ACIT, New Delhi V. M/s. Senior India Pvt. Ltd., New Delhi

ITA 3028/DEL/2010

• Counselvise Citation: 302820114 RSA 2010
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 17-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 15-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C S AGGARWAL; MANJU BHARDWAJ; R P MALL
• Assessee Lawyers: NIRANJAN KAULI
• Keywords: Transfer pricing; Business expenditure; Search and seizure; Double taxation relief; Opportunity of being heard; Principle of natural justice; Rule of consistency; Bonafide belief; Corroborative evidences; Royalty expenses; Capital expenditure
• Section: 37; 143(3); 92; 92E; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER & SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO. 3028/DEL/2010 ASSESSMENT YEAR: 2007-08 ACIT, VS. SENIOR INDIA P. LTD., CIRCLE-8(1), 1568, CHURCH ROAD, ROOM NO. 163, KASHMERE GATE, C.R. BLDG., NEW DELHI. NEW DELHI. AAAC12419N (APPELLANT) (RESPONDENT) & ITA NO. 2935/DEL/2010 ASSESSMENT YEAR: 2007-08 SENIOR INDIA P. LTD., VS. JCIT, 1568, CHURCH ROAD, RANG-8, C.R. BLDG., NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. C.S. AGGARWAL, SR. ADV. & R.P. M ALL, ADV. & MANJU BHARDWAJ, CA RESPONDENT BY : NIRANJAN KAULI, CIT(DR) ORDER PER SMT. DIVA SING, J.M. : THESE CROSS APPEALS PERTAINING TO 2007-08 A.Y. BY THE REVENUE AND THE ASSESSEE AGAINST THE ORDER DATED 13.04.2010 OF CIT( A)-XI AGITATE THE FOLLOWING ISSUES VIDE THE GROUNDS RAISED BY THE RESPECTIVE PA RTIES: ITA NOS. 3028 & 2935/D/2010 2 GROUNDS IN ITA NO. 3028 : - 1. LD. COMMISSIONER OF INCOME-TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING THE ADDITION OF RS. 3,20,11,229/- MADE BY THE AO ON ACCOUNT OF PAYMENT OF ROYALTY. 2. THE APPELLANT CRAVES TO AMEND, MODIFY, ALTER, ADD O R FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS AP PEAL. GROUNDS IN ITA NO. 2935 : - 1. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ORDER PASSED BY THE CIT(A) IN RESPECT OF WARRANTY EXPENSES AND S ALES COMMISSION EXPENSES IS BAD IN LAW AND THE DISALLOWANCE MADE UNDER SECTION 143(3) OF THE ACT BE DELETED. 2. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW I N CONFIRMING DISALLOWANCE OF RS. 6,59,204/- BEING WARRANTY EXPENSES OUT OF TOTAL WARRANTY EXPENSES AMOUNTING TO RS. 39,12,727/- CLAIMED BY THE APPELLANT. 2.1THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LA W IN UPHOLDING THAT AMOUNT OF RS. 15,000/- SHOWN AS PENALTY FROM A CUSTOMER TATA MO TORS IS IN THE NATURE OF PENALTY FOR ANY OFFENCE AND NOT ALLOWABLE U/S 37(1) OF THE ACT. 2.2 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 6,44,204/- (6,59,204 15,0 00) ON ACCOUNT OF WARRANTY EXPENSES CLAIMED BY THE APPELLANT. ALL THE INFORMA TION ASKED WERE DULY FILED DURING ASSESSMENT PROCEEDINGS AND NO FURTHER INFORM ATION WAS DESIRED BY CIT(A) THEREFORE, THE DISALLOWANCE WAS CONFIRMED WITHOUT G IVING THE APPELLANT SUFFICIENT OPPORTUNITY OF BEING HEARD IN THIS MATTER. 3. THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LA W IN CONFIRMING DISALLOWANCE OF RS. 14,62,635/- BEING AMOUNT OF SALES COMMISSION PAID T O M/S SENIOR AUTOMOTIVE, U.K. DURING THE YEAR IGNORING THE CONFIRMATION FILED DUR ING ASSESSMENT PROCEEDINGS AS DESIRED BY THE AO. NO FURTHER DETAILS WERE ASKED B Y CIT(A) OR AO THEREFORE THE DISALLOWANCE WAS CONFIRMED WITHOUT GIVING THE APPEL LANT SUFFICIENT OPPORTUNITY OF BEING HEARD IN THIS MATTER. 3.1THAT THE LD. CIT(A) HAS ERRED ON FACTS AND IN LA W IN IGNORING THAT THE PAYMENT OF COMMISSION TO SENIOR AUTOMOTIVE, U.K. A GROUP COMPA NY, WAS COVERED UNDER TRANSFER PRICING REGULATIONS. THE LD. CIT(A) HAS I GNORED THE CERTIFICATE IN FORM 3CEB FILED WITH ITS RETURN OF INCOME BY THE APPELLA NT COMPANY U/S 92E OF THE ACT, CERTIFYING THAT THE COMMISSION PAID TO SENIOR AUTOM OTIVE, U.K. IS AT ARMS LENGTH PRICE. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTE R, AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING O F THIS APPEAL. ITA NOS. 3028 & 2935/D/2010 3 2. THE RELEVANT FACTS AVAILABLE ON RECORD ARE THAT THE ASSESSEE IN THE YEAR UNDER CONSIDERATION WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOMOTIVE FLEXIBLE EXHAUST CONNECTORS, STAINLESS STEEL FLEXIB LE HOSE WITH BRAID WHICH WERE EXPORTED TO ITS ASSOCIATED ENTERPRISES AND ALSO SOL D TO VEHICLE MANUFACTURES IN INDIA. THE ASSESSEE FILED ITS RETURN ON 31 ST OCTOBER, 2007 DECLARING AN INCOME OF RS. 5,13,17,427/- WHICH WAS PICKED UP FOR SCRUTINY ASSESSMENT. THE AO AFTER ISSUING NOTICE U/S 143(2) AND ISSUING QUESTIONNAIRE ETC. AND CONSIDERING THE EXPLANATION OF THE ASSESSEE MADE AN ADDITION OF RS. 3,41,33,068/- (RS. 3,20,11,229 [ROYALTY EXPENSES] + RS. 6,59,204 [WARR ANTY EXPENSES] + RS. 14,62,635 [SALES COMMISSION]. AGGRIEVED BY THIS TH E ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) BY THE IMPUGNED ORDE R DELETED THE ADDITION MADE BY WAY OF DISALLOWANCE OF ROYALTY EXPENSES AND UPHE LD THE OTHER TWO ADDITIONS. AGGRIEVED BY THIS BOTH THE ASSESSEE AND THE DEPARTM ENT ARE IN APPEAL BEFORE THE TRIBUNAL ON THE ABOVE MENTIONED GROUNDS. 3. THE FACTS QUA THE FIRST ISSUE AGITATED BY THE AS SESSEE ARE THAT THE AO CONSIDERING THAT AN AMOUNT OF RS. 39,12,727/- HAD BEEN DEBITED UNDER THE SUB- HEADING WARRANTY UNDER THE HEADING MANUFACTURING EXPENSES IN THE PROFIT & LOSS ACCOUNT, REQUIRED THE ASSESSEE TO JUSTIFY TH E EXPENSES, ELABORATE THE DETAILS AND ADDUCE EVIDENCES FROM BANK STATEMENT TO PROVE THAT THE SAID AMOUNT WAS ACTUALLY PAID TO THE RESPECTIVE CLIENTS ON THE ACTUAL BASIS WITHIN THE PERIOD 01.04.2006 TO 31.03.2007. IN RESPONSE TO THIS IT WAS STATED ON BEHALF OF ASSESSEE THAT THE WARRANTY EXPENSES ARE RECOGNIZED ON THE BA SIS OF SPECIFIC WARRANTY CLAIMS LODGED BY THE CUSTOMERS AND PROVISIONS WERE MADE ON THE BASIS OF PAST HISTORY AND ACCEPTED IN THE PAST. RELIANCE WAS PLA CED UPON ROTORK CONTROLS INDIA (P) LTD. VS. CIT [2009] 180 TAXMAN 422. 3.1 CONSIDERING THE REPLY OF THE ASSESSEE THE AO OB SERVED THAT AS PER VOUCHER NO. C-1/1341 DATED 30.12.2006 THE AMOUNT OF RS. 15,000/- HAD BEEN SHOWN AS PENALTY IMPOSED BY TATA MOTORS AS SUCH IT SHOULD NOT HAVE BEEN ITA NOS. 3028 & 2935/D/2010 4 INCLUDED IN THE DETAILS OF WARRANTY AND SHOULD HAVE BEEN DISALLOWED OR ADDED BACK IN THE COMPUTATION OF INCOME UNDER THE DIFFERENT HE AD IN THE PROFIT & LOSS A/C BY THE ASSESSEE AS PENALTY IS NOT AN ALLOWABLE DEDUCTI ON U/S 37(1) OF THE INCOME TAX ACT, 1961. 3.2 PERUSING THE VOUCHER NO. C-1/2070 DATED 31.03.2 007, WHEREIN THE NARRATION READS ADDITIONAL PROVISION FOR WARRANTY CLAIM AS ON 31.03.2007 WHICH WAS FOR AN AMOUNT OF RS. 6,44,204/-. THE AO OBSERV ED THAT THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION FOR PASSING SUCH ENTRY ON 3 1.03.2007. BEING OF THE VIEW THAT THE ASSESSEE WAS DUTY BOUND TO CORRELATE ITS C LAIM OF DEBITING THE ENTIRE WARRANTY AMOUNT AND HOLDING THE ONUS IS CAST UPON T HE ASSESSEE TO PROVE THAT THE PROVISION CREATED AND DEBITED IN THE PROFIT AND LOS S ACCOUNT UNDER THIS HEADING WARRANTY SHOULD BE SUPPORTED BY CERTAIN WORKING WH ICH WOULD NECESSARILY INCLUDE SALES AND WARRANTY PERIOD, TERMS OF WARRANTY ACTUAL WARRANTY EXPENSES INCURRED IN PAST RATHER THAN SIMPLY SAYING THAT PROVISION ARE M ADE AS PER PAST. ACCORDINGLY, IN THE ABSENCE OF FACTUAL WORKING NOT SUPPORTED BY CON CRETE EVIDENCES DISALLOWANCE OF RS. 6,59,204/- WAS MADE (RS. 15,000/- + RS. 6,44 ,204/-). 3.3 IN APPEAL BEFORE THE CIT(A) THE ADDITION MADE W AS UPHELD OBSERVING AS UNDER: - 3.2 THE AO HAS PROVIDED REPEATED OPPORTUNITY TO THE APPELLANT AND THE SUBMISSION MADE BY THE APPELLANT IS DULY SCRUTINIZE D. PAYMENT OF RS. 15,000/- IS PENAL IN NATURE AND NOT COMPENSATORY AND HENCE I AGREE WITH THE ACTION OF THE AO OF DISALLOWING SUCH CLAIM. THE AO FURTHER B ROUGHT ON RECORD THAT TO PROVE THAT THE PROVISIONS CREATED AND DEBITED IN TH E P&L ACCOUNT UNDER THE HEAD WARRANTY IS SUPPORTED BY CERTAIN WORKINGS INCL UDING SALES AND WARRANTY PERIOD, TERMS OF WARRANTY, ACTUAL WARRANTY EXPENSES INCURRED, ETC. THE ENTIRE AMOUNT OF WARRANTY CLAIM HAS BEEN MADE ONLY ON THE BASIS OF A SINGLE ENTRY THAT TO BE MADE ON THE LAST DATE OF THE FINANCIAL YEAR I .E. 31/03/07. THE APPELLANT HAS FAILED TO DISCHARGE ITS ONUS TO ESTABLISH THE CLAIM AND TO THIS EXTENT I AGREE WITH THE SUBMISSION OF THE AO AND THE ACTION OF THE AO I N DISALLOWING WARRANTY CLAIM OF RS. 6,59,204/- (INCLUDING PENAL AMOUNT OF RS. 15,000/-) IS HEREBY SUSTAINED. ITA NOS. 3028 & 2935/D/2010 5 4. AGGRIEVED BY THIS THE ASSESSEE IS IN APPEAL. RE LYING UPON THE WRITTEN SUBMISSIONS FILED BEFORE THE BENCH LD. AR CONTENDED THAT THE ASSESSEE HAD SUBMITTED THE FOLLOWING SUBMISSIONS BEFORE THE DCIT IN RESPONSE TO HIS QUESTIONNAIRE DATED 13.03.2009: - S.NO. REPLIES OF THE ASSESSEE PAGES OF THE PAPER BO OK A) 24.03.2009 38-39 B) 20.04.2009 40-41 C) 28.04.2009 42 D) 12.05.2009 43 4.1 IT WAS SUBMITTED THAT THEREAFTER THE CASE WAS A SSIGNED TO JCIT, RANGE-8 AND IN THE FRESH PROCEEDINGS ANOTHER QUESTIONNAIRE DATED 19.11.2009 WAS ISSUED IN RESPONSE TO WHICH THE ASSESSEE FURNISHED THE FOL LOWING REPLIES ALONG WITH INFORMATION: - S.NO. REPLIES OF THE ASSESSEE PAGES OF THE PAPER BO OK A) 27.11.2009 46-48 B) 30.11.2009 49-50 C) 04.12.2009 51 D) 07.12.2009 52 4.2 IN THE SAID BACKGROUND IT WAS SUBMITTED BY LD. AR THAT THE CIT(A) HAS NOT CONSIDERED THE SUBMISSIONS OF THE ASSESSEE WHIC H ARE PLACED AT PAPER BOOK PAGE 7 & 8 WHICH ARE RELIED UPON BY THE ASSESSEE. 4.3 REGARDING THE AMOUNT OF RS. 15,000/- PAID BY TH E ASSESSEE AS WARRANTY TO ONE OF ITS CUSTOMERS NAMELY M/S TATA MOTORS THE PAYMENT WAS STATED TO BE IN THE NATURE OF NORMAL WARRANTY PROVIDED BY THE COMPA NY ON ITS PRODUCTS SOLD TO ITS CUSTOMERS. IT WAS STATED THAT THE PAYMENT THOUGH D ESCRIBED AS A PENALTY IS NOT FOR ANY OFFENCE OR ANY ACTION WHICH IS PROHIBITED BY LA W. THE EXPENDITURE HAS BEEN INCURRED DUE TO SOME DEFECTS IN THE GOODS SUPPLIED TO A CUSTOMER IN THE FORM OF WARRANTY EXPENSES. THE NATURE OF THE PAYMENT IS OF A CONTRACTUAL LIABILITY. SECTION 37(1) OF THE ACT HAS WRONGLY BEEN INVOKED T HE PAYMENT HAS NOT BEEN MADE FOR ANY VIOLATION OF LAW. RELIANCE WAS PLACED UPON: - ITA NOS. 3028 & 2935/D/2010 6 8.8 THE APPELLANT PLACES RELIANCE ON THE DECISIO N OF HONBLE SUPREME COURT IN THE CASE OF MALWA VANSPATI & CHEMICAL CO. V. CIT [1997] 225 ITR 383/92 TAXMAN 537 (SC) . IT WAS HELD THAT IF PENALTY IS IN THE NATURE OF COMPENSATION THEN IT IS ALLOWABLE AS DEDU CTION AND PENALTY FOR INFRACTION OF LAW IS NOT DEDUCTIBLE. 8.9 SIMILARLY IN CIT V. R.D. SHARMA & CO. [1982] 137 ITR 333 (BOM.) , IT WAS HELD THAT PENALTY PAID BY THE ASSESSEE CONTRACT OR FOR NON- COMPLETION OF CONTRACT WITHIN STIPULATED TIME IS AL LOWABLE. DELAY IN COMPLETION OF CONTRACT WORK IS INCIDENTAL TO THE BU SINESS OF BUILDING CONTRACTS. THEREFORE, THE LIABILITY OF COMPENSATIO N MUST BE CONSTRUED AS HAVING ARISEN ON ACCOUNT OF DELAY IN THE PERFORM ANCE OF A CONTRACT AND IS NOT IN THE NATURE OF A PENALTY. THEREFORE, COMPENSATION PAYABLE BY ASSESSEE-BUILDING CONTRACTOR ON THIS ACCOUNT IS DEDUCTIBLE AS BUSINESS EXPENDITURE. IN VIEW OF THE AFORESAID IT IS SUBMITTED THAT THE SUM OF RS. 15,000/- DISALLOWED BY THE LD. AO AND UP HELD BY THE LD. CIT(A) DESERVES; TO BE DELETED. 4.4 ADDRESSING THE AMOUNT OF RS. 6,44,204/- IT WAS SUBMITTED THAT WARRANTY EXPENSES ARE RECOGNIZED YEAR AFTER YEAR ON THE BASI S OF SPECIFIC WARRANTY CLAIMS LODGED BY THE CUSTOMERS AND THIS YEAR TOO THE PROVI SION ACTUALLY REPRESENTS THE ACTUAL CLAIMS RECEIVED BY THE ASSESSEE IN THE YEAR WHICH HAD NOT YET BEEN FORMALLY APPROVED BY THE STAFF. IT WAS CONTENDED THAT IT HA D BEEN SUBMITTED BEFORE THE AO THAT WARRANTY EXPENSES ARE RECOGNIZED ON THE BASIS OF SPECIFIC WARRANTY CLAIMS LODGED BY THE CUSTOMERS AND PROVISION MADE ON THE B ASIS OF PAST HISTORY WHICH HAVE BEEN ACCEPTED BY THE DEPARTMENT. IT WAS ALSO SUBMITTED THAT IN SUPPORT OF THE CLAIM MADE FURTHER DETAILS WERE FILED BEFORE TH E AO VIDE LETTER DATED 04.12.2009, WHEREIN ALL THE DETAILS WERE MADE AVAIL ABLE AT PAPER BOOK NO. 51 THE SAID DETAILS IT WAS SUBMITTED AND PLACED AT PAPER B OOK PAGE NO. 127 IN THE PRESENT PAPER BOOK. IN THE CONTEXT OF THESE ARGUMENTS AND SUPPORTING EVIDENCES IT WAS CONTENDED THAT THE AO DID NOT CALL FOR ANY FURTHER DETAILS REGARDING THE WARRANTY AND THE ADDITION WAS MADE WITHOUT GIVING THE ASSESS EE AN OPPORTUNITY TO EXPLAIN. CONCLUSION HAS BEEN ARRIVED AT STATING THAT THE AS SESSEE HAS NOT PROVIDED WORKINGS FOR THE SAME. REFERRING TO NAGULAKONDA VE NKATA SUBBA ROA VS. CIT (1975) 31 ITR 781 (AP) & SARUPCHAND HUKUMCHAND, (19 45) 13 ITR 245, 256 (BOM.) IT WAS SUBMITTED THAT WHEN THE AO PROPOSES T O MAKE AN ASSESSMENT IN ITA NOS. 3028 & 2935/D/2010 7 DISREGARD TO THE ASSESSEES BOOKS OF ACCOUNTS AND E VIDENCE PRODUCED NATURAL JUSTICE DEMANDS THAT THE AO DRAWS ASSESSEES ATTENT ION TO THE REASONS PREVAILING IN HIS MIND SO AS TO GIVE THE ASSESSEE AN OPPORTUNI TY TO PRODUCE EVIDENCE IN REBUTTAL OF THE MATERIAL ON WHICH THE AO PROPOSES T O MAKE THE ADDITION. 5. ON FACTS IT WAS CONTENDED THAT A PERUSAL OF THE DETAILS WOULD SHOW THAT THE PROVISION HAS BEEN MADE BASED ON A SCIENTIFIC A ND RELIABLE METHOD FOLLOWED BY THE ASSESSEE CONSIDERING THE PAST HISTORY THE ASSESSEE HAS CALCULATED ITS PRESENT OBLIGATION. THE CALCULATIONS ARE BASED ON PAST EVENTS AND THE CIT(A) ALSO WITHOUT GOING THROUGH THE FACTS AND THE SUBMISSIONS BASED ON EVIDENCES HAS MERELY UPHELD THE ACTION OF THE AO. 6. REFERRING TO PAGE 145 OF THE PAPER BOOK (STATEME NT OF WARRANTY EXPENSES) IT WAS FURTHER CONTENDED THAT IT REFERS T O TWO SUMS I.E. RS. 5,69,514/- AND RS. 6,44204/-, (WHICH AGGREGATED TO RS. 12,13,7 18/-). THESE TWO SUMS HAD BEEN DEBITED AS WARRANTY EXPENSES ON 31.03.2007 AND PERTAIN TO CUSTOMERS M/S S.M. AUTO, PUNE (THIS IT WAS STATED IS EVIDENT FRO M CREDIT VOUCHERS DATED 16.07.2007 AND 03.08.2008 ENCLOSED WITH THE SUBMIS SION). IT WAS SUBMITTED THAT BOTH THE CLAIMS TOWARDS WARRANTY WERE NOT CREDITED TO THE ACCOUNT OF THE CUSTOMER M/S S.M. AUTO DURING THE INSTANT A.Y. 2007-08, SINC E SUCH CLAIMS WERE NOT FORMALLY APPROVED BY THE MANAGEMENT AS IT WAS STILL IN PROC ESS. IT WAS ARGUED THAT THE FACT OF CLAIM BEING MADE WAS EVIDENT. IN THE CIRCUMSTAN CES IT WAS ARGUED THAT THE AO HOWEVER, DID NOT DISPUTE THE CLAIM OF RS. 5,69,514/ -, AND HE ALLOWED THE SAME AND IN THE VERY SAME FACTS AND CIRCUMSTANCES QUA THE CL AIM OF WARRANTY EXPENSES OF RS. 6,44,204/- WAS DISALLOWED HOLDING THAT IT REPR ESENTS MERELY A PROVISION, WHEREAS BOTH THE SUMS REPRESENTED THE AMOUNTS TOWAR DS WARRANTY OF M/S S.M. AUTO, PUNE. IT WAS ARGUED THAT BOTH THE CLAIMS WER E LODGED DURING THE INSTANT ASSESSMENT YEAR AND AS SUCH BOTH THE WARRANTY CLAIM S WERE ACCOUNTED FOR DURING THE INSTANT ASSESSMENT YEAR AND WERE CLAIMED AS DED UCTION. IT WAS ARGUED THAT IN FACT, THE AFORESAID SUM WAS CREDITED IN THE ACCOUNT OF THE CUSTOMER ON 16 TH JULY, ITA NOS. 3028 & 2935/D/2010 8 2007 & 3 RD AUGUST, 2007 (I.E. IN ASSESSMENT YEAR 2008-09) WIT H RS. 7,21,694.28 & ERS. 5,26,592/- RESPECTIVELY WHICH AGGREGATES TO RS . 12,48,286/- AS AGAINST THE CLAIM OF RS. 12,13,718/- MADE AS WARRANTY EXPENSES (RS. 5,69,514/- + RS. 6,44,204/-). IN OTHER WORDS, THE GROUND OF THE DIS ALLOWANCE THAT THE AMOUNT CLAIMED AND DEBITED BUT NOT CREDITED IN THE ACCOUNT OF THE CUSTOMER IT WAS ARGUED IS NOT JUSTIFIED ON ACCOUNT OF THIS FACT ALSO. IT WAS SUBMITTED THAT FROM THE PAGE 152 OF THE PAPER BOOK, IT IS APPARENT THAT RS. 6,44,204 /- WAS NOT A PROVISION BUT WAS AN ACTUAL EXPENDITURE. IT WAS URGED THAT IT IS A SETTLED LEGAL POSITION THAT IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE A CCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED, THOUGH THE LIABILITY MAY HAVE TO BE QUA NTIFIED AND DISCHARGED AT A FUTURE DATE. IT WAS ARGUED THAT WHAT SHOULD BE CE RTAIN IS THE INCURRING OF THE LIABILITY. HEAVY RELIANCE WAS PLACED ON ROTORK CON TROLS INDIA (P) LTD. VS. CIT [2009] 180 TAXMAN 422. IT WAS FURTHER SUBMITTED TH AT SIMILAR CLAIMS OF WARRANTY IN THE PRECEDING ASSESSMENT YEARS WHICH HAD BEEN DEBIT ED DURING THE RESPECTIVE YEARS IRRESPECTIVE OF WHICH THE ACCOUNT OF THE CUST OMER LIKEWISE WAS CREDITED DURING THE SUCCEEDING ASSESSMENT YEARS WERE ALLOWED BY THE REVENUE ITSELF AND AS SUCH, EVEN FOLLOWING THE RULE OF CONSISTENCY NO DISALLOWANCE WAS WARRANTED. AS SUCH IT WAS ARGUED THAT THE ADDITION DESERVES TO BE DELETED. 7. THE LD. DR ON THE OTHER HAND, RELYING UPON THE I MPUGNED ORDER CONTENDED THAT RS. 15,000/- HAS RIGHTLY BEEN ADDED AS IT IS AN EXPENDITURE INCURRED ON ACCOUNT OF A PENALTY AND AS SUCH HAS RIGHTLY BEE N DISALLOWED U/S 37(1). IN REGARD TO THE WARRANTY PROVISION FOR WARRANTY OF RS . 6,44,204/- IT WAS ARGUED THAT SINCE NO WORKING HAD BEEN GIVEN BY THE ASSESSEE TH E IMPUGNED ORDER DESERVES TO BE UPHELD. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD ON A CAREFUL CONSIDERATION OF THE SAME WE ARE OF THE VIEW THAT IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE BROUGH T OUT BY WAY OF THE GRIEVANCE POSED BY THE ASSESSEE AT GREAT LENGTH IN THE EARLIE R PART OF THIS ORDER THAT THE ITA NOS. 3028 & 2935/D/2010 9 ISSUE HAS TO BE RESTORED. IN ORDER TO ARRIVE AT TH E SAID CONCLUSION WE HAVE SEEN THAT THE REVENUE HAS NOT GIVEN ANY EFFECTIVE REPRES ENTATION ON THE ABOVE MENTIONED GRIEVANCE OF THE ASSESSEE. IT HAS BEEN C ANVASSED ON BEHALF OF THE ASSESSEE THAT THE ADDITION BY WAY OF DISALLOWANCE H AS BEEN MADE BY THE A.O. WITHOUT CONFRONTING THE DOUBTS PREVAILING IN THE A OS MIND. ON A PERUSAL OF THE MATERIAL AVAILABLE ON RECORD WE HAVE SEEN THAT THE DETAILED REPLIES OF THE ASSESSEE BEFORE THE AO AND THE CIT(A) HAVE NOT BEEN CONSIDERED BY THE AUTHORITIES BEFORE UPHOLDING THE ADDITION MADE. IN THE APPELLATE PROCEEDINGS ALSO THE AOS ACTION HAS BEEN UPHELD WITHOUT CONSIDERIN G THE REPLIES AND MATERIAL AVAILABLE ON RECORD. IT IS A SETTLED LEGAL POSITIO N THAT BEFORE ARRIVING AT A CONCLUSION THE FACTS NECESSARILY NEED TO BE MARSHA LED ONLY THEN LAW CAN APPLY. IT IS SEEN THAT THE SAID EXERCISE HAS NOT BEEN DONE. THE ARGUMENT OF THE ASSESSEE THAT RS.15,000/- WAS AN AMOUNT COVERED BY WARRANTY OFFERED TO A CUSTOMER TATA MOTORS ON ACCOUNT OF DEFECTS IN THE GOODS OFFERED T O IT WHICH WERE NOT MEETING THE CONTRACTUAL OBLIGATION ON FACTS HAS NOT BEEN CONSI DERED. THE EVIDENCE WHETHER THE PENALTY WAS ARISING FROM A CONTRACTUAL OBLIGAT ION AS CLAIMED OR ON ACCOUNT OF STATUTORY OR LEGAL VIOLATION HAS TO BE CONSIDERED. IF THE PENALTY IS FOR ANY OFFENCE UNDER LAW THEN IT NECESSARILY CANNOT BE A WARRANTY FOR DEFECTIVE GOODS, HOWEVER, IF IT IS FOR DEFECTIVE GOODS, THEN ACCRUING OUT OF CON TRACTUAL OBLIGATION IT HAS TO BE ALLOWED. IT IS SEEN THAT NO EFFORT TO LOOK INTO T HE FACTS HAS BEEN DONE. SIMILARLY THE FACTS, SUBMISSIONS QUA THE OTHER ISSUE ALSO HAV E NOT BEEN TAKEN INTO CONSIDERATION. THE CLAIM THAT THE CALCULATION IN R EGARD TO THE WARRANTY THOUGH DESCRIBED AS A PROVISION IS ACTUALLY BASED ON A SCI ENTIFIC METHOD DULY FOLLOWED IN THE PAST AND RECOGNIZED AS SUCH BY THE DEPARTMENT A LONG WITH THE ARGUMENT THAT SIMILAR CLAIM QUA RS.5,69,514/- HAS BEEN FAVOURABLY CONSIDERED WHEREIN ALSO THE MANNER OF CALCULATIONS AND THE PROCESS OF FINALIZIN G THE CLAIM WAS SIMILARLY UNDERWAY AS IT HAD NOT BEEN APPROVED BY THE MANAGEM ENT ARE THE SUBMISSIONS ADVANCED WHICH ON FACTS HAVE NOT BEEN EXAMINED. ITA NOS. 3028 & 2935/D/2010 10 8.1. ACCORDINGLY FOR THE DETAILED REASONS GIVEN HER EINABOVE WE RESTORE THE ISSUE BACK TO THE FILE OF THE A.O. WITH THE DIRECTI ON TO DECIDE THE SAME IN ACCORDANCE WITH LAW, BY WAY OF A SPEAKING ORDER, AF TER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 9. THE FACTS RELEVANT TO THE NEXT ISSUE AGITATED BY THE ASSESSEE ARE THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 70,58,390 /- UNDER THE HEAD SALES COMMISSION IN THE PROFIT & LOSS A/C AS PER THE DET AILS FILED BY THE ASSESSEE COMPANY. IN RESPONSE TO THE QUERY OF THE AO IT WA S STATED THAT THE AMOUNT CONSISTS OF TWO HEADINGS: - COMMISSION PAID (INDL.) RS. 39,43,156/-, AND COMMISSION PAID EXPORT INDL. RS. 3115234/- 10. THE AO REQUIRED THE ASSESSEE VIDE QUERY NO. 5 T O EXPLAIN AS UNDER: FILE NAMES & POSTAL ADDRESS, CONFIRMATION OF A/C WITH IT FILE NO./PAN NO. AND ADDUCE EVIDENCE OF ACTUAL PAYMENT BY ACCOUN T PAYEE CHEQUE. PLEASE ALSO EXPLAIN AND JUSTIFY AS TO HOW AND WHAT THESE PARTIES HAVE RENDERED SERVICES TO THE ASSESSEE COMPANY SO AS TO ENABLE THEM TO CLAIM AND EARN COMMISSION. 11. THE ASSESSEE RESPONDED THAT COMMISSION IS ACCRU ED TO SENIOR AUTOMOTIVE, QAKWOOD CLOSE, PEN Y FON INDUSTRIAL EST ATE CRUMLIN, UNITED KINGDOM. THE AO CONSIDERING THE FACT THAT SINCE NO DETAILS FOR THE CLAIM OF RS. 14,62,635/- WERE FURNISHED NAMELY AS TO WHAT CLIENT S WERE PROCURED BY SENIOR AUTOMOTIVE, UK FOR THE SENIOR INDIA PVT. LTD. I.E. ASSESSEE COMPANY HELD THE CONFIRMATION AS INSUFFICIENT EVIDENCE AS IT DID NOT REFER TO ANY DETAILS OF ACCOUNT AS TO WHAT PARTY/BUSINESS WAS BROUGHT TO THE ASSESSEE COMPANY. CONSIDERING THE CONFIRMATION WHICH STATED THAT WE CONFIRM THAT IN THE AMOUNT OF RS. 14,62,625/- HAS ACCRUED TO US AS COMMISSION ON THE BUSINESS PRO CURED BY US FOR YOU DURING THE YEAR APRIL, 2006 TO MARCH, 2007. THE AO WAS O F THE VIEW THAT IT MERELY STATES THAT THE AMOUNT HAS MERELY ACCRUED AND HAS NOT ACTU ALLY BEEN PAID. HE FURTHER HELD THAT THE CLAIM IS ALSO HIT BY SEC. 40A(2)(B) O F THE I.T. ACT, 1961 BECAUSE THIS CLAIM IS MADE TOWARDS A FOREIGN COMPANY WHICH WILL FALL IN THE CATEGORY OF ITA NOS. 3028 & 2935/D/2010 11 40A(2)(B). ACCORDINGLY, HOLDING THAT THE ASSESSEE HAS FAILED TO ESTABLISH BY WAY OF CORROBORATING AND LEADING EVIDENCES AS TO WHAT ACTU AL SERVICES WERE RENDERED BY SENIOR AUTOMOTIVE U.K. FOR THE ASSESSEE THE DISALLO WANCE WAS MADE. RELIANCE WAS PLACED UPON SUPREME COURT OF INDIA LACHMINARAYA N MADAN LAL VS. COMMISSIONER OF INCOME-TAX 86 ITR 439. 12. IN APPEAL BEFORE THE CIT(A) THE ACTION OF THE A O WAS UPHELD OBSERVING AS UNDER: - 4.2 EXAMINED THE RIVAL SUBMISSIONS. IN ITS SUBMISSIO N BEFORE ME THE APPELLANT TRIED TO ESTABLISH THE DETAILS OF PAYMENT I.E. REGARDING GENUINENESS OF THE FACTS AS TO WHETHER PAYMENT WAS MADE OR NOT. A DMITTEDLY PAYMENT WAS MADE BY THE APPELLANT TO ITS ASSOCIATED CONCERN AMO UNTING TO RS. 14,62,635/- BUT THE QUESTION ARISES WHAT SERVICES WAS RENDERED BY THE SAID PARTY TO THE APPELLANT FOR WHICH SUCH AMOUNT WAS PAID BY THE PAR TY. NO EVIDENCE REGARDING RENDERING OF SERVICE COULD BE ADDUCED BY THE APPELL ANT EITHER BEFORE THE AO OR BEFORE ME. DISCLOSING THE AMOUNT IN FORM NO. 3CEB OR THE ACTION OF THE TRANSFER PRICING OFFICER IS NO JUDGMENT ON THE GENU INENESS OF THE CLAIM SO FAR AS SECTION 37 IS CONCERNED. THE AO IS THE PROPER A UTHORITY TO EXAMINE THE CLAIM AND AFTER DETAILED DELIBERATION HE HAS ESTABL ISHED THAT NO SERVICES WERE RENDERED BY THE SAID PARTY TO THE APPELLANT FOR WHI CH THE PAYMENT WAS MADE, AT LEAST THERE IS NO SUCH MATERIAL EVIDENCE ON RECORD COULD BE ADDUCED BY THE APPELLANT BEFORE THE AO OR BEFORE THE APPELLATE AUT HORITY. THAT BEING THE CASE I FIND NO JUSTIFICATION TO INTERFERE WITH THE ACTIO N OF THE AO AND THE DISALLOWANCE IS HEREBY SUSTAINED. 13. AGGRIEVED BY THIS THE ASSESSEE IS IN APPEAL BEF ORE THE TRIBUNAL. IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT M/S SENIOR AUTOMOTIVE U.K WAS AN ASSOCIATED ENTERPRISE AND THE AFORESAID SUM OF AGEN CY COMMISSION WAS DULY DISCLOSED IN THE TRANSFER PRICING CERTIFICATE IN FO RM 3CEB U/S 92 OF THE ACT AS IS EVIDENT FROM PAGE 125 OF THE PAPER BOOK. IT WAS SUBMITTED THAT PAYMENT O F THE AGENCY COMMISSION WAS AT ARMS LENGTH AND THIS FACT HAS BEEN ACCEPTED BY THE LD. AO. IT WAS ARGUED THAT THE AO DID NOT CALL FOR ANY FURTHER DETAILS REGARDING COMMISSION PAID TO M/S SENIOR AUTOMOTIVE U.K. IT WA S ARGUED THAT AFTER CONFIRMATION CERTIFICATES WERE FILED BY THE ASSESSE E. IT WAS ARGUED THAT IN THE ABSENCE OF ANY SHOW CAUSE NOTICE, THE ASSESSEE WAS UNDER BONA FIDE BELIEF THAT ITA NOS. 3028 & 2935/D/2010 12 THE AO IS SATISFIED WITH THE SUBMISSIONS ALREADY MA DE AND NO FURTHER DETAILS WERE REQUIRED. IT WAS ARGUED THAT THE ADDITION WAS MADE WITHOUT GIVING THE ASSESSE A SUFFICIENT OPPORTUNITY OF BEING HEARD IN THIS MATTE R. IT WAS ARGUED THAT DURING THE APPELLATE PROCEEDINGS THE ASSESSEE FILED THE DETAIL ED SUBMISSIONS, HOWEVER, CIT(A) UPHELD THE FINDINGS OF THE AO. IT IS SUBMIT TED THAT AFTER THE ORDER OF THE CIT(A), THE ASSESSEE APPELLANT PREFERRED A RECTIFIC ATION APPLICATION U/S 254 OF THE ACT, (COPY OF THE APPLICATION IT WAS STATED IS PLAC ED AT PAGES 128-130 OF THE PAPER BOOK) AND THE REQUISITE DETAILS ARE PLACED AT PAGES 136-144 OF THE PAPER BOOK. HOWEVER, THE APPLICATION FILED BY THE ASSESSEE APPE LLANT IT WAS SUBMITTED WAS REJECTED BY CIT(A). IT WAS URGED THAT A PERUSAL OF THE FORM A2 SUBMITTED TO THE HONGKONG AND SHANGHAI BANKING CORPORATION, WOULD SHOW THAT THE NATURE OF THE PAYMENT MADE TO THE M/S SENIOR AUTOMOTIVE U.K. WAS SHOWN AS AGENCY COMMISSION. IT WAS SUBMITTED THAT FROM TRANSFER PR ICING CERTIFICATE IN FORM 3CB U/S 92 OF THE ACT PLACED AT PAGE 125, THE NATURE OF THE PAYMENT IS SHOWN AS AGENCY COMMISSION. THE SAID CERTIFICATE IT WAS SU BMITTED WAS ACCEPTED BY THE REVENUE. ACCORDINGLY, IT WAS ARGUED THAT THE ASSES SEE WAS NOT PROVIDED AN OPPORTUNITY TO EXPLAIN ALL THESE FACTS FROM THE EVI DENCE AVAILABLE ON RECORD. 14. ON MERITS IT WAS ARGUED THAT GENERALLY FOLLOWIN G SERVICES ARE RENDERED BY THE SALE AGENTS: A. PROMOTING SALE OF ASSESSEE PRODUCTS AMONG POTENT IAL BUYERS/USERS IN THEIR JURISDICTION. B. PROCURING BUSINESS AND ORDERS FROM CUSTOMERS. C. LIAISON WITH VARIOUS DEPARTMENTS OF CUSTOMERS AN D FOLLOW UP FOR RELEASE OF ORDERS FOR THE ASSESSEE. D. KEEPING ASSESSEE INFORMED OF RELEASE OF VARIOUS TENDERS FOR SUPPLY OF GOODS ITEMS FROM TIME TO TIME. E. ARRANGING TO FILE TENDER DOCUMENTS AND LIAISON W ORK WITH CONCERNED PERSONNEL AND DEPARTMENTS. F. MONITORING SHIPMENTS MADE FOR TIMELY SUPPLY OF P RODUCTS TO CUSTOMERS AND FOLLOWING UP FOR THE RELEASE OF PAYME NTS ON DUE DATE. ITA NOS. 3028 & 2935/D/2010 13 G. KEPING ASSESSEE INFORMED ABOUT ANY DEVELOPMENTS OR OTHER RELEVANT ACTIVITIES OF COMPETITORS. H. RESPONSIBILITY OF FIXING UP APPOINTMENTS WITH PU RCHASER/CUSTOMER AS AND WHEN REQUIRED. I. COLLECTION OF STATUTORY FORMS. BEFORE THE AO, IT WAS ARGUED THAT THE ASSESSEE FURN ISHED THE DETAILS OF THE COMMISSION EXPENSES ALONGWITH CONFIRMATION CERTIFIC ATES FROM THE AGENTS. AFTER FILING THE CONFIRMATION CERTIFICATES, THE AO DID NO T CALL FOR ANY FURTHER DETAILS REGARDING SALES COMMISSION PAID/PAYABLE TO ANY OF T HE AGENTS. IT WAS REITERATED THAT THE AO DISALLOWED THE COMMISSION PAID TO . M/ S SENIOR AUTOMOTIVE U.K. A GROUP COMPANY ON THE GROUND THAT RELEVANT DETAILS W ERE NOT FURNISHED. IT WAS CONTENDED THAT HE IGNORED COPY OF THE 3CEB REPORT F URNISHED BEFORE HIM. IT WAS SUBMITTED THAT COMMISSION WAS PAID TO M/S SENIOR AU TOMOTIVE UK IN RESPECT OF SUPPLIES MADE TO ARVIN TIMES MONITORS UK WHO WAS IN TRODUCED BY THE SENIOR AUTOMOTIVE FOR PROCURING THE ORDER OF THE SAID PART Y. IT WAS ARGUED THAT AS OTHER AGENTS, ASSESSEE ALSO DULY FILED THE CONFIRMATION C ERTIFICATE FROM M/S SENIOR AUTOMOTIVE U.K. WITH THE AO. IT WAS REITERATED THA T AFTER FILING CONFIRMATION CERTIFICATE THE AO DID NOT CALL FOR ANY FURTHER INF ORMATION IN RESPECT OF THE AFORESAID. IN ABSENCE OF ANY SHOW CAUSE NOTICE, THE ASSESSEE W AS UNDER BONA FIDE BELIEF THAT THE AO IS SATISFIED WITH THE SUBMISSIONS AND N O FURTHER DETAILS ARE REQUIRED. HOWEVER, IT WAS URGED THAT THE AO HAS ARBITRARILY D ISALLOWED THE ENTIRE AMOUNT OF COMMISSION PAID/PAYABLE TO M/S SENIOR AUTOMOTIVE U. K. ALLEGING THAT REQUISITE DETAILS HAVE NOT BEEN FILED BY THE ASSESSEEE, HOWEV ER, IT IS SUBMITTED THAT WITH THE SIMILAR DETAILS (I.E. CONFIRMATION WHICH IS PLACED AT PAGE 114 OF THE PAPER BOOK), LD. AO ACCEPTED THE COMMISSION PAID TO THE OTHER AGENTS (THE DETAILS OF THE COMMISSION PAID IS PLACED AT PAGE 136 OF THE PAPER BOOK). 15. REFERRING TO PAGE 125 OF THE PAPER BOOK, IT WAS SUBMITTED THAT THE TPO HAS MADE NO ADJUSTMENTS. REFERENCE WAS ALSO MADE T O PAGE 140 OF THE PAPER BOOK WHICH CONTAINS FORM A2 FROM APPLICATION CUM DE CLARATION UNDER WHICH ITA NOS. 3028 & 2935/D/2010 14 PURPOSE IS MENTIONED AS AGENCY COMMISSION; PAGE 1 36 OF THE PAPER BOOK IT WAS SUBMITTED CONTAINS THE DETAILS OF AGENT WISE SALES COMMISSION AND THE DETAILS FOR THIS SPECIFIC AGENT IT WAS SUBMITTED ARE INCLUDED O F PAGE 137 WHICH SHOWS THAT DESTINATION AS U.K. AND THE PARTYS NAME AS ARVIN T IMEX MANITUBE, DESTINATION U.K. AS AGAINST THE BILL NUMBERS MENTIONING THEREIN ALONG WITH DETAILS OF DATES ON WHICH PAYMENTS HAVE BEEN MADE ALONG WITH VOUCHER NU MBER BANK STATEMENT ADVISE ETC. 16. THE LD. DR RELYING UPON THE ORDERS OF THE AUTHO RITIES BELOW CONTENDED THAT PAYMENTS HAVE BEEN MADE TO SISTER CONCERN AND THE ASSESSEE HAS FAILED TO GIVE DETAILS AND IS ABLE TO PROVE ONLY THE FACT THA T PAYMENTS HAVE BEEN MADE BUT WHETHER ACTUAL SERVICES WERE RENDERED HAS NOT BEEN ESTABLISHED AND MERE EVIDENCE OF PAYMENT OR TDS DOES NOT ESTABLISH THE S ERVICES HAVE BEEN RENDERED. IT WAS HIS SUBMISSION THAT PAYMENTS AT TIMES ARE BE ING MADE TO COUNTRIES WHICH ARE TAX HAVEN AS SUCH DIVERSION OF THE PAYMENTS TO SUCH COUNTRIES IS POSSIBLE IF THE DETAILS ARE NOT GIVEN BY THE ASSESSEE AS SUCH T HE AO IS JUSTIFIED IN NOT ALLOWING THE CLAIM AND THE JUDGEMENT OF THE APEX COURT IN M CDOWELLS CASE CAN COME INTO PLAY. 17. IN REPLY THE LD. AR CONTENDED THAT IF THE LD. D R WOULD CARE TO SEE IT WOULD BE EVIDENT THAT PAYMENTS HAVE BEEN MADE TO A COMPAN Y SITUATED IN U.K. WHOSE NAME IS GIVEN AS SUCH IT IS NOT A TAX HAVEN. THE A O HAS THE NAME OF THE COMPANY; 3CAB REPORT IS AVAILABLE ON THE RECORD AN D THE AGREEMENT BETWEEN THE SISTER CONCERN IS WITH THE ASSESSEE WITH THE AO. IT WAS REITERATED THAT NO PAYMENTS HAVE BEEN MADE TO COUNTRIES WHICH ARE TAX HAVENS. IT WAS HIS ARGUMENT THAT IF NO SERVICE HAS BEEN RENDERED TPO W OULD HAVE MADE AN ADJUSTMENT. EVERY TRANSACTION WHICH IS ENTERED WIT H SISTER CONCERN HAS TO BE EXAMINED UNDER TRANSFER PRICING BY THE TPO AND IF NO SERVICES HAD BEEN RENDERED THEN ADJUSTMENTS WOULD NECESSARILY HAVE BEEN MADE. IT WAS ARGUED THAT EVIDENCE ITA NOS. 3028 & 2935/D/2010 15 OF SERVICES RENDERED IS AVAILABLE. ATTENTION WAS I NVITED TO PAPER BOOK PAGE NO. 152 WHICH ADDRESSES THE PAST HISTORY WITH THE SISTE R CONCERN. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CONSIDERING THE ARGUMENTS ADV ANCED ON BEHALF OF THE ASSESSEE NAMELY THAT AFTER SUBMITTING ITS REPLY THE ASSESSEE WAS UNDER A BONAFIDE BELIEF THAT THE A.O. WAS SATISFIED WITH TH E EXPLANATION OFFERED AND REQUIRED NO FURTHER DETAILS; AND THE ARGUMENT THAT THE ASSESSEE COULD ADEQUATELY EXPLAIN FROM THE MATERIAL AVAILABLE ON R ECORD HAD IT BEEN CALLED UPON TO DO SO; AND THAT THE CIT(A) ALSO DID NOT LOO K AT THE DETAILS AND MATERIAL ON RECORD WHICH COULD NOT BE ASSAILED BY T HE REVENUE EFFECTIVELY.IT IS SEEN THAT NO REASONS HAVE BEEN GIVEN IN THE IMPU GNED ORDER BEFORE ARRIVING AT A CONCLUSION WHY THE EVIDENCE RELIED UPON BY THE ASSESSEE SHOULD NOT BE ACCEPTED. IN ORDER TO ARRIVE AT A C ONCLUSION WHICH CAN BE LEGALLY UPHELD IT IS MANDATORY THAT THE FACTS AVAIL ABLE ON RECORD AND THE EVIDENCES IN SUPPORT OF THE CLAIM SHOULD BE MARSHAL ED. AS PER THE ARGUMENTS ADVANCED IT IS SEEN THAT THIS EXERCISE HA S BEEN MISSING RIGHT FROM THE ASSESSMENT STAGE. ACCORDINGLY FOR THE R EASONS GIVEN HEREINABOVE GROUND NO.3 RAISED BY THE ASSESSEE IS R ESTORED TO THE A.O. WITH THE DIRECTION TO DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. ITA NOS. 3028 & 2935/D/2010 16 19. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. 20. THE FACTS AVAILABLE ON RECORD QUA THE DEPARTMEN TAL GROUND ARE THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.3,20, 11,229/- AS A PAYMENT OF ROYALTY TO ITS HOLDING COMPANY I.E. SR.INVESTMEN T A.G.CORPORATION ORGANIZED UNDER THE LAWS OF SWITZERLAND. ON BEHALF OF THE ASSESSEE IT WAS STATED THAT THE EXPENDITURE IS NOT A CAPITAL EXPEND ITURE. FOR THE SAID PURPOSE REFERENCE WAS MADE TO ARTICLE 2 OF THE AGRE EMENT WITH THE HOLDING COMPANY WHEREIN IT WAS SET OUT THAT THE PAYMENT W AS TO BE MADE FOR ROYALTY FOR THE USE OF BRAND NAME FOR THE PRODUCTS BEING MANUFACTURED AND FOR ENSURING CONTINUED AVAILABILITY OF NEW TECHNOL OGY. THE PAYMENT IT WAS STATED WAS NOT FOR ACQUIRING AN ADVANTAGE OF AN END URING NATURE. PERUSAL OF THE RECORD SHOWS THAT THE A.O. OBSERVED AT PAGE 2 O F THE ASSESSMENT ORDER THAT SIMILAR ADDITIONS WERE MADE IN THE EARLIER A.Y S AS SUCH IN LINE WITH CONSISTENT VIEW BEING TAKEN DISALLOWANCE WAS MADE UNTIL THE ISSUE IS FINALLY RESOLVED BY THE HONBLE SUPREME COURT. ON BEHALF OF THE ASSESSEE RELIANCE HAS BEEN PALCED UPON THE ORDER OF THE COOR DINATE BENCH RENDERED IN A.Y. 2003-04 WHICH HAS RELIED UPON ITS OWN ORDER FOR A.Y. 1998-99 WHEREIN RELIANCE HAS BEEN PLACED UPON ORDER IN CIT VS. IAC (PUMPS) LTD. (1998) 232 ITR 316 (SC); SHRIRAM REFRIGERATION, 127 ITR 746 (DEL). A ITA NOS. 3028 & 2935/D/2010 17 PERUSAL OF THE IMPUGNED ORDER SHOWS THAT FOLLOWING SUBMISSIONS WERE ADVANCED ON BEHALF OF THE ASSESSEE. THE APPELLANT HAS PAID ROYALTY OF RS.3,20,11,229/- TO THE PARENT COMPANY M/S SENIOR INVESTMENT A.G. (SIAG). THERE I S AN AGREEMENT BETWEEN THE PARENT COMPANY AND THE APPELLANT IN 199 8 WHICH WAS FURTHER RENEWED VIDE DATED 20.12.2002. AS PER THE ARTICLE 4 OF THE AGREEMENT, THE APPELLANT IS TO PAY ROYALTY TO SIAG @ 5% ON DOMESTIC SALES AND 8% ON FOB ON OVERSEAS SALES. DURING THE PERIOD UNDER CONSIDERATION, THERE WERE DOMESTIC SALES OF RS. 24. 84 CRORES AND FOB SALES OF RS.24.49 CR. TOTALING TO RS.52.01 CR. AND THE TOTAL ROYALTY PAYMENT OF RS.32.01 CR. WAS MADE ON THAT BASIS ONLY . THE LD.A.O. HAS TREATED THE ENTIRE ROYALTY PAYMENT AS CAPITAL EXPENDITURE AND HE HAS CITED A NUMBER OF DECISIONS FOR MAKING SUCH APPROACH. BUT HIS APPROACH IS NOT CORRECT AND THE ROYALTY SHOULD BE TREATED AS REVENUE ONLY BECAUSE:- SUCH PAYMENT WAS NOT MADE FOR ACQUIRING ANY ADVANTA GE OF ENDURING NATURE. THE PAYMENT IS BASED ON NUMBER OF ITEMS SOLD DURING THE YEAR. IT IS FOR THE GROWTH OF THE EXISTING BUSINESS AND N OT FOR ACQUIRING ANY NEW PLANT. THAT TDS HAS BEEN MADE @ 10% AS PER DTAA ENTERED UP ON BETWEEN INDIA AND SWISS FEDERATION. SIMILAR ADDITION WAS MADE IN THE A.Y. 1998-99 BY TH E A.O. AND THE ADDITION WAS CONFIRMED BY THE LD.CIT(A) BUT ON APPE AL THE SAID ADDITION WAS DELETED BY LD.ITAT IN ITA NO.1577/DEL/ 2003 DT. 24.7.08. AGAINST THE ORDER OF LD.ITAT, THE DEPT. M OVED BEFORE THE HONBLE HIGH COURT, DELHI AND AT THE VERY ADMISSION STAGE, THE DEPARTMENTAL APPEAL WAS DISMISSED BY HONBLE HIGH C OURT VIDE ORDER NO. 198/2009 DT. 4.9.09 WHEREIN THEY HAVE CON CLUDED THAT SUCH EXPENDITURE SHOULD BE TREATED AS REVENUE AND N OT AS CAPITAL. THE MATTER HAS BEEN DISCUSSED AT LENGTH IN PARA 23 OF THE HIGH COURT DT. 4.9.09 (P.69 APB-I). TO THE BEST OF OUR KNOWLEDGE THE DEPT. HAS NOT MOVE D BEFORE THE HONBLE S.C. AGAINST THE ORDER OF HONBLE HIGH COUR T DT. 4.9.09. SIMILAR ADDITION WAS ALSO DISMISSED BY THE LD.ITAT FOR A.Y. 2003-04 VIDE ORDER IN ITA NO.3065/DEL/09 DT. 2.9.09. 22. CONSIDERING THE SAME RELYING UPON THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF THE ASSESS EE THE ASSESSEES CLAIM WAS ALLOWED OBSERVING AS UNDER. ITA NOS. 3028 & 2935/D/2010 18 2.3. EXAMINED THE RIVAL SUBMISSIONS. IT IS SAID T HAT IF A JUDGEMENT OF AN AUTHORITY BELOW IS SET ASIDE BY A S UPERIOR COURT, THE AUTHORITY BELOW MUST SUBMIT TO THAT JUDGEMENT, PROVIDED NO FRESH EVIDENCE IS BROUGHT ON RECORD TO NULLIFY THE EARLIER FINDINGS OF THE SUPERIOR COURT. THE AUTHORITY BELOW CANNOT REW RITE OR OVERRULED JUDGEMENT IN THE SAME OR IN COLLATERAL PR OCEEDINGS. THE JUDGEMENTS OF THE HIGHER COURT BIND NOT ONLY TO THE PARTIES TO THE PROCEEDINGS BUT ALSO TO THE AUTHORITY BELOW (AO IN THE INSTANT CASE) WHO HAD RENDERED IT. AS THERE IS NO CHANGE O F FACTS, HENCE MOST RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE HO NBLE HIGH COURT IN THE APPELLANTS OWN CASE FOR A.Y. 1998-99, THE DISALLOWANCE MADE IS HEREBY ORDERED TO BE DELETED. 23. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEFO RE THE TRIBUNAL. THE LD.D.R. PLACED RELIANCE UPON THE ASSESSMENT ORD ER. NO CONTRARY VIEW OR DECISION OF ANY COURT OR TRIBUNAL WAS RELIE D UPON IN ORDER TO CANVASS THAT THE VIEW TAKEN IS NOT CORRECT. THE LD. A.R. ON THE OTHER HAND RELIED UPON THE IMPUGNED ORDER. COPIES OF THE ORDE R OF THE TRIBUNAL IN 1998-99, 2003-04 ARE FOUND AT PAGES 88 TO 106 AND 107 TO 112 AND THE JUDGEMENT OF JURISDICTIONAL HIGH COURT UPHOLDING TH E ORDER OF TRIBUNAL IN 1998-99 IS FOUND PLACED AT PAGES 61 TO 87. IT ALSO HAS NOT BEEN CANVASSED BY THE DEPARTMENT IN THE INTERVENING YEAR S ANY CONTRARY VIEW IS TAKEN. ACCORDINGLY IN THE ABOVE MENTIONED PECUL IAR FACTS AND CIRCUMSTANCES WE ARE OF THE CONSIDERED VIEW THAT TH E DEPARTMENTAL GROUND HAS TO BE DISMISSED. 24. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MARCH, 2012. SD/- SD/- (K.D. RANJAN) (DI VA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23 RD MARCH, 2012 ITA NOS. 3028 & 2935/D/2010 19 **MANGA /KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR