Addl. CIT, Noida V. M/s. H-one India Pvt. Ltd, Noida

ITA 4031/DEL/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2266 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2005-2006
• Appeal Filed On: 01-10-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: D D BANSAL
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 195

Judgement Text

I.T.A. NO.4031 /DEL/ 1/5 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.4031 /DEL/2009 ASSESSMENT YEAR : 2005-06 ADDL. CIT, H-ONE INDIA PVT. LTD., NOIDA RANGE, 12-UDYOG VIHAR, SURAJPUR, NOIDA. V. H INDIA, GREATER NOIDA, NOIDA. (APPELLANT) (RESPONDENT) PAN /GIR/NO.AABCH-3232-L APPELLANT BY : SHRI A.K. SINGH, SR. DR. RESPONDENT BY : SHRI D.D. BANSAL, C.A. ORDER PER A.K. GARODIA, AM: THIS IS REVENUE'S APPEAL DIRECTED AGAINST THE ORDER OF LD CIT(A), MUZAFFARNAGAR DATED 10.6.2009 FOR ASSESSMENT YEAR 2 005-06. 2. GROUND NO.1 OF THE APPEAL READS AS UNDER:- THAT THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS B Y HOLDING THAT PAYMENT OF ROYALTY OF RS.1,29,80,793/- MADE TO HONGO COMPAN Y LTD. (NOW H-ONE COMPANY LTD.), JAPAN IS REVENUE IN NATURE WITHOUT A PPRECIATING THE FACTS OF THE CASE PROPERLY. . I.T.A. NO.4031/DEL/09 2/5 3. BRIEF FACTS OF THE CASE ARE THAT IT IS NOTED BY THE ASSESSING OFFICER IN PARA NO.2 OF THE ASSESSMENT ORDER THAT IN ASSESSMENT YEA R 2003-04, THE ISSUE REGARDING PAYMENT OF ROYALTY TO THE EXTENT OF 3% OF THE TURNOVER PAID TO HONGO COMPANY LTD. (NOW H-ONE COMPANY LIMITED)WAS EXAMINE D AND IT WAS HELD IN THAT YEAR THAT THE SAME IS OF CAPITAL NATURE. IN T HE PRESENT YEAR, THE ASSESSING OFFICER ASKED THE ASSESSEE TO GIVE DETAILS OF BASIC CLAIM OF ROYALTY AND TO WHOM IT WAS PAID. THE ASSESSING OFFICER ALSO ASKED THE ASSE SSEE TO SHOW AS TO WHY IT SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE. IN RE PLY, IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THE ASSE SSEE HAD NOT ACQUIRED ANY ENDURING ADVANTAGE AND AS PER THE TERMS OF AGREEMEN T, REGARDING TECHNICAL KNOW HOW SUPPLIED BY H-ONE CO. LTD. JAPAN, IT REMAI NED SOLE AND EXCLUSIVE PROPERTY OF THAT COMPANY DURING THE OPERATION OF AG REEMENT AND HENCE THE ROYALTY PAYMENT IN THE PRESENT YEAR OF RS.1,29,80,7 93/- IS REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE. THE ASSESSING OFFICER WAS NOT SATISFIED AND AS PER THE ASSESSMENT ORDER IN ASSESSMENT YEAR 2003-04, IN THE PRESENT YEAR ALSO, THE SAME WAS DISALLOWED BY TREATING THE SAME AS CAPITAL EXPENDITURE. BEING AGGRIEVED, THE ASSESEE CARRIED THE MATTER IN APPEAL BEFORE LD CIT(A) WHO HAS DELETED THIS DISALLOWANCE BY FOLLOWING THE TRIBUNAL DECISION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02 IN I.T.A. NO.2146 /DEL/2006 DATED 4.7.2008. NOW, THE REVENUE IS IN APPEAL BEFORE US. 4. LD DR OF THE REVENUE SUPPORTED THE ASSESSMENT OR DER WHEREAS LD AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD CIT(A). IT IS ALSO SUBMITTED THAT THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMEN T YEAR 2001-02 IN I.T.A. NO.2146/DEL/2006 DATED 4.7.2008 IS AVAILABLE ON PAG ES 13 TO 34 OF THE PAPER BOOK. OUR ATTENTION WAS DRAWN TO PARA NO.19 & 20 OF THE TRIBUNAL DECISION. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GON E THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IN ASSESSMENT YEA R 2001-02, SIMILAR ISSUE WAS BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE AND IN T HAT YEAR, IT WAS HELD BY THE TRIBUNAL THAT PAYMENT OF ROYALTY EQUAL TO 3% OF THE NET SALES PAID TO M/S HONGO . I.T.A. NO.4031/DEL/09 3/5 COMPANY LTD, JAPAN IS AN ALLOWABLE BUSINESS EXPENDI TURE IN THE HANDS OF THE ASSESSEE COMPANY AND CANNOT BE HELD TO BE CAPITAL I N NATURE. IT IS HELD BY THE TRIBUNAL THAT IN THAT YEAR, THE ASSESSEE HAS DULY D EDUCTED AND PAID THE TDS ON THIS ROYALTY PAYMENT AND IN THIS REGARD, IT IS NOTE D BY THE TRIBUNAL THAT TDS RETURN U/S 195 FILED BY THE ASSESSEE WAS AVAILABLE IN THE PAPER BOOK SUBMITTED BY THE ASSESSEE IN THAT YEAR AND FROM THE SAME, IT HAS BEE N NOTED BY THE TRIBUNAL THAT THE ASSESSEE HAS DULY DEDUCTED TDS FROM SUCH PAYMEN T OF ROYALTY TO HONGO JAPAN AND TDS WAS PAID TO GOVT. ACCOUNT. IN THE PR ESENT YEAR, NO SUCH EVIDENCE IS AVAILABLE ON RECORD REGARDING DEDUCTION OF TDS AND PAYMENT THEREOF TO THE CREDIT OF GOVT. ACCOUNT. UNDER THESE FACTS, WE HOLD THAT THE PAYMENT OF ROYALTY IN THE PRESENT YEAR TO THE EXTENT OF 3% OF NET SALES PAID TO M/S HONGO JAPAN IS AN ALLOWABLE BUSINESS EXPENDITURE IN THE H ANDS OF THE ASSESSEE AND THE SAME CANNOT BE HELD TO BE OF CAPITAL IN NATURE. WE HOLD SO BY FOLLOWING THE TRIBUNAL DECISION IN ASSESSEES OWN CASE FOR ASSESS MENT YEAR 2001-02. BUT SINCE IN THE PRESENT CASE, IT IS NOT CLEAR AS TO WH ETHER TDS WAS DEDUCTED AND PAID BY THE ASSESSEE OR NOT, WE FEEL IT PROPER THAT THIS ASPECT OF THE MATTER SHOULD BE RESTORED TO THE FILE OF THE ASSESSING OFF ICER FOR A DECISION AFTER VERIFYING THE FACTS AND HENCE WE SET ASIDE THE ORDER OF LD C IT(A) ON THIS ISSUE AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSIN G OFFICER FOR THE LIMITED PURPOSE OF EXAMINING AND VERIFYING AS TO WHETHER THE ASSESS EE HAS DEDUCTED TDS FROM THIS ROYALTY PAYMENT AND PAID TO THE CREDIT OF GOVT . ACCOUNT. IF IT IS FOUND THAT TDS WAS PROPERLY DEDUCTED AND PAID, DEDUCTION ON TH IS ACCOUNT SHOULD BE ALLOWED TO THE ASSESSEE BECAUSE WE HAVE ALREADY HEL D THAT THE SAME IS OF REVENUE NATURE AND NOT OF CAPITAL NATURE. WE ARE R ESTORING THIS MATTER BACK TO THE FILE OF THE ASSESSING OFFICER BECAUSE THIS ASPE CT WAS NOT EXAMINED BY HIM SINCE HE HAS DISALLOWED THIS PAYMENT OF ROYALTY ON A DIFFERENT BASIS THAT IT IS CAPITAL IN NATURE AND HENCE THIS ASPECT WAS NOT AT ALL EXAMINED BY HIM. THIS GROUND OF THE REVENUE IS ALLOWED FOR STATISTICAL PU RPOSES. 6. GROUND NO.2 OF THE APPEAL READS AS UNDER:- . I.T.A. NO.4031/DEL/09 4/5 THAT THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS I N HOLDING THAT THE PAYMENT OF TECHNICAL ASSISTANT/SUPERVISION CHARGES OF RS.31,09,091/- MADE TO HONGO COMPANY LIMITED (NOW H-ONE COMPANY LI MITED) JAPAN, IS REVENUE IN NATURE, WITHOUT APPRECIATING THE FACT S OF THE CASE PROPERLY. 7. IT IS NOTED BY THE ASSESSING OFFICER THAT THE AS SESSEE HAS SIMPLY STATED THAT CESS ON ROYALTY, TECHNICAL FEES AND SUPERVISIO N CHARGES WERE PAID TO PARENT COMPANY AND ALONG WITH THE REPLY, THE ASSESSEE HAS ENCLOSED COPY OF LEDGER OF CESS PAID ACCOUNT. UNDER THESE FACTS, THE ASSESSIN G OFFICER DISALLOWED THIS EXPENDITURE BY HOLDING THAT THE ASSESSEE IS GETTING ADVANTAGE OF ENDURING NATURE AND HENCE THESE EXPENSES ARE OF CAPITAL NATURE. BEI NG AGGRIEVED, THE ASSESEE CARRIED THE MATTER IN APPEAL BEFORE LD CIT(A) WHO H AS DELETED THIS DISALLOWANCE ON THE BASIS THAT THESE EXPENSES WERE INCURRED IN C ONNECTION WITH TECHNICAL SERVICES OBTAINED FROM THE HOLDING COMPANY IN RESPE CT OF DAY TODAY RUNNING OF BUSINESS AND HENCE THE SAME HAS TO BE HELD AS REVEN UE IN NATURE. NOW, THE REVENUE IS IN APPEAL BEFORE US. 8. LD DR OF THE REVENUE SUPPORTED THE ASSESSMENT OR DER WHEREAS LD AR OF THE ASSESSEE SUPPORTED THE ORDER OF LD CIT(A). IT WAS ALSO ENQUIRED BY THE BENCH AS TO WHETHER TDS WAS DEDUCTED BY THE ASSESSE E ON THIS PAYMENT. IN REPLY, IT WAS SUBMITTED BY LD AR OF THE ASSESSEE TH AT THIS FACT IS NOT AVAILABLE ON RECORD AND HENCE ON THIS ASPECT, THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GON E THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IT HAS BEEN EXPLA INED BEFORE LD CIT(A) THAT THESE EXPENSES WERE INCURRED PURELY IN ORDER TO ENS URE SMOOTH PRODUCTION AND RESOLVING TECHNICAL DIFFICULTIES / SNAGS IN ASSESSE ES MOST MODERN HI-TECH FACTORY SUPPLYING ITS ENTIRE PRODUCTION TO LEGENDARY HONDA CAR COMPANY. WE ALSO FIND THAT THE ASSESSING OFFICER HAS TREATED THESE EXPENS ES AS CAPITAL IN NATURE ON SURMISES AND CONJECTURES WITHOUT ANY BASIS. CONSIDE RING THE FACTS OF THE PRESENT . I.T.A. NO.4031/DEL/09 5/5 CASE, WE ARE IN AGREEMENT WITH LD AR OF THE ASSESSE E THAT THESE EXPENSES WERE INCURRED FOR DAY TODAY RUNNING OF BUSINESS OF THE A SSESSEE AND HENCE THE SAME IS OF REVENUE NATURE AND NOT OF CAPITAL NATURE. CON SIDERING ALL THESE FACTS, WE HOLD THAT THESE EXPENSES ARE OF REVENUE NATURE AND NOT OF CAPITAL NATURE BUT AT THE SAME TIME THIS ASPECT WAS NOT EXAMINED BY THE A UTHORITIES BELOW AS TO WHETHER TDS WAS DEDUCTED AND PAID BY THE ASSESSEE O R NOT AND HENCE WE FEEL IT FIT AND PROPER THAT FOR THIS LIMITED PURPOSE, TH IS MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER AND HENCE WE SET ASIDE THE ORDER OF THE LD CIT(A) AND RESTORE THIS MATER BACK TO THE FILE OF THE ASSESSIN G OFFICER FOR LIMITED PURPOSE OF EXAMINING AND VERIFYING AS TO WHETHER TDS WAS DEDUC TED AND PAID BY THE ASSESSEE OR NOT FROM THESE EXPENSES. IF IT IS FOUN D THAT TDS WAS DEDUCTED AND PAID BY THE ASSESSEE THEN THESE EXPENSES ARE TO BE ALLOWED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER SHOULD PASS NEC ESSARY ORDER AS PER LAW AS PER ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. 11. ORDER PRONOUNCED IN THE OPEN COURT ON 4TH DAY O F DECEMBER, 2009. SD/- SD/- (R.P. TOLANI) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 4.12.2009. HMS 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. (ITAT, NEW DELHI).