ACIT, New Delhi V. M/s Gillette Diversified Operations Pvt. Ltd., New Delhi

ITA 2262/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87137 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-12-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 06-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Business expenditure; Notional interest; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 142(1); 32

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI J.S.REDD Y , ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 2262/DEL/2011 (ASSESSMENT YEAR: 2001 - 02 ) ITA NO. 2263/DEL/2011 (ASSESSMENT YEAR: 2003 - 04 ) ACIT, CIRCLE - 12(1), NEW DELHI VS. GILLETTE DIVERSIFIED OPERATIONS PVT . LTD. 34, OKHLA INDUSTRIAL ESTATE, NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 1475/DEL/2011 (ASSESSMENT YEAR: 2001 - 02 ) GILLETTE DIVERSIFIED OPERATIONS PVT . LTD. 34, OKHLA INDUSTRIAL ESTATE, NEW DELHI VS. ACIT, CIRCLE - 12(1), NEW DELHI (APPELLANT) (RESPONDENT) O R D E R PER A. T. VARKEY, JUDICIAL MEMBER THE REVENUE AND THE ASSESSEE IS IN CROSS - APPEALS AGAINST THE ORDER OF THE LD CIT( A), XV, NEW DELHI DATED 21.12.2011 FOR ASSESSMENT YEAR 2001 - 02. THE REVENUE IS ALSO IN APPEAL AGAINST THE ORDER FOR ASSESSMENT YEAR 2003 - 04. FIRST OF ALL WE TAKE UP THE REVENUES APPEAL FOR ASSESSMENT YEAR 2001 - 02. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 43,87,500/ - ON ACCOUNT OF NOTIONAL INTEREST COST MADE BY THE AO. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURE AND SALE OF TOO TH BRUSHES, DEALING IN SMALL ELECTRICAL APPELLANT BY : SHRI R. S. GILL, CIT DR RESPONDENT BY : SH. PRADEEP DINODIA, CA DATE OF HEARING 29.12.2014 DATE OF PRONOUNCEMENT 26 . 03 .2015 PAGE 2 OF 13 ITA NO.2262& 2263/DEL/2011 APPLIANCES, TRADING AND EXPORT OF BLADES, RAZORS, KITCHEN MACHINES AND ACCESSORIES. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING A LOSS OF RS. 58,50,006/ - . THE CASE WAS PROCESSED U/S. 143(1) OF THE I NCOME TAX ACT, 1961 (HEREIN AFTER THE ACT) ON 0 6. 0 6.2002. THE CASE WAS LATER SELECTED FOR SCRUTINY AND THE NOTICE U/S. 143(2) OF THE ACT DATED 28.10.2002 WAS SERVED O N THE ASSESSEE ON 29.10.2002. AFTER CONSIDERING THE SUBMISSIONS BY THE AR OF THE ASSESSEE, THE AO COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT VIDE HIS ORDER DATED 29.3.2004 AND MADE VARIOUS ADDITIONS. 3. BEING AGGRIEVED WITH THE ASSESSMENT ORDER DATED 29.3.2004, ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED OR DER DATED 21.2.2011 HAS DELETED THE ADDITION BY PARTLY ALLOWING THE APPEAL OF THE ASSESSEE. 4 . NOW THE REVENUE IS AGGRIEVED AGAINST THE IMPUGNED ORDER AND FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5 . AT THE TIME OF HEARING LD. CIT DR SH. R. S. GIL L RELIED UPON THE ORDER OF THE AO AND REITERATED THE CONTENTIONS RAISED BY THE REVENUE IN THE GROUNDS OF APPEAL AND STATED THAT THE APPEAL OF THE REVENUE MAY BE ALLOWED. 6 . ON THE OTHER HAND LD. AR OF THE ASSESSEE SH. PRADEEP DINODIA RELIED UPON THE ORDER OF THE LD. CIT(A) AND STATED THAT THE SAME MAY BE UPHELD . 7 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED AND CONSIDERED THE RELEVANT RECORDS AVAILABLE WITH US , ESPECIALLY THE ORDERS PASSED BY THE REVENUE AUTHORITIES. WE FIND THAT LD . FIRST APPELLATE AUTHORITY HAS OBSERVED THAT THE AO VIDE HIS ORDER IN PARA 6.2 HAS HELD THAT THE ASSESSEE WAS INCURRING EXTRA EXPENDITURE ON INTEREST TO GROUP COMPANY GIL LETTE GROUP OF INDIA PVT. LTD. B Y EXTENDING CREDIT FACILITY IN RESPECT OF SALES TO THEM. ACCORDING TO THE AO, THE CREDIT PERIOD FACILITY BEYOND THREE MONTH WAS UNREASONABLE AND ACCORDINGLY HE DISALLOWED ON ESTIMATE BASIS A SUM OF RS. 43,87,500/ - BEING 65% OF RS. 45 CRORES FOR 1.5 MONTHS @ 12% PER ANNUM. THE LD . CIT(A) OBSERVED THAT THE AS SESSEE HAD FILED BEFORE THE AO VARIOUS DISTRIBUTION AGREEMENTS WITH GILLETTE GROUP OF INDIA LTD. (FORMERLY KNOWN AS INDIAN SHAVING PRODUCTS LTD.). AND THE ASSESSEE HAD CONSISTENTLY MAINTAINED THAT THE CREDIT FACILITY WAS IN THE NORMAL COURSE OF BUSINESS WITH THE DISTRIBUTOR AND NO NEXUS PAGE 3 OF 13 ITA NO.2262& 2263/DEL/2011 WHATSOEVER HAS BEEN ESTABLISHED BY THE AO U/S. 36(1)(III) FOR THE USE OF INTEREST BEARING FUNDS FOR NON BUSINESS PURPOSES. ACCORDING TO THE ASSESSEE IT IS NOT FOR THE AO TO DECIDE AS TO HOW THE ASSESSEE SHOULD RUN ITS BUSINESS ; AND HOW MUCH CREDIT FACILITY SHOULD BE GRANTED IN RESPECT OF SALES MADE TO THE DISTRIBUTORS IN THE ORDINARY COURSE OF BUSINESS WHICH IS IN THE EXCLUSIVE DOMAIN OF THE ASSESSEE A ND THE AO ERRED ON THIS ACCOUNT . THE LD DR COULD NOT DISPUTE BEFORE US THAT THE CREDIT FACILITY EXTENDED BY THE ASSESSEE IS ONLY IN RESPECT OF SALES MADE TO THE DISTRIBUTOR IN THE ORDINARY COURSE OF BUSINESS. IN THE ASSESSMENT ORDER AO COULD NOT REBUT THI S CLAIM OF THE ASSESSEE. THE LD CIT(A) HAS RIGHTLY RELIED ON THE DECISION OF THE HONBLE APEX COURT DECISION IN THE CASE OF THE SA BUILDERS LTD. VS. CIT (2007) 288 ITR 1 (SC), WHEREIN IT HAS HELD THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEXUS BETWEEN THE EXPENDITURE AND 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 BOARD OF DIRECTORS AND ASSUME T HE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESS CAN BE COMPE LLED TO MAXIMIZE HIS PROFITS. WE CONCUR WITH THE FINDING OF THE LD . CIT(A) THAT A PERUSAL OF THE AGREEMENTS WHICH WERE ALSO FILE D BEFORE THE AO WOULD SHOW THAT ALL THE AGREEMENTS ARE EXECUTED IN THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE COMPANY. AND THESE ARE NOT DIVERSIFICATION OF INTEREST BEARING FUNDS TO SISTER CONCERN WITHOUT INTEREST. AND THE LD CIT( A) HAS RIGHTLY NOTED THAT THE RECOVERY THROUGH ISPL IS DONE IN THE NORMAL COURSE AND, THEREFORE, NO NOTIONAL INTEREST, WHATSOEVER, SHOULD HAVE BEEN CALCU LATED THEREON FOR DISALLOWANCE. WE FIND THAT THE ASSESSEE HAD SUBMITTED BEFORE THE LD. CIT(A) THAT NO N EXUS HAS BEEN ESTABLISHED BY THE AO BETWEEN THE INTEREST BEARING FUNDS USED FOR NON BUSINESS PURPOSES OR DIVERTED TO ASSOCIATE CONCERN, WITHOUT INTEREST AND HAS RELIED ON CIT VS. DALMIA CEMENT PVT LTD. 121 TAXMAN 706 (DEL) , MADHAV PRASAD JATIA VS. CIT 118 ITR 200 (SC) , CIT VS. SAHNI SILK MILLS PVT. LTD. (2002) 253 ITR 294 (DEL.) , CIT VS. ORISSA CEMENT (2003) 260 ITR 626 (DEL) , CIT VS. TIN BOX COMPANY (2009) 26 0 ITR 637 (DEL.), PAGE 4 OF 13 ITA NO.2262& 2263/DEL/2011 8 . WE FIND THAT THE ADVANCES WERE MADE BY THE ASSESSEE DURING TH E REGULAR COURS E OF BUSINESS. AND THE ADVANCES WERE IN THE NATURE OF CREDIT FACILITIES AND THE IMPUGNED ADVANCES WERE IN THE NATURE OF THE BUSINESS ADVANCES AND W ERE NOT BEARING ANY INTEREST. THE AO HAD DISALLOWED THE INTEREST ON NOTION AL BASIS ONLY. WE FIND THAT LD . CIT(A) HAS RIGHTLY HELD THAT SINCE THESE ADVANCES WERE NOT BEARING ANY INTEREST, THE DISALLOWANCE OF INTEREST MADE BY THE AO ON NOTIONAL BASIS IS NOT IN ACCORDANCE TO LAW. SINCE THE ASSESSEE HAD INTEREST FREE FUNDS O F RS. 47.50 CRORES IN EXCESS OF THE B USINESS ADVANCES , HENCE , IN VIEW OF THE HONBLE APEX COURT DECISION IN THE CASE OF SA BUILDERS (SUPRA) WHEREIN IT WAS HELD THAT WHERE AN ADVANCE IS MADE FOR BUSINESS PURPOSE AND COMMERCIAL EXPEDIENCY NO DISALLOWANCE ON ACCOUNT OF INTEREST CAN BE MADE, THER EFORE, LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION ON THIS ACCOUNT. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE WELL REASONED ORDER PASSED BY THE LD. CIT(A), HENCE, WE UPHOLD THE SAME BY DISMISSING THE APPEAL FILED B Y THE REVENUE. 9 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ASSESSEES APPEAL ITA NO. 1475/DEL/2011 (AY 2001 - 02) 10 . NEXT LET US TAKE UP THE APPEAL PREFERRED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 21/2/2011 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - XV, NEW DELHI ON THE FOLLOWING GROUNDS: - 1.0 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN SUSTAINING THE DISALLOWANCE O F RS. 13,57,45,000/ - ON ACCOUNT OF TECHNICAL ADVISORY FEES, ON WHOLLY ERRONEOUS, ILLEGAL AND UNTENABLE GROUNDS. 1.1. IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) HAS FAILED TO ALLOW DEPRECIATION THEREON BEING EXPENDITURE OF CAPITA L NATURE ELIGIBLE FOR DEPRECIATION U/S. 32(1) OF THE I.T. ACT, 1961. 2.0 THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF RS. 70,00,000/ - ON ACCOUNT OF EXCISE DUTY PAYMENT DEDUCTIBLE U/S 43B OF THE I.T. ACT, ON WHOLLY ER RONEOUS, ILLEGAL AND UNTENABLE GROUNDS. 3.0 THAT EACH GROUND IS INDEPENDENT OF AND WITHOUT PREJUDICE TO THE OTHER GROUNDS RAISED HEREIN. PAGE 5 OF 13 ITA NO.2262& 2263/DEL/2011 11 . THE FIRST GROUNDS AND 1.1 OF APPEAL IS REGARDING THE CONTENTION OF THE APPELLANT THAT THE LD CIT(A) HAD ERRED IN DISALLOWING AN AMOUNT OF RS.13,57,45,000/ - WHICH WAS CLAIMED ON ACCOUNT OF PAYMENT OF TECHNICAL ADVISORY FEES OR IN THE ALTERNATIVE GRANT DEPRECIATION U/S 32(1) OF THE ACT. 12 . THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFAC TURE AND SALE OF TOO TH BRUSHES, DEALING IN SMALL ELECTRICAL APPLIANCES, TRADING AND EXPORT OF BLADES, RAZORS, KITCHEN MACHINES AND ACCESSORIES. 13. THE ASSESSEE ACQUIRED MOVABLE AN D TAN GIBLE ASSETS OF SISL VIDE AGREEMENT DATED 25.11.1998 FOR A CONSIDERATIO N OF RS.3.5 CRORES AND IMMOVEABLE PROPERTIES VIDE AGREEMENT DATED 0 2. 0 3.1999 FOR A CONSIDERATION OF RS.6 CRORES. THE RIGHTS IN GEEP BRAND WAS ACQUIRED BY M/ S. WILKINSON SWORD INDIA LTD., A GROUP CONCERN OF THE ASSESSE E VIDE AGREEME N T DATED 25.11.1998 FOR A CONSIDERATION OF RS.55 CRORES. THE ASSESSEE WAS MANUFACTURING GEEP BRAND PRODUCTS FOR WILKINSON SWORD. IT ENTERED INTO AN AGREEMENT WITH SISL ON 10.4.200 0.THE ASSESSEE CLAIMED EXPENDITURE OF AN AMOUNT OF RS.13,57,45,000/ - ON ACCOUNT OF PAYMENT OF TECHNIC AL ADVISORY FEES TO M/S SHERVANI INDUSTRIAL SYNDICATE (SSIL). ACCORDING TO THE AO THE ASSESSEE HAS NOT BEEN ABLE TO BRING ANYTHING TO THE RECORD TO PROVE THAT THE ABOVE COMPANY HAS RENDERED ANY SERVICES . 14. IN VIEW OF THE ABOVE OBSERVATIONS THE AO HAS HELD THAT THE ONUS WAS ON THE APPELLANT TO PROVE THE CLAIM OF EXPENDITURE AND SINCE THE APPELLANT HAD FAILED TO PROVIDE ANY EVIDENCES REGARDING THE RECEIVING OF TECHNICAL ADVISORY SERVICES, THE EXPENDITURE ON TECHNICAL ADVISORY FEES CLAIMED BY THE APPELLAN T WAS DISALLOWED VIDE HIS ORDER DATED 29.03.2004. 15 . BEING AGGRIEVED WITH THE ASSESSMENT ORDER DATED 29.3.2004, ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 21.2.2011 HAS DISMISSED THE SAID GROUND WITHOUT GIVING ANY FINDING ON THE ALTERNATE PLEA TO CONSIDER DEPRECIATION U/S 32(1) OF THE ACT. PAGE 6 OF 13 ITA NO.2262& 2263/DEL/2011 16 . NOW THE ASSESSEE IS AGGRIEVED AGAINST THE IMPUGNED ORDER AND FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 17 . AT THE TIME OF HEARING LD. DR RELIED UPO N THE ORDER OF THE REVENUE AUTHORITIES AND STATED THAT THE APPEAL OF THE ASSESSEE MAY BE DISMISSED 18 . ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE CONTROVERTED THE ARGUMENTS MADE BY THE LD. DR AND STATED THAT THE APPEAL OF THE ASSESSEE MAY BE ALLOWED. 19 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED AND CONSIDERED THE RELEVANT RECORDS AVAILABLE WITH US, WE FIND THAT THE ASSESSEE ACQUIRED MOVABLE AND INTANGIBLE ASSETS OF M/S. SSIL IN ASSESSMENT YEAR 1998 - 99 VIDE AGREEMENT DATED 25.111998 AND 02.03.199 9 FOR A TOTAL CONSIDERATION OF RS.9.5 CRORES. THE ASSESSEE WAS MANUFACTURING GEEP BRAND PRODUCTS ZINC (BATTERIES) WILKINSON SWORD FROM THE SAID UNIT ACQUIRED (M/S. SSIL) AND SINCE THE ASSESSEE DOES NOT HAVE THE EXPERTISE TO MANUFACTURE ZINC BATTERIES IT HA S SOURCED THE SAME FROM M/S. SSIL FOR WHICH THE ASSESSEE HAS AGREED AND HAVE CLAIMED TO HAVE MADE THE PAYMENT FOR WHICH IT CLAIMED EXPENDITURE . 20. WE FIND THAT THE ASSESSEE CLAIMED AN EXPENDITURE OF RS.13,57,45,000/ - UNDER THE HEAD TECHNICAL AND ADVISOR Y FEES. THIS TECHNICAL AND ADVISORY FEES HAS BEEN CLAIMED TO BE PAID TO M/S SISL UNDER THREE AGREEMENTS. IN THE FIRST AGREEMENT DATED 13 TH APRIL 2000, AND IS FOR THE PERIOD 1 ST JANUARY 2000 TO 31 ST DECEMBER 2000 AND TOTAL CONSIDERATION IS RS.7 CRORES. T HE OTHER TWO AGREEMENTS ARE DATED 4TH JANUARY 2001 AND 15 TH FEBRUARY 2001 AND ARE FOR THE PERIOD 1ST JANUARY 2001 UP TO 31 ST DECEMBER 2001 AND THE TOTAL CONSIDERATION UNDER THE TWO AGREEMENT IS RS.8.77 CRORES. THUS APPARENTLY ASSESSEE COULD HAVE CLAIMED AN EXPENDITURE OF RS. 7 CRORES + ( OF RS.8.77 CRORES ) I.E. RS. 2.19 CRORES AND AS SUCH THE CLAIM A T BEST CAN BE CONSIDERED OF RS.9.19 CRORES AND THE REMAINING IS PER - SE NOT MAINTAINABLE. EVEN WITH RESPECT TO THIS EXPENDITURE, WE FIND THAT DESPITE A NUMBER OF OPPORTUNITIES PROVIDED BY THE AO AND THE LD CIT(A), THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE ON THE BASIS OF EVIDENCES AS TO WHAT TYPE OF ADVISORY SERVICES WERE PROVIDED PAGE 7 OF 13 ITA NO.2262& 2263/DEL/2011 TO THE ASSESSEE FOR WHICH SUCH PAYMENT HAD BEEN MADE. THE AO HAD CLEARLY BROUGHT ON RECORD AFTER EXAMINING THE AGREEMENT THAT NO SERVICES HAD BEEN RENDERED BY M/S SSIL TO THE ASSESSEE. WE ALSO FIND THAT DURING THE APPELLATE PROCEEDINGS ALSO NO EVIDENCE HAVE BEEN BROUGHT ON RECORD BY THE ASSESSEE REGARDING THE NATUR E OF SERVICES PROVIDED FOR WHICH THE PAYMENT HAD BEEN MADE. HENCE, LD CIT(A) HAS RIGHTLY OBSERVED THAT THE ONUS IS ON THE ASSESSEE TO SUBSTANTIATE ON THE BASIS OF EVIDENCES REGARDING BUSINESS EXPENDITURE WHICH HAS BEEN CLAIMED U/S 37(1). THIS ONUS HAS NOT BEEN DISCHARGED BY THE ASSESSEE. WE NOTE THAT LD CIT(A) HAS RIGHTLY HELD THAT IN THE ABSENCE OF ANY EVIDENCES ON RECORD REGARDING THE NATURE OF SERVICES PROVIDED FOR WHICH THE ABOVE EXPENDITURE HAS BEEN INCURRED, THE DISALLOWANCE MADE BY THE AO IS AS PER LAW, HENCE, THE LD CIT(A) HAS RIGHTLY DISMISSED THIS GROUND OF APPEAL. IN VIEW OF THE ABOVE WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE IMPUGNED ORDER PASSED BY THE LD CIT(A), HENCE WE UPHOLD THE SAME BY REJECTING THIS GROUND OF APPEAL AS RAISED BY THE ASSESSEE IN RESPECT OF TECHNICAL ADVISORY FEES WHICH AMOUNTS TO RS.7 CRORES AND WE CONFIRM DISALLOWANCE OF RS.7 CRORES BECAUSE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM. 21 . AS REGARDS THE GROUND NO.1.1 IS CONCERNED WE WOULD LIKE TO EXAMIN E THE CONTENTION OF THE ASSESSEE THAT IN THE ALTERNATIVE, THE LD CIT(A) ERRED NOT TO HAVE ALLOW ED DEPRECIATION THEREON BEING EXPENDITURE OF CAPITAL NATURE ELIGIBLE FOR DEPRECIATION U/S 32(1) OF THE ACT FOR WHICH WE HAVE TO LOOK INTO THE RELEVANT CLAUSES OF AGREEMENTS. 22 . THE FIRST AGREEMENT DATED 10 TH APRIL 2000 PROVIDES UNDER CLAUSE 2 AS UNDER: - 2. PROVISION OF TECHNICAL SERVICES 2.1 SISL AGREES TO DIVULGE AND IMPART TO GDOL ALL TECHNICAL ADVISORY SERVICES NECESSARY FOR GDOL'S EXISTING MANUFACTURING FACILITIES. 2.2 ALL THE TECHNICAL ADVISORY SERVICES AGREED TO BE DIVULGED AND IMPARTED TO GDOL SHALL BE SUBJECT TO CONFIDENTIALITY TERMS PROVIDED IN CLAUSE 5 HEREOF. 2.3 SISL WILL PROVIDE TO GDOL ALL SUCH TECHNICAL ADVISORY SERVICES AS MAY REASONABLY BE REQUIRED BY GDOL TO DRAW UP PLANS FOR GDOL'S MANUFACTURING FACILITIES IN RELATION TO THE MANUFACTURE OF THE PRODUCTS. PAGE 8 OF 13 ITA NO.2262& 2263/DEL/2011 2.4 THE PARTIES WILL JOINTLY USE THEIR BEST EFFORTS TO ENSURE THAT GDOL ABSORBS THE TECHNICAL ADVISORY SERVICES FULLY AND SPEEDILY AND THAT THE PRODUCTS MANUFACTURED BY GDOL PROPERLY UTILIZE THE ADVICE DISCLOSED AND IMPARTED BY SISL PURSUANT TO THIS AGREEMENT. 2.5 SISL SHALL FURTHERMORE PROVIDE TO GDOL THE ONGOING TECHNICAL ADVISORY SERVICES SET OUT IN THE SCHEDULE HERETO AND SHALL ADVISE ASSIST GDOL IN THE CORRECT INTERPRETATION OF THE TECHNICAL ADVISORY SERVICES DOCUMENTATION, IF ANY. 23 . FURTHER AGREEMENT DATED 04TH JANUARY 2001 IS AKIN TO THE AGREEMENT DATED 10TH APRIL 2000 BUT FOR THE LATER PERIOD. HOWEVER CLAUSE 2 OF SUPPLEMENT AGREEMENT DATED 15TH FEBRUARY 2001 PROVIDES AS UNDER: - C. BY A TECHNICAL ADVISORY SERVICES AGREEMENT DATED JANUARY 4 TH 2001 ( HEREINAFTER THE 'AGREEMENT') ENTERED BETWEEN THE PARTIES HERETO, THE PARTIES HAVE AGREED TO CERTAIN TERMS AND CONDITIONS AS SET OUT THEREIN; AND D. THE PARTIES, BEING DESIROUS OF INTRODUCING A NEW TECHNOLOGY TO PRODUCE 'NO MERCURY ADDED' PRODUCT, HAVE REA CHED CERTAIN AGREEMENTS SUPPLEMENTAL TO THE AGREEMENT DATED JANUARY 4 TH 2001 AS SET FORTH HEREINAFTER. E. GDOL IS DESIROUS OF INTRODUCING THE LATEST TECHNOLOGY FOR PRODUCTION OF NO MERCURY ADDED' PRODUCTS. 1. THAT THIS SUPPLEMENTAL AGREEMENT WILL BE READ IN CONJUNCTION WITH THE AGREEMENT DATED JANUARY 4TH, 2001. 2. THAT SISL HAS AGREED TO PROVIDE TO GDOL TECHNICAL KNOW - HOW AND TECHNICAL ASSISTANCE IN RESPECT OF MANUFACTURE OF 'NO MERCURY ADDED' R20 BATTERIES. IT IS AGREED THAT SISL' S ASSISTANCE IN THIS R EGARD WILL INCLUDE THE FOLLOWING: A. TO ADVISE GDOL TO UPGRADE MODIFY THE MANUFACTURING PROCESSES TO ENABLE THE FACTORY TO PRODUCE 'NO MERCURY ADDED' R20 BATTERIES. B. TO PROVIDE SPECIFICATIONS FOR THE MANUFACTURE AND DEVELOPMENT OF NEW PRODUCT FOR DEVELOPING A 'NO MERCURY ADDED' PRODUCT FOR R20 BATTERIES. C. TO ADVISE ON ALL MISCELLANEOUS ISSUES ARISING FROM THE AFOREMENTIONED PROCESS. 24 . FROM A PERUSAL OF THE ABOVE AGREEMENT BETWEEN THE ASSESSEE AND THE M/S. SSIL WHICH IS IN CONJUNCTION WITH AG REEMENT DATED 04.01.2001 WHICH TERMS AND CONDITIONS AS STATED ABOVE ARE AKIN TO THAT OF AGREEMENT DATED 10.04.2000 REPRODUCED ABOVE. WE FIND THAT VIDE THE AGREEMENT DATED 15.02.2001 READ WITH 04.01.2001, M/S. SSIL HAS AGREED TO ASSESSEE THAT IT WILL PROVI DE TECHNICAL KNOW - HOW AND TECHNICAL ASSISTANCE IN RESPECT OF PAGE 9 OF 13 ITA NO.2262& 2263/DEL/2011 MANUFACTURE OF NO MERCURY ADDED, R - 20 BATTERIES AS PER CLAUSE 2 OF THE SUPPLEMENTARY AGREEMENT. SIMILARLY WE FIND THAT IN PAGE39 OF PB, I.E. WHILE DEFINING THE PRODUCTS IN 04.01.2001 AGREEMEN T M/S. SISL HAS SPECIFICALLY AGREED TO PRODUCT MEANING ZINC BATTERIES HAVING THE SPECIFICATION OF D PAPER AND AA METAL. IN THE LIGHT OF THE SAID AGREEMENTS WITH M/S. SISL WE FIND FORCE IN THE CONTENTION OF THE ASSESSEE THAT THE PAYMENTS MADE TO M/S. S ISL FOR ACQUIRING THE TECHNICAL KNOW - HOW WHICH BEING INTANGIBLE ASSET ACQUIRED AFTER 01.04.1998 AND OWNED BY THE ASSESSEE, SHALL BE ENTITLED TO DEPRECATION U/S 32 OF THE ACT, AS EXPENDITURE ON CAPITAL ASSET. WE ALSO NOTE THAT THOUGH THE ASSESSEE HAD RAISED THE SAID ALTERNATE CLAIM BEFORE THE LD CIT(A) (PAGE 12 OF LD CIT(A), HE HAS NOT ADJUDICATED ON THE ISSUE. HOWEVER WE FIND THAT THE ASSESSEE VIDE THE AFORESAID AGREEMENT DATED 15.02.2001 READ IN CONJUNCTION WITH AGREEMENT DATED 04.01.2001 HAS ACQUIRED THE KNOW - HOW TO MANUFACTURE NO MERCURY ADDED R - 20 BATTERIES AND FOR MANUFACTURE OF TECHNICAL DOCUMENTATION, DRAWING, DESIGN ETC FOR D PAPER AND AA META, WHICH ARE INTANGIBLE ASSET QUALIFYING FOR DEPRECIATION U/S 32(1)(II) OF THE ACT. AS WE HAD NOTED BEFO RE THE CONSIDERATION FOR M/S SISL AS PER THE AGREEMENT DATED 04.01.2001, IS IN FORCE FROM 01.01.2001 UP TO 31.12.2001, WHICH NEED TO BE READ IN CONJUNCTION WITH AGREEMENT DATED 15.12.2001, SO THE AGREEMENT IS IN FORCE FROM 01.01.2001 TO 31.12.2001. AND THE TOTAL CONSIDERATION FOR THE YEAR IS RS.8.77 CRORES. SO WE CAN ALLOW ONE - FOURTH (1/4 TH ) OF THE SAID CONSIDERATION AS CAPITAL EXPENDITURE FOR WHICH DEPRECIATION CAN BE ALLOWED. IT AMOUNT TO RS.2.19 CRORES FOR WHICH THE AO IS DIRECTED TO ALLOW DEPRECIATION IN ACCORDANCE TO LAW FOR THE RELEVANT ASSESSMENT YEAR, WHICH NEEDLESS TO SAY THE REST OF THE AMOUNT I.E. RS.6.58 CRORES WILL BECOME THE W.D.V FOR THE SUBSEQUENT ASSESSMENT YEAR 25 . WITH REGARD TO GROUND NO. 2.0 CONCERNED WHICH RELATES TO DISALLOWING OF AN AMOUNT OF RS. 70 LACS ON ACCOUNT OF EXCISE DUTY PAYMENT WHICH WAS DEDUCTIBLE U/S. 43B OF THE ACT . WE FIND THAT LD. CIT(A) HAS OBSERVED THAT THE AO DURING THE ASSESSMENT PROCEEDINGS HAS HELD THAT THE P AYMENT OF RS. 70 LACS OF EXCISE DUTY WAS NOT IN RESPECT OF THE LIABILITY OF THE ASSESSEE AND SINCE IT WAS THE LIABILITY OF THE DIFFERENT ENTITY (M/S. RIALTO) , THEREFORE, IT WAS NOT PAGE 10 OF 13 ITA NO.2262& 2263/DEL/2011 ALLOWABLE. WE FIND THAT LD. CIT(A) HAS OBSERVED THAT THE LIABILITY OF P AYMENT OF EXCISE DUTY OF RS. 70 LACS WHICH WAS CLAIMED BY THE ASSESSEE AS THE DEDUCTION U/S. 43B DID NOT BELONG TO THE ASSESSEE. THE EXCISE DUTY DEMAND OF RS. 70 LACS WHICH WAS MADE BY THE EXCISE AUTHORITY RELATED TO A DIFFERENT COMPANY M/S RIALTO ENTE RPRISES PVT. LTD. THESE FACTS ARE ALSO PROVED BY THE COMPANY OF EXCISE CHALLAN WHICH IS IN THE NAME OF M/S RIALTO ENTERPRISE PVT. LTD. MOREOVER, THE COPY OF THE AGREEMENT WHICH WAS SUBMITTED BY M/S RIALTO ENTERPRISES LTD . T O THE AO IT WAS SEEN THAT AS PE R ARTICLE 11 AND 18 OF THE AGREEMENT, TAXES AND DUTIES INCLUDING EXCISE DUTY ON PURCHASE OF MATERIAL AND SALE OF PRODUCT AND OTHER ACTIVITY WAS TO BE BORNE BY M/S RIALTO ENTERPRISES PVT. LTD.. ON THE BA SIS OF THE ABOVE AGREEMENT, IS VERY MUCH CLEAR THAT THE LIABILITY OF RS. 70 LACS ON ACCOUNT OF EXCISE DUTY WAS NOT OF THE ASSESSEE. KEEPING IN VIEW OF THE SAID AGREEMENT, LD. CIT(A) HAS RIGHTLY HELD THAT HE CONCURRED WITH THE VIEW OF THE AO THAT SINCE THE LIABILITY DID NOT BELONG TO THE ASSESSEE, H ENCE, THE CLAIM OF DEDUCTION U/S. 43B OF RS. 70 LACS WAS NOT ALLOWED, WHICH DOES NOT CALL ANY INTERFERENCE ON OUR PART, HENCE, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. HOWEVER, WE FIND FORCE IN THE CONTENTION OF THE LD AR THAT THE SAID LEVY O F RS.70 LAKHS ADDITIONAL EXCISE DUTY WAS CHALLENGED AND THE SAME HAVE BEEN REFUNDED BACK TO M/S RIALTO WHICH IN TURN HAS REFUNDED IT TO THE ASSESSEE IN SUBSEQUENT ASSESSMENT YEAR, IN THAT CASE THAT AMOUNT SHALL NOT TAXED WHICH WILL AMOUNT TO DOUBLE TAXATIO N IN THE HANDS OF THE ASSESSEE. WITH THE SAID OBSERVATION WE DISMISS THIS GROUND OF THE ASSESSEES APPEAL. REVENUES APPEAL - ITA NO. 2263/DEL/2011 (AY 2003 - 04) 26 . THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE IMPUGNED ORDER DATED 21/2/2011 PASS ED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - XV, NEW DELHI ON THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS DELETED THE ADDITION OF RS. 2,07,89,275/ - ON ACCOUNT OF INVENTORY WRITTEN OFF MADE BY THE AO . 27 . THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. NIL AFTER ADJUSTMENT OF BROUGHT FORWARD LOSS ON 21.11.2003. PAGE 11 OF 13 ITA NO.2262& 2263/DEL/2011 THE RETURN WAS PROCESSED UNDER SECTION 143(1) ON 23.3.2004. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS SENT ON 29.11.2004. AGAIN NOTICE UNDER SECTION 143(2) ALONG WITH QUESTIONNAIRE UNDER SECTION 142(1) WAS SENT ON 28.7.2005. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURE AND SALE OF KITCHE N APPLIANCES, HAND BLENDERS, EPILATORS, TOOTH BRUSHES, TOOTHPASTES AND MANUFACTURING AND TRADING IN GROOMING PRODUCTS AND CELL BATTERIES. DURING THE ASSESSMENT PROCEEDINGS LD . COUNSEL OF THE ASSESSEE HAS PRODUCED COMPUTERIZED LEDGERS EXTRACTS WHICH HAVE BE EN TEST CHECKED BY THE AO . DURING THE YEAR THE ASSESSEE HAS SOLD ALL ASSETS OF GEEP MANUFACTURING BUSINESS. ASSESSEE COMPANY ALSO DISCONTINUED ITS BRAUN DOMESTIC BUSINESS ACTIVITIES BUT CONTINUED ITS BRAUN EXPORT BUSINESS. AFTER CONSIDERING THE SUBMISSIO NS BY THE LD. COUNSEL OF THE ASSESSEE, LD . AO COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT VIDE HIS ORDER DATED 13.3.2006 AND MADE ADDITION OF RS. 2,07,89,275/ - ON ACCOUNT OF INVENTORY WRITTEN OFF. 28 . BEING AGGRIEVED WITH THE ASSESSMENT ORDER DATED 13.3.2006, ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 21.2.2011 HAS DELETED THE ADDITION BY ALLOWING THE APPEAL OF THE ASSESSEE. 29 . NOW THE REVENUE IS AGGRIEVED AGAINST THE IMPUGNED ORDER AND FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 30 . AT THE TIME OF HEARING LD. DR RELIED UPON THE ORDER OF THE AO AND REITERATED THE CONTENTIONS RAISED BY THE REVENUE IN THE GROUNDS OF APPEAL AND STATED THAT THE APPEAL OF THE REVENUE MAY BE ALLOWED. 31 . ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE RELIED UPON THE ORDER OF THE LD. CIT(A) AND STATED THAT THE SAME MAY BE UPHELD. 32 . WE HAVE HEARD BOTH THE COUNSEL AND PERUSED AND CONSIDERED THE RELEVANT RECORDS AVAILABLE WITH US , ESPECIALLY THE ORDERS PAS SED BY THE REVENUE AUTHORITIES AND A PAPER BOOK FILED BY THE ASSESSEE CONTAINING THE CASES LAWS ON WHICH THE ASSESSEE HAS RELIED UPON; COPY OF SUBMISSION MADE BEFORE THE CIT; DETAILS OF INVENTORY WRITE OFF AND COPY OF JUDGMENT OF DELHI PAGE 12 OF 13 ITA NO.2262& 2263/DEL/2011 HIGH COURT IN CIT VS . TUPPERWARE INDIA PVT. LTD. 2014 - TIOL - 610 - HC - DEL - IT. WE FIND THAT LD. FIRST APPELLATE AUTHORITY HAS OBSERVED THAT THE ITEMS OF INVENTORIES WRITTEN OFF DURING THE YEAR WERE ORIGINALLY MANUFACTURED / PURCHASED FOR SALE IN THE ORDINARY COURSE OF BUSINESS AND WERE HELD AS REGULAR INVENTORY ITEMS IN THE AUDITED STATEMENT OF ACCOUNTS. SUCH WRITE OFF OF DAMAGED / UNSERVICEABLE ITEMS OF INVENTORIES AS PER STANDARD POLICY OF THE COMPANY, WERE WRITTEN OFF AND PHYSICALLY DESTROYED AS A REGULAR POLICY, AND SUCH E XPENSES WAS ALLOWABLE DEDUCTION AS REVENUE EXPENDITURE AS HAVING BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. LD. COUNSEL OF THE ASSESSEE FURTHER SUBMITTED BEFORE THE LD. CIT(A) THAT IT WAS A SETTLED LAW THAT THE LOSSES OR EXPENSES IN CURRED BY THE ASSESSEE BY FOLLOWING ACCOUNTING SYSTEM AND METHOD ON YEAR TO YEAR BASIS, WHICH ARE IN ACCORDANCE WITH MANDATORY ACCOUNTING STANDARD ARE ALLOWABLE. IN SUPPORT OF THIS CONTENTION, ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS BEFORE THE LD. CIT(A): - CIT VS. BRITISH PAINTS 188 ITR 44 (SC) - CIT VS. ALFA LABEL 295 ITR 491 (SC) - CIT VS. WOODWARD GOVERNOR 312 ITR 254 (SC) AND DIGITAL EQUIPMENT INDIA LTD. VS. DCIT 103 TTJ 329. 33 . WE FIND THAT LD. CIT(A) HAS FURTHER OBSERVED THAT THE SIMILAR ISSUE IN QUESTION HAS ALREADY BEEN ADJUDICATED BY THE CIT(A) - XII, NEW DELHI VIDE ORDER DATED 12.1.2011 IN APPEAL NO. 165/09 - 10 FOR A.Y. 2004 - 05 IN ASSESSEES OWN CASE. THEREFORE, THE ASSESS EE HAS REQUESTED BEFORE THE PRESENT LD. CIT(A) - XV, NEW DELHI THAT KEEPING IN VIEW OF THE AFORESAID PRECEDENT THE DISALLOWANCE MADE BY THE AO MAY BE DELETED. WE FIND THAT THE LD. CIT(A) HAS CONSIDERED THE SUBMISSION AND THE FINDINGS OF THE AO AND THE FA CTS ON RECORD. WE FIND THAT THE LD. CIT(A) - XV, NEW DELHI OBSERVED THAT THE ANOTHER I.E. LD. CIT(A) - XII, NEW DELHI IN ASSESSEES OWN CASE FOR THE ASSTT. YEAR 2004 - 05 HAS DECIDED THE SIMILAR ISSUE IN ASSESSEES FAVOR BY OBSERVING AS UNDER: - I HAVE G ONE THROUGH THE SUBMISSIONS FILED BY THE APPELLANT AND IT IS OBSERVED THAT THE APPELLANT HAS GIVEN COMPLETE DETAILS OF PAGE 13 OF 13 ITA NO.2262& 2263/DEL/2011 INVENTORY WHICH HAVE BEEN WRITTEN OFF AS WELL AS EVIDENCES IN THE FORM OF PERSON BEFORE WHOM THE SAID ITEM WERE DISPOSED OFF. THE APPEL LANT HAS POINTED OUT THAT IT BEING A MULTI NATIONAL COMPANY THE COMPANY HAS TO BE MAINTAINED HIGHER STANDARD OF QUALITY AND THESE ITEMS ARE NOT SOLD IN THE SECOND SALE AS DONE BY THE MANY OTHER FIRMS. AS THE APPELLANT HAS FURNISHED THE COMPLETE DETAILS T HEREFORE, DISALLOWANCE OF RS. 11643211/ - IS HEREBY DELETED AND THIS ISSUE IS DECIDED IN FAVOR OF THE APPELLANT. 34 . WE FIND THAT THE LD. CIT(A) IN THE INSTANT CASE ALSO FOUND THAT THE ASSESSEE HAD FILED THE COMPLETE DETAILS OF THE INVENTORY WHICH HA VE BEEN WRITTEN OFF, AS WELL AS EVIDENCES IN THE FORM OF PERSONS BEFORE WHOM THE SAID ITEMS WERE DISPOSED OFF. THEREFORE, LD. CIT(A) HAS RIGHTLY HELD THAT AS THE FACTS BEING SIMILAR, HE HAS NO REASON TO DIFFER WITH THE FINDINGS OF THE LD. CIT(A) - XII, NEW DELHI ON THE IDENTICAL AN D SIMILAR ISSUE INVOLVED IN A. Y 2004 - 05. HENCE, FOLLOWING THE EARLIER PRECEDENT, THE LD. CIT(A) - XV, NEW DELHI HAS RIGHTLY DELETED THE ADDITION OF 2,07,89,275/ - AND DECIDED THE ISSUE IN FAVO U R OF THE ASSESSEE. IN VIEW OF THE ABOVE FACTS DISCUSSED ABOVE WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER PASSED BY THE LD. CIT(A), HENCE, WE UPHOLD THE SAME BY DISMISSING THE APPEAL FILED BY THE REVENUE. IN THE RESULT, THE APPEAL FILED BY THE REVENUE ST ANDS DISMISSED. 35 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 26 .03.2015 . - SD/ - - SD/ - ( J.S.REDDY ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :26 / 03 / 2015 * A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELH I