VOSSLOH SCHWABE INIDA P. LTD, MUMBAI V. DCIT 3(3), MUMBAI

ITA 3566/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100843 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 09-03-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 04-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: JIGAR SAIYA
• Keywords: Depreciation; Transfer pricing; Retrospective amendment; Capital expenditure
• Section: 92C; 43B; 143(3); 37(1); 32; 37

Judgement Text

M/S VOSSLOH SCHWABE INDIA PVT. LTD. ITA NO. 3566 / MUM/20 1 1 ITA NO. 3796/MUM/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K , MUMBAI . . , , BEFORE SHRI B R BASKARAN , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , J UDICIAL MEMBER ITA NO. : 3566 /MUM/20 1 1 ( ASSESSMENT YEAR: 200 5 - 0 6 ) M/S VOSSLOH SCHWABE INDIA PVT. LTD., C/O MZS & ASSOCIATES, CHARTERED ACCOUNTANTS, 11, RAHEJA CHAMBERS, LEVEL 11, FREE PRESS JOURNAL ROAD, NARIMAN POINT, MUMBAI 400 021 .: P AN: AAACV 5892 J VS DY. COMMISSIONER OF INCOME TAX 3(3), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JIGAR SAIYA RESPONDENT BY : SHRI N P AD M A NABAN ITA NO. : 3796 /MUM/20 11 ( ASSE SSMENT YEAR: 2005 - 06 ) DY. COMMISSIONER OF INCOME TAX 3(3), MUMBAI. VS M/S VOSSLOH SCHWABE INDIA PVT. LTD., NARIMAN POINT, MUMBAI 400 021 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N P AD MA NABAN RESPONDENT BY : SHRI JIGAR SAIYA /DATE OF HEARING : 03 - 06 - 201 5 / DATE OF PRONOUNCEMENT : 14 - 08 - 201 5 ORDER , . . : PER AMIT SHUKLA, AM : THE AFORESAID CROSS APPEAL S HA VE BE EN FILED BY THE ASSESSEE AS WELL AS REVENUE A GAINST THE IMPUGNED ORDER DATED 04 . 0 2 .20 1 1 , PASSED BY CIT (A) - 15 , MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE ASSESSMENT YEAR 200 5 - 0 6 . ITA NO. 3566/MUM/2011 : ASSESSEES APPEAL : 2. AT THE OUT SET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT GROUND NO. 3 RELATING TO TRANSFER PRICING ADJUSTMENT OF RS. 20,42,500/ - IS NOT PRESSED. THE LD. DR ALSO DOES NOT HAVE ANY M/S VOSSLOH SCHWABE INDIA PVT. LTD. ITA NO. 3566 / MUM/20 1 1 ITA NO. 3796/MUM/2011 2 OBJECTION. ACCORDINGLY, GROUND NO. 3 IS DISMISSED, BEING NOT PRESSED. 3. EFFECTIVE GROUNDS RAISED BY THE ASSESSEE BEFORE US, READ S AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT TREATING THE PAYMENT MADE TO MR. SHEKHAR SHAH TOWARDS NON - COMPETE RIGHTS AS INTANGIBLE ASSET AND THEREBY DISALLOWING THE DEPRECIATION OF RS. 2,22,473/ - ON THE SAID NON - COMPETE RIGHTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DISALLOWING THE CONTRACTUAL PAYMEN TS MADE OF RS. 74,02,764 MADE TO M/S XYLON HOLDINGS PVT LTD. 4. BRIEF FACTS QUA THE ISSUE RAISED IN GROUND NO. 1 IS THAT THE ASSESSEE COMPANY WAS INCORPORATED IN 1997 AS M/S VOSSLOH SCHWABE INDIA P LTD . CO MPANY WITH THE OBJECTIVE OF MARKETING AND DISTRI BUTING THE PRODUCTS OF VOSSLOH VGE GROUP IN INDIA. THE ASSESSEE COMPANY ENTERED INTO A NON - COMPETE AGREEMENT WITH MR. SHEKHAR K SHAH TO PREVENT HIM FOR STARTING A BUSINESS IN INDIA IN COMPETITION WITH THE ASSESSEE. NOT ONLY THAT, THE ASSESSEE EMPLOYED HIM FOR CARRYING ON ITS OWN BUSINESS. BY THIS AGREEMENT NOT ONLY ASSES S EE - COMPANY OBTAINED A RESTRICTIVE ADVANTAGE BUT ALSO EMPLOYED MR. SHEKHAR K SHAH TO PROMOTE AND CARRY ON THE BUSINESS OF THE ASSESSEE COMPANY WHICH WAS ESSENTIALLY ENHANCEMENT OF BUSINESS B Y IT. MR. SHAH WAS PAID NON - COMPETE FEE OF RS. 50 LAKHS, WHICH WAS CAPITALIZED IN THE BOOKS AND DEPRECIATION WAS CLAIMED. THE CLAIM HAS BEEN REJECTED BY THE ASSESSING OFFICER ON THE GROUND THAT NON - COMPETE FEE CANNOT BE TREATED AS INTANGIBLE ASSET FOR THE PURPOSE OF CLAIMING DEPRECATION. THIS ACTION OF THE ASSESSING OFFICER HAS BEEN AFFIRMED BY THE CIT(A) ALSO. 5. BEFORE US, THE LD. COUNSEL SUBMITTED THAT THIS ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE ASSESSEES M/S VOSSLOH SCHWABE INDIA PVT. LTD. ITA NO. 3566 / MUM/20 1 1 ITA NO. 3796/MUM/2011 3 OWN CASE FOR A Y S 2001 - 0 2 TO 2005 - 06, WHEREIN THIS ISSUE HAS BEEN ALLOWED IN FAVOUR OF THE ASSESSEE. 6. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS OF THE ASSESSING OFFICER AS WELL AS CIT(A). 7. AFTER CONSIDERING THE AFORESAID SUBMISSION, WE FIND THAT THE ISSUE OF CLAIM OF DEPRECIATION ON NON - COMPETE RIGHT AS INTANGIBLE ASSET HAS COME FOR CONSIDERATION IN EARLIER YEARS , WHEREIN IT HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL. THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2003 - 04 TO 2006 - 07 IN I TA NO. 3567 TO 356 9/MUM/2011 VIDE ORDER DATED 24.04.2015 HAS DECIDED THIS ISSUE AFTER OBSERVING AND HOLDING AS UNDER : - 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF LOWER AUTHORITIES AND FOUND FROM RECORD THAT THE ASSESSEE COMPANY HAS PAID AN AMOUNT OF RS. 50,00,000/ - TO MR. SHEKHAR SHAH BY ENTERING NON - COMPETE AGREEMENT SO AS TO PREVENT HIM FROM STARTING A BUSINESS IN INDIA IN COMPLETION WITH THAT OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY, IN ADDITION TO PR EVENT HIM FROM CARRYING ON COMPETITIVE BUSINESS ALSO EMPLOYED MR. SHEKHAR SHAH FOR CARRYING ON ITS BUSINESS. THE GENUINENESS OF THE AGREEMENT HAS NOT BEEN DOUBTED AND ACTUAL PAYMENT HAS ALSO BEEN MADE. THUS BY ENTERING THE NON - COMPETE AGREEMENT, THE ASSESS EE COMPANY NOT ONLY OBTAINED A RESTRICTIVE ADVANTAGE BUT ALSO EMPLOYED MR. SHEKHAR SHAH TO PROMOTE AND CARRY ON SUCH BUSINESS FOR THE ASSESSEE COMPANY WHICH WAS ESSENTIALLY AN ENHANCEMENT OF BUSINESS RIGHT. 6. THE ASSESSEES CLAIM FOR DEPRECIATION ON NO N - COMPETE FEE IS COVERED BY THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. INGERSOLL RAND M/S VOSSLOH SCHWABE INDIA PVT. LTD. ITA NO. 3566 / MUM/20 1 1 ITA NO. 3796/MUM/2011 4 INTERNATIONAL IND. LTD WHEREIN THE HONBLE HELD AS UNDER: - WHAT IS TO BE SEEN IS, WHAT ARE THE NATURE OF INTANGIBLE ASSETS WHICH WOULD CONSTITUT E BUSINESS OR COMMERCIAL RIGHTS TO BE ELIGIBLE FOR DEPRECIATION. IN THIS REGARD, IT IS NECESSARY TO NOTICE THAT THE INTANGIBLE ASSETS ENUMERATED IN SECTION 32 EFFECTIVELY CONFER A RIGHT UPON AN ASSESSEE FOR CARRYING ON A BUSINESS MORE EFFICIENTLY BY UTILIZ ING AN AVAILABLE KNOWLEDGE OR BY CARRYING ON A BUSINESS TO THE EXCLUSION OF ANOTHER ASSESSEE. A NON - COMPETE RIGHT ENCOMPASSES A RIGHT UNDER WHICH ONE PERSON IS PROHIBITED FROM COMPETING IN BUSINESS WITH ANOTHER FOR A STIPULATED PERIOD. IT WOULD BE THE RIGH T OF THE PERSON TO CARRY ON A BUSINESS IN COMPETITION BUT FOR SUCH AGREEMENT OF NON - COMPETE. THEREFORE THE RIGHT ACQUIRED UNDER A NON - COMPETE AGREEMENT IS A RIGHT FOR WHICH A VALUABLE CONSIDERATION IS PAID. THIS RIGHT IS ACQUIRED SO AS TO ENSURE THAT THE R ECIPIENT OF THE NON - COMPETE FEE DOES NOT COMPETE IN ANY MANNER WITH THE BUSINESS IN WHICH HE WAS EARLIER ASSOCIATED. GENERALLY, NON - COMPETE FEE IS PAID FOR A DEFINITE PERIOD. THE IDEA IS THAT BY THAT TIME, THE BUSINESS WOULD STAND FIRMLY ON ITS FOOTING AND CAN SUSTAIN LATER ON. THIS CLEARLY SHOWS THAT THE COMMERCIAL RIGHT COMES INTO EXISTENCE WHENEVER THE ASSESSEE MAKES PAYMENT FOR NON - COMPETE FEE. HERE THE DOCTRINE OF EJUSDEM GENERIS WOULD COME INTO OPERATION AND THEREFORE THE NON - COMPETE FEE VESTS A RIGHT IN THE ASSESSEE TO CARRY ON BUSINESS WITHOUT COMPETITION WHICH IN TURN CONFERS A COMMERCIAL RIGHT TO CARRY ON BUSINESS SMOOTHLY. 7. THIS ISSUE IS ALSO COVERED BY THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF PENTASOFT TECHNOLOGIES LTD. VS. DCIT, 264 CTR 187 (MAD HC) M/S VOSSLOH SCHWABE INDIA PVT. LTD. ITA NO. 3566 / MUM/20 1 1 ITA NO. 3796/MUM/2011 5 WHEREIN THE HONBLE COURT HELD AS UNDER: - THE AGREEMENT BETWEEN THE PARTIES IS A COMPOSITE AGREEMENT. UNDER THE AGREEMENT, THE TRANSFEROR HAD TRANSFERRED ALL ITS RIGHTS, COPY RIGHTS, TRADE MARKS IN RESPECT OF THE TRADE MARK 'PEN TASOFT' AS WELL AS THE TRAINING AND DEVELOPMENT DIVISION EXCLUSIVELY TO BE EXPLOITED BY THE ASSESSEE. IN ORDER TO STRENGTHEN THE AFORESAID RIGHTS, THERE WAS A NON COMPETE CLAUSE BY VIRTUE OF WHICH THE' TRANSFEROR WAS RESTRAINED FROM USING THE SAME TRADE MA RK, COPYRIGHTS, ETC. THEREFORE, THE NON COMPETE CLAUSE UNDER AGREEMENT SHOULD BE READ AS A SUPPORTING CLAUSE TO THE TRANSFEROR OF THE COPY RIGHTS AND PATENTS RATHER TO STRENGTHEN THE COMMERCIAL RIGHT, WHICH WAS TRANSFERRED IN FAVOUR OF THE ASSESSEE. REJECT ED THE ARGUMENT OF REVENUE THAT NON - COMPETE FEE IS IN THE NATURE OF A NEGATIVE RIGHT AND IT CANNOT BE OF A COMMERCIAL RIGHT OF SIMILAR NATURE AND THE EXPRESSION 'SIMILAR NATURE' SHALL BE RELATABLE TO PATENTS, COPY RIGHTS AND TRADE MARK LICENSE OR FRANCHISE OR ANY OTHER BUSINESS. 8. WE FIND THAT THIS ISSUE IS ALSO COVERED BY THE DECISION OF CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF IND GLOBAL CORPORATE FINANCE (P.) LTD. VS. ITO, 19 ITR (T) 483 (MUMBAI TRIB) WHEREIN IT WAS HELD THAT NON - COMPETE RI GHT WAS AN INTANGIBLE ASSET U/S 32(1)(II) OF THE ACT. 9. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE ACTION OF LOWER AUTHORITIES DECLINING THE CLAIM OF DEPRECIATION ON NON - COMPETE PAYMENT MADE FOR ACQUIRING NON - COMPETE RIGHT WHICH IS AN INTAN GIBLE ASSET ELIGIBLE FOR CLAIM FOR DEPRECIATION U/S 32(1)(II) OF THE ACT . M/S VOSSLOH SCHWABE INDIA PVT. LTD. ITA NO. 3566 / MUM/20 1 1 ITA NO. 3796/MUM/2011 6 8 . THUS, RESPECTFULLY FOLL O W I NG THE SAME, WE HOLD THAT, THE ASSESSEE IS ENTITLED FOR DEPRECIATION FOR NON - COMPETE PAYMENT FOR ACQUIRING NON - COMPETE RIGHT WHICH IS INTANGIBLE ASSET , THUS GROUND NO. 1 AS RAISED BY THE ASSESSEE IS ALLOWED. 9 . IN G ROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF CONTRACTUAL PAYMENT OF RS. 74,02,064/ - MADE BY M/S XYLON PVT. LTD. 1 0 . BRIEF FACTS ARE THAT M/S XYLON HOLDINGS P LTD ( XYLON ) EN TERED INTO MANUFACTURING AGREEMENT WITH THE ASSESSEE - COMPANY IN MARCH, 1998 FOR SUPPLYING OF ALL PARTS, COMPONENTS AND MATERIAL S FOR THE ASSEMBLY AND MANUFACTURE OF THE PRODUCTS . XYLON , WAS ENTITLED TO A FEE OF 5% OF COST S BEING INCURRED BY IT FOR MANUFACT UR ING. IN A WAY, XYLON ACTED AS A TOLL MANUFACTURER . A N Y LIABILITY INCURRED DURING THE COURSE OF ITS OPERATION S, THAT IS THOSE OF PERTAINING TO THE MANUFACTURING OPERATIONS WERE AGREED TO BE TAKEN OVER BY THE ASSESSEE COMPANY. LATER, ON TERMINA TION OF THE MANUFACTURING AGREEMENT, THE ASSESSEE COMPANY HAS ENTERED INTO AGREEMENT ON 8 TH AUGUST, 2003 FOR TAKING OVER THE LIABILITIES OF XYLON . IN TERMS OF THE SAID AGREEMENT, THE ASSESSEE AGREED TO TAKE OVER FROM XYLON THE FINISHED AND UNFINISHED PRODUCTS I.E. INV ENTORIES AND RELATED LIABILITIES . THE ASSES S EE THUS TOOK OVER THE FOLLOWING: PARTICULARS AMOUNT(RS. IN LAKHS) SECURED LOANS GE COUNTRYWIDE LTD 29.17 CURRENT LIABILITIES AND PROVISIONS - CREDITORS OF GOODS - BALANCE DUE TO APPELLANT CO. - CREDITORS FOR EXPENS ES - PROVISIONS FOR GRATUITY - PROVISIONS FOR TAXATION - DEFERRED TAX LIABILILTY - SALES TAX LIABILITY 428.31 173.56 57.27 1.33 9.29 51.69 7.67 TOTAL LIABILITIES TO BE TRANSFERRED 758.29 VALUE OF INVENTORIES 485.82 NET TRANSFER OF LIABILITIES 272.4 7 M/S VOSSLOH SCHWABE INDIA PVT. LTD. ITA NO. 3566 / MUM/20 1 1 ITA NO. 3796/MUM/2011 7 1 1 . THE SAID LIABILITY THUS, ALSO INCLUDED INCOME TAX PAYABLE OF RS. 58.13 LAKHS, WHICH WAS RAISED UP ON XYLON DURING ITS CARRYING ON THE BUSINESS. BESIDES THIS THERE WAS A DEMAND OF RS. 15.90 LAKHS RAISED BY THE EXCISE DEPARTMENT . THE ABOVE AMOUNTS AGGR EGATING TO RS. 74,02,674/ - WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT AFTER TAKING OVER THE LIABILITY AND WAS CLAIMED AS DEDUCTIBLE EXPENDITURE BY THE ASSESSEE COMPANY IN THE RELEVANT ASSESSMENT YEAR. THE ASSESSING OFFICER DISALLOWED THE SAID PAYMENTS ON T HE FOLLOWING REASONS, WHICH HAVE BEEN SUMMARIZED BY THE CIT(A) IN THE FOLLOWING MANNER : - PAYMENT AMOUNT (RS.) REASON FOR DISALLOWANCE INCOME TAX 58,13,845 INCOME TAX LIABILITY EITHER OF THE APPELLANT COMPA N Y OR OF ANYBODY CANNOT BE CLAIMED AS EXPENDI TURE EXCISE DUTY 15,90,229 RS. 7,94,956 PENALTY PAID BY XYLON FOR VIOLATION O F EXCISE ACT AND EVASION OF EXCISE DUTIES. THUS THE SAME IS DISALLOWABLE UNDER SECTION 37 O F THE ACT. ALSO, THE EXCISE LIABILITY HAS NOT ACTUALLY BEEN PAID AND THEREFORE NOT ALLOWABLE AS PER SECTION 43B OF THE ACT. 1 2 . THE ASSESSEES CASE BEFORE THE ASSESSING OFFICER WAS THAT , IT WAS NOT MAKING ANY CLAIM OF INCOME - TAX LIABILITY OF ITSELF BUT IT WAS ONLY DISCHARGING ITS CONTRACTUAL LIABILITY . THE ASSESSEE HAS COMPENSATED XYL ON FOR AN AMOUNT OF RS. 58,13,845/ - BEING AN AMOUNT EQUAL TO THE INCOME TAX LIABILITY THAT XYLON HAS INCURRED DURING THE COURSE OF T RANSFER OF STOCK AND LIABILIT IES . THUS , INCOME TAX WAS ONLY A MEASURE OF COMPENSATION AND NOT DISCHARGE OF TAX LIABILITY OF XYLON . SIMILARLY, THE ASSES S EE HAD ALSO AGREED TO COMPENSATE XYLON FOR RS. 15,19,229/ - BEING DEMAND RAISED ON XYLON BY CENTRAL EXCISE DEPARTMENT AND HENCE, PROVISIONS OF SECTION 4 3 B AND SECTION 37 WOULD APPLY . ALL THESE CONTENTIONS WERE REJECTED BY THE ASS ESSING AND OFFICER SUCH A CLAIM WAS DISALLOWED. M/S VOSSLOH SCHWABE INDIA PVT. LTD. ITA NO. 3566 / MUM/20 1 1 ITA NO. 3796/MUM/2011 8 1 3 . BEFORE THE CIT(A), IN SUPPORT OF I T S CONTENTION, THE ASSESSEE STRONGLY RELIED UPON THE DECISION OF P&H HIGH COURT IN THE CASE OF DASHMESH TRANSPORT CO P LTD. VS CIT, REPORTED IN 93 ITR 2 75. THIS DECISION, WAS THOUGH REVIEWED BY THE SAME HIGH COURT IN THE SUBSEQUENT DECISION OF THE D ASHMESH TRANSPORT CO. (P) LTD. VS CIT, RE P O R TED IN 125 ITR 681, WHEREIN THE HONBLE HIGH COURT HAS DISALLOWED THE SAID PAYMENT U/S 37(1) ON THE GROUND THAT THE SAME WERE IN THE NATURE OF CAPITAL EXPENDITURE. HOWEVER , THE AS S ESSEE POINTED OUT THAT THE FACTS AS GIVEN IN THE LATER DECISION WAS ENTIRELY DIFFERENT WITH THAT OF THE ASSESSEE. THE LD. CIT(A), NOTED THAT THE ASSESSEE HAS TAKEN INCOME - TAX LIABILITY OF ITS JOINT VENTURE PAR TNER AMOUNTING TO RS. 58,13,845 AND EXCISE DUTY LIABILITY , AMOUNTING TO RS. 15,90,229/ - , OUT OF WHICH, RS. 7,94,956/ - RELATES TO THE PENALTY PAID UNDER EXCISE DUTY ACT AND INVASION OF EXCISE DUTIES AND FURTHER EQUAL AMOUNT WAS IMPOSED AS ADDITIONAL DUTY . H EN CE SAME CANNOT BE HELD TO BE ALLOWABLE DEDUCTION S BEING PENAL IN NATURE . HE REJECTED THE ASSESSEES CONTENTION AND HELD THAT THE ASSESSING OFFICER WAS RIGHT IN DISALLOWING THE SAID PAYMENT TOWARDS THE INCOME - TAX LIABILITIES AND ALSO DISALLOWANCE OF EXCIS E DUTIES. 1 4 . BEFORE US, THE LD. COUNSEL BESIDES RETREATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, SUBMITTED THAT WHAT ASSESSEE HAS P A I D WAS PURELY ON ACCOUNT OF EXPENSE ON ACCOUNT OF DISCHARGE OF CONTRACTUAL LIABILITY AND, THEREFORE, THE SAM E IS ALLOWABLE AS BUSINESS EXPENSE . APART FROM RELYING ON THE DASHMESH TRANSPORT CO P LTD., REPORTED IN 93 ITR 27 5 , FURTHER RELIANCE WAS PLACED ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF KAR A N JOHAR VS DCIT REPORTED IN [2011] 46 SOT 21. THE ASSESSEE HAS NOT PAID ITS OWN INCOME TAX LIABILITY , BUT HAS UNDERTAKEN THE LIABILITY ALONG WITH THE STOCK AND THEREFORE PROVISIONS OF SECTION 40(A) WILL NOT APPLY. M/S VOSSLOH SCHWABE INDIA PVT. LTD. ITA NO. 3566 / MUM/20 1 1 ITA NO. 3796/MUM/2011 9 15 . ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE CIT(A) . 16 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS. BY VIRTUE OF TERMINATION OF MANUFACTURING AGREEMENT WITH XYLON , THE ASSESSEE HAD AGREED TO TAKE OVER THE INVENTORIES AND ALSO THE LIABILITIES . A S PER THE TERMS OF THE AGREEMENT FOR TAKING OVER THE LIABILITIES, XYLON WAS COMPENSATED FOR INCOME TAX LIABILITY AND ALSO FOR THE DEMAND RAISED BY THE EXCISE DEPARTMENT , WHICH WAS DEBITED TO THE PROFIT & LOSS ACCOUNT AND CLAIMED AS DEDUCTION. THE ASSESSEES CLAIM F OR DEDUCTION OF INCOME - TAX LIABILITY WAS ON THE GROUND THAT IT WAS NOT THE INCOME TAX LIABILITY OF THE ASSESSEE BUT THAT OF THE XYLON AND, THEREFORE, PROVISION OF SECTION 40(A) (II) WILL NOT APPLY TO SAID CONTRACTUAL PAYMENT. IT IS A TRITE LAW THAT INCOME TAX LIABILITY OR INCOME TAX PAYMENT S ARE NOT ALLOWED AS DEDUCTIONS IN THE COMPUTATION OF TOTAL INCOME. THIS CONTRACTUAL LIABILITY IF AT ALL RELATES TO INCOME - TAX LIABILITY OF ITS JOINT VENTURE TOLL MANUFACTURER , XYLON WHI CH WAS ENTITLED FOR COST PLUS MA R K - UP FEE OF 5% . THE TAX LIABILITY WAS INCURRED BY XYLON DURING THE COURSE OF ITS MANUFACTURING ACTIVITIES . E VEN IF THE ASSE S SEE WAS UNDER CONTRACTUAL OBLIGATION TO COMPENSATE FOR INCOME - TAX LIABILITY, THEN ALSO SAME CANNOT BE CLAIMED AS DEDUCTION, BECAUSE IT TANTAMOUNT S TO PAYING OF SUM ON ACCOUNT OF ANY RA TE OR TAX LEVIED ON THE PROFITS AND GAINS OF ANY BUSINESS OR PROFESSION AS STIPULATED IN SECTION 40(A)(II). EITHER THE ASSESSEE PAYS THE INCOME - TAX LIABILITY OF THE OTHER PERSON OR PAYS BY ITSELF OR COMPENS ATES THE SAME, WILL NOT MAKE A DIFFERENCE AS THERE CANNOT BE DISTINCTION BETWEEN SUCH DISCHARGE OF LIABILITY. THAT IT CANNOT BE HELD TO BE A ALLOWABLE EXPENDITURE. SO FAR AS A DECISION OF DASHMESH TRANSPORT CO P LTD. VS CIT, REPORTED IN 93 ITR 275, IT HAS BEEN RIGHTLY OBSERVED BY THE LD. CIT(A) THAT TH IS DECISION ITSELF HAS BEEN REVIEWED AND HAS NOT BEEN FOLLOWED BY THE SAME HIGH COURT IN THE SUBSEQUENT DECISION. THUS, THE FINDING OF THE CIT(A) THAT INCOME - TAX LIABILITY CANNOT BE M/S VOSSLOH SCHWABE INDIA PVT. LTD. ITA NO. 3566 / MUM/20 1 1 ITA NO. 3796/MUM/2011 10 ALLOWED AS DEDUCTION IS UP HELD. SIMILARLY, REGARDING PAYMENT O F EXCISE DUTY, I T HAS NOT BEEN REBUTTED BEFORE US THAT SAME IS NOT TOWARDS PENALTY FOR EVASION OF EXCISE DUTY AND THAT S UCH A PENALTY IS NOT PENAL BUT COMPENSATORY IN NATURE . THUS, WITHOUT ANY DETAIL TO CONTROVERT THIS FINDING OF CIT(A), IT CAN BE INFERRED AS RELATING TO THE EVASION OF DUTIES AND PENAL IN NATURE . ACCORDINGLY, T HE SAID AMOUNT OF RS.15,90,229/ - BEING AMOUNT OF PENALTY AND ADDITIONAL DUTY CANNOT BE HELD TO BE ALLOWABLE WITHIN THE AMBIT OF SECTION 37(1). TH US, ON THIS SCORE ALSO THE DECISION OF THE HONBLE CIT(A) IS UPHELD. ITA NO. 3796 /MUM/2011 : REVENUE S APPEAL : 1 7 . NOW WE WILL TAKE - UP REVENUES APPEAL VIDE WHICH FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN DETERMINING THE ALP U/S 92C(2) AT RS. 20,42,500/ - AFTER GRANTING 5% SALE HARBOUR AS AGAINST RS. 63,55,322/ - DETERMINED BY THE TPO. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 1 8 . BEFORE US IT HAS BEEN ADMITTED BY THE LD. COUNSEL THAT THIS ISSUE IS NOW STANDS COVERED AGAINST THE ASSESSEE BY VIRTUE OF SEVERAL DECISION AND ALSO BY THE AMENDMENT BROUGHT IN THE STATUTE BY THE FINANCE A CT, 2012. 19 . ACCORDINGLY, WE HOLD TH AT THE STANDARD ADJUSTMENT OF 5 % AS GIVEN BY THE CIT(A) CANNOT BE ALLOWED AS THIS CONTROVERSY HAS BEEN SET AT REST BY FINANCE ACT, 2012 WITH IN SERTION OF SUB - SECTION (2A) TO SECTION 92C WITH RETROSPECTIVE EFFECT. WIT H THIS AMENDMENT, IT HAS BEEN CLARIFIED THAT WHERE VARIATION BY WAY OF ARITHMETIC MEAN COMPRISED AT WHICH TRANSACTION HAS ACTUALLY BEEN M/S VOSSLOH SCHWABE INDIA PVT. LTD. ITA NO. 3566 / MUM/20 1 1 ITA NO. 3796/MUM/2011 11 UNDERTAKEN, EXISTS BY 5% OF THE ARITHMETIC MEAN, THE ASSESSEE SHALL NOT BE ENTITLED TO EXERCISE THE OPTION. ACCORDINGLY, WE HOLD THAT LD. CIT(A) HAS NOT JUSTIFIED IN GR A NTING STANDARD ADJUSTMENT OF 5%. THUS, THE GROUND RAISED BY THE REVENUE IS ALLOWED. 20 . IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLOWED AND THAT OF THE REVENUE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH AUGUST , 2015. SD/ - SD/ - ( . . ) ( ) ( B R BASKARAN ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 14 TH AUGUST , 2015 / COPY TO: - 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT (A) - 15 , MUMBAI. 4) THE CIT 3 , MUMBAI. 5) , , / THE D.R. K BENCH, MUMBAI. 6) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS