DCIT, New Delhi V. M/s. SCCI (India) Pvt. Ltd, New Delhi

ITA 3487/DEL/2009

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6694 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 13-02-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 07-08-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K SHARMA
• Keywords: Principle of natural justice; Rule of consistency; Tax effect; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SH. N. K. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A. NO. 3487/DEL/2009 (ASSESSMENT YEAR 2006-07) AND I.T.A NO. 3574/DEL/2009 (ASSESSMENT YEAR 2006-07) REVENUE BY : SH. A. K. SHARMA, SR. DR ASSESSEE BY : SH. SALIL KAPOOR, ADV DATE OF HEARING : 13.02.2017 DATE OF PRONOUNCEMENT: 23.02.2017 ORDER PER BEENA A. PILLAI, JM: 1. T HE PRESENT CROSS APPEALS HAVE BEEN FILED BY REVENUE AS WELL AS ASSESSEE AGAINST ORDER DATED 16.06.2009, PASSED BY LD. CIT(A)-X FOR ASSESSMENT YEAR 2006-07 ON FOLLOWING GROUNDS OF APPEAL: DCIT CIRCLE- 7(1) ROOM NO. 312, C. R. BUILDING NEW DELHI VS. SCCI (INDIA) PVT. LTD. 2/18, HALLYE ROAD, NEW DELHI. GIR/PAN: AAECS4285L (APPELLANT) (RESPONDENT) SCCI (INDIA) PVT. LTD. 2/18, HALLYE ROAD, NEW DELHI. GIR/PAN: AAECS4285L VS. ACIT CIRCLE- 7(1) ROOM NO. 312, C. R. BUILDING NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 3487 & 3574/DEL/2009 PAGE 2 OF 15 ITA NO. 3487/DEL/2009 1. 'LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE, IN REDUCING THE ADDITION MADE BY THE AO IN RESPECT OF ROYALTY FROM RS. 30,39,3867- TO RS. 9,10,275/-.' 2. 'LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED, IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN DELETING THE ADDITION OF RS. 40,43,736/-MADE BY THE AO U/S 40A(2)(B) OF THE IT ACT, 1961.' ITA NO. 3574/DEL/2009 1. I) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) HAS ERRED IN DISALLOWING ROYALTY PAYMENT TO M/S CCI JAPAN OF RS.9,10,275/- @ 3% ON SALE OF COOLANT TO MARUTI UDYOG LTD. II) THAT IN DOING SO, WHETHER SHE HAS ERRED IN OBSERVING THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THAT FORMULATION OF 'GOLDEN CRUISER' IS DIFFERENT FROM 'GOLDEN CRUISER NA', AND ON THAT BAS IS, CONCLUDING THAT THE PAYMENT OF ROYALTY ON 'GOLDEN CRUISER 1200 NA' @ 3% TO M/S CCI JAPAN, IS NOT INCIDENTAL TO BUSINESS PURPOSE. III)THAT IN DOING SO, WHETHER, EVEN THOUGH SHE AGREED THAT SUCH PAYMENTS ALONGWITH ROYALTY PAYMENTS TO M/S CCI JAPAN IN RESPECT OF SALE OF COOLANT TO HONDA & TOYOTA @ 3% OF SALES TO THEM, WERE REVENUE IN NATURE AS AGAINST THE FINDINGS OF T HE AO THAT THEY WERE ALL CAPITAL IN NATURE AND THEREFO RE, DISALLOWABLE, HAS ERRED IN DISALLOWING RS.9,10,275/ - OUT OF ROYALTY PAYMENTS TO M/S CCI JAPAN. ITA NO. 3487 & 3574/DEL/2009 PAGE 3 OF 15 2. THE BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSEE FILED ITS RETURN OF INCOME DECLARING RS. 49,37,090/- ON 29.11.2006. THE SAID RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THE RETU RN WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER S ECTION 143(2) OF THE ACT WAS ISSUED THROUGH REGISTERED POS T AND WAS DULY SERVED UPON ASSESSEE. DURING THE COURSE OF ASSESSMENT, LD. AO OBSERVED THAT ASSESSEE WAS ENGAG ED IN THE BUSINESS OF MANUFACTURING OF AUTOMOBILE ANTI FREEZE COOLANT. IT HAS BEEN SUBMITTED THAT ASSESSEE HAD BE EN PRODUCING COOLANT BY BRAND NAME GOLDEN CRUISER WH ICH WAS MARKETED TO MARUTI LTD., AND VARIOUS OTHER AUTOMOBILE COMPANIES. ASSESSING OFFICER ALSO OBSERV ED THAT ASSESSEE HAS PAID ROYALTY PAYMENTS TO CCI JAPA N TO AN EXTENT OF RS.20,39,386/- ON SALE OF BRAND NAME GOLDEN CRUISER 1200 NA. ASSESSING OFFICER OBSERVED THAT A SSESSEE PAID A FIXED PERCENTAGE OF ROYALTY ON TOTAL STATE S ALES, FOR THE ACQUISITION OF EXCLUSIVE RIGHTS AND SHARING FOR MULA OF MANUFACTURING OF THIS PARTICULAR COOLANT BY THE NAM E GOLDEN CRUISER 1200 NA. ASSESSING OFFICER MADE AD DITION ON THE GROUND THAT THE ASSESSEE FAILED TO ESTABLISH THE FORMULATION OF BRAND GOLDEN CRUISER WAS DIFFERENT FROM BRAND GOLDEN CRUISER 1200 NA, AND PAYMENT OF ROYA LTY AT 3% ON THE SALE OF COOLANT TO JAPANEE COMPANY WAS DISALLOWED. HE ALSO MADE ADDITION UNDER SECTION 40A (2)(B) ITA NO. 3487 & 3574/DEL/2009 PAGE 4 OF 15 OF THE ACT, AS THE ASSESSEE COULD NOT ESTABLISHED REASONABLENESS OF THESE PAYMENTS. 3. AGGRIEVED BY ORDER OF LD. AO, ASSESSEE PREFERRED A N APPEAL BEFORE LD. CIT(A). BEFORE LD. CIT(A), ASSESS EE DEMONSTRATED FROM THE AGREEMENT ENTERED INTO BETWEE N THE JAPANESE COMPANY AND ASSESSEE, THAT FOR PURPOSE S OF MANUFACTURE OF BRAND GOLDEN CRUISER 1200 NA IN IN DIA, THERE WAS NO RESTRICTIONS ON JAPANESE COMPANY TO AP POINT ANOTHER MANUFACTURER. ASSESSEE TRIED TO DISTINGUISH ON FACTS, THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SUTHERLAND SWITCHGEARS INDIA VS. CIT, REPORTED IN 2 32 ITR 359 , WHICH WAS RELIED UPON BY LD.AO, WHICH HAS BEEN TABULATED BY THE LD. CIT(A) AT PAGES 10 TO 16 OF HI S ORDER. IT WAS ARGUED THAT HONBLE SUPREME COURT HAD DECIDE D AND RENDERED THE DECISION THEREIN ON DIFFERENT FACT S. LD. AR SUBMITTED THAT THE DECISION OF HONBLE SUPREME C OURT IN THE CASE OF ALEMBIC CHEMICAL WORKS LTD. VS. CIT REPORTED IN 177 ITR 377 , ON IDENTICAL FACTS IS APPLICABLE AS IN CASE OF ASSESSEE. LD. CIT(A) OBSERVED THAT ASSESSEE HAD PAI D ROYALTY TO JAPANESE COMPANY FROM 01.04.2000 TO 31.03.2007. IT WAS ALSO ABSURD BY LD. CIT(A) THAT JAPANESE COMPANY PAID ROYALTY ON SALE TO M/S MUL AT 3% ON THE COOLANT OF BRAND BEING GOLDEN CRUISER. IT HAS ALSO BEEN OBSERVED BY LD. CIT (A) THAT, ASSESSEE WAS SEL LING ANTIFREEZE COOLANT ON WHICH NO ROYALTY WAS PAID TO JAPANESE COMPANY. ITA NO. 3487 & 3574/DEL/2009 PAGE 5 OF 15 4. LD. CIT(A) DISALLOWED ROYALTY PAID TO JAPANESE COMPANY ON SALE OF COOLANT OF BRAND GOLDEN CRUISER TO M/S. MUL, AND ALLOWED THE ROYALTY PAID TO JAPANESE COMPANY ON THE BRAND GOLDEN CRUISER 1200 NA. 5. IN RESPECT OF THE ADDITION MADE BY LD. AO UNDER SECTION 40A(2)(B) OF THE ACT, LD. CIT(A) RELYING UP ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHA SOWAMI SATSANG CASE REPORTED IN 132 ITR 647, FOLLOWED PRINCIPLE OF CONSISTENCY, AND DELETED THE ADDITION. 6. AGGRIEVED BY THE ORDER OF LD. CIT(A) ASSESSEE AS W ELL AS REVENUE ARE CROSS APPEALS BEFORE US NOW. 7. LD. COUNSEL SUBMITS THAT GROUND NO. 1 IN REVENUES AND ASSESSEES APPEALS ARE INTERLINKED, PERTAINING TO SAME ADDITION. WE ARE, THEREFORE, INCLINED TO DISPOSE OF THESE GROUNDS TOGETHER. 8. LD. COUNSEL REFERRED TO THE SUBMISSIONS MADE BY ASSESSEE BEFORE LD. CIT(A) WHEREIN THE HISTORY OF T HE COMPANY HAS BEEN EXCERPTED. IV) VIDE REPLY DT. 05-06-2009 THE ASSESSEE SUBMITTED THAT 'IN 1984 M/S LIVING POINT SALES PVT. LTD ENTERED INTO A TECHNICAL COLLABORATION WITH M/S CHUO CHEMICAL CO. (NOW CCI CORPORATION LTD) TO MANUFACTURE AND MARKET PRODUCTS LIKE AUTOMOBILE COOLANT AND BRAKE FLUIDS UNDER THE UMBRELLA BRAND ITA NO. 3487 & 3574/DEL/2009 PAGE 6 OF 15 OF 'GOLDEN CRUISER'. THE BRAND WAS SPECIFICALLY REGISTERED WITH PATENT AND TRADEMARK OFFICE IN NEW DELHI AND M/S LIVING POINT SALES PVT. LTD. TILL DATE CONTINUES TO HOLD THE OWNERSHIP OF THIS BRAND. INITIALLY, M/S CCI CORPORATION DID NOT PROVIDE M/S LIVING POINT SALES PVT. LTD. WITH ANY FORMULATIONS AND SOLD INHIBITOR PACKAGES TO BE ADDED TO THE BASE RAW MATERIAL TO MANUFACTURE THE COOLANT. THOUGH NO FORMULATIONS WERE PROVIDED TO LIVING POINT SALES PVT. BUT CCI WAS EARNING ITS PROFITS FROM THE SALE OF ITS INHIBITOR PACKAGES AND , THEREFORE, NO ROYALTY WAS PAYABLE TO CCI CORPORATION. IN 1994 THE PROMOTERS OF M/S LIVING POINT SALES PVT LTD DECIDED TO INTRODUCE LUBRICATIN G OIL UNDER THE BRAND OF 'GOLDEN CRUISER' AND THEY WANTED THE NAME OF THE COMPANY TO REFLECT THE NATURE OF BUSINESS AND HENCE, M/S SUN STAR LUBRICANTS LTD WAS FORMED. SINCE THE BUSINESS OF COOLANT AND BRAKE FLUID HAD SYNERGY WITH LUBRICANTS, IT WAS DECIDED TO TAKE UP THE MANUFACTURE AND SALE OF COOLANTS BUSINESS IN M/S SUN STAR LUBRICANTS LTD AND UNDER THIS ARRANGEMENT IT WAS AGREED THAT THEY WILL USE THE NAME OF'GOLDEN CRUISER' FOR ALL THEIR PRODUCTS. CONSEQUENTLY, M/S CCI CORPORATION JAPAN ENTERED INTO A TECHNICAL COLLABORATION WITH SUNSTAR LUBRICANTS LTD AND IT CONTINUED WITH THE SAME SYSTEM OF PURCHASING INHIBITOR PACKAGES TO MANUFACTURE COOLANT AND AGAIN, NO ROYALTY WAS PAYABLE TO M/S CCI CORPORATION JAPAN. AROUND 1999, DUE TO RAPID TECHNOLOGY DEVELOPMENT IN THE AUTOMOBILE INDUSTRY AND THE INCREASING COMPLEX TECHNOLOGY INVOLVED IN MANUFACTURING OF AUTOMOBILE COOLANT, IT WAS DECIDED BY THE ITA NO. 3487 & 3574/DEL/2009 PAGE 7 OF 15 PROMOTERS TO UPGRADE THEIR RELATIONSHIP WITH CCI CORPORATION JAPAN. THIS WAS DONE BY FORMING A JOINT VENTURE WITH CCI CORPORATION JAPAN SINCE MARUTI WAS EXPORTING A LARGE PERCENTAGE OF THEIR PRODUCTION TO FOREIGN COUNTRIES AND WAS LIABLE FOR ANY WARRANTY CLAIMS THAT MAY ARISE DUE TO NON PERFORMANCE OF THE COOLANT. IT WAS DECIDED TO USE FORMULATIONS WHICH WAS APPROVED BY SUZUKI, JAPAN AND SUPPLIED BY CCI CORPORATION FOR SALES MADE TO MUL. THEREFORE, IN SEPTEMBER, 1999 M/S SUNSTAR CCI INDIA (NOW SCCI INDIA, ASSESSEE COMPANY) WAS FORMED WITH EQUITY PARTICIPATION OF CCI CORPORATION, JAPAN. SINCE CCI CORPORATION WAS NOW A PART OWNER OF THE COMPANY, IT FELT CONFIDENT IN DISCLOSING THE INGREDIENTS OF THE INHIBITOR PACKAGE WHICH THEY HAD EARLIER EXPORTED TO THE PROMOTER. UNDER THE CHANGING CIRCUMSTANCES, M/S CCI JAPAN ENTERED INTO A TECHNICAL ASSISTANCE AGREEMENT AND STARTED CHARGING ROYALTY ON SALE OF COOLANT SOLD UNDER THE NAME OF 'GOLDEN CRUISER 1200 NA' TO MUL, MANUFACTURED WITH THE FORMULATIONS DISCLOSED BY CCI JAPAN. IT WAS FURTHER SUBMITTED THAT THE PRODUCT SOLD TO MUL IN THE FORM OF 'GOLDEN CRUISER 1200 NA' IS A PRODUCT APPROVED BY THEM AFTER RECOGNIZING THE FACT THAT THE SAME HAS BEEN MANUFACTURED BY THE ASSESSEE UNDER A TECHNICAL COLLABORATION AGREEMENT WITH CCI JAPAN AND NOT BECAUSE IT IS KNOWN BY THE NAME 'GOLDEN CRUISER'. THIS PRODUCT COULD HAVE BEEN SOLD UNDER ANY OTHER NAME TO MUL IF IT HAD THE SAME FORMULATIONS AND IF MARUTI WAS ABLE TO ASSOCIATE CCI JAPAN'S TECHNOLOGY AND FORMULATION WITH THAT PRODUCT. SINCE THE PRODUCT MANUFACTURED UNDER TECHNICAL ITA NO. 3487 & 3574/DEL/2009 PAGE 8 OF 15 ASSISTANCE FROM M/S CCI JAPAN WAS OF PARAMOUNT IMPORTANCE, THEY APPROVED THE PRODUCT 'GOLDEN CRUISER 1200 NA' FOR SUPPLY TO THEM AS ORIGINAL EQUIPMENT. IN OTHER WORDS, THE USE OF NAME 'GOLDEN CRUISER' IS INCIDENTAL SO FAR AS IT RELATES TO PRODUCTS SOLD TO M/S MUL ON WHICH ROYALTY @3% IS PAID TO M/S CCI JAPAN.' 9. LD. COUNSEL SUBMITTED THAT ASSESSEE HAS BEEN PAYIN G ROYALTY TO JAPANESE COMPANY SINCE 2000-01 FOR ITS BUSINESS OF MANUFACTURE OF COOLANT. HE SUBMITTED TH AT THE OBJECT OF THIS COLLABORATION WAS, TO BE UPDATED WIT H THE LATEST COOLANT TECHNOLOGY, WITH A VIEW TO PROVIDE T HE MARKET WITH PRODUCTS, AS PER THEIR SPECIFICATIONS. HE EMPHASISED THAT THERE WAS NO LUMP SUM PAYMENT THAT WAS MADE BY ASSESSEE TO JAPANESE COMPANY, AND EXPENDITURE WAS INCURRED ON YEAR TO YEAR BASIS. LD. COUNSEL SUBMITTED THAT THE KNOW HOW ACQUIRED FROM JAPANESE COMPANY GRANTED ASSESSEE THE ACCESS TO TECHNICAL KNOWLEDGE OF MANUFACTURE OF COOLANT. HE A LSO SUBMITTED THAT THERE WAS NO ABSOLUTE TRANSFER OF TE CHNICAL KNOWLEDGE AND INFORMATION AND THE AGREEMENT ENTERED INTO BY ASSESSEE WITH JAPANESE COMPANY WAS FOR A PE RIOD OF 10 YEARS FROM THE DATE OF AGREEMENT OR 7 YEARS F ROM THE START OF COMMERCIAL PRODUCTION. HE SUBMITTED THAT T HE ENTIRE ROYALTY PAID BY ASSESSEE TO JAPANESE COMPANY HAS TO BE TREATED AS REVENUE IN NATURE BECAUSE THERE WE RE NO ENDURING BENEFITS TO THE ASSESSEE. HE SUBMITTED THA T AS ITA NO. 3487 & 3574/DEL/2009 PAGE 9 OF 15 PER AGREEMENT THE ASSESSEE COULD NOT USE TECHNICAL KNOWLEDGE OBTAINED DURING THE TENURE OF LICENSE FOR THE PURPOSES OF ITS BUSINESS, AFTER ITS AGREEMENT. 10. ON THE CONTRARY, LD. DR SUBMITTED THAT IT IS AN EXCLUSIVE LICENSE ENTERED INTO BY ASSESSEE WITH THE JAPANESE COMPANY AS THE AGREEMENT GRANTS AND EXCLUS IVE USE OF THE KNOW-HOW OF MANUFACTURE OF THE COOLANT T O THE ASSESSEE. HE SUBMITTED THAT THEREFORE, THE ROYALTY IS IN THE NATURE OF CAPITAL EXPENDITURE. LD. DR PLACED RELIA NCE UPON THE ORDER OF ASSESSING OFFICER. 11. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH THE SIDES IN THE LIGHT OF THE RECORDS PLACED BEFORE US. 12. ASSESSING OFFICER HAS NOT DISPUTED THE FACT THAT T HE COOLANT WITH THE BRAND NAME GOLDEN CRUISER WAS BE ING SOLD BY THE ERSTWHILE COMPANY BEING M/S. SUN STAR LUBRICANTS, TO VARIOUS AUTO MOBILE MANUFACTURERS, INCLUDING M/S MUL BRIEF BACKGROUND OF THE PRODUCTS HAS BEEN ANALYZED BY LD. CIT(A) IN HIS ORDER. IT HAS BE EN OBSERVED BY LD. CIT(A) THAT IN THE YEAR 1984, M/S L IVING POINT SALES LTD., DECIDED TO MANUFACTURE AND MARKET COOLANTS AND BRAKE FLUIDS UNDER THE UMBRELLA BRAND OF GOLDEN CRUISER, IN COLLABORATION WITH JAPANESE CO MPANY. AS BOTH THESE COMPANIES WANTED TO EXHIBIT THE NATUR E OF BUSINESS, M/S SUNSTAR LUBRICANTS LTD WAS FORMED. ADMITTEDLY BETWEEN 1984 TO 1999 FOR A PERIOD OF 15 YEARS ITA NO. 3487 & 3574/DEL/2009 PAGE 10 OF 15 NO ROYALTY WAS PAID TO JAPANESE COMPANY ON THE SALE OF COOLANT UNDER THE BRAND NAME GOLDEN CRUISER AS TH E JAPANESE COMPANY DID NOT PROVIDE M/S. LIVING POINT SALES LTD., WITH ANY FORMULATIONS AND ONLY SOLD INHIBITOR PACKAGES TO BE ADDED TO THE BASIC RAW MATERIAL TO MANUFACTURE THE COOLANT. 13. ASSESSEE HAD PLACED BEFORE LD. CIT(A) A COMPARATIV E CHART, EXHIBITING THE RATIO OF SALE OF PRODUCTS BEI NG TOYOTA LONG LIFE COOLANT L-215, HONDA ULTRA RADIATOR LIQUI D NAH 68 AND GOLDEN CRUISER 1200 NA 2. LD. CIT(A) HAD SOU GHT REASON FOR USE OF BRAND GOLDEN CRUISER MARKETED B Y THE ERSTWHILE COMPANY, WHICH CONTINUED TO BE USED BY TH E ASSESSEE. IT WAS SUBMITTED BEFORE LD. CIT(A) THAT E ARLIER THE PRODUCTS SOLD BY M/S SUN STAR LUBRICANTS LTD., BEING GOLDEN CRUISER 1200 COOLANT TO M/S MUL HAD AMINE BA SED FORMULATION DEVELOPED BY THEM WHICH WAS FOUND TO BE CARCINOGENIC AND WAS BANNED IN EUROPE. DUE TO THE CHANGES IN THE TECHNOLOGY INTERNATIONALLY, AS WELL AS FOR ENVIRONMENTAL REASONS, DURING THE YEAR UNDER CONSIDERATION THERE WAS A NEED TO SHIFT TO A NON-AM INE BASED COOLANT. AS M/S SUN STAR LUBRICANTS LTD., DID NOT POSSESS THIS TECHNOLOGY, AND HAD TO SOURCE THE SAME FROM THE JAPANESE COMPANY FOR TECHNICAL KNOW-HOW, AND TH US THE AGREEMENT WAS ENTERED INTO BY ASSESSEE WITH THE JAPANESE COMPANY. ITA NO. 3487 & 3574/DEL/2009 PAGE 11 OF 15 14. IT IS OBSERVED FROM THE ORDER PASSED BY LD. CIT(A) , THAT HE HAS EXPRESSED HIS DOUBTS REGARDING THE SIMI LARITY IN THE FORMULATIONS OF THESE TWO BRANDS. HOWEVER, W HAT EXACTLY WERE THE FORMULATION OF GOLDEN CRUISER 120 0 MANUFACTURED AND SUPPLIED BY ERSTWHILE M/S SUN STAR LUBRICANTS LTD., AND GOLDEN CRUISER 1200 NA 2 MANUFACTURED BY ASSESSEE WAS NOT ESTABLISHED BY ASSESSEE THAT THERE WAS ANY CHANGE IN THE FORMULATI ON REQUIRING THE PAYMENT OF ROYALTY ON THE SALES MADE TO M/S MUL. ON A QUESTION BY BENCH, LD. COUNSEL HAS SUBMIT TED THAT THE KNOW-HOW OF MANUFACTURE OF THE COOLANT BEI NG EXTREMELY CONFIDENTIAL INFORMATION WAS NOT SHARED A S THE ASSESSEE WAS BOUND BY THE COLLABORATION AGREEMENT ENTERED WITH JAPANESE COMPANY. IT IS BECAUSE OF THI S REASON THAT LD. CIT (A) HAS CONFIRMED THE ADDITION TO AN EXTENT OF RS.9,10,275/-, BEING ROYALTY PAID TO JAPA NESE COMPANY, AT THE RATE OF 3% ON THE SALE OF COOLANT M ADE TO M/S.MUL, AMOUNTING TO RS.3,03,42,512/-. IN RESPECT OF THE BALANCE ROYALTY PAID ON THE SALE OF PRODUCT, TO YOTA LONG LIFE COOLANT L-215, HONDA ULTRA RADIATOR LIQUI D NAH 68, LD. CIT (A) HAS RIGHTLY ALLOWED THE EXPENDITURE IN THE HANDS OF THE ASSESSEE. WE ARE THEREFORE INCLINED TO DISMISS GROUND NO. 1 RAISED BY THE REVENUE. ITA NO. 3487 & 3574/DEL/2009 PAGE 12 OF 15 15. IT IS OBSERVED THAT IN ASSESSEES APPEAL THE BALAN CE ROYALTY PAID TO JAPANESE COMPANY TO AMOUNTING TO RS . 9,10,275/- HAS BEEN AGITATED. IN THAT RESPECT LD. C OUNSEL SUBMITTED THAT THERE HAS BEEN NO ADDITION IN RESPEC T OF THE ROYALTIES PAID BY THE ASSESSEE IN THE PRECEDING AND SUBSEQUENT ASSESSMENT YEARS. HE HAS PLACED BEFORE U S A COMPARATIVE CHART IN RESPECT OF THE SAME TODAY. ON PERUSAL OF THE CHART IT IS OBSERVED THAT NO APPEAL HAS BEEN PREFERRED BY REVENUE ON THIS ISSUE BEFORE THIS TRIB UNAL IN THE PRECEDING ASSESSMENT YEARS OR IN SUBSEQUENT ASSESSMENT YEAR. FOR ASSESSMENT YEAR 2010-11, REVEN UE HAD FILED APPEAL, WHICH HAS BEEN DISMISSED BECAUSE OF LOW TAX EFFECT. TO OUR MIND UNDER SUCH CIRCUMSTANCES, I T WILL BE APPROPRIATE IN THE INTEREST OF NATURAL JUSTICE T O SET ASIDE THE GROUND RAISED BY ASSESSEE IN ITS APPEAL T O ASSESSING OFFICER FOR VERIFICATION WEATHER FORMULAT IONS OF BRAND GOLDEN CRUISER 1200 NA-2 IS DIFFERENT FROM THE EARLIER PRODUCT BEING BRAND GOLDEN CRUISER1200. ASSESSING OFFICER IS DIRECTED TO ALLOW EXPENDITURE AS REVENUE SUBJECT TO VERIFICATIONS AS PER LAW. IN THE RESULT GROUND NO. 1 BY THE REVENUE STANDS DISMISSED AND APPEAL FILED BY THE ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. GROUND NO. 2 ITA NO. 3487 & 3574/DEL/2009 PAGE 13 OF 15 16. THIS GROUND RAISED BY REVENUE IN ITS APPEAL IS IN RESPECT OF THE REASONABLENESS OF THE AMOUNTS PAID T O LIVING POINT SALES PVT. LTD. 17. LD. DR RELIED UPON THE ORDER PASSED BY ASSESSING OFFICER. 18. LD. AR SUBMITTED THAT LIVING POINT SALES PVT. LTD. , WAS THE OWNER OF BRAND NAME GOLDEN CRUISER AND TH AT ASSESSEE COMPANY HAS PAID RS. 2/L, WHICH WAS TOWAR DS THE USE OF BRAND SINCE ASSESSMENT YEAR 2001-02. HE SUBMITTED THAT THIS IS AN ACCEPTED POSITION BY THE REVENUE AUTHORITIES SINCE THEN, AND THE PAYMENTS HAVE BEEN ACCEPTED TILL ASSESSMENT YEAR 2005-06 WITHOUT BEING APPEALED BEFORE THIS TRIBUNAL. LD.AR FURTHER SUBMIT TED THAT ADDITION HAS BEEN MADE BY ASSESSING OFFICER TO AN EXTENT OF 40% OF RS.1,01,09,409/- WHICH WORKS OUT T O BE RS.1.80/L AS AGAINST RS. 2/L, ACCEPTED BY THE AUTHO RITIES FOR THE PRECEDING ASSESSMENT YEARS. HE SUBMITTED TH AT THIS IS AN AD HOC DISALLOWANCE THAT WAS MADE BY ASSESSIN G OFFICER WHICH STOOD DEPLETED BY LD. CIT (A). WE HAVE PERUSED THE SUBMISSIONS IN THE LIGHT OF RECORDS PLACED BEFORE US. 19. IT IS OBSERVED FROM ASSESSMENT ORDER THAT ASSESSIN G OFFICER HAS NOT MADE ANY EFFORTS TO FIND OUT FAIR M ARKET VALUE OF SUCH SERVICES RENDERED. ASSESSING OFFICER HAS ITA NO. 3487 & 3574/DEL/2009 PAGE 14 OF 15 FURTHER DISPUTED THE RATE WITHOUT THERE BEING ANY C ONTRARY MATERIAL ON RECORD TO JUSTIFY THE UNREASONABLENESS OF PAYMENTS MADE. ON PERUSAL OF ORDER PASSED BY LD. CI T (A), IT IS OBSERVED THAT THE ASSESSEE HAS SUBMITTED A COMPARATIVE CHART ON YEAR TO YEAR BASIS IN RESPECT OF THE SALES EFFECTUATED VIZ-A-VIZ THE MANUFACTURING CHARG ES PAID TO LIVING POINT SALES PVT. LTD. IT HAS BEEN FURTHER OBSERVED BY LD. CIT(A), THAT ASSESSING OFFICER IN ASSESSMENT YEAR 2001-02 HAS DISALLOWED RS. 2/L AS EXCESSIVE AND UNREASONABLE AND LD. CIT(A) ON APPRECIATION OF FACT S DELETED THE DISALLOWANCE WHICH WAS UPHELD BY THIS TRIBUNAL IN AN APPEAL. SUBSEQUENTLY THE ASSESSEE HA S BEEN PAYING RS. 3/L LITRE W.E.F. 01.04.2003, THAT I S FOR ASSESSMENT YEAR 2004-05 AND 2005-06. FURTHER, IT IS OBSERVED THAT DISALLOWANCE OF 40% WORKS OUT TO RS.1 .80/L AS AGAINST THAT RS. 2 ACCEPTED AS REASONABLE IN THE ASSESSMENT YEAR 2001-02. WE ARE IN AGREEMENT WITH REASONING ADVANCED BY LD. AR, AS THE AUTHORITIES HA S NOT BEEN ABLE TO PRODUCE ANY CONTRARY FACTS IN RESPECT OF THE MARKET VALUE OF THE SERVICES PROVIDED. WE, THEREFOR E, ARE IN AGREEMENT WITH THE COMPARISON ARRIVED AT BY THE ASSESSEE AND UPHOLD THE FINDINGS OF LD. CIT(A). ACCORDINGLY, THIS GROUND RAISED BY THE REVENUE STAN DS DISMISSED. ITA NO. 3487 & 3574/DEL/2009 PAGE 15 OF 15 IN THE RESULT APPEAL FILED BY THE REVENUE STANDS DISMISSED AND APPEAL FILED BY THE ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD FEBRUARY, 2017. SD/- SD/- (N. K. SAINI) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 23.02.2017 @M!T COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY. BY ORDER (ITAT, NEW DELHI) S.NO. DETAILS DATE 1. DRAFT DICTATED ON DRAGON 13.02.2017 2. DRAFT PLACED BEFORE AUTHOR 16.02.2017 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO THE SR. PS/PS 6. KEPT FOR PRONOUNCEMENT 7. FILE SENT TO BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO HEAD CLERK 9. DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER