ON THE BASIS OF TE CHNOLOGY PROVIDED BY M/S. HONDA MOTORS CO. LTD., JAPAN ('HM') AND HAS THUS FA R LAUNCHED VARIOUS MODELS OF MOTORCYCLES BY OBTAINING THE TECHNOLOGY P ROVIDED BY THAT COMPANY. AS PER THE LICENSE AND TECHNICAL ASSISTANCE AGREEME NT ('LTAA) DATED 02.06.2004 BETWEEN THE ASSESSEE AND HONDA PROVIDES FOR THE LATTER TO GRANT THE ASSESSEE AN INDIVISIBLE AND NON-TRANSFERABLE RI GHT AND LICENSE TO MANUFACTURE, ASSEMBLE, SELL AND DISTRIBUTE THE PROD UCTS AND PARTS DURING THE TERMS OF THE AGREEMENT WITHIN THE SPECIFIED TERRITO RY. IN CONSIDERATION THEREOF, THE ASSESSEE PAID ROYALTY OF RS. 340,87,05,721 (INC LUDING CESS), TECHNICAL GUIDANCE FEE OF RS. 65,70,503, MODEL FEE OF RS. 32, 29,18,453 (INCLUDING CESS) TO HONDA. THE ASSESSEE PAYS MODEL FEES IN LUMP SUM ON LAUNCH OF ANY NEW MODEL. IN ADDITION, THE ASSESSEE ENTERED INTO A MEM ORANDUM FOR EXCHANGE OF TECHNICIANS DATED 21.06.2004, WHEREIN, HONDA WOULD IMPART TECHNICAL GUIDANCE AND TRAINING TO THE ASSESSEES ENGINEERS A ND DEPLOY TECHNICIANS IN INDIA FOR RENDERING TRAINING SERVICES AS REQUIRED B Y THE ASSESSEE. DETAILED BIFURCATION OF THE PAYMENT MADE BY THE ASSESSEE TO HONDA IS TABULATED AS UNDER: NATURE OF PAYMENT AMOUNT MODEL FEE 30,77,53,454 CESS ON MODEL FEE 1,51,64,999/ - ROYALTY 340,21,35,218 TECHNICAL GUIDANCE FEE 65,70,503 THE ASSESSEE HAD SET UP ITS PLANT TO MANUFACTURE MO DELS OF MOTOR-CYCLE BY USING KNOW-HOW OF HONDA MOTOR CO. IN THE YEAR 1984 THROUGH TECHNICAL COLLABORATION CONTRACT DATED 24TH JANUARY 1984. UND ER THAT AGREEMENT, THE ASSESSEE WAS PROVIDED WITH THE TECHNICAL ASSISTANCE NOT ONLY FOR MANUFACTURE, ASSEMBLY AND SERVICING OF THE PRODUCTS BUT WAS ALSO PROVIDED WITH INFORMATION, DRAWINGS AND DESIGNS FOR SETTING UP OF THE PLANT. THE ASSESSEE WAS REQUIRED TO PAY LUMP SUM AMOUNT OF $5,00,000 IN CONSIDERATION OF 83 ITA NO. 1351/DEL/2018 TECHNICAL INFORMATION FOR CONSTRUCTION OF PLANT, WH ICH WAS CAPITALIZED IN THE BOOKS OF ACCOUNT AND NO PART THEREOF WAS CLAIMED AS REVENUE EXPENDITURE. THE AFORESAID AGREEMENT EXPIRED IN 1994. THE LTAA WAS E NTERED ON 2/6/2004 FOR A PERIOD OF 10 YEARS AND HAD NO RELATION WITH THE ERS TWHILE AGREEMENT(S) AND WAS NOT A CONTINUATION OF THE EARLIER AGREEMENT. THE K NOW-HOW LICENSED BY HONDA UNDER THE SUBJECT AGREEMENT OF 2004 RELATED ONLY TO MANUFACTURE, ASSEMBLY INSPECTION, MAINTENANCE, ETC., OF PRODUCTS AND WAS NOT FOR ESTABLISHMENT/SETTING UP OF THE FACTORY. THE ASSESS EE BEFORE THE ASSESSING OFFICER SUBMITTED THAT NO PLANT WAS SET-UP, LEAVE A LONE AS PER ANY KNOW-HOW PROVIDED BY HONDA, DURING THE RELEVANT PREVIOUS YEA R. THE PAYMENTS BY WAY OF MODEL FEES AND RUNNING ROYALTY WERE MADE ONLY TOWAR DS LIMITED LICENSE TO USE THE KNOW-HOW PROVIDED BY HONDA FOR MANUFACTURE OF V ARIOUS MODELS OF MOTORCYCLES AND NO PART OF ROYALTY/MODEL FEES PAID DURING THE YEAR WAS FOR SETTING-UP OF THE PLANT. THE ASSESSEE FURTHER SUBMI TTED BEFORE THE ASSESSING OFFICER THAT THE AGREEMENT BETWEEN THE ASSESSEE AND HONDA PROVIDES FOR THE LATTER TO GRANT TO THE ASSESSEE AN INDIVISIBLE AND NON-TRANSFERABLE RIGHT AND LICENSE TO MANUFACTURE, ASSEMBLE, SELL AND DISTRIBU TE THE PRODUCTS AND PARTS DURING THE TERMS OF THE AGREEMENT WITHIN THE SPECIF IED TERRITORY. THE AFORESAID RIGHT VESTED WITH THE ASSESSEE WAS NOT EXCLUSIVE IN ASMUCH AS, IN TERMS OF ARTICLE 2 OF LTAA, THE ASSESSEE DURING THE CURRENCY OF THE AGREEMENT ONLY HAD A LIMITED RIGHT TO USE THE TECHNOLOGY OF HONDA. THE OWNERSHIP/PROPRIETARY RIGHTS IN THE TECHNICAL KNOW-HOW CONTINUED TO VEST IN HONDA AND THE ASSESSEE WAS NOT AUTHORIZED TO TRANSFER, ASSIGN OR CONVEY TH E KNOW-HOW/TECHNICAL INFORMATION TO ANY THIRD PARTY. IN THE ASSESSMENT O RDER, THE ASSESSING OFFICER TREATED THE AFORESAID EXPENDITURE INCURRED BY WAY O F ROYALTY AND MODEL FEES PAID TO HONDA AS CAPITAL EXPENDITURE ON THE GROUND THAT - THE ASSESSEE HAD RECEIVED BENEFIT OF ENDURING NATUR E INASMUCH AS EXCLUSIVE RIGHT WAS AVAILABLE WITH THE ASSESSEE TO MANUFACTURE AND SELL THE PRODUCTS WITHIN THE TERRITORY OF INDIA; 84 ITA NO. 1351/DEL/2018 THE BENEFIT UNDER THE AGREEMENT HAD A DEGREE OF PER PETUITY SINCE THE AGREEMENT WAS RENEWED AND WAS EXTENDED YEAR AFTER Y EAR AND DID NOT, THEREFORE, REMAIN A SHORT TERM AGREEMENT. THE ASSESSEE HAD ACQUIRED ASSET IN THE NATURE OF IN TELLECTUAL PROPERTY RIGHTS AND PATENTS FROM HONDA. THE ASSESSING OFFICER, ACCORDINGLY, DISALLOWED THE ENTIRE EXPENDITURE OF RS. 373,16,24,174 (INCLUDING CESS) INCURRED TOWARDS ROY ALTY/TECHNICAL GUIDANCE FEE/MODEL FEE. HOWEVER, SINCE THE ASSESSING OFFICER HAD CONSIDERED EXPENDITURE TO THE EXTENT OF RS. 15,00,822 TOWARDS ROYALTY AND RS. 30,77,53.454 INCURRED TOWARDS MODEL FEE, TO BE NOT AT ATP WHILE MAKING TR ANSFER PRICING ADJUSTMENT, CHALLENGED IN GOA 1 SUPRA, THE ASSESSING OFFICER MA DE THE DISALLOWANCE OF THE BALANCE AMOUNT OF RS. 340,72,04,899 (INCLUDING TGF) INCURRED TOWARDS ROYALTY AND TGF AND RS. 151,64.999 INCURRED TOWARDS CESS ON MODEL FEE BY TREATING THE SAME TO BE CAPITAL EXPENDITURE. THE ASSESSING O FFICER OBSERVED THAT THE IS TO BE ALLOWED DEPRECIATION @ 25% ON THE EXPENDITURE TREATED AS CAPITAL EXPENDITURE, BUT FAILED TO ALLOW DEPRECIATION WHILE COMPUTING THE AMOUNT OF DISALLOWANCE. 53. THE LD. AR SUBMITTED THAT ROYALTY/TECHNICAL GUI DANCE FEES AND MODEL FEES ARE NOT CAPITAL EXPENDITURE AS THERE IS NO OWN ERSHIP RIGHTS GIVEN TO THE ASSESSEE. DURING THE CURRENCY OF THE AGREEMENT, THE ASSESSEE ONLY HAD A LIMITED RIGHT TO USE THE TECHNOLOGY OF HONDA. OWNER SHIP/PROPRIETARY RIGHTS IN THE TECHNICAL KNOW-HOW CONTINUED TO VEST IN HONDA A ND THE ASSESSEE WAS NOT AUTHORIZED TO TRANSFER, ASSIGN OR CONVEY THE KNOW-H OW/TECHNICAL INFORMATION TO ANY THIRD PARTY AS THE ASSESSEE ONLY ACQUIRED LI MITED RIGHT TO USE AND EXPLOIT THE KNOW-HOW. THE LD. AR FURTHER SUBMITTED THAT THE AFORESAID LIMITED RIGHT WERE AVAILABLE TO THE ASSESSEE AND THE FACT OF SUCH RIGHTS BEING NOT EXCLUSIVE CAN BE GATHERED FROM THE FOLLOWING CLAUSES OF THE A GREEMENT:- ARTICLE 2 - GRANT OF LICENSE AND EXCLUSIVITY 85 ITA NO. 1351/DEL/2018 ARTICLE 17 - MAINTENANCE OF SECRECY ARTICLE 18 - LIMITATION OF USE, AND OTHER PROHIBITION ARTICLE 33 - EFFECT OF EXPIRY AND TERMINATION THE LD. AR SUBMITTED THAT THESE PAYMENTS UNDER THE AGREEMENT ARE ALLOWABLE REVENUE EXPENDITURE. AS PER THE VARIOUS CLAUSES OF THE AGREEMENT, THE LD. AR SUBMITTED THAT THE ROYALTY/TGF/MODEL FEE PAYABLE TO HONDA IS ONLY FOR THE PURPOSE OF USE OF TECHNICAL ASSISTANCE IN THE MANUF ACTURE AND SALE OF PRODUCTS AND THE ASSESSEE HAS NOT ACQUIRED ANY CAPITAL ASSET , MUCH LESS IN THE NATURE OF INTELLECTUAL PROPERTY RIGHTS OR PATENTS BELONGING T O HONDA, WHICH, IN UNEQUIVOCAL TERMS, AS PROVIDED IN THE AGREEMENT VES TED IN ABSOLUTE OWNERSHIP OF HONDA AT ALL TIMES. THE LD. AR RELIED UPON THE F OLLOWING DECISIONS WHEREIN IT HAS BEEN HELD THAT WHERE PAYMENT IS MADE TO SIMPLY USE THE TECHNICAL KNOW- HOW/KNOWLEDGE PROVIDED BY THE FOREIGN COLLABORATOR AS OPPOSED TO ACQUISITION OF OWNERSHIP RIGHTS THEREIN, THE PAYMENT MADE WOULD BE REGARDED AS REVENUE EXPENDITURE. AS CIT V. CIBA INDIA LTD.: 69 ITR 692 (SC) CIT VS. BRITISH INDIA CORP. LTD. [1987] 165 ITR 51 ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT: 177 ITR 37 7 (S.C) SHRIRAM REFRIGERATION INDUSTRIES LTD. VS. CIT: 127 ITR 746 (DEL H.C) TRIVENI ENGINEERING WORKS LTD. VS. CIT(A): 136 ITR 340 (DEL) ADDL. CIT VS. SHAMA ENGINE VALVES LTD, : 138 ITR 21 7 (DEL) CIT VS. BHAI SUNDER DASS & SONS P. LTD. : 158 ITR 1 95 (DEL) CIT VS. LUMAX INDUSTRIES LTD. : 173 TAXMAN 390 (DEL ) SHRIRAM PISTONS & RINGS LTD. VS. CIT : 171 TAXMAN 81 (DEL) CIT VS. SHRI RAM PISTONS AND RINGS LTD.: 220 CTR 40 4 (DEL) GOODYEAR INDIA LTD. VS. ITO : 73 ITD 189 (DEL)(TM) ITO VS. SHIVANI LOCKS : 118 TTJ 467 (DEL) ARTICLE 21 - VALIDITY AND INFRINGEMENT ARTICLE 27 -TRADEMARKS 86 ITA NO. 1351/DEL/2018 CLIMATE SYSTEMS INDIA LTD. VS. CIT: 319 ITR 113 (DE L- HC)] CIT VS. SHARDA MOTOR INDUSTRIES LTD: 319 ITR 109 (D EL- HC) CIT VS. ESSEL PROPACK 325 ITR 185 (BOM) CIT V. MODI REVLON (P) LTD: (2012) 9 TMI 48 (DEL.) MAFATLAL DENIM LTD. V. DCIT: 2011 (12) TMI 351 (MUM.) CLIMATE SYSTEMS INDIA LTD. VS. CIT: 319 ITR 113 (DE L- HC) GOODYEAR INDIA LTD. VS. ITO : 73 ITD 189 (DEL)(TM) CIT V. AVERY INDIA LTD. 207 ITR 813 (CAL) CIT V. BHAI SUNDER DASS & SONS P. LTD.: 158 ITR 195 (DEL) CIT V. DCM LTD.: ITA NO. 87-89/1992 (DEL.)(HC) CIT V. DENSO INDIA P. LTD.: ITA 16/2008 (DEL.) (HC) CIT V. EICHER MOTORS LTD.: 293 ITR 464 (MP)(INDORE BENCH) THE LD. AR FURTHER SUBMITTED THAT SINCE, NO PROPRIE TARY RIGHTS IN THE KNOW HOW VESTED IN THE ASSESSEE THE ASSESSEE BEING A MERE LICENSEE WITH LIMITED RIGHTS TO USE THE TECHNICAL ASSISTANCE DURI NG THE CURRENCY OF THE AGREEMENT, THERE IS NO EXPLICIT OR IMPLIED INTENTIO N TO TRANSFER OR CREATE OWNERSHIP IN THE TECHNICAL KNOW-HOW /TECHNICAL INFO RMATION IN THE ASSESSEE. IN VIEW OF THE AFORESAID, EXPENDITURE BY WAY OF ROY ALTY, TECHNICAL GUIDANCE FEE AND MODEL FEES INCURRED BY THE ASSESSEE WAS ALLOWAB LE REVENUE DEDUCTION SINCE- PAYMENT WAS MADE FOR LIMITED LICENSE TO USE THE KNO WHOW PROVIDED BY HONDA, AS THE PROPRIETARY AND OWNERSHIP RIGHTS IN T HE SAME CONTINUED TO REMAIN VESTED WITH HONDA AT ALL TIMES AND, THEREFOR E, THERE WAS NO ABSOLUTE PARTING OF KNOW-HOW IN FAVOUR OF THE ASSES SEE RESULTING IN ACQUISITION OF ANY ASSET, NO BENEFIT OF ENDURING NATURE IN THE CAPITAL FIELD ACCRUED TO THE ASSESSEE, EVEN IF THE LICENSE TO MANUFACTURE AND SELL PRODUCT S IN INDIA IS ASSUMED TO BE EXCLUSIVE, EXCEPT FOR GRANT OF LICENSE TO HMS I 87 ITA NO. 1351/DEL/2018 THE AFORESAID ISSUE IS COVERED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF TRIBUNAL IN THE ASSESSMENT YEARS 2000-01; 2001-02; 2002-03, 2006-07, 2007- 08, 2008-09, 2010-11 AND 2011-12 WHEREIN THE TRIBUN AL HAS HELD THAT ANNUAL PAYMENT OF ROYALTY/TECHNICAL GUIDANCE FEE WAS ALLOW ABLE REVENUE EXPENDITURE. THE LD. AR SUBMITTED THAT THE AFORESAID ORDERS OF T HE TRIBUNAL RELATING TO ASSESSMENT YEARS 2000-01 TO 2002-03 HAVE BEEN AFFIR MED BY THE DELHI HIGH COURT IN THE ASSESSEES OWN CASE REPORTED AS CIT V. HERO HONDA MOTORS LTD.: 372 ITR 481. 54. THE LD. AR FURTHER SUBMITTED THAT THE MODEL FEE S ALLOWED AS REVENUE EXPENDITURE IN PRECEDING YEARS. IN THE ASSE SSEES OWN CASE FOR A.Y 1996-97, THE TRIBUNAL WAS PLEASED TO ALLOW MODEL FE E PAID TO HONDA UNDER SECTION 37(1) OF THE ACT AS REVENUE EXPENDITU RE ON THE GROUND THAT PAYMENT WAS ONLY FOR RIGHT TO USE THE TECHNICA L KNOW-HOW AND THERE WAS NO OWNERSHIP OF ANY INTELLECTUAL PROPERTY, WHIC H CONTINUED TO REMAIN WITH HONDA. THE SAID DECISION IS REPORTED AS HERO HONDA MOTORS LTD. V. JCIT: 95 TTJ (DEL) 782. THE DELHI HIGH COUR T DID NOT ENTERTAIN THE APPEAL FILED BY THE DEPARTMENT ON THE SAID ISSU E. THE DECISION OF THE HIGH COURT WAS ACCEPTED BY THE DEPARTMENT AND HAS B ECOME FINAL, AS NO SLP HAS BEEN FILED THERE AGAINST. THE LD. AR FURTHE R SUBMITTED THAT THE TRIBUNAL IN THE ASSESSMENT YEARS 1997-98 AND 1999-0 0 ALLOWED SIMILAR EXPENDITURE ON PAYMENT OF MODEL FEE, FOLLOWING THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 1996-97. THE REVENUES APPEAL AGAINST THE SAID ORDERS HAS BEEN DISMISSED BY THE HIGH COURT. I N THE ASSESSMENT YEAR 1999-00, APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF THE HIGH COURT HAS BEEN DISMISSED BY THE HON'BLE SUPREME COU RT. THE DELHI BENCH OF THE TRIBUNAL IN APPELLANTS CASE FOR ASSES SMENT YEAR 2001-02, VIDE ORDER DATED 27.03.2009 IN ITA NO. 2067/DEL/200 6 ALLOWED THE PAYMENT OF MODEL FEE FOLLOWING THE SAME ORDER FOR A SSESSMENT YEAR 1996-97. THE SAME TREATMENT HAS BEEN GIVEN BY ITAT IN RESPECT OF AY 2006-07, AY 2007-08, AY 2008-09, AY 2010-11 AND AY 2011-12. THE 88 ITA NO. 1351/DEL/2018 HIGH COURT HAS AFFIRMED THE ORDER PASSED BY THE TRI BUNAL IN ASSESSMENT YEAR 2000-01 TO 2002-03 IN 372 ITR 481. THE LD. AR SUBMITTED, THAT WHEN MODEL FEES, PAYMENT FOR WHICH IS MADE THROUGH THE SAME AGREEMENT IS ACCEPTED AS REVENUE EXPENDITURE, THE N ATURE OF ROYALTY CANNOT BE GIVEN ANY DIFFERENT TREATMENT AND, THEREF ORE, NO PORTION THEREOF NEEDS TO BE DISALLOWED AS BEING CAPITAL IN NATURE. FOR THE AFORESAID CUMULATIVE REASONS, NO PORTION OF THE ROY ALTY EXPENDITURE/TECHNICAL GUIDANCE FEES/MODEL FEE INCUR RED BY THE ASSESSEE CALLS FOR BEING DISALLOWED. WHILE DECIDIN G THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14, THE TRIBUNAL DECIDED THE ISSUE IN RELATION TO DISALLOWANCE OF ROYALTY MODEL FEE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010- 11 AND 2011- 12. WITHOUT PREJUDICE, THE LD. AR FURTHER SUBMITTED THA T THE ASSESSING OFFICER FAILED TO ALLOW DEPRECIATION @ 25% TO THE A SSESSEE; THEREBY NOT FOLLOWING THE SPECIFIC DIRECTIONS OF THE DRP. 55. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 56. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 76. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.Y. 2010-11 AND 2011-1 2 HELD AS UNDER: 95) WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE GONE THROUGH THE ORDERS IN THE APPELLANTS CASE FOR THE EARLIER ASSE SSMENT YEARS AS WAS POINTED OUT BY THE LD. COUNSEL. BOTH THE PARTIES AD MITTED BEFORE US THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES O F THE CASE AS WELL AS THE AGREEMENT UNDER WHICH THE PAYMENTS HAVE BEEN MA DE BY THE ASSESSEE. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO COULD NOT POINT OUT ANY OTHER JUDICIAL PRECEDENT ON THIS ISSUE OF THE HIGHE R FORUM. IN THIS EVENT WE 89 ITA NO. 1351/DEL/2018 ARE DUTY BOUND TO FOLLOW THE ORDER OF THE COORDINAT E BENCH PASSED IN THE CASE OF THE APPELLANT FOR THE BEER YEARS. FOR THE S AKE BREVITY, WE REPRODUCE HEREUNDER THE FINDING IN THE APPEAL ORDER FOR AY 20 07-08, WHICH WAS FOLLOWED IN THE ORDER FOR AY 2008-09 AS UNDER: 57. THE ISSUE WHETHER THE EXPENDITURE IN QUESTION IS IN THE CAPITAL FIELD OR THE REVENUE FIELD HAS BEEN DECIDED IN FAV OUR OF THE ASSESSEE BY THE ITAT IN ASSESSEES OWN CASE FOR EARLIER ASSE SSMENT YEARS 2000- 01, 2001-02, 2002-03 AND 2006-07. THE ITAT DELHI BE NCH C IN ASSESSEES OWN CASE FOR A.Y. 2006-07 IN ITA NO. 513 0/DEL/2010 VIDE ORDER DATED 23-11-2012 HAS HELD THAT THE ANNUA L PAYMENT OF ROYALTY WAS A REVENUE EXPENDITURE. IN DOING SO THE ITAT HAS RELIED ON VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE DECIS ION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CLIMATE SYSTEMS INDIA LTD . AND SHARDA MOTORS INDUSTRIAL LTD. NO CHANGE IN FAC TS AND CIRCUMSTANCES HAS BEEN POINTED OUT BY THE LD. DR. THEREFORE, RESP ECTFULLY FOLLOWING THE SAME, WE ALLOW THIS GROUND OF THE ASSESSEE. THEREFORE RESPECTFULLY FOLLOWING THE ABOVE DECISION S OF THE TRIBUNAL AND HIGH COURT IN THE APPELLANTS OWN CASE, WE REVERSE THE ORDER OF THE LD. ASSESSING OFFICER IN HOLDING THE ABOVE 3 PAYMENTS A S CAPITAL EXPENDITURE. IN THE RESULT GROUND NO. 19 OF THE APPEAL OF THE AS SESSEE IS ALLOWED. IT IS PERTINENT TO NOTE THAT NO PROPRIETARY RIGHTS IN THE KNOW HOW VESTED IN THE ASSESSEE, THE ASSESSEE BEING A MERE LICENSEE WITH L IMITED RIGHTS TO USE THE TECHNICAL ASSISTANCE DURING THE CURRENCY OF THE AGR EEMENT, THERE IS NO EXPLICIT OR IMPLIED INTENTION TO TRANSFER OR CREATE OWNERSHI P IN THE TECHNICAL KNOW-HOW /TECHNICAL INFORMATION IN THE ASSESSEE. IN VIEW OF THE AFORESAID, EXPENDITURE BY WAY OF ROYALTY, TECHNICAL GUIDANCE FEE AND MODEL FEES INCURRED BY THE ASSESSEE WAS ALLOWABLE REVENUE DEDUCTION AS HELD IN THE DECISION GIVEN BY THE TRIBUNAL FOR A.YS. 2010-11 AND 2011-12. THE ISS UE IS SQUARELY COVERED BY THE SAID DECISION. THEREFORE, GROUND NO. 32 TO 32.6 ARE ALLOWED. 90 ITA NO. 1351/DEL/2018 IT IS PERTINENT TO NOTE THAT DURING THE CURRENCY OF THE AGREEMENT, THE ASSESSEE ONLY HAD A LIMITED RIGHT TO USE THE TECHNOLOGY OF H ONDA. OWNERSHIP/PROPRIETARY RIGHTS IN THE TECHNICAL KNOW- HOW CONTINUED TO VEST IN HONDA AND THE ASSESSEE WAS NOT AUTHORIZED TO TRANSF ER, ASSIGN OR CONVEY THE KNOW-HOW/TECHNICAL INFORMATION TO ANY THIRD PARTY A S THE ASSESSEE ONLY ACQUIRED LIMITED RIGHT TO USE AND EXPLOIT THE KNOW- HOW. THUS, ROYALTY/TGF/MODEL FEE PAYABLE TO HONDA IS ONLY FOR THE PURPOSE OF USE OF TECHNICAL ASSISTANCE IN THE MANUFACTURE AND SALE OF PRODUCTS AND THE ASSESSEE HAS NOT ACQUIRED ANY CAPITAL ASSET. THUS, THE PAYME NT MADE TO SIMPLY USE THE TECHNICAL KNOW-HOW/KNOWLEDGE PROVIDED BY THE FOREIG N COLLABORATOR AS OPPOSED TO ACQUISITION OF OWNERSHIP RIGHTS THEREIN ARE REVENUE EXPENDITURE ONLY AND THE SAME SHOULD HAVE BEEN ALLOWED BY THE A SSESSING OFFICER/TPO. THE MODEL FEES IS ALSO ALLOWABLE AS REVENUE EXPENDI TURE IN PREVIOUS YEARS. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE SIMI LAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. HENCE GROUND NOS. 23 TO 23.5 ARE ALLOW ED. 57. AS REGARDS GROUND NO. 24 TO 24.2 ARE RELATING T O GAINS FROM SALE OF INVESTMENTS INCOME TREATED AS BUSINESS INCOME. THE ASSESSEE INVESTS SURPLUS FUNDS ARISING IN THE COURSE OF BUSINESS UNDER VARIO US MODES OF INVESTMENT LIKE MUTUAL FUNDS/ PMS, SHARES ETC. THE GAINS REALIZED F ROM SALE OF SUCH VARIOUS INSTRUMENTS AMOUNTING TO RS. 81.80 CRORES DURING TH E RELEVANT PREVIOUS YEAR, WERE DISCLOSED UNDER THE HEAD CAPITAL GAINS. THE ASSESSING OFFICER HELD THAT, HAVING REGARD TO THE MAGNITUDE/VOLUME OF TOTAL TURN OVER FROM SALE OF INVESTMENTS, THE AFORESAID INCOME WAS TAXABLE UNDER THE HEAD BUSINESS INCOME. THEREFORE, THE ASSESSING OFFICER MADE AN A DDITION OF RS. 145.43 CRORES UNDER THE HEAD BUSINESS INCOME AS OPPOSED TO INCO ME OF RS. 81.80 CRORES DISCLOSED UNDER THE HEAD CAPITAL GAINS. 58. THE LD. AR SUBMITTED THAT THE AFORESAID ISSUE I S SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE 91 ITA NO. 1351/DEL/2018 ASSESSEES OWN CASE FOR THE AY 2007-08 AND 2008-09, WHEREIN AFTER CONSIDERING THE LEGAL POSITION AND INTENTION OF THE ASSESSEE CO MPANY, THE TRIBUNAL CAME TO THE CONCLUSION THAT INCOME FROM SALE OF SHARES/MUTU AL FUNDS/PMS ETC. WOULD BE TAXABLE AS CAPITAL GAINS, INSTEAD OF BUSINESS IN COME BROUGHT TO TAX BY THE ASSESSING OFFICER ON THE BASIS THAT THE ASSESSEE(A) WAS NOT A TRADER IN STOCK; (B) HAD NO INTENTION OF HOLDING THE SHARES AS STOCK; (C ) SALES WERE AFFECTED BY DELIVERY (D) THAT THE DEPARTMENT HAD ITSELF IN EARL IER YEARS TAXED SUCH TRANSACTIONS UNDER THE HEAD CAPITAL GAINS. THE LD. AR SUBMITTED THAT IT WOULD BE APPOSITE TO NOTE THAT THE TRIBUNAL, VIDE ORDER D ATED 24.10.2016 PASSED IN THE ASSESSEES OWN CASE FOR AY 2010-11 AND 2011-12, REVERSED THE ACTION OF ASSESSING OFFICER IN CHANGING THE HEAD OF INCOME AND HELD THAT IN CASES WHERE AN ASSESSEE TREATS INVESTMENTS MADE IN SHARES AS CAPITAL ASSETS, IN VIEW OF CIRCULAR 6/2016 OF THE BOARD, GAINS/PROFITS ON S ALE OF SUCH INVESTMENTS SHALL BE TREATED AS CAPITAL GAINS AND NOT INCOME FR OM BUSINESS/PROFESSION. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011 -12. 59. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 60. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 65. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.YS. 2010-11 AND 2011- 12 HELD AS UNDER: 99) WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE GONE THROUGH THE ORDER PASSED BY THE TRIBUNAL FOR THE ASSESSMENT YEA R 2007-08, WHICH WAS FOLLOWED IN APPEAL ORDER FOR AY 2008-09. THE TRIBU NAL IN THAT YEAR WENT THROUGH THE ENTIRE FACTS, WHICH ARE SIMILAR TO THE YEAR UNDER CONSIDERATION, AND THE LEGAL POSITION BEFORE COMING TO THE CONCLUS ION THAT THE GAINS 92 ITA NO. 1351/DEL/2018 ARISING FROM INVESTMENT OF SURPLUS FUNDS IN SHARES/ MUTUAL FUNDS/PMS AS PART OF CASH MANAGEMENT POLICY CANNOT LEAD TO THE C ONCLUSION THAT THE APPELLANT WAS CARRYING ON BUSINESS TO BRING TO TAX SUCH INCOME UNDER THE HEAD BUSINESS AS AGAINST CAPITAL GAINS OFFERED BY THE APPELLANT. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE CURRENT ASSESSMENT YEAR COMPARED TO THE ASSESSMENT YEAR FOR WHICH THE TRIBU NAL IS DECIDED IN THE APPELLANTS OWN CASE FOR EARLIER YEARS. NO OTHER JU DICIAL PRECEDENT WAS ALSO CITED BY WHICH WE COULD DEVIATE FROM THE ORDER OF THE COORDINATE BENCH IN THE EARLIER YEARS IN THE APPELLANTS OWN C ASE. THE RELEVANT OBSERVATIONS IN THE APPEAL ORDER FOR AY 2007-08 ARE AS UNDER: 65.20. THE ISSUE THAT EMERGES FOR CONSIDERATION IS WHETHER THE GAINS THAT AROSE TO THE ASSESSEE FROM INVESTMENT IN DEBT MUTUAL FUNDS/PMS/ SHARES ARE TO BE TAXED UNDER THE HEAD BUSINESS INC OME OR UNDER THE HEAD CAPITAL GAINS. .................... 65.28. NOW, WE PROCEED TO ANALYZE THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE COURTS (SU PRA) FOR DETERMINING THE NATURE OF THE TRANSACTION VIS A VIS CAPITAL GAI NS VS. BUSINESS INCOME: INTENTION OF THE ASSESSEE AT THE TIME OF THE PURCHA SE OF SHARES: 65.29. THE BUSINESS OF THE ASSESSEE IS NOT TO DEAL IN SHARES AND SECURITIES. THE INVESTMENT WAS MADE WITH A VIEW TO EARN CAPITAL APPRECIATION AND TO USE THE SPARE FUND OPTIMALLY IN STEAD OF KEEPING IT IN THE BANKS. FOR THE YEAR UNDER APPEAL, THE ASSESS EE EARNED DIVIDEND INCOME OF RS.22.61 CRORES FROM INVESTMENTS HELD IN SHARES AND MUTUAL FUNDS. TREATMENT IN THE BOOKS OF ACCOUNTS: 93 ITA NO. 1351/DEL/2018 65.30. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE H AD TREATED THE TRANSACTION AS INVESTMENT IN ITS BOOKS OF ACCOUNTS AND NOT AS STOCK IN TRADE. THE ASSESSE HAS SHOWN THE INVESTMENTS IN SHA RES BOTH AT THE BEGINNING AND CLOSING OF THE YEAR AS AN INVESTMENT ONLY AND NOT AS STOCK IN TRADE. 65.31. THE ASSESSEE HAS VALUED THE INVESTMENTS AT C OST AS PER ACCOUNTING STANDARD 13- ACCOUNTING FOR INVESTMENTS AND NOT IN ACCORDANCE WITH ACCOUNTING STANDARD 2 WHICH DEALS WITH VALUATION OF INVENTORIES. 65.32. THE ASSESSEE HAS BEEN HOLDING THE SECURITI ES/ SHARES AS INVESTMENTS FROM YEAR TO YEAR AND CONSISTENTLY FOLL OWING THE SAME METHOD OF ACCOUNTING FOR THE PURPOSE OF DISCLOSURE AND VALUATION. THIS TREATMENT BY THE ASSESSEE WAS ACCEPTED BY THE REVEN UE FOR THE PAST YEARS. 65.33. THE ASSESSEE HAD EARNED INCOME FROM BOTH LON G TERM AND SHORT TERM CAPITAL GAINS WHICH MEANS THE ASSESSEE HAS ALS O HELD SHARES FOR A PERIOD OF MORE THAN 12 MONTHS. WHETHER THE INVESTMENTS ARE MADE OUT OF BORROWED F UNDS 65.34. THE INVESTMENTS WERE MADE FROM SURPLUS FUNDS OF THE ASSESSEE AND THERE WERE NO BORROWINGS. THE INVESTMENTS WERE MADE TO OPTIMALLY UTILIZE THE SPARE FUNDS INSTEAD OF KEEPIN G THE SAME IDLE IN THE BANK ACCOUNTS. THE INVESTMENTS WERE MADE IN MUTUAL FUNDS (DEBT AND LIQUID FUNDS) AND THROUGH PORTFOLIO MANAGEMENT SCHE MES/ IPOS. 65.35. THE CO-ORDINATE BENCH OF THE DELHI ITAT IN T HE CASE OF NARENDRA GEHLAUT VS. JCIT [ITA NO 1648/ DEL/ 2010] HELD THAT DESPITE BORROWING, GAINS ON SHARES ASSESSABLE AS SHORT TERM CAPITAL GAINS AND NOT BUSINESS PROFITS. THE DECISION IS RENDERED CONS IDERING THE CBDT CIRCULAR NO 4/ 2007 AND VARIOUS JUDICIAL PRECEDENTS ON THE SUBJECT. 94 ITA NO. 1351/DEL/2018 FREQUENCY OF THE TRANSACTIONS 65.36. OUT OF THE TOTAL SALE VALUE OF RS 13,690.84 CRORES REALIZED FROM THE INVESTMENTS, AN AMOUNT OF RS 12,330.33 CRORES R ELATES TO SALE OF SHORT TERM DEBT MUTUAL FUNDS AND LIQUID FUNDS IN WH ICH THE TRANSACTIONS ARE EFFECTED ON DAILY BASIS (I.E. SURP LUS AMOUNTS ARE INVESTED AND THE WITHDRAWALS ARE MADE IN A SHORT SP AN DEPENDING ON THE BUSINESS NEEDS OF THE ASSESSEE). THESE FUNDS WE RE INVESTED MAINLY INTO MONEY MARKET INSTRUMENTS, SHORT-TERM CORPORATE DEPOSITS AND TREASURY. MOST SCHEMES HAVE A LOCK-IN PERIOD OF A M AXIMUM OF THREE DAYS TO PROTECT AGAINST PROCEDURAL (PRIMARILY BANKI NG) GLITCHES, AND OFFER REDEMPTION PROCEEDS WITHIN 24 HOURS. 65.37. THE ASSESSING OFFICER HAS BROUGHT THE TRANSA CTION TO TAX UNDER THE HEAD BUSINESS INCOME MAINLY ON THE GROUND THA T THE VOLUME OF THE TRANSACTION OF SUCH INVESTMENTS WAS HIGH AND TH E ASSESSEE IS UNDERTAKING THE TRADING OF STOCKS AND MUTUAL FUNDS REGULARLY AND SYSTEMATICALLY. HOWEVER, WE OBSERVE THAT THERE IS N OT MUCH FREQUENCY IN SALE/PURCHASE OF INVESTMENTS, FROM ANALYSIS CARR IED OUT AT PAGE 526 OF OBJECTIONS IN FORM 35A. IT IS NOT THE CASE THAT THE ASSESSEE HAS INDULGED IN REGULAR TRADING IN SHARES ON DAY TO DAY BASIS. 65.38. THE MUMBAI BENCH OF THE ITAT IN THE CASE OF JANAK S. RANGWALA (11 SOT 627) OBSERVED THAT MERE VOLUME AND MAGNITUDE OF TRANSACTION WILL NOT ALTER THE NATURE OF TRANSACTIO N IF THE INTENTION WAS TO HOLD THE SHARES AS INVESTMENT AND NOT IN STOCK I N TRADE. INVESTMENTS IN MUTUAL FUNDS 65.39. OUT OF THE TOTAL INCOME EARNED FROM MUTUAL FUNDS, ALMOST 67.34% OF THE TOTAL INCOME EARNED FROM INVESTMENTS MADE IN MUTUAL FUNDS WAS FOR A PERIOD OF MORE THAN ONE YEAR. INVESTMENTS IN SHARES 95 ITA NO. 1351/DEL/2018 65.40. INVESTMENT IN SHARES WAS PRIMARILY MADE EITH ER THROUGH PMS OR UNDER INITIAL PUBLIC OFFER. UNDER PMS, THE COMPA NY ADVANCES FUNDS TO THE PORTFOLIO MANAGER, WHO IN TURN MAKES INVESTMENT IN VARIOUS SHARES. IN SUBSTANCE THE INVESTMENTS UNDER PMS ARE SIMILAR TO INVESTMENT IN MUTUAL FUNDS. THE ASSESSEE, REITERATED THAT IT IS O NLY INTERESTED IN THE RETURN ON FUNDS INVESTED AND DOES NOT ACT AS A DEAL ER/TRADER, SO AS TO BE REGARDED AS BEING ENGAGED IN BUSINESS ACTIVITY. 65.41. IN VIEW OF THE ABOVE FACTUAL MATRIX IT EMERG ES THAT ASSESSEE IS: (I) NOT A TRADER IN STOCKS (II) INTENTION OF HOLDING THE SHARES AS INVESTMENT / STOCK IS MANIFEST. (III) SALES ARE EFFECTED BY DELIVERY. (IV) DEPARTMENT HAS ITSELF IN EARLIER YEARS TAXED S UCH TRANSACTIONS UNDER THE HEAD CAPITAL GAINS. 65.42. CONSIDERING THESE FACTS AND APPLICABLE JUD ICIAL PRECEDENTS ON THE ISSUE, WE ARE OF THE CONSIDERED OPINION THAT TH E INCOME IN QUESTION CAN BE TAXED ONLY UNDER THE HEAD CAPITAL GAINS AN D NOT UNDER THE HEAD BUSINESS INCOME. THIS GROUND OF THE ASSESSEE I S ALLOWED. 100) IN ADDITION TO THE AFORESAID OBSERVATIONS, THE APPELLANT IN THIS YEAR ALSO HAS BENEFIT OF THE RECENT CIRCULAR NO.6 OF 201 6 DATED 29.2.2016 ISSUED BY THE CBDT, WHEREIN WITH AN IDEA TO REDUCE LITIGATION ON THIS ISSUE OF CLASSIFICATION OF THE HEAD OF INCOME ARISING FR OM SALE OF SHARES / MUTUAL FUNDS, ETC., THE CBDT HAS OPINED THAT GAINS ARISING FROM SALE OF SUCH SHARES/SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS AND SHOWN AS CAPITAL GAINS BY THE ASSESSEE SHOULD NOT BE DISPUTE D BY THE ASSESSING OFFICER. HAVING REGARD TO THE AFORESAID INTENT OF T HE CIRCULAR WHERE A CONSISTENT METHOD HAS BEEN FOLLOWED BY AN ASSESSEE TO TREAT THE INVESTMENT AS ON CAPITAL ACCOUNT CORROBORATED WITH DISCLOSURE IN BALANCE SHEET AS INVESTMENT, THE SAME CONSISTENT STAND SHOU LD NOT BE DISPUTED BY 96 ITA NO. 1351/DEL/2018 THE ASSESSING OFFICER. IT IS ALSO NOT DISPUTED BY T HE LD. ASSESSING OFFICER THAT THE CAPITAL GAINS ARISING ON THE VARIOUS INVES TMENTS ARE HELD FOR LESS THAN 12 MONTHS AND ARE NOT LONG-TERM CAPITAL GAIN. IN VIEW OF THE AFORESAID REASONS ALSO, WHILE RESPECTFULLY FOLLOWING THE APPE AL ORDERS FOR AY 2007- 08 AND 2008-09, WE REVERSE THE ACTION OF THE ASSESS ING OFFICER IN CHANGING THE HEAD OF INCOME SURPLUS ARISING FROM SALE OF SHA RES/MUTUAL FUNDS, ETC. THEREFORE GROUND NO. 20 OF THE APPEAL OF THE ASSESS EE IS ALLOWED. IT IS PERTINENT TO NOTE THAT THE ASSESSEE INVESTED SURPLUS FUNDS ARISING IN THE COURSE OF BUSINESS UNDER VARIOUS MODES OF INVESTMEN T LIKE MUTUAL FUNDS/PMS, SHARES, ETC. THE GAINS REALIZED FROM SAL E OF SUCH VARIOUS INSTRUMENTS, AMOUNTING TO RS.278.54 CRORES DURING T HE RELEVANT PREVIOUS YEAR, WERE DISCLOSED UNDER THE HEAD CAPITAL GAINS. THE ISSUE IS IDENTICAL IN THE AY 2010-11 AND 2011-12 WHEREIN THE TRIBUNAL ALL OWED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THEREFORE, GROUND NO. 30 TO 30.2 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. THE ASSESSING OFFICER OVERLOOKED THE FACT THAT THE ASSESSEE WAS NOT A TRADER IN STOCK AND HAD NO INTENTION OF HOLDING THE SHARES AS STOCK. BESIDES THE ASSESSING OFFICER ALSO OVERLOOKED THE ASPECT THAT S ALES WERE EFFECTED BY DELIVER AND REVENUE IN EARLIER YEARS TAXED SUCH TRANSACTION S UNDER THE HEAD CAPITAL GAINS. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACT S ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. HENCE GROUND NOS. 24 TO 24.2 A RE ALLOWED. 61. AS REGARDS GROUND NO. 25 TO 25.5 ARE RELATING T O DISALLOWANCE U/S 14A AS PER RULE 8D. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE COMPANY EARNED DIVIDEND/INTEREST INCOME OF RS. 17.32 CRORES FROM INVESTMENTS IN SHARES, BONDS, AND MUTUAL FUNDS, WHICH WAS EXEMPT U NDER SECTION 10(34)/L 0(35)/L 0( 15)(IV)(H) OF THE ACT. IN VIEW OF THE PR OVISIONS OF SECTION 14A OF THE ACT, THE ASSESSEE SUO MOTO DISALLOWED RS. 31.88 LAC S IN THE RETURN OF INCOME, BEING SALARY OF TWO EMPLOYEES OF THE COMPANY WHO WE RE INVOLVED IN TREASURY 97 ITA NO. 1351/DEL/2018 FUNCTION ALONG WITH PORTFOLIO MANAGEMENT FEE. IN TH E ASSESSMENT ORDER, THE ASSESSING OFFICER, WITHOUT GIVING ANY REASONS, DID NOT ACCEPT THE METHOD OF DISALLOWANCE COMPUTED BY THE ASSESSEE UNDER SECTION 14A AND MADE FURTHER DISALLOWANCE OF RS. 124.88 LAKHS INVOKING PROVISION S OF RULE 8D OF THE RULES AFTER REDUCING THE SUO MOTO DISALLOWANCE OF RS. 31. 88 LACS MADE BY THE ASSESSEE IN THE RETURN OF INCOME. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER, WHILE COMPUTING BOOK PROFIT, MADE AN ADJUS TMENT OF RS.124.88 LACS COMPUTED UNDER SECTION 14A READ WITH RULE 8D OF THE RULES, WITHOUT ASSIGNING ANY REASON. 62. THE LD. AR SUBMITTED THAT AS PER SECTION 14A(2) , DISALLOWANCE UNDER THAT SECTION AS PER RULE 8D CAN BE MADE ONLY IF THE ASSE SSING OFFICER RECORDS SATISFACTION/FINDING AS TO THE INCORRECTNESS IN THE METHOD OF DISALLOWANCE FOLLOWED BY THE APPELLANT. IN THE ABSENCE OF ANY SA TISFACTION RECORDED IN THE ASSESSMENT ORDER, THE DISALLOWANCE AS PER RULE 8D N EEDS TO BE DELETED. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS: GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT: 394 ITR 449(SC) MAXOPP INVESTMENT LTD: 347 ITR 272 (DEL.)- AFFIRMED BY THE HON'BLE SUPREME COURT IN 402 ITR 640 H.T. MEDIA LIMITED V. PCIT: ITA NO.548/2015 (DEL.) DATED 23.8.2017 EICHER MOTORS LTD. VS. CIT: ITA NO. 136/2017 DATED 15.09.2017 THE LD. AR FURTHER SUBMITTED THAT EVEN OTHERWISE, T HERE IS NO NEXUS OF EXPENSES, LIKE INTEREST EXPENDITURE AND OTHER ADMIN ISTRATIVE EXPENSES WITH INVESTMENTS, WARRANTING DISALLOWANCE UNDER SECTION 14A. 63. AS REGARDS INTEREST EXPENDITURE, THE LD. AR SU BMITTED THAT THE ASSESSEE IS A CASH RICH COMPANY, WHICH DOES NOT BORROW' FUND S FOR MAKING INVESTMENT. THE MARGINAL INTEREST EXPENDITURE OF RS. 2.10 CRORE S WAS INCURRED ON OTHER TEMPORARY LOANS/DEALERS DEPOSIT, HAVING NEXUS WITH MAIN BUSINESS FUNCTION. 98 ITA NO. 1351/DEL/2018 FURTHER, NO DIRECT NEXUS OF INTEREST EXPENDITURE WI TH INVESTMENTS OR EARNING OF DIVIDEND INCOME WAS ESTABLISHED BY THE ASSESSING OF FICER, FOR WHICH THE INITIAL BURDEN WAS ON THE ASSESSING OFFICER. THE LD. AR SU BMITTED, THAT THE ASSESSEE HAD SUBSTANTIAL FREE RESERVES OF RS 2.946.30 CRORES AT THE BEGINNING OF THE RELEVANT PREVIOUS YEAR AND HAD ALSO GENERATED SUBST ANTIAL SURPLUS/INTEREST FREE FUNDS OF RS. 814.51 CRORES DURING THE YEAR, AGAINST WHICH ADDITIONAL INVESTMENTS MADE DURING THE YEAR WAS OF RS. 669.19 CRORES ONLY. IN SUCH CIRCUMSTANCES, IT IS TO BE PRESUMED THAT ON 1 YEAR INTEREST FREE FUNDS HAVE BEEN UTILIZED FOR MAKING INVESTMENTS DURING THE YEA R. THE LD. AR RELIED UPON FOLLOWING DECISIONS: EAST INDIA PHARMACEUTICAL WORKS TTD. V. CIT: 224 IT R 627 (SC) WOOLCOMBERS OF INDIA LTD. V. CIT: 134 ITR 219 (CAL. ) INDIAN EXPLOSIVES TTD. V. CIT: 147 ITR 392 (CAL.) ALKALI & CHEMICALS CORP OF INDIA TTD. V CI T: 161 I TR 820 (CAL) CIT V RADICO KHAITAN LTD : 274 ITR 354 (ALL) CIT V DHAMPUR SUGAR MILLS TTD : 274 ITR 370 (ALL) CIT V. UNITED COLLIERIES LTD. : 49 TAXMAN 227 (CAL) CIT V. ENAMOUR INVESTMENT TTD.: 72 TAXMAN 370 (CAL) CIT V. CAROLINE INVESTMENT LTD.: 87 TAXMAN 238 (CAL ) CIT V. KANORIA INVESTMENT (P) LTD.: 232 ITR 7 (CAL) CIT VS. HOTEL SAVERA: 239 ITR 795 (MAD) SMT. CHANCHAL KATYAL V. CIT: 298 ITR 182 (ALL.) CIT V. RELIANCE UTILITIES AND POWER LTD.: 313 ITR 3 40 (BOM) THE LD. AR ALSO RELIED UPON THE FOLLOWING CASES, WH EREIN, THE COURTS HAVE REPEATEDLY HELD THAT INTEREST EXPENDITURE CANNOT BE DISALLOWED UNDER SECTION 14A OF THE ACT, WHERE THE ASSESSEE HAD SUFFICIENT S URPLUS FUNDS AND THERE WAS NO FINDING BY THE ASSESSING OFFICER OF ANY DIRECT N EXUS OF BORROWED FUNDS WITH INVESTMENTS: 99 ITA NO. 1351/DEL/2018 GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT: 394 ITR 449(SC) PR. CIT VS. GMM PFAULDER LTD.: ITA NO. 506 OF 2017 DATED 31.07.2017 (GUJ) CIT V. MAX INDIA LTD.: 388 ITR 81 (P&H) CIT VS. SUZLON ENERGY LTD.:[2013] 215 TAXMAN 272 (G UJARAT) CIT V. RELIANCE UTILITIES AND POWER LTD.: 313 ITR 3 40, CIT VS. M/S. ASHOK COMMERCIAL ENTERPRISES: ITA NO. NO.2985 OF 2009 (BOM) LUBI SUBMERIBLES LTD.: ITA NO.868 OF 2010 (GUJ) CIT VS. K. RAHEJA CORPORATION PVT LTD: ITA NO. 1260 OF 2009\ GUJARAT STATE FERTILIZERS AND CHEMICALS LTD : TAX A PPEAL NO. 82 OF 2013 (GUJ HC) HERO HONDA FINLEASE LTD VS. ACIT: ITA NO. 3726/DEL/ 2012 (DEL) EIMCO ELECON (INDIA) LTD. V. ADDL. CIT: 142 ITD 52 (AHD.) 64. AS REGARDS TO ADMINISTRATIVE EXPENSES, THE LD. AR SUBMITTED THAT ALL THE EXPENSES, OTHER THAN THE SUO-MOTO DISALLOWANCE BY T HE ASSESSEE RELATED TO MAIN BUSINESS FUNCTION OF MANUFACTURING VEHICLES. I N THE ABSENCE OF ANY PROXIMATE NEXUS HAVING BEEN ESTABLISHED BY THE ASSE SSING OFFICER, THE LD. AR POINTED OUT THAT THE TRIBUNAL IN THE ASSESEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 AND 2008-09 SET-ASIDE THE MATTER TO THE FIL E OF THE ASSESSING OFFICER TO BE DECIDED AFRESH AS PER LAW, HAVING REGARD TO THE SATISFACTION TO BE RECORDED QUA CORRECTNESS OF THE SUO-MOTO DISALLOWANCE MADE B Y THE ASSESSEE IN THE RETURN OF INCOME. THE ASSESSING OFFICER, IN THE SET ASIDE PROCEEDINGS FOR ASSESSMENT YEAR 2007- 08, VIDE ORDER DATED 30.10.20 14 PASSED UNDER SECTION 254/143(3) OF THE ACT DID NOT MAKE ANY DISALLOWANCE IN RESPECT OF INTEREST EXPENSES SINCE THERE WAS NO NEXUS BETWEEN THE INCOM E AND SUCH EXPENDITURE. 100 ITA NO. 1351/DEL/2018 THE ASSESSING OFFICER HOWEVER, MADE DISALLOWANCE OF SUCH ADMINISTRATIVE EXPENSES UNDER SECTION 14A IN THE PROPORTION THE TO TAL PROFIT BEFORE TAX BEARS TO TAX FREE INCOME, WHICH IS UPHELD BY THE CIT(A) V IDE ORDER DATED 01.02.2018. IN ALL FAIRNESS, THE LD. AR POINTED OUT THAT TRIBUN AL WHILE DECIDING THE ISSUE IN THE ASSESSMENT YEARS 2012-13 AND 2013-14 RESTORED T HE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AF TER TAKING INTO CONSIDERATION THE DECISION OF THE HON'BLE SUPREME COURT IN THE EA SE OF MAXOPP INVESTMENT LTD. VS. CIT: 402 ITR 640. INSOFAR AS DISALLOWANCE OF RS. 124.88 LACS MADE UNDER SECTION 14A READ WITH RULE 8D OF THE RULES CA NNOT BE ADDED WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE A CT. THE LD. AR SUBMITTED THAT SECTION 14A CONTAINED IN CHAPTER IV OF THE ACT BEGINS WITH THE PHRASE - FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UND ER THIS CHAPTER.BEING SO, SECTION 14A HAS APPLICATION ON LY FOR THE PURPOSES OF CHAPTER-IV. INCOME UNDER THE NORMAL PROVISIONS OF T HE ACT IS COMPUTED UNDER THE FIVE HEADS SPECIFIED IN SECTION 14 OF THE ACT. PROVISIONS RELATING TO COMPUTATION OF INCOME UNDER DIFFERENT HEADS ARE CON TAINED IN SECTIONS 14 TO 59 FORMING PART OF CHAPTER IV OF THE ACT. IN OTHER WOR DS, CHAPTER IV PROVIDES FOR COMPUTATION OF INCOME OF AN ASSESSEE UNDER THE NORM AL PROVISIONS OF THE ACT. AS A NECESSARY COROLLARY, PROVISIONS OF SECTION 14A CANNOT BE EXTENDED TO ANY CHAPTER, OTHER THAN CHAPTER IV OF THE ACT, I.E., WH ILE COMPUTING INCOME UNDER THE NORMAL PROVISIONS. SECTION 115JB FINDS PLACE UN DER CHAPTER XII-B OF THE ACT. BEING SO, PROVISIONS OF SECTION 14A CONTAINED IN CHAPTER IV CANNOT BE IMPORTED AND INCORPORATED UNDER SECTION 115JB, MORE SO WHEN CLAUSE (F) TO EXPLANATION 1 TO THE SAID SECTION CONTAINS NO REFER ENCE TO SECTION 14A OF THE ACT. THE LD. AR RELIED UPON THE DECISION OF THE HO NBLE DELHI HIGH COURT IN THE CASE OF PCIT V. BHUSHAN STEEL LTD.: ITA NO. 593 /2015, DATED 29.09.2015, WHEREIN, THE COURT UPHELD THE DECISION OF THE TRIBU NAL THAT DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D COULD NOT BE ADDED WH ILE COMPUTING BOOK PROFITS AS PER SECTION 115JB AND DECLINED TO FRAME QUESTION OF LAW. FURTHER, THE LD. AR ALSO RELIED OF THE DECISION OF THE SPECIAL B ENCH OF THE DELHI TRIBUNAL IN THE CASE OF ACIT VS VIREET INVESTMENTS (P.) LTD: 16 5 ITD 27 (DEL TRIB.), INTER 101 ITA NO. 1351/DEL/2018 ALIA, PLACING RELIANCE ON THE JUDGMENT OF DELHI HIG H COURT IN THE CASE OF BHUSHAN STEEL LTD. (SUPRA), LIKEWISE HELD THAT COMP UTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT IS TO BE MADE WITHOUT RESORTING TO COMPUTATION AS CONTEMPLATED UNDER SECTION 14A READ WITH RULE 8D OF THE RULES. THE LD. AR ALSO RELIED UPON THE FOLLOWING DE CISIONS: QUIPPO TELECOM INFRASTRUCTURE LTD V. ACIT: ITA NO.4 931 /DEL/2010 (DEL ITAT) BEACH MINERALS COMPANY (P.) LTD. V. ACIT: ITA NO. 2 110/MDS/2014 (CHENNAI ITAT) SHRIRAM CAPITAL LTD V. DCIT (ITA. NOS.512 &513 /MDS /2015) (CHENNAI ITAT) SCOPE PRIVATE LTD. V. ACIT : ITA NO. 8934/MUM./2010 RELIANCE INDUSTRIAL INFRASTRUCTURE LTD. V. ACIT: IT A NOS. 69 & 70/MUM/2009 JCIT V. RELIANCE CAPITAL LTD.: ITA NO. 3037/MUM/200 8 BENGAL FINANCE AND INVESTMENT (P) LTD. V. CIT: ITA NO. 5620/MUM/2010 ESSAR TELEHOLDINGS LTD V. DCIT : ITA 3850/MUM/2010 NAHAR CAPITAL AND FINANCIAL V. ACIT: ITA NO. 1120/C HD/2011 ACIT VS. SPRAY ENGINEERING DEVICES LTD: (2012) 53 S OT 69(CHD.) (URO.) GMM PFAUDLER LTD. V. JCIT : ITA NOS. 2627 & 2923/AH D/2008 & 3280/AHD/2010 CADILA FLEALTHCARE LTD. V. ACIT: 21 TAXMANN.COM 483 (AHD.) RELIANCE PETROPRODUCTS (P) LTD. V. ACIT : ITA NO. 2 324/AHD/2009 JINDAL STEEL AND ALLOY LTD. VS. ACIT : ITA NOS. 961 & 962/MUM/2009 IN VIEW OF THE ABOVE, THE LD. AR SUBMITTED THAT APP LICABILITY OF PROVISIONS OF SECTION 14A IS CONFINED TO COMPUTATION OF TAX LIABI LITY UNDER THE FIVE HEADS OF 102 ITA NO. 1351/DEL/2018 INCOME ENUMERATED IN SECTION 4 UNDER NORMAL PROVISI ONS CONTAINED IN CHAPTER-IV OF THE ACT. THE SAID SECTION 14A CANNOT BE EXTENDED AND READ INTO SECTION 115JB FALLING UNDER CHAPTER XLL-B OF THE AC T. 65. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 67. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 71. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-1 2 HELD AS UNDER: 108) WE HAVE HEARD THE RIVAL CONTENTIONS. WE FIND THAT THE APPELLANT YEAR AFTER YEAR IS FOLLOWING A CONSISTENT METHOD OF COMP UTING DISALLOWANCE U/S 14A BY ATTRIBUTING EXPENDITURE INCURRED AT THE TREA SURY DEPARTMENT TOWARDS EARNING OF EXEMPT DIVIDEND INCOME. THE APPE LLANT HAS ALSO GIVEN JUSTIFICATION OF NEXUS OF SUCH EXPENDITURE INCURRED AT TREASURY DEPARTMENT WITH PORTFOLIO MANAGEMENT ACTIVITY CONSIDERING THAT THE PORTFOLIO MANAGEMENT IS NOT THE MAIN BUSINESS FUNCTION OF THE APPELLANT. THE APPELLANT IS A COMPANY WHOSE CORE BUSINESS FUNCTION IS THAT OF MANUFACTURING AND SELLING TWO-WHEELERS, HAVING A TU RNOVER OF RS.16,000 CRORES APPROXIMATELY. THE INVESTMENTS ARE MADE BY T HE APPELLANT AS PART OF ITS CASH MANAGEMENT POLICY IN ORDER TO BETTER UT ILIZE THE IDLE / SURPLUS FUNDS. WE HAVE ALSO DECIDED ON THE AFORESAID ASPEC T IN GROUND OF APPEAL NO. 20 THAT THE INVESTMENT ACTIVITY AS PART OF ITS CASH MANAGEMENT FUNCTION DOES NOT CONSTITUTE BUSINESS. IN VIEW OF THE SAME, WE ARE OF THE VIEW THAT NO ADDITIONAL EXPENDITURE IS REQUIRED TO BE INCURRE D MORE SPECIFICALLY OF THE MANAGEMENT IN INVESTING SURPLUS FUNDS AS PER THE CA SH MANAGEMENT POLICY. THE ASSESSING OFFICER HAS ALSO NOT, ON THE BASIS OF ANY TANGIBLE EVIDENCE/FINDINGS, POINTED OUT INCURRENCE OF SUCH E XPENDITURE. THE LEGAL POSITION QUA RECORDING OF SATISFACTION OR COMING T O A FINDING QUA INACCURACY IN THE METHOD OF DISALLOWANCE FOLLOWED B Y AN ASSESSEE BEFORE 103 ITA NO. 1351/DEL/2018 MAKING RESORT TO THE PROVISIONS OF RULE 8D OF THE R ULES, IN TERMS OF SUB- SECTION (2) / SUB-SECTION (3) OF SECTION 14A, HAS B EEN REPEATEDLY ENDORSED BY THE HONBLE JURISDICTIONAL HIGH COURT. REFERENC E IN THIS REGARD CAN BE MADE TO THE DECISION OF MAXOPP INVESTMENT LTD. : 34 7 ITR 471. IN VIEW OF THE AFORESAID LEGAL POSITION, WE FIND THAT NO VALID SATISFACTION WAS RECORDED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER TO REJECT THE METHOD FOLLOWED BY THE APPELLANT IN COMPUTING DISAL LOWANCE U/S 14A, BEFORE MECHANICALLY RESORTING TO AND APPLYING THE P ROVISIONS OF RULE 8D OF THE RULES. IN VIEW OF SUCH FINDINGS, THE ADDITIONA L DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A STANDS DELETED ON THE AFORESAID GROUND AT THE THRESHOLD. THAT APART, WE ALSO AGREE WITH THE SUBMISSIONS OF THE APPELLANT THAT, SINCE THE APPELLANT IS A CASH-RICH COMPANY, WHICH, IN FACT, IS INVESTING SURPLUS/IDLE FUNDS IN VARIOUS MODES OF INVESTMENTS, THERE COULD BE NO NEXUS OF INTEREST-BEARING BORROWED FUND S WITH SUCH INVESTMENTS. THE APPELLANT IS HAVING SUBSTANTIAL FR EE RESERVES OF RS.3760.81 CRORES AT THE BEGINNING OF THE RELEVANT YEAR AND HAS GENERATED SURPLUS INTEREST FREE FUNDS OF RS.268.64 CRORES DUR ING THE YEAR. THE ASSESSING OFFICER, TOO, IN THE SET-ASIDE PROCEEDING S FOR THE AY 2007-08 HAD ACCEPTED THE AFORESAID CASH FLOW POSITION AND DELET ED THE DISALLOWANCE OF INTEREST EXPENDITURE. IN VIEW OF THIS WE REVERSE TH E FINDING OF THE LD. ASSESSING OFFICER ABOUT DISALLOWANCE OF RS. 145.62 LAKHS UNDER SECTION 14 A OF THE INCOME TAX ACT APPLYING THE RULE 8D OF THE INCOME TAX RULES 1962. HE IN THE RESULT GROUND NO. 22 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. IT IS OBSERVED IN THE PRESENT CASE THAT THE ASSESSE E HAS SUO MOTO DISALLOWED EXPENSES UNDER SECTION 14A OF THE ACT. THE HONBLE APEX COURT IN CASE OF MAXOPP INVESTMENT LTD. VS. CIT (2018) 402 ITR 640 ( SC) HELD THAT 40) WE NOTE FROM THE FACTS IN THE STATE BANK OF PA TIALA CASES THAT THE AO, WHILE PASSING THE ASSESSMENT ORDER, HAD ALREADY RES TRICTED THE DISALLOWANCE TO THE AMOUNT WHICH WAS CLAIMED AS EXE MPT INCOME BY APPLYING THE FORMULA CONTAINED IN RULE 8D OF THE RU LES AND HOLDING THAT 104 ITA NO. 1351/DEL/2018 SECTION 14A OF THE ACT WOULD BE APPLICABLE. IN SPIT E OF THIS EXERCISE OF APPORTIONMENT OF EXPENDITURE CARRIED OUT BY THE AO, CIT(A) DISALLOWED THE ENTIRE DEDUCTION OF EXPENDITURE. THAT VIEW OF THE C IT(A) WAS CLEARLY UNTENABLE AND RIGHTLY SET ASIDE BY THE ITAT. THEREF ORE, ON FACTS, THE PUNJAB AND HARYANA HIGH COURT HAS ARRIVED AT A CORR ECT CONCLUSION BY AFFIRMING THE VIEW OF THE ITAT, THOUGH WE ARE NOT S UBSCRIBING TO THE THEORY OF DOMINANT INTENTION APPLIED BY THE HIGH COURT. IT IS TO BE KEPT IN MIND THAT IN THOSE CASES WHERE SHARES ARE HELD AS STOCK -IN-TRADE, IT BECOMES A BUSINESS ACTIVITY OF THE ASSESSEE TO DEAL IN THOSE SHARES AS A BUSINESS PROPOSITION. WHETHER DIVIDEND IS EARNED OR NOT BECO MES IMMATERIAL. IN FACT, IT WOULD BE A QUIRK OF FATE THAT WHEN THE INVESTEE COMPANY DECLARED DIVIDEND, THOSE SHARES ARE HELD BY THE ASSESSEE, TH OUGH THE ASSESSEE HAS TO ULTIMATELY TRADE THOSE SHARES BY SELLING THEM TO EARN PROFITS. THE SITUATION HERE IS, THEREFORE, DIFFERENT FROM THE CA SE LIKE MAXOPP INVESTMENT LTD. WHERE THE ASSESSEE WOULD CONTINUE TO HOLD THOS E SHARES AS IT WANTS TO RETAIN CONTROL OVER THE INVESTEE COMPANY. IN THA T CASE, WHENEVER DIVIDEND IS DECLARED BY THE INVESTEE COMPANY THAT W OULD NECESSARILY BE EARNED BY THE ASSESSEE AND THE ASSESSEE ALONE. THER EFORE, EVEN AT THE TIME OF INVESTING INTO THOSE SHARES, THE ASSESSEE K NOWS THAT IT MAY GENERATE DIVIDEND INCOME AS WELL AND AS AND WHEN SU CH DIVIDEND INCOME IS GENERATED THAT WOULD BE EARNED BY THE ASSESSEE. IN CONTRAST, WHERE THE SHARES ARE HELD AS STOCK-IN-TRADE, THIS MAY NOT BE NECESSARILY A SITUATION. THE MAIN PURPOSE IS TO LIQUIDATE THOSE SHARES WHENE VER THE SHARE PRICE GOES UP IN ORDER TO EARN PROFITS. IN THE RESULT, TH E APPEALS FILED BY THE REVENUE CHALLENGING THE JUDGMENT OF THE PUNJAB AND HARYANA HIGH COURT IN STATE BANK OF PATIALA ALSO FAIL, THOUGH LAW IN T HIS RESPECT HAS BEEN CLARIFIED HEREINABOVE. 41) HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MAKE IT CLEAR THAT BE FORE APPLYING THE THEORY OF APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTI ON THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE UND ER SECTION 14A WAS NOT CORRECT. IT WILL BE IN THOSE CASES WHERE THE AS SESSEE IN HIS RETURN HAS HIMSELF APPORTIONED BUT THE AO WAS NOT ACCEPTING TH E SAID APPORTIONMENT. IN THAT EVENTUALITY, IT WILL HAVE TO RECORD ITS SAT ISFACTION TO THIS EFFECT. FURTHER, WHILE RECORDING SUCH A SATISFACTION, NATUR E OF LOAN TAKEN BY THE ASSESSEE FOR PURCHASING THE SHARES/MAKING THE INVES TMENT IN SHARES IS TO BE EXAMINED BY THE AO. THOUGH THE ASSESSING OFFICER DID NOT ACCEPT THE MET HOD OF DISALLOWANCE 105 ITA NO. 1351/DEL/2018 COMPUTED BY THE ASSESSEE UNDER SECTION 14A AND MADE FURTHER DISALLOWANCE OF RS. 62.30 LAKHS (DISALLOWING INTEREST EXPENSE OF RS. 38.91 AND ADMINISTRATIVE EXPENSE OF RS. 94.16 LACS) INVOKING PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 AFTER REDUCING THE SUO M OTO DISALLOWANCE OF RS. 70.77 LAKHS MADE BY THE ASSESSEE IN THE RETURN OF I NCOME. BUT THE ASSESSING OFFICER HAS NOT GIVEN THE PROPER CALCULATION TO THA T EFFECT. THEREFORE, THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFIC ER. WE DIRECT THE ASSESSING OFFICER THAT AFTER TAKING CONGNIZANCE OF THE THE AP EX COURT DECISION, PASS THE APPROPRIATE ORDER. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. THEREFORE, GROUND NO. 25 TO 25.5 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. IN THE PRESENT YEAR AS WELL, THE ASSESSING OFFICER DID NOT ACCEPT THE METHOD OF DISALLOWANCE COMPUTED BY THE ASSESSEE UNDER SECTION 14A AND MADE FURTHER DISALLOWANCE OF RS. 124.88 LAKHS INVOKING PROVISIO NS OF RULE 8D OF THE INCOME TAX RULES, 1962 AFTER REDUCING THE SUO MOTO DISALLO WANCE OF RS. 31.88 LAKHS MADE BY THE ASSESSEE IN THE RETURN OF INCOME. BUT T HE ASSESSING OFFICER HAS NOT GIVEN THE PROPER CALCULATION TO THAT EFFECT. TH EREFORE, THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER. WE DIREC T THE ASSESSING OFFICER THAT AFTER TAKING CONGNIZANCE OF THE APEX COURT DECISION IN CASE OF MAXOPP INVESTMENT LTD. (SUPRA), PASS THE APPROPRIATE ORDER . NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWI NG PRINCIPLES OF NATURAL JUSTICE. THEREFORE, GROUND NOS. 25 TO 25.5 ARE PART LY ALLOWED FOR STATISTICAL PURPOSE. 68. AS REGARDS GROUND NO. 26 IS RELATING TO DISALLO WANCE OF ADDITIONAL DEPRECIATION OF MODEL FEE. THE ASSESSEE MANUFACTURE S TWO-WHEELERS UNDER TECHNICAL COLLABORATION AGREEMENT ENTERED INTO WITH HONDA MOTOR CO. LTD., JAPAN (HONDA'). IN ACCORDANCE WITH THE ABOVE COLLA BORATION AGREEMENT, THE ASSESSEE PAYS MODEL FEE TO HONDA TO OBTAIN DESIGN/K NOW-HOW TO MANUFACTURE A NEW MODEL OF TWO-WHEELER. THE SAID EXPENDITURE IS INCURRED PRIOR TO 106 ITA NO. 1351/DEL/2018 COMMENCEMENT OF PRODUCTION OF THE NEW MODEL. THE AS SESSING OFFICER HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS M ODEL FEE IS DIRECTLY RELATED TO MANUFACTURE OF NEW MODELS OF TWO-WHEELERS AND, T HEREFORE, NEEDS TO BE ATTRIBUTED TO THE VALUE OF CLOSING STOCK OF FINISHE D GOODS OF TWO- WHEELERS. ACCORDINGLY, THE ASSESSING OFFICER ON PROPORTIONATE BASIS, WORKED OUT A SUM OF RS. 19,26,000/- OUT OF DEPRECIATION ON MODEL FEE DE BITED TO THE PROFIT AND LOSS ACCOUNT, AS ATTRIBUTABLE TO THE VALUE OF CLOSING ST OCK AND MADE ADDITION OF THE SAID AMOUNT TO THE INCOME OF ASSESSEE. 69. THE LD. AR SUBMITTED THAT THE AFORESAID ISSUE I S SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2010-11 AN D 2011-12 WHEREIN FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2008-09, SI MILAR DISALLOWANCE OF DEPRECIATION ON MODEL FEE WAS DELETED BY THE TRIBUN AL ON THE GROUND THAT EXPENDITURE WAS INCURRED ON NEW MODEL FEES PRIOR TO COMMENCEMENT OF PRODUCTION OF NEW MODELS OF TWO WHEELERS, AND EVEN OTHERWISE THIS EXERCISE WOULD BE REVENUE NEUTRAL IN A BROADER PERSPECTIVE A S THE SAME ADJUSTMENT WOULD BE REQUIRED TO BE MADE TO THE OPENING STOCK O F FINISHED GOODS FOR THE YEAR UNDER CONSIDERATION. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010- 11 AND 2011-12. 70. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 71. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 80. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL HELD IN A.YS. 2010-11 AND 2 011-12 AS UNDER: 112) WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTEN TIONS. IN ABSENCE OF ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CA SE OR ANY CONTRARY 107 ITA NO. 1351/DEL/2018 DECISION, WE HAVE HEARD THE RIVAL CONTENTIONS. WE FIND THAT THE SIMILAR ISSUE WAS RAISED IN THE ASSESSMENT ORDER FOR AY 200 8-09, WHICH WAS DECIDED IN FAVOUR OF THE APPELLANT BY THE TRIBUNAL IN APPEAL ORDER FOR THAT YEAR BY OBSERVING AS UNDER- 219. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSION S OF BOTH THE PARTIES, WE ARE OF THE VIEW THAT IF THE CLOSING STO CK OF THE YEAR UNDER CONSIDERATION. IS TO BE VARIED, THEN SIMILAR ADJUST MENTS WOULD NEED TO BE MADE IN THE OPENING STOCK ALSO AND CORRESPONDING ADJUSTMENTS WOULD ALSO NEED TO BE CARRIED OUT IN THE OPENING ST OCK OF THE SUCCEEDING YEAR AND IF ANY ADDITION IS MADE IN THIS REGARD, WOULD BE REVENUE NEUTRAL IF SEEN IN A MACRO PERSPECTIVE. FRO M THE ORDERS OF THE AUTHORITIES BELOW, WE CLEARLY OBSERVE THAT THE AO H AS NOT DISPUTED THE MODE OF VALUATION OF INVENTORY MADE BY THE ASSESSEE DURING PRECEDING YEARS AND IF ANY KIND OF ADJUSTMENT IS HELD TO BE A TTRIBUTABLE TO THE VALUE OF FINISHED CLOSING STOCK, THEN THE SAID CORR ESPONDING AMOUNT/ADJUSTMENT WOULD NEED TO BE MADE IN THE OPEN ING STOCK OF THE SUCCEEDING YEAR AND IN A BROADER SENSE, SUCH KIND O F ADJUSTMENT/ADDITION WOULD BE REVENUE NEUTRAL. ON SP ECIFIC QUERY FROM THE BENCH, THE DR SUBMITTED THAT THE TREATMENT GIVE N BY THE REVENUE AUTHORITIES ON THE ISSUE IN THE PRECEDING YEAR IS N OT KNOWN TO HIM AND IN THIS SITUATION, WE HOLD THAT THE / DEPARTMENT HA S NOT DISPUTED THE CLAIM OF THE ASSESSEE IN THE PRECEDING YEARS. 220. IT IS WELL ACCEPTED LEGAL PROPOSITION THAT WH EN THE DEPARTMENT HAS TAKEN A PARTICULAR STAND ON A PARTICULAR ISSUE, THEN THE DEPARTMENT CANNOT TAKE A DEVIATED STAND ON THE ISSUE IN THE SU CCEEDING YEAR WITHOUT ANT SOUND, JUSTIFIABLE AND COGENT REASON. T HE DEPARTMENT HAS NOT DISPUTED THE FACT THAT IMPUGNED EXPENDITURE WAS INCURRED PRIOR TO COMMENCEMENT OF PRODUCTION OF NEW MODEL AND THE SAM E WAS NEITHER INCURRED DURING THE MANUFACTURING OF NEW MODEL NOR MODEL FEE EXPENDITURE IS DIRECTLY RELATED TO MANUFACTURE OF N EW MODELS. IN THIS 108 ITA NO. 1351/DEL/2018 FACTUAL ASPECT AND CIRCUMSTANCES, WE HOLD THAT THE ASSESSEE INCURRED EXPENDITURE ON NEW MODEL FEES PRIOR TO COMMENCEMENT OF PRODUCTION OF NEW MODELS OF TWO WHEELERS, EVEN OTHERWISE THIS EXE RCISE WOULD BE REVENUE NEUTRAL IN A BROADER PERSPECTIVE AS THE SAM E ADJUSTMENT WOULD BE REQUIRED TO BE DONE IN THE OPENING STOCK O F FINISHED GOODS FOR THE YEAR UNDER CONSIDERATION. MORE SO, WHEN THE ASS ESSEE HAS FOLLOWED A PARTICULAR MODE OF ACCOUNTING FOR THIS E XPENDITURE WHICH WAS ACCEPTED BY THE REVENUE, THEN THE DEPARTMENT CA NNOT TAKE A DIFFERENT STAND IN THE SUCCEEDING YEAR TO MAKE AN A DDITION IN THIS REGARD. WE ARE UNABLE TO SEE ANY VALID GROUND TO 'A CCEPT' A DEVIATED STAND OF THE REVENUE ON THE ISSUE, WHICH IN A BROAD ER SENSE, IS REVENUE NEUTRAL, THEN NO ADJUSTMENT IS CALLED FOR I N THIS REGARD. WE HOLD THAT FINDINGS OF THE AO ARE NOT SUSTAINABLE AN D WE SET ASIDE THE SAME. HENCE, WE ALLOW GROUND NO.58 TO 58.1 OF THE A SSESSEE. ACCORDINGLY, RESPECTFULLY FOLLOWING THE AFORESAID D ECISION, WE DECIDE THE ISSUE IN FAVOUR OF THE APPELLANT. ACCORDINGLY, THE GROUND NUMBER 23 OF APPEAL STANDS ALLOWED. THE FACTS OF THE PRESENT ASSESSMENT YEAR AND THE EA RLIER ASSESSMENT YEAR ARE NOT DIFFERENT. IN THE PRESENT YEAR ALSO , THE E XPENDITURE WAS INCURRED ON NEW MODEL FEES PRIOR TO COMMENCEMENT OF PRODUCTION OF NEW MODELS OF TWO WHEELERS, THUS, THIS ACTION IS REVENUE NEUTRAL IN A BROADER PERSPECTIVE AS THE SAME ADJUSTMENT WOULD BE REQUIRED TO BE MADE TO THE OPENING STOCK OF FINISHED GOODS FOR THE YEAR UNDER CONSIDERATION. TH US, THIS ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11 AND 2011-12. THEREFORE, GROUND NO. 33 IS ALLOWED IN FAVOUR OF THE ASSESSEE. IT IS PERTINENT TO NOTE THAT IN THE PRESENT YEAR EX PENDITURE WAS INCURRED ON NEW MODEL FEES PRIOR TO COMMENCEMENT OF PRODUCTION OF N EW MODELS OF TWO WHEELERS, AND EVEN OTHERWISE THIS IS REVENUE NEUTRA L EXERCISE AS THE SAME ADJUSTMENT WOULD BE REQUIRED TO BE MADE TO THE OPEN ING STOCK OF FINISHED 109 ITA NO. 1351/DEL/2018 GOODS FOR THE YEAR UNDER CONSIDERATION. THUS, THE F ACTS ARE SIMILAR TO THE SUBSEQUENT ASSESSMENT YEARS AND ARE SQUARELY COVERE D WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 20 13-14. HENCE GROUND NO. 26 IS ALLOWED. 72. AS REGARDS GROUND NO. 27 IS RELATING TO DISALLO WANCE OF REIMBURSEMENT OF FOREIGN TRAVELLING EXPENSE TO DIRECTORS/EMPLOYEES, ON THE GROUND OF NO EVIDENCE/PROOF OF ACTUAL EXPENSE INCURRED BY EMPLOY EES. IN THE COURSE OF DISCHARGE OF OFFICIAL DUTIES, THE EMPLOYEES OF THE COMPANY ARE REQUIRED TO TRAVEL ABROAD AND INCUR INCIDENTAL EXPENSES IN FOREIGN CUR RENCY LIKE LOCAL CONVEYANCE, BOARDING AND LODGING EXPENSES, TELEPHONE EXPENSES E TC. THE ASSESSEE HAD INTRODUCED A POLICY FIXING PER DIEM ALLOWANCE PAYAB LE TO EMPLOYEES, DEPENDING UPON THE GRADE/CATEGORY OF THE EMPLOYEES AND THE PL ACE/COUNTRY OF TRAVEL. THE EMPLOYEES ARE NOT ENTITLED TO ANY EXTRA ALLOWANCE I N THE EVENT ACTUAL EXPENDITURE INCURRED BY THE EMPLOYEE IS IN EXCESS O F SUCH PER DIEM ALLOWANCE. FOR PAYMENT OF PER DIEM ALLOWANCE, AS PER POLICY, T HE ASSESSEE DOES NOT REQUIRE THE EXPENSES TO BE NECESSARILY SUPPORTED / BACKED B Y BILLS CONSIDERING THE PRACTICAL DIFFICULTIES/IMPOSSIBILITIES IN PRODUCING INVOICES FOR PETTY EXPENSES LIKE LOCAL CONVEYANCE, TELEPHONE BILLS, ETC. THE EM PLOYEES ARE ONLY REQUIRED TO SUBMIT DETAILS OF EXPENDITURE INCURRED IN SPECIFIED FORM, ON BASIS OF WHICH TRAVEL BILL IS SETTLED. IN THE ASSESSMENT ORDER, TH E ASSESSING OFFICER MADE DISALLOWANCE OF RS. 1,50,92,608 /-(COMPRISING OF RS . 48.55.673/- IN RESPECT OF DHARUHERA, GURGAON AND HARIDWAR PLANTS AND RS. 1.02 ,36.935/- IN RESPECT OF HEAD OFFICE EXPENSES) OUT OF EXPENDITURE INCURRED T OWARDS RE-IMBURSEMENT OF FOREIGN TRAVEL EXPENSES INCURRED BY EMPLOYEES, ON T HE GROUND THAT DECLARATION FURNISHED BY THE EMPLOYEES WAS NOT A SUFFICIENT EVI DENCE TO ESTABLISH INCURRENCE OF ACTUAL EXPENSES, WHICH WERE REQUIRED TO BE SUPPORTED WITH BILLS/INVOICES OF FACTUAL EXPENDITURE INCURRED BY T HE EMPLOYEES. 73. THE LD. AR SUBMITTED THE AFORESAID ISSUE IS SQU ARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF DELHI BENCH OF TRIB UNAL IN THE ASSESSEE'S OWN 110 ITA NO. 1351/DEL/2018 CASE FOR THE AY 2007-08 AND 2008-09, WHEREIN THE TR IBUNAL HELD THAT DISALLOWANCE CANNOT BE MADE MERELY ON THE BASIS THA T VOUCHERS WERE NOT PRODUCED BY THE EMPLOYEES, WHICH HAS BEEN REAFFIRME D BY THE TRIBUNAL IN THE ORDER DATED 24.10.2016 PASSED FOR THE ASSESSMENT YE ARS 2010-11 AND 2011- 12. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YE ARS 2012-13 AND 2013-14, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSE SSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. 74. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 75. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.Y. 2012-13 HELD AS UNDER : 84. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL HELD IN A.YS. 2010-11 AND 2 011-12 AS UNDER:- 226) WE HAVE HEARD THE RIVAL CONTENTIONS. WE NOTE THAT SIMILAR ISSUE RELATING TO DISALLOWANCE RELATING TO RE-IMBURSEMENT OF FOREIGN TRAVELLING EXPENSES TO DIRECTORS/EMPLOYEES WAS DELETED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 WHI CH WAS FOLLOWED IN ASSESSMENT YEAR 2008-09. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08 ARE AS UNDER: 51.15.THE ASSESSING OFFICER IN THIS CASE HAS NOT D OUBTED THE FACT THAT EMPLOYEES/ DIRECTORS OF THE COMPANY TRAVELLED ABROA D AND THE FACT THAT THEY HAVE INCURRED INCIDENTAL EXPENSES IN FOREIGN C URRENCY. THE REASON FOR DISALLOWANCE IS THAT EMPLOYEES HAVE NOT FURNISH ED TO THE ASSESSEE EVIDENCE IN SUPPORT OF THE FACT THAT THEY HAVE INCU RRED CONVEYANCE, BOARDING AND LODGING EXPENSES ETC. WHEN REASONABLE AMOUNT OF DAILY ALLOWANCE IS FIXED AS PER THE RULES OF THE COMPANY AND WHEN THESE D.A. RULES ARE FOLLOWED BY THE ASSESSEE, IN OUR VIE W, THE INCURRING OF EXPENDITURE BY THE EMPLOYEES IS NOT TO BE DOUBTED. EVEN IN CASES 111 ITA NO. 1351/DEL/2018 WHERE OFFICERS OF THE GOVERNMENT OF INDIA TRAVEL AB ROAD, DAILY ALLOWANCE IS GIVEN AND VOUCHERS FOR SUCH EXPENDITUR E ARE NOT INSISTED BECAUSE OF PRACTICAL DIFFICULTIES IN SUBMITTING BIL LS/ VOUCHERS OF PETTY EXPENSES. IN SUCH CIRCUMSTANCES, WHAT IS TO BE EXAM INED BY THE ASSESSING OFFICER IS THE REASONABLENESS OF THE EXPE NSES INCURRED AS COMPARED TO THE GENERAL RATES OF EXPENSES AND ALLOW THE SAME. THE ASSESSEE SUBMITS THAT THE FIXED PER DIEM ALLOWANCE PAYABLE TO EMPLOYEES DEPENDING ON THE GRADE IS REASONABLE. W HEN SUCH RATES ARE REASONABLE THE QUESTION OF DISALLOWANCE DOES NOT ARISE UNLESS THE REVENUE DEMONSTRATES THAT THE RATES ARE EXCESSIVE. IN THIS CASE IT IS NOT THAT THE EXPENSES ARE NOT INCURRED FOR THE STAT ED PURPOSE NOR IS IT THAT THE RATES ARE UNREASONABLE. THE DISALLOWANCE I N QUESTION IN OUR VIEW ON THE SOLE GROUND THAT VOUCHERS ARE NOT PRODU CED BY THE EMPLOYEES CANNOT BE SUSTAINED. IN THE RESULT THIS GROUND OF THE ASSESSEE IS ALLOWED. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLAN T AS COMPARED TO THE ASSESSMENT YEAR IN WHICH THE ABOVE ISSUE IS DECIDED BY THE COORDINATE BENCH. NO OTHER CONTRARY DECISION WAS ALSO POINTED OUT THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN THE APPELLANTS OWN CASE FOR THE EARLIER YEARS, WE DISM ISS GROUND NO. 9 OF THE APPEAL OF THE REVENUE. IT IS PERTINENT TO NOTE THAT FOR PAYMENT OF PER DIE M ALLOWANCE, AS PER POLICY, THE ASSESSEE DOES NOT REQUIRE THE EXPENSES TO BE NE CESSARILY SUPPORTED / BACKED BY BILLS CONSIDERING THE PRACTICAL DIFFICULT IES/IMPOSSIBILITIES IN PRODUCING INVOICES FOR PETTY EXPENSES LIKE LOCAL CO NVEYANCE, TELEPHONE BILLS, ETC. THE EMPLOYEES ARE ONLY REQUIRED TO SUBMIT DETA ILS OF EXPENDITURE INCURRED IN SPECIFIED FORM, ON BASIS OF WHICH TRAVEL BILL IS SETTLED. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-12 AND EARLIER YEARS HELD THAT DIS ALLOWANCE CANNOT BE MADE MERELY ON THE BASIS THAT VOUCHERS WERE NOT PRO DUCED BY THE 112 ITA NO. 1351/DEL/2018 EMPLOYEES, THUS, THE FACTS HAVE NOT CHANGED IN THIS YEAR AS WELL, THEREFORE, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF TH E TRIBUNAL FOR EARLIER ASSESSMENT YEARS. THEREFORE, GROUND NO. 28 IS ALLOW ED IN FAVOUR OF THE ASSESSEE. DURING THE COURSE OF DISCHARGE OF OFFICIAL DUTIES, THE EMPLOYEES OF THE COMPANY ARE REQUIRED TO TRAVEL ABROAD AND INCUR INCIDENTAL EXPENSES IN FOREIGN CURRENCY LIKE LOCAL CONVEYANCE, BOARDING AND LODGING EXPENSE S, TELEPHONE EXPENSES ETC. FOR WHICH THE ASSESSEE INTRODUCED A POLICY FIXING P ER DIEM ALLOWANCE PAYABLE TO EMPLOYEES, DEPENDING UPON THE GRADE/CATEGORY OF THE EMPLOYEES AND THE PLACE/COUNTRY OF TRAVEL. THE EMPLOYEES ARE NOT ENTI TLED TO ANY EXTRA ALLOWANCE IN THE EVENT ACTUAL EXPENDITURE INCURRED BY THE EMP LOYEE IS IN EXCESS OF SUCH PER DIEM ALLOWANCE. THUS, THE DETAILS WERE GIVEN BY THE ASSESSEE COMPANY TO THE ASSESSING OFFICER IN SPECIFIED FORM FOR THE EXP ENDITURE ON BASIS OF WHICH TRAVEL BILL WAS SETTLED. BUT THE ASSESSING OFFICER SIMPLY DISALLOWED THE SAME STATING THAT THERE IS NO SUFFICIENT EVIDENCE TO EST ABLISH INCURRENCE OF ACTUAL EXPENSE. THE ASSESSING OFFICER IS NOT CORRECT IN DI SALLOWING THIS EXPENSES AS THE EMPLOYEES WILL NOT GET THE EXTRA ALLOWANCE IN CASE OF EXCESS EXPENDITURE. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11 , 2011-12, 2012-13 AND 2013-14. HENCE GROUND NOS. 27 IS ALLOWED. 76. AS RELATED TO GROUND NO. 28 IS RELATING TO EXPE NSES INCURRED ON ADVERTISEMENT ON DEATH ANNIVERSARY OF LATE SHRI RAM AN MUNJAL. THE ASSESSEE INCURRED EXPENDITURE OF 13.04 LACS FOR ADVERTISEMEN T IN NEWSPAPER GIVEN TO REMEMBER THE DEATH ANNIVERSARY OF LATE RAMAN MUNJAL , BEING THE FOUNDER OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER DISALLO WED AFORESAID EXPENDITURE CLAIMED BY ASSESSEE ON THE GROUND THAT SAME WAS PER SONAL EXPENDITURE BEING RELATED TO PROMOTERS FAMILY AND WAS NOT INCURRED F OR THE PURPOSE OF BUSINESS. 77. THE LD. AR POINTED OUT THAT THE AFORESAID DISAL LOWANCE MADE BY THE ASSESSING OFFICER IN THE PRECEDING YEARS, VIZ. AY 2 010-11 AND AY 2011-12 HAS 113 ITA NO. 1351/DEL/2018 BEEN DELETED BY THE TRIBUNAL VIDE CONSOLIDATED ORD ER DATED 24.10.2016, WHEREIN THE TRIBUNAL HELD THAT SUCH EXPENDITURE INC URRED BY THE ASSESSEE ON DEATH ANNIVERSARY OF SH. RAMAN KANT MUNJAL WAS NOT PERSONAL EXPENDITURE OF THE PROMOTER FAMILY AND SATISFIED THE TESTS OF COM MERCIAL AND BUSINESS EXPEDIENCY AND THUS WAS AN ALLOWABLE BUSINESS DEDU CTION UNDER SECTION 37(1) OF THE ACT. IT IS ALSO PERTINENT TO MENTION THAT NO APPEAL HAS BEEN FILED BY THE DEPARTMENT BEFORE THE HIGH COURT. WHILE DECIDING TH E APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. 78. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL AND THE HONBLE HIGH COURT. 79. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 88. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL HELD IN A.YS. 2010-11 AND 2 011-12 AS UNDER: 116) WE HAVE CONSIDERED RIVAL CONTENTIONS. UNDER SECTION 37(1) OF THE ACT, EXPENDITURE IS ALLOWABLE AS DEDUCTION IF THE SAME IS INCURRED FOR THE PURPOSE OF BUSINESS OUT OF COMMERCIAL EXPEDIENCY. AN EXPENDITURE WHICH IS PERSONAL IN NATURE, IS NOT AN ALLOWABLE BUSINESS DEDUCTION. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE INCURRED FOR MAKING ADVERTISEMENT IN NEWSPAPERS TO COMMEMORATE THE DEATH ANNIVERSARY OF LATE SHRI RAMAN MUNJAL, BEING THE FOUNDER AND EX- MANAGING DIRECTOR OF THE APPELLANT, ON THE GROUND T HAT HE WAS FAMILY MEMBER OF THE PROMOTERS FAMILY, LOSING SIGHT OF THE FACT HE WAS ALSO EX- EMPLOYEE OF THE COMPANY WHO SERVED IN THE CAPACITY OF MANAGING DIRECTOR DURING HIS LIFETIME. HE WAS, THUS, SIMPLY NOT A DI STANT FAMILY MEMBER OF THE PROMOTERS, BUT HAD STRONG NEXUS WITH THE BUSINE SS OF THE APPELLANT 114 ITA NO. 1351/DEL/2018 COMPANY. THE EXPRESSION FOR THE PURPOSE OF BUSINES S USED IN SECTION 37(1) IS NOT LIMITED TO EARNING OF PROFIT ALONE AND INVOLVES INCURRENCE OF SEVERAL EXPENSES OUT OF COMMERCIAL EXPEDIENCY, WHIC H MAY NOT DIRECTLY RESULT IN THE EARNING OF PROFIT. CELEBRATION OF FU NCTIONS WITH EMPLOYEES IN ORDER TO KEEP THEM MOTIVATED AND BUILD CORDIAL RELA TIONS AMONGST THE STAFF IS A UNIVERSALLY ACCEPTED PRACTICE AND CANNOT, IN A NY EVENTUALITY, BE SAID TO BE NOT AN ALLOWABLE EXPENDITURE. THE LD. COUNSEL OF THE APPELLANT HAS ALSO CITED SEVERAL DECISIONS WHEREIN SIMILAR EXPENS ES INCURRED TO CELEBRATE VARIOUS FESTIVALS, ANNIVERSARIES, ETC. WITH THE EMP LOYEES HAVE BEEN UPHELD TO BE ALLOWABLE BUSINESS DEDUCTION. TO THE SAME EFF ECT IS THE EXPENDITURE INCURRED FOR PAYING TRIBUTE TO AN EX-EMPLOYEE, WHO HAD ASSUMED SUBSTANTIAL ROLES AND RESPONSIBILITIES TO FOSTER TH E BUSINESS OF THE APPELLANT COMPANY. ACCORDINGLY, ANY EXPENDITURE IN CURRED BY THE COMPANY TO PAY HIM HOMAGE SATISFIES THE TEST OF BUS INESS / COMMERCIAL EXPEDIENCY AND, THUS, CANNOT BE SAID TO BE NOT INCU RRED FOR THE PURPOSE OF BUSINESS. MORE SO WHEN IN PAST ASSESSMENT YEARS THE SIMILAR EXPENDITURE HAVE BEEN INCURRED BY THE ASSESSEE BUT HAVE NOT BEE N DISALLOWED BY THE LD. ASSESSING OFFICER AND THIS FACT HAS NOT BEEN CO NTROVERTED BY THE LD. DEPARTMENTAL REPRESENTATIVE EVEN ON THE PRINCIPLE O F CONSISTENCY ALSO WE ARE NOT INCLINED TO UPHELD THE DISALLOWANCE. IN THA T VIEW OF THE MATTER, WE DO NOT AGREE WITH THE FINDINGS OF THE ASSESSING OFF ICER IN DISALLOWING THE EXPENDITURE OF RS. 3 465552/ INCURRED FOR GIVING A DVERTISEMENTS IN NEWSPAPER TO COMMEMORATE MR. MUNJALS DEATH ANNIVER SARY. IN THE RESULT GROUND NO. 24 OF THE APPEAL OF THE ASSESSEE IS ALLO WED. THE AFORESAID DISALLOWANCE MADE BY THE ASSESSING OF FICER IN THE PRECEDING YEARS, VIZ. ASSESSMENT YEAR 2010-11 AND 2011-12 HAS BEEN DELETED BY THE TRIBUNAL VIDE CONSOLIDATED ORDER DATED 24.10.2016, WHEREIN THE TRIBUNAL HELD THAT SUCH EXPENDITURE INCURRED BY THE ASSESSEE ON D EATH ANNIVERSARY OF SH. RAMAN KANT MUNJAL WAS NOT PERSONAL EXPENDITURE OF T HE PROMOTER FAMILY AND SATISFIED THE TESTS OF COMMERCIAL AND BUSINESS EXP EDIENCY' AND THUS WAS AN 115 ITA NO. 1351/DEL/2018 ALLOWABLE BUSINESS DEDUCTION UNDER SECTION 37(1) OF THE ACT. IT IS ALSO PERTINENT TO MENTION THAT NO APPEAL HAS BEEN FILED BY THE DEPARTMENT BEFORE THE HIGH COURT. THUS, THE TRIBUNAL DECISION HAS ATTAINED THE FINALI TY. THEREFORE, GROUND NO. 35 ALLOWED IN FAVOUR OF THE A SSESSEE. IT IS PERTINENT TO NOTE THAT SUCH EXPENDITURE INCUR RED BY THE ASSESSEE ON DEATH ANNIVERSARY OF SH RAMAN KANT MUNJAL WAS NOT PERSONA L EXPENDITURE OF THE PROMOTER FAMILY AND SATISFIED THE TESTS OF COMMERC IAL AND BUSINESS EXPEDIENCY AND THUS WAS AN ALLOWABLE BUSINESS DEDUCTION UNDER SECTION 37(1) OF THE ACT. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE S IMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. BESIDES THAT NO APPEAL HAS BEEN FILED BY THE REVENUE BEFORE THE HONBLE HIGH COURT. HENCE GROUND NO. 28 IS ALLOWED. 80. AS RELATED TO GROUND NO. 29 TO 29.3 ARE RELATIN G TO DISALLOWANCE OF COMMISSION PAID TO MANAGING DIRECTOR & CEO, SHRI P AWAN MUNJAL AND JOINT MANAGING DIRECTOR, SHRI SUNIL KANT MUNJAL U/S 36(1) (II) OF THE ACT. SH. PAWAN MUNJAL HAS BEEN APPOINTED AS MANAGING DIRECTOR & CE O OF THE ASSESSSEE COMPANY IN THE ANNUAL GENERAL MEETING OF THE SHAREH OLDERS AND CONTINUED TO RENDER SERVICES IN THAT CAPACITY. THE CONSIDERATION IN LIEU OF SERVICES TO BE RENDERED BY EXECUTIVE DIRECTORS WAS PAYABLE, INTER ALIA, AS BASIC SALARY PER MONTH ALONG WITH COMMISSION PAYABLE WITH REFERENCE TO PROFITS SUBJECT TO THE CONDITION THAT THE AMOUNT OF COMMISSION SHALL NOT E XCEED 1% OF THE NET PROFITS OF THE COMPANY IN A PARTICULAR FINANCIAL YEAR AS CO MPUTED IN THE MANNER PROVIDED IN SECTION 198 OF THE COMPANIES ACT, 1956. THE ASSESSEE INCURRED EXPENDITURE OF RS. 18,61.00,000/- ON ACCOUNT OF COM MISSION PAID TO MANAGING DIRECTOR AND CEO. VIZ., SHRI PAWAN MUNJAL. THE SAME WAS CLAIMED AS REVENUE DEDUCTION WHILE COMPUTING THE INCOME FOR THE RELEVA NT ASSESSMENT YEAR. THE ASSESSING OFFICER DISALLOWED THE AFORESAID TOTAL AM OUNT OF COMMISSION PAID TO SHRI PAWAN MUNJAL UNDER SECTION 36(1)(II) OF THE AC T ON THE GROUND THAT COMMISSION WAS PAID IN LIEU OF DISTRIBUTION OF DIVI DEND TO HIM, WHO WAS ALSO 116 ITA NO. 1351/DEL/2018 SHAREHOLDER OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER FURTHER OBSERVED THAT DIVIDEND PAID ACTUALLY REDUCED THE CORPUS AVAI LABLE FOR DISTRIBUTION AS DIVIDEND WITH THE INTENTION OF AVOIDING DIVIDEND DI STRIBUTION TAX BY PAYING COMMISSION TO THE DIRECTOR. 81. THE LD. AR SUBMITTED THAT THE AFORESAID DISALL OWANCE MADE BY THE ASSESSING OFFICER IN THE PRECEDING YEARS, VIZ. AY 2 010- 11 AND AY 2011-12 HAS BEEN DELETED BY THE TRIBUNAL VIDE RECENT CONSOLIDAT ED ORDER DATED 24.10.2016. IN THE SAID ORDER, THE TRIBUNAL HELD THAT THE COMMI SSION PAID TO DIRECTORS WITH REFERENCE TO PERCENTAGE OF PROFITS OF THE COMPANY F OR THE SERVICES RENDERED AS PER THE TERMS OF APPOINTMENT, CONSTITUTES PART OF T HE REMUNERATION PACKAGE, AND IN THE ABSENCE OF ANY DISALLOWANCE ON OTHER COM PONENTS OF REMUNERATION PAID TO SUCH DIRECTOR, THE COMMISSION CANNOT, IPSO FACTO BE CLASSIFIED AS PAYMENT OF PROFIT/DIVIDEND COVERED WITHIN THE EXCEP TION PROVIDED UNDER SECTION 36(1)(II) OF THE ACT. THE LD. AR ALSO POINT ED OUT THAT NO APPEAL HAS BEEN FILED BY THE DEPARTMENT BEFORE THE HIGH COURT. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14 , THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE OR DERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. THE ISSUE IS ALSO SQUARELY COV ERED IN FAVOUR OF ASSESSEE BY THE ORDER OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GROUP CONCERN OF THE ASSESSEE COMPANY, VIZ. HERO HONDA FINLEASE LTD. V. ADDL. CIT: ITA NO 4329/DEL/2010 (DEL) RELATING TO ASSESSMENT YEAR 200 5-06, WHICH HAS BEEN FURTHER AFFIRMED BY THE DELHI HIGH COURT, VIDE ORDE R DATED 12.08.2014 PASSED IN ITA NO. 305/2014 WHEREIN THE APPEAL OF THE REVEN UE WAS DISMISSED. 82. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL AND THE HONBLE HIGH COURT. 83. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL HELD IN A.Y. 2012-13 AS UNDER: 92. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE 117 ITA NO. 1351/DEL/2018 ON RECORD. THE TRIBUNAL HELD IN A.YS. 2010-11 AND 2 011-12 AS UNDER: 120) WE HAVE HEARD THE RIVAL CONTENTIONS. WE NOTIC E THAT THE YEAR UNDER CONSIDERATION WAS NOT THE FIRST YEAR OF PAYMENT OF SUCH COMMISSION TO MR. PAWAN MUNJAL. THE SAME TERMS AND CONDITIONS OF HIS EMPLOYMENT, COMPRISING SALARY, PERQUISITES AND COMMISSIONS NOT EXCEEDING 1% OF THE NET PROFIT WAS AGREED/PREVALENT IN THE EARLIER YEAR S, WHICH WAS APPROVED BY THE BOARD OF DIRECTORS (COMPRISING OF INDEPENDEN T DIRECTORS AS WELL) AND RATIFIED BY THE SHAREHOLDERS. THE AFORESAID TOTAL R EMUNERATION PACKAGE, INCLUDING COMMISSION, IS IN LIEU OF SERVICES RENDER ED BY HIM IN THE CAPACITY OF MANAGING DIRECTOR. THERE IS NO QUARREL OR DOUBT THAT MR. MUNJAL HAD NOT BEEN RENDERING SERVICES TO THE APPELLANT COMPANY IN THE CAPACITY AS MANAGING DIRECTOR. MORE SO, SINCE THE OTHER PART O F HIS REMUNERATION PACKAGE, I.E., BASIC SALARY AND OTHER BENEFITS GIVE N TO HIM HAVE BEEN ACCEPTED AND ALLOWED AS REVENUE EXPENDITURE, THERE IS NO VALID REASON TO DIFFERENTLY TREAT THE OTHER PART OF HIS REMUNERATIO N PACKAGE GIVEN BY WAY OF 1% OF NET PROFIT. IT IS NOT THE CASE OF THE ASSE SSING OFFICER THAT THE TOTAL REMUNERATION PACKAGE COMPRISING OF 1% OF NET PROFIT IS UNREASONABLE, HAVING REGARD TO THE NATURE OF SERVICES PROVIDED BY MR. MUNJAL IN HIS CAPACITY AS MANAGING DIRECTOR. HAVING NOT DOUBTED THE SAME, THE ASSESSING OFFICER CANNOT DISALLOW ANY PART OF THE T OTAL REMUNERATION PACKAGE AGREED BETWEEN THE ASSESSEE AND AN EMPLOYEE /DIRECTOR. COMING BACK TO THE PROVISION OF SECTION 36(1)(II), THE SAI D SECTION, IN FACT, ENABLED DEDUCTION OF ANY SUM PAID TO AN EMPLOYEE AS BONUS O R COMMISSION FOR SERVICES RENDERED. THE EXCEPTION CARVED OUT IN THE AFORESAID SECTION FOR ALLOWABILITY OF BONUS OR COMMISSION IS, WHERE SUCH SUM WAS OTHERWISE PAYABLE TO THE EMPLOYEE, AS PROFIT OR DIVIDEND. IN OTHER WORDS, THE AFORESAID SECTION PROVIDES FOR DISALLOWANCE OF EXPE NDITURE INCURRED AS BONUS OR COMMISSION, WHICH OTHERWISE CONSTITUTED SH ARE OF PROFIT OR DIVIDEND OF THE RECIPIENT. IN THE PRESENT CASE, AS WE HAVE OBSERVED (SUPRA) AND ALSO EXPLAINED BY THE APPELLANT, THE COMMISSION CONSTITUTES PART OF MR. 118 ITA NO. 1351/DEL/2018 MUNJALS REMUNERATION PACKAGE, THE COMPUTATION WHER EOF IS SIMPLY BASED ON THE PERCENTAGE OF NET PROFIT. THE COMPUTATION O F REMUNERATION WITH REFERENCE TO PROFIT DOES NOT, IPSO FACTO, CLASSIFY THE SAME AS PAYMENT OF PROFIT OR DIVIDEND, COVERED WITHIN THE EXCEPTION PR OVIDED IN SECTION 36(1)(II) OF THE ACT. IN THE CASE OF A COMPANY, RECIPIENT IS ENTITLED TO DIVIDEND WITH REFERENCE TO PERCENTAGE OF HIS/HER SHAREHOLDING IN THE COMPANY. IN THE PRESENT CASE, MR. MUNJAL HELD 0.02% OF SHARES IN TH E APPELLANT COMPANY, FOR WHICH SEPARATE DIVIDEND WAS RECEIVED AS PER THE TOTAL AMOUNT OF DIVIDEND DECLARED BY THE COMPANY TO ITS ALL SHAREHO LDERS. THE PROVISIONS OF SECTION 36 PROVIDES THAT 36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWI NG CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREI N, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 II) ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMISSION 32 FOR SERVICES RENDERED, WHERE SUCH SUM WOULD NOT HAV E BEEN PAYABLE TO HIM AS PROFITS OR DIVIDEND IF IT HA D NOT BEEN PAID AS BONUS OR COMMISSION; IN THE PRESENT CASE THE ASSESSEE HAS PAID RS. 29.50 CRORES TO THE MANAGING DIRECTOR OF THE COMPANY AS COMMISSION WHER EAS THE MANAGING DIRECTOR IS JUST HOLDING SHARES OF THE COMPANY OF 0 .02% THEREFORE IT CANNOT BE SAID THAT A SUM OF RS. 29.50 CRORES WOULD HAVE B EEN PAID TO THAT SHAREHOLDER HOLDING 0.02% AS DIVIDEND. THEREFORE TH E IMPUGNED AMOUNT OF COMMISSION WAS SEPARATE AND WAS NOT IN ADDITION OR IN LIEU OF DIVIDEND LINKED TO PERCENTAGE OF SHARES HELD BY MR. MUNJAL I N THE APPELLANT COMPANY. WE DRAW SUPPORT FOR THE AFORESAID VIEW FR OM THE RECENT DECISION OF DELHI HIGH COURT IN THE CASE OF CARRIER LAUNCHER S INDIA LTD. VS. ACIT: 358 ITR 179, WHERE, TOO, THE HIGH COURT HELD THAT W HERE THE COMMISSION IS PAID IN LIEU OF SERVICES PROVIDED BY THE EMPLOYEE A ND THE AMOUNT OF COMMISSION HAS NO LINK WITH THE DIVIDEND THAT THE R ECIPIENT WOULD BE 119 ITA NO. 1351/DEL/2018 ENTITLED TO AS A SHAREHOLDER, SUCH PAYMENT IS OUTSI DE THE PURVIEW OF SECTION 36(1)(II) OF THE ACT. THE RELEVANT OBSERVA TIONS OF THE HIGH COURT ARE AS UNDER: 19. THE REVENUE'S CONTENTION THAT THE TRIBUNAL ERR ED IN ALLOWING THE BONUS PAYMENT TO THE DIRECTORS CANNOT BE ACCEPTED. IT HAS NOT DISPUTED THE FACTS VIZ., (A) THAT THE PAYMENT WAS SUPPORTED BY BOARD RESOLUTIONS AND (B) THAT NONE OF THE DIRECTORS WOULD HAVE RECEI VED A LESSER AMOUNT OF DIVIDEND THAN THE BONUS PAID TO THEM, HAVING REG ARD TO THEIR SHAREHOLDING. FURTHER, THE DIRECTORS ARE FULL-TIME EMPLOYEES OF THE COMPANY RECEIVING SALARY. THEY ARE ALL GRADUATES FR OM IIM, BANGALORE. TAKING ALL THESE FACTS INTO CONSIDERATION, IT WOULD APPEAR THAT THE BONUS WAS A REWARD FOR THEIR WORK, IN ADDITION TO THE SAL ARY PAID TO THEM AND WAS IN NO WAY RELATED TO THEIR SHAREHOLDING. THE BO NUS PAYMENT CANNOT BE CHARACTERIZED AS A DIVIDEND PAYMENT IN DI SGUISE. THE TRIBUNAL HAS FOUND THAT HAVING REGARD TO THE SHAREH OLDING OF EACH OF THE DIRECTORS, THEY WOULD HAVE GOT MUCH HIGHER AMOU NTS AS DIVIDENDS THAN AS BONUS AND THERE WAS NO TAX AVOIDANCE MOTIVE . THE QUANTUM OF THE BONUS PAYMENT WAS LINKED TO THE SERVICES RENDER ED BY THE DIRECTORS. IT CANNOT THEREFORE BE SAID THAT THE BON US WOULD NOT HAVE BEEN PAYABLE TO THE DIRECTORS AS PROFITS OR DIVIDEN D HAD IT NOT BEEN PAID AS BONUS/COMMISSION. 20. THE ISSUE HAS BEEN CONSIDERED BY THIS COURT IN AMD METPLAST (P.) LTD V. DY. CIT [2012] 341 ITR 563 / 20 TAXMANN.COM 647 (DELHI) IN THE LIGHT OF THE JUDGMENT OF THE BOMBAY HIGH COURT IN LOYAL MOTOR SERVICE CO. LTD VS. CIT [1946] 14 ITR 647. IT WAS O BSERVED THAT THE JUDGMENT OF THE BOMBAY HIGH COURT (SUPRA) DOES NOT ASSIST THE REVENUE AND THAT SO LONG AS THE BONUS OR COMMISSION IS PAID TO THE DIRECTORS FOR SERVICES RENDERED AND AS PART OF THEI R TERMS OF EMPLOYMENT IT HAS TO BE ALLOWED AND SEC.36(1)(II) DOES NOT APP LY. 120 ITA NO. 1351/DEL/2018 21. HAVING REGARD TO THE ABOVE LEGAL POSITION AND T HE FACTUAL FINDINGS RECORDED BY THE TRIBUNAL, WE ARE UNABLE TO SAY THAT THE TRIBUNAL ERRED IN HOLDING THAT THE BONUS PAYMENT WAS ALLOWABLE U/S .36(1)(II) OF THE ACT. THE SUBSTANTIAL QUESTIONS OF LAW ARE ANSWERED IN THE AFFIRMATIVE, AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE F OR BOTH THE YEARS. WE ALSO AGREE WITH THE DECISION TAKEN BY THE TRIBU NAL IN THE CASE OF APPELLANT GROUP COMPANY, VIZ., HERO HONDA FINLEASE LTD. VS. ADDL. CIT : ITA NO.4329/DEL/2010 RELATING TO AY 2005-06, WHEREI N THE SIMILAR DISALLOWANCE WAS DELETED. IN VIEW OF THIS WE ARE OF THE OPINION THAT IN MAKING PAYMENT OF COMMISSION TO THE MANAGING DIRECT OR OF THE COMPANY OF 29.50 CRORE THE PROVISIONS OF SECTION 36 (1) (II) O F THE INCOME TAX ACT CANNOT BE APPLIED. FURTHERMORE REGARDING THE COMMERCIAL EX PEDIENCY OF THE ABOVE SUM THE SUCH COMMISSION WAS DECIDED BY THE REMUNERA TION COMMITTEE CONSTITUTED BY THE COMPANY IN TERMS OF THE PROVISIO NS OF THE LISTING AGREEMENT ENTERED INTO WITH VARIOUS STOCK EXCHANGES . EVEN OTHERWISE THE COMMISSIONS LEADING TO THE PERCENTAGE OF THE PROFI T EARNED BY THE COMPANY HAS FOR THE COMPANIES ACT AND THERE IS AN O UTER LIMIT WHICH IS ALSO BEEN FIXED IN THE TERMS AND CONDITIONS OF EMPL OYMENT OF THE MANAGING DIRECTOR THEREFORE IT CANNOT BE SAID THAT THERE IS NO BUSINESS EXPEDIENCY IN PAYMENT OF SUCH COMMISSION TO THE MANAGING DIRECTOR OF THE COMPANY. IN VIEW OF THIS GROUND NO. 25 OF THE APPEAL REGARDING DISALLOWANCE OF RS. 29.54 CRORES PAID THE MANAGING DIRECTOR AS COMMISSI ON DISALLOWED BY THE LD. ASSESSING OFFICER IS DELETED AND ACCORDINGLY TH E ABOVE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. THE AFORESAID DISALLOWANCE MADE BY THE ASSESSING OF FICER IN THE PRECEDING YEARS, VIZ. AY 2010-11 AND AY 2011-12 HAS BEEN DELE TED BY THE TRIBUNAL VIDE RECENT CONSOLIDATED ORDER DATED 24.10.2016. IN THE SAID ORDER, THE TRIBUNAL HELD THAT THE COMMISSION PAID TO DIRECTORS WITH REFERENCE TO PERCENTAGE OF PROFITS OF THE COMPANY FOR THE SERVIC ES RENDERED AS PER THE TERMS OF APPOINTMENT, CONSTITUTES PART OF THE REMUN ERATION PACKAGE, AND IN 121 ITA NO. 1351/DEL/2018 THE ABSENCE OF ANY DISALLOWANCE ON OTHER COMPONENTS OF REMUNERATION PAID TO SUCH DIRECTOR, THE COMMISSION CANNOT, IPSO FACTO BE CLASSIFIED AS PAYMENT OF PROFIT/DIVIDEND COVERED WITHIN THE EXCEPTION PROVID ED UNDER SECTION 36(1)(II) OF THE ACT. IT IS ALSO PERTINENT TO MENTION THAT NO APPEAL HAS BEEN FILED BY THE DEPARTMENT BEFORE THE HIGH COURT. THUS, THE TRIBUNA L DECISION HAS ATTAINED THE FINALITY. THEREFORE, GROUND NO. 36 TO 36.3 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE S IMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. BESIDES THAT NO APPEAL HAS BEEN FILED BY THE REVENUE BEFORE THE HONBLE HIGH COURT. HENCE GROUND NOS. 29 TO 29.3 AR E ALLOWED. 84. AS RELATES TO GROUND NO. 30 TO 30.1 ARE RELATIN G TO DISALLOWANCE OF PROPORTIONATE AMOUNT OF PREMIUM PAID FOR LAND TAKEN FOR 99 YEARS AT HARIDWAR. THE ASSESSEE-COMPANY WAS, VIDE ALLOTMENT LETTER DATED 8.8.2006, ALLOTTED LAND AT HARIDWAR BY STATE INDUSTRIAL DEVEL OPMENT CORPORATION OF UTTARANCHAL LTD. (SIDCUL) ON LEASE FOR A PERIOD OF 99 YEARS. THE AFORESAID LEASE WAS GRANTED ON PAYMENT OF PREMIUM OF RS. 48,45,87,7 80. IN ACCORDANCE WITH THE AFORESAID LETTER, THE LAND WAS ALLOTTED TO THE ASSESSEE FOR WHICH LEASE DEED WAS EXECUTED SUBSEQUENTLY ON 17 TH FEBRUARY 2014 FOR REMAINING LEASE PERIOD OF 90 YEARS AT THAT TIME. AS PER THE LEASE AGREEMEN T, IN ADDITION TO THE AMOUNT OF PREMIUM PAID, THE LESSEE WAS REQUIRED TO PAY ANN UAL RENT AT RS.5 PER SQ.M. IN THE RETURN OF INCOME, THE ASSESSEE APPORTIONED T HE AMOUNT OF PREMIUM PAID ON TAKING LAND ON LEASE, OVER THE PERIOD OF LEASE, AND CLAIMED DEDUCTION FOR THE PROPORTIONATE AMOUNT OF RS. 1.29 CRORES AS REVENUE EXPENDITURE. THE ASSESSING OFFICER DISALLOWED AFORESAID EXPENDITURE CLAIMED BY ASSESSEE ON THE GROUND THAT THE AFORESAID PREMIUM WAS PAID TO ACQUI RE RIGHT AND INTEREST IN THE LAND, WHICH HAS RESULTED IN (A) ACQUISITION OF CAPITAL ASSET IN THE FORM OF LAND OR (B) BENEFIT OF ENDURING NATURE IN THE CAPIT AL FIELD SINCE THE LAND WAS ACQUIRED TO CONSTRUCT MANUFACTURING PLANT THEREON. THE AO ALSO HELD THAT THE 122 ITA NO. 1351/DEL/2018 AFORESAID PAYMENT OF LEASE ENHANCED THE PROFIT EARN ING APPARATUS OF THE ASSESSEE WHOSE BENEFIT WAS OF ENDURING NATURE AND T HEREFORE WAS CAPITAL IN NATURE. THE DRP, HOWEVER, ALLOWED THE ASSESSEE DEPR ECIATION ON THE PREMIUM PAID FOR ACQUIRING OF LEASEHOLD RIGHTS OF LAND, CON SIDERING THE SAME AS AN INTANGIBLE ASSET IN THE NATURE OF BUSINESS OR COMM ERCIAL RIGHT' WHICH IS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1 )(II) OF THE AC T. THE LD. AR SUBMITTED THAT HE ASSESSING OFFICER, HOWEVER, ERRED IN NOT GIVING EFFECT TO SUCH BINDING DIRECTIONS OF THE DRP. 85. THE LD. AR POINTED OUT THAT THE SIMILAR DISALLO WANCE MADE BY THE ASSESSING OFFICER IN THE PRECEDING ASSESSMENT YEARS 2010-11 AND 2011-12 WAS DIRECTED TO BE DELETED BY THE DRP. THE TRIBUNAL, WH ILE ADJUDICATING UPON REVENUES APPEAL, VIDE CONSOLIDATED ORDER DATED 26. 10.2016, REVERSED THE DIRECTIONS OF THE DRP AND HELD THE PAYMENT OF LEASE PREMIUM TO BE IN THE NATURE OF CAPITAL EXPENDITURE FOLLOWING THE DECIS ION OF DELHI HIGH COURT IN THE CASE OF GAIL INDIA (SUPRA). HOWEVER, THE TRIBUNAL C ONSIDERED AND ALLOWED THE ALTERNATE CLAIM OF THE ASSESSEE REGARDING ALLOWANCE OF DEPRECIATION ON SUCH PAYMENT. IN COMING TO THE AFORESAID CONCLUSION, THE TRIBUNAL HELD THAT PREMIUM PAID FOR ACQUIRING OF LEASEHOLD RIGHTS OF L AND TO BE USED FOR THE PURPOSE OF BUSINESS IS AN ASSET WHICH IS DIFFERENT FROM LAND AND WOULD BE CONSIDERED AS AN INTANGIBLE ASSET IN THE NATURE OF BUSINESS OR COMMERCIAL RIGHT WHICH IS ELIGIBLE FOR DEPRECIATION UNDER SEC TION 32(1)(II) OF THE ACT. THE LD. AR SUBMITTED THAT THE TRIBUNAL WHILE ADJUDICATI NG THE APPEAL FOR THE ASSESSMENT YEAR 2013-14, ON SIMILAR FACTS, REMANDED THE ISSUE OF ALLOWANCE OF DEPRECIATION TO THE ASSESSING OFFICER IN ORDER TO C OMPLY WITH THE DIRECTIONS OF THE DRP. 86. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO. 87. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2013-14 HELD AS UNDER: 123 ITA NO. 1351/DEL/2018 80. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RECORDS. IT IS PERTINENT TO NOTE THAT THE DRP, ALLOWED THE ASSESSE E DEPRECIATION ON THE PREMIUM PAID FOR ACQUIRING OF LEASEHOLD RIGHTS OF L AND, CONSIDERING THE SAME AS AN INTANGIBLE ASSET IN THE NATURE OF BUSINESS O R COMMERCIAL RIGHT WHICH IS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) O F THE ACT. THIS DIRECTION WAS NOT AT ALL CONSIDERED BY THE ASSESSING OFFICER. THE REFORE, WE DIRECT THE ASSESSING OFFICER TAKE INTO ACCOUNT THE DIRECTION O F THE DRP AND PASS NECESSARY ORDER AFTER GIVING HEARING TO THE ASSESSE E BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. THEREFORE, WE REMAND BACK THIS ISS UE TO THE FILE OF THE ASSESSING OFFICER. THUS, GROUND NO. 21 IS PARTLY AL LOWED FOR STATISTICAL PURPOSE. IN THE PRESENT YEAR AS WELL THE ASSESSING OFFICER H AS NOT TAKEN INTO ACCOUNT THE DIRECTIONS OF THE DRP. THEREFORE, WE ARE REMANDING BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. NEEDLESS TO SAY, THE ASSESSE E BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. THUS, GROUND NOS. 30 TO 30.1 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 88. AS REGARDS GROUND NO. 31 IS RELATING TO DISALLO WANCE OF EXPENSES INCURRED ON ACCOUNT OF CORPORATE SOCIAL RESPONSIBI LITY (CSR). DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE HAD INCURRED EXPENDITURE OF RS.23,44,222, WHICH WAS DEBITED UNDER THE HEAD COM MUNITY DEVELOPMENT EXPENSES (CSR ACTIVITY) IN THE BOOKS OF ACCOUNTS . THE ASSESSING OFFICER DISALLOWED THE AFORESAID EXPENSES ON THE GROUND THA T IT WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF EARNING BUSINESS INCOME FROM THE ACTIVITY OF MANUFACTURE AND SALE OF TWO-WHEELERS AN D, THEREFORE, SUCH EXPENDITURE WAS NOT ALLOWABLE DEDUCTION UNDER SECTI ON 37(1) OF THE ACT. IT WAS ALSO OBSERVED THAT THE AFORESAID PAYMENTS WERE IN T HE NATURE OF APPLICATION OF INCOME, WHICH WAS NOT ALLOWABLE AS EXPENDITURE UNDE R THE PROVISIONS OF THE ACT. 89. IN THIS REGARD, THE LD. AR POINTED OUT THAT THE AFORESAID DISALLOWANCE 124 ITA NO. 1351/DEL/2018 MADE BY THE ASSESSING OFFICER IN THE PRECEDING YEAR S, VIZ. AY 2010-11 AND AY 2011-12 HAS BEEN DELETED BY THE TRIBUNAL VIDE RECEN T CONSOLIDATED ORDER DATED 24.10.2016, WHEREIN THE TRIBUNAL HELD THAT THE EXPE NDITURE INCURRED BY THE ASSESSEE COMPANY ON CORPORATE SOCIAL RESPONSIBILITY , PRIOR TO INSERTION OF EXPLANATION 2 TO SECTION 37(1) OF THE ACT, WAS AN A LLOWABLE BUSINESS DEDUCTION UNDER THE SAID PROVISION. THE TRIBUNAL, IN THE SAID ORDER, FURTHER ELABORATED THAT THE ROLE OF THE ASSESSEE WAS NOT RESTRICTED TO MERELY EARNING PROFIT, BUT ALSO DISCHARGING CERTAIN COMMUNITY RELATED EXPENSES , WHICH WOULD BE CONSIDERED TO HAVE BEEN INCURRED ON ACCOUNT OF COMM ERCIAL/ BUSINESS EXPEDIENCY. THE LD. AR ALSO POINTED OUT THAT NO APP EAL HAS BEEN FILED BY THE DEPARTMENT IN ASSESSMENT YEAR 2011-12. WHILE DECID ING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. THE LD. AR RELIED UPON THE FOLLOWING D ECISIONS: MYSORE KIRLOSKAR LTD. VS. CIT: 166 ITR 836 (KAR.) MAHINDRA AND MAHINDRA VS. CIT 261 ITR 501 (BOM) CIT V. INDIA RADIATORS LTD.: 236 ITR 719 (MAD.) CIT V. MADRAS REFINERIES LTD.: 266 ITR 170(MAD) CIT V. CHENNAI PETROLEUM CORPN. LTD: T.C.(A).NO.57 OF 2006 (CHENNAI) CIT VS JAYENDRAKUMAR HIRALAL: 327 ITR 147 (GUJ) CIT VS. KARNATAKA FINANCIAL CORPORATION: 326 ITR 35 5 (KAR) INFOSYS TECHNOLOGIES LTD. V. JCIT: 109 TTJ (BANG)6 31 HINDUSTAN PETROLEUM CORPN. LTD. VS. DCIT 96 ITD 186 (BOM.) INDIAN PETROLEUMS VS. DEPARTMENT OF INCOME TAX: IT A NO. 664 AND 665/ AHD/2008(MUM) 125 ITA NO. 1351/DEL/2018 CIT V. RANBAXY LABORATORIES LTD. : ITA NO.743 OF 2 008 (DEL) 90. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 91. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 96. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-1 2 HELD AS UNDER: 235) WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE GIVEN OUR FINDINGS WHILE DISPOSING GROUND OF APPEAL NO. 24 IN THE ASSE SSEES APPEAL SUPRA THAT UNDER SECTION 37(1) OF THE ACT, THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS WIDE ENOUGH TO COVER EXPENSES INCURRED ON ACCOUNT OF BUSINESS/COMMERCIAL EXPEDIENCY AND IS NOT RESTRICTE D TO EXPENSES INCURRED FOR THE PURPOSE OF EARNING PROFIT. THE APP ELLANT IS A LARGE CORPORATE HOUSE AND IS ONE OF THE FLAGSHIP COMPANIE S IN INDIA. IN THE COURSE OF CARRYING OF BUSINESS, THE ROLE OF THE APP ELLANT IS NOT RESTRICTED TO MERELY EARNING PROFIT BUT ALSO DISCHARGING CERTAIN COMMUNITY RELATED OBLIGATIONS, WITH A LARGER INTENT OF FOSTERING ITS GOODWILL/REPUTATION. WE HAVE GONE THROUGH THE DETAILS OF VARIOUS EXPENSES I NCURRED BY THE ASSESSE WHICH WERE DEBITED UNDER THE HEAD CORPORATE SOCIAL RESPONSIBILITY AND ELABORATED IN DETAIL IN THE SUBMISSIONS MADE BY THE LD. COUNSEL ABOVE. THE SAID EXPENSES ALTHOUGH WERE NOT INCURRED TOWARD S EARNING PROFIT, BUT WERE INCURRED OUT OF COMMERCIAL EXPEDIENCY AND WERE DIRECTLY/INDIRECTLY RELATED TO ITS BUSINESS LIKE EARNING GOODWILL/DISPL AY OF NAME, EMPLOYEES WELFARE, ETC. THE SAID EXPENSES THEREFORE, IN OUR V IEW, SATISFY THE TEST OF BEING ALLOWABLE AS BUSINESS DEDUCTION UNDER SECTION 37(1) OF THE ACT. WE DRAW SUPPORT FOR THE AFORESAID CONCLUSION FROM THE FOLLOWING DECISIONS OF THE VARIOUS TRIBUNALS/HIGH COURTS : 126 ITA NO. 1351/DEL/2018 (I) IN THE CASE OF MYSORE KIRLOSKAR LTD. VS. CIT: 166 I TR 836 (KAR.), THE ASSESSEE STARTED SCHOOL FOR EDUCATION OF CHILDR EN OF ITS EMPLOYEES FOR ATTRACTING TECHNOCRATS AND MEN OF MANAGERIAL SKILL TO ITS INDUSTRY. DONATIONS MADE BY THE COMPANY TO THE SCHOOL WERE CL AIMED AS BUSINESS EXPENDITURE UNDER SECTION 37(1) OF THE ACT. THE TRI BUNAL SUSTAINED DISALLOWANCE OF THE DEDUCTION CLAIMED ON THE GROUND THAT THE EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF BUSINESS OF THE ASSESSEE. THE HON'BLE HIGH COURT DID NOT APPROVE TH E APPROACH OF THE ITAT AND ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: HELD,(I) THAT THE WORDS ' FOR THE PURPOSE OF BUSIN ESS ' USED IN SECTION 37(1) SHOULD NOT BE LIMITED TO THE MEANING OF ' EAR NING PROFIT ALONE '. BUSINESS EXPEDIENCY OR COMMERCIAL EXPEDIENCY MAY RE QUIRE PROVIDING FACILITIES LIKE SCHOOLS, HOSPITALS, ETC., FOR THE E MPLOYEES OR THEIR CHILDREN OR FOR THE CHILDREN OF THE EX-EMPLOYEES. ANY EXPE NDITURE LAID OUT OR EXPENDED FOR THEIR BENEFIT, IF IT SATISFIES THE OTH ER REQUIREMENTS, MUST BE ALLOWED AS DEDUCTION UNDER SECTION 37(1) OF THE ACT . THE FACT THAT SOMEBODY OTHER THAN THE ASSESSEE WAS ALSO BENEFITED OR INCIDENTALLY TOOK ADVANTAGE OF THE PROVISION MADE, SHOULD NOT CO ME IN THE WAY OF THE EXPENDITURE BEING ALLOWED AS A DEDUCTION UNDER SECTION 37(1) OF THE ACT. NEVERTHELESS, IT IS EXPENDITURE ALLOWABLE AS DEDUCTION UNDER THE ACT. (II) THAT THE WORD EXPENDITURE PRIMARILY DENOTED THE IDEA OF SPENDING OR PAYING OUT OR AWAY. IT WAS SOMETHING WHICH WAS G ONE IRRETRIEVABLY, BUT SHOULD NOT BE IN RESPECT OF AN UNASCERTAINED LI ABILITY OF THE FUTURE. IT MUST BE AN ACTUAL LIABILITY IN PRAESENTI, AS OPPOSE D TO A CONTINGENT LIABILITY OF THE FUTURE. (III) THE REASONS GIVEN BY THE TRIBUNAL FOR REJECT ING THE CLAIM OF THE ASSESSEE WERE NOT SOUND. MOREOVER, SINCE THE TRIBUN AL HAD NOT RECORDED A FINDING AS TO WHETHER THE DONATION MADE BY THE ASSESSEE TO THE TRUST COULD BE CONSIDERED AS EXPENDITURE, THE MATTER HAD TO BE 127 ITA NO. 1351/DEL/2018 REMANDED TO THE TRIBUNAL FOR DECISION AFRESH IN THE LIGHT OF THE OBSERVATIONS CONTAINED IN THE JUDGMENT. (II) IN THE CASE OF MAHINDRA AND MAHINDRA VS. CIT 261 I TR 501, THE BOMBAY HIGH COURT ALLOWED DEDUCTION OF EXPENDITURE INCURRED BY THE ASSESSEE IN MAKING INITIAL CONTRIBUTION TO THE APPR OVED SUPERANNUATION FUND TO AN EDUCATIONAL SOCIETY, WHICH WAS RUNNING S CHOOL FOR CHILDREN OF EMPLOYEES, AS BUSINESS EXPENDITURE UNDER SECTION 37 (1) OF THE ACT. IT WAS HELD THAT THE AMOUNT SHOULD BE ALLOWED AS BUSIN ESS EXPENDITURE BECAUSE IT WAS INCURRED PREDOMINANTLY FOR STAFF WEL FARE. THE DECISION IN THE CASE OF MAHINDRA & MAHINDRA (SUPRA) WAS FURT HER FOLLOWED BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MAHIND RA & MAHINDRA: 284 ITR 679. (III) IN THE CASE OF CIT V. INDIA RADIATORS LTD.: 236 ITR 719 (MAD.), THE MADRAS HIGH COURT OBSERVED AS UNDER: THE FINDING OF THE TRIBUNAL IS THAT BY MAKING THE CONTRIBUTION TO THE PANCHAYAT FOR UPGRADING THE ELEMENTARY SCHOOL, THE ASSESSEE-COMPANY WAS ASSURED BY THE SCHOOL MANAGEMENT THAT IT WOULD GIVE PREFERENCE IN THE MATTER OF ADMISSION TO THE CHILDREN OF THE EMPL OYEES IN THE SAID SCHOOL. THE TRIBUNAL PLACED RELIANCE ON A LETTER FR OM THE PRESIDENT OF THE BUILDING COMMITTEE AND PARENTS TEACHER ASSOCIATION OF THE SCHOOL. IT IS WELL SETTLED THAT IF A CERTAIN SUM OF MONEY WAS EXP ENDED FOR THE EDUCATION OF THE CHILDREN OF THE EMPLOYEES OF THE A SSESSEE-COMPANY, IT SHOULD BE REGARDED AS STAFF WELFARE EXPENDITURE, PA RTICULARLY IN VIEW OF THE FACT THAT IN THESE DAYS IT IS VERY HARD TO GET ADMISSION IN EDUCATIONAL INSTITUTIONS. THE EMPLOYEES OF THE ASSE SSEE ARE GIVEN THE SATISFACTION BY THE DONATION MADE BY THE ASSESSEE T HAT THEIR EMPLOYERS HAVE TAKEN FULL CARE OF THE EDUCATION OF THEIR WARD AND SUCH A MENTAL SATISFACTION ON THE PART OF THE EMPLOYEES WOULD GEN ERATE GOOD WILL AND THE EXPENDITURE CAN BE REGARDED AS STAFF WELFARE EX PENDITURE AND ALLOWABLE AS BUSINESS EXPENDITURE. THE CONTRIBUTION MADE BY THE 128 ITA NO. 1351/DEL/2018 ASSESSEE TO THE PANCHAYAT HAS RESULTED IN THE BENEF IT OF THE ASSESSEES BUSINESS IN THE SENSE THAT THE ASSESSEES EMPLOYEES ARE THE BENEFICIARIES IN GETTING PREFERENTIAL ADMISSION IN THE SCHOOL. THE FACT THAT THE BENEFIT HAS PERCOLATED TO THE GENERAL PUBL IC WOULD NOT STAND IN THE WAY OF ASSESSEE GETTING THE NECESSARY DEDUCTION ONCE THE EXPENDITURE IS HELD TO BE BUSINESS EXPENDITURE. HEN CE, THE TRIBUNAL HAS COME TO THE CORRECT CONCLUSION THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS A REVENUE EXPENDITURE. IT SHOULD ALSO BE NOTED THAT THE CONTRIBUTION MADE TO THE PANCHAYAT WAS NOT IN CONTR AVENTION OF ANY LAW, NOR WAS IT OPPOSED TO PUBLIC POLICY. IN THIS V IEW OF THE MATTER, THE CONTRIBUTION MADE BY THE ASSESSEE TO THE PANCHAYAT FOR THE UP- GRADATION OF THE ELEMENTARY SCHOOL SHOULD BE REGARD ED AS AN ALLOWABLE BUSINESS EXPENDITURE UNDER THE PROVISIONS OF S. 37( 1). (IV) IN THE CASE OF CIT VS. CHEMICALS AND PLASTICS INDIA LTD. 292 ITR 115 (MAD.), THE ASSESSEE CLAIMED DEDUCTION IN RELATION TO CONTRIBUTION TO MADRAS CHAMBER OF COMMERCE, OF WHICH THE ASSESSEE W AS A MEMBER, AS BUSINESS EXPENDITURE. IT WAS CONTENDED THAT SINC E THE MAINTENANCE OF THE TRADE CHAMBER WAS FOR THE FURTHERANCE OF BUS INESS INTERESTS OF THE CONSTITUENTS OF THE CHAMBER, THE CONTRIBUTION M ADE HAD TO BE TREATED AS BUSINESS EXPENDITURE. THE ASSESSING OFFI CER REJECTED THE CLAIM FOR DEDUCTION, WHICH WAS ALLOWED BY THE TRIBU NAL. THE HON'BLE HIGH COURT APPROVED THE VIEW TAKEN BY THE ITAT BY H OLDING THAT SINCE ACTIVITIES OF THE CHAMBER OF COMMERCE WERE CLOSELY LINKED WITH THE WELFARE OF CORPORATE ENTITIES WHO WERE ITS MEMBERS AND WHOSE INTERESTS WERE TAKEN CARE OF BY THE CHAMBER, THE EXPENDITURE WAS DEDUCTIBLE, IRRESPECTIVE OF WHETHER THE EXPENSE INCURRED WAS CO MPULSORY OR OTHERWISE. (V) IN THE CASE OF CIT V. MADRAS REFINERIES LTD.: 266 I TR 170, THE MADRAS HIGH COURT OBSERVED AS UNDER: 129 ITA NO. 1351/DEL/2018 THE CONCEPT OF BUSINESS IS NOT STATIC. IT HAS EV OLVED OVER A PERIOD OF TIME TO INCLUDE WITHIN ITS FOLD THE CONCR ETE EXPRESSION OF CARE AND CONCERN FOR THE SOCIETY AT LARGE AND THE PEOPLE OF THE LOCALITY IN WHICH THE BUSINESS IS LOCATED IN PARTICULAR. BEING KNOWN AS A GOOD CORPORATE CITIZEN BRINGS GOODWILL OF THE LOCAL COMM UNITY, AS ALSO WITH THE REGULATORY AGENCIES AND THE SOCIETY AT LARGE, T HEREBY CREATING AN ATMOSPHERE IN WHICH THE BUSINESS CAN SUCCEED IN A G REATER MEASURE WITH THE AID OF SUCH GOODWILL. MONIES SPENT FOR BRI NGING DRINKING WATER AS ALSO FOR ESTABLISHING OR IMPROVING THE SCHOOL ME ANT FOR THE RESIDENTS OF THE LOCALITY IN WHICH THE BUSINESS IS SITUATED C ANNOT BE REGARDED AS BEING WHOLLY OUTSIDE THE AMBIT OF THE BUSINESS CONC ERNS OF THE ASSESSEE, ESPECIALLY WHERE THE UNDERTAKING OWNED BY THE ASSESSEE IS ONE WHICH IS TO SOME EXTENT A POLLUTING INDUSTRY. T HE TRIBUNAL WAS RIGHT IN ALLOWING THE DEDUCTION OF THE ENTIRE EXPENDITURE OF RS. 15,32,000 AS BUSINESS EXPENDITURE. (VI) IN THE CASE OF HINDUSTAN PETROLEUM CORPN. LTD. VS. DCIT 96 ITD 186 (BOM.), THE ASSESSEE COMPANY INCURRED CERTAIN EXPEN DITURE TOWARDS IMPLEMENTATION OF 20 POINT PROGRAMME. THE EXPENDITU RE WAS INCURRED TO IMPROVE THE CONDITIONS OF SC/ST IN PURSUANCE OF NATIONAL POLICIES AND TO HELP ACCELERATION OF ALL ROUND DEVELOPMENT O F VILLAGES BY PROVIDING ASSISTANCE TO EDUCATED UNEMPLOYED TO EARN A LIVING. THE ASSESSING OFFICER HELD THAT SINCE THE EXPENDITURE W AS IN THE NATURE OF DONATION, THE SAME COULD NOT BE ALLOWED DEDUCTION. THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER BY HOLDING THAT THE EXPENDITURE INCURRED DID NOT HAVE ANY DIRECT CONNECTION WITH TH E BUSINESS OF THE ASSESSEE BECAUSE THE BENEFICIARIES OF THE EXPENDITU RE WERE NOT EMPLOYEES OF THE ASSESSEE NOR HAD THE ASSESSEE ANY STATUTORY OBLIGATION TO INCUR SUCH EXPENDITURE. ON SECOND APP EAL, BY MAKING REFERENCE TO VARIOUS AUTHORITIES INCLUDING THE DECI SION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MYSORE KIRLOSKA R LTD. VS. CIT 130 ITA NO. 1351/DEL/2018 (SUPRA), THE ITAT UPHELD THE CLAIM OF THE ASSESSEE. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER: IT HAS BEEN HELD BY THE KARNATAKA HIGH COURT IN TH E CASE OF MYSORE KIRLOSKAR LTD. VS. CIT (1987] 166 ITR 836/30 TAXMAN 467 THAT WHILE THE BASIC REQUIREMENTS FOR INVOKING SECTIONS 37(1) AND 80G ARE QUITE DIFFERENT, BUT NONETHELESS THE TWO SECTIONS ARE NOT MUTUALLY EXCLUSIVE. THUS, THERE ARE OVERLAPPING AREAS BETWEEN THE DONA TIONS GIVEN BY THE ASSESSEE AND THE BUSINESS. IN OTHER WORDS, THERE CA N BE CERTAIN AMOUNTS, THOUGH IN THE NATURE OF DONATIONS, AND NON ETHELESS, THESE AMOUNTS MAY BE DEDUCTIBLE UNDER SECTION 37(1) AS WE LL. THEREFORE, MERELY BECAUSE THE EXPENDITURE IN QUESTION WAS IN T HE NATURE OF DONATION, OR, AS PER THE WORDS OF THE COMMISSIONER (APPEALS), 'PROMPTED BY ALTRUISTIC MOTIVES', IT DID NOT CEASE TO BE AN EXPENDITURE DEDUCTIBLE UNDER SECTION 37(1). IN THE CASE OF MYSO RE KIRLOSKAR LTD. (SUPRA), THE HIGH COURT OBSERVED THAT EVEN IF THE CONTRIBUTION BY THE ASSESSEE IS IN THE FORM OF DONATIONS, BUT IF IT COU LD BE TERMED AS EXPENDITURE OF THE CATEGORY FALLING IN SECTION 37(1 ), THEN THE RIGHT OF THE ASSESSEE TO CLAIM THE WHOLE OF IT AS A DEDUCTION UN DER SECTION 37(1) CANNOT BE DECLINED. WHAT IS MATERIAL IN THIS CONTEX T IS WHETHER THE EXPENDITURE IN QUESTION WAS IN QUESTION WAS NECESSI TATED BY BUSINESS CONSIDERATIONS OR NOT. ONCE IT IS FOUND THAT THE E XPENDITURE WAS DICTATED BY COMMERCIAL EXPEDIENCIES, THE DEDUCTION UNDER SECTION 37(1) CANNOT BE DECLINED. IN THE INSTANT CASE, THE EXPENDITURE ON 20-POINT P ROGRAMME WAS INCURRED IN VIEW OF SPECIFIC DIRECTIONS OF THE GOVE RNMENT OF INDIA. IT COULD NOT BUT BE THE BUSINESS INTEREST OF THE ASSES SEE TO ABIDE BY THE DIRECTIONS OF THE GOVERNMENT OF INDIA WHICH ALSO OW NED THE ASSESSEE. FURTHER, THE EXPENDITURE INCURRED FOR THE IMPLEMENT ATION OF 20-POINT PROGRAMME WAS SOLELY FOR THE WELFARE OF THE OPPRESS ED CLASSES OF SOCIETY, FOR WHICH EVEN THE CONSTITUTION OF INDIA S ANCTIONS POSITIVE 131 ITA NO. 1351/DEL/2018 DISCRIMINATION AND FOR CONTRIBUTION TO ALL AROUND D EVELOPMENT OF VILLAGES, WHICH HAS ALWAYS BEEN THE CENTRAL THEME O F GOVERNMENT'S DEVELOPMENT INITIATIVES. AN EXPENDITURE OF SUCH A N ATURE CANNOT BUT BE, 'A CONCRETE EXPRESSION OF CARE AND CONCERN FOR THE SOCIETY AT LARGE AND AN EXPENDITURE TO DISCHARGE THE RESPONSIBILITIES OF A 'GOOD CORPORATE CITIZEN WHICH BRINGS GOODWILL OF WITH THE REGULATOR Y AGENCIES AND SOCIETY AT LARGE, THEREBY CREATING AN ATMOSPHERE IN WHICH THE BUSINESS CAN SUCCEED IN A GREATER MEASURE WITH THE AID OF SU CH GOODWILL' . JUST BECAUSE THE EXPENDITURE WAS VOLUNTARY IN NATURE AND WAS NOT FORCED ON THE ASSESSEE BY A STATUTORY OBLIGATION, IT COULD NOT CEASE TO BE A BUSINESS EXPENDITURE. 236) FURTHER, THE INSERTION OF EXPLANATION 2 TO SEC TION 37(1) HAS BEEN INSERTED W.E.F. 01/04/2015 AND SHALL BE APPLICABLE FOR THE ASSESSMENT YEAR 2015 16 ONWARDS AND THEREFORE SAME DOES NOT APPLY TO THE ASSESSMENT YEAR IN QUESTION BEFORE US IN THIS APPEA L. IN VIEW OF THE ABOVE WE AGREE WITH THE FINDINGS OF THE LD DRP AND DISMI SS THE GROUND NO 11 OF APPEAL RAISED BY THE DEPARTMENT. THE AFORESAID DISALLOWANCE MADE BY THE ASSESSING OF FICER IN THE PRECEDING YEARS, VIZ. AY 2010-11 AND AY 2011-12 HAS BEEN DELE TED BY THE TRIBUNAL VIDE RECENT CONSOLIDATED ORDER DATED 24.10.2016, WH EREIN THE TRIBUNAL HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE COMPA NY ON CORPORATE SOCIAL RESPONSIBILITY, PRIOR TO INSERTION OF EXPLANATION 2 TO SECTION 37(1) OF THE ACT, WAS AN ALLOWABLE BUSINESS DEDUCTION UNDER THE SAID PROVISION. THE TRIBUNAL, IN THE SAID ORDER, FURTHER ELABORATED THAT THE ROLE OF THE ASSESSEE WAS NOT RESTRICTED TO MERELY EARNING PROFIT, BUT ALSO DISCH ARGING CERTAIN COMMUNITY RELATED EXPENSES, WHICH WOULD BE CONSIDERED TO HAVE BEEN INCURRED ON ACCOUNT OF COMMERCIAL/ BUSINESS EXPEDIENCY. IT IS P ERTINENT TO POINT OUT THAT NO APPEAL HAS BEEN FILED BY THE DEPARTMENT IN ASSES SMENT YEAR 2011-12. THUS, THE DECISION OF THE TRIBUNAL ATTAINS FINALITY . THEREFORE, GROUND NO. 37 TO 37.1 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 132 ITA NO. 1351/DEL/2018 THE ROLE OF THE ASSESSEE WAS NOT RESTRICTED TO MERE LY EARNING PROFIT, BUT ALSO DISCHARGING CERTAIN COMMUNITY RELATED EXPENSES, WHI CH WOULD BE CONSIDERED TO HAVE BEEN INCURRED ON ACCOUNT OF COMMERCIAL/ BUSINE SS EXPEDIENCY. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11 , 2011-12, 2012-13 AND 2013-14. BESIDES THAT NO APPEAL HAS BEEN FILED BY T HE REVENUE BEFORE THE HONBLE HIGH COURT IN A.Y. 2011-12, THUS, THE DECIS ION OF THE TRIBUNAL ATTAINS FINALITY. HENCE GROUND NO. 31 IS ALLOWED. 92. AS REGARDS GROUND NO. 32 IS RELATING TO DISALLO WANCE OF DEDUCTION U/S 80IC AMOUNTING TO RS. 7.53 CRORES, BEING THE PROPO RTIONATE AMOUNT OF SALES TO VENDORS FOR PROCESSING OF SEMI-FINISHED GOODS SUPPL IED BY THE ASSESSEE , COMPUTED ON AD-HOC BASIS, ON THE GROUND THAT MANUFA CTURING ACTIVITY TO THE AFORESAID EXTENT OF SALES WAS OUTSOURCED. DURING T HE YEAR, THE ASSESSEE CLAIMED A DEDUCTION UNDER SECTION 80IC OF THE ACT W ITH RESPECT TO PROFITS FROM MANUFACTURING ACTIVITY CARRIED OUT AT HARIDWAR. THE ASSESSEE HAD ENGAGED VARIOUS ANCILLARY UNITS/THIRD PARTIES TO CARRY JOB- WORK/PROCESSING ON THE COMPONENTS SUPPLIED BY THE ASSESSEE FOR FURTHER CON SUMPTION OF SUCH FINISHED COMPONENTS IN THE ACTIVITY OF MANUFACTURE OF TWO WH EELERS. THE ASSESSING OFFICER OBSERVED THAT SUPPLY/SALE OF SEMI-FINISHED COMPONENTS TO THE VENDORS FOR FURTHER PROCESSING AND CONSUMPTION THEREOF IN A SSEMBLY/MANUFACTURE OF TWO WHEELERS CONSTITUTED OUTSOURCING OF MANUFACTURI NG ACTIVITY. IN VIEW OF THE SAME, THE ASSESSING OFFICER DISALLOWED DEDUCTION UN DER SECTION 80IC OF THE ACT BY AN AMOUNT OF RS. 7.53 CRORES, BEING THE PROPORTI ONATE AMOUNT OF SALES OF RS. 57.72 CRORES TO VENDORS FOR FURTHER PROCESSING OF S EMI-FINISHED GOODS SUPPLIED BY THE APPELLANT, ATTRIBUTED IN THE RATIO OF TOTAL PROFITS OF THE ELIGIBLE UNDERTAKING TO TOTAL SALES OF THAT UNDERTAKING, ON AD-HOC BASIS, ON THE GROUND THAT MANUFACTURING ACTIVITY TO THE AFORESAID EXTENT OF SALES WAS OUTSOURCED AND, THEREFORE, PROPORTIONATE AMOUNT OF PROFIT DERI VED THEREFROM WAS NOT ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. 133 ITA NO. 1351/DEL/2018 93. THE LD. AR SUBMITTED THAT THE AFORESAID ISSUE S TANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE INASMUCH AS THE TRIBUNAL WHI LE ADJUDICATING UPON THE ISSUE OF DISALLOWANCE U/S 80IC ON ACCOUNT OF JOB WO RK/ OUTSOURCING OF MANUFACTURING ACTIVITY IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS, I.E. AY 2010-11 AND AY 2011-12, HELD THAT OUTSOURCING OF CE RTAIN INTERMEDIARY PROCESSES OR PROCUREMENT OF FINISHED COMPONENTS IN THE PROCESS OF MANUFACTURE DOES NOT TANTAMOUNT TO OUTSOURCING OF M ANUFACTURING ACTIVITIES AND THUS WOULD NOT HAMPER THE CLAIM OF DEDUCTION OF THE ASSESSEE COMPANY UNDER SECTION 80 IC OF THE ACT. THE LD. AR POINTED OUT THAT NO APPEAL HAS BEEN FILED BY THE DEPARTMENT BEFORE THE HONBLE DELHI HI GH COURT. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 201 3-14, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWIN G THE ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. 94. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 95. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 100. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-1 2 HELD AS UNDER: 150) WE HAVE HEARD THE RIVAL CONTENTIONS. ON QUERY FROM THE BENCH, THE APPELLANT HAD FURNISHED THE PROCESS CHART FOR MANUF ACTURING OF FINAL PRODUCTS FOLLOWED IN ALL THE THREE UNITS. ON PERUSA L OF THE SAME, IT WAS NOTED THAT SINCE PLANT AT HARIDWAR WAS A NEW PLANT AND GURGAON AND DHARUHERA WERE OLD PLANTS, CERTAIN INITIAL PROCESSE S, LIKE PRESS SHOP, HEAT TREATMENT, ETC., WHICH WAS CARRIED OUT AT THE LATTE R UNIT WERE NOT CARRIED OUT AT THE UNIT AT HARIDWAR. THE AFORESAID LEND SUP PORT TO THE ARGUMENT MADE BY THE APPELLANT FOR JUSTIFYING THE LOWER CONS UMPTION OF ELECTRICITY AT HARIDWAR AS COMPARED TO ELECTRICITY CONSUMED IN OTH ER TWO UNITS. THAT 134 ITA NO. 1351/DEL/2018 APART, EVEN ASSUMING THAT CERTAIN INTERMEDIARY PROC ESSES WERE NOT CARRIED OUT BY THE ELIGIBLE UNIT AT HARIDWAR AND WERE OUTSO URCED TO THE THIRD PARTIES OR NON-ELIGIBLE UNITS, THE SAME CANNOT LEAD TO THE CONCLUSION THAT THE ENTIRE PROFITS ARE NOT DERIVED FROM THE MANUFAC TURING ACTIVITY FOR BEING LIABLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. THE PROFIT EARNED BY THE ELIGIBLE UNIT IS FROM MANUFACTURING OF TWO WHEELERS , WHICH IS AN ELIGIBLE ACTIVITY COVERED UNDER SECTION 80IC OF THE ACT. OUT SOURCING OF CERTAIN INTERMEDIARY PROCESSES OR PROCUREMENT OF SOME FINIS HED COMPONENTS FOR ASSEMBLY THEREOF IN THE VEHICLE DOES NOT, IN OUR VI EW, MEAN OUTSOURCING OF THE MANUFACTURING OPERATIONS. THE COURTS HAVE IN FA CT REPEATEDLY HELD THAT EVEN WHERE THE ENTIRE MANUFACTURING ACTIVITIES ARE OUTSOURCED OR CARRIED OUT BY THIRD PARTY, BUT THE OVERALL SUPERVISION, CO NTROL, AND MANAGEMENT OF THE PRODUCT MANUFACTURED IS WITH THE ASSESSEE, THE ASSESSEE WOULD BE REGARDED AS ENGAGED IN MANUFACTURE OR PRODUCTION OF RELEVANT GOODS. THE LATEST IS THE DECISION OF DELHI HIGH COURT IN THE C ASE OF ITO V AAR ESS EXIM (P) LTD: 372 ITR 111. THUS, DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE AFORESAID GROUND WAS NOT BASED ON AN Y VALID REASONS AND ACCORDINGLY THE SAME IS DELETED AND GROUND 32 OF AP PEAL IS ALLOWED. THE AFORESAID ISSUE STANDS SQUARELY COVERED IN FAVO UR OF THE ASSESSEE INASMUCH AS THE TRIBUNAL WHILE ADJUDICATING UPON TH E ISSUE OF DISALLOWANCE U/S 80IC ON ACCOUNT OF JOB WORK/ OUTSOURCING OF MAN UFACTURING ACTIVITY IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS, I.E. AY 201 0-11 AND AY 2011-12, HELD THAT OUTSOURCING OF CERTAIN INTERMEDIARY PROCE SSES OR PROCUREMENT OF FINISHED COMPONENTS IN THE PROCESS OF MANUFACTURE D OES NOT TANTAMOUNT TO OUTSOURCING OF MANUFACTURING ACTIVITIES AND THUS WO ULD NOT HAMPER THE CLAIM OF DEDUCTION OF THE ASSESSEE COMPANY UNDER SECTION 80 IC OF THE ACT. IT IS ALSO PERTINENT TO MENTION THAT NO APPEAL HAS BEEN FILED BY THE DEPARTMENT BEFORE THE HONBLE DELHI HIGH COURT. THESE FACT ARE IDENTI CAL WITH THE PRESENT ASSESSMENT YEARS. THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS ORDER FOR A.YS. 2010-11 & 2011-12. B ESIDES THIS THE REVENUE 135 ITA NO. 1351/DEL/2018 HAS ACCEPTED THIS ISSUE AND HAS NOT CHALLENGED THE SAME IN HONBLE HIGH COURT. THUS, THIS ISSUE ATTAINS FINALITY. THEREFOR E, GROUND NO. 38 TO 38.1 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. WE FULLY AGREE WITH THE FINDINGS OF THE TRIBUNAL IN A.YS. 2010-11 TO 2013-14 THAT OUTSOURCING OF CERTAIN INTERMEDIARY PROCESSES OR PROCUREMENT OF FINISHED COMPONENTS IN THE PROCESS OF MANUFACTURE DOES NOT T ANTAMOUNT TO OUTSOURCING OF MANUFACTURING ACTIVITIES AND THUS WOULD NOT HAMP ER THE CLAIM OF DEDUCTION OF THE ASSESSEE COMPANY UNDER SECTION 80 IC OF THE ACT. IT IS ALSO PERTINENT TO MENTION THAT NO APPEAL HAS BEEN FILED BY THE DEPART MENT BEFORE THE HONBLE DELHI HIGH COURT. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE S IMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBU NAL FOR A.YS. 2010-11, 2011- 12, 2012-13 AND 2013-14. BESIDES THAT NO APPEAL HAS BEEN FILED BY THE REVENUE BEFORE THE HONBLE HIGH COURT IN A.Y. 2011- 12, THUS, THE DECISION OF THE TRIBUNAL ATTAINS FINALITY. HENCE GROUND NO. 32 IS ALLOWED. 96. AS REGARDS GROUND NO. 33 IS RELATING TO DISALLO WANCE OF DEDUCTION U/S 80IC AMOUNTING TO RS. 71.62 CRORES ON THE GROUND TH AT PART OF THE MANUFACTURING ACTIVITY (IES) AT HARIDWAR WERE OUTSO URCED ON THE BASIS OF LOWER CONSUMPTION OF POWER PER UNIT AT HARIDWAR PLANT VIS --VIS RATE OF POWER CONSUMPTION AT OTHER TWO PLANTS. THE ASSESSEE IS EN GAGED IN THE BUSINESS OF MANUFACTURING TWO-WHEELERS, WHICH, INTER ALIA, INVO LVES VARIOUS PROCESSES INCLUDING ASSEMBLY OF CERTAIN COMPONENTS OF TWO-WHE ELERS LIKE, GEAR, FUEL TANK, ENGINE, ETC. IT IS ON COMPLETION OF THESE PROCESSES INCLUDING ASSEMBLY OF THE AFORESAID EACH COMPONENTS THAT A SEPARATE AND DISTI NCT PRODUCT, VIZ., TWO- WHEELER, COMES INTO BEING. THE ONLY DIFFERENCE IN T HE MANUFACTURING ACTIVITY CARRIED ON AT HARIDWAR PLANT AND OTHER UNITS IS THA T IN THE LATTER UNITS, CERTAIN PROCESSES LIKE PRESS SHOP, HEAT TREATMENT, ETC., IS CARRIED OUT AT SUCH UNITS, WHEREAS THESE PROCESSES ARE NOT CARRIED OUT IN ELIG IBLE UNIT AT HARIDWAR. ACCORDINGLY, ON QUERY BY THE ASSESSING OFFICER REGA RDING LOWER CONSUMPTION OF ELECTRICITY, THE ASSESSEE FURNISHED DETAILS OF POWE R CONSUMED AT ALL THE THREE 136 ITA NO. 1351/DEL/2018 MANUFACTURING PLANTS IN THE FOLLOWING FORMAT: UNITS ELECTRICITY CONSUMED PRODUCTION FIGURES (IN UNITS) (IN QUANTITY) HARIDWAR 1,55,08,625 6,29,775 GURGAON 5,58,83,492 15,58,928 DHARUHERA 4,77,08,619 15,33,141 THE ASSESSING OFFICER ON THE BASIS OF LOWER CONSUMP TION OF ELECTRICITY PER UNIT AT HARIDWAR VIS-A-VIS AVERAGE RATE OF CONSUMPTION O F ELECTRICITY PER UNIT AT GURGAON AND DHARUHERA PLANTS, ASSUMED THAT PART OF MANUFACTURING ACTIVITIES AT HARIDWAR PLANT WERE OUTSOURCED AND ACCORDINGLY, DISALLOWED PROPORTION OF OUTSOURCED MANUFACTURING ACTIVITIES IN THE FOLLOWIN G MANNER: PARTICULARS HARIDWAR DHARUHERA GURGAON POWER CONSUMPTION(KWH) 1,55,08,625 4,77,08,619 5,58,83,492 UNITS MANUFACTURED(NO.) 6,29,775 15,33,141 15,58,928 CONSUMPTION PER UNIT (KWH) 24.63 31.12 35.85 AVERAGE CONSUMPTION AT GURGAON AND DHARUHERA 33.48 TOTAL DEDUCTION U/S 80IC (CRORES) 270.74 ALLOWABLE (CRORES) [(15.64/30.01) *1129.63)] 199.12 TO DISALLOWED (CRORES) 71.62 THUS, THE ASSESSING OFFICER PROPOSED DISALLOWANCE O F DEDUCTION UNDER SECTION 80IC BY AN AMOUNT OF RS.71.62 CRORES ON THE GROUND THAT PART OF THE MANUFACTURING ACTIVITIES WERE OUTSOURCED. 97. THE LD. AR SUBMITTED THAT THE AFORESAID ISSUE STANDS SQUARELY COVERED 137 ITA NO. 1351/DEL/2018 IN FAVOUR OF THE ASSESSEE IN LIGHT OF THE FACT THAT DISALLOWANCE MADE BY THE ASSESSING OFFICER ON IDENTICAL GROUND IN THE IMMEDI ATELY PRECEDING ASSESSMENT YEARS, I.E. AY 2010-11 AND AY 2011-12 HAS BEEN DELE TED BY THE TRIBUNAL VIDE CONSOLIDATED ORDER DATED 24.10.2016, WHEREIN THE TR IBUNAL NOTED THAT DIFFERENCE IN CONSUMPTION OF ELECTRICITY WAS ON ACC OUNT OF THE FACT THAT THE PLANT AT HARIDWAR WAS MORE ENERGY-EFFICIENT AND HEN CE CERTAIN PROCESSES WERE CARRIED OUT IN SAID PLANT. THE TRIBUNAL FURTHER HEL D THAT OUTSOURCING OF CERTAIN INTERMEDIARY PROCESSES OR PROCUREMENT OF FINISHED C OMPONENTS IN THE PROCESS OF MANUFACTURE DOES NOT TANTAMOUNT TO OUTSOURCING O F MANUFACTURING ACTIVITIES AND THUS WOULD NOT HAMPER THE CLAIM OF D EDUCTION OF THE ASSESSEE COMPANY UNDER SECTION 80 IC OF THE ACT. THE LD. AR POINTED OUT THAT NO APPEAL HAS BEEN FILED BY THE DEPARTMENT BEFORE THE HIGH COURT. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 201 3-14, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWIN G THE ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. 98. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 99. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 104. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-1 2 HELD AS UNDER: 150) WE HAVE HEARD THE RIVAL CONTENTIONS. ON QUERY FROM THE BENCH, THE APPELLANT HAD FURNISHED THE PROCESS CHART FOR MANUF ACTURING OF FINAL PRODUCTS FOLLOWED IN ALL THE THREE UNITS. ON PERUSA L OF THE SAME, IT WAS NOTED THAT SINCE PLANT AT HARIDWAR WAS A NEW PLANT AND GURGAON AND DHARUHERA WERE OLD PLANTS, CERTAIN INITIAL PROCESSE S, LIKE PRESS SHOP, HEAT TREATMENT, ETC., WHICH WAS CARRIED OUT AT THE LATTE R UNIT WERE NOT CARRIED OUT AT THE UNIT AT HARIDWAR. THE AFORESAID LEND SUP PORT TO THE ARGUMENT 138 ITA NO. 1351/DEL/2018 MADE BY THE APPELLANT FOR JUSTIFYING THE LOWER CONS UMPTION OF ELECTRICITY AT HARIDWAR AS COMPARED TO ELECTRICITY CONSUMED IN OTH ER TWO UNITS. THAT APART, EVEN ASSUMING THAT CERTAIN INTERMEDIARY PROC ESSES WERE NOT CARRIED OUT BY THE ELIGIBLE UNIT AT HARIDWAR AND WERE OUTSO URCED TO THE THIRD PARTIES OR NON-ELIGIBLE UNITS, THE SAME CANNOT LEAD TO THE CONCLUSION THAT THE ENTIRE PROFITS ARE NOT DERIVED FROM THE MANUFAC TURING ACTIVITY FOR BEING LIABLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. THE PROFIT EARNED BY THE ELIGIBLE UNIT IS FROM MANUFACTURING OF TWO WHEELERS , WHICH IS AN ELIGIBLE ACTIVITY COVERED UNDER SECTION 80IC OF THE ACT. OUT SOURCING OF CERTAIN INTERMEDIARY PROCESSES OR PROCUREMENT OF SOME FINIS HED COMPONENTS FOR ASSEMBLY THEREOF IN THE VEHICLE DOES NOT, IN OUR VI EW, MEAN OUTSOURCING OF THE MANUFACTURING OPERATIONS. THE COURTS HAVE IN FA CT REPEATEDLY HELD THAT EVEN WHERE THE ENTIRE MANUFACTURING ACTIVITIES ARE OUTSOURCED OR CARRIED OUT BY THIRD PARTY, BUT THE OVERALL SUPERVISION, CO NTROL, AND MANAGEMENT OF THE PRODUCT MANUFACTURED IS WITH THE ASSESSEE, THE ASSESSEE WOULD BE REGARDED AS ENGAGED IN MANUFACTURE OR PRODUCTION OF RELEVANT GOODS. THE LATEST IS THE DECISION OF DELHI HIGH COURT IN THE C ASE OF ITO V AAR ESS EXIM (P) LTD: 372 ITR 111. THUS, DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE AFORESAID GROUND WAS NOT BASED ON AN Y VALID REASONS AND ACCORDINGLY THE SAME IS DELETED AND GROUND 32 OF AP PEAL IS ALLOWED. THE AFORESAID ISSUE STANDS SQUARELY COVERED IN FAVO UR OF THE ASSESSEE IN LIGHT OF THE FACT THAT DISALLOWANCE MADE BY THE ASSESSING OFFICER ON IDENTICAL GROUND IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR S, I.E. AY 2010-11 AND AY 2011-12 HAS BEEN DELETED BY THE TRIBUNAL VIDE CO NSOLIDATED ORDER DATED 24.10.2016 WHEREIN THE TRIBUNAL NOTED THAT DIFFEREN CE IN CONSUMPTION OF ELECTRICITY WAS ON ACCOUNT OF THE FACT THAT THE PLA NT AT HARIDWAR WAS MORE ENERGY-EFFICIENT AND HENCE CERTAIN PROCESSES WERE C ARRIED OUT IN SAID PLANT. THE TRIBUNAL FURTHER HELD THAT OUTSOURCING OF CERTA IN INTERMEDIARY PROCESSES OR PROCUREMENT OF FINISHED COMPONENTS IN THE PROCES S OF MANUFACTURE DOES NOT TANTAMOUNT TO OUTSOURCING OF MANUFACTURING ACTIVITI ES AND THUS WOULD NOT 139 ITA NO. 1351/DEL/2018 HAMPER THE CLAIM OF DEDUCTION OF THE ASSESSEE COMPA NY UNDER SECTION 80 IC OF THE ACT. IT IS ALSO PERTINENT TO MENTION THAT NO APPEAL HAS BEEN FIELD BY THE DEPARTMENT BEFORE THE HIGH COURT. THESE FACTS ARE I DENTICAL WITH THE PRESENT ASSESSMENT YEAR. THE ISSUE IS SQUARELY COVERED IN F AVOUR OF THE ASSESSEE BY THE TRIBUNALS ORDER FOR A.YS. 2010-11 & 2011-12. B ESIDES THIS THE REVENUE HAS ACCEPTED THIS ISSUE AND HAS NOT CHALLENGED THE SAME IN HONBLE HIGH COURT. THUS, THIS ISSUE ATTAINS FINALITY. THEREFORE , GROUND NO. 39 TO 39.1 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. IN THE PRESENT ASSESSMENT YEAR ALSO DIFFERENCE IN C ONSUMPTION OF ELECTRICITY WAS ON ACCOUNT OF THE FACT THAT THE PLANT AT HARIDW AR WAS MUCH MORE ENERGY- EFFICIENT THAN OTHER PLANTS AND THEREFORE, CERTAIN PROCESSES WERE CARRIED OUT IN SAID PLANT. THUS, OUTSOURCING OF CERTAIN INTERMEDIA RY PROCESSES OR PROCUREMENT OF FINISHED COMPONENTS IN THE PROCESS OF MANUFACTUR E DOES NOT TANTAMOUNT TO OUTSOURCING OF MANUFACTURING ACTIVITIES AND THEREFO RE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT IS JUST AND PROPER. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. BE SIDES THAT NO APPEAL HAS BEEN FILED BY THE REVENUE BEFORE THE HONBLE HIGH C OURT IN A.Y. 2011-12, THUS, THE DECISION OF THE TRIBUNAL ATTAINS FINALITY. HENC E GROUND NO. 33 IS ALLOWED. 100. AS REGARDS GROUND NO. 34 TO 34.2 ARE RELATING TO DISALLOWANCE OF DEDUCTION U/S 80IC OF THE ACT ON ACCOUNT OF INTER-U NIT TRANSFER OF GOODS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G TWO-WHEELERS. FOR THE AFORESAID ACTIVITY, THE ASSESSEE PURCHASES VARIOUS COMPONENTS REQUIRED TO BE USED IN THE ASSEMBLY OF TWO-WHEELERS, LIKE GEAR BOX , FUEL TANK, ETC., FROM THIRD PARTY VENDORS. IN THE PRESENT TRANSACTION, THE AFOR ESAID COMPONENTS WERE FIRST PURCHASED BY NON-ELIGIBLE UNITS AT GURGAON OR DHARU HERA FROM THIRD PARTIES, DUE TO PROXIMITY OF LOCATION OF SUCH UNITS WITH THI RD PARTIES, BUSINESS RELATIONSHIP, ETC. AND WERE THEREAFTER TRANSFERRED AT THE SAME PURCHASE PRICE TO THE ELIGIBLE UNIT AT HARIDWAR. IN SUCH A TRANSACTIO N, NO VALUE ADDITION IN SUCH 140 ITA NO. 1351/DEL/2018 COMPONENTS WAS CARRIED OUT BY THE NON-ELIGIBLE UNIT S. IN THE BOOKS OF ACCOUNTS OF THE PLANT AT HARIDWAR, WHICH IS ELIGIBLE FOR DED UCTION UNDER SECTION 80IC OF THE ACT, GOODS AGGREGATING TO RS. 10,44.47.042, WER E SHOWN TO HAVE BEEN PROCURED FROM OTHER UNITS, I.E., DHARUHERA AND GURG AON PLANTS. OUT OF THE AGGREGATE TRANSACTIONS OF RS. 10,44,47,042, (I) COM PONENTS HAVING VALUE OF RS.4.78 CRORES WERE SEMI-FINISHED GOODS FOR WHICH N OMINAL PROCESSING WAS CARRIED OUT AT OTHER UNITS BEFORE TRANSFER TO THE H ARIDWAR PLANT, AND (II) BALANCE COMPONENTS HAVING VALUE OF RS. 5.66 CRORES WERE PRO CURED BY THE AFORESAID NON-ELIGIBLE UNITS FROM THIRD PARTIES AND WERE TRAN SFERRED TO THE ELIGIBLE UNIT AT MATERIAL COST. FREIGHT CHARGES ON TRANSFER OF THE A FORESAID ITEMS WERE ALWAYS BOOKED AT THE RECEIVING UNIT. IN THE ASSESSMENT ORD ER, THE ASSESSING OFFICER APPLIED THE PROVISIONS OF SECTION 80IA(8) READ WITH SECTION 80IC(7) OF THE ACT AND DISALLOWED DEDUCTION UNDER SECTION 80-1C BY AN AMOUNT OF 1,21.00,000, HOLDING THAT FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER THE LATTER SECTION, INTER-UNIT TRANSFER OF GOODS SHOULD HAVE BEEN RECOR DED AT MARKET PRICE, INSTEAD OF COST PRICE AS CARRIED OUT BY THE ASSESSE E. ACCORDINGLY, THE ASSESSING OFFICER ATTRIBUTED MARKUP OF RS.0.36%, BEING THE NE T PROFIT RATE OF GURGAON UNIT, ON THE COST OF GOODS AGGREGATING TO RS. 5.66 CRORES, PROCURED BY THE ELIGIBLE UNIT AT HARIDWAR FROM GURGAON UNIT, WHICH WAS PURCHASED AND TRANSFERRED WITHOUT PROCESSING, THUS REDUCING THE Q UANTUM OF DEDUCTION BY RS. 0.59 CRORES. WITH RESPECT TO THE OTHER PURCHASE OF RS. 4.78 CRORES, BEING SEMI-FINISHED GOODS FOR WHICH NOMINAL PROCESSING WA S CARRIED OUT AT OTHER UNITS BEFORE TRANSFER TO THE HARIDWAR PLANT, THE AS SESSING OFFICER, FOR REASONS SIMILAR DISCUSSED IN GROUND OF APPEAL NO. 28-33 (SU PRA), VIZ., OUTSOURCING OF MANUFACTURING ACTIVITY, DISALLOWED DEDUCTION UNDER SECTION 80IC OF THE ACT BY AN AMOUNT OF RS.0.62 CRORES, BEING THE PROPORTIONAT E AMOUNT OF PURCHASES OF RS. 4.78 CRORES COMPUTED ON AD-HOC BASIS, ON THE GR OUND THAT MANUFACTURING ACTIVITY TO THE AFORESAID EXTENT OF PURCHASES WAS O UTSOURCED AND. THEREFORE, PROPORTIONATE AMOUNT OF PROFIT DERIVED FROM SUCH PU RCHASES WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. 141 ITA NO. 1351/DEL/2018 101. THE LD. AR POINTED OUT THAT THE AFORESAID ISSU E STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE, BY THE ORDER DATED 24.10 .2016 PASSED BY TRIBUNAL IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS, I.E. AY 2010-11 AND AY 2011-12, WHEREIN IDENTICAL DISALLOWANCE MADE BY THE ASSESSIN G OFFICER HAS BEEN DELETED. THE TRIBUNAL, IN ALLOWING THE CLAIM OF THE ASSESSEE UNDER SECTION 80-IC OF THE ACT, HELD THAT FOR THE PURPOSE OF COMPUTING MARKET PRICE OF INTER-UNIT TRANSFER OF GOODS, WHEN THE NON-ELIGIBLE UNITS PROCURED GOOD S AT MARKET PRICE FROM THIRD PARTY VENDORS AND SUPPLIED THE SAME TO THE ELIGIBLE UNIT AT THE SAME PURCHASE PRICE AS INCREASED BY THE APPLICABLE FREIGHT COST, NO FURTHER SUBSTITUTION OF SUCH PRICE IS WARRANTED IN TERMS OF SECTION 80IA(8) OF THE ACT AND THE TRANSACTION WAS A GENUINE BUSINESS TRANSACTION BORN E OUT OF COMMERCIAL EXPEDIENCY. WHILE DECIDING THE APPEAL FOR THE ASSES SMENT YEARS 2012-13 AND 2013-14, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12 . 102. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AN D ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL AND THE HONBLE HIGH COURT. 103. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A. Y. 2012-13 HELD AS UNDER : 108. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-1 2 HELD AS UNDER: 140) WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE OBSERVED THAT MERELY BECAUSE THERE WAS INTER-UNIT TRANSFER OF CERTAIN GO ODS FROM NON-ELIGIBLE UNIT TO ELIGIBLE UNIT, THE ASSESSING OFFICER AUTOMA TICALLY APPLIED THE PROVISIONS OF SECTION 80IA(8) OF THE ACT TO HOLD TH AT SUCH TRANSFER SHOULD HAVE BEEN AT MARKET PRICE WITHOUT LOOKING TO THE NA TURE OF TRANSFER AND THE FACTS AND CIRCUMSTANCES OF THE CASE. IT HAS BEEN EX PLAINED BY THE APPELLANT THAT SUBSTANTIVE TRANSFERS WERE MADE ON A CCOUNT OF SOME FINISHED COMPONENTS PROCURED BY THE NON-ELIGIBLE UN IT FROM THIRD PARTY 142 ITA NO. 1351/DEL/2018 VENDORS, DUE TO PROXIMITY OF LOCATION/RELATIONSHIP, FOR FURTHER TRANSFER TO THE ELIGIBLE UNIT. THE FREIGHT CHARGES INCURRED IN RELATION TO THE PROCUREMENT AND FURTHER TRANSFER FROM NON-ELIGIBLE TO ELIGIBLE UNIT HAVE BEEN STATED TO BE BORNE BY THE ELIGIBLE UNIT. WE FIND FORCE IN THE AF ORESAID FACTS STATED BY THE APPELLANT, CONSIDERING THAT THE UNIT AT HARIDWAR WA S A NEW UNIT, WHEREAS THE OTHER NON-ELIGIBLE UNITS AT GURGAON AND DHARUHE RA WERE OLD, ESTABLISHED WAY BACK IN YEARS 1984 AND 1997, HAVING UP AND RUNNING OPERATIONS DURING THE YEAR UNDER CONSIDERATION. VAR IOUS ANCILLARY UNITS MANUFACTURING COMPONENTS FOR SUCH PLANTS WERE ALSO ESTABLISHED NEAR THE OLD PLANTS, WHICH WERE CONTINUOUSLY SUPPLYING SUCH COMPONENTS TO THE NON-ELIGIBLE UNITS. THERE WAS THUS STRONG BUSINESS/ COMMERCIAL REASONS FOR SUCH ANCILLARY UNITS TO SUPPLY THE COMPONENTS TO TH E NON-ELIGIBLE UNIT FIRST, BY VIRTUE OF THE EXISTING RELATIONSHIP / PROCESS FO R SUPPLY OF GOODS IN PLACE, WHICH WERE FURTHER TRANSFERRED AT COST TO THE ELIGI BLE UNIT AT HARIDWAR. WE DO NOT FIND ANY IN-GENUINENESS IN THE AFORESAID PRA CTICE, WHICH IS BACKED BY STRONG COMMERCIAL REASONS AS, HIGHLIGHTED ABOVE. IN THE SAID PROCESS, THERE IS NO ADDITIONAL COST BURDEN TO BE BORNE BY T HE NON-ELIGIBLE UNIT. THE AFORESAID TRANSFER ONLY INVOLVES ADDITIONAL FREIGHT COST, WHICH AS STATED HAS BEEN BORNE BY THE ELIGIBLE UNIT. FURTHER, THE P ROVISIONS OF SECTION 80IA(8) AS DISCUSSED IN GROUND OF APPEAL NO. 26 (SU PRA) PROVIDES FOR INTER UNIT TRANSFER AT MARKET PRICE. THE MARKET PRICE OF THE COMPONENTS PROCURED BY THE NON-ELIGIBLE UNITS FROM THIRD PARTIES/INDEPE NDENT VENDORS DO NOT UNDERGO ANY CHANGE AT THE TIME OF FURTHER TRANSFER BY THE NON-ELIGIBLE UNIT TO THE ELIGIBLE UNIT. IN OTHER WORDS, THE MARKET PR ICE OF SUCH COMPONENTS AT WHICH THE SAME WAS PROCURED BY NON-ELIGIBLE UNITS R EMAINS CONSTANT. ACCORDINGLY, EVEN BY APPLYING THE PROVISIONS OF SEC TION 80IA(8), IN OUR OPINION, THERE CAN BE NO SUBSTITUTION OF THE PRICE AT WHICH GOODS ARE DEBITED BY THE ELIGIBLE UNIT IN ITS INDEPENDENT BOO KS OF ACCOUNT. SIMILARLY, WITH RESPECT TO COMPONENTS HAVING VALUE OF RS.6.34 CRORES, WHICH WERE TRANSFERRED BY THE NON-ELIGIBLE UNIT TO THE ELIGIBL E UNIT AT HARIDWAR AFTER NOMINAL PROCESSING, TOO, IN OUR OPINION, DOES NOT R ESULT IN ENHANCEMENT OF 143 ITA NO. 1351/DEL/2018 ANY MARKET PRICE OF SUCH GOODS; IN OTHER WORDS, IN A FREE MARKET CONDITION SUCH GOODS WOULD HAVE ALSO BEEN SOLD AT THE SAME PR ICE AT WHICH THEY HAVE BEEN TRANSFERRED BY THE NON-ELIGIBLE UNIT TO T HE ELIGIBLE UNIT. IN THAT VIEW OF THE MATTER, WE FIND THAT THE PRESENT ISSUE WAS NOT DECIDED BY THE ASSESSING OFFICER IN CORRECT PERSPECTIVE AND, THERE FORE, ERRED IN DISALLOWING DEDUCTION UNDER SECTION 80IC, BY ENHANCING THE PURC HASE PRICE BY ADDING CERTAIN MARKUP THEREON. IN VIEW OF THIS WE ALLOW GR OUND NO. 30 OF THE APPEAL OF THE ASSESSEE. THE AFORESAID ISSUE STANDS SQUARELY COVERED IN FAVO UR OF THE ASSESSEE, BY THE ORDER DATED 24.10.2016 PASSED BY TRIBUNAL IN THE IM MEDIATELY PRECEDING ASSESSMENT YEARS, I.E. AY 2010-11 AND AY 2011-12 WH EREIN IDENTICAL DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BEEN DELETED. THE TRIBUNAL, WHILE ALLOWING THE CLAIM OF THE ASSESSEE UNDER SECT ION 80-IC OF THE ACT, HELD THAT FOR THE PURPOSE OF COMPUTING MARKET PRICE OF I NTER-UNIT TRANSFER OF GOODS, WHEN THE NON-ELIGIBLE UNITS PROCURED GOODS AT MARKE T PRICE FROM THIRD PARTY VENDORS AND SUPPLIED THE SAME TO THE ELIGIBLE UNIT AT THE SAME PURCHASE PRICE AS INCREASED BY THE APPLICABLE FREIGHT COST, NO FUR THER SUBSTITUTION OF SUCH PRICE IS WARRANTED IN TERMS OF SECTION 80IA(8) OF T HE ACT AND THE TRANSACTION WAS A GENUINE BUSINESS TRANSACTION BORNE OUT OF COM MERCIAL EXPEDIENCY. THEREFORE, GROUND NO. 40 TO 40.2 ARE ALLOWED IN FAV OUR OF THE ASSESSEE. THE TRIBUNAL, WHILE ALLOWING THE CLAIM OF THE ASSES SEE UNDER SECTION 80-IC OF THE ACT, HELD THAT FOR THE PURPOSE OF COMPUTING MAR KET PRICE OF INTER-UNIT TRANSFER OF GOODS, WHEN THE NON-ELIGIBLE UNITS PROC URED GOODS AT MARKET PRICE FROM THIRD PARTY VENDORS AND SUPPLIED THE SAME TO T HE ELIGIBLE UNIT AT THE SAME PURCHASE PRICE AS INCREASED BY THE APPLICABLE FREIGHT COST, NO FURTHER SUBSTITUTION OF SUCH PRICE IS WARRANTED IN TERMS OF SECTION 80IA(8) OF THE ACT AND THE TRANSACTION WAS A GENUINE BUSINESS TRANSACT ION BORNE OUT OF COMMERCIAL EXPEDIENCY. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 144 ITA NO. 1351/DEL/2018 2010-11, 2011-12, 2012-13 AND 2013-14. HENCE GROUND NOS. 34 TO 34.2 ARE ALLOWED. 104. AS REGARDS GROUND NO. 35 TO 35.1 ARE RELATING TO DISALLOWANCE OF DEDUCTION U/S 80IC OF THE ACT ON ACCOUNT OF INFLATI ON OF PROFIT BY CHARGING HIGHER BASIC PRICE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING TWO-WHEELERS. FOR THE UNITS SOLD BY ELIGIBLE BUSINE SS UNIT OF ASSESSEE SITUATED AT HARIDWAR, THE BASIC SALE PRICE CHARGED FROM CUST OMERS IS HIGHER THAN THE BASIC SALE PRICE CHARGED BY THE OTHER / NON-ELIGIBL E UNITS. THE FINAL PRICE CHARGED BY THE ASSESSEE FROM DEALERS/CUSTOMERS WITH RESPECT TO UNITS SOLD FROM HARIDWAR AND OTHER UNITS IS THE SAME AND IS NO T AT VARIANCE. THE DIFFERENCE IN BASIC PRICE IS ON ACCOUNT OF EXEMPTIO N FROM EXCISE DUTY AVAILABLE TO THE UNIT AT HARIDWAR. THERE WERE NO EXTRAORDINAR Y PROFITS TO THE ELIGIBLE UNIT, VIS-A- VIS, OTHER / NON-ELIGIBLE UNITS, IN AS MUCH AS, IN THE LATTER UNIT(S), AS PER CENVAT RULES, THE ASSESSEE WAS ELIGIBLE TO TAKE CRE DIT OF EXCISE DUTY PAID ON PURCHASE OF EXCISABLE GOODS AGAINST THE EXCISE DUTY CHARGED AND COLLECTED FROM CUSTOMERS, WHICH REDUCED THE COST OF PRODUCTION IN SUCH UNITS, WHEREAS IN THE CASE OF ELIGIBLE UNIT, IN THE ABSENCE OF EXEMPTION FROM CHARGING EXCISE DUTY, THE EXCISE DUTY PAID ON PURCHASE OF COMPONENTS WAS NOT AVAILABLE FOR CREDIT AND FORMED PART OF COST OF PRODUCTION, WHICH CONSEQUENT LY REDUCED THE PROFIT EARNED AT SUCH UNIT. THE ASSESSING OFFICER ADMITTED THAT THERE WAS NO VIOLATION OF PROVISIONS OF SECTION 80IA(8) READ WITH SECTION 80IC(7) OF THE ACT, APPLIED PROVISIONS OF SECTION 80IA(10), WHICH HAVE ALSO BEE N MADE APPLICABLE TO SECTION 80IC AS PER SUB-SECTION (7) THEREOF, AND HELD THAT THE ELIGIBLE BUSINESS EARNED EXTRA ORDINARY PROFITS ON ACCOUNT OF HIGHER BASIC P RICE CHARGED FROM CUSTOMERS VIS-A-VIS PRICE CHARGED BY NON-ELIGIBLE UNITS, WHIC H OUGHT TO BE DISALLOWED AS PER THE SAID SECTIONS. THE ASSESSING OFFICER HELD T HAT THE ASSESSEE BY NOT CARRYING OUT THE TRANSACTIONS IN THE AFORESAID MANN ER, EARNED EXTRAORDINARY PROFITS AT HARIDWAR UNIT, WHICH OUGHT TO BE DISALLO WED AS PER THE PROVISIONS OF SECTION 801 A( 10) READ WITH SECTION 80IC(7) OF THE ACT. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER PROPOSED DISALLOWANCE OF DEDUCTIO N UNDER SECTION 80IC OF THE 145 ITA NO. 1351/DEL/2018 ACT BY AN AMOUNT OF RS. 227.47.04,870 BEING THE AMO UNT OF ALLEGED EXTRAORDINARY PROFITS EARNED BY HARIDWAR ON ACCOUNT OF HIGHER SALE PRICE CHARGED ON SALE OF TWO-WHEELERS VIS-A-VIS PRICE CHA RGED BY OTHER / NON-ELIGIBLE UNITS. SINCE THE ASSESSING OFFICER HAD DISALLOWED U PTO RS. 80,63,00,000 OUT OF TOTAL DEDUCTION OF RS.270,74,38,681 AS PER GROUNDS OF APPEAL 32 TO 34 UNDER SECTION 80IC ON VARIOUS GROUNDS , THEREFORE BALANCE DEDUCTION UNDER SECTION 801C OF RS. 190,38,38,681/- IS DISALLOWED ON THE AF ORESAID ACCOUNT IN THE ASSESSMENT ORDER. 105. IN THIS REGARD, THE LD. AR IT IS POINTED OUT T HAT THE AFORESAID ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE, IN AS M UCH AS SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE IMMEDIATELY PR ECEDING ASSESSMENT YEARS, I.E. AY 2010-11 AND AY 2011-12 HAS BEEN DELETED BY THE TRIBUNAL VIDE CONSOLIDATED ORDER DATED 24.10.2016. IN THE SAID OR DER, THE TRIBUNAL, WHILE ALLOWING THE CLAIM OF ASSESSEE UNDER SECTION 80-IC OF THE ACT, HELD THAT THERE WAS BASIC FALLACY IN THE CASE MADE BY THE AO SINCE THE HIGHER BASIC PRICE WAS ON ACCOUNT OF EXCISE DUTY EXEMPTION GIVEN TO THE EL IGIBLE UNIT. THE TRIBUNAL FURTHER OBSERVED THAT THE FINAL PRICE CHARGED TO TH E END CUSTOMER WAS THE SAME IRRESPECTIVE OF THE UNIT OF MANUFACTURE. THE TRIBUN AL ALSO REJECTED THE RELIANCE PLACED BY THE AO ON THE PROVISIONS OF SECTION 80IA (10) BY HOLDING THAT THE SAID PROVISION WAS APPLICABLE TO TRANSACTIONS ENTERED WI TH RELATED PARTIES WHEREAS THE ALLEGED HIGHER PRICE CHARGED BY THE ASSESSEE WA S FROM CUSTOMERS/ DEALERS. AS REGARDS THE ALLEGATION OF THE AO QUA ROLE OF HEA D OFFICE, IT WAS OBSERVED THAT THE HO WAS RENDERING ANY SEPARATE SERVICES AND WAS MERELY PLAYING A CENTRAL ROLE FOR UNDERTAKING COMMON ADMINISTRATIVE EXPENSES AND THUS, NO SEPARATE PROFIT ATTRIBUTION WAS REQUIRED TO BE MADE ON THE H O. THE LD. AR PROVIDED COMPARISON OF PRICES AT HARIDWAR UNIT VIS-A-VIS OTH ER NON-ELIGIBLE UNITS ARE AT THE TIME OF HEARING. THE LD. AR POINTED OUT THAT NO APPEAL HAS BEEN FILED BY THE DEPARTMENT BEFORE THE HONBLE DELHI HIGH COURT. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14. THE T RIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR T HE ASSESSMENT YEARS 2010-11 146 ITA NO. 1351/DEL/2018 AND 2011-12. 106. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AN D ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 107. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 112. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-1 2 HELD AS UNDER: 144) WE HAVE HEARD THE RIVAL CONTENTIONS. AT THE O UTSET, WE AGREE WITH THE SUBMISSIONS OF THE APPELLANT AND REJECT THE CON TENTIONS OF THE ASSESSING OFFICER THAT HIGHER PRICE WAS CHARGED FOR VEHICLES SOLD FROM ELIGIBLE UNIT VIS-A-VIS NON-ELIGIBLE UNIT. THE APPE LLANT IN THIS CONNECTION ALSO PRODUCED SALES INVOICES OF VEHICLES OF SAME MODELS REMOVED FROM ELIGIBLE UNIT AS ALSO NON-ELIGIBLE UNIT. THE FINAL PRICE CHA RGED FROM THE CUSTOMER, AS IT WOULD HAVE BEEN ORDINARILY EXPECTED, WAS SAME IN BOTH THE CASES. THE AFORESAID FACTUAL POSITION WAS EXPECTED, SINCE THER E IS NO REASON BEHIND THE CUSTOMER TO PAY HIGHER PRICE FOR PURCHASING SAM E MODEL OF VEHICLE FROM THE ELIGIBLE UNIT AT HARIDWAR, VIS-A-VIS, PRICE TO BE PAID FOR PURCHASE FROM NON-ELIGIBLE UNIT. WE AGREE WITH THE CONTENTIONS OF THE APPELLANT THAT THE BASIC SALE PRICE BEFORE CHARGING EXCISE DUTY IN CAS E OF ELIGIBLE UNIT WAS HIGHER THAN THE BASIC PRICE OF NON-ELIGIBLE UNIT ON ACCOUNT OF EXEMPTION FROM EXCISE DUTY GIVEN TO THE UNIT LOCATED AT HARID WAR. IN VIEW OF THE SAME, THERE WAS BASIC FALLACY IN THE ENTIRE CASE MA DE BY THE ASSESSING OFFICER, WHILE DISALLOWING DEDUCTION UNDER SECTION 80IC ON THE AFORESAID GROUND. THAT APART, ALTHOUGH THE APPELLANT HAD SUBM ITTED, THAT NO ADDITIONAL PROFITS ACCRUED TO THE ELIGIBLE UNIT ON ACCOUNT OF EXEMPTION FROM EXCISE DUTY AND CHARGING HIGHER BASIC PRICE VIS--V IS BASIC PRICE AT NON- ELIGIBLE UNIT DUE TO NON-AVAILMENT OF CENVAT CREDIT OF EXCISE DUTY PAID ON PURCHASES AT THE SAID UNIT, WE HOLD THAT EVEN ASSUM ING HIGHER PROFITS WERE 147 ITA NO. 1351/DEL/2018 EARNED BY THE ELIGIBLE UNIT, THE SAME CANNOT BE DIS ALLOWED BY APPLYING PROVISIONS OF SECTION 80IA(10) READ WITH SECTION 80 IC(7) OF THE ACT WHICH READS AS UNDER: (10) WHERE IT APPEARS TO THE ASSESSING OFFICER THA T, OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELI GIBLE BUSINESS TO WHICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO A RRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE AS SESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARI SE IN SUCH ELIGIBLE BUSINESS, THE ASSESSING OFFICER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS MAY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM 145) THE AFORESAID SECTION IS APPLICABLE WHERE THE ELIGIBLE UNIT HAS ENTERED INTO TRANSACTION WITH RELATED PARTIES. IN T HE GIVEN SITUATION, AS TAKEN-UP BY THE ASSESSING OFFICER, THE ALLEGED HIGH ER SALE PRICE BEING CHARGED BY THE ELIGIBLE UNIT IS FROM THE FINAL CUST OMER/DEALERS, WHICH ARE NOT COVERED WITHIN THE SCOPE OF AFORESAID SECTION. IN THAT VIEW OF THE MATTER, FOR THE AFORESAID REASON AS WELL, THE ASSES SING OFFICER CLEARLY ERRED IN DOUBTING THE SALE PRICE OF GOODS FROM ELIGIBLE U NIT AND CONSEQUENTIAL EARNING OF HIGHER PROFITS. AS REGARDS THE OTHER FIN DINGS OF THE ASSESSING OFFICER THAT FINISHED GOODS SHOULD HAVE BEEN TRANSF ERRED FROM THE ELIGIBLE UNIT TO HEAD OFFICE AT NORMAL PROFIT AND HEAD OFFIC E SHOULD HAVE FURTHER SOLD THE GOODS AT HIGHER SALE PRICE OR IN OTHER WOR DS, PROFITS EARNED BY THE ELIGIBLE UNIT SHOULD BE ATTRIBUTED TO THE HEAD OFFI CE FOR SALE AND MARKETING ACTIVITIES CARRIED OUT BY THE LATTER UNIT, IN OUR O PINION, IS ALSO NOT CORRECT. THE HEAD OFFICE IS NOT A SEPARATE ENTITY/PERSON OR A PROFIT CENTRE. THE HEAD OFFICE IN A CASE OF MULTIPLE MANUFACTURING UNI TS PLAYS A CENTRAL ROLE FOR UNDERTAKING COMMON EXPENSES LIKE ADMINISTRATIVE , MARKETING, ETC. FOR ALL ITS MANUFACTURING UNITS. THE HEAD OFFICE IN SUC H A SITUATION, IN OUR 148 ITA NO. 1351/DEL/2018 VIEW, IS NOT RENDERING ANY SEPARATE SERVICES TO THE MANUFACTURING/ELIGIBLE UNIT BUT IS A COST CENTRE INCURRING EXPENSES FOR AN D ON BEHALF OF ALL SUCH UNITS. THE ONLY RATIONAL APPROACH IN SUCH A KIND OF SITUATION IS TO APPORTION THE COMMON EXPENSES INCURRED BY THE HEAD OFFICE TO VARIOUS PROFIT MAKING UNITS ON A SCIENTIFIC AND RATIONAL BASIS. CONSIDERI NG THAT SUCH EXPENSES ARE INCURRED BY HEAD OFFICE FOR AND ON BEHALF OF TH E PROFIT MAKING UNITS, NO PROFIT IS LIABLE TO BE ATTRIBUTED TO THE HEAD OFFIC E. WE RELY IN THIS REGARD ON THE DECISION TAKEN BY THIS BENCH IN THE CASE OF RAN BAXY LABORATORIES LTD. V. ACIT: ITA NO. 196/DEL/2013, WHEREIN ON THE SAME CONTROVERSY IT WAS OBSERVED AS UNDER: 87. IT IS ONE OF THE CONTENTION OF REVENUE THAT SEL LING AND DISTRIBUTION ACTIVITY IS ITSELF A SEPARATE PROFIT C ENTER AND THEREFORE WHATEVER SERVICES HAVE BEEN PROVIDED BY THE SELLING AND DISTRIBUTION ARM OF THE COMPANY TO THE ELIGIBLE UNDERTAKING SHOU LD HAVE BEEN CHARGED AND REDUCED FROM THE PROFIT OF THE INDUSTRI AL UNDERTAKING AFTER VALUING SERVICE OF SELLING AND DISTRIBUTION ARM OF THE COMPANY AT MARKET RATE. AT PRESENT ASSESSEE HAS ALLOCATED IT AT COST. THEREFORE, LD. AO HAS INVOKED PROVISIONS OF SECTION 80 IA (8) OF THE ACT. IT IS NOT DISPUTE THAT THAT PRODUCTS MANUFACTURED BY THESE INDUSTRIAL UNIT S ARE SOLD BY SELLING AND DISTRIBUTION ARM OF THE ASSESSEE AND THE COST I NCURRED IS ALLOCATED TO THESE RESPECTIVE UNITS ON THE BASIS OF APPROPRIA TE ALLOCATION KEY OF SALES. LD. AR OF THE APPELLANT RELYING ON THE DECIS ION OF COORDINATE BENCH OF CADILA HEALTHCARE LTD VS. ACIT 21 TAXMANN. COM 483 HAS SUBMITTED THAT THERE CANNOT BE ANY SPECIFIC DEMARCA TION BETWEEN MANUFACTURING AND SELLING ACTIVITIES OF THE ASSESSE E AND PROFIT ACCRUES ONLY AT THE TIME OF SALES OF THE GOODS ONLY. THEREF ORE, THE CONTENTION OF THE REVENUE THAT SELLING AND DISTRIBUTION FUNCTION OF THE ASSESSEE IS A SEPARATE PROFIT CENTER IS REQUIRED TO BE REJECTED A T THRESHOLD. WE HAVE CAREFULLY CONSIDERED THE ARGUMENT OF LD. AR AND OF THE REVENUE ON THIS POINT AS WELL AS THE LD. AO AND LD. DRP. WE ARE OF THE VIEW THAT THIS 149 ITA NO. 1351/DEL/2018 ARGUMENT IS ALMOST SIMILAR TO THE ARGUMENT RAISED B Y THE REVENUE IN THE CASE OF CADILA HEALTHCARE LTD VS. ACIT 21 TAXMANN.C OM 483. WE HAVE CAREFULLY PERUSED THIS DECISION AND NOTE TH AT THE CONTROVERSY IN THIS GROUND OF APPEAL WITH RESPECT TO APPLICABIL ITY OF SECTION 80 IA (8) OF THE ACT, ON MARKETING AND OTHER SELLING DISTRIBU TION AS WELL AS RESEARCH AND DEVELOPMENT SERVICES PROVIDED BY THE U NDERTAKING AS A WHOLE TO THE ELIGIBLE INDUSTRIAL UNDERTAKING AT THE COST OR MARKET RATE FOR WORKING OUT THE ELIGIBLE PROFIT FOR DEDUCTION, HAS BEEN DECIDED. LD. DR COULD NOT POINT OUT ANY OTHER CONTRARY JUDGMENT TO THE DECISION CITED BY THE LD. AR. THEREFORE, WE RESPECTFULLY FOLLOWING THE ABOVE DECISION OF COORDINATE BENCH HOLD THAT PROVISIONS OF SECTION 80 IA (8) OF THE ACT DO NOT APPLY TO THE ASSESSEE ON TRANSFER OF SERVICES O F MARKETING DIVISION OF THE COMPANY TO THE ELIGIBLE INDUSTRIAL UNDERTAKI NG WHOSE PROFITS ARE CLAIMED AS DEDUCTIBLE. 146) IN VIEW OF THE ABOVE, WE REVERSE THE ACTION OF THE ASSESSING OFFICE IN PARTLY DISALLOWING DEDUCTION UNDER SECTION 80IC ON ACCOUNT OF THE HAVE PROFIT EARNED BY THE ASSESSEE IN THE ELIGIBLE UNIT. IN THE RESULT GROUND NO. 31 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS FACT IS IDENTICAL WITH THE EARLIER ASSESSMENT YEARS. THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS ORDER FOR A.YS. 2010-11 & 2011-12. BESIDES THIS THE REVENUE HAS ACCEPTED THIS ISSUE AND HAS NOT CHALLENGED THE SAME IN HONBLE HIGH COURT. THUS, TH IS ISSUE ATTAINS FINALITY. THEREFORE, GROUND NO. 41 IS ALLOWED IN FAVOUR OF TH E ASSESSEE. SECTION 80IA(10) IS APPLICABLE TO TRANSACTIONS ENTE RED WITH RELATED PARTIES WHEREAS THE PRICES CHARGED BY THE ASSESSEE WAS FROM CUSTOMERS/DEALERS. THUS THE FINAL PRICE CHARGED TO THE END CUSTOMER WAS THE SAME IRRESPECTIVE OF THE UNIT OF MANUFACTURE. THEREFORE, THE ASSESSING OFFIC ER WAS NOT CORRECT IN DISALLOWING THE CLAIM OF THE ASSESSEE. IN THE PRESE NT ASSESSMENT YEAR ALSO THE FACTS ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR 150 ITA NO. 1351/DEL/2018 A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. BESIDE S THAT NO APPEAL HAS BEEN FILED BY THE REVENUE BEFORE THE HONBLE HIGH C OURT IN A.Y. 2011-12, THUS, THE DECISION OF THE TRIBUNAL ATTAINS FINALITY. HENC E GROUND NOS. 35 TO 35.1 ARE ALLOWED. 108. AS REGARDS GROUND NO. 36 TO 36.6 ARE RELATING TO DISALLOWANCE U/S 80IC OF THE ACT ON ACCOUNT OF PROFIT ATTRIBUTABLE TO ADV ERTISEMENT AND MARKETING ACTIVITIES CARRIED OUT AT HEAD OFFICE. IN THE BUSIN ESS OF MANUFACTURING AND SELLING TWO-WHEELERS, INCLUDING GOODS MANUFACTURED AT ELIGIBLE UNIT, THE ASSESSEE WAS REQUIRED TO INCUR MARKETING EXPENSES. THE SAID EXPENSES WERE INCURRED BY THE HEAD OFFICE AT DELHI. THE COMMON EX PENSES, INCLUDING ADVERTISEMENT/BRAND CREATION EXPENSES, ETC. INCURRE D AT HEAD OFFICE WERE ALLOCATED TO VARIOUS MANUFACTURING UNITS OF THE APP ELLANT-COMPANY, INCLUDING THE UNIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC, ON A RATIONAL AND SCIENTIFIC BASIS. IN THAT VIEW OF THE MATTER, THE EXPENSES ON BRAND /ADVERTISEMENT, ETC. INCURRED AT HEAD OFFICE WERE DULY ALLOCATED TO MANU FACTURING UNITS AND HAVE BEEN DEDUCTED, WHILE COMPUTING PROFITS OF THE UNIT ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. THE PRICE REALIZED ON SALE OF THE PRODUCTS, I.E., TWO WHEELERS, IS CREDITED TO THE PR OFIT AND LOSS ACCOUNT AND DIRECT AND INDIRECT EXPENSES, INCLUDING ADVERTISEME NT EXPENSES, INCURRED IN RELATION TO SALE OF THE PRODUCTS ARE REDUCED THEREF ROM, FOR PURPOSE OF COMPUTING PROFITS OF THE ELIGIBLE UNIT AND CORRESPO NDING CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. THE ASSESSING OFFICE R HELD THAT PROFITS ARE DERIVED BY THE ASSESSEE COMPANY ON ACCOUNT OF THREE ASSETS, VIZ., (1) MANUFACTURING ASSETS, (2) BRAND ASSETS AND (3) MARK ETING ASSETS WHEREAS DEDUCTION UNDER SECTION 80IC IS AVAILABLE ONLY ON P ROFITS DERIVED FROM BUSINESS OF MANUFACTURING OF SPECIFIED ARTICLES OR THINGS. T HE ASSESSING OFFICER FURTHER OBSERVED THAT THE MANUFACTURING AND MARKETING ACTIV ITIES WERE CARRIED OUT AT HEAD OFFICE AND, THEREFORE, THE BRAND DEVELOPED WAS NOT OWNED BY THE ELIGIBLE UNIT, WHICH CAME INTO EXISTENCE MUCH LATER THAN THE EXISTENCE OF THE ASSESSEE COMPANY AS A WHOLE. THUS, PART OF THE PROFITS EARNE D BY ELIGIBLE UNIT SHOULD 151 ITA NO. 1351/DEL/2018 HAVE BEEN ATTRIBUTED TO ADVERTISEMENT/MARKETING ACT IVITIES CARRIED OUT BY HEAD OFFICE. IN ORDER TO ATTRIBUTE PROFITS TO MARKETING/ ADVERTISEMENT ACTIVITIES, THE ASSESSING OFFICER COMPUTED RATE OF NET PROFIT FOR T HE FINANCIAL YEAR 1984-85, BEING THE FIRST YEAR OF OPERATIONS OF THE ASSESSEE COMPANY, AT 6.85% ON AN ARBITRARY BASIS AND APPLIED THE SAME TO ARRIVE AT T HE PROFIT SOLELY ATTRIBUTABLE TO THE MANUFACTURING ACTIVITY OF HARIDWAR UNIT. ON THE BASIS OF ABOVE, THE ASSESSING OFFICER COMPUTED PROFIT ATTRIBUTABLE TO T HE MANUFACTURING ACTIVITY AT RS. 142.29 CRORES. ACCORDINGLY, DEDUCTION UNDER SEC TION 80IC QUA REMAINING PROFIT OF RS. 128.45 CRORES, ATTRIBUTABLE TO MARKET ING AND ADVERTISEMENT ACTIVITY WAS DISALLOWED. SINCE THE ASSESSING OFFICE R HAD DISALLOWED THE ENTIRE AMOUNT OF DEDUCTION CLAIMED UNDER SECTION 80IC ON V ARIOUS WHICH HAS BEEN OBJECTED IN GROUND OF APPEAL NO. 28-34(SUPRA), NO F URTHER DISALLOWANCE ON ACCOUNT OF ABOVE WAS MADE IN THE ASSESSMENT/ORDER. 109. THE LD. AR POINTED OUT THAT THE ISSUE IS SQUAR ELY COVERED IN FAVOR OF THE ASSESSEE BY THE ORDER DATED 24.10.2016 PASSED BY TH E TRIBUNAL FOR IMMEDIATELY PRECEDING ASSESSMENT YEARS, I.E. AY 201 0-11 AND AY 2011-12. WHEREIN IDENTICAL DISALLOWANCE MADE BY THE ASSESSIN G OFFICER HAS BEEN DELETED. THE TRIBUNAL, IN COMING TO THE AFORESAID D ISCUSSION, REITERATED THAT THE HEAD OFFICE IS NOT A SEPARATE PROFIT CENTRE AND , THEREFORE, NO PROFIT IS TO BE SEPARATELY ATTRIBUTED TO SUCH ACTIVITY. IT FURTHER OBSERVED THAT, FOR THE PURPOSE OF WORKING OUT ELIGIBLE DEDUCTION UNDER SECTION 80- IC OF THE ACT, ACTUAL EXPENSES INCURRED AT THE HEAD OFFICE ARE TO BE ALLO CATED BETWEEN VARIOUS PROFIT CENTRES ON A RATIONAL AND SCIENTIFIC BASIS. WHILE D ECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. 110. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AN D ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 111. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON 152 ITA NO. 1351/DEL/2018 RECORD. THE TRIBUNAL HELD IN A.Y. 2012-13 AS UNDER: 116. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-1 2 HELD AS UNDER: 154) WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE ALREADY DISCUSSED THE AFORESAID ISSUE AT LENGTH WHILE DISPOSING THE G ROUND OF APPEAL NO. 31 TO 31.2 SUPRA, WHEREIN WE HAVE DEALT WITH THAT HEAD OFFICE IS A SEPARATE COST CENTRE AND EXPENSES INCURRED THEREAT NEEDS TO BE ALLOCATED TO VARIOUS PROFIT CENTERS/MANUFACTURING UNITS ON A RATIONAL AN D SCIENTIFIC BASIS, WITHOUT ANY ELEMENT OF PROFIT/MARKUP. THE ISSUE RAI SED BY THE ASSESSING OFFICER IN THE PRESENT GROUND OF APPEAL IS CATEGORI CALLY SIMILAR TO THAT RAISED IN THE AFORESAID GROUND. ACCORDINGLY FOLLOWI NG OUR FINDINGS STATED ABOVE, WE REVERSE THE ACTION OF THE ASSESSING OFFIC ER AND DELETE THE DISALLOWANCE MADE UNDER SECTION 80IC. ACCORDINGLY, THE GROUND NO. 33 OF APPEAL IS ALLOWED. THE ISSUE IS SQUARELY COVERED IN FAVOR OF THE ASSES SEE BY THE ORDER DATED 24.10.2016 PASSED BY THE TRIBUNAL FOR IMMEDIATELY P RECEDING ASSESSMENT YEARS, I.E. AY 2010-11 AND AY 2011 -12, WHEREIN IDE NTICAL DISALLOWANCE MADE BY THE AO HAS BEEN DELETED. THE TRIBUNAL, IN C OMING TO THE AFORESAID DISCUSSION, REITERATED THAT THE HEAD OFFICE IS NOT A SEPARATE PROFIT CENTRE AND, THEREFORE, NO PROFIT IS TO BE SEPARATELY ATTRIBUTED TO SUCH ACTIVITY. IT FURTHER OBSERVED THAT, FOR THE PURPOSE OF WORKING OUT ELIGI BLE DEDUCTION UNDER SECTION 80-IC OF THE ACT, ACTUAL EXPENSES INCURRED AT THE H EAD OFFICE ARE TO BE ALLOCATED BETWEEN VARIOUS PROFIT CENTERS ON A RATIO NAL AND SCIENTIFIC BASIS. THEREFORE, GROUND NO. 42 TO 42.6 ARE ALLOWED IN FAV OUR OF THE ASSESSEE. THE HEAD OFFICE IS NOT A SEPARATE PROFIT CENTRE AND THEREFORE, NO PROFIT IS TO BE SEPARATELY ATTRIBUTED TO SUCH ACTIVITY. THUS, FOR T HE PURPOSE OF WORKING OUT ELIGIBLE DEDUCTION UNDER SECTION 80IC OF THE ACT, A CTUAL EXPENSES INCURRED AT THE HEAD OFFICE ARE TO BE ALLOCATED BETWEEN VARIOUS PROFIT CENTERS ON A RATIONAL 153 ITA NO. 1351/DEL/2018 AND SCIENTIFIC BASIS WHICH HAS BEEN RIGHTLY DONE BY THE ASSESSEE COMPANY. THEREFORE, THE ASSESSING OFFICER WAS NOT CORRECT IN DISALLOWING THE SAID EXPENSES. IN THE PRESENT ASSESSMENT YEAR ALSO THE F ACTS ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. HENCE GROUND NOS. 36 TO 36.6 A RE ALLOWED. 112. AS REGARDS GROUND NO. 37 TO 37.1 ARE RELATING TO DISALLOWANCE OF RS. 40.47 CRORES (RESTRICTED TO NIL) IN RESPECT OF CERT AIN INCOMES EARNED BY THE ELIGIBLE UNIT, ON THE GROUND THAT SUCH INCOMES WERE NOT DERIVED FROM THE BUSINESS OF MANUFACTURE OF SPECIFIED ARTICLES OR TH INGS. DURING THE RELEVANT PREVIOUS YEAR, THE ELIGIBLE UNIT AT HARIDWAR EARNED THE FOLLOWING OTHER INCOMES, WHICH WERE CREDITED IN THE PROFIT AND LOSS ACCOUNT OF THAT UNIT: S. NO. NAME/TYPE OF OTHER INCOME AMOUNT 1 INTEREST ON LOAN GIVEN AT SUBSIDIZED RATE TO THE EMPLOYEES 1,16,460 2 INTEREST ON LOAN PROVIDED FOR WORKING CAPITAL SUPPORT TO VENDORS 1,92,329 3 FREIGHT RECOVERY FROM CUSTOMERS 37,91,84,235 4 MISC INCOME VENDORS - CASH DISCOUNTING 2,52,94,640 TOTAL 40,47,87,664 IN THE RETURN OF INCOME, THE ASSESSEE CLAIMED DEDUC TION UNDER SECTION 80IC ON THE AFORESAID OTHER INCOMES SINCE THE SAID RECEIP TS HAD DIRECT AND IMMEDIATE NEXUS WITH THE BUSINESS OF MANUFACTURING AND SELLIN G OF SPECIFIC ARTICLES OR THINGS. THE ASSESSING OFFICER, WITHOUT CONSIDERING THE NATURE OF EACH OF THE AFORESAID RECEIPTS, HELD THAT THE AFORESAID INCOMES WERE NOT DERIVED FROM THE BUSINESS OF MANUFACTURING OF ARTICLES OR THINGS AND WERE, THEREFORE, TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES'. ACCORDI NGLY, THE ASSESSING OFFICER DISALLOWED DEDUCTION UNDER SECTION 80IC BY AN AMOUN T OF RS 40,47,87,664. 154 ITA NO. 1351/DEL/2018 HOWEVER, SINCE THE ASSESSING OFFICER HAD DISALLOWED THE ENTIRE AMOUNT OF DEDUCTION UNDER SECTION 80IC ON VARIOUS GROUNDS WHI CH HAVE BEEN CHALLENGED IN GROUNDS OF APPEAL NO. 28 TO 36 AND NO FURTHER DI SALLOWANCE FOR THE AFORESAID AMOUNT, WAS MADE IN THE ASSESSMENT ORDER. 113. THE LD. AR POINTED OUT THAT SIMILAR DISALLOWAN CE MADE BY THE ASSESSING OFFICER IN THE IMMEDIATELY PRECEDING ASSESSMENT YEA RS, I.E. AY 2010-11 AND AY 2011-12 HAS BEEN DELETED BY THE TRIBUNAL VIDE CONSO LIDATED ORDER DATED 24.10.2016. THE TRIBUNAL, AFTER EXAMINING THE NATUR E OF THE AFORESAID INCOMES, HELD THAT OTHER INCOMES IN THE NATURE OF INTEREST O N LOAN TO EMPLOYEES, INTEREST ON LOAN TO VENDORS FOR WORKING CAPITAL SUPPORT, FRE IGHT RECOVERY, SUNDRY SALES, CASH DISCOUNTING FROM VENDORS AND EXCHANGE FLUCTUAT ION GAIN, ETC. EARNED BY A UNIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF T HE ACT SHALL BE CONSIDERED AS INCIDENTAL TO THE ACTIVITY OF CARRYING OUT MANUFACT URING AND THUS ELIGIBLE FOR DEDUCTION UNDER THAT SECTION. ACCORDINGLY, THE AFOR ESAID ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. DETAILS OF CORRE SPONDENCES EXCHANGED WITH VENDORS ESTABLISHING WORKING CAPITAL SUPPORT ON SAM PLE BASIS WERE SUBMITTED BEFORE THE ASSESSING OFFICER. WHILE DECIDING THE AP PEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14 THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YE ARS 2010-11 AND 2011-12. 114. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AN D ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL AND THE HONBLE HIGH COURT. 115. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 120. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-1 2 HELD AS UNDER: 158) WE HAVE HEARD THE RIVAL CONTENTIONS. OUR FINDI NGS ON THE VARIOUS ISSUES RAISED BY THE ASSESSING OFFICER ARE GIVEN IN SERIATIM HEREUNDER: 1. INTEREST ON LOAN GIVEN AT SUBSIDIZED RATES TO EMPLO YEES 155 ITA NO. 1351/DEL/2018 THE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT: 317 ITR 218, HAS HELD THAT SOURCE OF INCOME BEYOND THE FIRST DEGREE NEXUS WITH THE MANUFACTURING OPERATION CANNOT BE CONSIDERED AS DER IVED FROM SUCH BUSINESS/ACTIVITY. FOLLOWING THE AFORESAID DECISION , THE COURTS / TRIBUNAL IN CERTAIN CASES HAVE HELD THAT INTEREST INCOME EAR NED FROM FIXED DEPOSITS MADE BY THE ELIGIBLE UNIT IS NOT ELIGIBLE FOR DEDUC TION UNDER THE RELEVANT PROVISIONS OF THE ACT. [REFER: PASWARA ELECTRONICS (P) LTD. V. ITO: ITA NO. 71/D/2011; RECKIT BENCKISER INDIA LTD. V. ADDL. CIT : 231 TAXMAN 585 (CAL.)] HOWEVER, THE FACTS UNDER CONSIDERATION ARE SLIGHTLY DIFFERENT. THE QUESTION THAT NEEDS TO BE ANSWERED IS WHETHER INTEREST INCOM E EARNED FROM LOAN GIVEN AT SUBSIDIZED RATE TO EMPLOYEES HAS FIRST-DEG REE NEXUS WITH THE BUSINESS OPERATIONS CARRIED ON BY THE ELIGIBLE UNIT . THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURING TWO-WHEELE RS AND IS NOT ENGAGED IN THE ACTIVITY OF GIVING LOANS AND ADVANCE S TO EARN INTEREST INCOME. IT IS NOT THE CASE OF APPELLANT OR THE ASSE SSING OFFICER THAT SURPLUS FUNDS WERE GIVEN TO THE EMPLOYEES TO EARN INTEREST INCOME. THE LOANS/ADVANCES TO EMPLOYEES UNDER CONSIDERATION WAS A MEASURE OF INCENTIVE / PERQUISITES TO THE EMPLOYEES INVOLVED I N CARRYING ON THE BUSINESS OF MANUFACTURING. THE SOURCE OF SUCH INCO ME IS, THUS, NOT THE ACTIVITY OF GIVING LOAN, BUT BENEFIT EXTENDED TO EM PLOYEES ENGAGED IN THE BUSINESS. THE FIRST-DEGREE NEXUS OF SUCH INCOME, I N OUR VIEW, IS THE ELIGIBLE BUSINESS CARRIED ON BY THE APPELLANT. THEREFORE, SU CH INCOME WOULD BE ELIGIBLE FOR DEDUCTION U/S 80IC OF THE ACT. THE ACT ION OF THE ASSESSING OFFICER ON THIS ACCOUNT IS THUS REVERSED. 2. INTEREST ON LOANS PROVIDED FOR MAKING CAPITAL SUPPO RT TO VENDORS THE PRESENT ISSUE IS SIMILAR TO THE IMMEDIATELY PRE CEDING ISSUE. IN OUR VIEW, LOAN HAS BEEN GIVEN TO VENDORS TO PROVIDE UNI NTERRUPTED SUPPLY OF GOODS TO THE APPELLANT. THE FIRST-DEGREE NEXUS OF G IVING LOAN IS, THUS, BUSINESS OF MANUFACTURING. ACCORDINGLY FOLLOWING OU R FINDINGS IN THE 156 ITA NO. 1351/DEL/2018 PRECEDING ISSUE, THE ACTION OF THE ASSESSING OFFICE R ON THIS ACCOUNT IS REVERSED. 3. FREIGHT RECOVERY FROM CUSTOMERS THE ASSESSING OFFICER HAS COMPLETELY GONE WRONG IN CONSIDERING FREIGHT CHARGES RECOVERED FROM CUSTOMERS AS AN INDEPENDENT SOURCE OF INCOME. THE FREIGHT CHARGES RECOVERED BY THE APPELLANT FOR SUPPLY OF VEHICLE ARE RECOUPMENT OF SUCH CHARGES, WHICH WERE PAID BY THE APPELLANT AT THE FIRST PLACE TO THE TRANSPORTER DELIVERING THE VEHICLE TO THE CUSTOMER/DEALERS. THERE IS NO PROFIT ELEMENT IN THE AFORESAID RECOVER Y. IN THE ABSENCE OF ANY INCOME ON THE AFORESAID RECOVERY THERE WAS NO WARRA NT TO DENY BENEFIT OF DEDUCTION UNDER SECTION 80IC ON THE ABOVE. ACCORDIN GLY, THE ACTION OF THE ASSESSING OFFICER IS REVERSED ON THIS GROUND. 4. SUNDRY SALES THE PRESENT ISSUE IS ALSO SIMILAR TO THE IMMEDIATEL Y PRECEDING ISSUE RELATING TO FREIGHT RECOVERY. THE SALE OF SOME FINI SHED COMPONENTS ALSO DOES NOT INVOLVE ANY INCOME ELEMENT INASMUCH AS SEM I-FINISHED COMPONENTS ARE SUPPLIED TO ANCILLARY UNITS FOR FURT HER PROCESSING AND FINISHED COMPONENTS PROCURED THERE FROM ARE SUBSEQU ENTLY DEBITED AT COST IN THE BOOKS. THERE IS NO PROFIT ELEMENT IN THE AFO RESAID TRANSACTION AND THEREFORE THE BENEFIT OF DEDUCTION UNDER SECTION 80 IC CANNOT BE DENIED ON ABOVE. IN THAT VIEW OF THE MATTER, THE ACTION OF TH E ASSESSING OFFICER IS REVERSED ON THIS GROUND. 5) MISCELLANEOUS INCOME CASH DISCOUNTING FROM VEN DORS THE CASH DISCOUNT AVAILED ON EARLY/PROMPT PAYMENT T O CREDITORS/SUPPLIES OF MATERIAL IS ALSO NOT AN INDEPENDENT SOURCE OF IN COME BUT A DISCOUNT TOWARDS THE PURCHASE PRICE. THE PURCHASE PRICE OF G OODS IS REDUCED FROM THE PROFITS OF THE ELIGIBLE UNIT TO ARRIVE AT PROFI T DERIVED FROM THE MANUFACTURING ACTIVITY. ACCORDINGLY, ANY BENEFIT TO WARDS PURCHASE PRICE WOULD HAVE DIRECT NEXUS WITH THE COMPUTATION OF THE AFORESAID PROFITS. THE 157 ITA NO. 1351/DEL/2018 AFORESAID INCOME IS, THUS, DIRECTLY RELATED TO BUSI NESS OF MANUFACTURING. ACCORDINGLY THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEDUCTION UNDER SECTION 80IC ON ABOVE WAS NOT VALID AND THERE FORE, THE ACTION OF THE ASSESSING OFFICER ON AFORESAID GROUND IS REVERSED. 6) EXCHANGE FLUCTUATION GAIN AS REGARDS DENIAL OF DEDUCTION UNDER SECTION 80IC O N FLUCTUATION GAIN OF RS.34,13,666, THE APPELLANT HAS POINTED OUT THAT TH ERE WAS SOME MISTAKE IN THE AFORESAID CLAIM WHICH HAVE BEEN RECTIFIED BY THE ASSESSING OFFICER IN THE ORDER DATED 07.05.2015 PASSED UNDER SECTION 154 OF THE ACT. ACCORDINGLY WE DO NOT RENDER ANY FINDING ON THE AFO RESAID ISSUE. AS REGARDS GAIN ARISING ON REINSTATEMENT OF LIABILITIE S IN FOREIGN CURRENCY AGAINST IMPORT OF GOODS IN OUR VIEW IS SIMILAR TO T HE ISSUE OF CASH DISCOUNT ON PURCHASES DEALT SUPRA. SIMILAR TO OUR FINDINGS G IVEN ON THE SAID ISSUE, CONSIDERING THAT FLUCTUATION GAIN ON IMPORT OF GOOD S IS GOING TO DIRECTLY REDUCE FOREIGN EXCHANGE LIABILITY TO BE DISCHARGED AGAINST IMPORT OF GOODS BEING DEBITED IN THE PROFIT AND LOSS ACCOUNT TO ARR IVE AT THE PROFITS OF THE ELIGIBLE BUSINESS, SUCH BENEFIT HAS DIRECT NEXUS WI TH THE SAID BUSINESS, WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT. WE DRAW SUPPORT FOR THE AFORESAID CONCLUSION FROM THE DECIS ION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. RACHNA UDYOG : 233 CTR 72. ACCORDINGLY THE ACTION OF THE ASSESSING OFFICER ON THIS GROUND IS R EVERSED AND WE HOLD THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IC OF THE INCOME TAX ACT ON INTEREST ON LOANS GIVEN AT SUBSIDIZED RATES TO T HE EMPLOYEES OF RS. 1 62975/, INTEREST ON LOANS PROVIDED FOR WORKING CAP ITAL SUPPORT TO VENDORS RS. 6626854/, FREIGHT RECOVERY FROM CUSTOMER RS. 935418395/, SUNDRY SALES OF RS. 9 2410 3150/, CASH DISCOUNT RECEIVED FROM THE VENDOR IS RS. 5 673 2831/ AND EXCHANGE FLUCTUATION OF RS. 2 416 7060/. IN THE RESULT GROUND NO. 34 OF THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. 158 ITA NO. 1351/DEL/2018 SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS, I.E. AY 2010-11 AND AY 2011-12 HAS BEEN DELETED BY THE TRIBUNAL VIDE CONSOLIDATED ORDER DAT ED 24.10.2016. THE TRIBUNAL, AFTER EXAMINING THE NATURE OF THE AFORESA ID INCOMES, HELD THAT OTHER INCOMES IN THE NATURE OF INTEREST ON LOAN TO EMPLOY EES, INTEREST ON LOAN TO VENDORS FOR WORKING CAPITAL SUPPORT, FREIGHT RECOVE RY, SUNDRY SALES, CASH DISCOUNTING FROM VENDORS AND EXCHANGE FLUCTUATION G AIN, ETC. EARNED BY A UNIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF T HE ACT SHALL BE CONSIDERED AS INCIDENTAL TO THE ACTIVITY OF CARRYING OUT MANUF ACTURING AND THUS ELIGIBLE FOR DEDUCTION UNDER THAT SECTION. ACCORDINGLY, THE AFORESAID ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. THEREFO RE, GROUND NO. 43 TO 43.1 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. OTHER INCOMES IN THE NATURE OF INTEREST ON LOAN TO EMPLOYEES, INTEREST ON LOAN TO VENDORS FOR WORKING CAPITAL SUPPORT, FREIGHT REC OVERY, SUNDRY SALES, CASH DISCOUNTING FROM VENDORS AND EXCHANGE FLUCTUATION G AIN, ETC. EARNED BY A UNIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE AC T HAS TO BE CONSIDERED AS INCIDENTAL TO THE ACTIVITY OF CARRYING OUT MANUFACT URING AND THUS ELIGIBLE FOR DEDUCTION UNDER THAT SECTION AS HELD BY THE TRIBUNA L IN A.Y. 2010-11 AND A.Y. 2011-12. IN THE PRESENT ASSESSMENT YEAR ALSO THE FA CTS ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. HENCE GROUND NOS. 37 TO 37.1 A RE ALLOWED. 116. AS REGARDS GROUND NO. 38 TO 38.4 ARE RELATING TO DISALLOWANCE OF DEDUCTION U/S 80IC AMOUNTING TO RS.270.74 CRORES FO R NON COMPLIANCE OF RULE 18BBB AND NON-ADHERENCE TO CONDITION SPECIFIED IN I NDUSTRIAL POLICY. THE ASSESSEE COMPANY HAD DURING THE FINANCIAL YEAR 2008 -09 ON 07.04.2008 STARTED COMMERCIAL PRODUCTION AT NEW MANUFACTURING FACILITY AT PLOT NO. 3, SECTOR 10. INTEGRATED INDUSTRIAL ESTATE, RANIPUR, S IDCUL, HARIDWAR (UTTARAKHAND) AT KHASRA NUMBER 545 VILLAGE SALEMPUR MEHDOOD, HARIDWAR ON 07.04.2008. THE SAID PLOT WAS NOTIFIED BY NOTIFI CATION NO. 177 DATED 159 ITA NO. 1351/DEL/2018 28.06.2004 AS INDUSTRIAL ESTATE UNDER SECTION 80IC( 2)(A)(II). IN THIS CONNECTION, FOLLOWING DOCUMENTS WERE ENCLOSED. LICENSE AND REGI STRATION CERTIFICATE DIRECT TAX NOTIFICATION NO. 177 DATED 28.06.2004 (RELEVAN T EXTRACTS) - KHASRA NO. CERTIFICATE - CENTRAL EXCISE REGISTRATION CERTIFICATE - COMMERCIAL TAX REGISTRATION CERTIFICATE - FIRST SALES INVOICE - CONSENT TO ESTABLISH MOTORCYCLE UNIT FROM UTTARANC HAL ENVIRONMENT PROTECTION AND POLLUTION CONTROL BOARD THE ASSESSEE FOR THE PURPOSE OF ESTABLISHING A FACT ORY/PLANT, AS PER THE FACTORY ACT, 1948, WAS REQUIRED TO OBTAIN PERMISSION/LICENS E FROM THE APPROPRIATE AUTHORITY, IN ACCORDANCE WITH LOCAL STATE GOVERNMEN T FACTORY RULES, I.E., UTTAR PRADESH FACTORY RULES, 1950. WHICH WERE APPLICABLE IN THE PRESENT CASE. NO SEPARATE LICENSE WAS REQUIRED TO CARRY ON THE BUSIN ESS OF MANUFACTURE OF TWO WHEELERS AS ALSO TO CLAIM DEDUCTION FOR SUCH ACTIVI TY UNDER SECTION 80IC OF THE ACT. THE ONLY PERMISSION REQUIRED WAS THE AFORESAID LICENSE TO WORK AS FACTORY, WHICH WAS SUBMITTED ALONG WITH AUDIT REPORT IN FORM 10CCB READ WITH RULE 18BBB(4) OF THE RULES. IN VIEW OF THE AFORESAID, TH E ASSESSEE CLAIMED DEDUCTION OF RS. 1129.63 CRORE UNDER SECTION 80IC OF THE ACT DURING THE RELEVANT ASSESSMENT YEAR. IN THE ASSESSMENT ORDER, THE ASSES SING OFFICER DISALLOWED THE ENTIRE AMOUNT OF DEDUCTION CLAIMED U/S 80IC OF THE ACT, ON THE GROUND THAT THE ASSESSEE FAILED TO COMPLY WITH RULE 18BBB(4) OF THE RULES INASMUCH AS THE ASSESSEE DID NOT OBTAIN ANY APPROVAL FOR CARRYING O N THE BUSINESS OF MANUFACTURING TWO-WHEELERS IN THE STATE OF UTTARANC HAL. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE FAILED TO COMPLY WITH THE CONDITION SPECIFIED IN THE INDUSTRIAL POLICY AND CONSEQUENT NOTIFICATIO N ISSUED BY UTTRANCHAL GOVERNMENT AND ALSO FAILED TO MEET THE CONDITION OF CONTINUOUS EMPLOYMENT OF SPECIFIED NUMBER OF EMPLOYEES ON ANY GIVEN DAY, AS CONTAINED IN THE FACTORY LICENSE. SINCE THE ASSESSING OFFICER HAD DISALLOWED THE ENTIRE DEDUCTION CLAIMED UNDER SECTION 80IC ON VARIOUS GROUNDS, WHIC H HAVE BEEN OBJECTED IN 160 ITA NO. 1351/DEL/2018 GROUNDS OF APPEAL NOS. 28-37 (SUPRA), NO FURTHER DI SALLOWANCE FOR THE AFORESAID AMOUNT OF RS. 270,74,38,681 WAS MADE IN T HE ASSESSMENT ORDER. 117. IN THIS REGARD, THE LD. AR SUBMITTED THAT IDEN TICAL DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS, I.E. AY 2010-11 AND AY 2011-12 HAS BEEN DELETED BY THE TRIB UNAL VIDE CONSOLIDATED ORDER DATED 24.10.2016, WHEREIN IT WAS HELD THAT TH E ASSESSEE HAD GIVEN ALL THE NECESSARY DETAILS AND FULFILLED ALL STATUTORY CONDI TIONS FOR THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. FURTHER, T HE TRIBUNAL HELD THAT EVEN OTHERWISE, ENTIRE CLAIM OF DEDUCTION COULD NOT BE D ENIED IF SOME INCOMPLETE DETAILS ARE FURNISHED BY THE ASSESSEE. THE LD. AR P OINTED OUT THAT NO APPEAL HAS BEEN FILED BY THE DEPARTMENT BEFORE THE HIGH CO URT. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14 , THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOLLOWING THE OR DERS FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. 118. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AN D ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 119. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 124. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-1 2 HELD AS UNDER: 136) WE HAVE HEARD THE RIVAL CONTENTIONS. THE CASE OF THE ASSESSING OFFICER WAS THAT THE APPELLANT IS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S 80IC SINCE IT DID NOT SATISFY THE FOLLOWING CONDITI ONS: A) THE APPELLANT FAILED TO COMPLY WITH RULE 18BBB OF T HE RULES INASMUCH AS THE APPELLANT DID NOT OBTAIN ANY APPROV AL FOR CARRYING ON THE BUSINESS OF MANUFACTURING TWO-WHEELERS IN THE S TATE OF UTTARANCHAL; 161 ITA NO. 1351/DEL/2018 B) THE APPELLANT FAILED TO COMPLY WITH THE CONDITION O F EMPLOYMENT OF NATIVES OF STATE OF UTTARANCHAL AT PRESCRIBED PERCE NTAGE AS CONTAINED IN THE INDUSTRIAL POLICY ISSUED BY THE GOVERNMENT F OR THE STATE OF UTTARANCHAL; [COMMUNICATION NO.429/LND. DEV. / EMPL OYMENT /2005- 06, DATED 19.11.2005, ISSUED BY THE SECRETARY, IND USTRIAL DEVELOPMENT TO DIRECTOR, INDUSTRIES, UTTRANCHAL] C) THE APPELLANT FAILED TO MEET THE CONDITION OF CONTI NUOUS EMPLOYMENT OF SPECIFIED NUMBER OF EMPLOYEES ON ANY GIVEN DAY, AS CONTAINED IN THE FACTORY LICENSE. AS REGARDS THE FIRST CONDITION PRESCRIBED IN RULE 1 8BBB REGARDING APPROVAL TO CARRY ON THE ELIGIBLE BUSINESS, IT WAS EXPLAINED BY THE APPELLANT THAT FOR THE PURPOSES OF CARRYING ON BUSINESS OF MANUFACTURI NG TWO-WHEELERS OTHER THAN OBTAINING FACTORY LICENSE AS PER THE FACTORY A CT, 1948, NO OTHER APPROVAL / PERMISSION WAS REQUIRED FROM ANY CENTRAL / STATE GOVERNMENT UNDER ANY LAW. NO SUCH REQUIREMENT HAS EVEN BEEN PR ESCRIBED BY THE ASSESSING OFFICER. AS REGARDS THE FACTORY LICENSE, THE APPELLANT HAD OBTAINED THE SAID LICENSE FROM THE APPROPRIATE STAT E AUTHORITY WHICH WAS ATTACHED ALONG WITH AUDIT REPORT IN FORM 10CCB IN C OMPLIANCE OF RULE 18BBB(4) OF THE RULES. CONSIDERING THAT NO LICENSE WAS REQUIRED TO BE OBTAINED TO CARRY ON THE ELIGIBLE BUSINESS UNDER AN Y LAW, THE APPELLANT COULD NOT HAVE BEEN SAID TO VIOLATE THE PROVISIONS OF SAID RULE. AS REGARDS THE OTHER TWO FAILURES, RELATING TO STATE INDUSTRIA L POLICY ALLEGED BY THE ASSESSING OFFICER, THE SATISFACTIONS OF SUCH CONDIT IONS HAVE NOT BEEN STIPULATED AS A CONDITION PRECEDENT UNDER ANY PROVI SION OF SECTION 80IC OF THE ACT. THE PROVISIONS OF SECTION 80IC ARE SELF-CONTAINED A ND IF THE CONDITION STIPULATED THEREIN ARE SATISFIED, THE BENEFIT THERE IN CANNOT BE DENIED ON THE GROUND OF NON-SATISFACTION OF CERTAIN EXTRANEOUS CO NDITION. WE, ACCORDINGLY, HOLD THAT THERE WAS NO FAILURE OF SATI SFACTION OF CONDITIONS PRECEDENT TO CLAIM DEDUCTION U/S 80 IC AS WAS POINT ED OUT BY THE 162 ITA NO. 1351/DEL/2018 ASSESSING OFFICER IN THE ASSESSMENT ORDER. THAT AP ART, WE ADDITIONALLY NOTE THAT THE DRP HAD ALSO AGREED WITH THE AFORESAI D VIEW AND HAD DIRECTED THE ASSESSING OFFICER TO NOT DENY THE BENE FIT OF DEDUCTION UNDER SECTION 80IC ON THE AFORESAID GROUND. THE DRP HAD SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE WHETHE R OTHER CONDITIONS PRECEDENT FOR CLAIMING DEDUCTION U/S 80IC WERE SATI SFIED BY THE APPELLANT OR NOT. THE AFORESAID FINDINGS OF THE DRP HAVE NOT BEEN CHALLENGED BY THE ASSESSING OFFICER IN APPEAL BEFORE US. SUCH FINDING S HAVE, THUS, BECOME FINAL, WHICH COULD NOT HAVE BEEN OVERRIDDEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. ACCORDINGLY, FOR THE AFORESAID AD DITIONAL REASON ALSO, WE HOLD THAT DEDUCTION U/S 80IC CANNOT BE DENIED FO R ALLEGED FAILURE TO COMPLY WITH THE AFORESAID THREE CONDITIONS SPECIFIE D IN THE ASSESSMENT ORDER. AS REGARDS COMPLIANCE OF CONDITIONS PRECEDENT FOR C LAIMING DEDUCTION U/S 80IC, WE NOTE THAT THE APPELLANT DURING THE COURSE OF SET-ASIDE PROCEEDINGS HAD POINT-WISE GIVEN ENTIRE DETAILS /INFORMATION AS TO HOW IT SATISFIED EACH CONDITION PRECEDENT FOR CLAIMING DEDUCTION UNDER SA ID SECTION. THE CLAIM OF DEDUCTION OF THE APPELLANT IS ALSO DULY SUPPORTED W ITH THE AUDIT REPORT IN FORM 10CCB ISSUED BY THE AUDITORS, ANSWERING EACH Q UESTION IN THE FORMAT AND HOW THE APPELLANT SATISFIED ALL SUCH CON DITIONS. IN THE FINAL ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOT POI NTED OUT VIOLATION OF ANY SUCH CONDITION PRECEDENT. WE AGREE WITH THE SUB MISSIONS OF THE LD. COUNSEL THAT THE VARIOUS ERRORS (ASSUMING WITHOUT A DMITTING) IN SUBMISSION OF COMPLETE DETAILS/INFORMATION BY THE A PPELLANT TO THE ASSESSING OFFICER, AS NOTED IN THE ASSESSMENT ORDER , RELATED TO THE COMPUTATION OF DEDUCTION, ON THE BASIS OF WHICH ENT IRE CLAIM COULD NOT HAVE BEEN DENIED. ACCORDINGLY, IN OUR VIEW, THE ASSESSIN G OFFICER WAS NOT JUSTIFIED IN DENYING THE BENEFIT OF DEDUCTION U/S 8 0IC TO THE APPELLANT OF RS. 9972535090/. IN VIEW OF THIS GROUND NO. 29 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 163 ITA NO. 1351/DEL/2018 THIS FACT IS IDENTICAL WITH THE EARLIER ASSESSMENT YEARS. THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS ORDER FOR A.YS. 2010-11 & 2011-12. BESIDES THIS THE REVENUE HAS ACCEPTED THIS ISSUE AND HAS NOT CHALLENGED THE SAME IN HONBLE HIGH COURT. THUS, TH IS ISSUE ATTAINS FINALITY. THEREFORE, GROUND NO. 44 TO 44.4 ARE ALLOWED IN FAV OUR OF THE ASSESSEE. THE ASSESSEE COMPANY HAS GIVEN ALL THE NECESSARY DE TAILS TO THE ASSESSING OFFICER AND FULFILLED ALL STATUTORY CONDITIONS FOR THE CLAIM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. BESIDES, NO APPEAL HAS BEEN FILED BY THE DEPARTMENT BEFORE THE HIGH COURT, THUS THE ORDE R OF THE TRIBUNAL ATTAINS FINALITY. HENCE GROUND NOS. 38 TO 38.4 ARE ALLOWED. 120. AS RELATED TO GROUND NO. 39 TO 39.7 ARE RELATI NG TO DISALLOWANCE OF PURCHASE U/S 40(A)(IA) FOR ALLEGED FAILURE TO DEDUC T TDS U/S 194C OF THE ACT. IN THE COURSE OF BUSINESS OF MANUFACTURING TWO WHEELER S, THE ASSESSEE PLACES PURCHASE ORDERS ON VENDORS OF CERTAIN CUSTOMIZED IN TERMEDIARY PRODUCTS LIKE WHEEL ASSEMBLY, SEAT ASSEMBLY, ETC. WHILE PLACING T HE AFORESAID PURCHASE ORDERS TO THE VENDORS, THE ASSESSEE ALSO PROVIDES T HE SPECIFICATIONS OF THE PRODUCTS TO BE PURCHASED, AS ALSO THE NAME OF SUPPL IERS, FROM WHOM THE VENDOR IS REQUIRED TO PURCHASE RAW MATERIALS/COMPON ENTS TO BE USED IN MANUFACTURE OF CUSTOMIZED INTERMEDIARY PRODUCTS AT THE PRICE NEGOTIATED BY THE ASSESSSEE WITH SUCH SUPPLIERS. THE NAMES OF THE SUPPLIERS AND THE PRICE AT WHICH THE VENDORS ARE REQUIRED TO PROCURE RAW MATER IALS, ETC., FROM SUCH SUPPLIER, IS ADVISED BY THE ASSESSEE IN ORDER TO EN SURE PROPER QUALITY AND UNIFORM PRICING OF THE FINISHED PRODUCTS TO BE SUPP LIED BY SUCH VENDORS. THE PRICES OF RAW-MATERIALS LIKE, RUBBER, PLASTICS, ALU MINUM, STEEL FLUCTUATES QUITE FREQUENTLY AND COULD SUBSTANTIALLY AFFECT THE COST OF INTERMEDIARY CUSTOMIZED PRODUCTS REQUIRED TO BE SUPPLIED BY THE VENDORS, WH ICH IN TURN CAN HAVE A SUBSTANTIAL BEARING ON THE PRICE OF THE FINAL PRODU CT. THE ASSESSEE IN ORDER TO 164 ITA NO. 1351/DEL/2018 HEDGE ITSELF AGAINST THE PRICE FLUCTUATION AND ALSO TO GET BEST RATES ON ACCOUNT OF BULK VOLUMES, NEGOTIATED AND FIXES THE RATE OF A BOVE RAW MATERIALS, WHICH ARE PURCHASED BY THE VENDORS, FOR MAKING COMPONENT, ETC. SUPPLIED BY THEM TO THE ASSESSEE. FURTHER, THE COMPONENTS TO BE FITTED IN THE TWO-WHEELERS HAVE TO BE STANDARDIZED AND MUST CONFORM TO THE SPECIFICATI ONS OF THE MOTORCYCLES TO BE MANUFACTURED BY THE ASSESSEE COMPANY. THE QUALIT Y OF COMPONENTS USED IN THE ASSEMBLY OF MOTORCYCLES, WHICH ARE SOURCED FROM SEVERAL VENDORS HAS NOT ONLY TO BE UNIFORM BUT TOP GRADE AS WELL. IN ORDER TO ENSURE THAT THE VENDORS USE QUALITY MATERIAL IN FABRICATION/ MANUFACTURE OF THE INTERMEDIARY PRODUCTS/COMPONENTS SUPPLIED TO THE ASSESSEE, THE A SSESSEE COMPANY AFTER EXTENSIVE RESEARCH AND INVESTIGATION ZEROES IN ON C REDIBLE AND REPUTABLE MANUFACTURERS AND INSISTS THAT THE VENDORS SOURCE T HE RAW MATERIAL /COMPONENTS REQUIRED FROM SUCH MANUFACTURERS ONLY. FURTHER, IN VIEW OF THE SHEER MAGNITUDE AND SIZE OF ITS OPERATIONS, THE ASS ESSEE IS ABLE TO NEGOTIATE WITH THE MANUFACTURERS OF RAW MATERIAL / COMPONENTS FOR BEST PRICES. THE ASSESSEE ADVICES THE VENDORS WHO SUPPLY INTERMEDIAR Y PRODUCTS TO THE APPELLANT, OF THE PRICES NEGOTIATED BY THE ASSESSEE WITH THE MANUFACTURERS OF RAW MATERIAL / COMPONENTS, TO BE SOURCED BY SUCH VE NDORS. SINCE THE PRICE PAID BY THE ASSESSEE TO THE VENDORS OF INTERMEDIARY PRODUCTS / COMPONENTS IS, IN TURN DEPENDENT ON PRICES OF INPUTS PAID BY THE V ENDORS TO SUPPLIERS OF RAW MATERIAL / COMPONENTS, IT IS IN THE BEST INTEREST O F THE ASSESSEE TO ENSURE THAT THE PRICES OF RAW MATERIAL / COMPONENTS SOURCED BY THE VENDORS FROM INDEPENDENT MANUFACTURERS ARE KEPT TO THE MINIMUM. IT IS IN THIS BACKGROUND THAT THE ASSESSEE SEEKS TO LEVERAGE ITS STRENGTH, G IVEN THE MAGNITUDE OF ITS BUSINESS AND REQUIREMENT OF INTERMEDIARY PRODUCTS T O EXTRACT THE BEST PRICES FROM THE MANUFACTURERS OF RAW MATERIAL OR COMPONENT S. THE BENEFIT OF LOWER PRICES ENJOYED BY THE VENDORS IS, IN TURN, PASSED O N TO THE ASSESSEE WHEN THE ASSESSEE PURCHASES INTERMEDIARY PRODUCTS / COMPONEN TS FROM THE VENDORS, UTILIZING RAW MATERIALS / COMPONENTS SOURCED FROM I NDEPENDENT MANUFACTURERS AT BEST PRICES NEGOTIATED BY THE ASSESSEE. FURTHERM ORE, THE ASSESSEE SPECIFIES SUPPLIERS, IN VIEW OF THEIR TECHNICAL EXPERTISE LEV EL, REFERENCES / REPUTATION, IN 165 ITA NO. 1351/DEL/2018 VIEW OF THEIR FINANCIAL STABILITY AND STAYING POWER , ABILITY TO MEET DELIVERY DUE DATES AND CAPACITY TO ALIGN WITH THE GROWTH OF THE COMPANY. ALSO, THE SUPPLIER MUST BE IN A POSITION TO SERVE THE ASSESSEE COMPANY 'S LONG TERM NEEDS BY ADHERING TO THE DELIVERY AGREEMENTS WITH HIGHER TEC HNICAL PRODUCTION LEVEL. THEREFORE, SELECTING THE MOST APPROPRIATE SUPPLIERS IS CONSIDERED AS AN IMPORTANT STRATEGIC MANAGEMENT DECISION THAT HELPS THE COMPANY TO ENSURE UNIFORM QUALITY, CONTROL PRICES AND ENSURE CONTINUO US AND UNINTERRUPTED SUPPLY OF MATERIAL. EXCISE DUTY, SALES TAX, ETC. AN D OTHER APPLICABLE TAXES ARE PAID BY THE VENDORS ON MANUFACTURE AND SALE OF GOOD S TO THE APPLICABLE, WHILE CLAIMING CENVAT CREDIT IN RESPECT OF DUTY PAID ON R AW MATERIALS PURCHASED BY THE VENDORS (FROM THE SUPPLIERS) FOR MANUFACTURE OF GOODS. THE RAW MATERIAL IS ACQUIRED BY THE VENDOR FROM SUPPLIERS, SPECIFIED BY THE ASSESSEE, IN THEIR OWN NAME AND NOT ON ACCOUNT OR BEHALF OF THE ASSESSEE. THE ASSESSEE AT NO POINT OF TIME ACQUIRES OWNERSHIP OF RAW MATERIAL, ETC., SUPP LIED BY THE SUPPLIERS TO THE VENDORS. THE GOODS MANUFACTURED REMAIN AT THE RISK OF THE VENDORS UNTIL SUPPLIED TO THE ASSESSEE. THE ASSESSEE ACQUIRES OWN ERSHIP ONLY OF THE FINISHED GOODS MANUFACTURED AND SUPPLIED BY THE VENDORS AT T HAT STAGE AND NOT AT ANY ANTERIOR POINT OF TIME. THUS, THE AFORESAID CONTRAC T WAS IN THE NATURE OF CONTRACT OF SALE. THE ASSESSING OFFICER HELD THAT T HE ASSESSEE BY SPECIFYING THE NAME OF VENDORS OF RAW MATERIAL ALONG WITH PURCHASE PRICE THEREOF, WAS CONTROLLING THE SUPPLY OF RAW MATERIAL TO THE VENDO RS, WHICH WAS TO BE DEEMED AS SUPPLY OF RAW-MATERIAL BY THE ASSESSEE ITSELF, A ND HENCE THE CONTRACT WITH VENDORS CONSTITUTED WORK CONTRACT UNDER SECTION 1 94C, AS AMENDED BY FINANCE (NO. 2) ACT, 2009. THE ASSESSING OFFICER A LSO OBSERVED THAT THE VENDORS ARE NOT OPERATING AS INDEPENDENT BUSINESS E NTITIES BUT AS CAPTIVE UNITS AND WORKING UNDER THE DIRECTIONS AND DICTATION OF T HE ASSESSEE, THEREBY HAVING NO INDEPENDENT DECISION MAKING. IN ASSESSMENT ORDER , THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE, WHILE ARRANGING THE TRANSACTIONS IN THE AFORESAID MANNER, VIZ., ROUTING THE SUPPLY OF MATER IAL THROUGH PARTIES, HAS HOODWINKED THE REVENUE IN ORDER TO EVADE LIABILITY TO DEDUCT TAX AT SOURCE. THE ASSESSING OFFICER HELD THAT THE AFORESAID TRANSACTI ON OF PURCHASE FROM VENDORS 166 ITA NO. 1351/DEL/2018 WAS IN THE NATURE OF CONTRACT FOR CARRYING OUT WORK , WHICH WAS SUBJECT TO TDS UNDER SECTION 194C AND IN VIEW OF ASSESSEES FAILUR E TO DEDUCT TAX AT SOURCE UNDER THE AFORESAID SECTION, THE ENTIRE PURCHASES A GGREGATING TO RS. 3,517.67 CRORES MADE FROM THE AFORESAID VENDORS WAS DISALLOW ABLE UNDER SECTION 40(A)(IA) OF THE ACT. 121. THE LD. AR SUBMITTED THAT THE AFORESAID ISSUE IS SQUARELY COVERED BY THE DECISION OF DELHI BENCH OF TRIBUNAL IN THE ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2007-08 AND 2008-09, WHEREIN AFTER EXHAUSTIVE CONSIDERATION OF THE FACTS, IT WAS HELD THAT THE IMPUGNED TRANSAC TIONS ARE IN THE NATURE OF CONTRACT OF SALE AND NOT CONTRACT FOR CARRYING OUT WORK TO BE COVERED WITHIN THE SCOPE OF SECTION 194C OF THE ACT. THE TRIBUNAL ALSO FOUND FORCE IN THE ARGUMENTS OF THE ASSESSEE THAT, WHERE RECIPIENTS HA VE PAID TAX, NO DISALLOWANCE UNDER SECTION 40(A)(IA) WAS WARRANTED. FURTHER, THE LD. AR POINTED OUT THAT SIMILAR DISALLOWANCE MADE BY THE A SSESSING OFFICER IN ASSESSMENT YEARS 2010-11 AND 2011-12 HAS BEEN DELET ED BY THE TRIBUNAL VIDE ORDER DATED 24.10.2016, FOLLOWING THE AFORESAID ORD ERS FOR EARLIER YEARS, VIZ. AY 2007-08 AND 2008-09. WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14, THE TRIBUNAL DECIDED THE ISSU E IN FAVOR OF THE ASSESSEE FOLLOWING THE ORDERS FOR THE ASSESSMENT YEARS 2010- 11 AND 2011 -12. EVEN OTHERWISE AND WITHOUT PREJUDICE TO THE ABOVE, THE L D. AR SUBMITTED THAT SECOND PROVISO TO SECTION 40(A)(IA) PROVIDES IF THE RECIPIENT HAS CONSIDERED THE PAYMENTS RECEIVED AS PART OF INCOME AND PAID TAX TH EREON, THEN THE PAYER CANNOT BE CONSIDERED AS IN DEFAULT AND NO PART O F THE EXPENDITURE CAN BE DISALLOWED UNDER THE SAID SECTION. THE SAID PROVISI ON WAS INSERTED W.E.F. 1.4.2013, I.E., AY 2013-14 AND ONWARDS. THE DELHI H IGH COURT IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP (P.) LTD.: 377 ITR 635, HAS, HOWEVER, HELD THE AFORESAID AMENDMENT TO BE RETROSPECTIVE IN NATU RE AND APPLICABLE IN EARLIER YEAR(S). THE DECISION IN THE CASE OF ANSAL LAND MAR K (SUPRA) WAS UPHELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. CALCUT TA EXPORT COMPANY: 404 ITR 654. ACCORDINGLY, IN THE PRESENT CASE SINCE THE RECIPIENT HAVE DISCHARGED 167 ITA NO. 1351/DEL/2018 THEIR TAX LIABILITY AND CERTIFICATE OF CA TO THAT E FFECT HAVE BEEN PROVIDED BY THE PARTIES, NO DISALLOWANCE IS EVEN OTHERWISE WARRANTE D UNDER SECTION 40(A)(IA) OF THE ACT. IN THE ASSESSMENT YEAR 2013-14, THE ASSES SING OFFICER WHILE GIVING EFFECT TO THE DIRECTIONS OF THE DRP DELETED THE DIS ALLOWANCE ON THE BASIS THAT THE PAYEES HAVE PAID TAXES ON SUCH INCOME. FURTHER WITHOUT PREJUDICE TO THE ABOVE, THE LD. AR SUBMITTED THAT THE ASSESSING OFFI CER ERRED IN DISALLOWING 100% OF THE PURCHASES, INSTEAD OF RESTRICTING THE D ISALLOWANCE TO 30% OF THE SAID TOTAL PURCHASES, IN TERMS OF THE PROVISIONS OF SECTION 40(A)(IA) AS AMENDED BY THE FINANCE (NO.2) ACT, 2014. THE LD. AR POINTED OUT THAT ALTHOUGH THE FINANCE (NO.2) ACT, 2014 STATES THE AFORESAID AMEND MENT TO BE EFFECTIVE FROM 01.04.2015, HOWEVER THE AFORESAID AMENDMENT WAS MAD E WITH AN INTENT TO REMOVE THE HARDSHIP, THE SAME IS ALSO APPLICABLE RE TROSPECTIVELY INCLUDING THE YEAR UNDER CONSIDERATION. THE LD. AR RELIED UPON T HE FOLLOWING DECISIONS WHEREIN IT HAS BEEN HELD THAT THE AFORESAID AMENDME NT OF REDUCING THE AMOUNT OF DISALLOWANCE FROM 100% TO 30% IS RETROSPECTIVE: * SMT. KANTA YADAV VS. ITO (ITA NO. 6312/DEL/2016) * SHRI RAJENDRA YADAV VS. ITO (ITA NO. 895/JP/2012) SMT. SONU KHANDELWAL VS. ITO (ITA NO. 597/JP/2013) THUS, THE LD. AR SUBMITTED THAT WITHOUT PREJUDICE T O THE SUBMISSIONS ABOVE THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESS EE TO DEDUCT TAX AT SOURCE FROM THE IMPUGNED PAYMENT, THE DISALLOWANCE, IF ANY , SHOULD BE DIRECTED TO BE REDUCED TO 30% OF THE TOTAL EXPENDITURE. 122. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AN D ORDER OF THE TPO. 123. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 45. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A. YS. 2010-11 AND 2011 -12 HELD AS UNDER: 168 ITA NO. 1351/DEL/2018 65) WE NOTE THAT THE LD. ASSESSING OFFICER HAD ADO PTED THE FINDINGS AND REASONS GIVEN IN THE ASSESSMENT ORDER FOR AY 2007-0 8, WHILE REPEATING THE DISALLOWANCE IN THE ASSESSMENT YEAR UNDER CONSIDERA TION. THE TRIBUNAL IN THE ORDER FOR AY 2007-08 IN APPELLANTS OWN CASE HA S REVERSED THE AFORESAID FINDINGS OF THE ASSESSING OFFICER. THE CO ORDINATE BENCH HAS HELD THAT IMPUGNED TRANSACTION IS NOT COVERED WITHIN THE SCOPE OF SECTION 194C OF THE ACT. THE RELEVANT OBSERVATIONS OF THE COORD INATE BENCH ARE AS UNDER: 14.58. THE ISSUE BEFORE US FOR ADJUDICATION IS WHE THER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CUSTOMIZED INTERMEDIATERY PRODUCTS LIKE WHEEL ASSEMBLY, SEAT ASSEMBLY ET C. SOURCED BY THE ASSESSEE FROM THE VENDORS IS A CONTRACT OF SALE B Y THE VENDORS OR A CONTRACT OF WORK. 14.59. THE ASSESSING OFFICER ISSUED SUMMONS U/S 131 TO NINE VENDORS AND RECORDED THEIR STATEMENTS. THIS EXERCIS E RESULTED IN THE ASSESSING OFFICER GATHERING INFORMATION FROM THE VE NDORS THAT THEY HAVE PROCURED MATERIAL FROM THE SOURCES SPECIFIED B Y THE ASSESSEE AND AT RATES SPECIFIED BY THE ASSESSEE. BASED ON TH E STATEMENTS FROM NINE VENDORS, THE ASSESSING OFFICER CAME TO THE CON CLUSION THAT THE ASSESSEE HAS TERMED THE CONTRACT OF WORK AS CONT RACT FOR SALE. THE REASONS IN DETAILS FOR ARRIVING AT SUCH CONCLUS ION BY THE ASSESSING OFFICER AND AS CONFIRMED BY THE DRP ARE D ISCUSSED IN THE ABOVE PARAGRAPHS (SUPRA). 14.60. WITH THE ABOVE BACKGROUND, WE EXAMINE THE LE GAL POSITION IN THIS REGARD. ................... 14.73. ON PERUSAL OF THE ABOVE MENTIONED CBDT CIRCU LARS, IT CAN BE APPRECIATED THAT THE FACT THAT THE GOODS SOLD ARE M ANUFACTURED ACCORDING TO SPECIFICATIONS OF THE BUYER IS NO T RELEVANT IN DETERMINING WHETHER THE CONTRACT IS A CONTRACT OF SALE OR WORKS 169 ITA NO. 1351/DEL/2018 CONTRACT. WHAT IS RELEVANT TO DETERMINE THE STAGE O F PASSING OF PROPERTY/TITLE IN THE GOODS FROM THE VENDOR TO THE BUYER. WHERE TITLE TO THE GOODS PASSES TO THE BUYER AT THE TIME GOODS ARE MANUFACTURED AND TRANSPORTED, THE CONTRACT WOULD BE ONE FOR SALE OF GOODS, NOTWITHSTANDING THAT THE GOODS ARE MANUFACTURED ACC ORDING TO THE SPECIFICATIONS OF THE BUYER. 14.74. THE PRINCIPAL TEST TO BE APPLIED TO DETERMIN E WHETHER THE CONTRACT IS WORKS CONTRACT OR CONTRACT FOR SALE IS EXAMINED WHETHER TITLE TO THE GOODS PASSES TO THE PURCHASER AT ANY TIME A NTERIOR TO THE MANUFACTURE AND DELIVERY OF GOODS TO THE PURCHASER. IF THE ANSWER TO THE AFORESAID QUERY IS IN THE NEGATIVE, THEN, THE C ONTRACT IS ONE OF SALE, WHEN THE VENDOR MANUFACTURES GOODS IN HIS OWN RIGHT , AS PRINCIPAL, AND NOT AS JOB WORKER. 14.75. THE LEGAL POSITION IS WELL SETTLED THAT IN C ASE TITLE/OWNERSHIP IN GOODS PASSES TO THE BUYER ON TRANSFER OF GOODS B Y THE VENDOR, EVEN THOUGH GOODS ARE MANUFACTURED ACCORDING TO THE SPECIFICATIONS AND DESIGN SUPPLIED BY THE PURCHASER, THE CONTRACT CANNOT BE REGARDED AS CONTRACT FOR CARRYING OUT WORK FALLING UNDER SEC TION 194C OF THE ACT. ................... 14.86. WHETHER A PARTICULAR CONTRACT CONSTITUTES C ONTRACT FOR SALE OR CONTRACT FOR WORK IS BASED ON FACTS OF EACH CA SE. THE SAME WOULD DEPEND UPON THE INTENTION AND CONDUCT OF THE PARTIE S AS EVIDENCED BY THE TERMS OF THE CONTRACT. IT IS A SETTLED JUDIC IAL PREPOSITION THAT THE SUBSTANCE AND NOT THE FORM OF THE CONTRACT IS MATER IAL IN DETERMINING THE NATURE OF TRANSACTIONS. 14.87. APPLYING THE PRINCIPALS LAID BY THE COURTS T O THE FACTS OF THE PRESENT CASE, WE NOW PROCEED TO EXAMINE WHETHER THE CONTRACT IN THE CASE ON HAND IS CONTRACT FOR SALE OR CONTRACT FO R WORK. 170 ITA NO. 1351/DEL/2018 (1) ALL THE NINE PARTIES ARE INDEPENDENT LEGAL ESTA BLISHMENTS ENGAGED IN THE MANUFACTURING OF FINISHED PRODUCTS A ND ARE NOT CAPTIVE UNITS OF THE ASSESSEE. (2) THE VENDORS HAVE THEIR OWN MANUFACTURING ESTABL ISHMENTS, EMPLOYING HUGE LABOUR; UTILIZE THE RAW MATERIAL S PURCHASED BY THEM, FOR PRODUCING CUSTOMIZED FINISHED GOODS FOR THE ASSESSEE. (3) THE ASSESSEE HAS ISSUED PURCHASE ORDERS FOR SU PPLY OF COMPONENTS AS PER THE ASSESSEES SPECIFICATION. THE ASSESSEE HAS FILED COPIES OF THE PURCHASE ORDERS/ INVOICES. THE SAME FINDS PLACE IN THE PAPER BOOK FILED BY THE ASSESSEE. (4) THE RAW MATERIALS ARE DELIVERED TO THE VENDORS BY THE SUPPLIERS AND ARE AT THE RISK AND TITLE OF THE VEND ORS. THE SUPPLIERS COLLECT FROM THE VENDORS, SALES TAX, VAT ETC. ON SA LE OF RAW MATERIAL AND THE VENDOR PAID THE SAME. (5) EXCISE DUTY IS PAID BY THE VENDORS IN T HEIR OWN RIGHT, AS AN INDEPENDENT MANUFACTURER AND NOT AS A JOB WO RKER IN RESPECT OF GOODS MANUFACTURED AND SOLD TO THE ASSES SEE. (6) THE ASSESSEE HAS PAID SALES TAX/VAT, AS THE CAS E MAYBE, FOR THE GOODS PURCHASED FROM THE VENDORS. 14.88. FURTHER ON PERUSAL OF THE SAMPLE PURCHASE OR DERS PRODUCED BEFORE US AND THE TERMS AND CONDITIONS ON WHICH THE PURCHASE ORDER IS PLACED, WE OBSERVE THAT THE TRANSACTION IS ON A PRI NCIPAL TO PRINCIPAL BASIS. ................. 14.90. COMBINED READING OF ALL THE TERMS AND CONDIT IONS OF THE PURCHASE ORDER TAKES US TO THE CONCLUSION THAT THE VENDORS SUPPLY 171 ITA NO. 1351/DEL/2018 FINISHED GOODS TO THE ASSESSEE AT THEIR RISK AND CO ST. TITLE TO THE FINISHED GOODS WAS TRANSFERRED TO THE APPELLANT WHE N THE SUPPLIER/ VENDOR COMPLETED PRODUCTION OF THE FINISHED GOODS A ND DISPATCHED THE SAME TO THE ASSESSEE AND ONLY WHEN THE ASSESSEE APP ROVES AND ACCEPTS THE SAID GOODS I.E. TITLE PASSES ON ACCEPTA NCE OF GOODS. UNTIL THAT STAGE OF ACCEPTANCE ON DELIVERY, THERE IS NO T RANSFER OF TITLE AS PER THE INTENTION OF THE PARTIES GATHERED FROM THE PURCHASE ORDER. THE TRANSFER OF TITLE AT THE STAGE OF ACCEPTANCE OF DEL IVERIES BY THE PURCHASER WOULD BE, IN OUR OPINION, ONLY A SALE OF GOODS BUT NOT WORK CONTRACT. 14.91. THE TEST LAID DOWN BY THE COURTS IS TO EXAMI NE THE INTENTION OF THE PARTIES AS TO THE POINT OF TIME WHEN THEY WANT TO TRANSFER OF TITLE IN THE GOODS. IN THIS CASE, THE TITLE IN THE GOODS VES TS IN THE ASSESSEE ON DELIVERY OF THE GOODS. THE ASSESSEE NEVER ACQUIRED ANY TITLE PRIOR TO THE POINT OF DELIVERY. 14.92. WE ARE UNABLE TO APPRECIATE THE CONCLUSION D RAWN BY THE ASSESSING OFFICER AS APPROVED BY THE DRP THAT THE ASSESSEE HAS MADE A DEEMED PURCHASE OF THE RAW MATERIAL AND I N TURN MADE A DEEMED SUPPLY OF THE SAME TO THE VENDORS. THIS IS N OTHING BUT A PRESUMPTION UNSUPPORTED BY FACTS. THE ASSESSING OFF ICER ACCEPTS THAT ALL THE VENDORS PURCHASE RAW MATERIAL AND COMPONENT S FROM THEIR SUPPLIER AFTER PAYING SALES TAX, EXCISE DUTY ETC. W HEREVER APPLICABLE. THE PURCHASES ARE MADE ON A PRINCIPAL TO PRINCIPAL BASIS. TITLE IN THE GOODS PASSES TO THE VENDORS FROM THE SUPPLIER O N DELIVERY OF THE RAW MATERIAL AND THE ASSESSEE DOES NOT IN ANY WAY A CQUIRE ANY TITLE TO THE GOODS I.E. RAW MATERIAL. THE ARGUMENT OF THE LD . DR THAT THE NATURE OF ARRANGEMENT OF THE ASSESSEE IS THAT OF INDIRECT SUPPLY OF MATERIAL TO THE VENDOR, WHICH IS IN THE NATURE OF CONTRA CT FOR CARRYING OUT WORK IS FARFETCHED, DEVOID OF MERIT AND NOT SUPPO RTED BY EVIDENCE. IT IS NOT THE CASE OF REVENUE THAT THERE ARE ANY FINAN CIAL TRANSACTIONS 172 ITA NO. 1351/DEL/2018 BETWEEN THE ASSESSEE AND THE RAW MATERIAL SUPPLIERS OF THE VENDORS. THE TEST IS TO SEE THE FACT WHETHER THE ASSESSEE AC QUIRED ANY TITLE TO THE RAW MATERIAL PURCHASED BY THE VENDORS FROM THE SUPPLIERS. THE ANSWER TO THIS IS NO. WE ARE UNABLE TO UNDERSTAND A S TO HOW THE ASSESSING OFFICER AS WELL AS THE DRP HAS CONSIDERED THIS AS A DEEMED PURCHASE BY THE ASSESSEE. THE REASON ENUNCIATED BY THE ASSESSEE W.R.T IDENTIFYING THE SUPPLIERS OF THE MATERIAL ALO NG WITH THE DETERMINATION OF PRICE OF THE RAW MATERIAL FIXING O F PAYMENT TERMS ETC., CLEARLY CONSTITUTES A MATTER OF BUSINESS EXPEDIENCY FOR THE ASSESSEE. 14.93. FURTHER, IN THE STATEMENT RECORDED FROM THE VENDORS AFTER SUMMONING THEM U/S 131 OF THE ACT, THE VENDORS HAVE CONFIRMED THAT THIS IS A CASE OF SALE OF GOODS AND NOT A WORK S CONTRACT. MR. YOGESH KUMAR JINDAL HAS EXPLAINED THE PURPOSE FOR W HICH THE ASSESSEE SPECIFIES THE SUPPLIERS AND THE RATE. 14.94. WE HAVE CAREFULLY GONE THROUGH THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF NOVA PHARMA LTD . (SUPRA) RELIED BY THE LD. DR AND ARE OF THE VIEW THAT THE FACT OF THE CASE IS CLEARLY DISTINGUISHABLE AND CANNOT BE APPLIED TO THE FAC TS OF THE PRESENT CASE. THE ASSESSEE HAS RIGHTLY DISTINGUISHED THE CASE. AS THE SAME IS BROUGHT OUT IN THE EARLIER PART OF THE ORDE R, FOR SAKE OF BREVITY WE DO NOT REPEAT THE SAME. 14.95. IN THIS CASE, THERE IS NO SUPPLY OF RAW MATE RIAL BY THE ASSESSEE TO THE VENDORS EITHER DIRECTLY OR INDIRECTLY. IN LA YING DOWN THE QUALITY SPECIFICATION OF THE PRODUCTS, THE ASSESSEE IS ENSU RING THE REQUIRED QUALITY OF ITS PURCHASES WHICH IN TURN ENSURES THE QUALITY OF ITS TWO WHEELERS. CONSIDERING THE MAGNITUDE OF THE TO TAL REQUIREMENTS, THE ASSESSEE WAS ABLE TO NEGOTIATE THE PRICE AND HE NCE IS CONTROLLING ITS INPUT COSTS. THE LOW PRICE ENJOYED BY THE VENDO RS, IN TURN WOULD BE 173 ITA NO. 1351/DEL/2018 PASSED ON TO THE ASSESSEE. THIS IS A CASE WHERE THE VENDORS WERE PURCHASING RAW MATERIAL ON THEIR OWN ACCOUNT BY PAY MENT OF EXCISE DUTY, VAT ETC. THE GOODS WERE MANUFACTURED BY THE V ENDORS TO THE SPECIFICATION AND OTHER TERMS AND CONDITIONS SPELT OUT IN THE PURCHASE ORDERS AND IN THEIR OWN RIGHT AS INDEPENDENT MANUFA CTURES. ON THIS FACTUAL MATRIX, WE HAVE NO HESITATION IN HOLDING TH AT IT IS A CASE OF CONTRACT OF SALE AND NOT CONTRACT OF WORK. HENCE, I N OUR VIEW, THE PROVISION OF SEC. 194C ARE NOT APPLICABLE AND CONSE QUENTLY THE DISALLOWANCE MADE U/S 40(A)(IA) IS TO BE DELETED. 14.96. IT WOULD BE PERTINENT TO POINT THAT SECTION 194C WAS AMENDED BY THE FINANCE (2) ACT, 2009 W.E.F. 1.10.2009, WHER EBY THE DEFINITION OF WORK WAS ENLARGED TO INCLUDE CONTRA CT FOR MANUFACTURING OR SUPPLYING A PRODUCT ACCORDING TO T HE REQUIREMENT OR SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCH ASED FROM SUCH CUSTOMER. THE SAID AMENDMENT ALSO PROVIDED THAT CO NTRACT FOR CARRYING OUT WORK SHALL NOT INCLUDE CONTRACT FOR MA NUFACTURING OR SUPPLYING OF PRODUCT ACCORDING TO THE REQUIREMENT O R SPECIFICATION OF A CUSTOMER BY USING MATERIAL PURCHASED FROM A PER SON OTHER THAN SUCH CUSTOMER. 14.97. IN CASE OF THE ASSESSEE, THE FINISHED GOODS ARE MANUFACTURED BY THE SUPPLIER AS PER THE PRESCRIBED SPECIFIC ATIONS OF THE ASSESSEE. THE RAW MATERIAL AND OTHER INGREDIENT S REQUIRED FOR MANUFACTURE ARE SPECIFIED BY THE APPELLANT, IN ORDE R TO ENSURE PROPER QUALITY OF THE FINISHED PRODUCTS. THE RATES ARE NEG OTIATED TO ACHIEVE ECONOMY OF SCALE AND TO LEVERAGE THE POSITION OF TH E ASSESSEE, WHICH LEADS TO REDUCTION IN COST OF PRODUCTION. SUCH RAW- MATERIALS ARE HOWEVER ACQUIRED BY THE VENDOR ON THEIR OWN ACCOUNT AND NOT ON BEHALF OF THE ASSESSEE. 14.98. THE RIGHT OF OWNERSHIP PASSES TO THE ASSESSE E ONLY AFTER THE GOODS COME INTO EXISTENCE, ON MANUFACTURE AND A RE SUPPLIED TO THE 174 ITA NO. 1351/DEL/2018 ASSESSEE AS FINISHED GOODS. PRIOR THERETO, THE RI SK IN THE GOODS VESTS WITH THE VENDOR/SUPPLIER. ALL THE OTHER TERMS O F PURCHASE/SALE BETWEEN THE VENDOR AND SUPPLIER, LIKE PAYMENT TERMS , PERIOD OF DELIVERY ETC. IS FOR ACQUISITION OF ASCERTAINED GOO DS THE CONTRACT IS THUS ONE OF SALE AND NOT A CONTRACT FOR CARRYING OU T WORK. 14.99.IN VIEW OF THE ABOVE FINDING, WE ARE NOT ADJU DICATING ON THE OTHER ARGUMENTS RAISED BY THE ASSESSEE ON THIS ISSU E, THOUGH WE FIND FORCE IN THE ARGUMENT OF THE ASSESSEE THAT SINCE AL L THE VENDORS HAVE FILED THEIR RETURNS OF INCOME AND PAID TAXES ON THE RECEIPTS FROM THE ASSESSEE, NO DISALLOWANCE UNDER SECTION 40(A)(IA) I S WARRANTED. HENCE THE ADDITIONAL EVIDENCE AND ADDITIONAL ARGUME NT IS NOT ADJUDICATED AS IT WOULD BE AN ACADEMIC EXERCISE. IN THE RESULT, THIS GROUND OF THE ASSESSEE IS ALLOWED. 66) IN ABSENCE OF ANY CONTRARY DECISION POINTED OUT BY THE LD. DEPARTMENTAL REPRESENTATIVE AND THE FACTS AND CIRCU MSTANCES OF THE CASE REMAINING THE SAME WAS THE ASSESSMENT YEARS , WE FO LLOW THE AFORESAID FINDINGS GIVEN IN THE APPEAL ORDER FOR 2007-08 AND THEREFORE, WE HOLD THAT THE TRANSACTION ENTERED BY THE APPELLANT FOR PURCHA SE OF MATERIAL FROM VENDORS IS OUTSIDE THE SCOPE OF SECTION 194C OF THE ACT. ACCORDINGLY, FOR THE AFORESAID CUMULATIVE REASONS, WE DELETE THE IMP UGNED DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PURCHAS ES OF RS. 3 828.78 CRORES DISALLOWED FOR FAILURE TO DEDUCT TAX UNDER S ECTION 194C OF THE INCOME TAX ACT. IN THE RESULT GROUND NO. 13 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE BY THE TRIBUNALS ORDER FOR A.YS. 2010-11 & 2011-12. IN THE PRESENT C ASE THE RECIPIENT HAVE DISCHARGED THEIR TAX LIABILITY AND CERTIFICATE OF C HARTERED ACCOUNTANT TO THAT EFFECT WAS PROVIDED BY THE PARTIES, THEREFORE, NO D ISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(IA) OF THE ACT. THUS, THIS ISSU E IS SQUARELY COVERED BY THE 175 ITA NO. 1351/DEL/2018 HONBLE DELHI HIGH COURT DECISION IN CASE OF ANSAL LAND MARK TOWNSHIP P. LTD.(SUPRA). THEREFORE, GROUND NO. 25 TO 25.7 ARE A LLOWED. IN THIS YEAR AS WELL, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNALS ORDER FOR A.YS. 2010-11 & 2011-12 AS WELL AS 2012-13 & 2013- 14. IN THE PRESENT CASE THE RECIPIENT HAVE DISCHARG ED THEIR TAX LIABILITY AND CERTIFICATE OF CHARTERED ACCOUNTANT TO THAT EFFECT WAS PROVIDED BY THE PARTIES, THEREFORE, NO DISALLOWANCE CAN BE MADE UNDER SECTIO N 40(A)(IA) OF THE ACT. THUS, THIS ISSUE IS SQUARELY COVERED BY THE HONBLE DELHI HIGH COURT DECISION IN CASE OF ANSAL LAND MARK TOWNSHIP P. LTD.(SUPRA). HENCE GROUND NOS. 39 TO 39.7 ARE ALLOWED. 124. AS REGARDS GROUND NOS. 40 TO 40.3 ARE RELATING TO DISALLOWANCE OF COMMISSION PAID TO DEALERS ON INSTITUTIONAL SALES A LLEGING FAILURE OF DEDUCTION OF TAX AT SOURCE U/S 194H OF THE ACT. AS PER ARRAN GEMENT OF THE ASSESSEE WITH GOVERNMENT INSTITUTIONS, LIKE, CANTEEN STORE DEPART MENT (CSD) ETC., VEHICLES ARE SOLD TO SUCH INSTITUTIONS OR THEIR REPRESENTATI VES AT AN AGREED PRICE, WHICH IS NORMALLY LESS THAN THE PREVAILING MARKET PRICE. IN RESPECT OF SUCH SALES MADE BY DEALERS AT CONCESSIONAL PRICE, THE ASSESSEE COMPENSATES THE DEALERS AT A PRE-DETERMINED RATE. THE DEALERS REMAIN LIABLE FO R ANY DEFECTS IN THE VEHICLE ON PRINCIPAL TO PRINCIPAL BASIS. ON RECEIPT OF INTI MATION FROM DEALERS ACROSS THE COUNTRY, AT THE FAG END OF THE FINANCIAL YEAR, WHIC H IS VOLUMINOUS, THE REGIONAL/ZONAL OFFICE PROVIDES INFORMATION ABOUT TH E NUMBER OF VEHICLES SOLD TO INSTITUTIONAL CUSTOMERS. THE AMOUNT OF COMPENSATIO N OF DEALERS IS COMPUTED BY APPLYING SPECIFIC PERCENTAGE TO THE VALUE OF VEH ICLES SOLD AND PROVISION IS MADE THEREOF IN THE BOOKS. ACCORDINGLY, AT THE END OF YEAR, THE ASSESSEE MADE PROVISION OF RS. 89,31,800 TOWARDS COMMISSION ON IN STITUTIONAL SALES PAYABLE TO DEALERS. THE A.O/DRP DISALLOWED THE AFORESAID A MOUNT OF PROVISION ON THE GROUND THAT ASSESSEE FAILED TO DEDUCT AX AT SOURCE U/S 194H FROM THE SAID PROVISION, INVOKING PROVISION OF SECTION 40(A)(IA) OF THE ACT, MORE SO WHEN PAYMENTS ARE DEFINITIVE AND PAYEES WERE IDENTIFIED. 176 ITA NO. 1351/DEL/2018 125. THE LD. AR SUBMITTED THAT THE SALES MADE BY DE ALERS TO INSTITUTIONAL CUSTOMERS WERE ON A PRINCIPAL TO PRINCIPAL BASIS AN D NOT AS AGENT OF THE ASSESSEE AND ONLY THE CONCESSION IN PRICE OF VEHICL ES SOLD BY DEALERS WAS COMPENSATED BY THE ASSESSEE AT PRE-DETERMINED PRICE . [REFER: JAI DRINKS P. LTD. : 336 ITR 383 (DEL.)] WITHOUT PREJUDICE, THE LD. A R FURTHER SUBMITTED THAT OBLIGATION TO DEDUCT TAX AT SOURCE UNDER CHAPTER XV II-B ARISES (I) WHEN THE PAYEE IS IDENTIFIED AND (II) AMOUNT IS RECEIVABLE B Y PAYEE DURING SUCH YEAR. THE PROVISION WAS MADE ON THE BASIS OF INTIMATION AS TO THE NUMBER OF VEHICLES SOLD TO INSTITUTIONAL CUSTOMERS WHICH WAS RECEIVED AT TH E FAG END OF THE FINANCIAL YEAR. THOUGH THE ASSESSEE WAS AWARE ABOUT THE LIABI LITY TO PAY COMMISSION, BUT WAS NOT AWARE ABOUT THE AMOUNT PAYABLE TO THE R ESPECTIVE PAYEE/DEALER. THE DEALER IS VESTED WITH RIGHT TO RECEIVE COMMISSI ON ONLY AFTER CLAIM FOR SUCH COMMISSION MADE BY THE DEALER IS VERIFIED, ACKNOWLE DGED AND PASSED FOR PAYMENT BY THE ASSESSEE. IN THE EVENT OF REJECTION OF CLAIM, THE DEALER WOULD NOT BE ENTITLED TO RECEIVE ANY COMMISSION ON SALES MADE TO CUSTOMER. IN VIEW OF THE AFORESAID, COMMISSION AMOUNT PAYEE WISE WAS NOT KNOWN AND THERE WAS NO RIGHT TO RECEIVE THE SAME IN HANDS OF THE PAYEE. THE LD. AR FURTHER SUBMITTED THAT WITHOUT PREJUDICE, CONSIDERING THAT SIMILAR PAYMENTS WERE MADE BY THE ASSESSEE IN PRECEDING ASSESSMENT YEARS, WITHOUT DEDUCTION OF TAX AT SOURCE, WHICH WAS ALWAYS ACCEPTED BY THE REVENUE , THE APPLICANT WAS UNDER THE BONAFIDE BELIEF THAT NO TAX WAS REQUIRED TO BE DEDUCTED THERE FROM AND ACCORDINGLY, HAVING REGARD TO THE DECISION OF BOMBA Y HIGH COURT IN THE CASE CIT V. KOTAK SECURITIES LTD.: 245 CTR 3, NO DISALLO WANCE WAS WARRANTED UNDER SECTION 40(A)(IA) OF THE ACT. FURTHER, WITHOUT PRE JUDICE, THE LD. AR SUBMITTED, THAT SINCE THE PAYEES HAVE ALSO PAID TAX ON THE INC OME RECEIVED/ RECEIVABLE FROM THE APPLICANT, NO DISALLOWANCE COULD BE MADE U NDER SECTION 40(A)(IA) OF THE ACT FOR ALLEGED DEFAULT IN DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE . THE RELIED UPON SUBMISSION SUPRA THAT AMENDMENT BY WAY INSERTION OF SECOND PROVISO TO SECTION 40(A)(I) BEING CLARIFICATORY IN NATURE, HAS RETROSPECTIVE APPLICATION AND, THEREFORE, WERE PAYEE HAVE PAID TA XES NO DISALLOWANCE COULD EVEN OTHERWISE BE MADE UNDER SECTION 40(A)(IA) OF T HE ACT. THE AFORESAID ISSUE, 177 ITA NO. 1351/DEL/2018 THE LD. AR, IS SQUARELY COVERED IN FAVOUR OF THE AP PLICANT BY THE ORDER OF THE TRIBUNAL IN APPLICANT'S OWN CASE FOR ASSESSMENT YEA R 2007-08 AND 2008-09, WHEREIN IT WAS HELD BY THE TRIBUNAL THAT TAX IS NOT REQUIRED TO BE DEDUCTED UNDER SECTION 194H ON PAYMENTS MADE TO DEALERS ON A CCOUNT OF SALES BY DEALERS ON PRINCIPAL TO PRINCIPAL BASIS. FURTHER, IT WOULD BE PERTINENT TO POINT OUT THAT SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER IN ASSESSMENT YEARS 2010-11 AND 2011-12 AS WELL AS IN A.Y. 2012- 13 HAS BEEN DELETED BY THE TRIBUNAL VIDE ORDER DATED 24.10.2016, FOLLOWING THE AFORESAID ORDERS FOR EARLIER YEARS, VIZ. AY 2007-08 AND 2008-09. 126. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AN D ORDER OF THE TPO. 127. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2012-13 HELD AS UNDER: 49. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.YS. 2010-11 AND 2011- 12 HELD AS UNDER: 75) WE HAVE HEARD THE RIVAL CONTENTIONS. AS DEALER SHIP AGREEMENT ENTERED BETWEEN THE APPELLANT AND DEALERS IS ON A P RINCIPAL-TO-PRINCIPAL BASIS AND DEALERS DO NOT ACT AS AGENTS OF THE APPEL LANT WHILE PURCHASING AND FURTHER SELLING THE VEHICLES. ACCORDINGLY, THE INCENTIVES OFFERED AT THE TIME OF PURCHASE OF VEHICLES DO NOT FALL WITHIN THE MEANING OF COMMISSION U/S 194H OF THE ACT. FURTHER, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE IN AY 2008-09 WH EREIN FOLLOWING THE ITAT DECISION IN ASSESSEES OWN CASE FOR THE YEAR A Y 2007-08, IT WAS OBSERVED AS UNDER 148. FROM THE BARE READING OF THE DECISION OF TH E TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2007-08 (SUPRA), WE OBSE RVE THAT AFTER DEALING WITH RIVALS SUBMISSIONS AND CONTENTIONS OF BOTH THE PARTIES, THE TRIBUNAL REACHED TO THE FOLLOWING FINDING AND CONCLUSION DEC IDING THE ISSUE IN 178 ITA NO. 1351/DEL/2018 FAVOUR OF THE ASSESSEE. THE RELEVANT OPERATIVE PART OF THE ORDER OF THE TRIBUNAL FOR AY 2007-08 IN ASSESSEES OWN CASE (SUP RA) READ AS UNDER- 45.11. THE FACTS OF THIS CASE CLEARLY DEMONSTRATE THAT WHAT IS GIVEN TO THE STOCKIEST/ DEALERS IS DISCOUNT ON THE PURCHA SE PRICE AND NOT ANY COMMISSION. THE STOCKIEST/ DEALERS PURCHASE SPARE P ARTS/ VEHICLES FROM THE ASSESSEE. THEY ARE NOT COMMISSION AGENTS. SALE CONSIDERATION IS PAID BY THESE PARTIES TO THE ASSESSEE. AS A MATT ER OF INCENTIVE FOR HIGHER SALE THE ASSESSEE GRANTS DISCOUNT IF THE STO CKIEST/ DEALERS ACHIEVE A PARTICULAR VOLUME OF TRANSACTION. THUS, I N OUR VIEW THE DISCOUNT IN QUESTION IS NOT IN THE NATURE OF COMMIS SION OR THE BROKERAGE WHICH ATTRACTS SEC. 194H. IN THE CASE OF CIT VS. MO THER DAIRY LTD. (ITA NO. 1925/2010(DEL) THE HONBLE DELHI HIGH COURT WAS CONSIDERING SIMILAR CASE AND HELD AS FOLLOWS: 3. THE ASSESSEE EXPLAINED IN WRITING THAT IT SOLD THE PRODUCTS TO THE CONCESSIONAIRES ON A PRINCIPAL TO PRINCIPAL BASIS, THAT THE CONCESSIONAIRES BUY THE PRODUCTS AT A GIVEN PRICE AFTER MAKING FULL PAYMENT FOR THE PURCHASES ON DELIVERY, THAT THE MILK AND OTHER PRODUCTS ONCE SOLD TO THE CONCESSIONAIRES BECAME TH EIR PROPERTY AND CANNOT BE TAKEN BACK FROM THEM, THAT ANY LOSS ON AC COUNT OF DAMAGE, PILFERAGE AND WASTAGE IS TO THE ACCOUNT OF THE CONCESSIONAIRES AND THAT IN THESE CIRCUMSTANCES TH E PAYMENT MADE TO THE CONCESSIONAIRES CANNOT BE TREATED AS COMMIS SION FOR SERVICES RENDERED AND CONSEQUENTLY THERE WAS NO LI ABILITY ON THE PART OF THE ASSESSEE TO DEDUCT TAX. IT IS IRRELEVANT THAT THE CONCESSIONAIRES WERE OPER ATING FROM THE BOOTHS OWNED BY THE DAIRY AND WERE ALSO USING THE E QUIPMENT AND FURNITURE PROVIDED BY THE DAIRY. THAT FACT IS NOT DETERMINATIVE OF THE RELATIONSHIP BETWEEN THE DAIRY AND THE CONCESSIONAI RES WITH REGARD TO THE SALE OF THE MILK AND OTHER PRODUCTS. THEY WERE LICENSEES OF THE PREMISES AND WERE PERMITTED THE USE OF THE EQUI PMENT AND 179 ITA NO. 1351/DEL/2018 FURNITURE FOR THE PURPOSE OF SELLING THE MILK AND O THER PRODUCTS. BUT SO FAR AS THE MILK AND THE OTHER PRODUCTS ARE CONCE RNED, THESE ITEMS BECAME THEIR PROPERTY THE MOMENT THEY TOOK DELIVERY OF THEM. THEY WERE SELLING THE MILK AND THE OTHER PRODUCTS IN THE IR OWN RIGHT AS OWNERS. THESE ARE TWO SEPARATE LEGAL RELATIONSHIPS . THE INCOME TAX AUTHORITIES WERE NOT JUSTIFIED OR CORRECT IN LAW IN MIXING UP THE TWO DISTINCT RELATIONSHIPS OR TELESCOPING ONE INTO THE OTHER TO HOLD THAT BECAUSE THE CONCESSIONAIRES WERE SELLING THE MILK A ND THE OTHER PRODUCTS FROM THE BOOTHS OWNED BY THE DIARY AN D WERE USING THE EQUIPMENT AND FURNITURE IN THE COURSE OF SAL E OF THE MILK AND OTHER PRODUCTS, THEY WERE CARRYING ON THE BUSINESS ONLY AS AGENTS OF THE DIARY. 45.12. THE HONBLE HIGH COURT HELD THAT IN SUCH CIR CUMSTANCES S.194H IS NOT ATTRACTED. 45.13. IN THE CASE OF JAI DRINKS (P) LTD. 336 ITR 3 83 (DEL.), THE HONBLE DELHI HIGH COURT HAS HELD AS FOLLOWS: HELD, DISMISSING THE APPEAL, THAT A PERUSAL OF THE AGREEMENT SHOWED THAT THE ASSESSEE HAD PERMITTED THE DISTRIBU TOR TO SELL ITS PRODUCTS IN A SPECIFIED AREA. THE DISTRIBUTOR WAS TO PURCHASE PRODUCTS AT A PRE- DETERMINED PRICE FROM THE ASSESS EE FOR SELLING THEM. BOTH THE ASSESSEE AND THE DISTRIBUTOR HAD BEE N COLLECTING AND PAYING THEIR SALES TAX SEPARATELY. THE CIT(A) AND A LSO THE TRIBUNAL RIGHTLY HELD THAT THE PAYMENTS BEING MADE BY THE AS SESSEE TO THE DISTRIBUTOR WERE INCENTIVES AND DISCOUNTS AND NOT C OMMISSION. 45.14. RESPECTFULLY FOLLOWING THE PROPOSITIONS LAID DOWN IN THE AFOREMENTIONED CASES WE ALLOW THIS GROUND OF THE AS SESSEE. 76) IN THAT VIEW OF THE MATTER, THE LD. DEPARTMENTA L REPRESENTATIVE COULD NOT POINT OUT ANY DECISION CONTRARY TO THE ABOVE FI NDING OF THE COORDINATE BENCH OR CHANGE IN THE FACTS AND CIRCUMSTANCES OF T HE CASE, THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN THE 180 ITA NO. 1351/DEL/2018 APPELLANTS OWN CASE FOR ASSESSMENT YEARS 2007-08 A ND 2008-09 DISCUSSED SUPRA, WE DELETE THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER ON ACCOUNT OF EXPENDITURE OF RS. 3 6880 259 8 TOWARDS THE QUARTERLY TARGET ON TURNOVER DISCOUNT ON TRADE DISCOUNT OF RS . 2 7744 7608 GIVEN TO THE DEALERS. IN THE RESULT GROUND NO. 15 OF THE APP EAL OF THE ASSESSEE IS ALLOWED. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER FOR A.YS. 2010-11 AND 2011-12 AS WELL AS, THE DECISION OF THE HONBLE HIGH COURT IN CASE OF MOTHER DAIRY LTD. (SUPRA). THEREFORE, GROUN D NO. 26 TO 26.3 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. THE ISSUE IN THE PRESENT ASSESSMENT YEAR IS ALSO ID ENTICAL TO THAT OF A.YS. 2010-11 TO 2012-13. BESIDES THAT SINCE THE PAYEES H AVE ALSO PAID TAX ON THE INCOME RECEIVED/RECEIVABLE FROM THE ASSESSEE, NO DI SALLOWANCE COULD BE MADE UNDER SECTION 40(A)(IA) OF THE ACT. WE AGREE WITH T HE FINDINGS OF THE TRIBUNAL FOR A.Y. 2007-08 THAT TAX IS NOT REQUIRED TO BE DEDUCTE D UNDER SECTION 194H ON PAYMENTS MADE TO DEALERS ON ACCOUNT OF SALES BY DEA LERS ON PRINCIPAL TO PRINCIPAL BASIS. THUS, GROUND NOS. 40 TO 40.3 ARE A LLOWED. 128. AS REGARDS GROUND NO. 41 TO 41.6 IS RELATED TO DISALLOWANCE OF PAYMENT MADE TO DEALERS UNDER FREE SERVICE COUPONS FOR NON DEDUCTION OF TAX. THE DEALERS PURCHASE THE PRODUCTS FROM THE COMPANY ON P RINCIPAL TO PRINCIPAL BASIS AND THE OWNERSHIP IN THE PRODUCT/VEHICLE PASS ES ON TO THE DEALER AS SOON AS THE PRODUCT/VEHICLE IS DELIVERED TO THE TRANSPOR T CARRIER. THE PRODUCTS SOLD BY THE COMPANY TO THE DEALERS ARE WITH FREE SERVICE COUPONS. THE SALE PRICE HAS EMBEDDED THEREIN THE OBLIGATION FOR RENDERING FREE SERVICE. IT IS THE OBLIGATION OF THE DEALER TO SERVICE THE PRODUCTS SOLD TO THE S ATISFACTION OF THE CUSTOMER. IN VIEW OF THE ABOVE, WHERE THE CUSTOMER APPROACHES TH E DEALER FOR SERVICE OF THE VEHICLE, THE CONTRACT FOR SERVICE OF THE VEHICLE BE TWEEN THE CUSTOMER AND THE DEALER COMES INTO BEING. THE PAYMENT IS MADE BY THE CUSTOMERS IN THE FORM OF FREE SERVICE COUPONS ONLY AND THE COMPANY HONOURS S UCH FREE SERVICE COUPONS 181 ITA NO. 1351/DEL/2018 WHEN THE SAME ARE PRESENTED BY THE DEALERS TO THE C OMPANY, IN TERMS OF THE RECIPROCAL OBLIGATION OF THE COMPANY TOWARDS THE DE ALERS, INCURRED BY THE COMPANY AT THE TIME OF SALE OF PRODUCTS TO THE DEAL ERS. THE ASSESSING OFFICER/DRP HELD THAT THE PAYMENTS MADE BY THE ASSE SSEE IN THE FORM OF REIMBURSEMENT OF FREE SERVICE COUPONS IS NOTHING BU T CONSIDERATION IN LIEU OF SERVICE PROVIDED BY THE DEALERS TO THE APPELLANT, W HICH FALLS WITHIN THE MEANING OF 'PROFESSIONAL OR TECHNICAL SERVICE IN TERMS O F SECTION 194J READ WITH SECTION 9(I)(VII) OF THE ACT. IN VIEW OF THE SAME, SINCE TH E ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE UNDER SECTION 194J FROM THE EXPENDITU RE OF RS. 71.42 CRORES INCURRED DURING THE YEAR, THE SAME WAS DISALLOWABLE UNDER SECTION 40(A)(IA) OF THE ACT. 129. THE LD. AR SUBMITTED THAT THE PRODUCTS SOLD BY THE COMPANY TO THE DEALERS ARE WITH FREE SERVICE COUPONS. THE SALE PRI CE HAS EMBEDDED THEREIN THE OBLIGATION FOR RENDERING FREE SERVICE. THE FURTHER SALE OF THE PRODUCTS BY THE DEALERS TO THE CUSTOMERS IS WITH THE FREE SERVICE C OUPONS. THE SALE PRICE RECOVERED BY THE DEALER INCLUDES THE FREE SERVICE O BLIGATION. THE OBLIGATION CAST UPON THE DEALERS IN THE DEALERSHIP AGREEMENT QUA SE RVICE OF PRODUCTS TO THE SATISFACTION OF THE COMPANY, IS ONLY TO ENSURE OVER ALL CONTROL AND QUALITY SERVICE RENDERED BY THE DEALER TO THE CUSTOMERS, TO PROTECT THE REPUTATION AND GOODWILL OF THE COMPANY. THE LD. AR POINTED OUT THAT THE DEA LERS DO NOT RENDER ANY SERVICE TO THE COMPANY OR TO THE CUSTOMERS FOR AND ON BEHALF OF THE ASSESSEE, UNDER ANY CONTRACT ENTERED INTO WITH THE COMPANY. THE PAYMENT IS MADE BY THE CUSTOMERS ONLY IN THE FORM OF FREE SERVICE COUP ONS AND THE COMPANY ONLY HONOURS SUCH FREE SERVICE COUPONS WHEN THE SAME ARE PRESENTED BY THE DEALERS TO THE COMPANY, IN TERMS OF THE RECIPROCAL OBLIGATI ON OF THE COMPANY TOWARDS THE DEALERS, INCURRED BY THE COMPANY AT THE TIME OF SALE OF PRODUCTS TO THE DEALERS. THE ABOVE TRANSACTION IS NO WAY DIFFERENT FROM THE CUSTOMER MAKING PAYMENT TOWARDS SERVICES RENDERED BY THE DEALER TO THE CUSTOMER SEEKING REIMBURSEMENT OF THE SAME FROM THE COMPANY. THE LIA BILITY TO DEDUCT TAX, IF ANY, IN LAW IS ON THE SERVICE RECIPIENT VIZ., THE C USTOMER AND CANNOT BE SHIFTED 182 ITA NO. 1351/DEL/2018 ON TO THE COMPANY MERELY BECAUSE PAYMENT IS MADE BY THE CUSTOMER NOT IN CASH BUT BY WAY OF PREPAID COUPON, THE LIABILITY WH ERE UNDER IS DISCHARGED BY THE COMPANY. IN VIEW OF THE ABOVE, NO SERVICE OR WORK IS RENDERE D TO AND NO WORK IS PERFORMED FOR THE COMPANY BY THE DEALER, SO AS TO RESULT IN THE COMPANY BEING OBLIGED TO DEDUCT TAX AT SOURCE UNDER THE PROVISIONS OF CHAPTER XVIIB OF THE ACT FROM PAYMENT TOWARDS FREE SERVICE COUPONS TO THE DEALERS. THE LD. AR FURTHER POINTED OUT THAT THE AFORESAID ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2007-08 , WHEREIN THE TRIBUNAL DELETED THE DISALLOWANCE MADE UNDER SECTION 40(A)(I A) ON THE GROUND THAT - (I) REPAIR SERVICES DO NOT FALL WITHIN THE MEANING OF P ROFESSIONAL SERVICES DEFINED UNDER SECTION 194J OF THE ACT AND (II) NO SERVICE W AS, IN ANY CASE, AVAILED BY THE ASSESSEE FROM DEALERS; SERVICE, IF ANY, WAS AVA ILED BY CUSTOMERS FROM THE DEALERS, NECESSITATING OBLIGATION ON THE ASSESSEE T O DEDUCT TAX AT SOURCE. FURTHER, NO DISALLOWANCE ON THE AFORESAID GROUND HA S ALSO BEEN MADE BY THE REVENUE AUTHORITIES IN THE SUCCEEDING ASSESSMENT YE ARS. THE LD. AR SUBMITTED THAT FOLLOWING THE ORDER FOR THE ASSESSME NT YEAR 2007-08, THE TRIBUNAL DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE IN THE ASSESSMENT YEARS 2008-09, 2010-11 AND 2011-12. 130. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AN D ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 131. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2010-11 AND 2011-12 HE LD AS UNDER: 218) WE HAVE HEARD THE RIVAL CONTENTIONS. WE NOTE THAT SIMILAR ISSUE RELATING TO DISALLOWANCE U/S 40(A)(IA) FOR NON-DEDU CTION OF TAX FROM REIMBURSEMENT OF FREE SERVICE COUPONS, WAS DELETED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 WHI CH WAS FOLLOWED IN ASSESSMENT YEAR 2008-09. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08 ARE AS UNDER:- 183 ITA NO. 1351/DEL/2018 29.41.IN THE CASE ON HAND, THE OBLIGATION INCURRED BY THE ASSESSEE AT THE TIME OF SALE TO PAY THE COST OF FREE SERVICES AND I S NOT PAYMENT MADE IN CONSIDERATION FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES AS DEFINED FOR THE PURPOSE OF S.194J. ROUT INE REPAIRS WHICH INCLUDES SUPPLY OF SPARES DOES NOT ATTRACT SEC. 9(1 )(VII) OF THE ACT AND HENCE NO TDS NEED BE DONE U/S 194J. AS SEC. 194J DO ES NOT APPLY, DISALLOWANCE U/S 40(A)(IA) ON THE GROUND THAT NO DE DUCTION OF TAX AT SOURCE IS MADE U/S 194J IS BAD IN LAW AND HAS TO BE DELETE D. 29.42. WE ALSO FIND FORCE IN THE ARGUMENT OF THE AS SESSEE THAT THE SERVICES IN THIS CASE ARE AVAILED BY THE ULTIMATE CUSTOMER W HO HAS PAID THE CONSIDERATION BY WAY OF SALE PRICE TO DEALER BY A S EPARATE TRANSACTION OF PURCHASE OF TWO-WHEELER. SERVICE IS NEITHER AVAILED BY THE ASSESSEE NOR IS THE PAYMENT MADE BY THE ASSESSEE IN CONSIDERATION O F AVAILING A SERVICE FOR ITSELF. AS ALREADY STATED, EVEN IF IT TAKEN AS A SERVICE AVAILED BY THE ASSESSEE, SEC. 194J IS NOT ATTRACTED AS THIS IS NOT A TECHNICAL SERVICE. 29.43. REVENUE HAS PLACED RELIANCE IN CIRCULAR NO. 8/2009 DATED 24-11- 2009. IN THIS CIRCULAR IT WAS CLARIFIED THAT PAYMEN TS MADE BY TPA ON BEHALF OF INSURANCE COMPANY TO HOSPITALS ARE LIABLE FOR DEDUCTION OF TAX AT SOURCE. THE VIEW IN THIS CASE IS THAT THE SERVICE I S A PROFESSIONAL SERVICE IN THE FIELD OF MEDICAL SERVICE. HENCE SEC. 194J WAS M ADE APPLICABLE. THE SAME DOES NOT APPLY HERE. EVEN OTHERWISE, THIS PROP OSITION AS A MATTER OF FACT SUPPORTS OF THE CASE OF THE ASSESSEE. IN THE C ASE OF THE ASSESSEE, THE DEALER IS PLAYING A ROLE SIMILAR TO THAT OF THE TPA IN AS MUCH IT IS MAKING PAYMENT TO THE PERSON DOING THE REPAIR JOB. THIS PA YMENT MADE FOR SERVICE RENDERED IS ONLY BEING MADE BY THE DEALER. APPLYING THE PROPOSITION LAID OUT IN THE BOARD CIRCULAR, TECHNICALLY IT IS THE DE ALER WHO IS LIABLE TO DEDUCT TAX AT SOURCE ON PAYMENTS MADE TO THE SERVICE PROVI DED FOR DOING THE REPAIR JOBS BUT NOT THE ASSESSEE THE SUBSEQUENT REI MBURSEMENT MADE BY THE ASSESSEE TO THE DEALER CANNOT BE COVERED UNDER THE PROVISIONS OF SEC. 184 ITA NO. 1351/DEL/2018 194J OF THE ACT. 29.45. ON THIS FACTUAL MATRIX, AND AS SEC. 194J IS NOT ATTRACTED IN THIS CASE, WE UPHOLD THE CONTENTIONS OF THE ASSESSEE AND ALLOW THIS GROUND OF APPEAL. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLAN T AS COMPARED TO THE ASSESSMENT YEAR IN WHICH THE ABOVE ISSUE IS DECIDED BY THE COORDINATE BENCH. NO OTHER CONTRARY DECISION WAS ALSO POINTED OUT THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN T HE APPELLANTS OWN CASE FOR THE EARLIER YEARS, WE DISMISS GROUND NO. 7 OF THE A PPEAL OF THE REVENUE. IN THE PRESENT CASE ALSO THE FACTS ARE IDENTICAL AN D THERE IS NO DISTINGUISHING FACTORS POINTED OUT BY THE LD. DR. THUS, REPAIR SER VICES DO NOT FALL WITHIN THE MEANING OF PROFESSIONAL SERVICES DEFINED UNDER SECT ION 194J OF THE ACT. FROM THE RECORDS IT CAN BE SEEN THAT NO SERVICE WAS AVAI LED BY THE ASSESSEE FROM THE DEALERS. THEREFORE, GROUND NOS. 41 TO 41.6 ARE ALLO WED. 132. AS REGARDS GROUND NO. 42 IS RELATED TO DISALLO WANCE OF ADDITIONAL DEPRECIATION OF COMPUTERS INSTALLED AT SUPERVISORY OFFICE. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE CLAIMED ADDITIONAL DEPR ECIATION OF RS. 2.01 CRORES, ON COMPUTERS INSTALLED AT SUPERVISORY OFFICES LOCAT ED IN THE COMPOUND OF FACTORY AT GURGAON/DHARUHERA, ON THE GROUND THAT SU CH OFFICES FORMED INTEGRAL PART OF THE FACTORY. THE ASSESSING OFFICER HAS DENI ED THE PLEA OF THE ASSESSEE THAT ADMINISTRATIVE/SUPERVISORY OFFICES LOCATED IN THE FACTORY PREMISES FORMS INTEGRAL PART OF THE FACTORY. THE ASSESSING OFFICER OBSERVED THAT SINCE COMPUTERS INSTALLED IN SUCH OFFICES LOCATED WITHIN THE COMPOUND OF FACTORY CANNOT BE SAID TO BE DIRECTLY INVOLVED IN CARRYING OUT THE MANUFACTURING ACTIVITY, ADDITIONAL DEPRECIATION UNDER SECTION 32 (L)(IIA) OF THE ACT SHALL NOT BE ELIGIBLE ON SAME. ACCORDINGLY, THE ASSESSING OFFICE R DISALLOWED ADDITIONAL DEPRECIATION OF RS. 2.01 CRORES CLAIMED BY THE ASSE SSEE. 185 ITA NO. 1351/DEL/2018 133. THE LD. AR SUBMITTED THAT SIMILAR DISALLOWANCE OF ADDITIONAL DEPRECIATION ON COMPUTERS INSTALLED IN FACTORY PREMISES MADE IN THE PRECEDING ASSESSMENT YEARS, VIZ. AY 2010-11 AND 2011-12, WAS SET ASIDE B Y THE TRIBUNAL TO THE FILE OF ASSESSING OFFICER TO DETERMINE IF THE COMPUTERS WER E USED FOR DATA PROCESSING AT INDUSTRIAL PREMISES. IN COMING TO THE AFORESAID CON CLUSION, THE TRIBUNAL LAID RELIANCE UPON THE DECISION OF THE HONBLE GUJARAT H IGH COURT IN THE CASE OF CIT V. STRATRONICS ENTERPRISES PVT. LTD.: 288 1TR 455. IN ALL FAIRNESS, THE LD. AR POINTED OUT THAT THE AFORESAID ISSUE WAS DECIDED AG AINST THE ASSESSEE BY THE DELHI TRIBUNAL IN THE ASSESSEE OWN CASE FOR THE ASS ESSMENT YEAR 2007-08 AND 2008-09. IT WOULD, HOWEVER, BE PERTINENT TO POINT O UT THAT THE AFORESAID DISALLOWANCE SUSTAINED BY THE TRIBUNAL WAS CHALLENG ED BY THE ASSESSSEE IN FURTHER APPEAL BEFORE THE HIGH COURT, WHICH HAS BEE N ADMITTED BY THE HIGH COURT, VIDE ORDER DATED 19.11.2015 IN ITA NO. 341/2 014, AS INVOLVING SUBSTANTIAL QUESTION OF LAW. WHILE DECIDING THE APP EAL FOR THE ASSESSMENT YEARS 2012-13 AND 2013-14, THE TRIBUNAL SET ASIDE THE MAT TER TO THE FILE OF THE ASSESSING OFFICER FOLLOWING THE ORDERS FOR THE ASSE SSMENT YEARS 2010-11 AND 2011-12. 134. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AN D ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 135. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL HELD IN A.Y. 2012-13 AS UNDER: 61. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. SIMILAR DISALLOWANCE OF ADDITIONAL DEPRE CIATION ON COMPUTERS INSTALLED IN FACTORY PREMISES MADE IN THE PRECEDING ASSESSMENT YEARS, VIZ. AY 2010-11 AND 2011-12, WAS SET ASIDE BY THE TRIBUNAL TO THE FILE OF ASSESSING OFFICER TO DETERMINE IF THE COMPUTERS WERE USED FOR DATA PROCESSING AT INDUSTRIAL PREMISES. THE TRIBUNAL HELD AS UNDER: 186 ITA NO. 1351/DEL/2018 90) WE HAVE HEARD THE RIVAL CONTENTIONS. WE FIND T HAT THERE IS NO DISPUTE TO THE EFFECT THAT THE COMPUTERS ON WHICH ADDITIONA L DEPRECIATIONS HAVE BEEN CLAIMED DURING THE YEAR UNDER CONSIDERATION AR E NOT INSTALLED ON THE SHOP FLOOR OR SUCH COMPUTERS DIRECTLY FACILITATE IN THE MANUFACTURING PROCESS, BUT HAVE BEEN INSTALLED IN THE ADMINISTRAT IVE / SUPERVISORY OFFICES LOCATED IN THE COMPOUND OF THE FACTORY PREMISES. TH E PLEA OF THE APPELLANT HAS BEEN THAT FOR THE PURPOSE OF ADDITIONAL DEPRECI ATION, DISTINCTION HAS TO BE DRAWN BETWEEN THE COMPUTERS INSTALLED IN THE SUP ERVISORY OFFICES OF THE MANUFACTURING PLANT WITH THE COMPUTERS INSTALLED AT THE HEAD OFFICE / CORPORATE OFFICE, WHICH IS INVOLVED IN THE OVERALL SUPERVISION OF THE BUSINESS FUNCTION. IT HAS BEEN ARGUED THAT IN THE F ORMER CASE, ALTHOUGH THE COMPUTERS ARE NOT DIRECTLY INVOLVED IN THE MANUFACT URING OPERATIONS, BUT ARE INDIRECTLY FACILITATING THE MANUFACTURING ACTIV ITY AS OPPOSED TO THE COMPUTERS INSTALLED AT HEAD OFFICE / CORPORATE OFFI CE. IT WAS THE SUBMISSION THAT THE EXCLUSION OF MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES UNDER CLAUSE (B) OF THE PROVISO TO SECTION 32(1)(II A) OF THE ACT IS APPLICABLE TO OFFICE PREMISES LIKE HEAD OFFICE / CORPORATE OFFICE S WHERE THERE IS NO DIRECT OR INDIRECT NEXUS WITH THE MANUFACTURING OPERATIONS . THE PLANT AND MACHINERY INSTALLED IN THE OFFICES SUPERVISING THE MANUFACTURING OPERATIONS SHOULD BE VIEWED DISTINCTLY AND ARE OUTS IDE THE AMBIT OF EXCLUSION PROVIDED IN THE AFORESAID SECTION. WE HA VE, HOWEVER, FOUND THAT THE AFORESAID PLEA WAS NOT ACCEPTED BY THE TRIBUNAL IN THE APPEAL ORDERS FOR AY 2007-08, WHICH WAS FOLLOWED IN APPEAL FOR AY 2008-09. HOWEVER DURING THE COURSE OF HEARING BEFORE US, THE LD. AUT HORIZED REPRESENTATIVE HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VERSUS STARTRONICS ENTERPRISE IS PR IVATE LIMITED 288 ITR 455, WHICH WAS NOT RAISED BEFORE THE COORDINATE BENCH IN THE EARLIER ORDERS OF THE APPELLANT FOR EARLIER ASSESSMENT YEAR, WHEREIN THE HONBLE HIGH COURT HAS CONSIDERED THE IDENTICAL ISSUE WITH RESPECT TO THE COMPUTER INSTALLED IN THE OFFICE PREMISES AND UNDER:- 187 ITA NO. 1351/DEL/2018 8. PLACING RELIANCE UPON SECTION 32(1)(IIA) OF THE ACT, IT IS SUBMITTED THAT IF THE PLANT OR MACHINERY IS INSTALLED IN ANY OFFIC E PREMISES OR IN RESIDENTIAL ACCOMMODATION, THEN, NO DEDUCTION SHALL BE ALLOWED UNDER CLAUSE (IIA) OF SECTION 32(1). SECTION 32(1)(IIA), WITH ITS PROVISO, FOR THE PURPOSES OF THIS CASE, WOULD READ AS UNDER : 32.(1) IN RESPECT OF DEPRECIATION OF BUILDINGS, MAC HINERY, PLANT OR FURNITURE OWNED BY THE ASSESSEE AND USED FOR THE PU RPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCTIONS SH ALL, SUBJECT TO THE PROVISIONS OF SECTION 34, BE ALLOWED. . . (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OT HER THAN SHIPS AND AIRCRAFT) WHICH HAS BEEN INSTALLED AFTER THE 31ST D AY OF MARCH, 1980, BUT BEFORE THE 1ST DAY OF APRIL, 1985, A FURTHER SU M EQUAL TO ONE-HALF OF THE AMOUNT ADMISSIBLE UNDER CLAUSE (II) (EXCLUSIVE OF EXTRA ALLOWANCE FOR DOUBLE OR MULTIPLE SHIFT WORKING OF THE MACHINERY O R PLANT AND THE EXTRA ALLOWANCE IN RESPECT OF MACHINERY OR PLANT INSTALLE D IN ANY PREMISES USED AS A HOTEL) IN RESPECT OF THE PREVIOUS YEAR IN WHICH SUCH MACHINERY OR PLANT IS INSTALLED OR, IF THE MACHINER Y OR PLANT IS FIRST PUT TO USE IN THE IMMEDIATELY SUCCEEDING PREVIOUS YEAR, THEN, IN RESPECT OF THAT PREVIOUS YEAR : PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED UNDER T HIS CLAUSE IN RESPECT OF (A) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION ; . . . ' 9. IT IS SUBMITTED THAT EVEN IF THE COMPUTERS AND D ATA PROCESSING MACHINES ARE TAKEN TO BE PLANT AND MACHINERY AND AR E ENTITLED TO INVESTMENT ALLOWANCE, BECAUSE OF THEIR LOCATION IN THE OFFICE, ADDITIONAL DEPRECIATION WOULD NOT BE ALLOWABLE. THE THRUST OF THE ARGUMENT IS ON THE WORDS ' OFFICE PREMISES' . 188 ITA NO. 1351/DEL/2018 10. THE SUBMISSION IS THAT THE COMPUTERS AND THE DA TA PROCESSING MACHINES ARE ALWAYS KEPT IN THE OFFICE AND IN THIS CASE, WHEN THE COMPUTER AND THE DATA PROCESSING MACHINES ARE USED IN THE OFFICE, THEN, THE ADDITIONAL DEPRECIATION WOULD NOT BE ALLO WABLE. 11. IT IS TO BE NOTED THAT THE WORDS 'OFFICE PREMIS ES' HAVE NOT BEEN DEFINED IN THE INCOME-TAX ACT. THE WORD 'OFFICE' WO ULD PARTAKE ITS CHARACTER WITH THE ACTIVITIES CARRIED ON IN THE SAI D PREMISES. IN A GIVEN CASE, A DOCTOR'S CLINIC WOULD BE HIS OFFICE, BUT, W OULD ALSO BE HIS CLINIC AND IF HE INSTALLS A COMPUTER OR SOME MACHINE FOR T HE PURPOSES OF PATHOLOGY, THEN, HIS OFFICE WOULD BE TAKEN TO BE IN DUSTRIAL PREMISES FOR THE PURPOSES OF DEPRECIATION AND INVESTMENT ALLOWAN CE. IN A GIVEN CASE, A COMPUTER KEPT IN THE OFFICE OF A MANAGER FOR HIS PERSONAL USE OR FOR SOME OTHER PURPOSE, THEN, SUCH COMPUTER WOULD NOT B E ENTITLED TO INVESTMENT ALLOWANCE AND/OR ADDITIONAL DEPRECIATION . IN THE PRESENT CASE, THE WORDS 'OFFICE PREMISES' THOUGH WOULD BE C OVERING OFFICE BUT, INDUSTRIAL PREMISES WOULD NOT COME WITHIN THE OFFIC E PREMISES IF THE SAID PREMISES ARE USED FOR DATA PROCESSING. IN THE PRESENT CASE, UNDISPUTEDLY, THE OFFICE PREMISES ARE USED AS INDUS TRIAL PREMISES FOR PRODUCTION OF THE DATA PROCESSORS. THE SUBMISSION O F LEARNED COUNSEL IS BASED ON A NARROW INTERPRETATION OF THE WORDS 'OFFI CE PREMISES', WHICH WE ARE UNABLE TO CONCEDE. 91) ACCORDINGLY, FOLLOWING THE AFORESAID DECISION OF HONBLE GUJARAT HIGH COURT , WE SET ASIDE THIS ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH THE R ATIO LAID DOWN BY THE HONBLE GUJARAT HIGH COURT ABOUT THE LIABILITY OF A DDITIONAL DEPRECIATION ON COMPUTERS INSTALLED AT THE FACTORY PREMISES, NEEDLE SS TO SAY THAT THE PROPER OPPORTUNITY OF HEARING MAY BE GRANTED TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM. IN THE RESULT GROUND NO. 18 OF THE APPEAL OF THE ASSESSEE IS DECIDED ACCORDINGLY. 189 ITA NO. 1351/DEL/2018 THUS, IN THE PRESENT YEAR AS WELL WE ARE REMANDING BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DETERMINE IF THE COMPUT ERS WERE USED FOR DATA PROCESSING AT INDUSTRIAL PREMISES OR NOT. WE DIRECT THE ASSESSING OFFICER THAT AFTER TAKING CONGNIZANCE OF THE SAME PASS APPROPRIA TE ORDER. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOL LOWING PRINCIPLES OF NATURAL JUSTICE. THEREFORE, GROUND NO. 29 TO 29.2 ARE PARTL Y ALLOWED FOR STATISTICAL PURPOSE. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE S IMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. THUS, IN THE PRESENT YEAR AS WELL, WE ARE REMANDING BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DETE RMINE IF THE COMPUTERS WERE USED FOR DATA PROCESSING AT INDUSTRIAL PREMISES OR NOT. WE DIRECT THE ASSESSING OFFICER THAT AFTER TAKING CONGNIZANCE OF THE SAME P ASS APPROPRIATE ORDER. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. HENCE GROUND NO. 42 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 136. AS REGARDS GROUND NO. 43 IS RELATED TO DISALLO WANCE OF DEDUCTION U/S 80IA IN RELATION TO GENERATION OF POWER. IN VIEW OF POWER SUPPLY CONSTRAINTS IN THE AREA OF GURGAON, HARYANA, THE ASSESSEE HAD SET- UP A POWER PLANT WITHIN THE FACTORY PREMISES, IN ORDER TO MEET THE CAPTIVE CONSUMPTION REQUIREMENTS OF POWER, WHICH IS ELIGIBLE FOR DEDUCTION UNDER SEC TION 80IA OF THE ACT. FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 80IA, THE ASSESSEE ADOPTED THE TRANSFER PRICE OF POWER FOR CAPTIVE CONSUMPTION AT THE COST OF GENERATING POWER PER UNIT, VIZ. 7.78 PER UNIT WITH MARK-UP OF 15%. ACCORDINGLY, THE ASSESSEE ARRIVED AT BASE PRICE OF RS. 8.95 PER UNIT AND COMPUTED DEDUCTION UNDER SECTION 80IA OF THE ACT AT RS. 759.99 LACS. T HE ASSESSING OFFICER/DRP REJECTED THE TRANSFER PRICE COMPUTED BY THE ASSESSE E AS FAIR MARKET PRICE AND SUBSTITUTED THE SAME WITH RATE OF POWER SUPPLIED BY LOCAL STATE ELECTRICITY BOARD IN THE AREA. SINCE, THE RATE OF SEB, VIZ., RS . 4.36 PER UNIT WAS LESS THAN 190 ITA NO. 1351/DEL/2018 THE COST OF PRODUCTION OF ELECTRICITY BY THE ASSESS EE NO DEDUCTION UNDER SECTION 80IA OF THE ACT WAS ALLOWED IN THE ASSESSMENT ORDER . 137. THE LD. AR SUBMITTED THAT IN VIEW OF POWER SUP PLY CONSTRAINTS IN THE AREA OF GURGAON, HARYANA, WHERE THE ASSESSEE HAD SE T-UP ITS MANUFACTURING FACILITY, THE ASSESSEE HAD SET-UP POWER PLANT IN OR DER TO MEET THE CAPTIVE CONSUMPTION REQUIREMENTS OF POWER, WHICH IS ELIGIBL E FOR DEDUCTION UNDER SECTION 80IA OF THE ACT. THE ASSESSEE CLAIMED A DE DUCTION OF RS. 759.99 LACS UNDER SECTION 80IA OF THE ACT IN RESPECT OF POWER G ENERATED AT THE AFORESAID UNIT AND CAPTIVELY CONSUMED BY THE ASSESSEE. THE DE DUCTION CLAIMED WAS DULY SUPPORTED BY CHARTERED ACCOUNTANTS REPORT. IN THA T AREA, HSEB (GOVERNMENT BODY) WAS NOT ABLE TO MEET THE DEMAND OF INDUSTRIAL CONSUMERS FOR SUPPLY OF ELECTRICITY NECESSARY FOR RUNNING INDUSTRIAL UNITS. M/S MARUTI UDYOG LTD., WHICH WAS GENERATING ELECTRICITY WITH THE SAME TECH NOLOGY, WAS CHARGING PRICE OF AROUND RS. 9.84/- PER UNIT FROM ITS ANCILLARY FA CTORIES LOCATED IN THE VICINITY, AND THE COMPANIES WERE PURCHASING AT THAT PRICE SIN CE NO ADEQUATE ELECTRICITY SUPPLY WAS NOT AVAILABLE WITH HSEB. FOR THE PURPOS ES OF COMPUTING DEDUCTION UNDER SECTION 80IA, THE ASSESSEE ADOPTED THE TRANSF ER PRICE OF POWER, CAPTIVELY CONSUMED, AT THE COST OF GENERATION OF POWER PER UN IT WITH MARK-UP OF 15%. THE COST OF GENERATION OF POWER WAS ADOPTED AT RS. 7.78 WHICH WAS BASED ON COST CERTIFIED IN THE COST AUDIT REPORT. ACCORDINGL Y, THE ADOPTED RATE OF TRANSFER OF POWER WAS @ RS. 8.95 PER UNIT (RS.7.78 + 15% OF RS.7.78). THE AFORESAID ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ASSESSMENT YEAR 2006-07 ON THE MISTAKEN BELIEF THAT INDEPENDEN T SUPPLIER OF ELECTRICITY IN THE AREA, I.E. MARUTI UDYOG LTD., WAS SUPPLYING POW ER ONLY TO RELATED PARTIES AND NOT TO INDEPENDENT PARTIES. ACCORDINGLY, IT WAS HELD THAT THE RATE OF SUPPLY OF ELECTRICITY BY MARUTI WAS NOT REFLECTIVE OF MARK ET PRICE, WHICH NEEDED TO BE ADOPTED AS THE RATE OF SUPPLY OF POWER BY SEB. FOL LOWING THE AFORESAID DECISION, THE TRIBUNAL IN THE ASSESSEES OWN CASE I N THE AYS 2002-03, 2007-08 AND 2008-09 HAS DECIDED THE ISSUE AGAINST THE ASSES SEE. THE APPEAL AGAINST THE AFORESAID ORDERS IS PENDING BEFORE THE HIGH COU RT. THE DELHI HIGH COURT 191 ITA NO. 1351/DEL/2018 HAS BEEN PLEASED TO ADMIT THE SUBSTANTIAL QUESTION OF LAW ON THE AFORESAID ISSUE OF DEDUCTION UNDER SECTION 801A IN ASSESSMENT YEAR 2002-03 IN ASSESSEES OWN CASE IN ITA NO. 31/2014 VIDE ORDER D ATED 15.07.2014. THE LD. AR POINTED OUT THAT THE ASSESSEE FILED A MISCELLANE OUS APPLICATION AGAINST THE AFORESAID ORDER PASSED BY THE TRIBUNAL POINTING OUT THAT THE ASSUMPTION OF THE TRIBUNAL THAT MARUTI SUPPLIED POWER TO RELATED/ ASS OCIATED ENTERPRISES, WHICH HAVE BEEN DEFINED UNDER SECTION 92A OF THE ACT TO M EAN COMPANIES HAVING COMMON CONTROL/ DIRECTIONS, ETC., HAD NO FACTUAL FO UNDATION. THE TRIBUNAL VIDE ORDER DATED 06.09.2013 MODIFIED ITS EARLIER ORDER B Y SUBSTITUTING THE WORDS ASSOCIATED ENTERPRISES WITH ANCILLARY UNITS. TH E LD. AR FURTHER POINTED OUT THAT THE TRIBUNAL IN THE ASSESSEES OWN/CASE FOR TH E ASSESSMENT YEAR 2010-11 AND 2011-12, AFTER TAKING INTO ACCOUNT THE MA ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006-07 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, HOLDING THAT FOR THE PURPOSE OF DETERMINATION OF MARKET PR ICE 7 OF POWER UNDER SECTION 80IA(4) READ WITH 80IA(8) OF THE ACT, WHERE MULTIPL E OPTIONS OF PRICE OF A PRODUCT ARE AVAILABLE, THEN THE PRICE WHICH IS MOST FAVORABLE TO THE NEEDS TO BE ADOPTED. THE TRIBUNAL, WHILE DISTINGUISHING THE DEC ISION OF DELHI BENCH OF THE TRIBUNAL IN THE EARLIER YEARS, ALSO HELD THAT PRICE OF POWER CHARGED BY STATE ELECTRICITY BOARD IS NOT REFLECTIVE OF MARKET PRICE FOR COMPUTING DEDUCTION UNDER SECTION 80IA(4) OF THE ACT. 138. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AN D ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 139. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.Y. 2010-11 HELD AS UNDER: 124) WE HAVE CAREFULLY. WE FIND THAT THE EXPRESSIO N MARKET VALUE FOR INTER-UNIT TRANSFER HAS BEEN DEFINED UNDER EXPLANAT ION TO SECTION 80IA OF THE ACT AS FOLLOWS: 192 ITA NO. 1351/DEL/2018 IN THE PRESENT CASE ALSO THERE ARE THREE RATES, (I) RATES AT WHICH POWER IS PURCHASED FROM STATE ELECTRICITY BOARD, (II) THE CO ST OF PRODUCTION OF THE POWER BY THE LEGIBLE UNIT OF THE ASSESSEE AND MARK UP THE REON (III) THE RATES AT WHICH POWER IS SUPPLIED BY INDEPENDENT PARTY TO ITS ANCIL LARY UNIT. THEREFORE, THERE ARE MULTIPLE BASKET OF THE MARKET RATES. AS HELD IN ABOVE DECISION THAT WHERE MULTIPLE OPTIONS FOR THE PRICE OF A PRODUCT ARE AVA ILABLE, THEN THE OPTION WHICH IS MOST FAVORABLE TO ASSESSEE NEEDS TO BE ADOPTED F OR THE PURPOSES OF DETERMINING INTER-UNIT TRANSFER PRICE U/S 80IA(8) O F THE ACT. FURTHER IT IS NOT THE CASE OF THE REVENUE THAT THE POWER COST INCURRED BY THE ASSESSEE IS INFLATED OR INCORRECT. IN THAT VIEW OF THE MATTER, IN THE PRESE NT CASE, CONSIDERING THAT THREE DIFFERENT PRICES FOR SUPPLY OF POWER ARE AVAILABLE IN THE MARKET, THE METHOD ADOPTED BY THE APPELLANT TO COMPUTE INTER-UNIT TRAN SFER PRICE BY IMPUTING A REASONABLE MARK-UP ON ITS COST OF PRODUCTION, I.E., RS. 8.75, WHICH WAS LESS THAN THE RATE OF RS. 9.84 CHARGED BY MARUTI, WAS QU ITE A REASONABLE FOR THE PURPOSES OF COMPUTING DEDUCTION U/S 80IA(4) OF THE ACT. THEREFORE WE REVERSE THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER OF DEDUCTION OF RS. 807.76 LACS UNDER SECTION 80IA, IN RELATION TO THE GENERAT ION OF POWER. ACCORDINGLY, THE GROUND NO. 26 OF APPEAL STANDS ALLOWED. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE S IMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11 AND 2011-12. IN FACT HERE ALSO PRICE OF POWER CHARGED BY STATE ELEC TRICITY BOARD IS NOT REFLECTIVE OF MARKET PRICE FOR COMPUTING DEDUCTION UNDER SECTI ON 80IA (4) OF THE ACT. HENCE GROUND NO. 43 IS ALLOWED. 140. AS REGARDS GROUND NO. 44 TO 44.2 ARE RELATED T O DISALLOWANCE OF PROVISION FOR WARRANTY HOLDING THE SAME TO BE UNASCERTAINED. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE, INTER ALIA, CLAIMED DE DUCTION ON ACCOUNT OF PROVISION FOR WARRANTY, AMOUNTING TO RS. 1.24,71,77 6, IN RESPECT OF PRODUCTS SOLD DURING THE RELEVANT PREVIOUS YEAR. THE PROVIS ION FOR WARRANTY WAS MADE BY THE ASSESSEE (SINCE THE ASSESSMENT YEAR 1996-97) ON THE BASIS OF WEIGHTED 193 ITA NO. 1351/DEL/2018 AVERAGE COST FOR THE ACTUAL CLAIMS RECEIVED IN THE PAST TWO YEARS, WHICH WAS A SCIENTIFIC AND RATIONAL BASIS, AND HAD BEEN ACCEPTE D IN THE PAST BY THE REVENUE. THE ASSESSEE HAD, IN THE RELEVANT PREVIOU S YEAR DEBITED PROVISION OF RS.7.45 CRORES IN RESPECT OF WARRANTY LIABILITY FOR SALES MADE DURING THE RELEVANT PREVIOUS YEAR. THE ASSESSEE AS PER CONSIS TENT, REGULAR AND ACCEPTED METHOD OF ACCOUNTING CLAIMED DEDUCTION OF THE SAID EXPENDITURE ON ACCOUNT OF PROVISION FOR WARRANTY AS REVENUE EXPENDITURE. THE ASSESSING OFFICER OBSERVED THAT A MORE SCIENTIFIC FORMULAE COULD HAVE BEEN ADO PTED TO ARRIVE AT AN AMOUNT WHICH WAS CLOSER TO THE ACTUAL EXPENDITURE AND THAT LIABILITY ARRIVED AT AS PER THE PRESENT METHOD WAS NOT APPROPRIATE. THE ASSESS ING OFFICER ALSO OBSERVED THAT SINCE PROVISION MADE EACH YEAR IS MORE THAN AC TUAL WARRANTY CLAIMS, THE SAID PROVISION IS AN UNASCERTAINED LIABILITY, WHICH COULD NOT BE ALLOWED DEDUCTION. 141. THE LD. AR SUBMITTED THAT IN CASE OF THE ASSES SEE ITSELF, REPORTED AS HERO HONDA MOTORS LTD. VS JCIT: 103 ITD 157, RELATING TO ASSESSMENT YEAR 1996- 97, FACTS WERE THAT PROVISION WAS MADE ON THE BASIS OF WEIGHTED AVERAGE OF ACTUAL WARRANTY CLAIMS IN RESPECT OF MOTORCYCLES SO LD IN THE PAST. THE ASSESSING OFFICER, HOWEVER, WAS OF THE VIEW THAT TH E EXPENDITURE IN QUESTION COULD BE ALLOWED ONLY ON ACTUAL BASIS AND SINCE THE PURCHASERS OF MOTOR-CYCLES HAD NOT MADE CLAIMS FOR RECTIFICATION OF DEFECTS, I T WOULD NOT BE SAID THAT THE LIABILITY HAD ACCRUED. THE CIT(A), ON AN ANALYSIS OF THE METHOD OF MAKING PROVISION FOR WARRANTY HELD THAT ACTUAL EXPENSES WE RE DEBITED EVERY YEAR AND A SIMILAR/ CONSISTENT BASIS FOR MAKING PROVISIONS WAS FOLLOWED. THE LD. AR SUBMITTED THAT THE CIT(A) ACCORDINGLY ALLOWED DEDUC TION FOR PROVISION FOR WARRANTY DEBITED TO THE PROFIT AND LOSS ACCOUNT. TH E TRIBUNAL HELD THAT SINCE THE METHOD OF ACCOUNTING WAS SCIENTIFIC AND RESULTE D IN CORRECT DETERMINATION OF PROFITS DEDUCTION FOR PROVISION FOR WARRANTY HAD BEEN CORRECTLY ALLOWED BY THE CIT(A). FURTHER, THE DEPARTMENTS APPEAL AGAINS T THE ORDER OF THE TRIBUNAL FOR A.Y 1996-97 ON THIS ISSUE HAS BEEN DISMISSED BY THE HONBLE DELHI HIGH COURT. THE LD. AR SUBMITTED THAT SLP FILED BY THE REVENUE IN THE ASSESSMENT 194 ITA NO. 1351/DEL/2018 YEAR 1999- 2000 WAS ALSO DISMISSED BY THE SUPREME C OURT. FURTHER, THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 1998-99, 1999-00, 2001- 02. 2007-08 AND 2008-09 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND ACCEPTED THE METHOD OF ACCOUNTING FOR WARRANTY CLAI M. THE DEPARTMENTAL APPEAL HAS NOT BEEN ENTERTAINED BY THE HIGH COURT A GAINST SAID ORDERS. THE LD. AR POINTED OUT THAT THE REVENUE HAS NOT PREFERR ED APPEAL AGAINST THE ORDER PASSED BY THE CIT(A) ON THE AFORESAID ISSUE FOR TH E ASSESSMENT YEAR 2003-04 WHICH IS PENDING BEFORE THE TRIBUNAL. THUS THE LD. AR SUBMITTED THAT THE REVENUE ITSELF HAS ACCEPTED THE AFORESAID CLAIM MAD E BY THE ASSESSEE. 142. THE LD. DR RELIED UPON THE ASSESSMENT ORDER, B UT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 143. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THE CIT(A), ON AN ANALYSIS OF THE METHOD OF MAKING PROVISION FOR WARRANTY HELD THAT ACTUAL EXPE NSES WERE DEBITED EVERY YEAR AND A SIMILAR/ CONSISTENT BASIS FOR MAKING PRO VISIONS WAS FOLLOWED. THE CIT(A) ACCORDINGLY ALLOWED DEDUCTION FOR PROVISION FOR WARRANTY DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE TRIBUNAL IN A.Y. 1996- 97 HELD THAT SINCE THE METHOD OF ACCOUNTING WAS SCIENTIFIC AND RESULTED IN CORRECT DETERMINATION OF PROFITS DEDUCTION FOR PROVISION FOR WARRANTY HAD BE EN CORRECTLY ALLOWED BY THE CIT(A). FURTHER, THE DEPARTMENTS APPEAL AGAINST TH E ORDER OF THE TRIBUNAL FOR A.Y 1996-97 ON THIS ISSUE HAS BEEN DISMISSED BY THE HONBLE DELHI HIGH COURT. THE SLP FILED BY THE REVENUE IN THE ASSESSMENT YEAR 1999- 2000 WAS ALSO DISMISSED BY THE SUPREME COURT. FURTHER, THE TRIBU NAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 1998-99, 1999-00, 2001-02, 2007 -08 AND 2008-09 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND ACC EPTED THE METHOD OF ACCOUNTING FOR WARRANTY CLAIM. THE DEPARTMENTAL APP EAL HAS NOT BEEN ENTERTAINED BY THE HIGH COURT AGAINST SAID ORDERS. THE LD. AR POINTED OUT THAT THE REVENUE HAS NOT PREFERRED APPEAL AGAINST THE OR DER PASSED BY THE CIT(A) ON THE AFORESAID ISSUE FOR THE ASSESSMENT YEAR 2003 -04 WHICH IS PENDING BEFORE 195 ITA NO. 1351/DEL/2018 THE TRIBUNAL. THUS THE REVENUE ACCEPTED THE AFORESA ID CLAIM MADE BY THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER WAS NOT CORRECT IN DISALLOWING THE PROVISION FOR WARRANTY HOLDING THE SAME TO BE UNASC ERTAINED AS THE PROVISION FOR WARRANTY WAS MADE BY THE ASSESSEE SINCE A.Y. 19 96-97 ON THE BASIS OF WEIGHTED AVERAGE COST FOR THE ACTUAL CLAIMS RECEIVE D IN THE PAST TWO YEARS WHICH WAS A SCIENTIFIC AND RATIONAL BASIS AND ACCEP TED BY THE REVENUE IN PAST. HENCE GROUND NOS. 44 TO 44.2 ARE ALLOWED. 144. AS REGARDS GROUND NO. 45 TO 45.8 IS RELATED TO DISALLOWANCE OF EXPORT COMMISSION PAID TO HONDA MOTOR CO. LTD. OF JAPAN, U /S 40(A)(IA). DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE PAID EXPORT CO MMISSION OF RS. 11,67.48,507 CRORES @ 5% OF THE FOB VALUE OF EXPORT SALES IN ACCORDANCE WITH THE AGREEMENT DATED 15.01.2005 (EFFECTIVE FROM 15.0 1.2005), AS CONSIDERATION FOR ACCORDING CONSENT TO THE ASSESSEE TO EXPORT MOT OR CYCLE AND THEIR SPARES TO CERTAIN COUNTRIES, WHERE SUPPLIES WERE BEING MADE B Y HONDA OR ITS AFFILIATES HITHERTO. THE AFORESAID CONSENT WAS SUBJECT TO THE FOLLOWING CONDITIONS: (I) THAT THE ASSESSEE SHALL UTILIZE DISTRIBUTION NE TWORK AND OTHER INTANGIBLES OF HM WHILE MAKING EXPORT SALES; AND (II) THE EXPORTED PRODUCTS MUST BEAR THE TRADE-MARK S DESIGNATED BY HONDA. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE AFORESAID PAYMENT OF EXPORT COMMISSION IS FOR THE PURPOSE OF CEDING O VERSEAS TERRITORIES FOR EXPORT BY THE ASSESSEE COMPANY AND PAYMENT SO RECEIVED BY HONDA WAS NOT TAXABLE IN INDIA AND WAS ALLOWABLE REVENUE EXPENDITURE IN T HE HANDS OF ASSESSEE. THE ASSESSING OFFICER HELD THAT THE PAYMENT OF EXPORT C OMMISSION TO HONDA WAS IN THE NATURE OF ROYALTY/FEE FOR TECHNICAL SERVICES ON THE GROUND THAT SAME WAS CONSIDERATION FOR RIGHT TO USE TRADEMARK AND MANAGE RIAL AND TECHNICAL SERVICES, WHICH WAS TAXABLE IN INDIA IN TERMS OF SE CTION 9(1)(VI)/(VII) OF THE ACT AND ACCORDINGLY THE ASSESSEE WAS UNDER OBLIGATION T O DEDUCT TAX UNDER SECTION 195 OF THE ACT ON SUCH PAYMENT. IN VIEW OF THE FAIL URE OF THE ASSESSEE TO DEDUCT 196 ITA NO. 1351/DEL/2018 TAX AT SOURCE FROM THE /AFORESAID PAYMENT, THE ASSE SSING OFFICER DISALLOWED THE ENTIRE AMOUNT OF EXPORT COMMISSION PAID BY THE ASSE SSEE, INVOKING PROVISION OF SECTION 40 (A)(I) OF THE ACT. THE ASSESSING OFFICE R ALSO HELD THAT SINCE THE WHOLE ARRANGEMENT BETWEEN THE ASSESSEE AND HONDA REVEALED THAT HONDA DIRECTED EXPORT TO SPECIFIED TERRITORIES AND THE SAID EXPORT S WERE MORE FOR THE PURPOSE OF HONDA THAN THE ASSESSEE COMPANY, THE SAME COULD NOT , THEREFORE, BE ALLOWED UNDER SECTION 37(1) OF THE ACT. ACCORDING TO THE AS SESSING OFFICER, THE EXPENDITURE WAS PURELY IN THE NATURE OF LICENSE ACQ UIRED BY THE ASSESSEE FOR THE PURPOSE OF MAKING EXPORT TO THE COUNTRIES WHERE HONDA HAD EXCLUSIVE PRIVILEGE TO OPERATE. THE EXPORT COMMISSION WAS ALS O DISALLOWED UNDER SECTION 92CA, OBJECTED INFRA, ON THE GROUND OF NOT BEING AT ARM'S LENGTH PRICE. 145. THE LD. AR SUBMITTED THAT SIMILAR ISSUE WAS DE CIDED IN FAVOR OF THE ASSESSEE BY THE DELHI BENCH OF THE TRIBUNAL IN THE ASSESSMENT YEAR 2006-07, HOLDING THAT BY WAY OF EXPORT AGREEMENT, HONDA HAS ONLY PERMITTED THE ASSESSEE TO EXPORT THE SPECIFIED GOODS TO THE SPECI FIED COUNTRIES AND THE ASSESSEE HAS NOT ACQUIRED ANY ASSET/INTANGIBLE RIGH T IN THE NATURE OF A CAPITAL ASSET. THE AFORESAID ORDER OF THE TRIBUNAL HAS BEEN AFFIRMED BY THE HON'BLE HIGH COURT VIDE ORDER DATED 08.05.2017, PASSED IN I TA NO. 923/2015.THE TRIBUNAL FOLLOWING THE ORDER FOR THE ASSESSMENT YEA R 2006-07 DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE IN THE ASSESSMENT YEARS 20 07-08 AND 2008-09. 146. THE LD. DR RELIED UPON THE ASSESSMENT ORDER, B UT COULD NOT DISTINGUISH THE ORDER OF THE TRIBUNAL. 147. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FOR A.Y. 2006-07, THE CO-ORDINATE BENCH HEL D THAT BY WAY OF EXPORT AGREEMENT, HONDA HAS ONLY PERMITTED THE ASSESSEE TO EXPORT THE SPECIFIED GOODS TO THE SPECIFIED COUNTRIES AND THE ASSESSEE H AS NOT ACQUIRED ANY ASSET/INTANGIBLE RIGHT IN THE NATURE OF A CAPITAL A SSET. THIS HAS BEEN AFFIRMED BY THE HONBLE HIGH COURT VIDE ORDER DATED 08.05.20 17 IN ITA NO. 923/2015. BESIDES THAT FOR A.YS. 2006-07, 2007-08 AND 2008-09 THIS ISSUE IS DECIDED IN 197 ITA NO. 1351/DEL/2018 FAVOUR OF THE ASSESSEE. IN THE PRESENT ASSESSMENT Y EAR ALSO THE FACTS REMAINS THE IDENTICAL. THEREFORE, GROUND NOS. 45 TO 45.8 AR E ALLOWED. 148. AS REGARDS GROUND NO. 46 IS RELATED TO AD-HOC DISALLOWANCE OF RS.12,99,205/- ON THE GROUND THAT THE ASSESSEE HAD ALLEGEDLY ENGAGED IN SHIFTING OF PROFITS AND/OR LOSSES THROUGH CLIENT CO DE MODIFICATION (CCM). THE ASSESSEE HAD, INTER ALIA, INCURRED TRADING LOSS OF RS. 10,17,628.75 IN CONNECTION WITH CERTAIN SCRIPS PURCHASED DURING THE YEAR. THE ASSESSING OFFICER HELD THAT THE LOSS OF RS. 10,17,628.75 HAD BEEN SHIFTED TO THE ACCOUNT OF THE ASSESSEE COMPANY IN COLLABORATION WITH THE B ROKER THROUGH CLIENT CODE MODIFICATIONS OF VARIOUS SCRIPS. FURTHER, THE ASSES SING OFFICER, ON THE BASIS OF INFORMATION RECEIVED FROM INVESTIGATION WING IN THE CASE OF THE BROKER, ALSO ALLEGED THAT THE ASSESSEE COMPANY HAD SHIFTED PROFI T OF RS. 2,81,576.25 TO CERTAIN ENTITIES ON THE GROUND THAT THE CLIENT CODE HAD BEEN MODIFIED FOR SUCH UNRELATED SCRIPS. 149. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICE R MADE THIS ADDITION WITHOUT REFERRING TO ANY DOCUMENT. ALL THE TRANSACT IONS ENTERED BY THE ASSESSEE ARE DULY SUPPORTED BY RELEVANT DOCUMENTARY EVIDENCE S AND PAYMENTS ARE SETTLED THERE AGAINST THROUGH BANKING CHANNEL. THE LD. AR SUBMITTED THAT IT IS CATEGORICALLY CONFIRMED BY THE ASSESSEE THAT THE AS SESSEE DID NOT ISSUE INSTRUCTIONS TO ANY BROKER FOR SHIFTING OF LOSSES O R PROFITS THROUGH THE STATED MECHANISM OF CLIENT CODE MODIFICATION. THE ASSESSEE HAS DULY PLACED ON RECORD THE CONTRACT NOTES RECEIVED FROM THE STOCK BROKER I N RELATION TO THE ALLEGED TRANSACTIONS OF SHIFTING OF LOSS OF RS. 10,17,628.7 5, BEFORE THE LOWER AUTHORITIES. THE LD. AR SUBMITTED THAT THE ASSESSI NG OFFICER, TOO, DID NOT BRING ANY DOCUMENT AND/OR EVIDENCE ON RECORD TO SUPPORT T HE ADVERSE INFERENCES DRAWN QUA GENUINENESS OF THE IMPUGNED TRANSACTIONS OR SUGGESTING MALA FIDE CLIENT CODE MODIFICATIONS IN THE CASE OF THE ASSESS EE. THE LD. AR SUBMITTED THAT ASSESSING OFFICER HAS ONLY PRESUMED THAT SINCE, IN CERTAIN CASES, CLIENT CODE MODIFICATION TRANSACTIONS HAVE BEEN FOUND TO BE MAL A FIDE, THE IMPUGNED 198 ITA NO. 1351/DEL/2018 TRANSACTION IN THE CASE OF ASSESSEE WAS ALSO NOT GE NUINE. THE DISALLOWANCE HAS BEEN MADE PURELY ON THE BASIS OF SURMISES. THE LD. AR SUBMITTED THAT IT IS A SETTLED LEGAL POSITION THAT ONCE THE INITIAL ONUS W AS DISCHARGED BY THE ASSESSEE, THE ONUS WAS UPON THE ASSESSING OFFICER TO PROVE TH AT THE TRANSACTION WAS NOT GENUINE, BY BRINGING SOME ADVERSE MATERIAL ON RECOR D. THE LD. AR MADE REFERENCE TO THE FOLLOWING DECISIONS: KALWA VS. UOL 49 HR 165 (SC) CIT VS. DAULAT RAM 87 ITR 349 (SC) CIT VS. DURGAPRASAD 82 ITR 540 (SC) IN VIEW OF THE ABOVE, IN THE ABSENCE OF ANY ADVERSE EVIDENCE BEING BROUGHT ON RECORD BY THE ASSESSING OFFICER THEREBY FAILING TO DISCHARGE PLACED ON IT, THE IMPUGNED DISALLOWANCE DESERVES TO BE DELETED ON THE AFORESAID GROUND ITSELF, AT THE THRESHOLD. 150. THE LD. AR FURTHER SUBMITTED THAT MINISCULE TR ANSACTION HAS TO BE IGNORED. THE ASSESSEE COMPANY IS A VERY LARGE SIZED COMPANY HAVING VARIOUS VOLUMINOUS TRANSACTIONS OF SALE/PURCHASE OF SHARES AND MUTUAL FUNDS RUNNING IN TO THOUSANDS OF CRORES OF RUPEES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD RECORDED PROF IT/LOSS OF RS. 1.45.43 CRORES FROM SUCH TRANSACTIONS AND TAX THEREON HAD B EEN OFFERED TO TAX IN THE RETURN OF INCOME AS WELL. THE LD. AR FURTHER SU BMITTED THAT CONSIDERING THE QUANTUM OF TRANSACTIONS ENTERED INT O BY THE ASSESSEE DURING THE YEAR, THE IMPUGNED ALLEGED TRANSACTIONS ARE MINISCULE (LESS THAN 0.03%). THE LD. AR SUBMITTED THAT IT DEFIES LO GIC FOR THE ASSESSEE TO ENGAGE IN SUCH A MINISCULE TRANSACTION OF SHIFTING OF LOSS OF RS. 10.17.628 WHEN IT HAD OFFERED A CAPITAL GAIN OF RS. 145.43 CRORES TO TAX IN THE RETURN OF INCOME OF THE RELEVANT YEAR. THE L D. AR ALSO POINTED OUT THAT THE SECURITIES AND EXCHANGE BOARD OF INDIA (SE BI) VIDE CIRCULAR NO. 199 ITA NO. 1351/DEL/2018 MCX/T&S/032/2007 22ND JAN., 2007 HAD EARLIER DIRECT ED THAT MODIFICATION OF UP TO 1% OF THE TOTAL TRADED VALUE OF SECURITIES SHALL BE PERMISSIBLE AND NO PENALTY THEREOF SHALL BE LEVIED ON BROKERS FOR SUCH RECTIFICATION. THE AFORESAID CIRCULAR WAS LATER SUP ERSEDED VIDE CIRCULAR NO. DNPD/6/2011 DATED 05.07.2011 WHEREIN IT HAS BEE N CATEGORICALLY STATED THAT STOCK EXCHANGE MAY ALLOW FOR MODIFICATI ONS OF CLIENT CODES OF NON-INSTITUTIONAL TRADES TO RECTIFY A GENUINE ERROR IN ENTRY OF CLIENT CODE AT THE TIME OF PLACING / MODIFYING THE RELATED ORDE R. THUS, IT WOULD BE APPRECIATED THAT EVEN THE SEBI CONSIDERS A MODIFICA TION OF 1 % AS NORMAL ON ACCOUNT OF HUMAN ELEMENT INVOLVED IN THE PROCESS OF SECURITIES TRANSACTIONS. THE LD. AR THEREFORE SUBM ITTED THAT ASSUMING THAT SUCH SHIFTING HAD HAPPENED, SUCH SHIFTING WAS GENUINELY HAPPENED ON ACCOUNT OF HUMAN ERROR IN RECORDING THE WRONG CO DE ON THE PART OF THE BROKER. THE LD. AR RELIED UPON THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V KUNVARJI FINANCE (P.) LTD: 170 TTJ 345. IN THAT CASE, THE ASSESSEE COMPANY WAS ENGAGED IN BUSI NESS OF SHARES AND SECURITIES, COMMODITY TRADING, SPECULATION IN SHARE S AND COMMODITIES, ETC. AND WAS PART OF GROUP OF COMPANIES WHICH INCLU DED K LTD. K LTD. WAS A REGISTERED BROKER IN COMMODITY EXCHANGES. IN COURSE OF SEARCH AT ASSESSEE'S GROUP COMPANY, IT WAS NOTED THAT K LTD. HAD DONE CLIENT CODE MODIFICATIONS MULTIPLE TIMES. ASSESSING OFFICER WAS OF VIEW THAT SINCE COMPANY AND KCBPL WERE GROUP CONCERNS, CLIENT CODE MODIFICATIONS WAS DONE WITH INTENTION OF TRANSFERRING PROFIT TO SOME OTHER PERSONS AS AGAINST AND THEREFORE, WORKED OUT NOTIONAL PROFIT/ LOSS WHICH COULD HAVE OCCURRED TO HAD CLIENT CODE BEEN NOT MODIFIED. TH E TRIBUNAL OBSERVED THAT AS PER MCX CIRCULAR, CLIENT CODE MODIFICATION UPTO 1% OF TOTAL ORDER IS ABSOLUTELY NORMAL AND BROKER IS PERMITTED TO MOD IFY CLIENT UP TO 1 PER CENT WITHOUT PAYING ANY PENALTY AND SINCE ASSESSEE' S CLIENT CODE MODIFICATION IS LESS THAN 1 PER CENT OF TOTAL TRADI NG TRANSACTIONS, IMPUGNED ADDITION WAS TO BE DELETED. THE LD. AR REL IED UPON THE FOLLOWING DECISIONS: 200 ITA NO. 1351/DEL/2018 AC IT VS. AMAR MUKESH SHAH: 46 ITR(T)234( AHM) ASHOK GOYAL (HUF) VS. AC1T: 165 TTJ 306(AHM) PAL COMMODITY SERVICES PVT. LTD. VS. DIT: ITA NO. 3498/M U/2012 FOR THE AFORESAID CUMULATIVE REASONS, THE LD. AR S UBMITTED THAT THE DISALLOWANCE MADE ON ACCOUNT OF ALLEGED SHIFTING ON PROFITS/LOSSES THROUGH CLIENT MODIFICATION ON AN AD-HOC BASIS IS UNWARRANT ED AND LIABLE TO BE DELETED. THE LD. AR SUBMITTED THAT THE CIT(A) IN THE ASSESSM ENT YEAR 2010-11 DELETED THE ADDITION MADE IN THE ASSESSMENT ORDER PASSED UN DER SECTION 147 OF THE ACT HOLDING THAT THE ASSESSSEE WOULD NOT ENGAGE IN SUCH A MINISCULE TRANSACTION TAKING INTO CONSIDERATION THE FACT THAT HUGE CAPITA L GAIN OF RS. 20 CRORES WAS OFFERED TO TAX IN THE RETURN OF INCOME. 151. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AN D ORDER OF THE TPO. 152. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THE ASSESSING OFFICER MADE THIS ADDITION WITHOUT REFERRING TO ANY DOCUMENT. ALL THE TRANSACT IONS ENTERED BY THE ASSESSEE ARE DULY SUPPORTED BY RELEVANT DOCUMENTARY EVIDENCES AND PAYMENTS ARE SETTLED THERE AGAINST THROUGH BANKING CHANNEL. IT IS CATEGORICALLY CONFIRMED BY THE ASSESSEE THAT THE ASSESSEE DID NOT ISSUE INS TRUCTIONS TO ANY BROKER FOR SHIFTING OF LOSSES OR PROFITS THROUGH THE STATED ME CHANISM OF CLIENT CODE MODIFICATION. THE ASSESSEE HAS DULY PLACED ON RECOR D THE CONTRACT NOTES RECEIVED FROM THE STOCK BROKER IN RELATION TO THE A LLEGED TRANSACTIONS OF SHIFTING OF LOSS OF RS. 10,17,628.75, BEFORE THE LOWER AUTHO RITIES. THE ASSESSING OFFICER DID NOT BRING ANY DOCUMENT AND/OR EVIDENCE ON RECOR D TO SUPPORT THE ADVERSE INFERENCES DRAWN IN RESPECT OF GENUINENESS OF THE I MPUGNED TRANSACTIONS OR SUGGESTING MALA FIDE CLIENT CODE MODIFICATIONS IN T HE CASE OF THE ASSESSEE. THE ASSESSING OFFICER HAS ONLY PRESUMED THAT SINCE, IN CERTAIN CASES, CLIENT CODE MODIFICATION TRANSACTIONS HAVE BEEN FOUND TO BE MAL A FIDE, THE IMPUGNED TRANSACTION IN THE CASE OF ASSESSEE WAS ALSO NOT GE NUINE. THE DISALLOWANCE HAS 201 ITA NO. 1351/DEL/2018 BEEN MADE PURELY ON THE BASIS OF ASSUMPTIONS AND SU RMISES. THERE WAS NO ADVERSE MATERIAL ON RECORD WHICH SHOWS THAT THE ASS ESSEE HAS SHIFTED THE PROFITS AND/OR LOSSES THROUGH CLIENT CODE MODIFICAT ION (CCM). IN FACT, THE ASSESSEE RECORDED PROFIT/LOSS OF RS. 145.43 CRORES FROM TRANSACTIONS OF SALE/PURCHASE OF SHARES & MUTUAL FUNDS AND TAX THER EON HAD BEEN OFFERED TO TAX IN THE RETURN OF INCOME AS WELL BY THE ASSESSEE . THUS, GROUND NO. 46 IS ALLOWED. 153. IN RESULT, APPEAL OF THE ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD APRIL, 2019 . SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 23/04/2019 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 202 ITA NO. 1351/DEL/2018 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 2 3 . 0 4 . 2 0 1 9 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON TH E WEBSITE OF ITAT 2 3 . 0 4 . 2 0 1 9 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2 3 . 0 4 . 2 0 1 9 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
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