DCIT, New Delhi V. M/s. Caryaire Air System Components Pvt. Ltd., New Delhi

ITA 2783/DEL/2015

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 5393 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 08-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M NAND KUMAR SHATE
• Assessee Lawyers: LALITHA KRISHNAMURTHY
• Keywords: Revised return; Capital expenditure
• Section: 142(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER I.T.A. NO. 2783 /DEL/201 5 A.Y. : 2010-11 DY. COMMISSIONER OF INCOME TAX, CIRCLE 21(2), ROOM NO. 222, C.R. BUILDING, I.P. ESTATE, NEW DELHI VS. M/S CARYAIRE AIR SYSTEM COMPONENTS PVT. LTD. (NOW KNOWN AS M/S RUSKIN TITUS INDIA PVT. LTD.) SHOP NO. 2F, 2 ND FLOOR, PLOT NO. 1&2, LSC, BLOCK-G, KONDLI, GHAROLI, MAYUR VIHAR, PHASE-III, NEW DELHI (PAN: AADCC0463B) (ASSESSEE) (RESPONDENT) REVENUE BY : SH. M. NAND KUMAR SHATE, SR.DR ASSESSEE BY : SMT. LALITHA KRISHNAMURTHY, CA ORDER PER H.S. SIDHU : JM THE REVENUE HAS FILED THIS APPEAL AGAINST THE IMPU GNED ORDER DATED 27.1.2015 OF THE LD. CIT(A)-2, NEW DELHI RELE VANT TO ASSESSMENT YEAR 2010-11. 2. THE GROUNDS RAISED IN THIS APPEAL READ AS UNDER: - I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE 2 ADDITION OF RS. 1,64,00,000/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF ROYALTY PAID. II) THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FRESH GROUND(S) OF APPEAL AND / OR DELETE OR AMEND ANY OF THE GROUND(S) OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED ITS RETURN OF INCOME DIGITALLY ON 12.10.2010 DECLARING A LOSS OF RS. 1,07,34,997/- IN THE COMPUTATION OF INCOME. THEREAFTER, THE ASSESS EE HAS FILED ITS REVISED RETURN ON 12.10.2010 DECLARING A LOSS OF RS. 1,07,3 4,998/-. THE RETURN WAS PROCESSED U/S. 143(1) OF THE INCOME TAX ACT, 19 61 (IN SHORT ACT). NOTICE U/S. 143(2) WAS SERVED ON 27.9.2011 UPON THE ASSESSEE SELECTING THE CASE OF THE ASSESSEE FOR SCRUTINY AND QUESTIONN AIRE WAS SERVED UPON IT ON 12.3.2012 ALONGWITH THE NOTICE U/S. 142(1) OF THE ACT, ASKING TO SUBMIT THE REQUIRED INFORMATION. IN RESPONSE THERE TO, THE AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED THE N ECESSARY DETAILS. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND FABRICATION OF VARIOUS ACCESSORIES OF STEEL AND OTH ER METAL USED IN HVAC AND OTHER INDUSTRIES. DURING THE COURSE OF ASSESSME NT PROCEEDINGS, ON PERUSAL OF PROFIT AND LOSS ACCOUNT, AO OBSERVED TH AT ASSESSEE HAS PAID A ROYALTY OF RS. 1,64,00,000/-. THE ENTIRE AMOUNT HAS BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD ADMN. AND O THER EXPENSES. ACCORDINGLY, THE ASSESSEE WAS ASKED TO FILE THE CO PY OF AGREEMENT OF ROYALTY PAYMENT AND ALSO SHOW CAUSE AS TO WHY AM OUNT SHOULD NOT BE TREATED AS A CAPITAL EXPENDITURE AND ADDED TO THE TOTAL INCOME OF THE 3 ASSESSEE. IN RESPONSE TO THE SAME, ASSESSEE AR SUB MITTED THAT ASSESSEE HAS ALREADY SUBMITTED ITS REPLY VIDE LETTER DATED 2 9.11.2012 STATING THEREIN THAT ROYALTY IS PAID TO CARYAIRE EQUIPMENT S INDIA PVT. LTD. THE COPY OF TECHNICAL SERVICES AND LICENSE AGREEMENT IS ENCLOSED HEREWITH. THE SAID REPLY OF THE ASSESSEE WAS CONSIDERED BY T HE AO AND BY PLACING THE RELIANCE ON THE DECISION OF THE HONBLE SUPREM E COURT OF INDIA IN THE CASE OF SOUTHERN SWITCH GEAR LTD. VS. CIT 232 ITR 3 59, AO TREATED THE ROYALTY PAYMENT OF RS. 1,64,00,000/- AS CAPITAL EXP ENDITURE AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVE D WITH THE AOS ACTION, THE ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VI DE HIS IMPUGNED ORDER DATED 27.1.2015 HAS PARTLY ALLOWED THE APP EAL OF THE ASSESSEE AND DELETED THE ADDITION IN DISPUTE, AFTER FOLLOWIN G THE DECISION OF HIS PREDECESSOR OF PRECEDING YEAR I.E. AY 2008-09 BY DI STINGUISHING THE FACTS OF THE PRESENT CASE WITH THE DECISION OF THE HONBL E SUPREME COURT OF INDIA IN THE CASE E OF SOUTHERN SWITCH GEAR LTD. VS. CIT (SUPRA). AGGRIEVED WITH THE IMPUGNED ORDER, THE REVENUE IS I N APPEAL BEFORE THE TRIBUNAL. 3. AT THE TIME OF HEARING, LD. DR RELIED UPON THE O RDER PASSED BY THE AO AND REITERATED THE CONTENTIONS RAISED BY THE RE VENUE IN THE GROUNDS OF APPEAL AND ALSO SUBMITTED THAT THE AO HAS RIGHTL Y TREATED THE ROYALTY PAYMENT OF RS. 1,64,00,000/- AS CAPITAL EXPENDITURE AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE ON THE ANVIL OF TH E DECISION OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF SOUT HERN SWITCH GEAR LTD. VS. CIT (SUPRA). 4 4. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE , HAS RELIED UPON THE ORDER OF THE LD. CIT(A) AND REITERATED THE CONT ENTIONS MADE BEFORE THE LD. CIT(A). HE FURTHER STATED THAT SINCE THE LD. CIT(A) HAS RIGHTLY DISTINGUISHED THE FACTS OF THE PRESENT CASE WITH T HE CASE OF SOUTHERN SWITCH GEAR LTD. RELIED BY THE AO AND THEREFORE, RI GHTLY DELETED THE ADDITION IN DISPUTE BY FOLLOWING THE DECISION OF HI S PREDECESSOR IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-0 9. IN ADDITION, HE ALSO FILED THE COPY OF THE ITAT, B BENCH, DELHI DECISION DATED 06.1.2016 IN THE CASE OF ASSESSEE PASSED IN ITA NO. 147/DEL/2 012 (AY 2008-09) ON SIMILAR AND IDENTICAL ISSUE IN WHICH THE SAID ORD ER OF THE LD. CIT(A) WAS UPHELD BY THE TRIBUNAL. THEREFORE, LD. COUNSEL OF THE ASSESSEE HAS REQUESTED TO DISMISS THE APPEAL OF THE REVENUE BY U PHOLDING THE ACTION OF THE LD. CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ELEVANT RECORDS AVAILABLE WITH US, ESPECIALLY THE IMPUGNED ORDER AS WELL AS THE CASE LAW CITED BY THE LD. COUNSEL OF THE ASSESSEE, AS AFORES AID. WE FIND THAT LD. CIT(A) ON THE IDENTICAL ISSUE HAS ELABORATELY DISC USSED AND ADJUDICATED THE ISSUE IN DISPUTE VIDE PARA NO. 4.2 AT PAGE NO. 13 OF THE IMPUGNED ORDER AND RIGHTLY DELETED THE ADDITION. FOR THE SA KE OF CONVENIENCE, WE ARE REPRODUCING HEREUNDER THE RELEVANT FINDINGS O F THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2009-10 ON THE ISSUE OF DISPUTE AS UNDER:- 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE DISCUSSION IN THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. I HAVE ALSO GONE THRO UGH 5 THE TECHNICAL SERVICE AND LICENCE AGREEMENT ENTERED INTO BY THE APPELLANT, WHICH PROVIDES FOR THE PAYME NT OF ROYALTY BY THE APPELLANT FROM YEAR TO YEAR UPTO A P ERIOD OF TEN YEARS AT THE RATE OF 3% OF THE NET SELLING P RICE OF THE LICENSED PRODUCTS. THERE IS ALSO PROVISION FOR TERMINATION OF THE AGREEMENT ON ACCOUNT OF THE FAUL T OF THE LICENSEE I.E. THE APPELLANT, OR FOR OTHER REASO NS GIVEN IN PARAS 10.2/10.3. THUS IT IS EVIDENT THAT R OYALTY HAS BEEN PAID BY THE APPELLANT NOT FOR ACQUIRING AN Y BENEFIT OF ENDURING NATURE BUT ON A RECURRING BASIS FROM YEAR TO YEAR, DEPENDING UPON THE TURNOVER (SALES) O F THE APPELLANT. THE FACTS OF THE CASE OF THE APPELLANT A RE QUITE DIFFERENT FROM THE FACTS IN THE CASE OF SOUTH ERN SWITCH GEAR LTD. (RELIED UPON BY THE ASSESSING OFFI CER) IN WHICH THERE WAS A COLLABORATION AGREEMENT WITH A FOREIGN COMPANY AND PAYMENTS WERE MADE ON LUMP SUM BASIS IN FIVE EQUAL INSTALLMENTS. SIMILAR ISSUE AROSE IN AN EARLIER YEAR AND MY PREDECESSOR CIT(APPEALS) HAS ALLOWED THE PAYMENT OF ROYALTY TO THE APPELLANT FOR A.Y. 2008-09. IN VIEW OF THE DISCUSSION ABOVE, I ALSO SE E NO JUSTIFICATION TO UPHOLD THE DISALLOWANCE OF THE SAM E DURING THE ASSESSMENT YEAR UNDER APPEAL. THE DISALLOWANCE IS DIRECTED TO BE DELETED AND GROUND N O. 3 OF THE APPEAL IS ALLOWED. 6. AFTER PERUSING THE AFORESAID FINDING OF THE LD. CIT(A), WE ARE OF THE CONSIDERED VIEW THAT THE FACTS OF THE PRESENT CASE ARE QUITE DIFFERENT FROM THE FACTS IN THE CASE OF SOUTHERN SWITCH GEAR LTD. (RELIED UPON BY THE AO IN HIS ORDER) IN WHICH THERE WAS A COLLABORATION AG REEMENT WITH A FOREIGN COMPANY AND PAYMENTS WERE MADE ON LUMP SUM BASIS IN FIVE EQUAL INSTALLMENTS. WE FIND THAT ON EXACTLY SIMILAR ISS UE THE PREDECESSOR OF THE 6 LD. CIT(A) IN THE ASSESSMENT YEAR 2008-09 HAS ALLO WED THE PAYMENT OF ROYALTY TO THE ASSESSEE AND THIS DECISION OF THE LD . CIT(A) WAS UPHELD BY THE TRIBUNAL VIDE ORDER DATED 06.1.2016, AS AFORES AID. HOWEVER, LD. DR COULD NOT CONTROVERT THIS FACTUAL POSITION. IN TH E BACKGROUND OF THE AFORESAID DISCUSSIONS, WE DO NOT FIND ANY ILLEGALIT Y OR INFIRMITY IN THE FINDINGS OF THE LD. CIT(A), HENCE, WE UPHOLD THE AC TION OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE WHEREIN, HE HAS DELETED TH E ADDITION OF RS. 1,64,00,000/- TOWARDS ROYALTY PAYMENT. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED ON 09/10/2018. SD/- SD/- [ANADEE NATH MISSHRA] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 09/10/2018 SRBHATNAGAR COPY FORWARDED TO: - 1. ASSESSEE - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHE S