H-one India Pvt. Ltd., Uttar Pradesh V. ACIT,

ITA 2613/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52503 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 02-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 20-05-2011
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: D D BANSAL
• Keywords: Business expenditure; Rule of consistency; Revenue expenditure; Capital expenditure
• Section: 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER ITA NO.2613/DEL/2011 ASSESSMENT YEAR : 2006-07 H-ONE INDIA PVT. LTD., 12, UDYOG VIHAR, SURAJPUR KASNA ROAD, GREATER NOIDA, GAUTAM BUDH NAGAR, UTTAR PRADESH. PAN : AAACH3032L VS. ACIT, NOIDA RANGE, NOIDA. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI D.D. BANSAL, CA REVENUE BY : SHRI SALIL MISHRA, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 16 TH MARCH, 2011 FOR ASSESSMENT YEAR 2006-07. THE GROUNDS OF APPEAL READ AS UNDER:- 1. FOR THAT THE HON'BLE CIT (APPEALS) - GHAZIABAD ERRED ON FACTS OF THE CASE AS WELL AS IN LAW IN UPHOLDING ADDI TION OF RS.1,55,70,511/-, BEING THE PERCENTAGE OF SALES BASED ROYALTY PAID BY THE ASSESSEE COMPANY - DESPITE THE ASSESSEE BR INGING IN TO HIS NOTICE THAT HIS CASE IS A COVERED CASE BY WELL C ONSIDERED AND DETAILED ORDER OF THIS TRIBUNAL IN ITS OWN CASES O F LAST SEVERAL YEARS; AND THAT THERE HAS BEEN NO CHANGE IN THE FACTS/CIRCUMSTANCES OF THE CASE ON THE POINT SINCE THE TIM E THE SAID ORDER WAS PASSED BY THE HON'BLE INCOME TAX APPE LLATE TRIBUNAL. 2. FOR THAT THE HON'BLE CIT (APPEALS) WAS DUTY BOUND TO FOLLOW THE ORDER OF THE SUPERIOR JUDICIAL AUTHORITY; BUT INSTEAD , HE HAS ITA NO.2613/DEL/2011 2 CHOSEN TO BRING OUT POINTS/MATTERS NOT AT ALL RELEVANT IN TH E MATTER UNDER APPEAL. 3. FOR THAT THE HON'BLE CIT (APPEALS) - GHAZIABAD ERR ED ON FACTS OF THE CASE AS WELL AS IN LAW IN GOING AGAINST HIS OW N ORDER IN ASSESSEE'S CASE OF A.Y. 2005-06, IN WHICH HE HAD TOTA LLY CONCURRED WITH THE VIEW OF HON'BLE ITAT, NEW DELHI. 4. FOR THAT THE HON'BLE CIT (APPEALS) ERRED ON FACTS OF THE CASE AS WELL AS THE LAW ON THE MATTER IN STATING IN PARA 5.02 OF HIS ORDER THAT THE DECISION OF ITAT IS DISTINGUISHABLE. HOW EVER, IT IS NOT SO, BECAUSE THERE IS NO CHANGE IN THE FACTS OF THE C ASE OR THE LAW ON THE POINT AND THE HON'BLE ITAT BENCH DECISION P ERTAIN TO THE ASSESSEE'S OWN CASE AND ON THE SAME FACTS; AND THUS THE SAME IS NOT DISTINGUISHABLE IN ANY MATTER WHATSOEVER. 5. FOR THAT THE HON'BLE CIT (APPEALS) - GHAZIABAD ERR ED ON FACTS OF THE CASE AS WELL AS IN LAW IN STATING IN PARA 5.3 O F HIS ORDER CERTAIN PERSPECTIVES/ DISTINGUISHING FEATURES. HOWEVER, THESE ARE PRACTICALLY THE RE-ITERATION OF THE LD. AO'S CONTENTION IN NOT ALLOWING THE EXPENDITURE IN QUESTION IN HIS ORDER OF A .Y. 2001-02, AND WERE ALREADY CONSIDERED IN DETAILS BY THE HON'BLE ITAT, NEW DELHI, BENCH. THERE IS NOTHING FRESH/NEW IN THE SAME. 2. THE RETURN OF INCOME WAS FILED BY THE ASSESSEE BY ELE CTRONIC MEDIA ON 30 TH NOVEMBER, 2006 AT AN INCOME OF ` 9,25,17,560/-. T HE SAME HAS BEEN ASSESSED BY THE IMPUGNED ASSESSMENT ORDER DATED 26 TH DECEMBER, 2008 PASSED U/S 143 (3) OF THE INCOME-TAX A CT, 1961 (THE ACT). THE ONLY ADDITION WHICH HAS BEEN MADE BY THE ASSESSING OFFICER TO THE RETURNED INCOME OF THE ASSESSEE IS A SUM O F ` 1,55,70,511/- WHICH REPRESENT THE PAYMENT OF ROYALTY PAID BY THE ASSESSEE TO M/S HONGO INDIA (P) LTD. (NOW H-ONE INDIA PV T. LTD.), JAPAN, WHICH WAS CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE. ACCORDING TO THE DEPARTMENT, SUCH PAYMENT OF ROYALTY WAS IN THE NATURE OF CAPITAL EXPENDITURE AS IT HAS PROVIDED THE ASSESSEE AN ENDURING BENEFIT. THEREFORE, THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE SAME MAY NOT BE TREATED AS CAPITAL EXPENDI TURE INSTEAD OF REVENUE. IN RESPONSE, IT WAS SUBMITTED THAT THE ROYALTY PAYMENTS ARE MADE ON PRODUCTION OF GOODS AND ONCE LICENCE IS TERMI NATED, THEN, THE ITA NO.2613/DEL/2011 3 ASSESSEE HAS TO RETURN ALL KNOW HOW BACK TO THE SUPPLIER OF KNOW HOW, THEREFORE, NO ASSET HAD BEEN CREATED WHICH CAN BE SAID TO HAVE PROVIDED ENDURING BENEFIT TO THE ASSESSEE. THE ASSESSEE IS OBTAINING ONLY THE BENEFIT OF TECHNICAL KNOW HOW AND IN EARLI ER YEARS THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY TREATIN G THE SAID ROYALTY AS REVENUE EXPENDITURE. REFERENCE WAS MADE T O THE ITAT ORDER IN RESPECT OF ASSESSMENT YEAR 2001-02 RENDERED IN ITA NO.2146/DEL/2006. THE ASSESSING OFFICER REFERRED TO TH AT DECISION OF ITAT, BUT HE OBSERVED THAT THE DEPARTMENT HAS NOT ACC EPTED THE SAID DECISION OF ITAT AND AN APPEAL IS PENDING BEFORE HON BLE HIGH COURT UNDER THE PROVISIONS OF SECTION 260A OF THE ACT. IN THIS MANNER, THE ASSESSING OFFICER HAS TREATED THE SAID PAYMENT OF ROYALTY BY THE ASSESSEE AS CAPITAL IN NATURE AND HAS ADDED THE SAME TO TH E INCOME OF THE ASSESSEE AND HAS ASSESSED THE INCOME OF THE ASSESSEE AT `10,80,88,071/- IN PLACE OF THE RETURNED INCOME OF ` 9,25,17,560/-. LD. CIT (A) IGNORING THE DECISIONS OF THE TRIBUNAL IN ASSESSE ES OWN CASE HAS UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER. THE ASSESSEE IS AGGRIEVED, HENCE, HAS FILED AN APPEAL BEFORE US. 3. IT WAS SUBMITTED BY LD. AR THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OR IN LAW. THE TRIBUNAL IN EARLIER YEARS HAS CONSISTENTLY HELD THIS ISSUE IN FAVOUR OF THE ASSESSEE BY TR EATING THE ROYALTY PAYMENT MADE BY THE ASSESSEE AS REVENUE EXPENDIT URE AS THE SAME RELATED TO 3% OF THE NET SALES. HE SUBMITTED THAT REFERENCE OF ALL THESE DECISIONS WAS MADE BEFORE THE CIT (A) IN THE FOLL OWING FORM:- OUR APPEAL REF. A.Y. DECIDING AUTHORITY ORDER REFER ENCE ITA NO.2146(DEL)2006 2001-02 ITAT DELHI A BENCH ORDER DATED 04.07.2008 ITA NO.154(DEL)2010 2003-04 ITAT DELHI B BENCH ORDER DATED 29.04.2010 ITA NO.4031(DEL)2009 2004-05 ITAT DELHI E BENCH ORDER DATED 11.12.2009 ITA NO.2613/DEL/2011 4 4. HE SUBMITTED THAT INSTEAD OF ACCEPTING THE AFOREME NTIONED ORDERS OF THE TRIBUNAL, LD. CIT (A) HAS OBSERVED THAT THOSE DECISIONS WERE DISTINGUISHABLE AS CERTAIN BASIC ISSUES NEED TO BE RE -CONSIDERED. HE SUBMITTED THAT SUCH ACTION ON THE PART OF THE CIT (A) IS NOT WARRANTED AT ALL AS, ACCORDING TO JUDICIAL PRECEDENT S, HE SHOULD HAVE RESPECTED THE ORDERS OF THE TRIBUNAL, MORE PARTICULAR LY WHEN THE ORDER OF THE TRIBUNAL IS FURTHER SUBJECT TO APPEAL BEFORE H ONBLE HIGH COURT. HE SUBMITTED THAT AS PER RULE OF JUDICIAL PRECEDENTS A ND ALSO AS PER RULE OF CONSISTENCY, LD. CIT (A) INSTEAD OF DEVIATING FROM EARLIER DECISIONS SHOULD HAVE FOLLOWED THE JUDICIAL PRECEDENTS. HE SUBMITTED THAT COPY OF THE AFOREMENTIONED ORDERS ARE PLACED IN THE PAPER BOOK. THE MATTER BEING COVERED SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. 5. ON THE OTHER HAND, RELYING UPON THE ORDER PASSED B Y THE CIT (A), LD. DR SUBMITTED THAT THE ADDITION HAS RIGHTLY BEEN U PHELD BY THE CIT (A) AND HIS ORDER SHOULD BE CONFIRMED. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. IT IS NOT EVEN THE C ASE OF ASSESSING OFFICER THAT THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE IN ANY MANNER DIFFERENT FROM THE CASES DECIDED BY THE TRIBUN AL IN RESPECT OF PRECEDING YEARS REFERENCE OF WHICH HAS BEEN MADE IN T HE EARLIER PART OF THIS ORDER. IT IS ALSO UNDISPUTED THAT THERE IS NO C HANGE IN THE PROVISIONS OF LAW BY WHICH THE ROYALTY PAYMENT MADE B Y THE ASSESSEE COULD BE TREATED AS CAPITAL EXPENDITURE. IF IT IS SO, THEN, THE JUDICIAL DISCIPLINE REQUIRES THE CIT (A) TO FOLLOW THE ORDERS O F THE TRIBUNAL IN ASSESSEES OWN CASE. THIS IS MORE REQUIRED FOR THE REASON T HAT THE DEPARTMENT HAS ALREADY CHALLENGED THIS ISSUE BEFORE HON BLE HIGH COURT AND THE CIT (A) BEING THE FIRST APPELLATE AUTH ORITY IS BOUND BY THE JUDICIAL PRECEDENTS IN ASSESSEES OWN CASE UNLESS HE IS ABLE TO SHOW THAT THERE IS A CHANGE IN THE FACTS AND CIRCUMSTANCES O F THE CASE, OR THERE IS A CHANGE IN LAW. THE PAYMENT MADE BY THE A SSESSEE IS ITA NO.2613/DEL/2011 5 GOVERNED BY THE SAME AGREEMENT AND IS BEING PAID IN T HE SAME MANNER AS IT WAS BEING PAID IN THE PRECEDING ASSESSMENT YEARS. THOUGH NO SUPPORT IS REQUIRED FOR THE PROPOSITION THAT JUDICIAL DISCIPLINE SHOULD BE MAINTAINED, BUT, REFERENCE CAN BE MADE TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF BANK OF BAR ODA VS. H.C. SRIVASTAVA 256 ITR 385 (BOM) WHEREIN THE ASSESSING OFFIC ER DID NOT AGREE WITH THE DECISION RENDERED BY THE TRIBUNAL AND HAD MADE THE ADDITION AND IN THOSE CIRCUMSTANCES, HONBLE BOMBAY HI GH COURT HAD OBSERVED AS UNDER:- 16. AT THIS JUNCTURE, WE CANNOT RESIST FROM OBSERVING THAT THE JUDGMENT DELIVERED BY THE TRIBUNAL WAS VERY MUCH BIND ING ON THE ASSESSING OFFICER. THE ASSESSING OFFICER WAS BOU ND TO FOLLOW THE JUDGMENTS IN ITS TRUE LETTER AND SPIRIT. IT WAS NECESSA RY FOR THE JUDICIAL UNITY AND DISCIPLINE THAT ALL THE AUTHORITIES BELOW THE TRIBUNAL MUST ACCEPT AS BINDING THE JUDGMENT OF THE TRIB UNAL. THE ASSESSING OFFICER BEING INFERIOR OFFICER VIS-A- VIS THE TRIBUNAL, WAS BOUND BY THE JUDGMENT OF THE TRIBUNAL AND THE ASSES SING OFFICER SHOULD NOT HAVE TRIED TO DISTINGUISH THE SAME ON UNTENABLE GROUNDS. IN THIS BEHALF, IT WILL NOT BE OUT OF PLACE TO MENTION THAT 'IN THE HIERARCHICAL SYSTEM OF COURTS' WHICH EXISTS IN OUR COUNTRY, 'IT IS NECESSARY FOR EACH LOWER TIER' INCLUDING THE HIGH COURT, 'TO ACCEPT LOYALLY THE DECISIONS OF THE HIGH ER TIERS', 'IT IS INEVITABLE IN HIERARCHICAL SYSTEM OF COURTS THAT THERE ARE DECISIONS OF THE SUPREME APPELLATE TRIBUNALS WHICH DO NOT ATTRACT THE UNANIMOUS APPROVAL OF ALL MEMBERS OF THE JUD ICIARY. BUT THE JUDICIAL SYSTEM ONLY WORKS IF SOMEONE IS ALLOW ED TO HAVE THE LAST WORD, AND THAT LAST WORD ONCE SPOKEN IS LOYALLY ACCEPTED'. THE BETTER WISDOM OF THE COURT BELOW MUST YIEL D TO THE HIGHER WISDOM OF THE COURT ABOVE AS HELD BY THE SUP REME COURT IN THE MATTER OF CCE V. DUNLOP INDIA LTD. AIR 1985 SC 330, 17. IN THE AFORESAID BACKDROP, FOR THE REASONS STATED HEREINABOVE, THE IMPUGNED ORDER OF THE ASSESSING OFFI CER DATED 21-2-1998 IS QUASHED AND SET ASIDE. IN THE RESULT, THE WRIT PETITION IS ALLOWED, RULE IS MADE ABSOLUTE WITH NO ORDE R AS TO COSTS. 7. IF THE AFOREMENTIONED PRINCIPLE OF LAW EXPLAINED BY HONBLE BOMBAY HIGH COURT IS APPLIED TO THE FACTS OF THE PRESE NT CASE, THEN, THE ORDER PASSED BY THE CIT (A) AND ASSESSING OFFICER CAN NOT BE ACCEPTED. ON THE BASIS OF JUDICIAL UNITY AND DISCIPLI NE, IT WAS REQUIRED ITA NO.2613/DEL/2011 6 FROM THE CIT (A) THAT HE SHOULD NOT HAVE DEVIATED FR OM THE EARLIER DECISION OF ITAT, MORE PARTICULARLY WHEN THE DECISION RENDERED BY ITAT WERE FURTHER MADE SUBJECT OF APPEAL BEFORE HONBLE H IGH COURT AND THE DEPARTMENT COULD PROCEED IN THE SAME MANNER FOR THE IMPUGNED YEAR ALSO. WITH THESE OBSERVATIONS, WE DO NOT FIND ANY JUSTI FICATION IN THE ORDER PASSED BY THE LD. CIT (A) VIDE WHICH THE IMPUGN ED ADDITION HAS BEEN UPHELD. 8. FOR THE SAKE OF COMPLETENESS, THE CONCLUDING PORTIO N OF THE ORDER OF THE TRIBUNAL AS CONTAINED IN PARA 19 AND 20 FOR T HE INITIAL ASSESSMENT YEAR 2001-02, THE COPY OF WHICH IS PLACED AT PAGE 32 TO 53 OF THE PAPER BOOK, IS REPRODUCED:- 19. FOR THE REASONS GIVEN ABOVE, WE, THEREFORE, HOLD THAT THE PAYMENT OF ROYALTY EQUAL TO 3% OF THE NET SALES PAID TO M/S HONGO, JAPAN IS AN ALLOWABLE BUSINESS EXPENDITURE IN THE HANDS OF THE ASSESSEE COMPANY AND CANNOT BE HELD TO BE OF CA PITAL IN NATURE. 20. BEFORE PARTING WITH THIS ISSUE, WE FURTHER HOLD THAT THE CIT (A) WAS NOT JUSTIFIED IN MAKING OUT A CASE THAT THE PAYME NT OF ROYALTY OF HONGO JAPAN WAS NOTHING BUT DIVERSION OF THE PROFIT ON THE GROUND THAT NO INCOME TAX WAS PAID ON THIS AMOUNT. W E HAVE PERUSED THE TAX DEDUCTION AT SOURCE RETURN U/S 195 FILED BY THE ASSESSEE WHICH ARE PLACED AT PAGES 94 TO 101 OF THE PAPER BOOK SUBMITTED BY THE ASSESSEE AND FIND THAT THE NECESSAR Y TAX TO BE DEDUCTED AT SOURCE U/S 195 FROM THE PAYMENT OF ROY ALTY PAID TO HONGO JAPAN HAS BEEN DULY DEDUCTED BY THE ASSE SSEE AND PAID TO THE GOVERNMENT ACCOUNT. MOREOVER, IT WAS NO T THE CASE OF THE A.O. THAT THE ASSESSEE DID NOT DEDUCT ANY TAX AT SOURCE FROM THE PAYMENT OF ROYALTY PAID TO HONGO JAPAN. THE CIT (A)S FINDING IN THIS REGARD IS PURELY BASED ON HIS IMAGINATION AND SURMISES WITHOUT LOOKING INTO THE RELEVANT DETAILS SU BMITTED BY THE ASSESSEE. WE, THEREFORE, SET ASIDE THE ORDERS O F THE AUTHORITIES BELOW ON THIS ISSUE AND ALLOW THE GROUND RA ISED BY THE ASSESSEE. 9. IN THE SUBSEQUENT YEARS THE AFOREMENTIONED ORDER OF THE TRIBUNAL HAS BEEN FOLLOWED BY THE TRIBUNAL. ITA NO.2613/DEL/2011 7 10. IN VIEW OF THE ABOVE DISCUSSION, THE IMPUGNED ADDI TION IS DELETED AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN THE M ANNER AFORESAID. 11 IN THE RESULT, THE APPEAL IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 05.08.20 11. SD/- SD/- [K.G. BANSAL] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 05.08.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES ITA NO.2613/DEL/2011 8 DATE OF DICTATION 02.08.2011 DATE OF PRESENTATION OF THE DRAFT ORDER TO THE MEMBER 03.08.2011 DATE OF RETURN FROM THE BENCH AFTER PRONOUNCEMENT &SIGNING DATE OF DISPATCH OF THE ORDER TO THE BENCH