ASST CIT (LTU) 1, MUMBAI V. JOHNOSN & JOHNSON LTD, MUMBAI

ITA 4161/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6060 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2007-2008
• Appeal Filed On: 06-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S SHRIANAND MOHAN RAKESHRANJAN
• Assessee Lawyers: M P LOHIAPRANAY GANDHI
• Keywords: Depreciation; Transfer pricing; Question of law; Fair market value; TDS; Set aside
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K , MUMBAI BEFORE SHRIC.N.PRASAD, JM AND SHRI M.BALAGANESH , A M IT(TP)A NO. 4161 /MUM/201 7 : ASST.YEAR 2007 - 2008 THE ASST.COMMISSIONER OF INCOME - TAX (LTU)1, MUMBAI. . VS. M/S.JOHNSON& JOHNSON PVT. LIMITED (FORMERLY KNOWN AS JOHNSON & JOHNSON LIMITED) 501, ARENA SPACE, OFF JVLR , OPP: MAJAS BUS DEPOT JOGESWARI (EAST), MUMBAI - 400 060. (APPELLANT) (RESPONDENT) CO NO. 56 /MUM/201 8 :ASST.YEAR 2011 - 2012 M/S.JOHNSON& JOHNSON PVT. LIMITED (FORMERLY KNOWN AS JOHNSON & JOHNSON LIMITED) 501, ARENA SPACE, OFF JVLR OPP: MAJAS BUS DEPOT JOGESWARI (EAST), MUMBAI - 400 060. VS. THE ASST.COMMISSIONER OF INCOME - TAX (LTU)1, MUMBAI. ( CROSS OBJECTOR ) (RESPONDENT) REVENUE BY : S/ SHRIANAND MOHAN &RAKESHRANJAN ASSESSEE BY : S/SHRI M.P.LOHIA&PRANAY GANDHI DATE OF HEARING : 0 7 .01.2019 DATE OF PRONOUNCEMENT : 23. 01.2019. O R D E R PER M.BALAGANESH ( A M) : THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 56, MUMBAI [IN SHORT `THE CIT(A)] DATED 22.02.2017. THE RELEVANT ASSESSMENT YEAR IS 2007 - 2008. LET US FIRST TAKE THE APPEAL FILED BY THE REVENUE. 2. THE GROUND NO.1 RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE LD.CIT(A) IN DELETING THE ADJUSTMENT MADE ON ACCOUNT OF INCOME TAX ON IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 2 BRAND USAGE ROYALTY. AT THE OUTSET, WE FIND THAT THIS IS SUE IS COVERED BY THE CO - ORDINATE BENCH DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005 - 2006 IN ITA NO.2547/MUM/2017 DATED 26.12.2018 EXCEPT FOR VARIANCE IN FIGURES , WHEREIN IT WAS HELD AS UNDER: - 8. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AND HAVE GONE THROUGH THE ORDER OF AUTHORITIES BELOW. WE HAVE NOTED THAT SIMILAR GROUND OF APPEAL WAS RAISED BEFORE TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2002 - 03 IN ITA NO. 4092/MUM/2007 AND THE CO - ORDINATE BENCH OF TRIBUNAL PA SSED THE FOLLOWING ORDER: 34. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND ALSO THE COPY OF AGREEMENT SUBMITTED ALONGWITH APPLICATION TO RBI AS EXHIBITED AT PAGES 1143 TO 1145 OF THE PAPER BOOK. WE FIND THAT THE APP LICATION MADE BY THE ASSESSEE TO RBI FOR BRAND USAGE AGREEMENT SPECIFICALLY MENTIONS THAT THE ROYALTY TO BE REMITTED IS NET OF TAXES. FURTHER, THE APPROVAL WAS RECEIVED FROM THE RBI TO REMIT THE ROYALTY ON BRAND USAGE BY THE ASSESSEE @ 1 % NET OF TAXES. CO NSIDERING THE BRAND USAGE AGREEMENT VIS - - VIS THE APPROVAL GRANTED BY RBI, IT CAN BE SAFELY INFERRED THAT TAXES WERE LIABILITY OF J&J INDIA UNDER THE TERMS OF AGREEMENT. THE ASSESSEE HAS ENTERED INTO A COMMERCIAL ARRANGEMENT WITH J&J US AND IT HAS BEEN SO ARRANGED THAT THE PAYMENT OF TAXES HAVE TO BE BORNE BY THE ASSESSEE BEING A COMMERCIAL ARRANGEMENT, THE SAME SHOULD NOT BE QUESTIONED WHILE CALCULATING ARMS LENGTH PRICE. RELIANCE BY THE ASSESSEE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF DRESSER RAND INDIA PVT. LTD. IN ITA NO. 3509/M/08 IS WELL FOUNDED. CONSIDERING THE ENTIRE FACTS IN TOTALITY IN THE LIGHT OF THE BRAND USAGE AGREEMENT AND THE APPROVAL OF THE RBI, THE FINDINGS OF THE LD. CIT(A) IS SET ASIDE. THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 60,00,000/ - . GROUND NO. 13 IS ALLOWED. 9. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2002 - 03 WHICH WAS FOLLOWED IN A.Y. 2006 - 07 IN ITA NO. 83/MUM / 2011, FOR A. Y. 2008 - 09 IN ITA NO. 7133/MUM / 2012 AND FURTHER IN A .Y. 2009 - 10 IN ITA NO. 829/MUM / 2014, ON IDENTICAL GROUND, WE CONFIRMED THE ORDER OF L D. CIT(A). IN THE RESULT, GROUND NO.1 OF THE APPEAL IS DISMISSED. IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 3 2.1 . RESPECTFULLY FOLLOWING THE SAID DECISION, GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 3 . GROUND NO.2 RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE LD.CIT(A) IN DELETING THE ADJUSTMENT MADE ON ACCOUNT OF PAYMENT OF ROYALTY ON TRADED FINISHED GOODS MADE BY THE ASSESSEE TO JOHNSON & JOHNSON, US A . WE FIND THAT THIS ISSUE IS ALSO COVERE D BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) FOR ASSESSMENT YEAR 2005 - 2006, WHEREIN IT WAS HELD AS UNDER: - 14.WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AND FIND THAT IN ASSESSEE'S OWN CASE FOR A.Y. 2002 - 03 IN ITA NO. 4092/MUM/2 007 AND ITA NO. 4070/MUM/2007, THE TRIBUNAL PASSED THE FOLLOWING ORDER: 49. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL EVIDENCE BROUGHT ON RECORD IN THE FORM OF PAPER BOOK. IN ASSESSEE'S APPEAL, WE HAVE ALREADY HELD THAT THE AGREEMENTS BETWEEN J&J INDIA AND J&J USA FOR PAYMENT OF ROYALTY HAS TO BE CONSIDERED IN THE LIGHT OF THE APPROVAL OF THE RBI. WE DO NOT FIND ANY SUBSTANCE IN THE FINDINGS OF THE TPO THAT THERE IS NO NEED FOR PAYING ROYALTY FOR TECHNICAL/MARKETING KNOW - HOW. WE ALSO DO NOT FIND ANY FORCE IN THE FINDINGS OF THE TPO THAT THIS ROYALTY IS DEEMED TO BE INCLUDED IN BRAND ROYALTY. THE LD. CTT(A) HAS RIGHTLY CONSIDERED THE RELEVANT CLAUSES OF THE AGREEMENT BETWEEN J&J INDIA AND J&J USA. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). 15.CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2002 - 03 IN ITA NO. 4092/MUM/ 2007 AND IN ITA NO. 4070/MUM/ 2007, WHICH WAS FOLLOWED IN A.Y. 2006 - 07 IN ITA NO.83/MUM/201 1 AND IN A.Y. 200809 AND A. Y. 2009 - 10 IN ITA IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 4 NO. 829/MUM/2014, ON IDENTICAL GROUND, WE CONFIRMED THE ORDER OF ID. CIT(A). IN THE RESULT, GROUND NO.4 OF THE APPEAL IS DISMISSED. 3.1 . RESPECTFU LLY FOLLOWING THE SAID DECISION, GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 4 . GROUND NO.3 RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE LD.CIT(A) IN ALLOWING THE TECHNICAL KNOW - HOW ROYALTY PAYMENT AT 2% / 4% INSTEAD OF 1% AS DONE BY THE LD.TPO. WE FIND THAT THIS ISSUE IS ALSO COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) FOR ASSESSMENT YEAR 2005 - 2006, WHEREIN IT WAS HELD AS UNDER: - 17.WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AND FIND THAT IN ASSESSEE'S OWN CASE FOR A.Y. 2002 - 03 IN ITA NO. 409 2/MUM/2007 AND ITA NO. 4070/MUM/ 2007, THE TRIBUNAL PASSED THE FOLLOWING ORDER: '55. WE HAVE CONSIDERED THE SUBMISSIONS AND PERUSED THE ORDERS. AS WE HAVE ALREADY HELD HEREINABOVE THAT THE PAYMENT OF ROYALTY HAS TO BE C ONSIDERED IN THE LIGHT OF THE AGREEMENT BETWEEN THE ASSESSEE AND J & J USA, FOR THE SAME REASONS, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE ID. CIT(A).' 18.FURTHER, ON SIMILAR ISSUE FOR A.Y. 2006 - 07 IN ITA NO. 83/MUM/ 2011 DATED 05.02.2014 THE TRIBUNAL PASSED THE FOLLOWING ORDER: 55. WE HAVE CONSIDERED THE SUBMISSIONS AND PERUSED THE ORDERS. AS WE HAVE ALREADY HELD HEREINABOVE THAT THE PAYMENT OF ROYALTY HAS TO BE CONSIDERED IN THE LIGHT OF THE AGREEMENT BETWEEN THE ASSESSEE AND J&J USA, FOR THE SAME REASONS, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 2 IS ACCORDINGLY DISMISSED. IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 5 19.CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEE'S OWN CASE FORA.Y. 2002 - 03 IN ITA NO. 4092/MUM/ 2007 AND IN ITA NO. 4070/UM / 2007, WHICH WAS FOLLOWED I N A.Y. 2006 - 07 IN ITA NO.83/MUM/2011 AND IN A.Y. 2008 - 09 AND A.Y. 2009 - 10 IN ITA NO. 829/MUM/ 2014, ON IDENTICAL GROUND, WE CONFIRMED THE ORDER OF ID. CIT(A). IN THE RESULT, GROUND NO.5 OF THE APPEAL IS DISMISSED . 4.1 . RESPECTFULLY FOLLOWING THE SAID DECISION, GROUND NO.3 RAISED BY THE REVENUE IS DISMISSED. 5 . GROUND NO.4 RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE LD.CIT(A) IN DELETING THE ADJUSTMENT MADE ON ACCOUNT OF SERVICE TAX PAID BY THE ASSESSEE ON KNOW - HOW ROYALTY. WE FIND THAT THE SAID ISSUE IS ALSO COVERED BY THE DECISION OF THIS TRIBUNAL IN ASS ESSEES OWN CASE FOR ASSESSMENT YEAR 2005 - 2006(SUPRA), WHEREIN IT WAS HELD AS UNDER: - 11 .WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AND HAVE GONE THROUGH THE ORDER OF AUTHORITIES BELOW. WE HAVE NOTED THAT SIMILAR GROUND OF APPEAL WAS RAISED BEFORE TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2006 - 07 IN ITA NO. 83/MUM/2011 DATED 05.02.2014 AND THE CO - ORDINATE BENCH PASSED THE FOLLOWING ORDER: 34. IN RESPECT OF GROUND TAKEN BY ASSESSEE FOR MAKING DISALLOWANCE ON ACCOUNT OF TAX, SERVICE TAX PAID BY ASSESS EE ON THE PAYMENT OF ROYALTY, WE OBSERVE THAT THE SAID ISSUE HAS ALREADY BEEN CONSIDERED BY TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2002 - 03 (SUPRA) AND THE TRIBUNAL HAS HELD AFTER CONSIDERING THE AGREEMENTS ENTERED INTO BETWEEN THE ASSESSEE AND J&J US AND ALSO THE DECISION IN THE CASE OF DRESSER RAND INDIA P. LTD. (SUPRA) THAT THE TAXES WERE LIABILITY OF THE ASSESSEE - COMPANY UNDER THE TERMS OF AGREEMENTS AND ACCORDINGLY DISALLOWANCE MADE BY AO WERE DELETED. FURTHER, WE ALSO OBSERVE THAT LIA BILITY OF PAYMENT OF SERVICE TAX IS OF RECIPIENT OF SERVICES AND SINCE ASSESSEE IS THE RECEIVER OF SERVICES, IT IS THE LIABILITY OF THE ASSESSEE COMPANY TO BEAR SERVICE TAX. HENCE WE HOLD THAT TPO IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 6 WAS NOT JUSTIFIED TO STATE THAT LIABILITY OF BEARING SERVIC E TAX WAS OF ASSESSEE - COMPANY. IN VIEW OF ABOVE, WE HOLD THAT DISALLOWANCES MADE BY TPO ON ACCOUNT OF TAXES, SERVICES TAX IS NOT JUSTIFIED AND WE DIRECT TO DELETE THE SAME. HENCE, GROUND NOS.12, 13 AND 17 OF THE APPEAL TAKEN BY ASSESSEE ARE ALLOWED. 12.CO NSIDERING THE DECISION OF TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2006 - 07 IN ITA NO. 83/MUM/201 1, WHICH WAS FOLLOWED IN A.Y. 2008 - 09 IN ITA NO.133/MUM/2012 AND IN A.Y. 2009 - 10 IN ITA NO. 829/MUM/2014, ON IDENTICAL GROUND, WE CONFIRMED THE ORDER OF ID. C IT(A). IN THE RESULT, GROUND NO.2 & 3 OF THE APPEAL ARE DISMISSED. 5.1. RESPECTFULLY FOLLOWING THE SAID DECISION, GROUND NO.4 RAISED BY THE REVENUE IS DISMISSED. 6 . GROUND NO.5 RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE LD.CIT(A) IN DELETING THE ADJUSTMENT MADE ON ACCOUNT OF TAX, R&D CESS ON KNOW - HOW ROYALTY AND TRADED FINISHED GOODS AND MANUFACTURED PRODUCTS. WE FIND THAT THIS ISSUE IS COVERED BY THE D ECISION OF BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005 - 2006 (SUPRA), WHEREIN IT WAS HELD AS UNDER: - 21.WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AND FIND THAT IN ASSESSEE'S OWN CASE FOR A.Y. 2002 - 03 IN ITA NO. 4092/MUM12007 AN D ITA NO. 4070/MUM12007, THE TRIBUNAL PASSED THE FOLLOWING ORDER: 42. ...... AS WE HAVE ALREADY HELD ELSEWHERE THAT ROYALTY PAYMENTS HAS BEEN APPROVED BY RBI AND THEREFORE DESERVES TO BE ALLOWED. ACCORDINGLY AS THE PAYMENTS HAVE BEEN MADE IN THE LIGHT OF THE AGREEMENT WITH J&J US AND AS PER THE APPROVAL/GUIDELINES OF THE RBI, WE DO NOT FIND ANY REASON TO DISALLOW THE TAX AND R&D CESS PAID ON TECHNICAL ROYALTY. WE ACCORDINGLY DIRECT THE AO TO DELETE THE ADDITION MADE ON THIS ACCOUNT. IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 7 22.CONSIDERING THE DEC ISION OF TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2002 - 03 IN ITA NO. 4092/MUM/ 2007 AND IN ITA NO. 4070/MUM/2007, WHICH WAS FOLLOWED I N A.Y. 2006 - 07 IN ITA NO.83/MUM/ 2011 AND IN A.Y. 2008 - 09 AND A.Y. 2009 - 10 IN ITA NO. 829/MUM/2014, ON IDENTICAL GROUND, WE CONFIRMED THE ORDER OF ID. CIT(A). IN THE RESULT, GROUND NO.6 OF THE APPEAL IS DISMISSED. 6.1 . RESPECTFULLY FOLLOWING THE SAID DECISION, GROUND NO.5 RAISED BY THE REVENUE IS DISMISSED. 7 . GROUND NO.6 RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE LD.CIT(A) IN DELETING THE ADJUSTMENT MADE ON ACCOUNT OF SERVICE TAX PAID BY THE ASSESSEE ON BRAND USAGE ROYALTY.WE FIND WE HAVE ALREADY DISCUSSED THIS ISSUE IN GROUND NO.,4 AND THE DECIS ION RENDERED THEREON WOULD APPLY WITH EQUAL FORCE FOR GROUND NO. 6 ALSO. ACCORDINGLY, GROUND NO.6 RAISED BY THE REVENUE IS DISMISSED. 8 . GROUND NO.7 RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE LD.CIT(A) IN DELETING THE ADJUSTMENT MADE ON ACCOUNT OF SALES AND PROMOTION EXPENSES. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005 - 2006 (SUPRA), W HEREIN IT WAS HELD AS UNDER: - 24.WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AND FIND THAT IN ASSESSEE'S OWN CASE FOR A.Y. 2006 - 07 ON SIMILAR GROUND IN ITA NO. 83/MUM/201 1, THE TRIBUNAL PASSED THE FOLLOWING ORDER: 40. WE HAVE CONSIDERED THE ORDER OF THE TPO/AO AND THE SUBMISSIONS OF ID. REPRESENTATIVES OF THE PARTIES. WE OBSERVE THAT THE TPO HAS SUGGESTED DISALLOWANCE ON THE GROUND THAT THE AE OF THE ASSESSEE VIZ J&J US IS REAPING THE BENEFIT OF HIGHER ROYALTY AMOUNT AS A RESULT OF HIGHER SALES REA LIZED BY ASSESSEE BY INCURRING IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 8 HIGHER EXPENSES BY WAY OF PUBLICITY AND SALES PROMOTION UNDERTAKEN BY ASSESSEE AND THEREFORE THE PARENT COMPANY OF THE ASSESSEECOMPANY SHOULD SHARE SOME OF THE EXPENSES. IT IS A FACT THAT TPO WHILE SUGGESTING ANY DISALLOWANCE /ADJUSTMENT HAS TO STATE THAT THE TRANSACTIONS BETWEEN THE ASSESSEE - COMPANY AND ITS AE IS NOT AT ARMS LENGTH. THE TPO IS TO DETERMINE THE ARMS LENGTH BY FOLLOWING ONE OF THE METHOD AND /OR MOST APPROPRIATE METHOD AS PRESCRIBED IN SECTION 92C(L) OF THE ACT . THE TPO CANNOT SUGGEST ADJUSTMENT/DISALLOWANCE ON THE BASIS OF HIS ASSUMPTIONS THAT THE PAYMENT IS EXCESSIVE THOUGH IT IS AT ARM'S LENGTH. SIMILAR ISSUE WAS ALSO CONSIDERED BY ITAT MURNBAI BENCH IN THE CASE OF KODAK INDIA PVT. LTD.(SUPRA). FURTHER, RULE 10B SPECIFICALLY PROVIDES THE PROCEDURE TO BE FOLLOWED FORDETERMINING ARM'S LENGTH PRICE. WE OBSERVE THAT THE TPO WHILE SUGGESTING THE DISALLOWANCE OF 200.82 LAKHS OUT OF THE EXPENSES INCURRED BY ASSESSEE ON PUBLICITY AND SALES PROMOTION HAS NOT FOLLOWED A NY OF THE METHOD AND THEREFORE THE SAID ADJUSTMENT/DISALLOWANCE SUGGESTED BY TPO IS OUTSIDE ITS JURISDICTION. DURING THE COURSE OF HEARING, ID. DR SUBMITTED THAT THE MATTER COULD BE RESTORED TO TPO TO DECIDE AFRESH AFTER CONSIDERING THE GUIDELINES LAID DOW N BY SPECIAL BENCH (DELHI) IN THE CASE OF L.G. ELECTRONICS INDIA (P.) LTD. (SUPRA). SINCE NO SPECIFIC SUBMISSIONS WERE MADE AND CONSIDERING THE FACT THAT THE ASSESSEE JUSTIFIED THE PAYMENT OF TECHNICAL KNOW - HOW ROYALTY AT THE RATE OF 4% OF NET SALES WHICH IS LOWER THAN ARM'S LENGTH RATE OF 4.84% AND THE SAID FACT, WE HAVE ALSO DISCUSSED HEREIN ABOVE IN PARA 33 OF THIS ORDER, THAT THE PAYMENT OF ROYALTY BY ASSESSEE TO ITS PARENT COMPANY IS AT ARM'S LENGTH, WE DO NOT FIND ANY JUSTIFICATION TO MAKE THE SAID DI SALLOWANCE OF RS.200.82 LAKHS AS SUGGESTED BY TPO TOWARDS THE SHARES TO BE CONTRIBUTED BY AE OF THE ASSES SEE - COMPANY. THEREFORE, WE DELETE THE SAID DISALLOWANCE MADE BY AO BY ALLOWING GROUND NO. 18 OF THE APPEAL TAKEN BY ASSESSEE. 25.CONSIDERING THE DECI SION OF TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2006 - 07 IN ITA NO.83/MUM/2011, ON IDENTICAL GROUND, WE CONFIRMED THE ORDER OF ID. CIT(A). IN THE RESULT, GROUND NO.7 OF THE APPEAL IS DISMISSED. 8.1 . RESPECTFULLY FOLLOWING THE SAID DECISION, GROUND NO.7 RAISED BY THE REVENUE IS DISMISSED. IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 9 9 . GROUND NO.8 RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE LD.CIT(A) IN DIRECTING THE LD.AO TO GRAND CREDIT IN RESPECT OF RETAINED MODVAT CREDIT RELATING TO OPENING STOCK. WE FIND THAT THIS ISSUE IS COVERE D BY THE DECISION OF BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005 - 2006 (SUPRA), WHEREIN IT WAS HELD AS UNDER: - 27. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AND FIND THAT IN ASSESSEE'S OWN CASE FOR A. Y. 2002 - 03 IN ITA NO. 4092/ MUM/ 2007, THE TRIBUNAL PASSED THE FOLLOWING ORDER: 62. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO PERUSED THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1991 - 92 IN ITA NO. 1146/M/97 WHE REIN THE TRIBUNAL HAS HELD THAT THE PRODUCTION LOSS DEPENDS ON NUMBER OF FACTORS AND IN ABSENCE OF ANY COMPARABLE TO SHOW THAT THE LOSS SHOWN BY THE ASSESSEE IS EXCESS AND DECIDED THE APPEAL IN FAVOUR OF THE ASSESSEE. WE FIND THAT NO EVIDENCE OF PURCHASE/S ALES OUTSIDE THE BOOKS OF ACCOUNT HAVE BEEN BROUGHT ON RECORD. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 3 IS ACCORDINGLY DISMISSED. 28.CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 200203 IN ITA NO.4092/MURN12007, IDENTICAL GROUND, WE CONFIRMED THE ORDER OF ID. CIT(A). IN THE RESULT, GROUND NO.8 OF THE APPEAL IS DISMISSED. 29.GROUND NO.9 RELATES TO MODVAT CREDIT RELATING TO OPENING STOCK. THE ID. AR OF THE ASSESSEE SUBMITS THAT IT IS SETTLED LEGAL POSITION THAT TO GIVE IMPACT TO THE PROVISION OF SECTION 145A, IN CASE TAX, DUTY, CESS OR FEES AREADDED TO THE VALUE OF CLOSING STOCK THAN OPENING STOCK ALSO WOULD HAVE TO BE GROSSED UP WITH EXCISE DUTY. OTHERWISE, IT WOULD RESULT INTO FOLLOWING A HYBRID SYSTEM OF ACCOUNTING I.E. NEITHER THE EXCLUSIVE METHOD NOR INCLUSIVE METHOD. THE ID. AR SUBMITS THAT IN ASSESSEE'S OWN CASE FOR A.Y . 1999 - 2000 IN ITA NO. 2680/MUM/ 2003, THE SIMILAR ISSUE WAS RESTORED BACK TO THE FILE OF ASSESSING OF FICER VIDE ORDER DATED 18.01.2013. AGAINST THE ORDER OF TRIBUNAL, THE IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 10 REVENUE FILED APPEAL BEFORE THE JURISDICTIONAL HIGH COURT AND THE SAME HAS BEEN REJECTED VIDE ORDER DATED 28.03.2016 IN ITA NO. 2197 OF 2013 BY FOLLOWING THE RATIO LAID DOWN BY HIGH COUR T IN MAHALAXMI GLASS WORKS PVT. LTD. [318 ITR 116]. THE ID. AR FURTHER SUBMITS THAT BY FOLLOWING THE DECISION OF TRIBUNAL AND HIGH COURT IN ASSESSEE'S OWN CASE, SIMILAR RELIEF WAS GRANTED TO THE ASSESSEE FOR A.Y. 2000 - 01, A.Y. 2001 - 02 IN ITA NO. 3289/MU M/ 2 004 AND ITA NO. 9437/MUM/ 2004 AND FURTHER IN A .Y. 2002 - 03 IN ITA NO. 4092/MUM/ 2008, IN A.Y. 2006 - 07 IN ITA NO. 83/MUM/ 2011, FOR A.Y. 2008 - 09 & A.Y. 2009 - 10. THE ID. CIT(A) WHILE GRANTING RELIEF TO THE ASSESSEE FOLLOWING THE EARLIER YEARS ORDER. 30.ON THE OTHER HAND, THE ID. DR FOR THE REVENUE RELIED UPON THE ORDER OF ASSESSING OFFICER. 31. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AND HAVE GONE THROUGH THE ORDER OF LOWER AUTHORITIES. THE ID. CIT(A) ALLOWED RELIEF TO THE ASSESSEE BY FOLLOWING THE DE CISION OF HON'BLE HIGH COURT IN MAHALAX M I GLASS WORKS (SUPRA), WHICH WAS ALSO FOLLOWED BY HIS PREDECESSORS IN A.Y. 2003 - 04 & A.Y. 2004 - 05. CONSIDERING THE CONSISTENT VIEW ON THE ISSUE WHICH WAS FOLLOWED BY ID. CIT(A), THEREFORE, WE DO NOT FIND ANY JUSTIFIC ATION TO INTERFERE IN HIS ORDER . 9.1 . RESPECTFULLY FOLLOWING THE SAID DECISION, GROUND NO.8 RAISED BY THE REVENUE IS DISMISSED. 1 0 . GROUND NO.9 RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE LD.CIT(A) IN DELETING THE ADDITION OF RS. 2,22,284 MADE ON ACCOUNT OF PAYMENT TO M/S.CRAWFORD BAILEY & CO U/S 40A(2)(B). WE FIND THAT THIS ISSUE IS ALSO COVERED BY THE DECISION OF BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005 - 2006 (SUPRA), WHEREIN IT WAS HELD AS UNDER: - 36. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AND HAVE GONE THROUGH THE ORDER OF LOWER AUTHORITIES BELOW. WE HAVE IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 11 NOTED THAT ON SIMILAR GROUND FOR A.Y. 2002 - 03, THE TRIBUNAL PASSED THE FOLLOWING ORDER: 72. SIMILAR ISSUE CAME UP FOR HEARING IN ASSESSEE'S APPEAL BEFORE THE TRIBUNAL IN A.Y. 2001 - 02 IN ITA NO. 9437/M/ 04 WHEREIN THE TRIBUNAL HAS DELETED THE ADDITION MENTIONING THAT IN ORDER TO MAKE ANY DISALLOWANCE U/S. 40A(2)(B), IT IS FOR THE AU TO BRING ON RECORD SOME MATERIAL TO INDICATE THAT THE PAYMENT W AS IN FACT EXCESSIVE HAVING REGARD TO THE FAIR MARKET VALUE OF GOODS OR SERVICES FOR THE LEGITIMATE NEEDS OF THE BUSINESS. WE FIND THAT DURING THE YEAR UNDER CONSIDERATION, THE AO HAS DISALLOWED INVOKING PROVISIONS OF SEC. 40A(2)(B) ON FEES PAID FOR LEGAL COUNSELING. WE FIND THAT THE LD. CIT(A) HAS DELETED THE ADDITION HOLDING THAT FOR THE PAYMENTS FOR LEGAL COUNSELING, IT IS FUTILE TO THINK OF COMPARABLES BECAUSE COUNSELS MAY NOT CHARGE STANDARD FEE BUT MAY CHARGE ACCORDING TO THE ISSUE INVOLVED. THE LD. C IT(A) FURTHER OBSERVED THAT IF THE AU WANTED TO DISALLOW ON THE GROUND OF EXCESSIVE PAYMENT, HE OUGHT TO HAVE ESTABLISHED EXCESSIVENESS OF THE PAYMENT. THIS HAS NOT BEEN DONE. CONSIDERING THE DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE, IN THE LIGHT OF THE OBSERVATIONS MADE BY THE LD. CIT(A), WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 7 IS ACCORDINGLY DISMISSED. 37.CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2002 - 03 IN ITA NO.4092/MUM/2007, WHICH WAS FOLLOWED IN A.Y. 2006 - 07, A.Y. 2003 - 04 & A.Y. 2004 - 05, WE CONFIRM THE ORDER OF ID. CIT(A). IN THE RESULT, GROUND NO. 11 OF THE APPEAL IS DISMISSED. 1 0.1 . RESPECTFULLY FOLLOWING THE SAID DECISION, GROUND NO.9 RAISED BY THE REVENUE IS DISMISSED. 11 . GROUND NO.10 RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE LD.CIT(A) IN ALLOWING DEPRECIATION ON TESTING EQUIPMENT PROVIDED TO LABORATORIES AND HOSPITALS FREE OF CHARGE. WE FIND THAT THIS ISSUE IS ALSO COVERED BY THE DECISION OF BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005 - 2006 (SUPRA), WHEREIN IT WAS HELD AS UNDER: - IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 12 33.WE HAVE CONSIDERED THE SUBMISSION OF PARTIES AND FIND THAT IN A.Y. 2000 - 01 IN ITA NO. 3287/MUM/ 2004, THE CO - ORDINATE BENCH OF TRI BUNAL PASSED THE FOLLOWING ORDER: '21. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT SIMILAR ISSUE WAS RAISED IN THE CASE OF ASSESSEE'S SISTER CONCERN, NAMELY, NR JET ENTERPRISES LIMITED AND THE TRIBUNAL VIDE ITS ORDER DATED 28TH MAY, 2008 IN ITA NO . 4474/MUM/2004 HAS HELD THAT DEPRECIATION SHOULD BE ALLOWED ON THE TESTING EQUIPMENT PROVIDED TO LABORATORIES AND HOSPITALS FREE OF CHARGE AS THE SAID EQUIPMENTS HAVE BEEN PROVIDED TO THE LABORATORIES AND HOSPITALS FOR MAKING PROFIT FROM THE SALE OF SLIDE S. THE LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT CONTRAVENE THIS POSITION. RESPECTFULLY FOLLOWING THE TRIBUNAL ORDER PASSED IN ANOTHER GROUP CONCERN OF THE ASSESSEE, WHOSE FACTS HAVE NOT BEEN DISTINGUISHED BY THE ID. DR, WE UPHOLD THE IMPUGNED ORDER ON T HIS ISSUE.' 34.BY FOLLOWING THE DECISION OF AY 2000 - 01, SIMILAR RELIEF WAS ALLOWED TO THE ASSESSEE IN AYS 2001 - 02, 2002 - 03, 2006 - 07, 2008 - 09 AND 2009 - 10. THEREFORE, KEEPING IN VIEW THAT CONSISTENT VIEW WAS TAKEN BY THE TRIBUNAL, THEREFORE, WE CONFIRM THE ORDER OF ID. CIT(A). 11.1 . RESPECTFULLY FOLLOWING THE SAID DECISION, GROUND NO. 10 RAISED BY THE REVENUE IS DISMISSED. 12 . GROUND NO.11 RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE LD.CIT(A) IN DELETING THE ADDITION OF RS.5,10,050 WHICH WAS MADE DUE TO NON - REC ONC ILIATION OF AIR DATA. THE BRIEF FACTS OF THIS ISSUE IS THAT ASSESSEE WAS CONFRONTED BY THE LD.A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS TO RECONCILE THE DATA REVEALED IN THE ANNUAL INFORMATION RETURN (AIR). THE LD.AO OBSERVED TH AT THE ASSESSEE HAD ACCOUNTED FOR CERTAIN RECEIPTS ON NET BASIS AND SOME OF THE RECEIPTS WERE ACCOUNTED IN NEXT YEAR EVEN THOUGH THE ASSESSEE FOLLOWS ACCRUAL SYSTEM AND SOME TRANSACTIONS WERE NOT FOUND TO BE ACCOUNTED AND WERE NOT MATCHING WITH THE AIR. AC CORDINGLY, THE LD.AO IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 13 PROCEEDED TO ADD A SUM OF RS.5,10,050 BEING PURPORTED RECEIPTS FROM MUNICIPAL CORPORATION OF GREATER MUMBAI (MCGM) AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE COULD NOT RECONCILE THE SAME. THE ASSESSEE SUBMITTED THAT OUT OF TOTAL AMOUNT OF RS.5,10,050, AN AMOUNT OF RS.3,86,650 WAS IN RESPECT OF RECEIPT OF MCGM, WHICH WAS ACCOUNTED IN THE BOOKS OF MCGM IN THE MONTH OF MARCH 2007 RELEVANT TO THE ASSESSMENT YEAR 2007 - 2008. HOWEVER, THE SAME WERE ACCOUNTED BY THE ASSESSEE IN THE MONTH OF APRIL 2007 RELEVANT TO THE ASSESSMENT YEAR 2008 - 2009 AS THE ASSESSEE HAD RECEIVED THE INFORMATION OF SUCH TRANSACTION IN THE MONTH OF APRIL 2007 ONLY. FURTHER, IN RESPECT OF REMAINING ALLEGED RECEIPTS OF RS.1,23,400 , THE ASSESSEE SUBMITTED THAT IT DOES NOT HAVE ANY INFORMATION ABOUT ANY SUCH PAYMENT MADE BY MCGM AND ACCORDINGLY THE SAME WERE NOT ACCOUNTED BY THE ASSESSEE. I N OTHER WORDS, THE ASSESSEE CATEGORICALLY DENIED ANY TRANSACTION WITH MCGM TO THE TUNE OF RS.1,23,400 BEFORE THE LD.AO. HOWEVER, THE LD.AO PROCEEDED TO DISMISS THE SAME AND PROCEEDED TO MAKE ADDITION OF ENTIRE DIFFERENCE BETWEEN THE ACCOUNTED DATA AND THE AIR INFORMATION TO THE TUNE OF RS.5,10,050 IN THE ASSESSMENT. IT WAS PLEADED BEFORE THE LD.CIT(A) THAT NO ADDITION COULD BE MADE MERELY ON THE BASIS OF AIR INFORMATION ALONE. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SHRIS.GANESH ITA NO.1930 OF 2011 DATED 18 TH MARCH, 2014. THE LD.CIT(A) PLACING RELIANCE ON THE SAID JUDGMENT, DELETED THE ADDITION. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 12.1 . WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA), WHEREIN IT WAS HELD AS UNDER: - IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 14 2. THE ASSESSEE IN REGARD TO GROUNDS 1 TO 7 CHALLENGED THE ORDER OF THE COMMISSIONER O F INCOME TAX IN CONFIRMING THE ADDITION OF RS.47,37,000/ - MADE BY ASSESSING OFFICER ON ACCOUNT OF NON - CONCILIATION OF PROFESSIONAL RECEIPTS WITH TDS CERTIFICATES. INSOFAR AS THAT ASPECT IS CONCERNED, THE TRIBUNAL CONSIDERED THIS SUBMISSION OF BOTH SIDES AN D FOUND THAT THE ASSESSEE WAS ENGAGED AS AN ADVOCATE TO ARGUE THE MATTERS BY WHAT IS POPULARLY KNOWN AS ADVOCATES ON RECORD OR INSTRUCTING ADVOCATES METHOD, MEANING THEREBY THE CLIENT DOES NOT ENGAGE THE ASSESSEE DIRECTLY BUT A PROFESSIONAL OR THE ADVOCATE ENGAGED BY THE CLIENT REQUESTS THE ASSESSEE TO ARGUE THE CASE. THE BRIEF IS THEN TAKEN AS THE COUNSEL BRIEF. THAT BEING THE PRACTICE, THE ASSESSEE GAVE AN EXPLANATION THAT THE BREAK - UP AS DESIRED CANNOT BE GIVEN AND WITH REGARD TO ALL PAYMENTS. IT IS POINTED OUT THAT AT TIMES, ASSESSEE RECEIVES FEES DIRECTLY FROM THE CLIENTS OR FROM THE INSTRUCTING ADVOCATES OR CHARTERED ACCOUNTANTS IF SUCH PROFESSIONALS HAVE COLLECTED THE AMOUNTS FROM THE CLIENTS. 3. UNDER THESE CIRCUMSTANCES, THE BREAK - UP AS DESIRED CANNOT BE PLACED ON RECORD. AN EXPLANATION WHICH HAS BEEN GIVEN BY THE ASSESSEE AND ACCEPTED IN THE PAST HAS BEEN NOW ACCEPTED BY THE TRIBUNAL ONCE AGAIN. SINCE IT IS ACCEPTED FOR THE ASSESSMENT YEAR 2006 - 07, IN THE PECULIAR FACTS, IN RELATION TO THE PRESENT ASSESSEE, WE ARE OF THE VIEW THAT THIS APPEAL DOES NOT DESERVE TO BE ENTERTAINED. IT DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW, 4. APPEAL IS ACCORDINGLY DISMISSED. 12.2. WE FIND THAT THE FACTS OF THE ASSESSEES CASE AND THE FACTS BEFORE THE HONBLE JURISDICTIONAL HIGH COURT ARE SAME AND WOULD APPLY WIT H EQUAL FORCE TO THE ASSESSEE. WE FIND THAT THE LD.CIT(A) HAD ONLY FOLLOWED THIS DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT AND HENCE NO INFIRMITY COULD BE FOUND IN HIS ORDER. ACCORDINGLY, GROUND NO.1 1 RAISED BY THE REVENUE IS DISMISSED. IT (TP) A NO. 4161 /M/201 7 & CO 56/M/2018 . M/S.JOHNSON& JOHNSON PRIVATE LIMITED. 15 13 . THE LD .AR BEFORE US PLEADED THAT THE CROSS OBJECTION OF THE ASSESSEE IS ONLY SUPPORTIVE OF THE ORDER OF THE LD.CIT(A). ACCORDINGLY, ADJUDICATION OF THE SAME WOULD BE INFRUCTUOUS. 14 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS DAY OF 23 RD JANUARY, 2019 . SD/ - SD/ - ( C.N.PRASAD ) ( M.BALAGANESH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 23 RD JANUARY, 2019 . DEVDAS* / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT (A) - 56 , MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE.