M/s. Renishaw Metrology Systems Pvt. Ltd., Pune V. Dy.Comm.of Income-tax, Pune

ITA 1685/PUN/2011

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7466 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-09-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ARIJIT CHAKRAVARTHY
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Additional evidence; Unabsorbed depreciation; Revenue expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1685/PUN/2011 / ASSESSMENT YEAR : 2007-08 M/S. RENISHAW METROLOGY SYSTEMS PRIVATE LIMITED, S.NO.283, HISSA NO.2, S.NO.284, HISSA NO.2 & 3A, RAISONI ESTATE, VILLAGE MANN, TALUKA MULSHI, PUNE 411 057 . /APPELLANT PAN : AABCR6361F VS. DY.CIT, CIRCLE-1(2), PUNE . / RESPONDENT / APPELLANT BY : SHRI ARIJIT CHAKRAVARTHY / RESPONDENT BY : SHRI RAJEEV KUMAR, CIT DATE OF HEARING : 13.09.2017 / DATE OF PRONOUNCEMENT: 20.09.2017 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF DRP, BANGALORE DATED 29-09-2011 FOR THE ASSESSMENT YEAR 2007-08. 2. ASSESSEE RAISED VARIOUS GROUNDS/ADDITIONAL GROUN DS. ASSESSEE FILED A CONSOLIDATED CHART BEFORE US GIVING RELEVANT INFORM ATION, I.E., ISSUES RAISED IN THE APPEAL, GROUND NO., AMOUNTS INVOLVED, THE CONTENTIO NS OF THE AO AND THE DRP AND THE GUIDELINES OF THE DRP, RELEVANT FACTS AND C ONTENTIONS OF THE ASSESSEE AND CASE LAWS ETC., ITA NO.1685/PUN/2011 M/S. RENISHAW METROLOGY SYSTEMS PVT. LTD., 2 3. TAKING US, THROUGH THE SAID CHART, LD. COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE FOLLOWING ISSUES ARE REQUIRED TO REVISIT T HE FILE OF THE AO/TPO FOR ONE REASON OR OTHER AND FOR FRESH ADJUDICATION. THE IS SUES AND RELEVANT GROUND NOS. ARE (1) THE TRANSFER PRICING ISSUES (GROUND NOS. 1 TO 1.2 AND 2.1 TO 2.16), (2) ISSUE RELATING TO SET OFF OF LOSSES BEFORE DEDUCTIO N U/S.10A (GROUND NO.3.1), (3) ISSUE RELATING TO EXCESS DEPRECIATION (GROUND NO.3. 16), AND (4) ISSUE RELATING TO FOREIGN EXCHANGE LOSS ON RE-STATEMENT OF CREDITORS (GROUND NO.3.17). 4. REFERRING TO THE ISSUES RELATING TO DISALLOWANCE OF MANAGEMENT FEE, MARKETING FEE (GROUND NOS. 3.2 TO 3.9). LD. AUTHORI SED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE SAME WERE NOT PRESSED. THEREFORE, AFTER HEARING BOTH THE PARTIES, THE SAID GROUNDS ARE DISMISSED AS NOT PRESSED. 5. REFERRING TO YET OTHER ISSUES RAISED AT (A) GROU ND NO.3.10 RELATING TO FOREIGN TRAVEL EXPENSES, (B) GROUND NOS. 3.11 AND 3 .12 RELATING TO REPAIR AND MAINTENANCE EXPENSES TREATED AS CAPITAL IN NATURE, (C) GROUND NOS. 3.13 AND 3.14 RELATING TO ARCHITECT AND REGISTRATION CHARGES AND FINALLY (D) GROUND NO.3.15 RELATING TO SECURITY EXPENSES, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE CAN BE ADJUDICATED BY THE TRIBUNAL. 6. REFERRING TO GROUND NOS. 3.19 AND 3.2, LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT THEY ARE CONSEQUENTIAL AND GENERAL I N NATURE RESPECTIVE AND THEREFORE, THEY CAN BE DISMISSED AS SUCH. 7. NOW, WE NOW PROCEED TO ADJUDICATE EACH OF THE IS SUES/GROUNDS MENTIONED ABOVE. TO START WITH, WE SHALL TAKE UP THE ISSUES TO BE REMANDED TO THE FILE OF THE AO/TPO IN THE FOLLOWING PARAGRAPHS. 8. ONE SUCH ISSUE RELATES TO THE ADJUSTMENT MADE BY THE AO/TPO BY VIRTUE OF TRANSFER PRICING OF THE INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATED ENTERPRISES. ITA NO.1685/PUN/2011 M/S. RENISHAW METROLOGY SYSTEMS PVT. LTD., 3 THE TPO MADE ADJUSTMENT TO THE EXTENT OF RS.18,58,7 41/- ON ACCOUNT OF SOFTWARE SEGMENT OF THE ASSESSEE. TNMM AS MOST APPROPRIATE METHOD IS UNDISPUTED. ASSESSEES MARGIN IS 12.18%. DURING THE TP STUDY, B ASED ON 55 OF THE COMPARABLES, THE MARGIN FOR THE SAID 55 COMPARABLES IS PLACED AT 14.68%. CONSIDERING THE FACT THAT THE SAME IS WITHIN THE MA RGIN OF +/-5%, THE ASSESSEE DID NOT MAKE ANY ADJUSTMENTS. HOWEVER, DURING THE TPO PROCEEDINGS, MOST OF THE COMPARABLES FROM THE TP STUDY WERE EXCLUDED AN D TPO ADDED HIS COMPARABLES WHICH LED TO THE AVERAGE MARGIN OF 25.1 4%. THIS LED TO THE TP ADJUSTMENTS OF THE SOFTWARE SEGMENT AMOUNTING TO TH E TUNE OF RS.18,58,741/-. THIS CONSTITUTES THE AREA OF LITIGATION BEFORE US. 9. BEFORE US, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUT ATTENTION TO THE VARIOUS COMPARABLES ADOPTED BY THE TPO AND THAT THEY FAILED TO PASS THE FAR (FUNCTIONS, ASSETS AND RISKS) TEST. ACCORDING TO HIM, THE COMP ARABLES ARE FUNCTIONALLY DIFFERENT AND GIVEN VARIOUS REASONS TO DEMONSTRATE THE SAME IN A CHART FORM. LD. AUTHORISED REPRESENTATIVE FILED A CHART BEFORE US. IN ORDER TO SUBSTANTIATE THAT THE SAID COMPARABLES ARE FUNCTIONALLY DIFFERENT, LD . COUNSEL FOR THE ASSESSEE FILED A PAPER BOOK CONTAINING THE COMPILATION OF CASES. IF THE SAID JUDGMENTS ARE APPLIED, THERE IS NO NEED FOR MAKING TP ADJUSTMENTS AND THE ARITHMETIC MEAN OF THE ASSESSEE STANDS AT 12.18%. FURTHER, HE SUBMITT ED THAT FOR APPLYING THE SAID JUDGMENTS DECIDED IN THE CONTEXT OF THE COMPARABLES , WHICH ARE RELIED UPON BY THE TPO, THE MATTER CAN TRAVEL TO THE AO/TPO FOR FR ESH ADJUDICATION WITH COMPARISON OF FACTS AND FUNCTIONS AND FAR BEFORE TA KING ANY DECISION. 10. ON HEARING THE PARTIES AND CONSIDERING THE FACT THAT THIS ISSUE REQUIRES DETAILED EXAMINATION OF FACTUAL MATRIX OF VARIOUS C OMPARABLES QUA THE FAR ANALYSIS OF THE ASSESSEE, AS ADVOCATED BY THE LD. C OUNSEL FOR THE ASSESSEE, WE PROCEED TO REFER THE MATTER TO THE FILE OF AO/TPO F OR FRESH ADJUDICATION. NEEDLESS ITA NO.1685/PUN/2011 M/S. RENISHAW METROLOGY SYSTEMS PVT. LTD., 4 TO SAY, THE AO SHALL GRANT REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. THEREFORE, RELEVANT GROUND NOS. 2.1 TO 2.16 ARE ALL OWED FOR STATISTICAL PURPOSES. 11. THE OTHER ISSUE THAT REQUIRES RE-VISIT TO THE F ILE OF THE AO/TPO RELATES TO CLAIM OF SET OFF OF LOSSES BEFORE DEDUCTION U/S.10 A OF THE ACT. RELEVANT FACTS ARE THAT THE ASSESSEE CALCULATED DEDUCTION U/S.10A OF T HE ACT PRIOR TO THE SET OFF OF THE CURRENT YEARS TAX LOSSES AND UNABSORBED DEPREC IATION. THUS, THE ASSESSEE IS ENTITLED TO CLAIM THE AMOUNT OF RS.3,16,02,923/- AS AN ALLOWABLE EXEMPTION. IN THE ASSESSMENT PROCEEDINGS, THE AO REJECTED THE ABO VE AND CALCULATED THE DEDUCTION U/S.10A - POST ADJUSTMENTS OF THE SAID LO SS AND UNABSORBED DEPRECIATION. CONTENTS OF PARA NO.17 OF THE DRAFT ASSESSMENT ORDER ARE RELEVANT. FURTHER, DURING THE DRP PROCEEDINGS REJECTING THE A SSESSEES CLAIM, THE DRP UPHELD THE CONCLUSIONS OF THE AO. 12. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THE MANNER OF ALLOWING OF SET OFF OF THE LOSSES/UNABSORBED DEPRECIATION IS NOW SETTLED AND ALL THE DISPUTE ON THIS ISSUE ARE PUT TO REST BY VIRTUE OF THE JUDG MENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S. YOKOGAWA INDIA LTD. REPORT ED IN 77 TAXMANN.COM 41 (SC). ACCORDING TO THE ASSESSEE, THE EXEMPTION U/S .10A OF THE ACT IS REQUIRED TO BE GIVEN PRIOR TO SET OFF OF THE LOSSES/UNABSORBED DEPRECIATION FROM THE DOMESTIC UNIT AGAINST THE PROFITS OF THE ELIGIBLE UNIT. HE ALSO RELIED ON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF PRECISION CAMSHAFTS CO. LTD. VS. ACIT AND VICE VERSA VIDE ITA NO.70/PN/2012 AND ITA NO.72 /PN/2012 ORDER DATED 10-11-2015 FOR A.Y. 2007-08 AND THE DECISION IN THE CASE OF M/S. VISHAY COMPONENTS PVT. LTD. VS. ADDL.CIT AND VICE VERSA VI DE ITA NO.551/PN/2014 AND ITA NO.736/PN/2014 ORDER DATED 08-08-2015 FOR A.Y. 2005-06. FOR APPLYING THE SAID PROPOSITIONS AND ALSO COMPARING THE FACTUAL MA TRIX OF THE ASSESSEES CASE WITH ALL THE ABOVE JUDGMENT OF HONBLE APEX COURT A ND THE DECISIONS OF THE ITA NO.1685/PUN/2011 M/S. RENISHAW METROLOGY SYSTEMS PVT. LTD., 5 TRIBUNAL, BOTH THE PARTIES SUBMITTED THAT THIS EXER CISE CAN BE DONE BY THE AO/TPO AT HIS LEVEL. 13. ON CONSIDERING THE ABOVE FACTS AND THE SUBMISSI ONS OF THE LD. COUNSEL FOR THE ASSESSEE, WE ARE OF THE OPINION THAT THIS ISSUE SHOULD ALSO BE REMANDED TO THE FILE OF THE AO/TPO FOR APPLYING THE CITED DECISIONS AFTER COMPARING THE FACTUAL MATRIX OF THE CASES. THE AO SHOULD ABIDE BY THE RA TIOS GIVEN IN THE HONBLE SUPREME COURT JUDGMENT (SUPRA). AO SHALL GRANT REA SONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY GROUND NO.3.1 I S ALLOWED FOR STATISTICAL PURPOSES. 14. ANOTHER ISSUE THAT REQUIRES A REVISIT TO THE FI LE OF THE AO/TPO RELATES TO EXCESS DEPRECIATION. ASSESSEE COMMENCED MANUFACT URING ACTIVITY IN THE YEAR UNDER CONSIDERATION AND CLAIMED FULL DEPRECIATION. ON FINDING THAT THE PRODUCTION ACTIVITY BEGUN ONLY IN THE MONTH OF NOVEMBER 2006, AO HELD THAT THE ASSETS WERE NOT PUT TO USE TO FULL PERIOD OF THE PREVIOUS YEAR. ACCORDINGLY, HE RESTRICTED THE CLAIM OF DEPRECIATION TO 50% OF THE TOTAL CLAIM OF THE DEPRECIATION U/S.32 OF THE ACT. DRP CONFIRMED THE ABOVE VIEW STATING THAT ASS ESSEE FAILED TO PROVE THE ASSETS WERE READY TO USE AS ON 01-04-2006. ON THIS , LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ONE MORE OPPORTUNITY MAY BE GRANTED TO THE ASSESSEE TO FILE THE RELEVANT PAPERS TO EVIDENCE THE INSTALLATION AND SE T UP OF THE ASSETS AND OTHER PROOFS TO DEMONSTRATE THAT THE ASSETS WERE READY FO R USE AS ON 01-04-2006. IT IS AN ADMITTED FACT THAT THE ACTUAL PRODUCTION BEGUN O NLY IN THE MONTH OF NOVEMBER, 2006. OTHERWISE, THE MANUFACTURING DIVISION WAS SE T UP ALREADY IN THE MONTH OF APRIL 2006 ITSELF AND READY FOR COMMENCEMENT. FURT HER, HE GAVE THE FOLLOWING WRITE-UP IN SUPPORT OF HIS CLAIM : IT HAD ACQUIRED WORK BENCHES AND OTHER MACHINERY N ECESSARY FOR STARTING THE PRODUCTION IN JULY 2006. THESE WORKBENCHES AND MAC HINERIES ARE SUCH THAT NO SUBSTANTIAL INSTALLATION IS REQUIRED AND THESE CAN BE IMMEDIATELY USED FOR MANUFACTURING. FURTHER, THE ASSETS ACQUIRED WERE R EADY FOR USE IMMEDIATELY AFTER ITA NO.1685/PUN/2011 M/S. RENISHAW METROLOGY SYSTEMS PVT. LTD., 6 PURCHASE THOUGH THE ACTUAL PRODUCTION HAPPENED IN N OVEMBER 2006. THE DETAILS OF ADDITIONS TO FIXED ASSETS HAVE BEEN AT PAGES 134 TO 163 OF THE PAPER BOOK (VOL.2). LOOKING AT THE DETAILS OF ADDITIONS TO FI XED ASSETS IT WILL BE APPARENT THAT MOST OF THESE DO NOT EVEN PERTAIN TO MANUFACTURING PROCESS. SINCE THE APPELLANT HAS ALREADY CLAIMED DEPRECIATIO N AT 50% RATE IN RESPECT OF ASSETS ACQUIRED FOR LESS THAN 180 DAYS, THE AO HAS MISTAKENLY DISALLOWED 50% OF THE TOTAL DEPRECIATION AMOUNTING TO INR 1,85,25,717 , I.E. 92,62,858 (REFER PAGE 164 OF VOL.2 OF PAPER BOOK). IF THE DISALLOWANCE M ADE BY THE AO IS UPHELD THEN THE DISALLOWANCE HAS TO BE RESTRICTED TO 50% OF DEP RECIATION CLAIMED IN RESPECT OF ASSETS PUT TO USE FOR MORE THAN 180 DAYS, I.E. 50% OF 7,77,0489 WHICH WILL BE 38,85,254. ACCORDINGLY, THE APPELLANT WOULD BE ENT ITLED TO RELIEF OF INR 53,77,614. IF ANY DISALLOWANCE OF DEPRECIATION IS UPHELD, THE AO MAY BE DIRECTED TO GIVE DEPRECIATION ON ENHANCED WDV FOR THE SUBSEQUENT AYS . 15. ON HEARING BOTH THE PARTIES, WE ARE OF THE OPIN ION THAT THE USE OF THE ASSET IS A MATTER OF FACT. THE CASE LAW FILED BY THE AUT HORISED REPRESENTATIVE IS ON THE CASE OF LULL IN BUSINESS. THERE IS A REQUIREMENT O F DETAILS WITH REGARD TO THE INSTALLATION OF THE ASSETS. SIMILARLY, THE COMMENC EMENT OF THE MANUFACTURING ACTIVITY IS ALSO A MATTER OF FACT. RELEVANT DETAIL S ARE NOT AVAILABLE ON RECORDS. THE FACT OF COMMENCEMENT OF PRODUCTION IS DIFFERENT FRO M THAT OF COMMENCEMENT OF BUSINESS WHICH HAS A WIDER CONNOTATION. THEREFORE, THE AO IS REQUIRED TO OBTAIN NECESSARY DETAILS AND DO NECESSARY ENQUIRIES TO DEM ONSTRATE THE ASSETS IN QUESTION ARE PUT TO USE ONLY FOR THE PERIOD LESS TH AN 180 DAYS FOR RESTRICTING THE DEPRECIATION TO 50% ONLY. AO IS ALSO DIRECTED TO A DOPT THE LEGAL PROPOSITION RELEVANT TO THE TOPIC UNDER CONSIDERATION. ACCORDI NGLY, GROUND NO.3.16 IS ALLOWED FOR STATISTICAL PURPOSES. 16. FINALLY, ANOTHER ISSUE FOR SETTING ASIDE TO THE FILE OF THE AO/TPO RELATES TO THE CLAIM OF FOREIGN EXCHANGE LOSS EARNED ON RE-ST ATEMENT OF THE CREDITORS. IN THIS REGARD, IT IS THE CASE OF THE ASSESSEE THAT CE RTAIN FOREIGN LOANS WERE RAISED FROM THE CREDITORS FOR CATERING TO THE NEEDS OF WOR KING CAPITAL REQUIREMENTS, SUCH AS RAW MATERIAL/SERVICES ETC. IT IS THE CATEGORICA L ASSERTION OF THE ASSESSEE THAT THE SAME WERE NEVER APPROPRIATED ON THE CAPITAL ACC OUNT. THE DRP HELD THE SAME WERE APPROPRIATED TOWARDS THE PURCHASE OF THE ASSETS. ITA NO.1685/PUN/2011 M/S. RENISHAW METROLOGY SYSTEMS PVT. LTD., 7 17. BEFORE US, IN THIS CONTROVERSY, LD. COUNSEL FOR THE ASSESSEE STATED CATEGORICALLY THAT THE SAID LOANS WERE NOT UTILISED ON CAPITAL ACCOUNT BUT RELATES TO THE RE-STATEMENT OF THE CREDITORS FOR RAW MATERIAL PURCHASES. LD. COUNSEL IS OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO RELIEF IN VIE W OF THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. L TD. REPORTED IN 223 CTR 1 (SC). 18. ON HEARING BOTH THE PARTIES, WE ARE OF THE VIEW THAT THE LD. COUNSELS PRAYER FOR REMANDING THIS ISSUE FOR WANT OF FACTS R ELATING TO THE MANNER OF APPROPRIATION OF THE SAID LOANS WHETHER THEY ARE UT ILISED FOR BUYING THE RAW MATERIALS OR FOR FIXED ASSETS IS REQUIRED TO BE ALL OWED. ACCORDINGLY, GROUND NO.3.17 IS ALLOWED FOR STATISTICAL PURPOSES. 19. NOW WE SHALL TAKE UP THE OTHER ISSUES WHICH CAN BE ADJUDICATED BY THE TRIBUNAL AS THE FACTS ARE AVAILABLE ON RECORDS. IN THIS REGARD, THE FIRST ISSUE RELATES TO THE CLAIM OF FOREIGN TRAVEL EXPENSES AMOUNTING T O RS.9,79,025/-. ON THIS ISSUE LD. AUTHORISED REPRESENTATIVE MENTIONED THAT IT IS THE CLAIM OF THE ASSESSEE THAT THE SAID EXPENDITURE WAS INCURRED FOR TRAINING THE EMPLOYEES OF THE ASSESSEE. NONE OF THE DIRECTORS OR THEIR RELATIVES WERE BENEF ICIARIES OF THESE FOREIGN TRAVEL EXPENDITURE. IN THIS REGARD, LD. COUNSEL FILED THE FOLLOWING WRITE UP : THE FOREIGN TRAVEL EXPENSES HAVE BEEN INCURRED BY THE APPELLANT FOR ITS EMPLOYEES FOR GETTING TRAINING. THIS TO FAMILIARIZE WITH THE MANUFACTURING PROCESS, INCREASE PRODUCT KNOWLEDGE AND TO FACILITATE BETTER CUSTOMER SUPPORT TRAINING FOR ITS CUSTOMERS IN INDIA. TRAINING FOR TRADED PRODUCTS HELPED APPELLANT IN CR EATING BETTER SALES WHICH RESULTED TO TAXABLE PROFITS TO THE APPELLANT. ALL EXPENSES ARE FOR EMPLOYEES AND NOT FOR ANY DIRE CTORS OR ANY FAMILY MEMBERS OF EMPLOYEES/DIRECTORS. FURTHER, THERE ARE NO PERSONA L EXPENSES INCURRED. THE EXPENSES INCURRED ARE LINKED TO THE REVENUE OF THE APPELLANT. WITHOUT TRAINING, APPELLANT WOULD HAVE INCURRED SEVERAL QUA LITY LOSSES AND HAD TO BEAR LOSS OF SALES. FURTHER, THERE WOULD HAVE BEEN REPUTATION AL LOSS AS WELL. ITA NO.1685/PUN/2011 M/S. RENISHAW METROLOGY SYSTEMS PVT. LTD., 8 20. WE HEARD BOTH THE SIDES AND PERUSED THE ORDERS OF THE REVENUE ON THIS ISSUE. WE FIND THE CONTENTS ON PAGE NO.46 OF THE D RP IS RELEVANT AND THE SAME IS EXTRACTED AS UNDER : PANEL : WE HAVE CAREFULLY CONSIDERED THE SUBMISSIO NS OF THE ASSESSEE AND THE AO. WE FIND THAT THIS CASE WAS FIXED BY THE AO 13- 14 TIMES DURING THE ASSESSMENT PROCEEDINGS FOR THE RELEVANT A.Y. EVEN I N SO MANY HEARINGS ASSESSEE FAILED TO SATISFACTORILY EXPLAIN BEFORE THE AO THAT THE TRAVELLING WAS UNDERTAKEN FOR THE BENEFIT OF THE ASSESSEE COMPANY. HOW COULD THE ASSESSEE NOT PRODUCE EVEN SINGLE DOCUMENTARY EVIDENCE BEFORE THE ASSESSEE WHI CH COULD CONVINCE THE AO THAT THE FOREIGN TRAVELLING WAS UNDERTAKEN BY THE A SSESSEES EMPLOYEES FOR ASSESSEE COMPANYS OWN BUSINESS? RATHER THE AO HAS CATEGORICALLY STATED IN THE ORDER THAT IT WAS FOR THE BENEFIT OF RENISHAW PLC. WE TOO FIND IT QUITE POSSIBLE IN THIS CASE, ESPECIALLY IN VIEW OF RENISHAW PLC HAVIN G ITS DIRECT BUSINESS INTEREST IN INDIA. EVEN THE FACT AS TO HOW RENDER AFTER SALES SERVICES TO THE CUSTOMERS OF RENISHAW PLC IS BENEFICIAL TO THE HOLDING COMPANY. WE CONSIDER THIS EXPENDITURE IS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF AS SESSEES BUSINESS. THEREFORE, WE UPHOLD THE DISALLOWANCE MADE BY THE AO OF TRAVEL LING EXPENSES IN MANUFACTURING UNIT AND TRADING UNIT FOR TOTAL RS.9, 79,025/-. THE OBJECTION OF THE ASSESSEE IN THIS MATTER IS REJECTED, 21. FROM THE ABOVE, WE FIND IT IS AN UNDISPUTED FAC T THAT BENEFICIARIES OF THIS FOREIGN TRAVEL ARE SOLELY THE EMPLOYEES OF THE ASSE SSEE THE VISITS ARE MEANT FOR THE BUSINESS PURPOSES OF THE ASSESSEE WHO IS A CAPT IVE SERVICE PRODUCER TO THE ASSOCIATED ENTERPRISES ABROAD. THEREFORE, WE ARE OF THE VIEW THAT THE EXPENDITURE INCURRED ON ACCOUNT CONSTITUTES AN ALLOWABLE BUSINE SS EXPENDITURE. WE REVERSE THE ORDER OF THE DRP AND ALLOW THE RELEVANT GROUND NO.3.10 IN FAVOUR OF THE ASSESSEE. 22. NEXT ISSUE RELATES TO REPAIRS AND MAINTENANCE E XPENSES (GROUND NOS. 3.11 AND 3.12). THE AO TREATED THESE EXPENSES AS REVENU E EXPENDITURE SINCE THE AMOUNT IS SPENT TOWARDS ADDITIONS TO FIXED ASSETS. THE SAME ARE REPLACEMENT AND NOT REPAIRS. THE DRP TREATED THE SAME AS CAPITAL E XPENDITURE. 23. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THE FOLL OWING WRITE UP ON THIS : (A) HEWLETT PACKARD CARE PACK INR 125,576- THIS IS NOT PURCHASE OF ASSET BUT TOWARDS AMC FOR PRINTERS TAKEN FOR A PERIOD OF 3 YE ARS. PROPORTIONATE AMOUNT ITA NO.1685/PUN/2011 M/S. RENISHAW METROLOGY SYSTEMS PVT. LTD., 9 CLAIMED AS REVENUE DEDUCTION IN THIS YEAR. FOR FACTUAL DESCRIPTION PLEASE REFER PAGE 383 OF PAPER BOOK VOLUME 5. FURTHER, FO R INVOICE COPIES KINDLY REFER PAGE NO. 166 OF PAPER BOOK VOLUME 3 ADDITIONAL EVIDENCE. (B) HEWLETT BACKUP TAPES INR 349,154 THESE ARE JUST SMALL STORAGE INSTRUMENTS AND NOT IN THE NATURE OF FIXED ASSET. 8 0 TAPES WERE BROUGHT AND EACH WAS VALUED LESS THAN INR 5,000. THESE TAPES DO NOT PROVIDE ANY ENDURING BENEFIT AND ARE FOR DAY TO DAY BUSINESS ACTIVITIES. FOR FA CTUAL UNDERSTANDING PLEASE REFER PAGE 383 OF PAPER BOOK VOLUME5. COPY OF INVOICES A RE PROVIDED ON PAGE NO. 168 OF PAPER BOOK VOLUME 3 ADDITIONAL EVIDENC E. (C) COMMISSIONING AND REINSTALLATION OF AC INR 50,676 - THIS WAS TOWARDS REINSTALLATION OF EXISTING AIR CONDITIONER AND NOT FOR ANY INSTALLATION OF ANY NEW AC FOR FACTUAL UNDERSTANDING PLEASE REFER PAGE 383 O F PAPER BOOK VOLUME 5. FOR COPY OF INVOICE KINDLY REFER 127 OF PAPER B OOK VOLUME 2. 24. DEVIATING FROM THE ABOVE SAID COMMENTS OF THE A SSESSEE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SO FAR AS THE EXPENDITU RE ON ACCOUNT TO HAWLETT PACKARD CARE PACK AMOUNTING TO INR 125,576 HP AND HAWLETT BACKUP TAPES AMOUNTING TO INR 349,154, HE SHALL NOT PRESS THIS G ROUND SO LONG AS THE CLAIM OF DEPRECIATION U/S.32 OF THE ACT OF THE SAID AMOUNTS ARE GRANTED IN FAVOUR OF THE ASSESSEE AND AS PER THE STATUTE. 25. ON CONSIDERING THE CONCESSION GIVEN BY THE LD. COUNSEL FOR THE ASSESSEE, WE ARE OF THE OPINION THAT THE AO SHOULD BE DIRECTE D TO GRANT DEPRECIATION AND ALLOW THE ALTERNATE CLAIM RAISED BY THE ASSESSEE BE FORE US. 26. REGARDING THE COMMISSIONING AND INSTALLATION OF ACS THE EXPENDITURE AMOUNTING TO INR 50,676 IS NOT INCURRED FOR INSTALL ATION OF ACS BUT IT IS FOR RE- INSTALLATION OF ACS AND TRANSFER OF THE EXISTING AI R CONDITIONERS. IN OUR VIEW, THE CLAIM OF THE ASSESSEE FALLS UNDER REVENUE EXPENDITU RE AND IS ALLOWABLE U/S.32 OF THE ACT. ACCORDINGLY GROUND NOS. 3.11 AND 3.12 RAI SED BY THE ASSESSEE ARE PARTLY ALLOWED. 27. GROUND NOS. 3.13 AND 3.14 RELATES TO THE ARCHI TECTURE AND REGISTRATION CHARGES. THE AO TREATED THE SAME AS CAPITAL IN NA TURE HOLDING THE SAME TO BE ITA NO.1685/PUN/2011 M/S. RENISHAW METROLOGY SYSTEMS PVT. LTD., 10 NOT ALLOWABLE U/S.37 OF THE I.T. ACT. THE DRP UPHE LD THE SAME HOLDING THAT THE EXPENSES ARE INCURRED BEFORE COMMENCEMENT OF THE MA NUFACTURING OPERATIONS. 28. IN CONNECTION WITH THE ABOVE GROUNDS, LD. COUNS EL FOR THE ASSESSEE SUBMITTED THE FOLLOWING SUBMISSIONS WHICH ARE EXTRA CTED BELOW : A) PROFESSIONAL FEES PAID TO ARCHITECT IR 953,6 50 (PLEASE REFER PAGE NO.385 OF PAPER BOOK VOLUME 5). THESE ARE FOR CONSULTANCY SERVICES PROVIDED BY TH E ARCHITECT FOR SOME CIVIL WORK DONE AT THE OFFICE PR EMISES B) STPI AND EOU REGISTRATION CHARGES OF INR 149,39 1 (PLEASE REFER PAGE NO.387 OF PAPER BOOK VOLUME 5). THESE ARE ANNUAL CHARGES PAID TO STPI AND EOU AUTHORITIES. THE COMPANY PAYS THESE EVERY YEAR AND NO DISALLOWANCE IS MADE IN ANY SUBSEQUENT YEARS THE COMPANY WAS INCORPORATED ON 27 JULY 2000. IT W AS ENGAGED IN TRADING OPERATIONS SINCE ITS INCORPORATION. IN THE YEAR 20 06, ITS EXPANDED ITS BUSINESS TO START MANUFACTURING OPERATIONS. SINCE, THE BUSINES S OF THE APPELLANT IS IN EXISTENCE SINCE 2000, QUESTION OF PRE-OPERATIVE EXP ENSES DOES NOT ARISE. THE COMPANY HAD ENTERED INTO TECHNICAL COLLABORATIO N AGREEMENT AND PLACED ITS FIRST SALES ORDER IN APRIL 2016. IT ALSO ACQUIRED THE WORKBENCHES REQUIRED FOR MANUFACTURING PROCESS IN JULY 2006. RAW MATERIAL O RDER WAS PLACES AND SUCH RAW MATERIAL WAS PROCURED. THUS, THE COMPANY HAD COMME NCED MANUFACTURING BUSINESS IN APRIL 2006 AND THE INFRASTRUCTURE FOR M ANUFACTURING WAS COMPLETED IN JULY 2006 WHEN THE WORKBENCHES WERE RECEIVED. THUS , THE FINDING OF DRP THAT THESE EXPENSES ARE PRECOMMENCEMENT OF BUSINESS IS N OT CORRECT (FOR CHRONOLOGICAL SEQUENCE OF EVENTS PLEASE REFER PAGE NO. 391 OF PAPER BOOK VOLUME 5). 29. DEVIATING FROM THE ABOVE, LIKE IN OTHER CASE, L D. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE WILL NOT HAVE ANY GRIEVANCE ASSERTING THAT THE CLAIM OF DEPRECIATION IS ALLOWED IN RESPECT OF THE PROFESSIO NAL FEE PAID TO ARCHITECTS AMOUNTING TO RS.9,53,650/-. FOR THE REASONS DISCU SSED ABOVE, WE FIND THAT THIS PART OF THE ARGUMENT IS FAIR AND REASONABLE. ACCOR DINGLY, THIS PART OF THE ARGUMENT IS ALLOWED. WE ORDER ACCORDINGLY. 30. REGARDING THE STPI AND EOU REGISTRATION CHARGES AMOUNTING TO RS.1,49,391/-, WE ARE OF THE VIEW THAT THE SAME CON STITUTES AN ALLOWABLE REVENUE EXPENDITURE. WE ORDER ACCORDINGLY. ACCORDINGLY, G ROUND NOS. 3.13 AND 3.14 BY THE ASSESSEE ARE ALLOWED AS ABOVE. ITA NO.1685/PUN/2011 M/S. RENISHAW METROLOGY SYSTEMS PVT. LTD., 11 31. GROUND NO.3.15 RELATES TO THE SECURITY EXPENSES . THE AO TREATED THESE SECURITY EXPENSES AS CAPITAL IN NATURE AND NOT ALLO WABLE U/S.37 OF THE I.T. DRP UPHELD THE SAME STATING THAT THESE EXPENSES ARE INC URRED BEFORE COMMENCEMENT OF THE MANUFACTURING OPERATIONS. 32. LD. COUNSEL FOR THE ASSESSEE SUBMISSIONS ON THE SECURITY EXPENSES ARE EXTRACTED AS UNDER : THE COMPANY HAD MADE PAYMENT TO POONA SECURITY AND CONSULTANCY SERVICES PVT. LTD. FOR PROVIDING SECURITY GUARDS FOR SECURIT Y OF THE OFFICE PREMISES. SINCE THE SECURITY EXPENSES DID NOT PROVIDE ANY ENDURING BENEFIT, THE SAME ARE IN THE NATURE OF REVENUE EXPENSES AND NOT CAPITAL EXPENSES . SINCE THE MANUFACTURING BUSINESS HAD COMMENCED ON 1 APRIL 2006, SUCH SECURITY EXPENSES ARE ALLOWABLE AS REVENUE EXPENSES (PLEASE REFER PAGE NO.389 OF PAPER BOOK VOLUME 5.) 33. ON CONSIDERING THE ABOVE, WE FIND THE SECURITY EXPENSES IN PRINCIPLE CONSTITUTES REVENUE EXPENDITURE AND THEY ARE AIMED AT PROVIDING SECURITY GUARDS FOR SECURITY OF THE OFFICE PREMISES/BUSINESS OF THE ASSESSEE. WE DO NOT FIND ANY ENDURING BENEFIT OF SUCH EXPENDITURE CLAIMED BY THE ASSESSEE. DATE OF BUSINESS COMMENCEMENT IS RELEVANT AND NOT THE DATE OF THE PR ODUCTION COMMENCEMENT. THEREFORE, WE DIRECT THE AO TO GRANT THE CLAIM OF E XPENDITURE IN FULL. THE DATE OF COMMENCEMENT OF PRODUCTION IN THE MONTH OF NOVEMBER 2006 IS NOT RELEVANT. ACCORDINGLY, THE RELEVANT GROUND RAISED BY THE ASSE SSEE IS ALLOWED. 34. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF SEPTEMBER, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 20 TH SEPTEMBER, 2017. ITA NO.1685/PUN/2011 M/S. RENISHAW METROLOGY SYSTEMS PVT. LTD., 12 / COPY OF THE ORDER FORWARDED TO : BY ORDER // TRUE COPY // //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE THE APPELLANT THE RESPONDENT THE CIT(A) - IT/TP , PUNE CIT(A) - 13 , PUNE , , A BENCH PUNE; / GUARD FILE.