Owens Corning Industries (India) P. Ltd. Mahabubnagar (previously known as Saint Gobain Vetrotex India Ltd), Mahabubnagar Dist V. DCIT, Circle-3(1), Hyderabad, Hyderabad

ITA 255/Hyd/2016

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 6370 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB-A
• Assessment Year: 2003-2004
• Appeal Filed On: 06-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHANKAR KAPSE
• Keywords: Business income; Depreciation; Transfer pricing; Double taxation relief; Royalty expenses; Commercial expediency; Revenue expenditure; Capital expenditure; TDS
• Section: 37; 92; 40(a)(ia); 195; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ‘A, HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA Nos. 254, 255/H/2016 A.Ys. 2002-03 & 2003-04 Owens Corning Industries (India) Private Limited (Previously known as Saint Gobain Vetrotex India Limited), Hyderabad, Bangalore Highway, Thimmapur-509325, Kothur Mandal, Mahaboobnagar District, Telangana State, India v . The Deputy Commissioner of Income Tax, Circle-3(1), Hyderabad PAN:AAACV9858N (Appellant) (Respondent) Assessee by: Sh. Rama Rao & Shankar Kapse, AR Respondent by: Sh. Sunil Goswami, DR Date of hearing: 10.11.2021 Date of pronouncement: 15.12.2021 O R D E R VIJAY PAL RAO, JUDICIAL MEMBER These two appeals by the assessee are directed against the two separate orders of CIT(A) both dated 21.12.2015 for the assessment years 2002-03 and 2003- 04 respectively. For the assessment year 2002-03, the assessee has raised the following grounds:- 1. That on the facts and circumstances of the case, the order passed by the Learned Commissioner of Income-Tax (Appeals) [‘CIT(A)’] on 21 December, 2012 for the assessment year 2002-03 is bad in law and unjustified. 2. Royalty expenses claim 1.1 The Learned CIT(A) erred by restricting the claim of royalty expenses to 4% of net sales instead of 5% net sales as claimed by the Appellant for AY 2002-03. ITA Nos.254 & 255/H/2016 Assessment Years: 2002-03 & 2003-04 2 1.2 The Learned CIT(A) erred by not appreciating the decision of Hon’ble ITAT in the Appellant’s own case for AY 2009-10, wherein the Hon’ble Tribunal has held that transactions made under Royalty agreement approved by RBI are to be held at arm’s length price and the Appellant’s claim of royalty expenditure was allowed in full price. 1.3 The Learned CIT(A) erred by restricting the claim of royalty expenditure without appreciating that the expenditure has been incurred for the purpose of business and hence the same cannot be disallowed for any extraneous reasons. 2. Re-fabrication charges. 2.1 The Learned CIT(A) has erred in holding that the re-fabrication charges of 80,99,759 paid to its parent company Saint Gobian Vetrotex International, France SA as capital expenditure. 2.2 The Ld. CIT(A) has erred in concluding that the re-fabrication charges are capital nature merely on the ground that Sait Gobian Vetrotex International, SA has raise a single invoice both for re-fabrication charges an metal cost. 2.3 The Ld. CIT(A) has erred in ignoring the details of bifurcation of expenses provided by the Appellant with respect to re-fabrication charges and metal cost. 2.4 The Ld. CIT(A) ought to have appreciated that the re-fabrication expenses incurred the Appellant is of revenue in nature. 3. The Appellant craves leave to ad, to alter or amend all or any of ground of appeal at or before the hearing. 2. Ground No. 1 is general in nature and assessee has not advanced any argument in support of ground no. 1, therefore, no specific adjudication is required. 3. Ground no. 2 is regarding restricting the deduction of royalty expenses by the CIT(A) to 4% instead of 5% of net sales claimed and paid by the assessee. The assessee company formerly known as Vetrotex Industries India (P) Ltd., is wholly on subsidiary of Saint Gobain Vetrotex International, France. In the year 1998, the assessee acquired fiber glass reinforcements business of FGP Ltd., as going concern. Saint Gobain Vetrotex International, France renders technical assistance to all Vetrotex plants of Saint Gobain Group worldwide. The assessee and Saint Gobain Vetrotex International, France entered into an agreement dated 16 th August, 2001 for modernization and expansion of assessee’s project which includes providing technical assistance from design to project management and implementation. Under the said agreement, the assessee was to pay 5% Royalty on the total sales domestic ITA Nos.254 & 255/H/2016 Assessment Years: 2002-03 & 2003-04 3 as well as exports. This agreement was for the period of seven years. The assessee filed its return of income for the year under consideration on 31 st October, 2002 declaring loss of Rs. 31.03 Crores. The Assessing Officer noted that the assessee has paid an amount of Rs. 2,43,33,761/- to its parent company Saint Gobain Vetrotex International, France as Royalty. The Assessing Officer disallowed 90% of the Royalty amount treating the same as capital in nature amounting to Rs. 2,19,00,385/-. The assessee challenged the action of the Assessing Officer before the CIT(A) and claimed that the Royalty payment is an allowable deduction as the same is paid on the basis of the annual sales and therefore, the same cannot be treated as capital in nature. The CIT(A) allowed the claim of Royalty payment to the extent of 4% by following the decision of this Tribunal in assessee’s own case for the assessment year 2009-10. 4. Before the Tribunal, the learned AR of the assessee has submitted that the payment of Royalty is an expenditure based on the total sales of the assessee and therefore, this is an allowable Revenue expenditure. The assessee has been paying the Royalty to Saint Gobain Vetrotex International, France under the agreement whereby the parent company has provided technical knowhow and technical information etc., to the assessee which is a time tested technicality in manufacturing glass products. The assessee received the benefit of ongoing process technology and product improvement, technical engineering information and methods of manufacture, processing, design engineering etc. All these services and technologies provided by the parent company is elaborated in the Annexure to the Royalty agreement. The payment of Royalty is made after the approval of the RBI for remittance of the Royalty @ 5% of the sales. Therefore, the assessee has discharged Research and Development Cess @ 5% of the value of the Royalty to the Ministry of Science & Development as provided in the Research & Development Cess Act, 1960. He has pointed out that for the assessment year 2009-10 this Tribunal has decided this issue of Royalty payment in favour of the assessee vide order dated 3.10.2014. He has further submitted that since there was a new Royalty agreement due to change of ownership whereby the ITA Nos.254 & 255/H/2016 Assessment Years: 2002-03 & 2003-04 4 royalty payment was agreed upon @ 4% of net sales. The Tribunal has allowed the claim of payment of Royalty paid by the assessee as per the new agreement. Hence, the learned AR has submitted that this issue is covered by the decision in assessee’s own case. 5. On the other hand, the learned DR has relied upon the order of the CIT(A) and submitted that the CIT(A) has followed the decision of this Tribunal for the assessment year 2009-10 whereby the claim of Royalty payment was allowed @ 4% of net sales. 6. We have considered the rival submissions as well as relevant material on record. There is no dispute that the Royalty payment for the year under consideration to the parent company is based on the Royalty agreement between the parties wherein the parties have agreed for a Royalty of 5% of net sales. Subsequently, there was a change in the ownership of the parent group and a new Royalty agreement was entered into between the parties whereby they agreed for payment of 4% Royalty payment of net sales vide agreement dated 1.7.2008. This Tribunal in assessee’s own case for the assessment year 2009-10, vide order dated 13.10.2014 in ITA Nos. 549 & 595/201 has considered this issue in para 13 to 17 as under:- “13. We have heard both the parties. From the facts and circumstances of the case before us, it is clear that the assessee was being rendered technical assistance through the royalty agreement entered into with Owens Corning Invest Co-operative U.A., Netherlands and the royalty agreement has been in application from 1.7.2008. We are of the opinion that the TPO was incorrect in going into the business expediency of payment of royalty and arriving at the conclusion of the quantum of the royalty. We find support for this proposition in the decision of Hon'ble Delhi High Court in CIT vs. EKL Appliances (345 ITR 241. (Del) wherein the Hon'ble Delhi High Court had occasion to consider the disallowance of royalty by TPO and held that if the expenditure has been incurred or laid out for the purposes of business it is no concern of the TPO to disallow the same on any extraneous reasons. In the case of Ericsson India Pvt. Ltd. vs. DCIT (ITA No. 5141/Del/ 2011) the Delhi High Court decision in CIT vs. EKL Appliances (supra) was followed wherein it was held that "it would be ITA Nos.254 & 255/H/2016 Assessment Years: 2002-03 & 2003-04 5 wrong to hold that the expenditure should be disallowed only on the ground that these expenses were not required to be incurred by the assessee". 14. We also draw support from the decision of Ahmedabad Bench in KHS Machinery (P) Ltd. vs ITO (146 TTJ 692) where in the Tribunal on the issue of disallowance made by TPO of payment of Royalty held that: "The assessee had not made the one-time payment but making the continuous payment to the know-how provider which has been accepted by the Department in the past. The Assessee has been charging 5 per cent royalty on each and every transaction and therefore the said payment cannot be said to have been paid on the aggregate amount, as argued by learned CIT-Departmental Representative. The findings of the AO in considering the royalty charges as nil as ALP cannot be accepted since the AO in the present case has not brought on record, the ordinary profits which can be earned in such type of business. Therefore in our view the payment of royalty is not hit by the provisions of s. 92 of the Act and there is no reason to hold that the expenses should not be allowed under s. 37(1) of the Act, since the expenditure has been incurred by the assessee during the course of business and is having the nexus with the business of the assessee. Therefore the payment of royalty a business expenditure which has been incurred wholly and exclusively for the purpose of business of the assessee and same is to be allowed in toto as a matter of commercial expediency. Therefore, the case laws relied upon by the learned CIT- Departmental Representative are of no benefit to the Revenue. The reasonableness of expenditure in the present circumstances and facts of case cannot be doubted and accordingly the A 0 is directed to allow the claim of the assessee and the order of learned CIT(A) is reversed.... " 15. We also draw support from the division of Co- ordinate Bench M/s. Air Liquide Engg. India (P) Ltd., vs DCIT (ITA No. 1040/Hyd/2011, 1159/Hyd/2011 and 1408/Hyd/2010) dated 13th February 2014 wherein it was held that: "18. Hence, what we see is the TPO sitting on judgment on the business and commercial expediency of the assessee which is erroneous as per the provisions of the Act as laid down clearly by the Hon'ble Delhi High Court in EKL Appliances (supra). 19. It is also noted that various Tribunals such as DCIT vs. Sona Okegawa Precision Forgins Limited (ITA No. 5386/Del/2010), Hero Motocorp Limited vs. Addl. CIT (ITA No. 5130/Del/2010). ThyssenKrupp Industries India Ltd vs Addl. CIT (ITA No. 6460/Mum/2012), Abhishek Auto Industries Ltd. vs. CIT (ITA No. 1433/Del/2009) have taken a view that REI approval of the Royalty rates itself implies that the payments are at Arm's Length and hence no further adjustment needs to be made viewed from this angle too." 16. Furthermore, the assessee claimed that the Royalty agreement was originally entered with Saint Gobain Vetrotex France S.A.) from 1.7.2001 to 30.6.2008 and that agreement called for 5% of net "ex-factory sales price" as royalty payment. ITA Nos.254 & 255/H/2016 Assessment Years: 2002-03 & 2003-04 6 Further, by way of a supplementary agreement dt. 8.5.2002 the approval for payment towards foreign technology transfer sanctioned by RBI was incorporated in the original agreement (refer page 6 & 7 of TPO order dt. 13.12.12). Finally it is seen that Saint Gobain Vetrotex France S.A. is now known as Owens Coming Invest Cooperative, Netherlands with which subsequent agreement dt. 1.7.2008 was made and under whom the payments were made in the impugned assessment year 2009-10. In short, the assessee has claimed that the royalty payments were based on agreement which was approved by RBI and hence the TPO cannot question the same. 17. We find merit in this claim that once the RBI approval of royalty rate was obtained the payment was considered to be held at arm's-length. It is also noted that various Tribunals such as Air Liquide Engg. India (P) Ltd, Hyderabad (ITA No.1159, l040/Hyd/2011 & ITA No.1408/ Hyd/ 2010), DCIT vs. Sona Okegawa Precision Forgins Limited (ITA No. 5386/DeI/2010), Hero Motocorp Limited vs. Addl. CIT (ITA No. 5130/Del/2010), ThyssenKrup Industries India Ltd vs Addl. CIT (ITA No. 6460/Mum/2012), Abhishek Auto Industries Ltd. vs. CIT (ITA No. 1433/Del/2009) have taken a view that RBI approval of the Royalty rates itself implies that the payments are at Arm's Length and hence no further adjustment needs to be made viewed from this angle too.” 7. The entire finding of the Tribunal is based on the reasoning that once the Royalty is paid as per the agreement and the remittance was approved by the RBI @ 5% to the net sales itself implies that the payment is at arm’s length and no further adjustment needs to be made. Therefore, it is clear that the payment of Royalty for the assessment year 2009-10 was subjected to transfer pricing analysis and found to be at arm’s length. Following the earlier order of this Tribunal in assessee’s own case, we modify the impugned order of the CIT(A) and allow the claim of Royalty payment @ 5% instead of 4% allowed by the CIT(A). 8. Ground no. 3 is regarding disallowance of re-fabrication charges by treating the same as capital expenditure. During the year under consideration, the assessee has debited the following amounts in the books of accounts. S. No. Nature of transaction Amount incurred 1. Precious metal addition for bushing 10,809,160* ITA Nos.254 & 255/H/2016 Assessment Years: 2002-03 & 2003-04 7 2. Bushing refabricating Expenses 8,099,759 Total 8,099,759 9. Out of these two items, the assessee has capitalized the expenditure under the head precious metal addition for bushing under the head plant and machinery and claimed depreciation @ 25% thereon. But the bushing fabrication expenses of Rs. 80,99,759/- were claimed under the head repair and maintenance of plant and machinery under the sub head bushing re-fabrication expenses. The Assessing Officer held that the payment was made to the parent company which is carrying out the fabrication and manufacturing of the bushings for the assessee as the said company is having requisite technology for the same and consequently the payment made by the assessee to the parent company was treated as Fee for Technical Services (FTS). As the assessee has not deducted TDS in respect of the above Fee for Technical Services, the same was disallowed by the Assessing Officer under section 40(a)(ia). The assessee challenged the action of the Assessing Officer before the CIT(A) who has treated the entire payment towards re-fabrication of bushing including the precious metal addition as capital in nature and disallowed the same. 10. Before the Tribunal, the learned AR of the assessee has reiterated his submissions as made before the CIT(A) on this issue which are as under:- “With regard to above issues, the appellant submitted as under: 1. We submit that the AO erred in rejecting the contentions that he appellant had purchased new bushing on the grounds that same as old bushing had returned to India and the Appellant had paid customs duty only ion the additional mental. We submit that the Appellant is exporting a worn out and old busing and importing a new bushing, which is not the same as one exported. 2. The old bushing requires melting, refining and re-manufacturing to be converted in a new bushing which substantial time period. If the Appellant had to wait for the same bushing then it would result in substantial time lag and the production process would be affected since the machinery would remain idle for a substantial time period. Hence, waiting for same bushing to be returned is not commercially or financially viable option. ITA Nos.254 & 255/H/2016 Assessment Years: 2002-03 & 2003-04 8 3. Further, we submit that the Appellant had paid customs duty on the additional metal due to special exemption notification. As per the Customs Notification No. 21/2002, if new bushings are acquired in exchange of old bushings within one year from the ate of exportation and o drawback of duty has been paid at the time of export, then customs duty is not payable. However, customs duty would be applicable for the value addition i.e. additional weight of metal, labour charges and freight and insurance charges. Accordingly, it is submitted that the finding of the AO that the Appellant has not purchased a new bushing but received the old bushing exported after re-fabrication is erroneous an contrary to the facts available on record. Therefore, since the transaction is that of a purchase of an asset and payments would be in the nature of business profits. In absence of any permanent establishment of SGVI in India, the payment are not subject to tax India and hence, tax is not required to be withheld under Section 195 of the Act. “ 11. He has further contended that the life of the bush used in the process of manufacturing of glass is only one year, therefore, it is a recurring expenditure which cannot be treated as capital in nature. The assessee itself has capitalized the expenditure to the extent of the additional metal used in re-fabrication process and only the re-fabrication charges are claimed as Revenue expenditure under the head repair and maintenance. 12. On the other hand, the learned DR has submitted that this expenditure is not incurred for repair and maintenance of any machinery but this expenditure is incurred for replacement of machinery and part of the total expenditure has been capitalized by the assessee to plant and machinery. Therefore, this cannot be a Revenue expenditure when a particular component has been acquired by the assessee which is manufactured by the parent company though by using the old components as raw material and adding some more metal in the process of manufacturing of new components. The learned DR has thus submitted that the CIT(A) has rightly disallowed the claim of fabrication charges by treating the same as capital in nature. He has allowed the depreciation @ of 25% on the total amount. He has relied upon the order of the CIT(A). ITA Nos.254 & 255/H/2016 Assessment Years: 2002-03 & 2003-04 9 13. We have considered the rival contentions as well as relevant material available on record. As it is emerged from the record that the assessee is using component called bushing made of precious metal (platinum & radium) in the manufacturing process of glass. Due to the extreme heat in the process of glass manufacturing this component which is made of precious metals needs to be replaced regularly. The assessee is sending old components to its parent company and getting a new component which is passing through a fabrication / manufacturing process. As per the invoice issued by the parent company, it raised the bills for the extra precious metals used in manufacturing / fabrication process apart from the fabrication process charges. The old and used bushing is being used by the parent company as raw material and therefore, to the extent of the metal which is taken from the old bushing is taken as part of the cost of the new bushing. The assessee has claimed the fabrication charges as Revenue expenditure and additional metal used in the fabrication process is capitalized. Though, the Assessing Officer has treated these charges as fee for technical service (FTS) however, the CIT(A) while passing the impugned order has held the entire expenditure as capital in nature in para 5.3 to 5.5 as under:- “5.3 I have carefully considered the facts of the case, assessment order and the submissions of the appellant. The assessing officer made an addition of Rs. 97,31,760/- as ”fees for technical services.” The Assessing Officer in his assessment order after detailed discussion conclude that the amount paid towards bushing re-fabrication charges of Rs. 80,99,759/- and additional metal charges of Rs. 1,01,33,118/- paid to Saint Gobain Vetrotex International, France, constitute “fees for technical services within the meaning as per Section 9(1)(vii) and hence taxable in India, Since the appellant has failed to deduct TDS, the same cannot be allowed as deduction u/s 40)a)(a) of the Act. Hence, the bushing charges of Rs. 80,99,675/- claimed as revenue expenditure is disallowed an added back to the total Income. An amount of Rs. 1,02,33,118/- towards additional metal charges which is capitalized by the appellant and claimed depreciation on the same is not allowable expenditure. Thereby the depreciation of 25% of Rs. 16,32,001/- also disallowed. Thereby the total disallowance made by the Assessing Officer was Rs. 97,31,760/-. ITA Nos.254 & 255/H/2016 Assessment Years: 2002-03 & 2003-04 10 5.4. In this regard, the appellant submissions are verified. As per the P&L account, the appellant has debited Rs, 2,23,53,266/- under the head “repairs and maintenance to plant and machinery”. This amount of Rs. 2,23,53,266/- includes bushing charges of Rs. 80,99,759/- and remaining balance includes repairs to alloyroom expenses, annual maintenance contracts and other repairs to Plant and machinery. As per the details of addition of platinum/Rhodium, during this year the bills were raised by the Saint Gobain Vetrotex international, SA, for a metal cost and as bushing as a whole. As per the details submitted by the appellant for the entire year, there is metal custom including customs duty was capitalized to Rs. 1,08,09,160/- and added to the plant and machinery and remaining amount shown as fabrication charges of Rs. 80,99,759/- which was added by the Assessing officer as bushing expenses and not allowed,. Other amounts like transportation, other expenses, etc. were also debited to P&L account and claimed in respective heads. Therefore, form this it is clear that the Saint Gobain Vetrotex, International, France raising bills for bushing and cost of Platinum and Rhodium. But the appellant company is capitalizing the original cost of platinum and rhodium and taking to plant and machinery and balance sheet and the bushing and refabrication was debited under the head ‘reprimand maintenance; in the P&L account. The Assessing officer has disallowed the depreciation on this ‘capitalized amount and added back to the bushing expenses as not allowed due to the reason that appellant has not deducted TDS and so the provisions of section 40(a)(ia) are applicable. Against this the submissions of the appellant that this payment was made to their parent company and even though the explanation to Section 9(1)(vii) are applicable but as per DTAAA India and France, there is no need of deducting TS. Even though the TDS was deducted for Royalty, keeping in view of this nature of the payment as bushing/refabribation which does not fall under royalty or fees for technical services, therefore, the TS not to be deducted. On the above issue, the appellant has relied on the Hon’ble ITAT, ‘A’ Bench, Hyderabad, decision in the case of BHEL-GE-Gas Turbine Servicing Pvt. Ltd. Hyderabad. 5.5 After considering the above submissions of the appellant, I am in agreement with the submissions of the appellant and case laws relied upon, therefore, the TDS is not deductible. But after verification of all the details and also keeping in view that the parent company Saint Gobain Vetrotes, International, France, SA issue a single bill for cost of metal and also for the bushing expenses, I conclude that the nature of this expenses was bushing/refabrication debited it to the P&L account pertains to the metal Platinum/Rhodium which is capital in nature. Therefore, the bushing expenses should not fall under revenue expenses and it should be capitalized by the appellant. Hence, keeping in view of all the discussion, the Assessing Officer is directed that the cost of Plant and Machinery to be treated as Rs. 1,08,09,160/- and Rs. 80,99,759/- totaling to Rs. 1,89,08,919/- and depreciation to be allowed @25% of the total amount. Hence, the grounds of appeal are allowed.” ITA Nos.254 & 255/H/2016 Assessment Years: 2002-03 & 2003-04 11 14. Thus, the limited issue in this ground of appeal of the assessee is whether the expenditure on account of a fabrication charges is an allowable Revenue expenditure being repair and maintenance or is a capital expenditure. So far as the claim of repair and maintenance expenditure is concerned, since it is not an expenditure incurred on current repairs of machinery but the expenditure is incurred for replacement of the machinery / component therefore, this expenditure does not fall in the ambit of current repairs as provided under section 30 and 31 of the Income Tax Act. Section 30 and 31 contemplates the expenditure on account of current repairs due to day to day wearing and tearing but it does not include the replacement of a machinery. Once the expenditure does not fall under the current repairs then the allowability of the expenditure is required to be tested under section 37 of the Income Tax Act which is a residual provision and an expenditure laid out wholly and exclusively for the business of the assessee is an allowable expenditure subject to the condition that it is not in capital field. The test of the expenditure being Revenue or capital is whether such an expenditure brings into an existence of a new asset or a benefit of enduring nature. Undisputedly, the assessee is replacing the bushings used for manufacturing of glass as it get damaged due to extreme heat conditions therefore, this process of getting the old bushings fabricated into a new bushings does not fall under the ambit of repairs of plant and machinery but it brings into existence of a new asset. Merely because the old bushing is used as raw material for manufacturing of new would not change the character of the expenditure for bringing into an existence of a new asset. The assessee has not disputed the fact of bringing the new asset into an existence and part of the expenditure was capitalized by the assessee itself and only the fabrication charges were claimed as Revenue expenditure. It is pertinent to note that the fabrication charges are directly related to the manufacturing process of the bushing and therefore, the same cannot be given a separate classification that of bushing itself. Accordingly, in view of the above fact and circumstances, we do not find any reason to interfere with the impugned order of the CIT(A). ITA Nos.254 & 255/H/2016 Assessment Years: 2002-03 & 2003-04 12 15. In the result, this ground of the assessee is dismissed. ITA No. 255/Hyd/2016 A.Y. 2003-04 16. The assessee has raised the following grounds as under: 1. That on the facts and circumstances of the case, the order passed by the Learned Commissioner of Income-Tax (Appeals) [‘CIT(A)’] on 21 December, 2012 for the assessment year 2003-04 is bad in law and unjustified. 2. Royalty expenses claim 2.1 The Learned CIT(A) erred by restricting the claim of royalty expenses to 4% of net sales instead of 5% net sales as claimed by the Appellant for AY 2003-04. 2.2 The Learned CIT(A) erred by not appreciating the decision of Hon’ble ITAT in the Appellant’s own case for AY 2009-10, wherein the Hon’ble Tribunal has held that transactions made under Royalty agreement approved by RBI are to be held at arm’s length price and the Appellant’s claim of royalty expenditure was allowed in full price. 2.3 The Learned CIT(A) erred by restricting the claim of royalty expenditure without appreciating that the expenditure has been incurred for the purpose of business and hence the same cannot be disallowed for any extraneous reasons. 3. On disallowance of royalty of- 83,39,848 with respect to sales made to the AEs 3.1 The Learned CIT(A) erred by disallowing royalty of - 83,39,848 paid on sales made to the Associated Enterprises (‘AE’) without appreciating that singling out payment of royalty on AE sales is not correct since royalty is paid for manufacturing of products. 3.2 that on facts and circumstances of the case, and in law the Ld. CIT(A) erred by not considering the decision on Hon’ble Dispute Resolution Panel (‘DRP’) for AY 2006-07 considering the decision on Hon’ble RP allowed the royalty paid on AE sales. 3.3 Without prejudice to the above grounds, the Ld. CIT(A) ought to have allowed royalty @4% on AE sales since the principle, the Ld. CIT(A) allowed partly @4% on sales. 4. Re-fabrication charges 3.1 The Ld. CIT(A) has erred in holding that the re-fabrication charges of 65,78,890 paid to its parent company Saint Gobian Vetrotex International, France SA as capital expenditure. 3.2 The Ld. CIT(A) has erred in concluding that the re-fabrication charges are capital nature merely on the ground that Sait Gobian Vetrotex International, SA has raise a single invoice both for re- fabrication charges an metal cost. 3.3 The Ld. CIT(A) has erred in ignoring the details of bifurcation of expenses provided by the Appellant with respect to re-fabrication charges and metal cost. 3.4 The Ld. CIT(A) ought to have appreciated that the re-fabrication expenses incurred the Appellant is of revenue in nature.” 17. Ground no. 1 is general in nature and assessee has not advanced any argument in support of the Ground no. 1. Therefore, no specific adjudication is ITA Nos.254 & 255/H/2016 Assessment Years: 2002-03 & 2003-04 13 required. Ground no. 2 and 3 are regarding disallowance of Royalty payment. This issue is identical to the issue involved in ground no. 2 for the assessment year 2002- 03 except the fact that the CIT(A) has further disallowed the claim of Royalty in respect of the sales made to AE. Once this issue is considered by this Tribunal in assessee’s own case for the assessment year 2009-10 and there was no birfurcation of Royalty payment on AE and non AE sales then this bifurcation made by the authorities below for the year under consideration is not justified. Following the order of this Tribunal for the Assessment Year 2009-10 reproduced in the foregoing part of this order, we allow the claim of the Royalty @ 5% to net sales. 18. Ground no. 4 is identical to the issue involved in Ground no. 3 for the assessment year 2002-03. In view of our finding on this issue for the assessment year 2002-03, this ground of assessee is dismissed. 19. In the result, both the appeals are partly allowed. Order pronounced in the open Court on 15.12.2021. Sd/- Sd/- [A. MOHAN ALANKAMONY] [VIJAY PAL RAO] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15/12/2021 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT(A) – 4. CIT- 5. DR – By order Assistant Registrar