DCIT, Faridabad V. M/s. Voith Paper Fabrics India Ltd., Faridabad

ITA 1954/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 8406 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 11-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANTOSH K AGGARWAL
• Keywords: Capital expenditure

Judgement Text

ITA NO.- 1954/DEL/2016. VOITH PAPER FABRICS INDIA LTD. PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: A: NEW DELHI) BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER ITA NO:- 1954/DEL/2016 ( ASSESSMENT YEAR: 2012-13) DY. COMMISSIONER OF INCOME TAX, CIRCLE-II, BLOCK-B, CGO COMPLEX, NH-IV, FARIDABAD. VS. M/S VOITH PAPER FABRICS INDIA LTD., PLOT NO. 113/114A, SECTOR- 24, FARIDABAD. PAN NO: AABCP0441Q APPELLANT RESPONDENT REVENUE BY : SHRI SRIDHAR DORA, SR. DR, ASSESSEE BY : SHRI. SANTOSH K. AGGARWAL, ADV. ORDER PER: ANADEE NATH MISSHRA, AM THIS APPEAL BY REVENUE IS FILED AGAINST THE ORDER O F THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [LD. CIT(A) FOR SHORT], FARI DABAD, DATED 28.01.2016, FOR ASSESSMENT YEAR 2012-13, ON THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) WAS RIGHT IN LAW IN DELETING THE ADDITIONS OF RS. 2 ,82,21,192/- ON ACCOUNT OF TECHNICAL KNOW-HOW EXPENSES DESPITE THE FACT THAT T HE EXPENDITURE INCURRED IN THE FORM OF TECHNICAL KNOW-HOW IS CAPITAL IN NAT URE. FURTHER, AS PER CLAUSE 2.6 THE OWNERSHIP OF THE TECHNOLOGY SO DEVE LOPED BY ASSESSEE WITH ITA NO.- 1954/DEL/2016. VOITH PAPER FABRICS INDIA LTD. PAGE 2 OF 7 THE ASSISTANCE OF VOITH SHALL ALWAYS VEST WITH ASSE SSEE AND THUS IT IS NOT AN INTERIM OR ADHOC ARRANGEMENT, RATHER IS ACQUIRED PE RMANENTLY. 2. THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. (2) AT THE TIME OF HEARING, THE LD. COUNSEL FOR ASSESS EE, SUBMITTED AT THE OUTSET THAT THE DISPUTED ISSUE IN THIS APPEAL REGARDING TECHNIC AL KNOW-HOW EXPENSES IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF CO-ORDINATE BENCH OF INCOME TAX APPELLATE TRIBUNAL (ITAT), DELHI, IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2009-10, 2010-11 AND 2011-12. THE LD. COUNSEL FOR ASSESSEE DREW OUR ATTENTION TO THE ORDERS OF CO- ORDINATE BENCHES OF ITAT, DELHI, DATED 28.05.2018 IN ITA NO.- 6603/DEL/2014 AND 6923/DEL/2014 FOR ASSESSMENT YEAR 2009-10 AND ORDER DATED 07/06/2018 IN ITA NO. 1196 AND 1197/DEL/2015 FOR ASSESSMENT YEARS 2010-11 AND 2011-12. (3) THE LD. DEPARTMENTAL REPRESENTATIVE (DR) AGREED WIT H THE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE THAT THE ISSUE IN DISPUTE REGA RDING ALLOWABILITY OF TECHNICAL KNOW- HOW EXPENSES IS COVERED IN FAVOUR OF ASSESSEES OWN CASE BY ORDERS OF CO-ORDINATE BENCHES OF ITAT, DELHI, AS MENTIONED ABOVE. (4) WE FIND THAT THE LD. CIT(A) HAS FOLLOWED HIS OWN O RDER FOR ASSESSMENT YEARS 2010-11 AND 2011-12. THE LD. CIT(A) HAS ALSO STATE D THAT THE FACTS ARE ABSOLUTELY IDENTICAL TO ASSESSMENT YEARS 2010-11 AND 2011-12. FOR THE SAKE OF READY REFERENCE, THE RELEVANT PORTION OF THE ORDER OF THE LD. CIT(A) IS REPRODUCED AS UNDER: 7. I HAVE CONSIDERED THE FACTS OF THE CASE AND G ONE THROUGH THE SUBMISSIONS OF THE APPELLANT. AS STATED EARLIER, THIS ISSUE HAS BE EN IN DISPUTE BETWEEN THE REVENUE AND THE APPELLANT FOR A NUMBER OF YEARS. THIS PARTI CULAR ISSUE IS COVERED BY MY ITA NO.- 1954/DEL/2016. VOITH PAPER FABRICS INDIA LTD. PAGE 3 OF 7 APPELLATE ORDER ON ABSOLUTELY IDENTICAL FACT, IN AP PEAL NO. 271/2013-14 DATED 18.12.2014 FOR ASSESSMENT YEAR 2011-12 IN THE APPEL LANT'S CASE AND ALSO IN THE APPELLANT'S CASE FOR A.Y. 2010-11. FOR THE SAKE OF CONVENIENCE THE RELEVANT EXTRACT FROM MY APPELLATE ORDER FOR A.Y. 2011-12 IN THE CAS E OF THE APPELLANT IS REPRODUCED AS BELOW: IN NUTSHELL, THE AOS OBSERVATIONS ARE AS UNDER: - I) THE RIGHT OBTAINED BY THE ASSESSEE WAS THE RIGHT TO USE THE KNOWHOW. II) THE ASSESSEE DERIVED BENEFITS OF ENDURING NATURE WH ICH INCREASED THE FUNCTIONAL CAPACITY OF MANPOWER AND ULTIMATELY RESU LTED IN INCREASE OF THE PRODUCTION. III) THE ACQUISITION OF KNOW HOW UNDER A LICENSE WAS CAP ITAL EXPENDITURE AS ULTIMATELY IT VESTS PERMANENTLY WITH THE ASSESSEE. HENCE, THE AO DISALLOWED THE ENTIRE AMOUNT HOLDING THE SAME TO BE OF A CAPITAL NATURE RESULTING IN AN ADDITION OF RS. 2,64,37,637/ - TO THE INCOME OF THE APPELLANT. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LEA RNED COUNSEL OF THE APPELLANT VIDE LETTER DATED 12.12.2014 GAVE DETAILED SUBMISSI ONS OF THIS ISSUE. WHILE GIVING THE FACTS OF THE CASE ALONG WITH THE RELEVANT CLAUS ES OF THE AGREEMENT ENTERED INTO BY THE APPELLANT COMPANY (AS REVISED BY THE AGREEME NT DATED 21ST MAY 2010 DUE TO CHANGE IN METHOD OF ROYALTY CALCULATION IN PURSUANC E TO THE PRESS NOTE NO. 8 (2009 SERIES) DATED DECEMBER 17, 2009 ISSUED BY DEPARTMEN T OF INDUSTRIAL POLICY & PROMOTION AND TO FURTHER CLARIFY THE SCOPE OF AGREE MENT) WITH VOITH PAPER FABRICS GMBH & CO. KG THE APPELLANT ALSO RELIED UPON A NUMB ER OF PROMINENT JUDICIAL PRONOUNCEMENTS AS PER WHICH PAYMENT OF A SIMILAR NA TURE HAD BEEN HELD TO BE OF A REVENUE NATURE. THE DETAILED SUBMISSIONS OF THE APP ELLANT ARE REPRODUCED HEREUNDER: THUS, THE APPELLANT IN HIS REPLY HIGHLIGHTED THE FO LLOWING POINTS:- I) THE APPELLANT HAS MERELY REQUIRED THE ASSISTANCE TO IMPROVE THE QUALITY OF ITS PRODUCTS. HENCE, IT CANNOT BE SAID TO BE HAVING A BENEFIT OF ENDURING NATURE. II) THE CASE LAWS REFERRED TO AND RELIED UPON BY T HE ASSESSING OFFICER ARE NOT APPLICABLE TO THE CASE OF APPELLANT SINCE IN ALL TH ESE CASE LAWS, THE AGREEMENTS WERE ENTERED FOR PROVISION OF TECHNICAL AID/KNOWHOW FOR INITIALIZING A NEW VENTURE OR SETTING UP/ESTABLISHI NG A NEW FACTORY DEALING IN PRODUCTS IN WHICH THE PAYER OF THE ROYALTY/ TECHNIC AL ASSISTANCE FEE WAS NOT ALREADY ENGAGED IN THE BUSINESS OF III) AS PER THE ARTICLES OF THE AGREEMENT, THE PART IES CAN TERMINATE THE AGREEMENT BY GIVING A THREE MONTHS' NOTICE AND UPON TERMINATI ON, THE APPELLANT HAS TO RETURN COPIES OF TECHNICAL KNOWHOW AND THEREFORE, T HERE IS NO PERMANENCY IN THE ASSISTANCE /RIGHT TO USE OBTAINED BY APPELLANT SO AS TO CLASSIFY IT AS ITA NO.- 1954/DEL/2016. VOITH PAPER FABRICS INDIA LTD. PAGE 4 OF 7 HAVING ENDURING BENEFITS. IV) THE APPELLANT IS ALREADY ENGAGED IN MANUFACTURE OF THE PRODUCTS AND EXPENDITURE FOR OBTAINING TECHNICAL KNOWHOW FOR A R UNNING CONCERN COULD NEVER BE SAID TO BE A CAPITAL EXPENDITURE. V) THE WHOLE PURPOSE OF THE EXPENDITURE HAS BEEN TO IMPROVE QUALITY OF PRODUCTS AND HENCE IMPROVING THE PROFITABILITY WITH OUT ANY CONSEQUENT ADDITION TO IT'S PROFIT EARNING APPARATUS. 9. I HAVE CONSIDERED THE FACTS OF THE CASE AND GON E THROUGH THE SUBMISSIONS OF THE APPELLANT. I HAVE ALSO GONE THROUGH THE TECHNIC AL KNOWHOW AGREEMENTS BETWEEN THE APPELLANT COMPANY AND VOITH PAPER FABRICS GMBH & CO. KG. VARIOUS JUDICIAL PRONOUNCEMENTS ON THIS ISSUE HAVE ALSO BEEN CONSIDE RED AND ANALYZED BEFORE TAKING A DECISION DURING THE APPEAL OF THE APPELLANT FOR T HE ASSESSMENT YEAR 2010-11. SINCE THE FACTS OF THE CASE ARE ABSOLUTELY IDENTICA L AND THE ONLY CHANGE IS IN THE SERIAL NUMBER OF THE CLAUSES OF THE AGREEMENT, THUS MY FINDINGS AND DECISION FOR ASSESSMENT YEAR 2010-11 WOULD BE APPLICABLE FOR THE PRESENT APPEAL AS WELL. 10. HENCE, I HOLD THAT THE AO ERRED IN TREATING TH E AMOUNT OF RS. 2,64,37,637/- ON ACCOUNT OF TECHNICAL KNOWHOW AS BEING OF A CAPIT AL NATURE. ACCORDINGLY, GROUND NOS. 2&3 OF THE APPEAL IS THUS ALLOWED. 8. IN THE PRESENT APPEAL THE FACTS ARE ABSOLUTELY IDENTICAL TO THE PROCEEDINGS FOR A.Y. 2011-12 AND A.Y, 2010-11 AND THE SAME IS ALSO EVIDE NT FROM LAST PARA AT THE AO'S ORDER AT PAGE 4. THE ARGUMENTS OF THE AO IN THE ASSESSMEN T ORDER AND THE ARGUMENTS OF THE LD. AR IN THEIR WRITTEN SUBMISSIONS ARE ALSO IDENTI CAL TO THE ARGUMENTS MADE DURING THE APPELLATE PROCEEDINGS FOR A.Y. 2011-12 AND A.Y. 201 0-11. SINCE THERE ARE NO NEW FACTS AND ARGUMENTS FROM THE EITHER SIDE, THUS I HAVE NO HESITATION IN FOLLOWING MY OWN ORDER IN THE CASE OF THE APPELLANT FOR THE APPEAL FOR A.Y . 2011-12 AND A.Y. 2010-11. HENCE FOLLOWING THE PRECEDENT OF MY EARLIER ORDER IN THE CASE OF THE APPELLANT FOR THE ASSESSMENT YEAR 2011-12 AND A.Y. 2010-11, I HOLD TH AT THE AO HAS ERRED IN MAKING AN ADDITION OF RS. 2,82,21,192/- ON ACCOUNT OF DISALLO WANCE OF TECHNICAL KNOW-HOW EXPENSES. ACCORDINGLY, GROUND NOS. 2 AND 4 OF THE APPEAL OF THE APPELLANT ARE ALLOWED. (4.1) WE HAVE HEARD BOTH SIDES CAREFULLY AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE BETWEEN THE TWO SIDES THAT THE FACTS IN THE CASE OF THE ASSESSEE IN THIS YEAR (I.E. A.Y. 2012-13) ARE IDENTICAL TO THE FACTS OF THE ASSESSEES CASE FOR ITA NO.- 1954/DEL/2016. VOITH PAPER FABRICS INDIA LTD. PAGE 5 OF 7 ASSESSMENT YEARS 2009-10, 2010-11 AND 2011-12. THE RE IS ALSO NO DISPUTE THAT THE LD. CIT(A) HAS FOLLOWED HIS OWN ORDERS FOR ASSESSMENT Y EARS 2009-10, 2010-11 AND 2011- 12 IN DECIDING THE ASSESSEES APPEAL FOR THIS YEAR. THE CO-ORDINATE BENCHES OF ITAT HAVE ALREADY TAKEN A VIEW ON THE DISPUTED ISSUE, ON IDENTICAL FACTS, FOR ASSESSMENT YEARS 2009-10, 2010-11 AND 2011-12 VIDE AFORESAID O RDERS DATED 28.05.2018 AND 07.06.2018; AND THERE IS ALSO NO DISPUTE THAT THE I SSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID ORDERS OF CO-ORDINATE BENCHES OF ITAT, DELHI. (4.2) AS BOTH SIDES AGREE, THAT THE ISSUE IN DISPUTE IS C OVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID ORDERS OF CO-ORDINATE BEN CHES OF ITAT, DELHI; AND AS NEITHER SIDE HAS BROUGHT ANY DISTINGUISHING FACTS AND CIRCU MSTANCES FOR THIS YEAR IN COMPARISON TO ASSESSMENT YEAR 2009-10, 2010-11 AND 2011-12 TO OUR ATTENTION; THEREFORE, RESPECTFULLY FOLLOWING THE ORDERS OF CO-ORDINATE BE NCHES OF ITAT, DELHI, IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2009-10, 2010-11 AND 2011-12 BY AFORESAID ORDERS DATED 28.05.2018 AND 07.06.2018; WE ALSO DECIDE THE DISPUTED ISSUE FOR THIS YEAR IN FAVOUR OF THE ASSESSEE AND DISMISS THE APPEAL FILED BY THE REVENUE. (5) IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/ 01/2019 SD/- SD/- (H.S. SIDHU) (ANADEE NATH MISSHRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 04.01.2019 POOJA/- ITA NO.- 1954/DEL/2016. VOITH PAPER FABRICS INDIA LTD. PAGE 6 OF 7 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI ITA NO.- 1954/DEL/2016. VOITH PAPER FABRICS INDIA LTD. PAGE 7 OF 7 DATE OF DICTATION 03/01/2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 04/01/2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER